Court File and Parties

COURT FILE NO.: CV-19-626185 RELEASED: 2021/02/04

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Robert Young and Global Solutions (Cayman) Ltd. v. Innovative Capital Protection, Brad Andrews, JMTG Holdings Inc., Yes Yeeha Holdings Ltd., Gregory M. Prekupec, and Dipchand LLP

BEFORE: Master Graham HEARD: January 22, 2021

COUNSEL: Christopher Stanek and Charlotte McDonald for the plaintiffs Jamie Spotswood and Andrea Coates for the defendants Innovative Capital Protection, Brad Andrews, JMTG Holdings Inc. and Yes Yeeha Holdings Ltd. (moving parties) Josh Shneer and Michael Byers for the defendants Gregory M. Prekupec and Dipchand LLP

Endorsement

(Re: Defendants’ motion for a further and better affidavit of documents)

[1] The plaintiffs’ claim is for breach of contract, breach of fiduciary duty and disclosure of confidential information based on the terms of an agreement relating to the sale of a critical illness insurance (“CII”) plan. The parties had developed an insurance based tax minimization plan; there is a dispute among them as to their relative degrees of contribution. The defendants were involved in the sale of the plan until April or May, 2018 when they chose to terminate the relationship.

[2] The plaintiffs claim that the Innovative Capital defendants took confidential information from the plan and used it to compete with them unfairly during the applicable period of a non-competition agreement. They further allege that the defendant Prekupec, as counsel for one of the plaintiffs, obtained confidential information improperly and then assisted the defendants in misusing the information.

[3] On October 30, 2020, following a case conference with Justice Archibald on October 9, 2020, the parties submitted a consent request for case management by a Master. For reasons unknown to me, the request first came to my attention as Administrative Master on December 1, 2020. I then assigned myself to case manage the action. The Innovative Capital defendants (“the defendants”) now bring this motion for an order that the plaintiffs serve a further and better affidavit of documents. The fact that Justice Archibald ordered that examinations for discovery be completed by February 28, 2021 accounts for the relative brevity of this endorsement.

[4] The parties agreed on and signed a Discovery Plan on May 20, 2020. In accordance with that Discovery Plan, the plaintiffs served their affidavit of documents on July 31, 2020. The moving defendants first expressed their intention to bring this motion on August 5, 2020.

[5] The additional documents that the defendants now seek to require that the plaintiffs include in their affidavit of documents consist primarily of financial documents relevant to the plaintiffs’ claims for damages.

[6] The parties’ agreement to the Discovery Plan on May 20, 2020 was preceded by a lengthy negotiation through email correspondence, the highlights of which are:

April 14, 2020: Plaintiffs’ counsel’s email to defendants’ counsel communicating changes to the draft Discovery Plan and specifically stating “The requests related to details of Mr. Young’s business have been deleted as they are beyond the scope of the pleadings and would provide the Defendants further information about Mr. Young’s business to exploit.”

April 29, 2020: Email from counsel for the Innovative Capital defendants to plaintiffs’ counsel stating “ii. a. Our client is not willing to produce the particulars sought of the transactions and referral fees (p. 6 item 8.). This information is confidential to our clients and not relevant”, and “c. We require production of the Plaintiffs’ financial documentation showing sales figures. This is relevant to the Plaintiffs’ alleged damages.”

May 5, 2020: Plaintiffs’ counsel’s email to defendants’ counsel stating (1) “While we disagree with your amendments to the discovery plan, we have accepted your deletions so that the plan can be finalized and a timetable set without further delay. Our acceptance of the amendments should not be taken as an admission that an issue is not relevant” and (2) “We have also rejected the inclusion of “Financial statements, or other financial information showing the plaintiffs’ sales figures of the CII Plan”, our client will not be providing financial information unless the requested financial information is also provided by the Defendants.” [emphasis added]

May 20, 2020: Email from the Innovative Capital defendants’ counsel to plaintiffs’ counsel stating “We have instructions to agree to the form of the Discovery Plan that you circulated on May 5. We do so with the caveat that we also disagree with some of your amendments to Appendix A, including the removal of financial information supporting the sales of the CII Plan. We reserve our right to pursue production of this information.”

[7] The defendants now submit that the plaintiffs’ affidavit of documents fails to include documents relevant to their damages claim. The plaintiffs acknowledge the possible relevance of the documents that are the subject of the defendants’ motion but submit that the defendants agreed to the omission of those documents when they agreed to the May 20, 2020 Discovery Plan. The plaintiffs submit that production of their financial documents was excluded from the Discovery Plan on the same basis that the defendants’ financial documents were also excluded.

[8] The plaintiffs also submit that the parties’ oral discovery evidence can be used to establish the basis for the scope of disclosure of both the plaintiffs’ and defendants’ financial documents.

[9] The first issue on the motion is whether the defendants’ agreement to the May 20, 2020 Discovery Plan precludes them from bringing a motion for documents not included in the scope of disclosure in the Discovery Plan. If I rule that the parties’ disclosure obligations in their affidavits of documents is limited to the scope of documents in the Discovery Plan, then it is not necessary to review the individual production requests. If I rule that the Discovery Plan does not preclude this motion, then I will consider the categories of documents sought by the defendants on the motion.

[10] The defendants’ motion for a further affidavit of documents is brought under rule 30.06(b):

30.06 Where the court is satisfied by any evidence that a relevant document in a party’s possession, control or power may have been omitted from the party’s affidavit of documents, or that a claim of privilege may have been improperly made, the court may,

(a) order cross-examination on the affidavit of documents;

(b) order service of a further and better affidavit of documents;

(c) order the disclosure or production for inspection of the document, or a part of the document, if it is not privileged; and

(d) inspect the document for the purpose of determining its relevance or the validity of a claim of privilege.

[11] In Oz Optics Ltd. v. Jing Ru Zhang, 2017 ONSC 4263, Bell J. summarized the rules and case law with respect to motions under rule 30.06(b) (at para. 7):

7 Rule 30.03(1) of the Rules of Civil Procedure requires a party to disclose in its affidavit of documents all documents relevant to any matter in issue in the action that are or have been in the party’s possession, control or power. Where the court is satisfied “by any evidence” that a relevant document in a party’s possession, control or power may have been omitted from that party’s affidavit of documents, the court may, under Rule 30.06(b), order service of a further and better affidavit of documents. The level of proof required should take into account the fact that one party has access to the documents, while the other party does not. (RCP Inc. v. Wilding, [2002] O.J. No. 2752 at para. 9.) While there must be evidence that documents have been withheld before an order under Rule 30.06 will be made, commencing discovery and moving for further production after obtaining admissions is not the only appropriate procedure to be followed. I agree with Master MacLeod (as he then was), that the court should be cautious about endorsing a process “which results in successive rounds of discovery, productions and motions.” (RCP Inc. v. Wilding at paras. 9 and 10.) [emphasis added]

[12] The required contents of Discovery Plans are set out in rule 29.1.03(3):

29.1.03 (3) The discovery plan shall be in writing, and shall include,

(a) the intended scope of documentary discovery under rule 30.02, taking into account relevance, costs and the importance and complexity of the issues in the particular action;

(b) dates for the service of each party’s affidavit of documents (Form 30A or 30B) under rule 30.03;

(c) information respecting the timing, costs and manner of the production of documents by the parties and any other persons;

(d) the names of persons intended to be produced for oral examination for discovery under Rule 31 and information respecting the timing and length of the examinations; and

(e) any other information intended to result in the expeditious and cost-effective completion of the discovery process in a manner that is proportionate to the importance and complexity of the action. O. Reg. 438/08, s. 25.

[13] The purpose of a Discovery Plan is best encapsulated in rule 29.1.03(3)(e) which states that in addition to the various items enumerated in paragraphs (a) through (d), the Plan shall include “any other information intended to result in the expeditious and cost-effective completion of the discovery process in a manner that is proportionate to the importance and complexity of the action.” (emphasis added)

[14] The Rules require a Discovery Plan to ensure that the parties have addressed the scope of documentary and oral discovery before affidavits of documents are exchanged and oral examinations are conducted in order to limit disputes with respect to disclosure when those steps are undertaken. It is therefore important that parties be able to rely on each others’ agreements as to the scope of production and examination.

[15] In this case, however, the defendants clearly reserved their rights to pursue production of the plaintiffs’ financial information, and then confirmed their intention to bring this motion on August 5, 2020, immediately upon receiving the plaintiffs’ affidavit of documents. I also cannot ignore the fact that, as concluded below, the financial documents sought by the defendants are relevant to the claims asserted in the plaintiffs’ statement of claim.

[16] Plaintiffs’ counsel argued that the court should not condone defendants’ counsel agreeing to sign the Discovery Plan on May 20, 2020 “with his fingers crossed behind his back.” The suggestion is that the defendants’ counsel was somehow concealing his intentions with respect to how he might respond to the plaintiffs’ affidavit of documents. This is not an accurate description of what happened.

[17] In negotiating the Discovery Plan, defendants’ counsel repeatedly expressed the view that the plaintiffs’ financial documents were relevant, and in agreeing to the version of the Discovery Plan that did not include these documents, stated in his May 20, 2020 email “We reserve our right to pursue production of this information.” It was open to the plaintiffs to accept or reject this reservation of rights as a term of the Discovery Plan and the plaintiffs chose to accept it. There was nothing underhanded about the defendants’ actions and the plaintiffs could not have been taken by surprise when, on August 5, 2020, the defendants stated that they would be acting in accordance with their reservation of rights.

[18] As stated in RCP Inc. v. Wilding, cited with approval in Oz Optics Ltd. v. Jing Ru Zhang, supra, “the court should be cautious about endorsing a process which results in successive rounds of discovery, productions and motions.” Litigation efficiency dictates that documentary production be as complete as possible before oral examinations are conducted in order to minimize the requirement for and complexity of post-examination motions and the inevitable further examinations. Accordingly, I will now consider whether the documents listed in Schedule A to the moving defendants’ notice of motion must be included in the plaintiffs’ affidavit of documents.

[19] The documents that are the subject of this motion and my rulings with respect to those documents are (using the letters in Schedule A):

(a) The Plaintiffs' financial statements for two years prior to the commencement of Mr. Young and Mr. Andrews's agreement to the present (2013-2020);

(b) The tax returns of the Plaintiffs from 2013-2020 for all jurisdictions where income in any way relating to the sales of the CII Plan is reported;

(c) Particulars and documents of any income relating to the sales of the CII Plan from 2015 to 2020 that have not been reported in financial statements or tax returns;

Ruling re: (a) - (c): The plaintiffs allege that the defendants intended to injure their economic interests (statement of claim, para. 70), that their unlawful use of the plaintiffs’ intellectual property “is resulting in substantial damages to the plaintiffs” (para. 81), that as a result of the defendants’ actions “the plaintiffs have lost actual and prospective client contracts and projects” (para. 82), and that “the plaintiffs seek to recover from the defendants damages as well as an accounting of profits with respect to their wrongful conduct (para.84).” [emphasis added] Essentially, the plaintiffs claim damages for business losses arising from the defendants’ alleged conduct. The documents in categories (a) and (b) relate to the plaintiffs’ financial position before and after their relationship with the defendants and are therefore relevant to their damages claims. The financial statements and income tax returns are all standard documents that it is reasonable to assume would have been prepared in the ordinary course of the plaintiffs’ business and are in the plaintiffs’ possession. These documents shall be produced.

There is no evidence that any documents in item (c) exist. The possible existence of any such documents may be the subject of examination for discovery but there is no basis for any order for disclosure on this motion.

(d) Correspondence and documentation regarding clients or potential clients, projects or potential projects, and referrals or potential referrals allegedly lost as a result of the Defendants' actions either directly or indirectly;

Ruling: The relevance of documentation relating to the plaintiffs’ loss of clients or potential clients is established by the allegation (para. 82) that as a result of the defendants’ actions “the plaintiffs have lost actual and prospective client contracts and projects”. What is not established on the record is that there would be any documents as described under this heading and accordingly, the existence of any such documents is speculative at best. Defendants’ counsel may ask about any such documents at examinations for discovery but there is not currently a basis for any order for disclosure.

(e) Records of sales, or any other documentation of sales, allegedly made by the Defendants involving (i) former or prospective clients of the Plaintiffs; or (ii) using the Plaintiffs' alleged confidential information, including the approximately twenty transactions Mr. Young alleges the Defendants have closed in the last three years using the CII Plan, as defined in the Statement of Claim;

(f) Any and all communications (i.e., including but not limited to emails, letters, phone calls, text messages, meeting notes) with and regarding the various accountants Mr. Young suggests contacted him to discuss the Defendants' business;

(g) Documents supporting the Plaintiffs' allegation in their Response to Demand for Particulars of the Innovative Parties that Mr. Young incurred approximately $300,000 in developing the CII Plan;

(h) Documents and correspondence related to the transactions Mr. Andrews allegedly closed in late 2017 or early 2018, including but not limited to documents supporting the $1,500,000 to $2,000,000 fee the Plaintiffs allege Mr. Andrews received at paragraph 44 of the Statement of Claim;

(i) Documents and correspondence of all phone conversations related to the alleged false misrepresentations Mr. Andrews made in May or June of 2018 as alleged in paragraphs 50 and 51 of the Statement of Claim;

Ruling re: (e) – (i): Any such documents, which relate to allegations in the statement of claim other than claims for damages, were all acknowledged to be required to be included in the plaintiffs’ original affidavit of documents. Whether additional documents exist may be explored at examinations but no order is warranted on this motion.

(j) The email, and any related documents or correspondence, that an insurance advisor forwarded to Mr. Young in October or November of 2018, as described in paragraph 14 of the Plaintiffs' Response to Demand for Particulars of the Innovative Parties, which the Plaintiffs allege is evidence that Mr. Andrews was using their confidential intellectual property to close at least one transaction.

Ruling: The plaintiffs agreed to produce the email as described and I so order.

[20] As indicated above, Justice Archibald set a deadline for examinations for discovery of February 28, 2021. The plaintiffs shall deliver their supplementary affidavit of documents reflecting the documents ordered produced, and the documents themselves, within 14 days, subject to any extension obtained pursuant to the terms in the following paragraph. If there is a concern with respect to a confidentiality order, and the parties cannot agree, they may request a case conference with me.

[21] The plaintiffs have argued that the May 20, 2020 Discovery Plan does not include any of the defendants’ financial documentation and that they were content to explore the existence and relevance of any such documentation at examinations for discovery. On this basis, they did not bring their own motion to compel production of any such documents prior to examinations. However, with a view to promoting the litigation efficiency referred to above, if requested, I will entertain a request to extend the February 28, 2021 deadline in the event that plaintiffs’ counsel require more time to produce the documents that are the subject of this order, and in the event that the plaintiffs now wish to seek production of financial documentation from the defendants prior to examinations for discovery. Although the deadline was set by Justice Archibald, under rule 50.13(5)(d) and (e), judges and masters conducting case conferences have the same jurisdiction to establish and amend timetables, so I have jurisdiction to extend the discovery deadline.

[22] Costs: At the conclusion of the hearing, the Innovative Capital defendants and the plaintiffs filed costs outlines. As success was divided on the motion, the parties should be given an opportunity to make written submissions on the issue of costs. If the moving defendants and the plaintiffs cannot agree to the disposition of costs, they shall make written submissions, not exceeding three pages, the defendants within 20 days and the plaintiffs within 40 days.

[23] As the co-defendants Prekupec and Dipchand LLP did not file materials and their counsel’s submissions took no more than five minutes, their counsel and plaintiffs’ counsel agreed that neither of them would seek costs against each other.

MASTER GRAHAM

February 4, 2021