Court File and Parties

COURT FILE NOs.: CV-21-00655113-00CL and CV-21-00655128-00CL DATE: 20220310

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

BONDFIELD CONSTRUCTION COMPANY LIMITED, through its Litigation Trustee, ROMAN DORONIUK Plaintiff – and – DELOITTE LLP and PRICEWATERHOUSECOOPERS LLP Defendants

AND BETWEEN

ZURICH INSURANCE COMPANY LTD. Plaintiff – and – DELOITTE LLP and PRICEWATEROUSECOOPERS LLP Defendants

COUNSEL: Peter F.C. Howard, Aaron Kreaden and Sam Dukesz, for the Plaintiff Bondfield Construction Company Limited John L. Finnigan and James Hardy, for the Defendant Deloitte LLP Gerald L.R. Ranking, Sarah Armstrong and Kimberly Potter, for the Defendant PricewaterhouseCoopers LLP Andrew Kent and Pat Corney, for the Third Parties Steve Aquino and Ralph Aquino Peter F.C. Howard, Aaron Kreaden and Sam Dukesz, for the Plaintiff Zurich Insurance Company Ltd. John L. Finnigan and James Hardy, for the Defendant Deloitte LLP Gerald L.R. Ranking, Sarah Armstrong and Kimberly Potter, for the Defendant PricewaterhouseCoopers LLP Andrew Kent and Pat Corney, for the Third Parties Steve Aquino and Ralph Aquino

HEARD: February 18, 2022

Endorsement

McEWen J.

[1] The Plaintiffs in both actions bring claims against the Defendants, Deloitte LLP (“Deloitte”) and PricewaterhouseCoopers LLP (“PwC”), for professional negligence regarding audit work that the Defendants performed for the Plaintiff Bondfield Construction Company Limited (“Bondfield”).

[2] PwC has brought motions for summary judgment in both actions on the basis that the actions are statute barred pursuant to ss. 4 and 5 of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, since the actions were commenced outside of the mandated 2-year period.

[3] On this motion, the Plaintiffs seek an order staying the motions for summary judgment until after the completion of full documentary discovery and examinations for discovery, on a without prejudice basis to PwC’s right to seek to bring the summary judgment motions before the Court after the completion of the aforementioned discoveries.

[4] PwC opposes the motion. Deloitte, which is not bringing a summary judgment motion, takes no position on the motion but makes certain submissions, that I will discuss below, concerning the discovery process.

[5] I am case managing these actions. I heard the motion on February 18, 2022. At the conclusion of the motion, I advised the Parties that I would provide a decision with reasons to follow. On February 25, 2022, I released a brief endorsement granting the relief sought by the Plaintiffs with respect to staying PwC’s motions for summary judgment with reasons to follow. I am now providing those reasons.

Background

[6] Bondfield is a corporation, with several related entities, in the construction business in Canada. It was founded by Ralph Aquino (“Ralph”) and over time his children, John (“John”), Steven (“Steve”) and Maria Bot (“Maria”), became involved in the business. The CFO at Bondfield during the relevant time period was Dominec DiPede (“DiPede”).

[7] Given the type of public infrastructure work that Bondfield was carrying out, it was required to secure surety bonds. Those bonds were provided by the Plaintiff Zurich Insurance Company Ltd. (“Zurich”). As a result of both Bondfield’s surety arrangements and its banking arrangements, it was required to provide, amongst other things, yearly audited financial statements.

[8] PwC was Bondfield’s longtime auditor. It had provided clean audit reports annually for every year through 2012. PwC resigned in June 2014 while it was in the process of auditing Bondfield’s 2013 statement.

[9] Deloitte became Bondfield’s auditor in July 2014. In August 2014, Deloitte provided a clean audit report for 2013.

[10] In 2018, Zurich engaged Ernst & Young LLP (“EY”) to undertake a review of Bondfield’s financial situation. Ultimately, Bondfield sought and received an order granting it protection under the Companies’ Creditors Arrangement Act, R.S.C., 1985, c. C-36 (“CCAA”). EY was subsequently appointed as Monitor. The CCAA proceeding has turned into a liquidating CCAA.

[11] A great deal of litigation has been spawned as a result of Bondfield’s insolvency, which includes significant fraud allegations against John and others. Generally speaking, the allegations in the two actions against PwC and Deloitte include allegations that John perpetrated extensive frauds which ought not to have resulted in clean audit reports in any year.

[12] Subsequently, both Bondfield and Zurich issued their claims against Deloitte and PwC. The Zurich action was commenced in August 2019 and the Bondfield claim was commenced in February 2020.

[13] The actions are very complicated, both factually and legally. In the aggregate, the two actions total $850 million.

The Position of the Parties

The Plaintiffs

[14] The Plaintiffs submit that conducting full discoveries prior to the summary judgment motion being conducted is efficient, fair and simple. The actions will proceed in the normal course through the discovery phase and summary judgment can be revisited at that time.

[15] The Plaintiffs further submit that if the summary judgment motions are allowed to proceed simply on the basis of the Plaintiffs’ motion records, responding motion records, affidavits and cross-examinations, multiple additional motions would result which would result in expense and delay. In this regard, the Plaintiffs further submit that these are complicated actions, which involve significant allegations of fraud and discoverability, and the summary judgment motions should not be heard without complete documentary production. Otherwise, it would be unfair to the Plaintiffs to have to respond on less than a full record.

[16] The Plaintiffs also submit that PwC’s summary judgment motions are further complicated by the fact that Deloitte is not bringing any summary judgment motion. They submit that this raises the spectre of two tracks being pursued: namely, limited production in the summary judgement motions as contained in the affidavits and cross-examinations, but full discovery insofar as Deloitte is concerned with full documentary production and examinations for discovery. In this regard, Deloitte has made it clear that it objects to having to make full production of its documents and undergo an examination for discovery if the summary judgment motion is allowed to proceed on the basis that it may result in duplicative examinations that may be unnecessary.

[17] Deloitte has also commenced third party proceedings against John, DiPede, Ralph and Steve. The allegations against all of these third parties include allegations of fraud. If the summary judgment motions are allowed to proceed before full discovery, the Plaintiffs would have to conduct Rule 39 examinations with respect to some or all of the third parties and have to compel them to produce documents as they are outside the control of the Plaintiffs.

[18] The Plaintiffs further point to the fact that PwC has delivered an expert’s report to which they take exception and there will have to be a motion on admissibility prior to the summary judgment motions. If PwC’s expert’s report is allowed, a responding expert’s report may be necessary. Further, the Plaintiffs point out that no doubt undertakings, refusals and advisements will be given at cross-examinations which will result in additional motions before the summary judgment motions are heard.

[19] The Plaintiffs also stress that if limited discovery is made with respect to the summary judgment matters and PwC is successful, additional documentation could be produced vis-à-vis the Plaintiffs’ claims against Deloitte which could not only result in inconsistent decisions being granted by this Court, but also deprive the Plaintiffs of the use of that documentation in defence of the summary judgment motions.

[20] With respect to the above noted submissions, the Plaintiffs rely upon the affidavit of the Litigation Trustee for Bondfield, Mr. Terrence O’Sullivan (“O’Sullivan”). O’Sullivan’s affidavit elaborates on the points outlined above to support the Plaintiffs’ position that full discovery is warranted before the summary judgment motions can fairly be heard. They submit that O’Sullivan has raised legitimate issues in his affidavit. No responding affidavit was filed by PwC.

[21] Based on the above, the Plaintiffs submit that complete documentary production and examinations are required to ensure a fair and efficient summary judgment process.

PwC

[22] PwC generally submits that the Plaintiffs are attempting to make PwC’s summary judgment motions sound unduly convoluted.

[23] PwC submits that the simple issue before the Court will be, “when did the Plaintiffs know, or ought to have reasonably known, that they suffered from damage for which a legal proceeding against PwC would be the appropriate means of recovery”.

[24] In this regard, PwC submits that had Bondfield’s “innocent” officers and directors (those outside of John) and Zurich discharged their duties, they would have uncovered John’s fraudulent activities and, in turn, PwC’s alleged negligence failing to detect those activities earlier. This would have led to their discovery of possible claims against PwC upon learning of PwC’s resignation in June of 2014 or at the very latest upon learning of Bondfield’s change in auditor in August 2014. Accordingly, the actions should have been commenced within the two years that followed which was not the case.

[25] In this regard, PwC relies upon the aforementioned expert report authored by Mr. Peter Dey which focuses on the actions that PwC says Bondfield’s innocent directors and officers should have taken, particularly upon the resignation of PwC as auditor. It is this report to which the Plaintiffs take exception and will challenge admissibility.

[26] Relying upon a number of cases that I will review further below, including the Supreme Court of Canada’s decision in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, PwC submits that their motions are entirely consistent with the current jurisprudence. The motions raise issues that can be easily bifurcated from the substance of the auditors’ negligence claims, do not present a risk of duplicative or inconsistent findings, provide a cheaper and faster alternative to a trial and, overall, promote timely access to justice.

[27] Specifically, PwC submits that motions for summary judgment should only be stayed in the clearest of cases, and in instances where summary judgment is clearly premature or improper, which is not the case here. Rather, PwC submits that the summary judgment motions can be heard far in advance of any potential trial and that the usual filing of affidavits on both sides and supporting documents and cross examinations would be sufficient, particularly in circumstances where the focus will be on the knowledge of the innocent directors and officers particularly with respect to what inquiries they should have made when they became aware of the change in auditors from PwC to Deloitte. With respect to the Zurich claim, PwC submits that the focus will be on Zurich’s inquiries. PwC’s general submission in this regard is that, had the Plaintiffs made immediate sensible inquiries, this would have caused the innocent directors and officers and Zurich to uncover the Plaintiff’s claims against PwC earlier.

[28] For all of these reasons, PwC submits that the record at the summary judgment motion will largely consist of evidence that is easy to understand, uncontroversial and will allow the Court to adjudicate on the limitation period issue without the need for a costly and lengthy discovery process which will delay this matter.

Deloitte

[29] As noted, Deloitte is not proceeding with a summary judgment motion. If the summary judgment motions proceed, however, the Plaintiffs have indicated that they will seek full documentary discovery and an examination of a representative of Deloitte. This exposes Deloitte to two possible examinations if the summary judgment motions do not succeed. Deloitte submits that this is prejudicial to them in that they may be forced to attend at two examinations, incur additional expense and give the Plaintiffs an unfair tactical advantage, amongst other things.

The Law

[30] The Parties rely on a number of cases in support of their positions.

[31] Some of these cases do not deal with actions being stayed for the purposes of conducting summary judgment motions where there is ongoing case management. I will only, therefore, deal with the cases that I believe are significant in dealing with the staying of an action in case managed matters where summary judgement motions are contemplated.

[32] In this regard, there are two cases of particular import.

[33] First, Ferguson J., in a civil matter that was not being case managed, dealt with a situation where a defendant was seeking to bring a motion for summary judgment and the plaintiff wanted to stay the motion: see Ghaffari v. Asiyaban et al., 2012 ONSC 2724. Ferguson J., at para. 14, articulated the test for a stay as follows:

(i) the court should look at the motion for summary judgment and the reasonable chances of success in determining whether a stay is appropriate. The party seeking the stay should put their best foot forward as they would on a motion for summary judgment to show that there is a genuine issue requiring a trial or why the matter is too complicated for the motion judge to ascertain the full appreciation of the case;

(ii) the court then ought to determine whether the matter is complicated; what are the issues; the nature of the evidence and law to determine the issues; and whether the case can be determined without the necessity of a full trial; and

(iii) only in the clearest of cases should the court impose a stay.

[34] Second, D. M. Brown J. (as he then was) dealt with the issue as to whether a summary judgment motion should proceed in a case managed commercial matter in George Weston Ltd. v. Domtar Inc., 2012 ONSC 5001, 112 O.R. (3d) 190, additional reasons, 2012 ONSC 5790. D. M. Brown J., at para. 55, identified the following factors that ought to be taken into account in determining whether a summary judgment motion should be scheduled as had been set out by the Ontario Court of Appeal in Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764, 108 O.R. (3d) 1:

[55] Accordingly, where a judge faces a request to schedule a lengthy summary judgment motion before the parties have embarked upon or completed discoveries, factors to take into account would include:

(i) the nature and complexity of the issues raised in the action;

(ii) the extent of the record the parties are likely to develop if a summary judgment motion proceeds prior to the completion of productions and discoveries;

(iii) whether a record so built through a summary judgment motion will offer a less complete picture of the case than the responding party could present at trial and, if it would, in what respects;

(iv) would the responding party to the summary judgment motion enjoy the equivalent access to key documents as would exist through the documentary discovery process?

(v) would the responding party be able to examine the representative of the party which it would have selected for purposes of examination for discovery?

(vi) whether the most efficient means of developing a record capable of satisfying the full appreciation test given the nature and complexity of the issues in play is to proceed through the normal route of discovery; and

(vii) whether the most efficient means of satisfying the full appreciation test would be to develop a modified discovery plan, incorporating elements of traditional discovery and the preparation of a summary judgment record, with a view to proceeding to a non-conventional trial which would ensure the just, most expeditious and least expensive determination of the case on its merits.

[35] Subsequent to the decisions in Ghaffari and Domtar, Chapnik J. also dealt with the issue as to whether a summary judgment motion ought to be stayed in Stantec Consulting Ltd. v. Altus Group Limited, 2014 ONSC 6111. Chapnik J. addressed the tension that exists where a party seeks discovery prior to the summary judgment motion being heard and whether this constitutes a stay of a summary judgment motion. Chapnik J. held that where a plaintiff seeks to temporarily halt a summary judgment motion pending discovery, it amounts to a stay of proceedings: at para. 9.

[36] Chapnik J., thereafter, conducted a very useful review of the existing case law, including Ghaffari and Domtar at paras. 10-16 of her decision, with which I agree.

[37] Chapnik J. specifically addressed the issue as to whether there was any conflict between the case management approach used by D. M. Brown J. on the Commercial List in Domtar and the “three part stay test” for ordinary civil motions that was adopted by Ferguson J. in Ghaffari.

[38] Relying, in part, on the decision in Stever v. Rainbow International Carpet Dyeing & Cleaning Co., 2013 ONSC 1574, 115 O.R. (3d) 138, Chapnik J. concluded that the approaches taken in Ghaffari and Domtar did not conflict. Chapnik J. pointed out, at para. 13 that D. M. Brown J. in Domtar considered the approach in Ghaffari and while not rejecting the approach, proposed a case management framework for dealing with lengthy, complex summary judgment motions brought before the Commercial List.

[39] Chapnik J. further went on to consider Ghaffari and Domtar, taking into account that they were decided prior to the Supreme Court of Canada’s seminal decision in Hryniak[1] and concluded that they conformed with the new framework for summary judgment motions set out in Hryniak: Stantec, at para. 15. Again, I agree with Chapnik J.’s comments.

[40] Keeping in mind the three-part test set out by Ferguson J., and the specific factors set out by D. M. Brown J., one must consider all of the factors set out in both cases to determine whether a matter ought to be stayed pending the hearing of a summary judgment motion.

[41] In my analysis below, I have had regard to the considerations of both Ghaffari and Domtar[2] and have specifically focused upon the test set out by D. M. Brown J. since both Domtar and the within actions are complicated commercial matters in which significant damages are being sought in a case management setting.

Analysis

[42] I granted the Plaintiffs’ motion, primarily for the following reasons:

• The two actions make claims for significant damages, in the aggregate, totaling $850 million.
• Bondfield’s demise has spawned significant, complicated litigation including but not restricted to the two matters before me.
• In totality, the various actions relate to the significant allegations of long-standing fraudulent activities involving John and potentially other directors and officers at Bondfield. As noted, Deloitte has made specific allegations of fraud against other directors and officers.
• In addition to the significant and complicated allegations of fraud, the two claims against the Defendants involve significant and complicated allegations of auditors’ negligence which, in the case of PwC, span activities over several years. Claims against auditors involve complicated analyses as has been evidenced by a number of actions that have been brought, including the well-known case of Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63, [2017] 2 S.C.R. 855.
• If the summary judgment motions are allowed to proceed, this will give rise to a number of other interlocutory motions which include, but would not be restricted to: production issues with respect to what ought to be produced in the summary judgment motions and what ought to be produced in the ongoing action against Deloitte, which is not involved in the summary judgment motions; examinations of non-parties to the summary judgment motion, but who are parties in the third party action; potential significant delays if Deloitte’s discovery process is also stayed until the summary judgment motions are determined; ongoing issues concerning undertakings, advisements and refusals arising from cross-examinations conducted with respect to the summary judgment motions.
• If the summary judgment motions were to proceed, I generally agree with the comments of O’Sullivan set out in paras. 27-32 of his affidavit with respect to the significant productions that will be necessary.
• Although I agree with PwC that its summary judgment motions do not amount to partial summary judgment: see Extreme Venture Partners Fund LLP v. Varma, 2019 ONCA 446, at para. 9, I am concerned that allowing the summary judgment motions to proceed on a reduced record, and thereafter having the actions against Deloitte proceed on a broader record, could lead to inconsistent findings as between the summary judgment motions and trial.
• I do not agree with PwC, however, that this matter is straightforward and can largely be determined on an uncontested record. Submissions made by the Plaintiffs and Ralph/Steve at the motion establish the contrary. By way of example, PwC submits that a letter that was sent to Bondfield by PwC on June 19, 2014, which stated that PwC would no longer complete Bondfield’s audit, is non-contentious evidence that Bondfield was put on notice of PwC’s legitimate concerns which should have alerted Bondfield to any potential claim it could have against PwC. The Plaintiffs, Ralph and Steve, submit, however, that it is not this straightforward. Ralph and Steve will contest that they received the letter and that it was only sent to the alleged fraudsters, including John, which raises issues affecting discoverability. It also raises issues as to whether PwC had a duty to provide the letter to Ralph and Steve and also touches upon Ralph and Steve’s liability to Deloitte as per the third party claim. I accept the submissions of the Plaintiffs, Ralph and Steve, that this is not a simple issue and will raise contentious issues. This is but one example.
• There are obviously significant credibility components in the actions touching upon alleged fraud and the knowledge of the innocent officers and directors. These are notoriously difficult issues to deal with properly on a paper record.
• PwC submits that both summary judgments can be dealt with on a paper record within 2 days. I doubt very much that this timeline could be achieved and there may be viva voce evidence required, including expert evidence.
• If the decisions in the summary judgment motions are appealed, and there is every reason to believe that they may be, this could further complicate matters and result in undue delay insofar as the continuing actions against Deloitte.
• Upon conclusion of all written and oral discoveries as case management judge, I will be in a better position to understand the implications of moving forward with a summary judgment motion.
• Interestingly, Conway J., who has dealt with a related action involving Bondfield and St. Michael’s Hospital, amongst other parties, also addressed the issue of a summary judgment motion and concluded that it would be preferrable to conduct discoveries before a summary judgment motion proceeded. Amongst other things, she noted her concern with the proliferation of motions as well as the problematic and complex nature of that action which may result in confusion and inconsistent results. I have the exact same concerns in this matter: see BMO as Administrative Agent v. 2442931 Ontario Inc., issued June 2, 2020, Superior Court of Justice, Court File No. CV-18-610995-00CL.
• Given the complicated nature of the two actions, it remains very much in question as to whether the summary judgment motions will succeed although it would be premature to provide any further comment.

[43] For all of the aforementioned reasons, it is my view that it is not in the best interests of justice to allow the summary judgment motions to proceed prior to the Parties completing documentary discovery and examinations for discovery. I pause here to note that although I do not dispute the three-part test in Ghaffari, which includes the instruction that the Court should only impose a stay in the clearest of cases, it is important to keep in mind the unique nature of significant cases that are being heavily case managed such as the matters before me. In Ghaffari, there did not appear to be any case management and it involved a straightforward property transfer where the facts appeared to be uncontested. The actions that I am managing more resemble the situation in Domtar. They are complicated and significant commercial matters. As the case management judge, I have concluded that a stay should clearly be imposed.

[44] In any event, when one has regard to the factors of both Ghaffari and Domtar, I am satisfied that a stay is appropriate for all of the reasons outlined above.

[45] In this regard, given PwC’s reliance on Hryniak, it bears noting that at para. 68, the Court reiterated that the discretionary nature of the power given to judges conducting summary judgment motions provides the judge with flexibility in deciding the appropriate course of action. In my view, this would include whether a summary judgment motion ought to be scheduled. Further, the Court of Appeal in Mason v. Perras Mongenais, 2018 ONCA 978 noted that “nothing in Hryniak detracts from the overriding principle that summary judgment is only appropriate where it leads to ‘a fair process and just adjudication’”: at para. 44; Hryniak, at para. 33. Again, these comments resonate when one is determining when a summary judgment motion ought to be heard.

[46] Further, in this regard, PwC placed heavy emphasis on the recent Supreme Court of Canada decision in Grant Thornton LLP v. New Brunswick, 2021 SCC 31 as authority for the proposition that summary judgment motions on limitation periods can and should be heard. I do not quarrel with this contention, but rather comment that each case has to be determined on its own facts. While I am not sure of the process that was followed in Grant Thornton, the factual matrix in that case appears to be considerably more straightforward than in the two actions that I am case managing.

[47] In my view, it is clear that a stay should be imposed and with sensible case management, full discovery can take place and the summary judgment motion can be considered thereafter. This is the most sensible path forward and is fair and reasonable to the Parties.

[48] Last, it also bears noting that the issue of unrecoverable legal costs is not in play in this motion as Zurich has provided an undertaking to pay any costs awarded against Bondfield and, of course, would be responsible for its own liability to pay costs.

Disposition

[49] An order shall therefore go staying PwC’s motions for summary judgment pending further order of this Court. The Parties will now proceed with documentary discovery and examinations for discovery. I will continue to case manage this matter to deal with any disputes regarding discoveries including timetabling.

[50] The remaining ancillary relief contained in the Plaintiffs’ notice of motion can be dealt with at a further case conference.

[51] If the Parties cannot agree as to costs they can also speak to me at a further case conference to determine next steps.

McEwen. J.

Released: March 10, 2022

Footnotes:

[1] Hryniak, of course, dealt with the appeal of Combined Air and other related cases.

[2] In relying on Domtar I have kept in mind that Hryniak did not embrace the “full appreciation test” articulated in Combined Air.