Court File and Parties

COURT FILE NOS.: CV-15-526661; CV-15-524612

MOTIONS HEARD: 20220228

REASONS RELEASED: 20220525

SUPERIOR COURT OF JUSTICE – ONTARIO

BETWEEN:

20/20 MANAGEMENT LIMITED, CONAMORE PROPERTY MANAGEMENT LIMITED, URBAN RENAISSANCE INC. and TONI VARONE

Plaintiffs

• and-

CONCORD ADEX INC., CONCORD ADEX PROPERTIES LIMITED, C C ACQUISITION CORP., CONCORD ADEX INVESTMENTS LIMITED, CITYPLACE DEVELOPMENTS LIMITED, CITYPLACE DEVELOPMENTS CORP., CONCORD ADEX DEVELOPMENTS CORP., CONCORD PANORAMA LIMITED, CONCORD TANGO GP LIMITED, CONCORD TANGO 2 GP LIMITED, HENRY MAN, DENNIS AU-YEUNG, GABRIEL YEUNG, ERIC FUNG and MICHAEL HOPKINS

Defendants

BEFORE: ASSOCIATE JUSTICE McGRAW

COUNSEL: A. Kalamut, J. Klugsberg and J. Haar E-mail: akalamut@mccarthy.ca -for the Concord Parties

E. Bisceglia. A. Di Biase and K. Zammit Email: ebisceglia@lawtoronto.ca -for the Varone Parties

K. Kinley and A. Quinn Email: kkinley@litigate.com

• for the Defendant Arash Beheshti in the Concord Action

REASONS RELEASED: May 25, 2022

Reasons For Endorsement

I. Introduction

[1] There are two motions in two related actions:

i.) in the present action, 20/20 Management Limited v. Concord Adex Inc. (Court File No. CV-15-526661)(the “Varone Action”), the Concord Parties seek a stay of proceedings pursuant to section 106 of the Courts of Justice Act (Ontario) of the Varone Parties’ breach of trust claims under the Construction Lien Act (Ontario) upon payment into court of the admitted amount of the Varone Parties’ claims (the “Stay Motion”);

ii.) in the related action, Concord Adex Inc. v. 20/20 Management Limited (Court File No. CV-15-524612)(the “Concord Action”, together with the Varone Action, the “Actions”), the Varone Parties seek leave to withhold the disclosure and production of certain documents and information until there is a determination at trial as to whether the Concord Parties are entitled to an accounting (the “Discovery Motion”).

[2] The Plaintiffs in the Varone Action and the Defendants in the Concord Action are referred to as the “Varone Parties”, excluding the Defendant Arash Beheshti. The Defendants in the Varone Action and the Plaintiffs in the Concord Action are referred to as the “Concord Parties”.

II. Background

[3] The corporate Concord Parties (“Concord”) are real estate development companies which specialize in building residential condominium units. The individual Concord Parties are officers and directors of various Concord entities. The Defendants Urban Renaissance Inc. (Urban”) and 20/20 Management Ltd. (“20/20”)(the “Varone Entities”) are construction contractors which, among other things, complete Tarion warrantable deficiency work and building performance audits. The Defendant Toni Varone is an officer and director of the Varone Entities. In the Concord Action, the Defendant Arash Beheshti is Concord’s former Vice- President of Construction who was responsible for the oversight and project management of high-rise residential condominium developments in the City of Toronto including those at issue in the Actions. The Defendants Espedito Ariganello and Felice Mete are former officers and directors of certain Varone Entities.

[4] The Actions arise from deficiency, warranty and general contract work performed by the Varone Entities for Concord (the “Work”) from 2010-2014 at numerous multi-building condominium developments in the Greater Toronto Area (the “Developments”). The Concord Parties commenced the Concord Action by Statement of Claim issued on March 24, 2015. They were granted leave to amend their Statement of Claim to add Mr. Beheshti, Mr. Ariganello and Mr. Mete by Order of DiPietro J. dated November 10, 2017. The Concord Parties allege that the Varone Parties and Mr. Beheshti conspired or agreed to mislead Concord with respect to the nature of the services agreement between the parties (the “Services Agreement”) in order to overcharge them for the Work. The Concord Parties allege that the Varone Parties charged excess rates and hours in excess of actual hours worked; charged for skilled labour but provided unskilled labour and inefficient and inactive workers; and charged for work on non-Concord projects.

[5] In their Amended Statement of Claim dated March 13, 2018, the Concord Parties claim an accounting of all fees, costs, commissions and charges related to construction services provided pursuant to the Services Agreement and restitution of any amounts overcharged or overpaid. In the alternative, the Concord Parties claim damages of $12,000,000 for breach of contract, fraudulent misrepresentation and/or fraud and conspiracy and unjust enrichment, $250,000 for professional fees to review accounting records and charges and $250,000 in punitive damages.

[6] The Concord Parties allege that Mr. Beheshti represented to Concord management that the terms of the Services Agreement he negotiated with the Varone Entities was a “costs-plus” structure requiring Urban to complete the Work for a fee equal to their actual payroll costs of labour and materials plus a 10% mark-up for overhead and a 5% mark-up for profit. Concord retained KPMG Inc. (“KPMG”) in 2014 to review work at various Developments. KPMG’s report (the “KPMG Report”) indicated that the Services Agreement was based on a unit rate and that they were unable to validate that the amounts charged were at cost and that overhead or profit were not already included in the hourly rate. The KPMG Report also concluded that the labour rates at one Development were in many cases in excess of benchmark union construction rates.

[7] Mr. Beheshti resigned on September 30, 2014 shortly after Concord received the KPMG Report. Concord alleges that in April 2016, for the first time, Mr. Beheshti advised that the Varone Entities would invoice the Concord Entities a unit price for labour plus a mark-up of 10% for overhead and 5% for profit known as a “unit rate” where a fixed fee is paid for a specific unit of work. The Concord Parties allege that Mr. Beheshti’s approval of payments under this arrangement resulted in the payment of higher rates than the Varone Entities paid to their own employees and subtrades. The Concord Parties claim that they subsequently discovered that Mr. Beheshti had not disclosed that he had close personal and business relationships with Mr. Varone and other officers and directors of the Varone Entities. The Concord Parties take the position in the Actions that the parties agreed to a costs-plus arrangement while the Varone Parties assert that they agreed to a unit rate.

[8] The Varone Parties defended the Concord Action and then commenced the Varone Action by Statement of Claim dated April 23, 2015. Among other things, the Varone Parties claim general damages of $30,000,000 and alternatively, $30,000,000 for breach of trust, conversion and misappropriation and a declaration that the Concord Parties are in breach of trust and that all funds received are impressed with a trust under sections 8 and 13 of the Construction Lien Act (the “Trust Claims”). The Varone Parties have admitted that their actual claim for unpaid invoices is $425,545.99 plus interest.

[9] This matter first came before me on a telephone case conference on June 4, 2021 to speak to approximately 300 refusals arising from examinations for discovery. In an effort to resolve and/or narrow the refusals, additional case conferences were held on June 24, August 6, and September 20, 2021. The parties’ respective refusals motions (the “Refusals Motions”) were scheduled to proceed before me on December 7, 2021 and adjourned to February 28, 2022. During a telephone case conference on February 10, 2022 counsel advised me that the Stay Motion and the Discovery Motion had been brought. As the disposition of these motions may resolve, narrow and/or make some of the refusals moot, counsel agreed that these motions would proceed on February 28, 2022 with the Refusals Motions adjourned sine die pending their disposition.

III. The Law and Analysis

The Stay Motion

[10] The Concord Parties seek an order staying the Trust Claims upon payment into court by the Concord Parties of $425,545.99, the amount alleged by the Varone Parties to be owing for unpaid invoices.

[11] Section 106 of the Courts of Justice Act (Ontario) provides that a court, on its own initiative or on motion by any person, whether or not a party, may stay any proceeding in the court on such terms as are considered just.

[12] The general principles on a stay motion are as follows:

i.) a court may grant a stay when just and convenient to do so in order to control its process or prevent an abuse of that process.

ii.) the discretion to grant a stay is highly dependent on the facts of each particular case.

iii.) the discretion must be exercised sparingly and only in special circumstances.

iv.) the balance of convenience must weigh heavily in favour of a stay.

v.) the court will be reluctant to grant a stay if it will deny a party's access to the courts or substantially delay or impair his rights to have his case heard.

In appropriate cases the court may also consider one or more of the following:

vi.) the court will be more inclined to grant a stay if continuation of the action may work an injustice because it is oppressive, vexatious or an abuse of process.

vii.) the court will be more inclined to grant a stay if it would not cause an injustice to the responding party.

viii.) if there are two or more proceedings with common facts or issues, one action may be stayed if it would avoid a multiplicity of proceedings.

ix.) a stay may be ordered where privileged documents obtained in one proceeding may be used in another proceeding if it would result in unfairness or prejudice to the party asserting the privilege.

(Gowling Lafleur Henderson LLP v. Meredith, 2011 ONSC 2686 at paras. 17-18; Stevens v. Vandeputte, 2016 ONSC at paras. 8-9)

[13] The Court of Appeal has confirmed that in general, the discretion to stay proceedings should be exercised sparingly, in the clearest of cases (Aldo Group Inc. v. Moneris Solutions Corp., 2013 ONCA 725 at para. 30).

[14] The obligations and remedies set out in the Construction Lien Act, predecessor to the Construction Act, which includes lien claims and trust claims, are in addition to and overlie the contractual rights and obligations between parties (Tremblar Building Supplies Ltd. v. 18339563 Ontario Limited, 2020 ONSC 6302 at para. 11). The trust provisions of the Construction Act were designed to protect designated beneficiaries from insolvent or unscrupulous owners or contractors, to provide security to contractors for work done and to impress funds with a trust received on account of the contract by a person above them in the contractual chain with whom they have a contractual relationship (Duncan W. Glaholt, Construction Trusts: Law and Practice, Thomson Canada Limited, Toronto, 1999, pp. 4 and 23). These trust provisions provide additional protection for trades and suppliers on construction projects beyond the protection provided by the right to file liens against the property, requiring a contractor or subcontractor who receives money on account of its contract on a project to first use those monies to pay those who provided services or materials on the project (St. Mary’s Cement Corp. v. Construc Ltd., 1997 12114 (ON SC), [1997] O.J. No. 1318 (Ont. Gen Div.) at para. 5).

[15] I was not referred to any case law with respect to staying trust claims under the Construction Act or the Construction Lien Act. However, the remedial nature of these statutory trust claims was considered in Remco v. Mometal, 2014 ONSC 6807. In that case, Whitten J. held that a plaintiff supplier’s summary judgment motion for a declaration that there had been a breach of trust under the Construction Lien Act by a general contractor was premature. However, given that it was not in dispute that sufficient funds were available to pay the plaintiff’s claim, he ordered that the general contractor pay $77,000 into court or an investment vehicle stating: “in that way, any suggestion of breach of trust becomes moot as the funds are secured” (Remco at para. 26).

[16] More recently, in Symtech Innovation Ltd. v. Fit Ergonomics 2021 ONSC 4766, Myers J. adjourned a summary judgment motion of a breach of trust claim under the Construction Act by a subcontractor against a general contractor to a case conference to consider whether it was necessary to continue with the claim. Myers J. commented that if the general contractor was solvent, then the trust claim “should make no difference” adding “similarly, the claim against the owners personally for breach of trust is more tactical than real as long as FIT is solvent or, if not, the owners fund it to pay its debts as found” (Symtech at para. 42). Myers J. further concluded that the merits of the contractual claim and the breach of trust claim could be heard separately and “that there should be no reason to carry on with the trust claim unless FIT is insolvent and its owners refuse to fund it to pay its just debts” (Symtech at para. 44).

[17] For the reasons that follow, I conclude that it is just and convenient in the circumstances to stay the Trust Claims upon payment by the Concord Parties of $425,545.99 into court or an investment vehicle as the parties may agree (the “Security”).

[18] I am satisfied that this is a clear case where a stay should be granted. I adopt the courts’ reasoning in Ramco and Symtech which support the conclusion that the Trust Claims will be moot once the Concord Parties pay the full, admitted amount of the Varone Parties’ claims into court. The Varone Parties’ claims will be fully secured once the Security is paid and there is no suggestion or evidence that Concord is insolvent.

[19] In my view, the stay would result in material efficiencies for the balance of these proceedings, particularly at trial. Although examinations for discovery have been completed, removing the need to procced with the Trust Claims will reduce the number of witnesses, the amount of documentation and the length of submissions at trial and streamline other remaining steps leading to trial. This will shorten the proceedings and focus the litigation on only those issues which require adjudication without unnecessarily expending scarce court resources and increasing the costs to the parties. In this regard, granting the stay is consistent with the requirement to liberally construe the Rules and grant orders to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits (Rule 1.04(1)). I am also of the view that this approach is proportionate to the complexity of the issues and the amounts claimed in the Actions (Rule 1.04(1.1)).

[20] The Varone Parties’ primary submission is that granting the stay would result in an injustice because it would deprive them of documents which are relevant to the Concord Parties’ damage claims. They allege that the Concord Parties are seeking the stay to avoid producing relevant documents and that this motion is an abuse of process. The Varone Parties argue that the documents they seek on the Refusals Motions which are relevant to the Trust Claims are also relevant to the Concord Parties’ other causes of action and allegations including that the Vaone Parties have been unjustly unenriched and their claims of quantum meruit. Without documentation relevant to the Trust Claims, the Varone Parties submit that they will be unable to respond to the Concord Parties’ allegations, impeach witnesses’ credibility or provide expert opinions. The Varone Parties further submit that it would be unfair and unjust to deprive them of these documents after examinations for discovery have taken place.

[21] I do not accept that staying the Trust Claims will result in any injustice to the Varone Parties. There is no basis to conclude that the Concord Parties are trying to conceal documents or that this motion is an abuse of process. While staying the Trust Claims would affect what documents are produced, relevance and proportionality with respect to the parties’ other claims and allegations in the Actions will be determined on the Refusals Motions. Put another way, just because the Trust Claims are stayed it does not automatically follow that documents which are relevant to other causes of action and allegations in the Actions will not be produced. It is not uncommon for documents to be relevant to multiple claims and/or allegations. All of this will be considered and determined on the Refusals Motions which the parties requested and agreed to adjourn pending the disposition of the Stay Motion and the Discovery Motion. While the parties made unnecessarily lengthy submissions with respect to what documents should be produced, this is not the proper forum. The parties will have an opportunity to make full submissions on the Refusals Motions regarding what documents should be produced based on what claims are proceeding. There may also be the possibility of re-attendances on examinations for discovery due to questions arising from documents produced and/or refusals answered.

[22] Similarly, I make no findings with respect to the Concord Parties’ submissions that the Trust Claims should be stayed because they have no merit or have not been properly pleaded. As the Varone Parties’ claims will be fully secured, making the Trust Claims moot, and in the absence of injustice to the Varone Parties, the balance of convenience also strongly favours granting the stay.

[23] The Varone Parties also submit that the stay should not be granted because the Concord Parties have not demonstrated that the continuation of the Trust Claims will cause them to suffer substantial prejudice or injustice. The Varone Parties rely on Farris v. Staubach Ontario Inc., 2004 11325 (ON SC), 2004 CarswellOnt 1160 which considered a stay request under the exclusive jurisdiction of a Judge pursuant to Rule 21.01(3)(c) on the basis that there is a proceeding pending in Ontario or another jurisdiction between the same parties in respect of the same subject matter. I was not referred to any case law where the test for a stay under section 106 of the Courts of Justice Act requires the moving party to demonstrate that it will suffer substantial prejudice or injustice or any other basis for applying this higher threshold.

The Discovery Motion

[24] Rules 30.04(8) and 31.06(6) provide that where a document or information may become relevant only after the determination of an issue in the action and disclosure or production for inspection of the document or information before the issue is determined would seriously prejudice a party, the court on the party’s motion may grant leave to withhold disclosure or production until after the issue has been determined.

[25] The Court of Appeal has recently affirmed that it is a basic right of a litigant to have all disputed issues resolved in one trial, therefore, the power to divide production or discovery must be regarded as a narrowly circumscribed one (Duggan v. Durham Region Non-Profit Housing Corporation, 2020 ONCA 788 at para. 37 at para. 37).

[26] The parties agree that the relevant factors on a divided discovery motion are set out in LCDH Audio Visual Ltd. v. ISTS Verbatim Ltd. (1986), 1986 2758 (ON SC), 54 O.R. (2d) 425:

“i.) the decision to postpone disclosure of information and documents to a later stage, which inevitably postpones the consequential issue to a later stage and a further trial, is ultimately a matter of the discretion of the court having regard to all the circumstances.

ii.) the modern philosophy which is inherent in the new Rules of Civil Procedure is that there should be the fullest disclosure of information on all issues to be tried with a view to the speedy and efficient resolution of those issues at one time in one trial.

iii.) postponement of production and discovery under rules 30.08 and 31.06 should be resorted to only in the clearest of cases; full disclosure before trial is the norm and indeed, the prima facie right of both parties.

iv.) where the threshold issue is not clearly severable from the consequential issue, in the sense that information sought to be withheld is not relevant to determination of the threshold issue, leave to divide discoveries and productions ought not to be granted since that could deprive the party of information necessary to establish or fortify its case; this is not a matter of discretion. In considering whether the information may become relevant only after the threshold issue is determined, the court ought to consider any possible relevance that the information sought to be withheld may have in determining the threshold issue, including questions of credibility.

v.) once the court concludes that the issues are severable within the sense described, the test to be applied is serious prejudice to the moving party; that is the only test prescribed by the rule where the threshold and consequential issues are severable. Determination of serious prejudice to the party is not a matter of discretion but is a finding of fact for the court to make. If the court is unable to find serious prejudice by immediate disclosure of the information, the rule does not permit disclosure to be postponed. If, on the other hand, the court finds that serious prejudice to the party will result, the court must then consider how to exercise its discretion.

vi.) the decision to exercise the courts' discretion must then be made on the usual basis -- judicially, in accordance with proper principles, on a case-by-case basis, according to all the circumstances of the case.” (LCDH at para. 18)

[27] Public disclosure of confidential and commercially sensitive business and financial information may constitute serious prejudice (Peter v. Medtronic, 2009 CarswellOnt 6335; aff’d 2010 ONSC 3777; Risi Stone v. Burloak Concrete Products Ltd., [1987] O.J. No. 1134 (H.C.J.)). In Bilich v. Buck, [2008] O.J. No. 2706, Master Sproat (as she then was) held that serious prejudice related to commercially sensitive documents requires evidence that production of the documents and information will disrupt the producing party’s business relationships or harm their competitive position in the market (Bilich at para. 19).

[28] For the reasons that follow, I decline to exercise my discretion to grant leave to withhold disclosure and production.

[29] The Varone Parties submit that the issue of whether the parties entered into a unit rate or costs-plus agreement is severable from the issue of whether the Concord Parties are entitled to an accounting as a remedy (Reichmann v. Vered, [1995] O.J. No. 1662 at para. 18). They assert that the accounting is consequential to the threshold issue of the nature of the Services Agreement and the documents and information sought by the Concord Parties are not relevant to this issue. Similar to their submissions on the Stay Motion, the Varone Parties’ arguments are largely based on the disputed issues on the Refusals Motions, in this case, the significant amount of documentation and information sought by the Concord Parties including extensive payroll records, cheque registers and other documents. The Varone Parties characterize the requested productions as the accounting claimed by the Concord Parties and argue that some of these documents may only become relevant after the threshold issue of the nature of the Services Agreement is determined.

[30] I am unable to conclude that there is a clearly severable threshold issue. The Concord Parties’ damage claims go beyond breach of contract and the nature of the Services Agreement and include claims of fraud, fraudulent misrepresentation, conspiracy and unjust enrichment. Central to these claims are allegations that Mr. Beheshti and the Varone Parties conspired or agreed to overcharge Concord using the very arrangement in dispute which the Varone Parties assert is the threshold issue. I am satisfied that, at a minimum, there is some overlap between the disputed issue regarding the nature of the Services Agreement and the claims of fraud, fraudulent misrepresentation, conspiracy and unjust enrichment. The allegations that Mr. Beheshti used his position at Concord to negotiate the Services Agreement and approve payments for the benefit of the Varone Entities while misrepresenting the nature of the Services Agreement to Concord supports this conclusion. Accordingly, I am satisfied that some of the documents which the Varone Parties refer to as the “accounting” may be probative of the fraud and conspiracy claims including with respect to the credibility of witnesses. To withhold production of a significant number of documents on this broad, sweeping basis would be contrary to the principle of full disclosure before trial, unfairly impair the Concord Parties’ ability to discover and prove their claims and undermine their basic right to have all issues determined in one trial. The extent of the overlap and what documents may be relevant and proportionate to the Concord Parties’ claims will be fully considered on the Refusals Motions.

[31] I also cannot conclude that the Varone Parties would suffer serious prejudice if production is not withheld. Similar to my conclusions on the Stay Motion, it does not automatically follow that allowing discovery and production to proceed will lead to the production of all of the documents and records requested by the Concord Parties on the Refusals Motions. Again, the parties will have the opportunity to make complete submissions regarding relevance and proportionality. In this regard, many of the Varone Parties’ submissions on this motion do not constitute serious prejudice and are properly left for the Refusals Motion. This includes their assertions that: the time and cost of production are disproportionate; they do not know what records may be available (notwithstanding my direction that the parties make the necessary inquiries in my Case Conference Endorsement dated September 21, 2021); relevant documents have already been produced; and the payroll information sought may not contain the information requested by the Concord Parties.

[32] I also reject the Varone Parties’ submissions that denying the Varone Parties’ request for divided discovery will cause serious prejudice resulting from the disclosure of sensitive commercial information. There is no basis on the record to conclude that not withholding production would disrupt, harm or erode the Varone Entities’ competitive position. Any issues or concerns regarding confidentiality can be considered and determined on the Refusals Motions having regard to the nature of the documentation, whether potential prejudice can be mitigated by sealing or confidentiality orders, redactions or other measures and whether some documents can now be considered stale-dated.

[33] The Varone Parties also claim that they would never have agreed to do the Work for Concord on a costs-plus basis and that the hourly rates charged by the Varone Companies were approved by Concord which received and scrutinized the invoices and back up documentation provided by the Varone Parties. These are arguments on the merits which are not relevant to this motion.

IV. Disposition and Costs

[34] Order to go: i.) staying the Trust Claims upon payment of $425,545.99 by the Concord Parties into court or an investment vehicle on such terms as the parties may agree; and ii.) dismissing the Discovery Motion.

[35] If the parties cannot agree on the costs of the motions, they may file written costs submissions not to exceed 4 pages (excluding Costs Outlines) on a timetable to be agreed upon by counsel. Counsel may schedule a telephone case conference with me for case management and directions with respect to the Refusals Motions including, if appropriate, scheduling and timetabling, and any other outstanding issues.

Released: May 25, 2022

Associate Justice McGraw