COURT FILE NO.: CV-09-375202
MOTION HEARD: 2022-03-02
REASONS RELEASED: 2022-06-03
SUPERIOR COURT OF JUSTICE – ONTARIO
BETWEEN:
METRO ONTARIO REAL ESTATE LIMITED
Plaintiff
- and-
HILLMOND INVESTMENTS LTD. carrying on business as CENTRAL PARKWAY MALL
Defendant
BEFORE: ASSOCIATE JUSTICE McGRAW
COUNSEL: L. Galessiere Email: lgalessiere@cglegal.ca -for the Plaintiff and Defendants by Counterclaim Metro Ontario Real Estate Limited and Metro Ontario Inc.
J. McReynolds Email: jmcreynolds@srglegal.com -for the Defendant/Plaintiff by Counterclaim Hillmond Investments Ltd.
REASONS RELEASED: June 3, 2022
Reasons For Endorsement
I. Introduction
[1] Both the Plaintiff Metro Ontario Real Estate Limited (“MOREL”) and the Defendant Hillmond Investments Ltd. (“HIL”) have brought motions to compel the other to answer undertakings and refusals arising from examinations for discovery.
II. Background
[2] MOI operates grocery stores in Ontario. MOREL is a subsidiary of MOI which owns, manages and leases real estate for over 200 grocery stores in Ontario. Together, MOI and MOREL are referred to as “Metro”. HIL owns a shopping plaza in Mississuaga known as “Central Parkway Plaza” (the “Plaza”).
[3] Through numerous assignments and name changes, MOREL is a tenant at the Plaza under a lease agreement with HIL dated December 13, 1978 (the “Lease”). One of MOREL’s “Food Basics” grocery stores is currently located in the Plaza (the “Premises”). The Plaza is HIL’s only source of income and the Premises is the largest space in the Plaza with the highest rent. The term of the Lease is 20 years with five options to extend for a further five years per option. MOREL is currently on its fifth extension period which expires in December 2023.
[4] MOREL alleges that in early 2009 it discovered that it had been mistakenly overpaying due to HIL’s failure to apply the formula in the Lease to calculate rent for extension periods. MOREL issued a Notice of Action on March 25, 2009. In its Amended Statement of Claim dated October 13, 2010, MOREL claims $2,000,000 in general damages and $319,140 for the cost to replace/repair the roof on the Premises. HIL alleges that starting in April 2009, MOREL has underpaid approximately $19,000 per month to reflect what it alleges is the correct rent amount. In its Thrice Amended Statement of Defence and Counterclaim dated March 1, 2019 (the “Amended Defence and Counterclaim”), HIL claims, among other things, $6,554,576 in damages to that date; declarations that MOREL and MOI are in default of the Lease, that the assignment of the Lease from MOI to MOREL dated June 1, 1987 is void and that HIL is entitled to terminate the Lease on 60 days’ notice; and an order requiring Metro to pay the outstanding rent to HIL or alternatively, into court.
[5] This matter first came before me on January 22, 2020 for Metro’s motion to strike two paragraphs from HIL’s Reply and Defence to Counterclaim. The motion was resolved on consent and I awarded costs in favour of Metro (Metro Ontario Real Estate Limited v. Hillmond Investments Ltd., 2020 ONSC 4411).
[6] Pursuant to my timetable order dated April 29, 2020, examinations for discovery took place on February 25-26, 2021. Telephone case conferences were held on June 24, 2021; November 24, 2021, and December 3, 2021 to provide case management and directions to narrow or reduce the disputed questions and counsel have had ongoing discussions and exchanges of documents and positions.
III. The Law and Analysis
Generally
[7] Rule 31.06(1) provides that a person examined for discovery shall answer, to the best of his or her knowledge, information and belief, any proper question relevant to any matter in issue in the action.
[8] Rule 29.2.03 sets out the proportionality factors which apply to oral and documentary discovery:
(1) In making a determination as to whether a party or other person must answer a question or produce a document, the court shall consider whether,
(a) the time required for the party or other person to answer the question or produce the document would be unreasonable;
(b) the expense associated with answering the question or producing the document would be unjustified;
(c) requiring the party or other person to answer the question or produce the document would cause him or her undue prejudice;
(d) requiring the party or other person to answer the question or produce the document would unduly interfere with the orderly progress of the action; and
(e) the information or the document is readily available to the party requesting it from another source.
(2) In addition to the considerations listed in subrule (1), in determining whether to order a party or other person to produce one or more documents, the court shall consider whether such an order would result in an excessive volume of documents required to be produced by the party or other person.
[9] Discovery questions must be relevant to the issues as defined by the pleadings such that they have probative value and adequately contribute to the determination of the truth or falsity of a material fact (Ontario v. Rothmans Inc., 2011 ONSC 2504; Canadian Imperial Bank of Commerce v. Deloitte & Touche, 2013 ONSC 917). Overbroad and speculative discovery and “fishing expeditions” are not permitted (Rothmans at paras. 129 and 154-157).
[10] Rules 1.04(1) and Rule 1.04(1.1) are key considerations on undertakings and refusals motions. Rule 1.04(1) provides that the Rules of Civil Procedure shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits. Rule 1.04(1.1) requires the court to make orders and give directions that are proportionate to the importance and complexity of the issues and to the amount involved.
[11] My dispositions with respect to the undertakings and refusals at issue and agreements reached by the parties as a result of case management during the motion are set out below.
Plaintiff’s Motion
[12] Metro seeks answers to 6 undertakings and 21 refusals from the examination for discovery of John Sorokolit on behalf of HIL.
[13] Undertakings 1 and 2 – HIL agrees to answer and/or provide more fulsome answers to these undertakings within 30 days. Specifically, HIL has agreed to: i.) advise if, assuming Metro’s position is found to be correct, HIL agrees with Metro’s calculation of what rent/percentage rent should have been owing for the relevant period as set out in the overpayment calculations at Tab 209 of Metro’s Affidavit of Documents (Undertaking 1); and ii.) identify the specific productions which support the allegations made at paragraph 62 of the Amended Defence and Counterclaim regarding roof repairs and replacement (Undertaking 2).
[14] Undertaking 3 – HIL agrees to, 60 days before the pre-trial, provide a breakdown of the amounts set out in paragraph 74 of the Amended Defence and Counterclaim regarding the alleged minimum rent owing from April 1, 2009 to the present.
[15] Undertaking 4 – HIL agrees to provide a breakdown of its claim for unpaid common area maintenance (“CAM”) amounts at paragraph 75 of the Amended Defence and Counterclaim including whether all CAM charges between 2012-2016 were paid (even if under protest and without prejudice), and if not, which amounts remain outstanding and if HIL disagrees with any of the credits taken by MOREL for taxes and legal costs awards. In my view, HIL shall also provide any documentation in support of its claims for CAM from 2009-2016. All information and documentation shall be provided 60 days before the pre-trial.
[16] Undertakings 5 and 6 – HIL agrees to provide a breakdown of the interest claimed on the amounts set out in paragraphs 99(a)-(c) of the Amended Defence and Counterclaim, on a month by month basis, at the contractual interest rate of 10% per annum, and confirm if MOREL was given credit for amounts HIL owed to MOREL for taxes and legal costs awards (Undertaking 5). HIL also agrees to provide its response to each of the reasons why Metro claims it owes no further amounts to HIL for CAM and to provide any supporting documentation (Undertaking 6). HIL will provide these answers 60 days before the pre-trial.
[17] Refusals 1, 2, 3 and 4 – These refusals relate to HIL’s allegations at paragraphs 30-32 of the Amended Defence and Counterclaim that it would not have offered MOREL the fifth renewal term under the Lease had it known, among other things, that MOREL would reduce its rent payments given that since 1996 it has been approached by prospective new tenants interested in leasing the Premises. HIL further alleges that the Plaza generates significantly higher sales revenue for a large-scale grocery store. In his affidavit sworn February 11, 2011 in support of HIL’s summary judgment motion (the “Affidavit”), Mr. Sorokolit states that there were prospective tenants who were willing to pay more rent than MOREL’s reduced payments and deposed on his examination that there are at least 2 other grocery or food stores which are interested in renting the Premises (Question 197).
[18] In my view, based on the pleadings, HIL’s claims, Mr. Sorokolit’s testimony and the Affidavit, most of the information sought is relevant. HIL shall advise within 30 days if it has entered into lease negotiations for the Premises with any other prospective tenants and what lease rates are being negotiated (Refusal 1). HIL is not required to provide documentation in support of any such negotiations unless, as ordered below, it is also documentation which supports any claim by HIL for damages related to what it could have leased the Premises for had it not agreed to the fifth renewal. HIL shall also advise what the fair market rent for the Premises was for 2018 (Refusal 3) and what prospective tenants approached HIL about leasing the Premises (though this information may be confidential and may require confidentiality provisions) and whether HIL has had additional prospective tenants contact HIL with respect to leasing the Premises (Refusal 4). All of this shall be produced within 30 days. HIL is not required to advise on what terms HIL could have got another tenant to pay more in rent if it did not agree to the fifth renewal term with Metro (Refusal 2). However, to the extent to which HIL intends to seek damages based on what it could have leased the Premises for had it had not agreed to the fifth renewal, then it shall provide the amount it is seeking and the basis for this amount including supporting documentation 60 days prior to the pre-trial.
[19] Refusals 5, 6, 7, 8, 9, 10, 11, 12 and 13 – These questions relate to Metro’s requests for financial documentation and information related to HIL’s allegations that it relied on receiving the full amount of the rent paid by Metro prior to April 2009 and changed its circumstances to its detriment (Amended Defence and Counterclaim at paras. 49-50). Among other things, HIL alleges that it made financial decisions based upon the pre-reduction rent calculations including entering into a Commitment Letter with Sun Life Assurance Co. of Canada (“Sun Life”) for a 10-year loan secured with a first mortgage by HIL in the Spring of 2001 relying on a representation made by Dennis O’Neill of Metro in June 2001 regarding the Lease renewal and agreeing to a second mortgage with Royal Bank of Canada (“RBC”). During his examination, Mr. Sorokolit deposed that around 2010 the Sun Life credit facility gave HIL the ability to borrow funds on a line of credit from RBC which HIL then loaned to related entities in the Consulate Group of companies to pursue other business ventures including a golf course; some of the amounts loaned to Consulate Group entities are as much as $6,000,000 and have not been repaid to HIL; and when MOREL reduced the rent payments HIL was forced to discharge its facility with Sun Life early (Questions 172-187).
[20] In my view, based on the pleadings and Mr. Sorokolit’s testimony, HIL’s loans to related companies are relevant to HIL’s allegations and claims that it relied on MOREL’s pre-reduction rent payments and changed its position to its detriment. The only issue is whether the scope and amount of some of the financial documentation and information requested by Metro is disproportionate, beyond the scope of this action and/or unlikely to contain relevant information.
[21] Some basic information is relevant and producible. Namely, I am satisfied that HIL shall advise within 30 days: if the loans by HIL to related entities, including the Consulate Group entities, were repaid and then financed with new loans or if additional loans were advanced after 2010 (Refusal 6); and how many loans, lines of credit or mortgages HIL has received since MOREL advised HIL that it was reducing the rent (Refusals 12 and 13). In my view, Metro’s request for a full accounting of all funds loaned by HIL to related entities from 2000 to the present, and financial statements for any entities if these loans were with any entity controlled by Mr. Sorokolit is overbroad and disproportionate (Refusal 5). However, I am satisfied that, in response to this question, to the extent to which it is not covered by the answers to Refusals 6, 12 and 13, HIL shall, within 60 days, provide the total amount loaned to related entities from 2009 to the present, including a breakdown of dates, entities and amounts, together with relevant supporting documentation.
[22] With respect to the other financial documentation requested, I am not satisfied that all of the financial statements and balance sheets requested by Metro are relevant, proportionate or will necessarily contain the information sought. Metro seeks financial statements for HIL from 2008 to date and the Consulate Group from 2000 to date (Refusals 7, 8 and 9) together with balance sheets for HIL and the Consulate Group from 2008 to the present (Refusals 10 and 11). HIL has already produced HIL’s financial statements for 1998-2009 with its Affidavit of Documents. In my view, some additional financial documentation for the Consulate Group and HIL should be produced. Metro is entitled to further disclosure given HIL’s allegations that it relied on Metro’s payment of the higher rent amount to its detriment and that some of the funds have not been repaid. Therefore, issues related to the alleged reliance and resulting damages requires a broader consideration of the funds advanced including the status of all loans. Therefore, picking up on the previous productions until 2009, financial statements for HIL and the Consulate Group from 2010 to the present shall be produced within 30 days to provide a complete picture including current status. In light of the productions ordered above, I am not satisfied that the balance sheets of HIL and the Consulate Group should be produced at this time. These may be spoken to depending on what information is revealed and contained in the financial statements. If the financial statements do not provide a complete picture, the parties should discuss what other financial documentation, including the balance sheets should be produced, keeping in mind what is reasonable and proportionate.
[23] Refusals 14, 15, 16, 17 and 18– These questions are related to HIL’s allegations that MOREL is not entitled to damages because it is not the tenant under the Lease and did not pay rent (Amended Defence and Counterclaim, paras. 14-17, 57, 66-70). It is HIL’s position that in 1986, the then-tenant of the Premises, New Dominion Stores Ltd. amalgamated with the Great Atlantic and Pacific Company of Canada Ltd. which, through a series of name changes is now known as MOI. HIL alleges that unbeknownst to it, MOI purported to assign the Lease to MOREL in 1987 and sublet the Premises from MOREL. HIL claims that until this action it understood that the leaseholder and the store operator were the same entity.
[24] HIL’s understanding of which Metro entity was the tenant under the Lease is relevant to the issues in dispute. However, much of what Metro is seeking is overbroad, disproportionate and in some cases not relevant. In this regard, HIL is not required to produce all journal entries for Metro from 2009 to date (Refusal 14) and any accounting records which would substantiate who paid the rent (Refusal 18). In my view, what is responsive and proportionate to the balance of the refusals is narrower. HIL shall, within 60 days, advise how the Metro entity which was the tenant was identified in HIL’s accounting entries and represented to third parties including lenders and insurers from 2009-present. HIL shall also, within 60 days, produce one sample accounting journal entry demonstrating how Metro’s rent was treated for each year from 2009-present. If the reference or treatment changed at any time then this shall also be provided. HIL shall also produce the relevant portions of any insurance or loan documents from 2009-present which reference the Metro entity which is the tenant of the Premises (Refusals 15, 16 and 17).
[25] Refusals 19 and 20 - These refusals relate to the roof repairs. HIL alleges at paragraphs 66-70 of the Amended Defence and Counterclaim that Metro Ontario Services, a partnership, entered into a contract and paid for the roof repairs and that HIL was not obligated to pay for them. While Refusal 19 is not worded clearly, I am satisfied that HIL shall advise which repairs to the Premises were covered by paragraph 14 of the Lease such that if HIL did not do the repairs, Metro could have them completed and charge the amounts back to HIL as CAM. With respect to Refusal 20, I am satisfied that it is appropriate for HIL to confirm if it believed that it received a new roof on the Premises which was installed by the tenant. Both questions shall be answered within 30 days.
[26] Refusal 21 – HIL agrees to advise if Mr. Sorokolit recalls anything further about his conversation with Mr. O’Neill in June 2001 regarding the Lease renewal that he has not already advised. HIL shall do so within 30 days.
HIL’s Motion
[27] HIL seeks answers to 1 undertaking and 5 refusals/under advisements from the examination for discovery of Tim Lawlor on behalf of Metro.
[28] Undertaking 19 – HIL agrees that Metro has answered this undertaking regarding the calculation of its damages claim for rent and rent percentage overpayments.
[29] Under Advisement 25 – Metro agrees to provide the name and contact information for the head of Metro Ontario Services in 2009 within 30 days.
[30] Refusal 4 – HIL requests how MOREL currently determines whether or not to seek a lease renewal. In response to a related undertaking, MOREL has already advised that there is no policy or manual currently in place that sets out how to make this determination. During his examination, Mr. Lawlor identified factors which Metro considers when determining whether or not to renew a lease (Question 362). MOREL shall advise within 30 days if there are any other factors in addition to those Mr. Lawlor identified.
[31] Refusals 5 and 13 – HIL requests that Metro review its records for its 2001 tax appeal and advise what it believed the fair market value rent was in 2001 (Refusal 5). While I am satisfied that the fair market value of the rent is relevant to HIL’s claims, it appears as if this information may be available to HIL from its own records given that the landlord is required to sign off on any tax appeals. HIL shall review its own records and if it does not have this information, Metro shall provide it. Similarly, HIL shall review its own records to determine if there were any other tax appeals from 2009 to the present first before Metro is required to provide this information (Refusal 13).
[32] Refusal 6 – HIL requests how many years in advance MOI does store projections. MOREL has previously advised that it does store projections annually. Additional information has also been provided with respect to Mr. O’Neill’s recollections regarding the sales projections from April-June 2001 as part of additional information provided in response to Refusal 15. Metro has agreed to clarify regarding how far out projections were done and advise within 30 days.
III. Disposition and Costs
[33] Order to go on the terms set out above.
[34] If the parties cannot agree on the costs of the motions, they may file written costs submissions not to exceed 3 pages (excluding Costs Outlines) on a timetable to be agreed upon by counsel.
Released: June 3, 2022
Associate Justice McGraw