COURT FILE NO.: CV-20-641612

DATE: 2022 07 22

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: BENTPROP HOLDINGS INC., Plaintiff

- and -

TFS MANAGEMENT, INC., GLOBAL MERCHANT BOND SERIES INC., TFS CANADA BOND SERIES II INC., GMF SERIES III, INC., GLOBAL MERCHANT FUND CORP., GLOBAL MERCHANT HOLDINGS, CORP. AND ABC CORPORATION, Defendants

BEFORE: Associate Justice Todd Robinson

COUNSEL: R. Gao, for the plaintiff

D. Seifer, for the defendants, TFS Management, Inc., Global Merchant Bond Series Inc., TFS Canada Bond Series II Inc., GMF Series III, Inc., Global Merchant Fund Corp., and Global Merchant Holdings, Corp.

HEARD: April 27, 2022 (by videoconference)

REASONS FOR DECISION

[1] Bentprop Holdings Inc. (“Bentprop”) moves to compel answers to undertakings and refusals given during the examination for discovery of Marius Silvasan. Mr. Silvasan was produced as the representative on behalf of TFS Management, Inc. (“TFS”), Global Merchant Bond Series Inc., TFS Canada Bond Series II Inc., GMF Series III, Inc., Global Merchant Fund Corp., and Global Merchant Holdings, Corp. (collectively with TFS, the “TFS Defendants”).

[2] The underlying action concerns Bentprop’s claim for unpaid fees allegedly owing under an agreement with TFS. Pursuant to that agreement, Bentprop connected investors with TFS (or related entities) in return for a “finder’s fee” tied to a percentage of the investments ultimately made by those investors. Bentprop alleges that it introduced TFS to representatives of Solar Capital Partners (“Solar”) and Crystal Financial, LLC (“Crystal”), which included an individual named Scott Rosen. A term sheet was signed with Solar and Crystal, but before the transaction could be concluded, Mr. Rosen joined a new firm, Ares Capital Corporation (“Ares”). Ultimately, the transaction with Solar and Crystal did not proceed, but a transaction was subsequently concluded with Ares. Bentprop claims the “finder’s fee” for that transaction. The TFS Defendants allege that the transaction with Ares was substantially different and was not a continuation of the prior contemplated transaction with Solar and Crystal.

[3] By the time of the hearing before me, the dispute was narrowed to refusals over production of unredacted copies of a credit agreement with Ares, as well as the amendments to that agreement, production of other documents setting out the terms and conditions of actual or anticipated funding by Ares, and whether the TFS Defendants must produce calendar appointment files in native format.

[4] The issues to be determined are as follows:

(a) Is production of the credit agreement, its amendments, and other documents setting out terms and conditions of funding by Ares captured by the production requests made during the Mr. Silvasan’s discovery?

(b) If so, are those agreements and documents relevant?

(c) If the credit agreement and its amendments are relevant, have the TFS Defendants established sufficient confidentiality and commercial sensitivity concerns to warrant production in a redacted form?

(d) Do the TFS Defendants need to produce native format calendar appointments?

[5] I am satisfied that producing the credit agreement and its amendments is captured by the production request made by Bentprop, but am not satisfied that it captures a request for “other documents” setting out funding terms and condition. In my view, the credit agreement and its amendments are relevant and producible documents based on the pleadings. Although the record before me does not support the extent of redaction proposed by the TFS Defendants, some redaction is appropriate. I have also determined that production of the calendar appointment files in native format is required, whether expressly or impliedly, by the parties’ discovery plan.

[6] I am thereby granting Bentrop’s motion and ordering most of the requested production, with limited redactions permitted to the credit agreement and its amendments.

Analysis

[7] Bentprop argues that the disputed production requests are captured by five questions asked during Mr. Silvasan’s discovery, namely question nos. 275, 276, 279, 549, and 550. The last two questions are argued to capture the request for agreements (and amendments to those agreements) with Ares and other documents setting out the terms and conditions of the funding. The first three questions deal with calendar appointments.

a. Do the discovery production requests capture the credit agreement, its amendments, and other documents setting out funding terms and conditions?

[8] Bentprop seeks an order requiring the TFS Defendants to produce (i) a credit agreement dated January 31, 2020 referred to in the TFS Defendants’ answer to question 548 of Mr. Silvasan’s examination for discovery; (ii) all amendments to that credit agreement; and (iii) any other documents setting out the terms and conditions of the funding advanced or to be advanced by Ares. Bentprop argues that these are captured by the production requests at question nos. 549-550.

[9] Since the specific questions asked and language used during the examination is the source of the parties’ dispute, I reproduce the series of questions and responses (question nos. 548-550) below:

548 Q. All right. And before I forget, I would also like production of the financial terms of the concluded term sheet agreement or agreements with Ares, including any amendments thereto.

U/A MR. SHAPIRO: Also under advisement.

BY MR. RICCI:

549 Q. As well as production of all such term sheets, agreements and amendments thereto?

MR. SHAPIRO: I don't understand that request.

BY MR. RICCI:

550 Q. Well, my first request -- I'm trying to break this down in two different parts, counsel. The first request is for you to advise me of the financial terms in the term sheets and agreements between Ares and Global Merchant .

The second request is for you to produce the actual term sheets and underlying documents rather than just advise me of the financial terms.

U/A MR. SHAPIRO: Same answer for both of those.

[10] The TFS Defendants’ position is that the request at question no. 549 was rephrased and a new request was made at question no. 550, such that the initial request is immaterial. They then focus on the words “underlying documents” used in the rephrasing at question no. 550, arguing that those words refer only to documents underlying the term sheet at the time it was prepared. I reject that argument.

[11] In my view, all three questions asked must be read together. They clearly request details of the financial terms with Ares outlined in the term sheet, any agreements, and any amendments to them as well as production of those term sheets, agreements, and any amendments. Question no. 550 only served to clarify that there were two aspects to the production request made at question no. 549.

[12] The request in question no. 549 appears to have been straightforward, so I am uncertain why it was not understood at the time. It followed the clear request for “the concluded term sheet agreement or agreements with Ares, including any amendments thereto” (question no. 548), and requested production of those same documents using substantially the same language. I do not agree with the TFS Defendants that question no. 550 should be viewed in isolation from question no. 549. The lead-in to question no. 550 is clarification language that arose solely from Mr. Shapiro’s statement that he did not understand the request in question no. 549. It was not a reformulated request. While use of the word “underlying” has led to the dispute before me, the request seems clearly intended to be for production of the documents “underlying” the financial terms requested at question no. 548, namely the term sheets, agreements, and amendments from which any financial terms captured by question no. 548 were drawn.

[13] I thereby find that Bentprop’s production request extended to the term sheets, agreements, and any amendments that are necessary to understand the financial terms that were the subject matter of question no. 548. I accordingly agree with Bentprop that the credit agreement and its amendments are captured in the production request.

[14] Bentprop’s request for “other documents” setting out the terms and conditions of funding is another matter. No specific argument was advanced in Bentprop’s factum or oral submissions about the requested order for production of “any other documents setting out the terms and conditions of the funding advanced or to be advanced by Ares to the [TFS] Defendants”. The questions asked do not request “other documents” and I do not view the reference to “underlying documents” as expanding the scope of the initial production request in question no. 549, which was specific to production of the concluded term sheet and any agreements with Ares from which the financial terms requested in question no. 548 were drawn.

[15] Given the foregoing, in my view, the credit agreement and amendments to that agreement, as well as any other agreements with Ares dealing with the financial terms of the transaction, are captured by the production request made. Other documents setting out terms and conditions of the funding were not.

b. Are the credit agreement and its amendments relevant?

[16] The term sheet with Ares has already been produced. Although a redacted copy of the credit agreement was also produced, that was done on a without prejudice basis. The parties dispute whether it (and the amendments to it) are relevant.

[17] Even though I have found that the production request included any agreements with Ares dealing with the financial terms of the transaction, there is nothing in the record before me supporting that there were any agreements with Ares other than the credit agreement. Production orders must be based on some evidence that a relevant document that has not been produced exists. Since there is no evidence that any other agreements exist, I need only consider whether the credit agreement and its amendments should be produced.

[18] Although taken under advisement during the examination, the TFS Defendants ultimately provided answers to question nos. 548 and 550. In answering question no. 548, the TFS Defendants described the financial terms with reference to the produced term sheet, the disputed credit agreement, and a fourth amendment to that credit agreement. The TFS Defendants staunchly maintain that the credit agreement and its amendments are irrelevant documents. I disagree.

[19] For a document to be relevant, it must relate to the issues between the parties, be useful, and be likely to contribute to resolving the issues. Whether a document is relevant turns on the allegations of material facts and the components of each cause of action pleaded in the case: Seelster v. Ontario, 2015 ONSC 908 at paras. 142 and 145.

[20] The transaction with Ares is central in this litigation. Bentprop pleads at para. 29 of the statement of claim that, in every material respect, the transaction with Ares was merely a continuation of the prior transaction with Crystal and Solar, using the same term sheet, same counsel, same due diligence, same type of financing, and similar proposed investment amounts. In their statement of defence, at paras. 34-35, the TFS Defendants expressly plead that the transaction with Ares took a substantially different form than the contemplated transaction with Crystal, that many of the features of the Ares transaction were not contemplated or developed in the prior transaction, and that the Ares transaction was thereby not a continuation of the prior contemplated transition with Crystal.

[21] Both pleadings support that the features of the Ares transaction are relevant to assessing whether it was “merely a continuation” of the prior transaction, as alleged by Bentprop. I agree with Bentprop that determining whether the transaction with Ares was a continuation or a substantially different and separate transaction, as alleged by the TFS Defendants, will reasonably need to be resolved with reference to the terms of the transaction with Ares.

[22] The TFS Defendants have a well-considered argument for why the credit agreement will not ultimately bear on deciding whether the transaction with Ares was a continuation of the prior proposed transaction with Crystal and Solar and will also not bear on damages quantification. However, in my view, those arguments are for the trial judge to hear and decide.

[23] I agree with Bentprop that the answer given by the TFS Defendants to question no. 548 indicates that, at a minimum, one or more of the TFS Defendants entered into a credit agreement with Ares, which was amended at least four times. The TFS Defendants’ answer also confirms that the financial terms are derived from the term sheet, credit agreement, and the fourth amendment to the credit agreement. That answer includes defined terms (such as “Borrowing Base”) drawn from the credit agreement that are not explained or defined in the answer given about the financial terms.

[24] The foregoing is, in my view, more than sufficient to find the credit agreement to be relevant and producible based on the pleadings. Whether or not it will ultimately have any bearing on determinations at trial will be for the trial judge.

[25] With respect to the amendments, the TFS Defendants concede that, if the credit agreement is relevant, then the amendments are also relevant, but only to the extent that they amend the financial terms of the credit agreement. There is, however, no evidence before me on how many amendments were made and which amendments did or did not amend financial terms (other than that the fourth amendment seems to deal with increasing the maximum amount of a delayed draw term loan).

[26] Since I have found the credit agreement to be relevant, it follows that all amendments to that agreement are also relevant. In my view, an agreement cannot be read in isolation from its amendments. Even if a specific amendment to the credit agreement may itself be irrelevant, that does not change the fact that it still forms part of the credit agreement, which I have found is a relevant document. Whether irrelevant content may be properly redacted is a separate issue.

c. Should the credit agreement and its amendments be produced in a redacted form?

[27] As already noted, prior to the motion being argued, the TFS Defendants produced a redacted copy of the credit agreement without prejudice to their position on relevance. The TFS Defendants argue that, if the credit agreement is relevant, then it is properly redacted.

[28] Bentprop argues that the credit agreement and all amendments to it should be produced in unredacted form for three reasons. First, the TFS Defendants’ unilateral assertion that redacted content is irrelevant cannot be verified since relevance cannot be argued without knowing what has been redacted. Second, the law is well-established that contracts must be read and interpreted as a whole, so the agreement should not be redacted. Third, the TFS Defendants have failed to establish any harm from production in an unredacted form that cannot be reasonably addressed.

[29] In McGee v. London Life Insurance Company Limited, 2010 ONSC 1408, Strathy J. (as he was then) addressed the scope of proper redactions for relevance. He held that the whole of a relevant document must be produced except to the extent it contains information that would cause significant harm to the producing party or would infringe public interests deserving of protection (para. 9). He also held that the party seeking to redact portions of a document bears the onus of establishing that redaction is necessary to protect an important public interest, such as patents or trade secrets, personal income tax information, commercially sensitive financial information, or records of a purely private and personal nature (para. 13).

[30] In Seelster v. Ontario, supra, Emery J. noted the decision in McGee and held that the court can only be in a position to determine what would cause significant harm to the producing party or what disclosure would infringe a public interest that deserves protection if the opposing party provides proper evidence relating to each part of those issues (para. 120).

[31] I agree with Bentprop that, on the weight of these authorities, the credit agreement and its amendments ought presumptively to be produced in unredacted form unless the TFS Defendants establish that doing so would cause them significant harm or that redactions are necessary to protect an important public interest. That must be done through specific evidence addressing those matters.

[32] The TFS Defendants’ evidence on the propriety of redactions is provided through the affidavit of Steve McDonald, a director and the president of the TFS Defendants. Leaving aside that Mr. McDonald’s affidavit contains clearly improper argument, the salient points of his evidence on commercial sensitivity are as follows:

(a) the redacted portions were not part of or contemplated in the term sheet with Crystal and Solar or the term sheet with Ares;

(b) the redacted portions of the credit agreement contain “commercially sensitive, proprietary, and confidential information”, which is particularized as including “information about the borrowers, guarantors and related companies relating to: (i) their existing indebtedness; (ii) bank accounts, including bank account numbers and locations; (iii) investments; (iv) transactions between affiliates; (v) material contracts; and (vi) completely particularized information about outstanding loans given by the borrowers and guarantors to their customers”;

(c) Bentprop and its principal, Andrew Eaton, operate in the same industry as the TFS Defendants and act for competitors of the TFS Defendants;

(d) Bentprop would be able to gain a commercial advantage to the prejudice of the TFS Defendants by repurposing the confidential information for its own benefit and the benefit of its clients; and

(e) it would be harmful to the TFS Defendants and their business if the credit agreement was produced to third parties or otherwise seen or used by competitors of the TFS Defendants.

[33] Mr. McDonald’s assertion that the redacted portions go beyond the scope of terms sheets is a self-serving statement that cannot be verified. It also speaks to relevance, not harm. Although the TFS Defendants have proposed that I review the unredacted credit agreement and proposed redactions, the court cannot reasonably be tasked with reviewing every document that a party wishes to redact on commercial grounds. As set out in both McGee and Seelster, the court must first find that evidence supports significant harm from production in unredacted form before any redaction is appropriate. At that point, it is within the court’s discretion whether it needs to verify the propriety of redactions.

[34] I do not accept Mr. McDonald’s concerns about Bentprop’s use of the credit agreement beyond this litigation as being sufficient to establish significant harm. They are purely speculative. Nothing before me supports that Bentprop has any ulterior motive for obtaining the unredacted credit agreement or any intended use beyond this litigation. I am also not prepared to presume, as the TFS Defendants’ position implies, that Bentprop intends to or will breach the deemed undertaking in rule 30.1 of the Rules of Civil Procedure, RRO 1990, Reg 194. Subrule 30.1.01(3) expressly prohibits Bentprop from using any evidence or information obtained from the TFS Defendants through documentary and oral discoveries for any purpose other than those of this proceeding. Breach of that rule would open Bentprop to a range of sanctions by the court.

[35] Nevertheless, I am satisfied from Mr. McDonald’s evidence that there is some commercially sensitive, proprietary, and confidential information that is irrelevant to this litigation and ought to be protected. No cogent argument was advanced by Bentprop for the relevance of existing indebtedness of borrowers, guarantors and related companies, bank account information, unrelated investment information, transactional information between affiliates, unrelated contracts, and information on outstanding loans between borrowers, guarantors, and their customers, all of which are outlined by Mr. McDonald as being within the redactions.

[36] Bentprop has proposed a “counsel eyes only” term, whereby access to the unredacted copy of the credit agreement will be restricted to Bentprop’s counsel and directions of the court sought in the event of disputes over redacted portions in the version available to Bentprop’s representatives. Such a term is practically unworkable. For example, how will Bentprop’s counsel obtain instructions from Bentprop on litigation strategy or even whether directions should be sought if it cannot disclose the substance of redacted portions of the credit agreement to which Bentprop does not have access?

[37] Some redaction is appropriate, but not to the extent that it appears the credit agreement has already been redacted. In my view, permissible redactions are limited to references to other existing indebtedness of borrowers, guarantors, and related companies, bank account information, particulars of transactions between affiliates, information about investments other than the investment(s) by Ares and/or its related or affiliated entities as contemplated by the term sheet and credit agreement (as amended), contracts with parties other than Ares and its related or affiliated entities, amounts of outstanding loans except to the extent that they bear on the total investment capital by Ares or its related or affiliated entities, and unrelated investment information that is not material to the investment capital on which the “finder’s fee” may reasonably be based if Bentprop is successful.

[38] All redactions should be to the minimum extent reasonably necessary to protect such irrelevant and confidential or commercially sensitive information, leaving the surrounding provisions to contextualize the redaction. The specific nature of commercially sensitive, proprietary, or confidential information and redaction reason must also be provided for each redaction, similar to the type of particulars provided at para. 14 of Mr. McDonald’s affidavit.

d. Are native format calendar appointments required?

[39] The TFS Defendants have produced printouts of calendar entries. They take the position that Bentprop did not specifically ask for native format production. In my view, the argument is without merit. I am satisfied that the parties’ discovery plan includes an agreement for production of all documents in native format.

[40] Section B of the parties’ discovery plan addresses affidavits of documents and productions. At para. 8(a), the parties agreed that production of electronic documents would include native format. Accordingly, any document that ought to have been included in the affidavit of documents would in my view remain subject to the agreement for production in native format.

[41] The TFS Defendants argue that the discovery plan does not contemplate any format for production of documents in answers to undertakings. That argument is technically correct. However, it ignores that the parties turned their mind to the format of documentary production when preparing the discovery plan and, in doing so, agreed that native format would be provided. In my view, given the parties’ agreement, it is reasonably implied from the discovery plan that further production requests made during the discovery process would be requests for production in native format, without the need to specifically state it.

[42] The TFS Defendants submit that I should take into account that they agreed to answer the questions and produce the requested calendar entries to avoid this motion and without admitting the propriety of the questions. That was clearly stated in the covering email under which the answers were provided. However, it does not assist the TFS Defendants. They advanced no argument in support of their initial refusals, which were based on the production requests being overbroad and disproportionate. The burden is on the party opposing production on the basis of proportionality to put forward cogent evidence addressing the factors in rule 29.2.03: Seelster, supra at para. 110. The TFS Defendants have not done so.

[43] Bentprop’s position on relevance is set out in the refusals chart and its factum, which support relevance of the documents. Relevance was not disputed. In my view, the fact that the TFS Defendants have now answered the questions and produced requested documents undercuts the legitimacy of its prior position that the requests were overbroad and disproportionate. Having agreed to produce the calendar entries, they were obliged to produce them in native format.

Disposition

[44] For the reasons set out above, the TFS Defendants shall produce copies of the credit agreement with Ares and all amendments to that credit agreement, subject to the redactions I have authorized in paras. 37-38 above. The TFS Defendants shall further produce the requested native format calendar files. All such productions are to be made within thirty (30) days. Order accordingly.

[45] I will remain seized of any disputes over whether redactions of the credit agreement and its amendments comply with my order. If necessary, a case conference before me for directions on any such disputes may be arranged through my Assistant Trial Coordinator, Christine Meditskos.

Costs

[46] Costs outlines were exchanged and uploaded to CaseLines prior to the hearing. The parties are encouraged to agree on costs. If they cannot, then written costs submissions shall be exchanged and filed. Bentprop shall serve any costs submissions by August 5, 2022. The TFS Defendants shall serve their responding costs submissions by August 19, 2022. There shall be no reply submissions absent leave of the court. Costs submissions shall not exceed four (4) pages, excluding any offers to settle and case law, and shall be submitted by email directly to my Assistant Trial Coordinator, Christine Meditskos, with proof of service.

[47] Unless costs submissions are exchanged and filed in accordance with the above, the parties shall be deemed to have agreed on costs.

ASSOCIATE JUSTICE TODD ROBINSON

DATE: July 22, 2022