COURT FILE NO.: CV-20-00640055
MOTION HEARD: 20220119
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Hashem Al-Ghaili, Plaintiff, Defendant by Counterclaim, Moving Party
AND:
Backyard Media Inc., Becker Consulting Group LLC, Underknown Corp., Stephen Hulford, Chris Becker and Raphael Faeh, Defendants and Plaintiffs by Counterclaim, Responding Parties
BEFORE: Associate Justice L. La Horey
COUNSEL: Maanit Zemel and Paul Lomic, Counsel for the Moving Party Plaintiff, Defendant by Counterclaim
John Simpson and Stephen Cooley, Counsel for the Responding Parties, Defendants, Plaintiffs by Counterclaim
HEARD: January 19, 2022 by videconference
reasons for decision
Overview
1The plaintiff brings this motion pursuant to Rule 30.06 for a further and better affidavit of documents. Specifically, the plaintiff seeks production of the financial, operational and accounting documents listed in Appendix A to the plaintiff’s factum (“Requested Documents”).
2In this action the plaintiff claims, inter alia, $10 million in damages, an accounting of profits and injunctive relief, arising out the alleged dissolution of a partnership, as well as for breach of contract, breach of fiduciary duty, the tort of passing-off, copyright infringement and claims pursuant to the Trademarks Act.
3The pleadings are closed. The parties have exchanged affidavits of documents. Examinations for discovery have been postponed pending the disposition of this motion.
Position of the Parties
4The plaintiff asserts that the Requested Documents are relevant to the issues pleaded in this action and are necessary for the preparation of an expert report respecting, inter alia, the valuation of the partnership and/or the intellectual property at issue in this litigation and the damages sustained by the plaintiff. The plaintiff submits that he has provided evidence that the Requested Documents exist. The plaintiff has filed a lawyer’s affidavit which attaches some of the Schedule A documents and affidavits of documents. The plaintiff has also tendered two affidavits from the plaintiff’s expert. The plaintiff argues that, given the evidence that he has tendered on this motion, it was incumbent on the defendants to file evidence if the documents, or some of them, do not exist. The plaintiff argues that proportionality is not a factor on the motion as the defendants did not tender any evidence in support of their bald submission that production of the Requested Documents should be refused on this ground.
5The defendants oppose the motion stating that none of the Requested Documents should be ordered to be produced before examinations for discovery. They assert that some of the documents are irrelevant and that some have not been shown to exist (although no breakdown by category was provided). For all of the Requested Documents, the defendants submit that ordering them to be produced at this stage would not be proportionate and would interfere with the orderly progress of this action. Further, the defendants note that the plaintiff is not precluded from requesting further financial documents during examinations for discovery. They also contend that the production request is better assessed in the context of a motion for refusals or in case management.
The Law
6The relevant law is helpfully summarized by Justice R. M. R. Bell in Oz Optics v Zhang (2017 ONSC 4263) at paragraphs 7 and 8 as follows:
7Rule 30.03(1) of the Rules of Civil Procedure requires a party to disclose in its affidavit of documents all documents relevant to any matter in issue in the action that are or have been in the party's possession, control or power. Where the court is satisfied "by any evidence" that a relevant document in a party's possession, control or power may have been omitted from that party's affidavit of documents, the court may, under Rule 30.06(b), order service of a further and better affidavit of documents. The level of proof required should take into account the fact that one party has access to the documents, while the other party does not. (RCP Inc. v. Wilding, [2002] O.J. No. 2752 at para. 9.) While there must be evidence that documents have been withheld before an order under Rule 30.06 will be made, commencing discovery and moving for further production after obtaining admissions is not the only appropriate procedure to be followed. I agree with Master MacLeod (as he then was), that the court should be cautious about endorsing a process "which results in successive rounds of discovery, productions and motions." (RCP Inc. v. Wilding at paras. 9 and 10.)
8In making a determination as to whether a party is required to produce a document, the principle of proportionality requires that I consider whether, the time required to produce the document would be unreasonable; the expense associated with producing the document would be unjustified; production of the document would cause undue prejudice; production of the document would unduly interfere with the action's orderly progress; and the document is readily available from another source: Rule 29.2.03(1). The overall volume of documents is also a factor to be considered: Rule 29.2.03(2).
Analysis
Relevance
7There is no dispute that relevance is determined by the issues raised in the pleadings.
8The defendants dispute the relevance of some categories of documents. They submit that the financial documents from the corporate defendants other than Backyard Media Inc. (“BMI”) are not relevant. Only the plaintiff and BMI are parties to the “Content Partnership Agreements”. Therefore, they say there is no basis to order financial documents from the other corporate defendants. However, the plaintiff’s claim is broader than a claim based on the Content Partnership Agreements or the alleged partnership between the plaintiff and BMI. The plaintiff also has claims sounding in breach of contract and in intellectual property infringement. The plaintiff claims as against all of the defendants for damages, disgorgement of profits and a tracing order in respect of these causes of action.
9Moreover, the defendants have admitted that the corporate defendants are related to each other. Documents from the defendant Becker Consulting Group LLC (“Becker”) are relevant because the Content Partnership Agreements provide that the revenues that are to be split between BMI and the plaintiff will be “captured” through BMI’s U.S. holding company, Becker.
10Financial documents from the defendant Underknown Corp. (“Underknown”) are also relevant. In their pleading, the defendants plead that BMI is the parent of Underknown. The defendants generally lump together BMI and Underknown in their amended statement of defence and counterclaim. Additionally, the plaintiff pleads that the defendants transferred partnership assets to Underknown, including Facebook Watch Pages.
11The defendants further take issue with the time period of the requested documents. There are two Content Partnership Agreements between the plaintiff and BMI each with a 12 month term. The first agreement starts in February 6, 2018. A second agreement was then entered into which terminated on February 6, 2020. The defendants therefore take the position that documents from the period February 6, 2020 “to date” are irrelevant. I do not accept the defendants’ position. Documents after February 6, 2020 are relevant to the plaintiff’s claims for intellectual property infringement and the plaintiff’s claim for an accounting of all of the revenue made by the defendants from the partnership assets following the date of dissolution and payment of the plaintiff’s share of such revenue.
Evidence of the Existence of the Documents
12The plaintiff has filed two affidavits sworn by Stephen Lee, of RSM Consulting LP, (“RSM”) who has been retained by the plaintiff to provide an expert report on the economic damages and financial losses sustained by the plaintiff as a result of the alleged unlawful activities of the defendants. Mr. Lee is a Chartered Accountant and Chartered Business Valuator, Designated Specialist in Forensic and Investigative Accounting, and is Certified in Financial Forensics. In his affidavit, Mr. Lee says that he has reviewed the documents provided by the defendants and that his review reveals that there are financial, operational and accounting documents that have not been produced by the defendants to date. He particularizes those documents and provides reasons why they are required. The Requested Documents schedule is compiled from the listing in Mr. Lee’s affidavit.
13The defendants argue that the plaintiff has produced no evidence that the documents exist. Although Mr. Lee in cross-examination admitted that he did not know that the documents exist, he said that the documents are documents that he would expect from the business and that they are accounting records and financial records that should exist for all businesses.
14The Requested Documents list includes categories of documents that one would expect corporations to have in their possession. These categories are: annual financial statements, corporate income tax returns, monthly profit and loss statements, monthly bank accounts and general ledger details. The documents requested are for the three corporate defendants to the extent that they have not been produced. The date ranges requested are from 2018 to date, depending on the category of documents. The plaintiff has produced some evidence that the documents exist. In my view, it was up to the defendants to provide evidence to rebut the assumption that these standard documents exist, to the extent that they take the position that these documents do not exist (as I have mentioned above, the defendants did not provide a breakdown of their objections on a category by category basis).
15The Requested Documents also include categories of documents relating to revenue derived from social media to which the plaintiff claims entitlement. These are: Facebook account statements, Ad Break Insights, Net Effect Solutions’ Statements, Google Adsense Documents, Revenue Insights of Snapchat Earnings, Agreements with Social Medial Platforms, Third Party License and/or Sponsorship Agreements, Accountant Statements and Income Generated from License and/or Other Arrangements. It is not disputed that Backyard Media created videos to generate profits through advertising revenue on social media, in particular Facebook. Schedule A to the plaintiff’s affidavit of documents provides some evidence that documents with respect to other social media platforms such as Snapchat are likely to exist. As a result, it was incumbent upon the defendants to provide evidence that the documents do not exist (for instance in a short affidavit from one the principals) or at the very least to identify particular categories of documents that do not exist and provide an explanation. In oral argument, I pressed defendants’ counsel to identify particular categories of documents that they take the position do not exist. Counsel referred to the categories of the social media documents other than the Facebook statements but did not provide particulars. Rather, counsel emphasized the proportionality argument which I deal with below.
16The defendants do not dispute that they are in possession of documents in the category of payments made to the plaintiff, but object to producing documents beyond what they have produced as part of their proportionality argument.
Proportionality
17The defendants rely on the proportionality requirement in Rule 29.2 but they have not filed any evidence attesting as to the time, complexity or expense required for production of the Requested Documents, any difficulties in accessing the documents or the volume of documents involved. It is noteworthy that the plaintiffs are requesting documents only back to 2018.
18The defendants submit that some of the Requested Documents are sought to ‘verify’ the accuracy and completeness of documents that have already been produced and that these documents need not be produced at this stage. However, the requested back-up financial documents go to the heart of the plaintiff’s claim for an accounting and tracing. Without the back-up documentation that is in the possession of the defendants, the plaintiff will be precluded from proving his case.
19The defendants take the position that requiring production at this time would unduly interfere with the orderly progress of the action (Rule 29.2.03(1)(d)). The defendants argue that the need to produce further existing documents is better assessed in the context of a refusals motion after a first round of discoveries. I disagree. It is the defendants’ proposed course of action, with its successive rounds of productions, discoveries and motions, that is likely to delay the action.
20The defendants say that at a later stage, when the action may be case managed, the court might consider “the likelihood that the [plaintiff] will be able to prove entitlement to damages or profits under any of his claims.” Therefore, they argue that production should be deferred. I do not accept this argument. The Rules require the parties to disclose the relevant documents at the outset of action. There is no distinction between liability documents and damages documents. The defendants are not entitled to withhold relevant damages documentation until a later stage, absent a bifurcation order which so provides. The defendants have asked the plaintiff to consent to a bifurcation order, but the plaintiff has refused and there is no pending bifurcation motion.
21The defendants also submit that some of the documents are “readily available from another source”, i.e. in the plaintiff’s own possession, in particular, the documents in the category “Payments made to the Plaintiff” and therefore these need not be produced. However, the plaintiff alleges that he has not received all that he was entitled to and has sought an accounting and the defendants have not provided any evidence that this is an unduly onerous request.
Conclusion
22The thrust of the defendants’ argument is that full production of damages documents should be deferred to a later stage. However, the Rules provide that all relevant documents are to be produced at the beginning of litigation which includes both liability and damages documents. The discovery process will be inefficient and more expensive if production of relevant damages documents is deferred. I am satisfied that the plaintiff has met the test set out in Rule 30.06 and that the requested production is proportionate. Therefore, an order for further and better affidavits of documents shall issue.
Form of Order
23The plaintiff’s notice of motion was served at a time when not all of the defendants had delivered an affidavit of documents and the notice of motion seeks relief as against all the defendants, including the individual defendants. Based on the factum and oral submissions it appears that the plaintiff seeks further production from the corporate defendants and not the individual defendants. No submissions were made on this point during the hearing. Further, no submissions were made as to the appropriate time period within which the defendants should deliver further and better affidavits of documents.
24Category D of the Requested Documents makes a request for monthly bank statements for enumerated bank accounts. It also contains a request to identify the deposits related to all revenue sources earned from certain activities. During the hearing, Ms. Zemel agreed that the appropriate time for the deposits to be identified is during oral discoveries and withdrew the request that the deposits be identified at this time. Therefore, the defendants are not required to identify the deposits at this juncture, although they may choose to do so in the interests of efficiency.
25Counsel should confer and attempt to come to an agreement on a draft order, which may then be submitted to me. If they cannot reach agreement, they should request a telephone case conference with me to address the form of the order. In either case, they should contact my Assistant Trial Coordinator.
Costs
26The parties have reached an agreement on costs whereby the plaintiff is entitled to costs in the sum of $10,000 (all-inclusive) if he is entirely successful and the defendants are entitled to costs in the sum of $7,500 if they are entirely successful. If success is divided, the court is to determine costs. As the plaintiff has been entirely successful, he is entitled to his costs of this motion in the sum of $10,000 (all-inclusive) payable by the defendants within 30 days of the release of this endorsement.
Disposition
27The plaintiff’s motion is granted with costs payable to him in the sum of $10,000 (all-inclusive) within 30 days.
L. La Horey, A.J.
Date: January 21, 2022