De Rita v. 1266078 Ontario Inc., 2022 ONSC 5121

Court File and Parties

COURT FILE NO.: CV-19-182 DATE: 20220908 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: MICHAEL FULVIO JOHN DE RITA, Applicant AND: 1266078 ONTARIO INC., Respondent

BEFORE: Tranquilli J.

COUNSEL: Cynthia Mackenzie, for the Applicant/Moving Party Nour Jomaa, for the Respondent

HEARD: July 8, 2022

ENDORSEMENT

1This matter arises from a series of disputes between the parties regarding a real estate transaction concerning apartment building in 2013. This transaction was cursed. It gave rise to litigation concerning the closure of the purchase, damages for the subsequent discovery of a faulty boiler system in the apartment building and now this application regarding discharge of a vendor take-back mortgage on the building and the applicant’s damages claim arising from the respondent’s alleged improper refusal to discharge the mortgage.

2The applicant’s motion seeks orders for answers to refusals on the respondent’s cross-examination on his affidavit and for an order requiring the respondent’s former counsel to be produced for examination pursuant to rule 39.03 and to provide additional documentation for that examination.

Background

3The applicant submits he entered into an agreement of purchase and sale in August 2013 and made a deposit of $5,000.

4The applicant first commenced litigation in London in 2014 seeking specific performance of the agreement of purchase and sale of the building (CV-14-2863 “the London Action”). The parties ostensibly authorized their respective counsel to settle the matter in April 2014 with terms including a transfer of the real estate to the applicant, a $450,000 vendor take back mortgage in favour of the respondent was registered on title at zero interest and payments of $1,500 per month to commence in March 2015 and scheduled to mature in July 2019.

5The applicant commenced further litigation against the respondent in 2018 in Windsor concerning the discovery of a faulty boiler system in the apartment building (CV-18-26211 “the Windsor Action”). The parties again ostensibly settled the litigation at a pre-trial before Justice King on May 24, 2019, with terms that included the applicant receiving a $20,000 credit against the principal of the mortgage to be paid in July 2019. The applicant contends the terms of the settlement were reduced to minutes of settlement.

6The most recent dispute arose in July 2019 concerning the applicant’s efforts to discharge the mortgage in July 2019. In June 2019, then respondent’s counsel Robert Reynolds delivered a draft mortgage discharge statement for the sum of $341,972.50. Approximately two weeks later Mr. Reynolds advised applicant counsel that the amount was in error and provided a different figure. However, a revised final discharge statement signed by the respondent was never provided. On July 29, 2019, the applicant’s counsel delivered a revised discharge statement using the respondent’s corrected figure of $352,000 plus an administrative fee and interest for a total proposed payment of $353,102.05 for the respondent’s approval and signature. On July 30, 2019, applicant counsel delivered a certified cheque for that amount, payable to respondent counsel in trust. However, the respondent failed to sign the discharge statement.

7The applicant claims the respondent’s failure to discharge the mortgage caused the applicant damages by way of the loss of a deposit and the loss of profits from the applicant’s inability to close the purchase of another property in Windsor as he was unable to secure the financing for the closing because of the undischarged mortgage.

8This application initially proceeded on an undefended basis. By order of Justice George dated October 4, 2019, the applicant was allowed to pay $353,102.05 into court, the mortgage was discharged, and the assessment of damages adjourned.

9By affidavit sworn June 2, 2021, the principal of the respondent corporation, Anton Trojansek, disputed the applicant’s claims as follows:

a. The applicant did not pay a deposit of $5,000;

b. The applicant did not make the monthly mortgage payments;

c. The applicant was in default under the terms of the mortgage; and

d. The respondent had no knowledge of the applicant’s pending real estate transaction, and the applicant is not entitled to damages from the respondent for the applicant’s inability to close the purchase.

10Mr. Trojansek was cross-examined on his affidavit in August 2021. The respondent insisted he did not authorize his lawyer Mr. Reynolds to settle the London Action in 2014. He maintained the applicant did not pay a $5,000 deposit and claimed he did not authorize Mr. Reynolds to close the real estate transaction with terms for the transfer to the applicant and registering the mortgage in favour of the respondent. He testified that Mr. Reynolds also did have authority to prepare the mortgage discharge statement. Mr. Trojansek also refused to confirm that the Windsor Action was settled at pre-trial with his authorization.

11The respondent eventually agreed to produce most of Mr. Reynold’s file (less notes to file regarding litigation) following the cross-examination in satisfaction of undertakings and questions taken under advisement. The information within the various documents generally seems to contradict Mr. Trojansek’s evidence. However, the applicant submits he is without information such as the dates of any meetings between Mr. Reynolds and the respondent that could be demonstrated through either dockets or an agenda, confirmation that certain correspondence from Mr. Reynolds was, in fact, delivered to the respondent, communications regarding the settlement of the two actions, confirmation of the correct amount of the mortgage on discharge and confirmation that counsel notified the respondent of the risks of failing to authorize the discharge of the mortgage.

The Motion

12The applicant then brought this motion for an order permitting examination of Mr. Reynolds and for the respondent to be compelled to answer refusals and to provide further and better answers regarding such issues as the circumstances of Mr. Reynold’s retainer, his instructions to Mr. Reynolds, the preparation of the draft discharge statement and Mr. Reynold’s communications with the respondent regarding his refusal to discharge the mortgage. However, Mr. Trojansek passed away in November 2021 and his son Tony Trojansek replaced him as president of the respondent corporation in January 2022. The court understood it was agreed at the hearing of the motion that the issue of compelling further answers was largely moot. The motion argument proceeded on the applicant’s request for orders that the respondent waived solicitor and client privilege, for counsel to be examined and whether any other information from the lawyer’s file ought to be produced.

Positions of the Parties

13The applicant submits the respondent waived solicitor and client privilege through the deceased’s assertions on his cross-examination and his subsequent authorization to produce the solicitor’s file. Mr. Reynold’s evidence is relevant to the remaining issue in this application concerning the assessment of damages. Given the positions taken by the respondent’s representative in the affidavit and his cross examination, the applicant needs the lawyer’s evidence to address: that the applicant made the $5,000 down payment, that he negotiated a $20,000 credit to the mortgage, to confirm the amount of the mortgage to be discharged, to confirm the details of the purported settlements of the two prior actions and to confirm counsel notified the respondent principal of the consequences of his intransigence in refusing to sign the mortgage discharge. Leave for the examination should be granted as the applicant had no notice of the relevance and necessity of the lawyer’s evidence until the respondent representative’s evidence at his cross-examination on his affidavit.

14The respondent contends the corporation has not waived solicitor and client privilege and that the applicant has failed to demonstrate it is entitled to leave to examine Mr. Reynolds after cross-examination of the respondent under rules 39.02(2) and 39.03. The respondent also submits the lawyer’s evidence is irrelevant to the only remaining issue in this application; assessment of the applicant’s damages. The previous litigation is separate from the issue of damages and was resolved. To permit examination would be an abuse of process and a fishing expedition. Moreover, it would cause non-compensable prejudice to the respondent as the new president is not in a position to test any evidence Mr. Reynolds may give. Finally, the respondent submits the applicant failed to properly bring the motion for relief pursuant to 30.10 to obtain the further information from counsel.

15The respondent’s former counsel Mr. Reynolds takes no position on the motion and did not appear at the hearing. His correspondence to the parties advised that absent the respondent’s consent or a court order, he would have to claim solicitor and client privilege “on everything.”

Analysis

16The parties largely agree on the tests for leave to examine a witness and waiver of privilege in these circumstances; they disagree on the results of their application to the facts of this matter.

17It cannot be seriously disputed the respondent expressly and implicitly waived solicitor and client privilege through the representative’s assertions on his cross-examination and his subsequent delivery of most of the solicitor’s file. A party who directly raises in a proceeding the legal advice that he or received, or the instructions the client gave to the solicitor, thereby putting that advice or those instructions in issue, may be found to have waived the privilege insofar as it relates specifically to the issue concerning the advice or instructions given: Lamoureux v. Lamoureux, 2014 ONSC 453 at para. 12. I confirm this is not leave for a general examination for discovery or to allow the applicant to obtain information relevant to the litigation strategy in this and the earlier proceedings. In my view, the proposed scope of the examination is sufficiently articulated in the notice of examination at paragraphs 3 and 5 of the notice of motion.

18I find the applicant’s motion is not fatally flawed through any failure to cite rule 30.10. If that rule ought to have been cited, the substance of the relief sought is well-explained in the notice of motion, of which the third party had notice. The applicant’s motion seeks examination and instructs the lawyer to bring the relevant documents with him to his examination. This motion substantively addresses the same or similar issues a court confronts on a third-party production motion. In any event, the lawyer himself is on notice of this motion and takes no position subject to the direction of this court. The applicant has also clarified that he does not necessarily require the further documents itemized at paragraph 5 of his notice of motion, particularly if they do not exist; he requires clarification of issues arising from the solicitor’s file already produced, such as seeking to confirm that several of the documents were, in fact, provided to the respondent. Whether that can be confirmed by the lawyer or through email receipts, etc. as itemized in the notice of motion remains to be seen.

19Under rule 39.02(2), a party who has cross-examined on an affidavit delivered by an adverse party shall not subsequently conduct an examination under rule 39.03 without leave or consent, and the court shall grant leave, on such terms as are just, where it is satisfied the party ought to be permitted to respond to any matter raised on the cross-examination with evidence in the form of a transcript of an examination conducted under rule 39.03.

20My determination of whether leave to examine should be granted is informed by the principles outlined in First Capital Realty Inc. v. Centrecorp, 2009 CanLII 75631 and those decisions that have since applied and further refined the test.

21Applying the four criteria set out in First Capital, supra and having regard to the principles in rule 1.04, I conclude that leave should be granted to the applicant to examine Mr. Reynolds.

22The deceased deposed the applicant failed to pay a deposit or mortgage payments and that he had no notice of a claim for damages if the mortgage was not discharged. However, I am satisfied the applicant had no notice of the respondent’s extraordinary position regarding its counsel’s ostensible lack of authority to settle the previous actions until its representative’s cross examination on his affidavit. The applicant therefore has a reasonable explanation for why the evidence was not sought before cross-examination.

23The proposed areas of examination of the respondent’s previous counsel also clearly address issues that arose on the cross-examination: being the circumstances surrounding the agreement of purchase and sale, authority to settle the London Action and Windsor Action, the amount required to discharge the mortgage and whether counsel notified the respondent representative of the risks of not authorizing the discharge of the mortgage.

24I agree the proposed areas of questioning are relevant to the assessment of the applicant’s damages. The applicant needs to be able to demonstrate what was paid to the respondent and the amount left owing under the mortgage. Most importantly, he needs to be able to demonstrate the respondent’s foreseeability of the damages through confirming that his former lawyer did, in fact, send the letter to the respondent.

25I do not accept the respondent will suffer non-compensable prejudice if leave is granted for its former lawyer to be examined. I am not persuaded the respondent is unable to test its former lawyer’s evidence. The deceased was presented as the respondent representative with authority to bind the corporation with his answers. The new president, his son, has not retracted or corrected those answers and he is also not entirely foreign to the underlying circumstances. He is clearly copied on at least some of the email correspondence sent by the former lawyer to the respondent corporation regarding the previous litigation. I cannot see how the respondent can be surprised by evidence of its former lawyer. My impression is that any of the surprises thus far in this lawsuit have come from the respondent itself.

26Finally, regarding rule 1.04, I am satisfied it is in the interests of justice that I exercise my residual discretion to grant leave. Justice requires that the best and most complete evidence be before the court on this application. Given the respondent’s unretracted testimony, its former lawyer must be examined.

27For the same reasons, I find the applicant has satisfied the requirements for leave to examine the respondent’s former counsel pursuant to rule 39.03: Marton v. Wood Gundy Inc., 2013 ONSC 1246. Such an examination is not an abuse of process in the circumstances of this case. In the face of the new president’s professed ignorance of the dealings around the real estate transaction and ensuing litigation, I am satisfied its former lawyer is in the best position to provide evidence relevant to the remaining issues in this application.

28An order shall therefore go in accordance with paragraphs 3 (and subparagraphs a through c inclusive), paragraph 4 (amended as to the date of the examination) and paragraph 5 of the applicant’s notice of motion returnable April 8, 2022 and dated March 25, 2022.

29I encourage the parties to resolve the costs of this motion. It is of concern that these interlocutory steps have taken an inordinate amount of time. If costs cannot be resolved the applicant shall serve and file his cost submissions by September 19, 2022 and the respondent its cost submissions by September 26, 2022. Submissions are limited to two pages, 12-point font and page margins in accordance with the rules, the page limit excluding any cost outline/bill of costs and offers to settle. There is no reply to cost submissions without leave.