Court File and Parties

Court File No.: CV-17-572932 Released: 2022/11/08 Superior Court of Justice - Ontario

Re: Cucina Di Paisano Inc. Plaintiff And: Paisano’s Italian Garden Café Corp. Defendant

Before: Associate Justice Graham

Counsel: Esmaeil Mehrabi, counsel for the plaintiff (moving party) Jeffrey C. Silver, counsel for the defendant

Heard: November 1, 2022

Endorsement

(Plaintiff’s motion for further production of defendant’s documents)

[1] The plaintiff claims damages for passing off arising from the defendant’s alleged use of its “Paisano” trademark in the operation of a competing Italian restaurant at a location formerly occupied by the plaintiff. The relief claimed includes, in para. 1.a. of the statement of claim, “Special damages in an amount to be determined before trial for passing off or in the alternative an accounting of the profits of the Defendant, whichever the Plaintiff, after due inquiry and full discovery of the Defendant may elect”.

[2] The plaintiff now brings this motion for the following relief:

1. An order for the Defendant to produce 6 different categories of documents that the Plaintiff submits that it requires to complete its investigation of the claim and its calculation of damages;
2. An order granting leave to amend the statement of claim in accordance with a proposed draft amended statement of claim filed;
3. An order extending the time to set this action down for trial to December 1, 2022.

Extension of time

[3] The motion did not proceed when first scheduled on December 15, 2021 owing to the illness of defendant’s counsel. At that time, the defendant had consented to the extension of time to set the action down for trial to December 1, 2022 and I made an order to that effect. At the hearing on November 1, 2022, counsel advised that they have consented to a further extension of the “set down” deadline to July 1, 2023 and I so order.

Amendments to the statement of claim

[4] Counsel for the defendant advises that he does not oppose the proposed amendments to the statement of claim. Accordingly, the plaintiff is hereby granted leave to amend the statement of claim in the form found at Exhibit “B” to the supporting affidavit of Mariette Niranjanan sworn May 18, 2021. In his factum, defendant’s counsel asserted that the proposed amendment at paragraph 19 of the draft amended statement of claim constituted the withdrawal of an admission, but he specifically acknowledged at the hearing that the defendant does not oppose that amendment. To avoid any uncertainty, the permitted amendment includes the proposed amendment at paragraph 19 of the draft amended statement of claim.

Production of further documents

[5] The sole contested issue on the motion is whether the defendant must produce the additional documents sought at items 1-6 of the plaintiff’s notice of motion.

[6] Defendant’s counsel submits that the plaintiff’s motion should fail on the basis that, contrary to Rule 37.06(b), the notice of motion does not refer to any Rule of Civil Procedure that might form the basis for the relief sought by the plaintiff. While the plaintiff’s stated grounds for the motion do not cite any applicable Rule, the defendant’s own factum and responding submissions clearly reflect an understanding that the motion is in substance to compel production of the documents listed in Schedule “A” to the notice of motion. Therefore, the plaintiff’s failure to include the applicable Rule number 30.06 in the notice of motion did not prejudice the defendant’s ability to prepare a meaningful response to the motion and is not a bar to the motion proceeding.

[7] Rule 30.06 states:

30.06 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 the party’s affidavit of documents, or that a claim of privilege may have been improperly made, the court may,

(a) order cross-examination on the affidavit of documents;

(b) order service of a further and better affidavit of documents;

(c) order the disclosure or production for inspection of the document, or a part of the document, if it is not privileged; and

(d) inspect the document for the purpose of determining its relevance or the validity of a claim of privilege. [emphasis added]

[8] Although not referred to by either party on this motion, the rules and case law with respect to motions under rule 30.06 were well summarized by Bell J. in Oz Optics Ltd. v. Jing Ru Zhang, 2017 ONSC 4263 (at para. 7):

7 Rule 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.) [emphasis added]

[9] As stated in In-Store Products Limited v. Zuker, 2015 ONSC 6215 (para 37): “The moving party must demonstrate some basis for concluding that documents exist and that they are being withheld.”

[10] Plaintiff’s counsel submits that the defendant has never asserted that the requested documents do not exist. However, on a motion for further production of documents, “[t]he burden of proof is on the moving party to show a basis for the motion, not on the responding party to show that there is none.” (In-Store Products Ltd., supra, para. 46)

[11] The plaintiff relies on the affidavit of Ephraim Stulberg, sworn June 13, 2019. Mr. Stulberg is a chartered accountant and chartered business valuator who was retained by the plaintiff to provide an expert opinion in quantifying the financial remedies sought by the plaintiff. The substance of his affidavit is that he requires the additional documents described below to prepare his expert report with respect to the plaintiff’s damages.

[12] Defendant’s counsel submits that the test for what additional documents a party might be required to produce cannot be based on a moving party’s expert opinion, in this case, the opinion of Mr. Stulberg. In Fischer v. IG Investment Management Ltd., 2015 ONSC 3525, a case in which the plaintiffs tried to rely on an expert to assert the relevance of documents, Perell J. stated (at para. 7): “a legal expert’s opinion about relevancy on a question of domestic law is not admissible opinion evidence.” Rather, it is well-established law that the relevance of documents is an issue to be determined by the court based on the pleadings. (See: King v. Merrill Lynch Canada Inc., 2002 CarswellOnt 4520 at para. 6)

[13] Based on Fischer, supra, I accept the defendant’s submission that Mr. Stulberg’s evidence as to the documents that he says that he requires to prepare an opinion on the issue of damages is not evidence that the court can rely on in determining whether the defendant must produce additional documents. I will therefore disregard Mr. Stulberg’s affidavit. Given this conclusion, it is not necessary for me to consider the defendant’s other submissions as to why I should disregard Mr. Stulberg’s affidavit.

[14] I will now consider whether any of the six categories of documents referred to in the notice of motion must be produced based on the criteria set out in Oz Optics and In-Store Products, supra.

1. Annual financial statements, corporate tax returns and HST returns, trial balances and detailed general ledgers for the Defendant from the time it opened until present.

[15] Plaintiff’s counsel submits that in the normal course of business, the defendant would create these documents, so there is a reasonable inference that they exist. The documents would be relevant to the plaintiff’s claim for disgorgement of the defendant’s profits earned through the alleged passing off.

[16] On March 14, 2019, the defendant brought a motion against the plaintiff for various relief, including the delivery of a further and better affidavit of documents including the income tax returns, financial statements, and general accounting ledgers. In his ruling on that motion (2019 ONSC 3304), Master Robinson (as was then his title) ruled (at para. 42) that “I am not satisfied that the plaintiff’s income tax returns and banking records are relevant based on the pleadings.” Ruling: Based on the plaintiff’s successful argument that its own income tax returns are not relevant to the calculation of its own damages, I can only conclude that the defendant is also not required to produce its tax returns.

[17] Even if I were to have accepted Mr. Stulberg’s opinion evidence in his affidavit, on his cross-examination, Mr. Stulberg stated (at Q. 67 of his transcript) that “I don’t do corporate taxes”. Given this admission, Mr. Stulberg would not have sufficient expertise to opine as to why corporate tax returns would be necessary for him to prepare his opinion.

[18] Defendant’s counsel acknowledged that on the defendant’s motion before Master Robinson, the ruling was that the plaintiff include “financial statements and general ledgers with respect to sales figures for 2017 and 2018 in a further and better affidavit of documents, but may redact those portions of the financial statements and general ledgers that the plaintiff asserts are not relevant and commercially sensitive. If the plaintiff does redact, then the plaintiff shall identify the specific basis for redaction and provide general information regarding what has been redacted to allow the defendant to consider its own position on relevance.” Ruling: Based on this ruling, defendant’s counsel agrees to produce the defendant’s financial statements subject to the same conditions imposed by Master Robinson with respect to the plaintiff’s financial statements, and I so order.

[19] The defendant opposes production of the general ledgers because there is no evidence that the financial statements do not accurately reflect what would be contained in the general ledgers. Ruling: The defendant moved for and obtained production of the plaintiff’s general ledgers, so they can hardly argue that their own general ledgers are not also documents relevant to an accounting analysis of their own profits. I therefore order that the defendant’s general ledgers be produced, subject to the same terms imposed by Master Robinson. The “trial balances” referred to in this category shall be produced provided that they were also included in the general ledgers produced by the plaintiff to the defendant.

[20] Although there is no direct evidence that HST returns exist among the defendant’s business records, one can reasonably assume that an operating corporation files HST returns and that the defendant has such returns. The plaintiff apparently seeks these records to ensure that the information in the financial statements is accurate. Ruling: As the plaintiff’s position is based on unfounded speculation that the financial statements are not accurate, I decline to order that they be produced.

2. Monthly sales totals for the Defendant from the time it opened until the present date. Sales figures for each month should be broken down between a) dine-in, b) take-out, and c) delivery.

[21] Plaintiff’s counsel submits that the monthly sales totals are relevant to the defendant’s volume of business potentially generated as a result of the alleged passing off and that these documents are required to assess the impact of the alleged passing off “on a more granular basis.” Counsel submits that the breakdown of the figures between dine-in, take-out and delivery is relevant to whether the defendant had the capacity to generate more income.

[22] The defendant submits that the relevance of the evidence is tenuous at best and, with respect to the distinction in the sources of income, there is no evidence that the defendant breaks down its revenue among three modes of service.

[23] Ruling: I accept that in the ordinary course of its business, the plaintiff would keep records of its monthly sales, so it is reasonable to assume that these records exist. In reaching this conclusion, I rely on the comment of Bell J. in Oz Optics, supra that “[t]he level of proof required [to demonstrate that documents exist] should take into account the fact that one party has access to the documents, while the other party does not.” However, I am not satisfied that monthly sales records would shed any more light on the issue of what benefit the defendant might have derived from the alleged passing off than would the annual records of total sales to be found in the defendant’s financial statements. I therefore decline to order production of the defendant’s monthly sales records. Further, any distinction among the three possible modes of sales (dine-in, take-out and delivery) is not relevant to whether the defendant profited from the alleged passing off.

3. Details of any salaries and other non-arm’s length expenses paid to or on behalf of the shareholders (or relatives of shareholders) of the Defendant from the time it opened until present.

[24] Plaintiff’s counsel submits that this information is necessary to determine the true benefit that the defendant’s shareholders are deriving from the corporation.

[25] Defendant’s counsel submits that this request is based on mere conjecture that the defendant’s financial statements may be inaccurate, so any such documents are not producible. Mr. Stulberg acknowledges that he has no knowledge in this regard (Qs. 130-131).

[26] Ruling: Both the existence and the relevance of these records are speculative. Motion denied.

4. Details of any sales budgets/forecasts prepared by the Defendant.

[27] The plaintiff’s expert Mr. Stulberg says that any such documents are relevant to any future profits that the defendant might derive through the alleged passing off. Counsel submits that Mr. Stulberg has the expertise to state an opinion as to what data he requires to formulate his opinion.

[28] Defendant’s counsel submits that there is no evidence that the defendant has any such information, and Mr. Stulberg acknowledged this (Q. 129). Further, forecasts are not evidence of income.

[29] Ruling: As the plaintiff has not met their burden of proof to establish that these documents likely exist, and in any event, sales forecasts are not evidence of income that could inform the calculation of any damages, the motion is denied.

5. Identity (name and location) of any other restaurants owned by the Defendant or any of its shareholders.

[30] Plaintiff’s counsel submits that this information relates to how expenses might be allocated among different restaurants and is therefore relevant to the issue of damages. The plaintiff needs to satisfy itself that all expenses reported on the defendant’s financial statements are attributable solely to its restaurant business and not allocations of fixed expenses from multiple businesses.

[31] Defendant’s counsel submits that this request is based on speculation, given that Mr. Stulberg has acknowledged (Q. 23) that he does not know whether the defendant owns any other restaurants. Further, there is no allegation in the statement of claim that the defendant is operating other businesses that have profited from the alleged passing off.

[32] Ruling: The possible existence of other restaurants owned by the defendant is speculative and there is no evidence that would warrant disclosure of the information sought. Further, the plaintiff has framed this motion as one for production of documents that it requires to calculate its damages and the request for the identity of other restaurants possibly owned by the defendant is a request for information rather than for documents.

6. Data showing website traffic, search rankings, or traffic sources for the Defendant’s website for the period 2016 to date.

[33] Plaintiff’s counsel refers to paragraphs 15 and 16 of the statement of claim, including para. 16 which includes an allegation that the defendant “stole the source codes to set up an exact same website as the Plaintiff.” Although the issue of whether a sale occurred as a result of website traffic would appear to be a liability issue, counsel submits that the website traffic in relation to the defendant’s business does relate to the issue of damages.

[34] Defendant’s counsel submits that this request goes to issues of liability, and Mr. Stulberg has acknowledged (Q. 15) that “I’m not an expert in issues of liability.” There is also no evidence that any such documents exist. The plaintiff could have made enquiries about website traffic at examinations for discovery but failed to do so.

[35] Ruling: The plaintiff’s position on the motion is that all six categories of documents of which they were seeking production, including this one, were required to enable them to quantify their damages. However, data showing website traffic on the defendant’s website is not relevant to any profit that the defendant may have derived from the alleged passing off, and regardless, there is no evidence that the defendant has any such documents. The motion for these documents is denied.

Timing of production of documents ordered produced

[36] I have ordered that the defendants produce their financial statements and general ledgers. The trial balances are ordered produced if they were also included in the general ledgers produced by the plaintiff to the defendant.

[37] Defendant’s counsel advises that he has brought a bifurcation motion returnable April 28 and requests that any order for further production be stayed pending the outcome of that motion. The defendant seeks to defer the production of its documents related to damages until the court has rendered a decision as to whether liability will be tried before damages.

[38] The defendant’s request is based on the possibility first, that their bifurcation motion will be successful and second, that if the case is bifurcated, they will successfully defend the liability issue. The further documents ordered to be produced are not so voluminous as to warrant delaying production based on these two speculative outcomes. The documents shall be produced within 60 days.

Costs

[39] Counsel have filed costs outlines. They agreed at the hearing that if they cannot agree to the disposition of the costs of the motion, they would make written submissions. The defendant shall deliver their submissions within 30 days and the plaintiff shall deliver their submissions within 20 days thereafter. Submissions shall not exceed three pages not including the costs outlines and shall not include attachments.

ASSOCIATE JUSTICE GRAHAM

Date: November 8, 2022