SUPERIOR COURT OF JUSTICE - ONTARIO
RE: CIRONE V. MORRIS ET AL.
BEFORE: ASSOCIATE JUSTICE G. ECKLER
HEARD: Tuesday October 29th 2024 by Zoom videoconference
COUNSEL: S. Marentette appearing for the plaintiff/defendant by counterclaim/moving party A. Finkelstein appearing for the defendants/plaintiffs by counterclaim/responding parties
REASONS FOR DECISION
INTRODUCTION
[1] This is a motion by the plaintiff Michael Cirone for an Order compelling the defendant/plaintiff by counterclaim, Ian Morris to answer questions taken under advisement (now refusals) at his examination for discovery held on November 4th, 2021.
[2] The plaintiff is also seeking an Order requiring Mr. Morris to attend a further examination for discovery to answer questions arising from the defendants’ production of bank statements which were produced after his examination for discovery and to answer questions arising from the answers to the questions which were refused, if these are ordered to be answered by the Court.
[3] The defendants oppose this motion on the basis that the requested documents are not relevant to the matters raised in the pleadings and on the basis that the requested documents are subject to solicitor-client privilege. The defendants also oppose the request for a further examination of Mr. Morris on the grounds that the examination is not required.
[4] For the reasons that follow, the plaintiff’s motion is granted.
FACTS AND PROCEDURAL HISTORY
[5] This case arises out of the alleged forced expulsion of the plaintiff Michael Cirone (“the plaintiff”) from the law firm Morris, Kepes Winters LLP (“MKW”) and the alleged accompanying lack of transparency in firm transactions, as well as financial irregularities which the plaintiff alleges resulted in unmet obligations pursuant to the Partnership Act, R.S.O., 1990, c. P.5.
[6] The plaintiff is a lawyer practicing in the City of Toronto. From 2006 to 2018 the plaintiff practiced law at MKW, including as an equity partner in the firm from January 1st, 2014 until his alleged expulsion from the firm on September 5th 2018.
[7] MKW is a boutique tax law firm in Toronto, Ontario, with lawyers engaged in the business of Canadian, U.S., and international tax planning, tax litigation, dispute resolution and defence of financial offences. MKW was founded in 2011. The three named individual defendants in this action, Ian Morris, Robert Kepes, and Robert Winters are founding partners of MKW.
[8] The sole plaintiff, Michael Cirone (“the plaintiff”) issued a Statement of Claim in Toronto on December 28th, 2018. The plaintiff named as defendants Ian Morris, Robert Kepes and Robert Winters, together carrying on business as Morris Kepes Winters LLP. The three individual defendants are equity partners of MKW. (“the defendant partners”).
[9] The plaintiff alleges that as a result of inquiries made by him of the defendant partners respecting alleged financial irregularities and alleged unauthorized withdrawals of firm property by them, the defendant partners engaged in a campaign to intimidate the plaintiff and force him to withdraw as a partner of MKW. The alleged campaign included verbal abuse, threats by the defendant partners and attempts to exploit the plaintiff’s mental illness for the benefit of the other partners.
[10] The plaintiff is claiming damages in the amount of $3,000,000.00 for undistributed partnership property and income, return of capital, breach of fiduciary duty, breach of the firm’s partnership agreement, assault, battery, discrimination on the basis of disability and intentional infliction of mental suffering. The plaintiff is also claiming punitive and aggravated damages in the amount of $300,000.00.
[11] The plaintiff is also seeking an Order for an accounting of the MKW books and records, including an audit by an independent forensic accountant, to account for all income, expenses and profits or losses generated from all transactions during the period from January 1st, 2014 until September 5th 2018, being the date on which the plaintiff ceased to be a partner. (“the Accounting Period”).
[12] The plaintiff is also seeking an Order for an accounting for the distribution of the firm’s partnership assets and income and an Order pursuant to section 39 of the Partnership Act, R.S.O., 1990, c. P.5 (“Partnership Act”) to wind up the business and affairs of the firm.
[13] In the Statement of Claim, issued on December 28th 2018, the plaintiff has alleged inter alia that the defendants made various unauthorized personal payments and withdrawals from the MKW trust accounts which were improper and contrary to the Law Society Act, 1990, c. L.8.
[14] The Statement of Claim was amended on January 31st 2019. In response to the Amended Statement of Claim, the defendants filed an Amended Statement of Defence and Counterclaim on or about May 30, 2019.
[15] In the Statement of Claim and the Amended Statement of Claim the plaintiff was initially seeking, among other things, a tracing remedy and other relief in connection with alleged improper transactions involving client funds in MKW’s trust accounts. In support of that relief, the plaintiff made a number of serious allegations involving the use of MKW’s trust accounts, “secret profits” and “financial irregularities” involving the alleged transfer of client trust monies for the personal benefit of the plaintiff’s former partners, their spouses and children but to the exclusion of the plaintiff. The plaintiff also alleged breaches by his former partners of the Law Society By-Laws and Rules of Professional Conduct.
[16] Given the nature of the allegations made in the Amended Statement of Claim and recognizing that the documents exchanged between the parties would include solicitor-client privileged information, on November 21st, 2019, the parties sought and obtained a consent Order by Associate Justice Abrams for the protection and maintenance of privilege and confidentiality over certain documents and information produced by the parties in this litigation. (“the Privilege Order”).
[17] On June 18th 2021, the plaintiff amended his pleading to withdraw the allegations involving client funds in MKW’s trust accounts, “secret profits” and “financial irregularities” tantamount to fraud against his former partners (the “Amended Amended Statement of Claim”).
[18] The claims that were withdrawn included among other things a claim for a complete accounting and tracing of all payments made into and out of the MKW trust accounts.
[19] The defendants did not file an Amended pleading to respond to the Amended Amended Statement of Claim.
[20] In the Amended Amended Statement of Claim the plaintiff alleges inter alia that:
- On October 19th 2017, the defendant partners withdrew $700,000 of partnership funds without the plaintiff’s consent. (Paragraph 7 of the Amended Amended Statement of Claim )(“AASOC”).
- The defendant partners sought to hold the plaintiff liable for a share of liabilities that MKW incurred prior to 2014, while simultaneously withholding from the plaintiff any entitlement to billings, net profits and collections on certain matters during the Accounting Period. (Paragraph 11 of the AASOC )
- In late 2017, Cirone became aware that a GIC for $220,000.00 had gone missing from MKW’s operating funds during the Accounting Period without explanation. It is Cirone’s belief that the $220,000.00 was a firm asset withdrawn from the firm’s bank accounts by the defendant partners without the plaintiff’s knowledge or consent. (Paragraph 21 of the AASOC)
- As the defendant partners are the only signing authority for the firm’s operating and trust bank accounts, they were the only persons who could authorize the transfer of the $220,000.00 (whether by signing an operating or trust cheque or authorizing a wire transfer). The plaintiff further alleges that the defendant partners have refused the plaintiff’s request for transparency into MKW’s finances and property and have failed to respond to his stated concerns that the defendant partners should not make transfers, payments, and effect other transactions without consulting with, or informing the plaintiff, contrary to their fiduciary duties as partners. (Paragraphs 21 and 22 of the AASOC)
- In efforts to reconcile MKW’s financial accounts, the plaintiff discovered significant discrepancies and unaccounted for adjustments in the partners’ capital accounts during the Accounting Period. The plaintiff has requested that the defendants appoint an independent auditor to reconcile the firm’s finances and the partners’ capital accounts but the defendant partners have refused to do so. (Paragraph 23 of the AASOC).
- As a result of inquiries made by the plaintiff of the defendant partners respecting the firm’s alleged significant financial irregularities and unauthorized withdrawals of firm property by them, the defendant partners engaged in a campaign to intimidate the plaintiff and force him to withdraw as a partner of MKW in September of 2018. (Paragraph 31 of the AASOC)
- The defendant partners owed a fiduciary duty to the plaintiff, including to act honestly, fairly, and in good faith; to render true accounts and full information of all things affecting the partnership; to account for any profits or other benefits derived personally from any transaction concerning the partnership or from the use of the partnership property, name or business, and to use partnership assets exclusively for the purpose of the partnership. (Paragraph 42 of the AASOC)
[21] On May 17th 2024, the plaintiff served an Amended Motion Record and a Supplementary motion record in connection with this refusals motion. In these materials, the plaintiff seeks an order amending the current Amended Amended Statement of Claim to revert to the Amended Statement of Claim (amended January 31 2019) which would have the effect of reconstituting the action to add back all of the allegations of fraud, “secret profits” and “financial irregularities”. The plaintiff confirmed at the outset of this motion that despite this relief being requested in the Amended Motion Record, the plaintiff is no longer seeking an Order to further amend his pleading in this motion. In this motion, I have therefore not addressed this aspect of the relief being sought in the Amended Motion Record.
EXAMINATION FOR DISCOVERY OF MR. MORRIS
[22] The defendant, Mr. Morris was examined for discovery on November 4th 2021. At his examination for discovery, Mr. Morris, on the advice of counsel took under advisement the request to produce all of MKWs bank statements on a monthly basis from January 1, 2014 to December 31, 2018, for all of MKWs bank accounts, being:
(1) CDN Operating Account; (2) CDN Trust Account; (3) HST Account; (4) GIC Account; (5) US Operating Account; and (6) US Trust Account
[23] Following Mr. Morris’s examination for discovery, the defendants agreed to produce the bank statements with respect to MKW accounts (1), (3), and (5) referenced above as well as information relating to the GIC (4). The defendants have refused to produce the bank statements for the Canadian Trust Account (2) and U.S. Trust Account (6) for the time period from January 1st 2014 to December 31st 2018, on the basis of relevance and privilege.
[24] The plaintiff now moves on these two refusals on the basis that all MKW accounts are relevant to the issues raised in the pleadings and to the issue of determining his share of distribution of MKW’s profits.
LEGAL PRINCIPLES
[25] The Rules of Civil Procedure contemplate a broad scope for oral discovery. Rule 31.06 of the Rules of Civil Procedure, which governs the scope of an examination for discovery, states in part: (1) 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.
[26] In Ontario v. Rothmans Inc., 2011 ONSC 2504, at para. 124, leave to appeal denied, 2011 ONSC 3685 (Div. Ct.), Justice Perell stated the following with respect to the scope of examinations for discovery pursuant to Rule 31.06:
The basic scope of an examination for discovery is set out in rule 31.06 (1) with rules 31.06 (2), 31.06 (3), and 31.06 (4) extending the scope of the examination. These rules overcome restrictions that had developed in the case law under the former Rules of Practice. Particularly important changes are found in paragraphs (a) and (b) of rule 31.06 (1), which stipulate that no question may be objected to on the grounds that the information sought is evidence or that the question constitutes cross-examination, unless the question is directed solely to the credibility of the witness.
[27] Both parties agree that the test that applies as to whether a question is proper with respect to information sought is relevance. This test, which resulted from amendments to the Rules of Civil Procedure in January 2010, replaces the former “semblance of relevance” test.
[28] In Gu v. Habitat for Humanity Greater Toronto Inc., 2017 ONSC 2793, at para 8, Master Jolley, as she then was, discussed the meaning of relevance in the context of a production motion as follows:
Relevance is established where the evidence tends to prove or disprove a disputed fact. (Denault v. Alplay et al 2016 ONSC 1618 at paragraph 16). In order for a document to be properly related to a matter in issue in the action, it must be one that might reasonably be supposed to contain information which may directly or indirectly enable the party to advance his or her own case or to damage the case of his or her adversary, or which might fairly lead him or her to a train of inquiry that could have either of these consequences. (Apotex v. Richter Gedeon Vegyeszeti Gya r RT 2010 ONSC 4070 at paragraph 77).
[29] The requirement to answer all relevant questions and produce all relevant documents is circumscribed only by supportable claims of privilege and the overarching requirement of proportionality, having regard to the importance and complexity of the issues and the amount involved in the proceeding. Moreover, the court is always mindful of ensuring that the Rules are liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits. (See Rules 1.04(1), (1.1) and 29.2.03(1) of the Rules of Civil Procedure)
[30] What follows are my rulings on the questions which were refused. My rulings outlined below with respect to the refusals in issue are rooted in the application of the legal principles outlined above including a consideration of the issue of proportionality.
Refusals – To produce the bank statements for the Canadian Trust Account and the US Trust Account from January 1st 2014 to December 31st 2018.
[31] The defendants have refused to produce the bank statements for the Canadian Trust Account and the US Trust Account on the basis of relevance and privilege.
[32] The defendants’ position is that the plaintiff’s claim as pleaded in the Amended Amended Statement of Claim relates to his alleged share of income, expenses, profits and losses at MKW. The defendants maintain that the firm’s income, expenses, profits and losses are all derived from its operating accounts. They argue that they have produced all relevant financial records relating to the issues pleaded, including the firm’s trial balances, general ledgers, balance sheets and income statements for each of the relevant years 2014-2018, as well as the monthly bank statements for all of the operating accounts.
[33] The defendants argue that the plaintiff’s claim as currently framed, and in particular given the June 18 2021, amendments to the Statement of Claim withdrawing the allegations involving client funds in MKW’s trust account, does not engage any issues involving client funds in MKW’s trust accounts. They argue that the funds in the firm’s trust accounts belonging to MKW clients have no relevance to any claims advanced by the plaintiff for any share of income, expenses, profits and losses of MKW and that the funds held in trust do not belong to the partners of MKW. Moreover, the defendants argue that the bank statements from the firm’s trust accounts ought not to be produced as they are protected by solicitor-client privilege.
[34] The defendants further argue that the plaintiff’s proposed pleading amendment motion, seeking to add back the allegations of fraud, “secret profits” and “financial irregularities” against his former partners relating to funds in the firm’s trust accounts, represents a tacit admission that the trust account bank statements sought by the plaintiff on this motion are not relevant to the claim as currently pleaded in the Amended Amended Statement of Claim.
ANALYSIS AND DISPOSITION
[35] In the Amended Amended Statement of Claim the plaintiff is seeking inter alia, an order for an accounting of the firm’s books and records, including an audit by an independent forensic accountant to account for all income, expenses, and profits or losses generated from all transactions during the period from January 1st 2014 until September 5th 2018, being the date on which the plaintiff ceased to be a partner in MKW.
[36] The plaintiff is also seeking an Order for an accounting for the distribution of the firm’s partnership assets and income under section 39 of the Partnership Act, R.S.O. 1990 c. P.5 (“Partnership Act”) to wind up the business and affairs of the firm.
[37] There is no dispute that the plaintiff was a partner in the firm for the time period of approximately January 1st 2014 to September 5th 2018.
[38] At paragraph nine of the Amended Amended Statement of Claim, the plaintiff has alleged that there is no written partnership agreement between the plaintiff and the defendant partners. There is no evidence of a written partnership agreement between the plaintiff and the defendants in the record before me. The plaintiff alleges at paragraph 45 of the Amended Amended Statement of Claim that his rights to compensation proportionate to this equity were known to and agreed upon by the parties and were consistent with the requirements of the Partnership Act.
[39] In equity and pursuant to the Partnership Act, partners are subject to a strict duty of disclosure concerning full information of all things affecting their partnership.
[40] Sections 28 and 29 of the Partnership Act, provide as follows:
Duty as to rendering of accounts
- Partners are bound to render true accounts and full information of all things affecting the partnership to any partner or his legal representatives.
Accountability for private profits
29 (1) Every partner must account to the firm for any benefit derived by the partner without the consent of the other partners from any transaction concerning the partnership or from any use by the partner of the partnership property, name or business connection. R.S.O. 1990, c. P.5, s. 29 (1).
Extends to survivors and representatives of deceased
(2) This section applies also to transactions undertaken after a partnership has been dissolved by the death of a partner and before its affairs have been completely wound up, either by a surviving partner or by the representatives of the deceased partner. R.S.O. 1990, c. P.5, s. 29 (2).
[41] In Rochwerg v. Truster, at paras 42, 73, 53 and 56, the Ontario Court of Appeal explained the disclosure obligations outlined in the Partnership Act as follows:
[52] First, an obligation to account arises under s. 29(1) without proof of a competing activity. In contrast, the obligation to account established by s. 30 of the Act requires proof of competition.
[53] Second, s. 29(1) has two branches. An obligation to account may arise wherever a benefit has been derived by a partner, without the consent of the other partners, from "any transaction concerning the partnership" or from "any use . . . of the partnership property, name or business connection".
[58] The first branch of s. 29(1), however, uses different language and does not refer to "a business of the same nature as . . . that of the firm". It must be taken, therefore, that a different meaning may attach to the phrase "concerning the partnership". In my view, the word "concerning", as used in s. 29(1), means "relating to", "in respect of", "referring to" or "connected to" in the sense of a transaction affecting the interest of, or important to, the partnership. Such words, in their ordinary and legal usage, enjoy a wide connotation and have been interpreted by the courts as having the "widest possible scope . . . of any expression intended to convey such connection between two related subject matters". (See Nowegijick v. R., [1983] 1 S.C.R. 29, 144 D.L.R. (3d) 193, per Dickson J. at p. 200; Slattery (Trustee of) v. Slattery, [1993] 3 S.C.R. 430, 106 D.L.R. (4th) 212; J.R. Nolan and J.M. Nolan- Haley, Black's Law Dictionary, 6th ed. (St. Paul: West Publishing, 1996); W. Little, H.W. Fowler, J. Coulson and C.T. Onions, The Shorter Oxford English Dictionary, 3rd ed., vol. 1 (Oxford: Clarendon Press, 1973); and Canadian Dictionary of the English Language (Toronto: ITP Nelson, 1998).) Accordingly, while a transaction "concerning the partnership" requires a link between the transaction and the partnership, that link can include, but is not limited to, activities or services within the "scope of the [partnership] business".
[42] The defendants argue that s.28 of the Partnership Act, refers to partners being required to render full information relating to partnership property. They argue that the trust accounts are not the property of the partnership but rather are the property of the clients. Therefore, the defendants argue that the trust accounts are not producible pursuant to s.28 of the Partnership Act as the trust account information is not relevant based on the allegations in the plaintiff’s current pleading, with the removed allegations relating to improper transactions involving client funds in MKW’s trust accounts.
[43] Similarly, the defendants argue that s.29 of the Partnership Act, is not engaged to require production of the trust accounts as the trust accounts are client property and the wording of s.29 relates to partnership property.
[44] Pursuant to s. 28 of the Partnership Act, the defendant partners are required to render true accounts and full information of all things affecting the partnership. In my view, the firm’s trust accounts contain information that affected the partnership between the parties and are therefore relevant to the issues as pleaded in the Amended Amended Statement of Claim.
[45] Section 29(1) of the Partnership Act, confirms that an obligation to account may arise whenever a benefit has been derived by a partner, without the consent of the other partners, from any transaction concerning the partnership.
[46] At paragraph 7 of the Amended Amended Statement of Claim, the plaintiff has alleged that on October 19th 2017, the defendant partners withdrew $700,000 of partnership funds without the consent of the plaintiff. At paragraphs 21 and 22 of Amended Amended Statement of Claim, the plaintiff has alleged that a GIC for $220,000 had gone missing from the firm’s operating funds during the accounting period without explanation. The plaintiff alleges that the $220,000 was a firm asset withdrawn from the firm’s bank accounts by the defendant partners without the plaintiff’s knowledge or consent.
[47] The Ontario Court of Appeal in Rochwerg v. Truster, at paras 42, 73, 53 has confirmed that s.29(1) of the Partnership Act must be interpreted broadly such that while a transaction "concerning the partnership" requires a link between the transaction and the partnership, that link can include, but is not limited to, activities or services within the "scope of the [partnership] business".
[48] In my view, the wording of section 29(1) of the Partnership Act, in relation to the allegations as pleaded in the Amended Amended Statement of Claim renders the trust accounts relevant to the issues as pleaded. In this regard, the firm’s trust accounts contain information which concerns the partnership as there is a link between the trust accounts and the activities or services within the scope of the partnership business. (Rochwerg, at parag. 58).
[49] The trust accounts are also relevant with respect to the plaintiff’s request for an order under section 39 of the Partnership Act to wind up the business and affairs of the Firm (paragraph 1(b) Amended Amended Statement of Claim).
[50] I am also of the view, that the trust account bank statements are relevant to the plaintiff’s claim to an accounting of all partnership income, expenses and profits or losses (paragraph 1(a) of the Amended Amended Statement of Claim).
[51] In this regard, the plaintiff has alleged that partnership funds were withdrawn without his consent and that he discovered significant discrepancies and unaccounted for adjustments in the partners’ capital accounts.
[52] The plaintiff has further alleged that the defendant partners owed him a fiduciary duty, including to act fairly and in good faith and to render true accounts and full information of all things affecting the partnership.
[53] At paragraphs 28 and 29 of the statement of claim the plaintiff has alleged that the defendant partners refused to bill work-in-progress (“WIP”) and collect outstanding accounts receivables (“A/R”) for significant client work completed during the accounting period. The plaintiff alleges that the defendant partners were waiting to expel the plaintiff from the partnership after which they intended to bill the WIP and collect the A/R without sharing it with the plaintiff.
[54] Moreover, paragraph 22 of the defendants’ pleading acknowledges that funds flow from the trust accounts to the general account:
- Cirone also asserts that Kepes and Winters each improperly received $80,000 in payments from Client M’s funds held in the MKW trust account. This allegation is without merit. Kepes and Winters did each borrow $80,000 from a lender client related to Client M and those funds were advanced from funds held in the MKW trust account that belonged to the lender client. However, these loaned funds were then in turn deposited by each of Kepes and Winters into the firm's general account to fund firm expenses, including those incurred for the benefit of Cirone, and the other partners.
[55] In my view, these allegations also render the trust accounts relevant to the issues raised in the pleadings. The defendants acknowledge that client money can flow from the trust accounts into the operating account, for example, to satisfy client accounts. However, the defendants argue that the plaintiff does not require the trust account records as the plaintiff already has access to the information relating to amounts which flowed into the operating account as the plaintiff has been provided with the firm operating account records. I do not accept this argument.
[56] Paragraph 22 of the defendants’ pleading confirms that money flowed from the firm trust accounts into the firm operating account. Moreover, By-Law 9 of the Financial Transactions and Records under the Law Society Act, outlines the Law Society’s record keeping requirements. The heading “Requirement to maintain financial records” and sections 18 and 21 of by-law 9 provide as follows:
“Every licensee shall maintain financial records to record all money and other property received and disbursed in connection with the licensee’s professional business, and, as a minimum requirement, every licensee shall maintain in accordance with sections 21, 22 and 23, the following records:
….A record showing all transfers of money between clients’ trust ledger accounts and explaining the purpose for which each transfer is made”.
[57] In my view, based on the allegations in the Amended Amended Statement of Claim, as well as the firm’s record keeping obligations, the firm’s financial records, including the trust account records are matters affecting the partnership, such that the trust account statements from January 1st 2014 to December 31st 2018 should be produced to the plaintiff.
[58] The defendants did not file an Amended pleading to respond to the plaintiff’s Amended Amended Statement of Claim. The defendants urged the Court to not consider those paragraphs in the defendants’ Amended Statement of Defence and Counterclaim which were drafted in response to the Amended Statement of Claim but which would now no longer be relevant given the allegations which were withdrawn with the filing of the Amended Amended Statement of Claim on June 18th 2021.
[59] It is not the role of the court to review the defendants’ pleading and attempt to guess which paragraphs the defendants may choose to withdraw by way of a further amended pleading. The plaintiff made further amendments to his pleading on June 18th 2021, resulting in Amended Amended Statement of Claim. The defendants have not filed an amended pleading to respond to the plaintiff’s further amended pleading in over three years. For the purposes of this motion, it is appropriate for the court to reference the parties’ pleadings which are currently before the court. In the immediate case, the current pleadings consist of the plaintiff’s Amended Amended Statement of Claim (amended on June 18 2021) and the defendants’ Amended statement of defence and counterclaim (amended on May 30th 2019 in response to the plaintiff’s Amended Statement of Claim amended on January 31st 2019).
[60] With respect to the defendants’ position that the information should not be disclosed as it is subject to solicitor client privilege, the defendants rely on Canada (Attorney General) v. Chambre des Notaires du Quebec 2016 SCC 21 at para. 17 and Sakab Saudi Holding Company v. Saad Khalid S. Al Jabri et al., 2024 ONSC 1601 (“Sakab”). However, these decisions are distinguishable from the facts present in the immediate case. In particular, these decisions relied upon by the defendants, relate to the production of documents subject to solicitor-client privilege, to third parties.
[61] In this regard, in Sakab Saudi Holding Company v. Saad Khalid S. Al Jabri et al., 2024 ONSC 1601 (“Sakab”) the plaintiffs sought to compel the defendants Mohammed Aljabri (“Dr. Aljabri”) and Mohammed Aljabri (“Mohammed”) to produce trust ledgers from any law firm in respect of funds received and sent, in relation to funds received for legal purposes and non-legal purposes and funds held in trust on their behalf, on the basis that the information in the trust ledgers would enable the moving party to determine the nature, value and location of the assets of Dr. Aljabri and Mohammed. The court determined that the trust ledgers of law firms which represented Dr. Aljabri and Mohammed contained administrative information relating to the lawyer client relationship and therefore found that the trust ledgers are presumptively protected from disclosure by solicitor-client privilege and refused to order production of the trust ledgers as the plaintiffs had failed to rebut the presumption of privilege with the required evidence as outlined in Kaiser (Re), 2012 ONCA 838.
[62] In Canada (National Revenue) v. Thompson, 2016 SCC 21 at para. 17 the Canada Revenue Agency (“CRA”) sent the defendant Thompson a requirement pursuant to s.231.2(1) of the Income Tax Act, requesting various documents pertaining to his personal finances as well as his current accounts receivable listing. Thompson provided the CRA with certain material but claimed solicitor-client privilege in further details of his accounts receivable, such as the names of his clients. The Supreme Court of Canada confirmed that the information requested was not required to be produced by Mr. Thompson as the information was protected by solicitor-client privilege.
[63] In Canada (Attorney General) v. Chambre des Notaires du Quebec, 2016 SCC 20 at para.72, the Supreme Court of Canada confirmed that “it is well established that the accounting records of notaries and lawyers are inherently capable of containing information that is protected by professional secrecy”. The Supreme Court of Canada explained that:
In Descôteaux, the Court quoted the following passage from John Henry Wigmore (Evidence in Trials at Common Law (McNaughton rev. 1961), vol. 8, § 2292): “Where legal advice of any kind is sought from a professional legal adviser in his capacity as such, the communications relating to that purpose, made in confidence by the client, are at his instance permanently protected from disclosure . . .” (pp. 872-73). In Foster Wheeler, the Court observed that “[i]t would be inaccurate to reduce the content of the obligation of confidentiality to opinions, advice or counsel given by lawyers to their clients” (para. 38). In Maranda, noting the importance of the information that can be extracted from particulars as seemingly neutral as the amount of the fees paid by a client, the Court concluded that “the fact consisting of the amount of the fees must be regarded, in itself, as information that is . . . protected” (para. 33). The Court thus acknowledged that, even where accounting information includes no description of work, it may in itself, if disclosed, reveal confidential and privileged information.
[64] The documents being requested in this motion are the firm trust account bank statements which relate to the time period when the plaintiff was a partner at the firm. If indeed, as is supported by the caselaw referred to by the defendants, the trust account records requested contain solicitor-client information which must be protected from disclosure, the plaintiff would be considered one of the solicitors responsible for safe-guarding this privilege. Moreover, the plaintiff was entitled to the requested information during his partnership and this is not a situation where a stranger is receiving the information. Indeed, the defendants have admitted in their pleading that once the plaintiff became a partner “he had unfettered access to all of the firm’s books and records, including in electronic form”. (Defendants’ Amended Statement of Defence, paras. 18, 23)
[65] I therefore, do not accept the defendants’ argument that the trust account statements cannot be produced to the plaintiff due to the documents being protected by solicitor-client privilege. In the context of the immediate case, the privileged nature of certain information in the firm’s trust accounts cannot be said to represent a bar to disclosure of the trust account statements to the plaintiff. In this regard, given that the plaintiff is requesting the trust account bank statements for the period of time when he was a partner, in my view, solicitor-privilege does not apply vis-à-vis the plaintiff in terms of preventing the requested disclosure of the trust account statements to the plaintiff.
[66] The parties acknowledged during oral submissions that given the nature of the allegations pleaded in this litigation, it was anticipated that the documentary productions exchanged would include documents which are subject to solicitor-client privilege, which is why on consent, the parties obtained the Order of Associate Justice Abrams dated November 21st, 2019. The parties have referred to this Order as the “Privilege Order”. Pursuant to the Privilege Order, any privileged and confidential documents filed with the court are to be segregated and filed in a sealed envelope with a legend noting that the contents are to be treated as privileged and confidential, remain sealed and not form part of the public record. The defendants argue that the plaintiff has not properly followed the Privilege Order in terms of the materials filed for this motion.
[67] In my view, the issue raised by the defendants relating to the plaintiff’s alleged failure to comply with the Privilege Order, does not preclude production of the trust accounts in this motion. If there are any or ongoing issues relating to compliance with the Privilege Order, the defendants may take the appropriate recourse via a separate motion.
[68] For all of the reasons outlined above, I find that the two refused questions are relevant to the issues as framed by the pleadings and shall be produced within 30 days from the date of the release of this decision.
FURTHER EXAMINATION FOR DISCOVERY
[69] The plaintiff is seeking a further examination for discovery of the defendant in order to ask questions arising from the production of the bank statements following Mr. Morris’s examination for discovery and to ask question arising from the two questions that were refused.
[70] In particular, the plaintiff is seeking a further examination for discovery to ask questions relating to the trust account information if this Court orders production of the trust documentation in this motion, as well questions arising from the production of the produced monthly bank statements from January 1st 2014 to December 31 2018 for the firms CDN Operating Account, HST Account and US Operating Account as well as the relevant documents relating to the GIC. Not including the trust account documentation, counsel for the defendants confirmed that these documents which were produced via answers to questions taken under advisement at Mr. Morris’s examination for discovery, consist of approximately 1000 pages.
GOVERNING PRINCIPLES
[71] The plaintiff’s request to re-examine Mr. Morris on questions which were taken under advisement and also refused at his examination for discovery is governed by Rule 34.15(1) of the Rules of Civil Procedure. That rule addresses the consequences for refusing to answer proper questions during an examination. It provides that the court may:
(a) where an objection to a question is held to be improper, order or permit the person being examined to reattend at his or her own expense and answer the question, in which case the person shall also answer any proper questions arising from the answer; (b) where the person is a party or, on an examination for discovery, a person examined on behalf or in place of a party, dismiss the party’s proceeding or strike out the party’s defence; (c) strike out all or part of the person’s evidence, including any affidavit made by the person; and (d) make such other order as is just.
[72] It is not uncommon for the court to order re-attendance at an examination for discovery by a party who has refused to answer questions properly put to him or her. However, it is understood that there is no absolute right to a follow-up examination where a party has been ordered to answer questions improperly refused. (Senechal v. Muskoka (Municipality) 2005 ONSC at paras 6 and 7)
[73] In Senechal v. Muskoka (Municipality) 2005 ONSC at paras 6 and 7, Master MacLeod (as he then was) outlined the following principles to be considered when a party is seeking to re-examine the party opposite following receipt of answers to undertakings and/or following receipt of answers to questions which were initially refused or taken under advisement:
As a general principle a party giving undertakings or answering refusals may be required to re-attend to complete the discovery by giving the answers under oath and answering appropriate follow up questions. A party being examined may not compel the examining party to accept answers in writing simply by refusing to answer questions or by giving undertakings.
On the other hand, the court will not automatically make an order for follow up discovery if it serves no useful purpose. Examples in which an order may not be appropriate would be cases in which a full and complete written response has been given to a simple question, in which the answer demonstrates that the question was not relevant or in which the parties have agreed that written answers will suffice.
The court will generally make such an order if it appears necessary in order to fulfill the purposes of discovery. Examples of situations in which an order would be appropriate are situations in which the answers appear cursory or incomplete, where they give rise to apparently relevant follow up questions that have not been asked, if newly produced documents require explanation, or the discovery transcript supplemented by the answers will not be understandable or useable at trial.
Even if answers do appear to require follow up, the court has discretion to order answers in writing or to decline to order further examination where it appears the cost or the onerous nature of what is proposed outweighs the possible benefit or where for any other reason it appears unjust to make such an order. Such discretion should be exercised only if the interests of justice require it.
[74] The plaintiff seeks to re-examine Mr. Morris on issues related to the bank statements that had not been produced prior to his examination for discovery.
[75] In the Amended Amended Statement of Claim the plaintiff is seeking inter alia the following:
A. an order for an accounting of the Morris Kepes Winters LLP’s (“MKW” or “the Firm”) books and records, including an audit by an independent forensic accountant, to account for all income, expenses, and profits or losses generated from all transactions during the period from January 1, 2014 until September 5, 2018, being the date on which Michael Cirone ceased to be a partner in MKW (the “Accounting Period”).
B. an order for an accounting for the distribution of the Firm's partnership assets and income and an order under section 39 of the Partnership Act, R.S.O. 1990, c. P.5 to wind up the business and affairs of the Firm.
[76] In my view the documents which are now ordered to be produced in this motion and the bank statements which were produced after Mr. Morris’s examination touch upon issues that are central to these proceedings as raised in inter alia paragraphs 1A, 1B, 10, 11, 21-24, 25-27, 28, 29, 42-47 of the Amended Amended Statement of Claim and inter alia paragraphs 18, 20, 22, 25, 27, 28 of the defendants’ Amended Statement of Defence. Based on the pleadings, I am satisfied that the moving party has established that a further examination for discovery is necessary in order to prepare for trial and in particular to understand the case that it must meet, narrow the issues and to promote settlement.
[77] For these reasons, it is appropriate and in the interests of justice that Mr. Morris re-attend to answer questions that arise from the bank account statements which were produced after his examination, as well as the documents which were ordered to be produced in this motion.
DISPOSITION AND COSTS
[78] The plaintiff’s motion seeking answers to two refusals and a re-examination of the defendant Mr. Morris shall be granted.
[79] At the conclusion of the hearing of this motion, the parties advised the Court that an agreement had been reached on the issue of costs. In particular, the parties agreed that the successful party is entitled to costs in the amount of $9,500 inclusive of HST, payable within 30 days.
[80] In this regard, given that the plaintiff is the successful party on this motion, the defendants shall pay costs to the plaintiff in the amount of $9,500 inclusive of HST, within 30 days of the date of the release of this decision.
ASSOCIATE JUSTICE G. ECKLER DATE: December 20th 2024