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Civil Litigation Dicta - Discovery - Documentary (2)

. Amtim Capital Inc. v. Appliance Recycling Centers of America

In Amtim Capital Inc. v. Appliance Recycling Centers of America (Ont CA, 2024) the Ontario Court of Appeal dismissed an appeal from a claim by a 'personal services corporation' (essentially an incorporated employee) who provided management and sales services to a Canadian subsidiary. The plaintiff lost their lawsuit for failing to meet their evidentiary onus, here when the defendant did not fully comply with their oral and documentary discovery duties and the plaintiff failed to pursue remedies to that non-compliance fully (ie. to the point required to obtain that necessary evidence).

The adage of the case is that, despite non-compliance with discovery duties by a defendant, the onus remains on the plaintiff to compel compliance to the point necessary to prove their case. A plaintiff cannot rely upon the defendant's non-compliance to support an 'adverse inference' such that the court will infer the necessary fact-findings:

[9] Amtim argues that the evidentiary shortfall was the result of ARCA’s failure to comply with its disclosure obligations under the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, with the production order made by Braid J., and with its own undertaking given at discovery.

[10] The trial judge did not accept this argument. He noted, in context at para. 65, that Amtim had not utilised its right to access ARCA’s documents provided in the Governing Agreements. He explained, at para. 93:

Very soon after the dispute between the parties arose ARCA invited Amtim to review its records pursuant to the contractual provision permitting access, with or without an auditor of Amtim’s choosing. This invitation was never withdrawn prior to trial. Berta declined to avail himself of the right to review or audit ARCA’s records and there is no indication that he mandated or instructed either of Amtim’s experts to do so. Dowad was not limited to reviewing the documents listed at Appendix A to his report (including the “ARCA Binder”) but had the right of access, by virtue of the Governing Agreements, to all of ARCA’s records pertaining to the Canadian operations. He was simply not mandated by Amtim to do so.

[11] The trial judge added, at para 96:

Amtim was given full discovery all of the relevant documents including the “raw data” (in electronic format) which ARCA had relied upon in carrying out the calculations contained in the brief of documents produced to Berta in July 2010, as ordered by Braid, J. on March 6, 2018. Although ARCA’s former counsel Mr. McRae was unable to locate sworn copies of the first two of the four Affidavit of Documents which ARCA served, the evidence indicated that the actual documents listed in those draft Affidavits of Documents were produced by ARCA.

[12] The trial judge noted, at para. 97, that the appellant had failed to take the usual procedural steps:

Even if ARCA’s disclosure of documentation or information might be considered to have been deficient (which I am not persuaded was the case) Amtim’s remedy was to bring a motion to compel production (which it did, leading to the Order of Braid, J.) Since Amtim did not bring any further motion or motions for production, it must be taken to have accepted ARCA’s position that no further production was required, and no adverse inference can be drawn. (see Bawas Gas Bars Ltd. v Kiosses, [1998] O.J. No. 5450 (Gen. Div.), para. 38 and Wade v. Baxter, 2001 ABQB 812, para. 25).

[13] The trial judge added that “there was no indication at trial that, following the production by ARCA of the “raw data” as ordered by Braid, J. on March 6, 2018, Amtim took any steps to make enquiries of counsel for ARCA or to otherwise follow up in an effort to render the data production useful for Lewis’ purposes.”

....

[17] The appellant argues that it was open to the trial judge, and remains open to this court, to remedy the evidentiary shortfall by drawing an adverse inference that, if the documentary evidence had been properly provided, it would have established the appellant’s case.

[18] The trial judge described Amtim’s argument, at para. 87:

Amtim seeks to overcome the qualification of Dowad’s opinion by reliance upon the principle permitting adverse inferences to be drawn against ARCA in two respects, as set forth in Mr. Figliomeni’s closing written submissions, as follows:

(a) the court should draw an adverse inference against ARCA resulting from its failure to deliver on its promise to prove that the financial summaries contained at Exhibit 26 (labelled the “ARCA Binder”), which were relied on by all of the expert witnesses, are faithful to the underlying data; and

(b) the court should draw an adverse inference against ARCA for its failure to call any of the accountants or auditors that were allegedly involved in determining the nature and quantum and method of allocation of ARCA’s corporate overhead expenses to ARCA Canada.

[19] After instructing himself properly on the law relating to adverse inferences, the trial judge declined, at para. 94, to draw an adverse inference regarding the provision of the underlying data:

I am unable to accept Amtim’s submission that ARCA had an obligation to prove that the financial summaries contained in the ARCA Binder “are faithful to the underlying data” and that, in the absence of such proof, the court should draw an adverse inference that they are not. In my view this unjustifiably reverses the onus on Amtim to prove that the calculations were wrong.

[20] The trial judge also declined to draw an adverse inference from ARCA’s failure to call auditors or other personnel:

For the reasons set forth above, I am also unable to accept Amtim’s submission that the court should draw an adverse inference against ARCA for its failure to call the accountants or auditors involved in determining the allocation of ARCA’s corporate overhead expenses to ARCA Canada: para. 96.

[21] As a result, the trial judge dismissed the case. He declined to fix damages on the basis that Amtim, noted at para. 118, “has not proved sufficient facts upon which the damages can be estimated fairly and reasonably.” As already explained, it cannot be said that ARCA’s conduct prevented Amtim from proving its loss.

[22] The trial judge rejected Amtim’s claim to payment for three invoices on the basis that Amtim had failed to prove “that it actually performed the services that would entitle it to payment”: para. 126.

[23] We agree with the trial judge’s analysis and, on that basis, dismissed the appeal.

....

[25] As a practice note, this court does not condone inadequate document production under the Rules of Civil Procedure. However, the act of setting an action down for trial signals a party’s willingness to proceed on the record and the evidence that it has, and to forego other procedural remedies. The decision to set an action down has consequences. The appellant made the strategic decision to rest its case on the potential use of an adverse inference and must bear the consequences of its strategic choice.

. Rimon v. CBC Dragon Inc.

In Rimon v. CBC Dragon Inc. (Ont CA, 2024) the Court of Appeal considered (and dismissed) an appeal against an order striking defence pleadings in response to non-compliance with document discovery undertakings:

[12] Applying the principles and factors set out in Falcon Lumber Limited v. 2480375 Ontario Inc. (GN Mouldings and Doors), 2020 ONCA 310, the motion judge found that the appellants had not provided any reasonable explanation for their non-compliance to date and there was no evidence that their failure to comply was inadvertent or based on a lack of understanding of their obligations. Given the relevance of the transaction records to the central issue of “what happened to the money”, he concluded that the appellants’ non-compliance was not “immaterial or minimal and clearly ha[d] an impact on the ability of the court to do justice in this particular case.” He observed that, given finite court resources, failure to comply with disclosure obligations impacts not only the just and expeditious determination of this case, but other pending matters.

[13] The motion judge concluded that striking the appellants’ statement of defence and counterclaim, without leave to amend, was an appropriate and proportionate remedy in the circumstances.

...

[19] ... They further contend that striking a pleading is not a remedy available for the failure to answer undertakings, citing Newlove v. Moderco Inc., 2002 CanLII 34748 (Ont. S.C.).

[20] Given the history of the litigation, it was open to the motion judge to reject Mr. Chan’s evidence that he only belatedly realized that he could not answer some of the undertakings given. This explanation for the appellants’ non-compliance was entirely new and, as noted by the motion judge, stood “in complete contrast to the position [the appellants] [had] maintained throughout over the last period of approximately two years, to the effect that they understood exactly what was required and were working diligently on it, but simply required more time.” The motion judge further observed that the appellants had not, as one would have expected, “put forward any evidence of good faith efforts and due diligence to obtain, for example, documents from third parties such as banks or other financial institutions.”

[21] Newlove does not stand for the proposition that striking a pleading is never a remedy available for a failure to answer undertakings. Rules 30.08(1) and (2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 give the court wide discretion to impose remedies where a party fails to disclose or produce a document or serve an affidavit of documents as required by the Rules or by a court order. Rule 30.08(2) specifically contemplates an order to strike a pleading, and both Rules empower the court to make any order “as is just”. At para. 21 of Newlove, Wein J. held that dismissal of an action should be granted only exceptionally but that “the matter of the scope of the remedy is one within the discretion of the Court, to be determined in the context of the particular case.”

[22] Newlove concerned a motion at the outset of trial seeking to dismiss an action for the plaintiff's failure to comply with undertakings or in the alternative to preclude the plaintiff from relying on certain documents at trial. There was no prior court order. In this case, the appellants’ conduct includes not only a failure to answer undertakings but to comply with multiple court orders. Rule 60.12(b) explicitly provides that the court may strike out a party’s defence where a party fails to comply with an interlocutory order.

....

[25] I cannot fault this reasoning. The Rules are intended to ensure that parties to civil suits disclose all relevant information in a timely manner at all stages of a proceeding. A party’s failure to comply with their disclosure obligations increases the costs of litigation and frustrates the opposing party’s ability to move the proceeding forward. The Falcon Lumber principles apply even more forcibly when a party fails to disclose records when repeatedly ordered by the court to do so within a specific deadline. In such a case, the defaulting party does not simply delay or prevent an adjudication on the merits but undermines the court’s authority.

[26] The motion judge applied the correct principles of law and evaluated the record before determining that the order sought by the respondents was just. As observed in Falcon Lumber, at para. 73, citing Starland Contracting Inc. v. 1581518 Ontario Ltd., 2009 CanLII 30449 (ON SCDC), 252 O.A.C. 19 (Div. Ct.), at para. 26:

The authority to dismiss proceedings for repeated failure to comply with court orders and flagrant disregard for the court process is an essential management tool. A case management judge or master who has a continuous connection with an action, the parties and their counsel is well-positioned to monitor the conduct of the participants throughout the proceedings, and to determine whether anyone is deliberately stalling, showing bad faith or abusing the process of the court when deadlines are missed and defaults occur under procedural orders.

[27] I agree that the appellants’ failure to comply with the successive orders of the court to disclose critical records and information, including a final “last chance” order, opened the door to the exceptional discretionary order made here.