McGibbon v.

Merson
Ontario Judgments

Ontario Superior Court of Justice

Master J. Haberman

Heard: May 8, 2009.

Judgment: May 12, 2009.

No. 08-CV-00369475

[2009] O.J. No. 2310 | 2009 CarswellOnt 3157

Between McGibbon et al., and Merson et al.

(60 paras.)

Case Summary

Civil litigation — Civil procedure — Discovery — Examination for discovery — Persons who may be examined —
Motion by the Merson defendants to quash a summons served on the defendant Kenneth Lyle Merson allowed —
The defendants main motion was to strike portions of the plaintiffs' claim — The plaintiff's affidavit did not say what
evidence Kenneth Merson might have that had any bearing on any of matters in issue on the main motion — The
Merson defendants did not have standing to move regarding the summons of a non-party to the proceedings —
Rules of Civil Procedure, Rule 39.03.

Statutes, Regulations and Rules Cited:

Rules of Civil Procedure, Rule 25.11(a), Rule 25.11(b), Rule 39.03, Rule 53

Counsel

McKillop, M. A., for the Merson defendants and moving parties.

Hamilton, A., for the plaintiffs, responding parties.

Finley, M., for the non-party, Jean.

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REASONS

(Merson motion to strike two summons to witness)

MASTER J. HABERMAN

1 The Merson defendants have brought a motion before me to strike portions of the plaintiffs' claim. They have
filed no evidence in support of their motion.

2 The Merson defendants have served two summons to witness to gather the evidence they say they need in order
to respond to that motion. One summons was served on Kenneth Lyle Merson, one of the defendants in this action,
though he has sworn no affidavit in support of his motion. The second summons was served on Ken W. Jean of
ScotiaMcLeod, a non-party to these proceedings.

3 The Merson defendants have moved to quash both summons and the following are my reasons regarding those
issues. In view of my finding that the Merson defendants have no standing to move regarding the Jean summons
(their counsel made no submission that suggested a basis on which she could have standing other than the
possible impact on her clients), counsel for Jean who was present in court is now seeking instruction to bring the
motion to moving to strike his summons.

4 As a result all of the foregoing, the main motion has been adjourned sine die.

The action

5 Some background about what the action and the main motion are about is necessary to put this motion to quash
in context. The McGibbons are husband and wife and both are physicians. They are suing their former lawyer,
Jarvis Sheridan, his firm, their former investment advisor, Kenneth Lyle Merson and various entities to which
Merson is related, for fraud, conspiracy to defraud, breach of fiduciary duty, as well as fraudulent or alternatively
negligent misrepresentation. They seek damages of $7 million (which include punitive damages) from the Merson
defendants; an accounting; orders setting aside various agreements they have entered into; orders requiring the
defendants to deliver their books and records for inspection; and the appointment of a receiver over the affairs of
each defendant.

6 The request for an accounting is not a perfunctory "boiler-plate" plea. Rather, the pleading contains 7 separate
categories of accounting the plaintiffs' claim to be entitled to, aside from the one category challenged by the main
motion. They are as follows:

* all amounts paid in any way or which are claimed to be outstanding pursuant to the mortgage, loan
agreement or any other contract between the parties;

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* all amounts invested, plus fees and commissions charged to the plaintiffs pursuant to the
Investment Management Agreement or any other investment management agreement between
the parties;

* all amounts paid in any way by Merson or any of the Merson- related defendants or any other
entity of any kind that he controls or manages;

* all amounts paid to Merson in the form of fees or commissions related to his investment of the
plaintiffs' money;

* all monies paid by the plaintiffs towards the leases held by any of the defendants;

* all amounts paid by the Merson defendants pursuant to the partnership Agreement as between the
two McGibbons or any other partnership agreement;

* an accounting of all fees paid by the plaintiffs to their counsel or his firm.

7 The Merson defendants challenge one aspect of the request for an accounting, and it is found at paragraph 1h),
which reads as follows:
An accounting of the administrative fees charged, levied or collected by Merson for his approximately 45
other clients described in paragraph 32 below.

8 The saga begins in the late 1980's. The plaintiffs plead that in or around that time frame, they retained Sheridan
to assist them with their estate planning, which included some mortgage transactions, preparing their wills and a
promissory note. At some point during the parties' relationship, the McGibbons began to have financial difficulties
and they asked Sheridan if he could assist them with these issues, too. As a result, they say he introduced them to
Merson in 1992.

9 The plaintiffs assert that what they were not told when they met Merson was that he and Sheridan had
overlapping business interests, so that by recommending to the plaintiffs that they work with Merson, Sheridan
placed himself in a position of conflict. They claim they were not told as the introduction was part of a plan between
these two defendants which involved Sheridan identifying unsophisticated clients and Merson selling them a full
range of services to benefit various Merson entities.

10 The nub of the claim is that Merson and Sheridan conspired to cause the plaintiffs to enter into "a convoluted
web of transactions and arrangements" which they say they neither understood nor scrutinized. These included
loans and promissory notes between the spouses and with Merson related companies; mortgages; leases; an
assignment of books debts and other forms of security that the plaintiffs created in favour of Merson or his
companies. Sheridan prepared the legal documents for these transactions for which the plaintiffs were billed. They
now claim that the various contracts and agreements that they entered into far exceeded what they required and
were disadvantageous to them.

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11 The plaintiffs also claim that Sheridan and Merson conspired to prevent them from obtaining independent legal
advice.

12 The impugned portions of the pleading are contained in paragraphs 31, 32 and 1(h). Paragraphs 31 and 32 are
contained in a section of the pleading entitled "Conspiracy and Breach of Fiduciary Duty". They read as follows:
The McGibbons plead that Merson and Sheridan, together with the other defendants which they control,
conspired together for the predominant purpose of defrauding the McGibbons, as well as the other clients
of Merson and Sheridan, the particulars of which are known to the defendants, in the manner and by the
scheme similar or identical to that more particularly described above in paragraphs 15 through 30,
inclusive. (the bolded portion is what is in issue).

It is pleaded and the fact is that Merson also managed the financial affairs of approximately 45 other clients
in addition to, and in conjunction with, the financial affairs of the McGibbons, at the material times. Merson
utilized similar or identical financial products and services with these approximately 45 other clients. As part
of this scheme, Merson was entitled to determine all of the administrative fees charged, levied or collected
in respect of the financial affairs of these 45 other clients as well as for the McGibbons, and was able to
subsidize those fess, both directly and indirectly, with the McGibbons' funds.(emphasis added)

13 Paragraph 1(h) set out above flows from these assertions.

14 The statement of claim was issued on December 29, 2008 and the Merson defendants were served in early
January. On February 9, their counsel wrote, asking to inspect documents, advising that there would likely be a
demand for particulars made, as well, and indicating that she was considering bringing a motion to strike parts of
the claim.

15 On February 10, the claim was amended but not in any way that impacts on these motions and the amended
claim was served on the Merson defendants on February 19, along with a large pile of documents in response to
the request to inspect.

16 On February 24, 2009, Merson counsel advised that they would be moving to strike paragraphs 31 and 32 of
the statement of claim. She also expressed concern about what she believed must have been a "serious breach of
confidentiality" regarding the 45 clients referred to in the pleadings.

17 In early March, McGibbons' counsel advised that he planned to cross-examine Merson, whether or not he filed
an affidavit. Merson's counsel responded, advising that, as this is a pleadings motion, no evidence was necessary,
she would be filing none and she would not submit her client for cross-examination. She asked that any motion date
to that end be cleared with her and for the plaintiffs to provide her with whatever law they relied on to support their
position.

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18 The motion record for the main motion was served on the plaintiffs on March 17, 2009. This was followed, on
April 9, by a letter from McGibbons' counsel, asking for cooperation in scheduling Merson's cross-examination,
failing which he would serve a summons to witness under Rule 39.03. Mersons' counsel responded on April 20. Her
view remained steadfast that no evidence was required for the motion so that any evidence her client might give
would be irrelevant to it. She notes that though the plaintiffs were invited to provide her with their case law, they
provided nothing.

19 On April 21, the plaintiffs served their summons to witness (actually, a notice of examination) on Merson,
seeking his attendance on April 28, 2009.

20 Merson was asked to bring the following with him:

1. All books, contracts, letters, telegrams, financial records and statements, mortgages, loan agreement,
partnership agreements, investment management agreements, lease information, records, bills,
handwritten notes, retainers, notes and copies in paper or electronic form of same in your custody,
possession or power in any way relating to paragraphs 31 and 32 of the Amended Statement of Claim,
or which touch on the matters in issue in the notice of motion commenced by the defendants to be
heard on May 8, 2009.

21 The summons then goes on to state:

2. Specifically, and without limiting the foregoing, all files and documents related to the following
ScotiaMcLeod account numbers, including those documents disclosed by Kenneth Lyle Merson to
ScotiaMcLeod:

22 What follows is a list of 43 numbers. All counsel agree that none of these account numbers represent accounts
held by the McGibbons. Unlike paragraph 1 of the summons to witness which, though lengthy, restricts what is
sought to matters relating to the impugned paragraphs or to the matters in issue on the main motion, paragraph 2 is
open-ended. What Merson is asked to do is to bring all files relating to these 45 ScotiaMcLeod clients that have no
involvement in this action.

23 Along with the summons, McGibbons' counsel finally provided citations for two cases he was relying on. In his
cover letter, he advised Merson counsel that if she planned to move to quash, she had better do so before the May
8 return date for the main motion as he would not agree to adjourn the main motion. I am uncertain how he
expected her to accomplish this, given the state of the court's lists at this time.

24 This did not end the matter. Merson counsel responded on April 24, asking the critical question about the
evidence the plaintiffs sought to adduce from Merson: "relevant to what?"

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25 McGibbon's counsel replied on April 27. While not responding to the question, he again took issue with the
defendants' failure to file evidence to support the main motion, adding:
... we will certainly be arguing that any statement that counsel try to make which are directed at evidence
are impermissible.

26 Presumably, plaintiffs' counsel expected to be governed by the same prohibition.

27 Merson failed to attend to be examined on the 28th and a certificate of non-attendance was obtained.

28 The supplementary motion record was served the same day. It deals with the motion to quash.

The main motion

29 What is in issue in the main motion must be examined, as that provides context for the evidence that Merson
could have that relates to it.

30 The motion record is thin. It contains only the notice of motion (replaced by an amended notice of motion in the
supplementary motion record) and a copy of the amended claim that it being challenged. The grounds relied on are:

1. Subrules 25.11(a) and (b);

2. The Plaintiffs have no standing to raise the issue of conduct involving non-parties and collateral issues;

3. The discovery and trial process, if the order sought is not granted would become unwieldy and time
consuming and will prejudice the trial by dealing with collateral issues to the dispute between the
Plaintiffs and the Merson Defendants;

4. The allegations would involve private and confidential information of non-parties who have no interest
or involvement in the action commenced by the plaintiffs;

5. paragraph 32 pleads evidence.

31 In essence, the Merson's objections appear to be two-fold: they are concerned about the complexity that these
paragraphs will add to the proceeding, both at the discovery and the trial stage, if allowed to stand, and about the
need for Merson to disclose confidential information about 43 other clients who are not parties to this action.

32 The Merson defendants took the position that they were not required to file evidence to support the motion as
the pleading speaks for itself. In their submission, having to make documentary and oral disclosure with respect to
43 other Merson clients' transactions says it all.

The motion to quash

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33 It is important to note that the plaintiffs have not served any of the 43 "other Merson clients" whose information
they see to import into this proceeding with their motion record. While they have set out the ScotiaMcLeod account
numbers for each of them in the two summons to witness, they have filed no evidence nor suggested in oral
submissions that they do not actually know who these people are or how to identify and locate them. While the
Merson defendants did not raise this issue, I am troubled by it. Jean's counsel, who was also present in court, did
not raise the issue either, although she acts for ScotiaMcLeod. No one was able to explain any of this for the court.

34 Although the Merson defendants have filed an affidavit in support of this motion to quash, it is there solely for
the purpose of introducing the chain of correspondence that preceded the motion. Similarly, the plaintiffs'
responding affidavit also relates the pre-motion history and attaches various exhibits. Nowhere in the affidavit does
Mr. Henein come out and tell the court what evidence he believes Merson has that has a bearing on any of the
matters in issue on the main motion.

35 The plaintiffs' position is that they are not required to file any evidence and tip their hand as they are within their
rights to issue a summons, yet they are critical of the Merson defendants for having filed what they refer to as a
bald affidavit.

36 The plaintiffs submit that the onus is Merson as the party challenging the summons. They rely on the
"potentially relevant" test set out in the case of Manulife Securities International Ltd. v. Societe Generale, [2008]
O.J. No. 1185, claiming that they have a prima facie right to examine these witnesses if the evidence they seek is
potentially relevant. They state, in their factum only, that as the 45 client files they seek are within the control of
Merson and/or Jean, "it cannot be said that Merson and Jean do not have any relevant evidence." In other words,
they seek to rely on the impugned pleading, itself, as the basis to support their assertion that Merson has evidence
that is potentially relevant.

The Law, analysis and conclusion

37 Rule 39.03 provides that a person may be examined as a witness before a pending motion or application and
that his attendance can be compelled by a summons to witness, in the same manner as provided by Rule 53, which
deals with witnesses at trial. When the person is a party, a notice of examination is used instead. As the parties
have referred to both what was served on Merson and on Jean as summonses, I will use that terminology.

38 Merson moves to quash the summons on the basis that he has no relevant evidence regarding the issue of the
propriety of the impugned pleading and he submits that the plaintiffs are on a fishing expedition.

39 As Speigel J. stated when dealing with a similar motion stated in Bearden v. Lee, 2005, 13 C.P.C. (6th) 364, the
motion essentially raises three issues:

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1) Is there an evidentiary basis for the proposed examination?

2) If there is, would the examination constitute an abuse of process; and

3) Is the summons too wide?

40 This first task is to set out the evidentiary burden for this motion. As I read the case law, there is a two-part test
that must be considered. The first issue for consideration is whether or not the evidence sought from the witness
may be relevant to the issues on the motion (see Helsin v. Verbeeten, [2001] O.J. No. 1602). In that regard, the
party seeking to conduct the examination need not go so far as to show that the evidence sought would be helpful
to their case.

41 Instead, as Campbell J. states in Manulife Securities International Ltd. v. Societe Generale (supra):
The basic premise that must be satisfied to sustain a Rule 39.03 summons and examination is that there
will likely be evidence obtained relevant to the defendants' motion.

42 Later in the decision, the learned judge appears to have softened the burden somewhat, as he upholds the
summons on the basis that the examination may adduce relevant evidence.

43 While there appears to be some uncertainty as to whether it must be shown that the evidence sought to be
adduced is likely relevant or that it may be relevant to the matters in issue on the main motion, what is clear is that
there is an evidentiary burden that must be met before we turn to the second part of the inquiry. Unless some
degree of relevance is shown, the motion must be resolved in favour of the party seeking to quash the summons.
We only move to the second part of the test if the necessary degree of relevance has been demonstrated. As Cullity
J. stated in Heslin (supra):
If the evidence would be relevant to the issues, the burden would be on the respondents to show that the
examination would be considered to be an abuse of process.

44 The qualifier of relevance therefore is where we start and if it has not been met, we need go no further - the
motion succeeds. If the "potentially relevant" hurdle has been met, then and only then, the burden shifts to the
moving party, to establish abuse.

45 In terms of what constitute an abuse, the Court of Appeal provides some guidance in Transamerica Life
Insurance Company of Canada v. the Canada Life Assurance Company Act et al. (1996), 27 O.R. (3d) 291:
There will be such an abuse if the main motion is itself an abuse, as by being frivolous and vexatious, or if
the process under Rule 230, while ostensibly for the purpose of eliciting relevant evidence, is in fact
been(sic) used for an ulterior or improper purpose, or if the process is being used in such a way as to be
itself an abuse ... The list is not exhaustive.

46 I thus begin with the issue of potential relevance. The plaintiffs have filed no evidence to explain what it is they

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hope to achieve by examining Merson. There is not even anything in general terms setting out in what areas they
expect he can assist. They allude to the issue in two places in their factum, as follows:

25. ... Given that the account files of the 45 Merson clients described in paragraph 32 of the Amended
Claim are within the control of either or both of Merson and Jean, it can not(sic) be said that Merson
and Jean do not have any relevant evidence to address Ms. McKillop's assertions that the pleading is
burdensome and will prolong the trial.

47 To the contrary, it is difficult to understand how Merson would have any evidence about the issue of the impact
of the pleading on the trial. I am unable to accept that this paragraph, which is not even evidence, creates a prima
facie case to be answered.

48 The subject arises again in paragraph 28:

The evidence the plaintiffs seek from either or both Merson and Jean will be directly probative of the
question of whether discovery of the information pertaining to the impugned pleadings will be difficult or
costly to obtain.

49 I am already seized of the main motion and have reviewed the materials that have been filed to support and
resist it. Based on what I have seen, I do not expect there will be much of a contest regarding the cost or difficulty of
obtaining the information. The plaintiffs have already identified the various ScotiaMcLeod clients by account number
so putting names to the numbers should not present a challenge.

50 Similarly, there is no reason to expect that these files will be difficult to locate so the cost of obtaining this
evidence is also not something that I expect will generate debate on the return of the main motion. As a result I do
not see that this is an issue that needs to be explored by examination as I have every reason to believe it will be
resolved in the plaintiffs' favour.

51 The issues that will be important on the return of the main motion are whether what has been pleaded
constitutes evidence rather that fact, and to the extent that it appears to be similar fact evidence, whether its
probative value will outweigh the complexity it will add to both the discovery and the trial. Thus, the focus of the
main motion will not be on the difficulty or cost involved in obtaining the information but rather, on the difficulty and
cost this added dimension will impose on the discovery and trial.

52 There is no suggestion, let alone evidence, that Merson may be in a position to provide any insight into these
matters nor is it self-evident from the pleading. Further, despite the plaintiffs' admonition to Merson's counsel that
she not direct any statement to the court that might be evidence, plaintiffs' counsel attempted to do just that in his
submissions when these issues were discussed.

53 Having repeatedly taken the position that he was not required to file any evidence as to the purpose of the

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examination, the plaintiffs' counsel then tried a different tact. He advised that Merson had co-mingled the
McGibbons' funds with those of these 45 other clients and that he then charged the McGibbons higher rates of
commissions as he used them to subsidize the fees of his other clients. He explained that if he was able to examine
Merson, he could get the various rates charged from him and an expert could then be retained to chart it all for the
purpose of trial.

54 None of this was properly before the court in evidence, nor has co-mingling even been pleaded. As this was a
carefully crafted pleading, with 8 sub-categories seeking an accounting, it is difficult to understand why there is no
allegation about co-mingling if the plaintiffs believe that is what happened. Further, the plaintiffs' stated intentions in
this regard are contradicted by the very broad scope of the notice of examination that they served.

55 Paragraph 2 of the notice seeks all of the documents and files pertaining to these 45 other clients, not solely
those that may tend to show the rates of commissions or other fees they paid Merson.

56 At the end of the day I have no evidence of what it is the plaintiffs plan to explore with Merson and there is
nothing about the pleading or the main motion which would allow me to say that he may have relevant evidence
regarding the latter, bearing in mind what will be in issue at that time. All I have is counsel's comments, which are
not supported by the pleading and at odds with the notice of examination. That therefore ends the inquiry.

57 Had I found there was prima facie relevance to what the plaintiffs sought to explore, I would have quashed the
summons nonetheless as a result of the scope of the notice of examination, which, in my view, amounts to an
abuse. Pursuant to it, the plaintiffs seek everything Merson may have access to regarding his 45 other clients. I
have had no satisfactory explanation for any of this.

58 This suggests that what we are looking at is truly a fishing expedition. The plaintiffs have an unsubstantiated
theory and they hope to have Merson confirm it for them so that they can support their pleading. This is not an
appropriate basis for cross examination before a pleading motion. As the court stated in Bearden:
(the examination) must be more than a "fishing expedition ... but need be no more than to demonstrate that
the proposed examination would be conducted on issues relevant to the pending application (in our case a
motion) and that the proposed witness is in a position to offer relevant evidence.

59 As the plaintiffs have failed to meet their initial burden and as the notice of examination constitutes an abuse in
view of its scope, the motion to quash the Merson summons is hereby granted.

60 In my view, the costs of this motion should be broken out from the main motion, If the parties are unable to
resolve the issue, I can be spoken to within 30 days at which time I will set a schedule for the exchange of written
submissions.

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MASTER J. HABERMAN

End of Document

Susan Toth