Executive Summary: Key Legal and Evidentiary Issues

• The plaintiff sought to compel answers to undertakings and refused questions arising from the discovery of a corporate defendant's representative.
   
• Construction trust obligations under the Construction Lien Act formed the central issue underlying the disclosure dispute.
   
• Proportionality and relevance governed the court's assessment of each contested undertaking and refusal.
   
• A distinction between discovery-stage tracing and trial-stage tracing shaped the court's treatment of the plaintiff's request for a full accounting of trust funds.
   
• Requests to strike the defendants' pleadings and portions of a trial affidavit were also before the court as alternative relief.
   
• Outstanding disclosure obligations, including a further and better affidavit of documents, remained unresolved pending compliance with the court's order.
   

Facts of the case

This motion arose from a construction dispute concerning the Northwood Hotel project in Timmins, Ontario. The plaintiff, an electrical subcontractor, alleged that the defendants — the general contractor, the hotel owner, and their officers and directors — failed to fully pay for completed work, failed to release holdback funds, and breached the parties' contract by retaining a replacement subcontractor, Con's Electric, to finish the project. The defendants countered that the plaintiff understaffed the project, missed scheduling deadlines, overbilled for work not performed, and ultimately abandoned the site, advancing a counterclaim and a set-off defence.

The plaintiff brought this motion to compel answers to undertakings and refused questions from the discovery examination of the defendant Roger Rheault, along with a further and better affidavit of documents. As alternative relief, it also sought to strike the defendants' pleadings and portions of Rheault's trial affidavit. The defendants opposed the motion on relevance and proportionality grounds, arguing the plaintiff had not established its status as a trust beneficiary under the Construction Lien Act and that the requested disclosure was disproportionate given the action's simplified-rules track.

Policy and legislative provisions at issue

The motion engaged several provisions of the Rules of Civil Procedure and the Construction Lien Act, R.S.O. 1990, c. C-30 ("CLA"). Rule 31.06(1) requires a party examined for discovery to answer, to the best of their knowledge, information and belief, any proper question relevant to a matter in issue. Rule 29.2.03 sets out proportionality factors the court must weigh, including the time and expense of compliance, potential prejudice, interference with the action's progress, and whether the information is otherwise available. Rule 30.08(1) restricts a party's ability to rely at trial on documents not properly disclosed, and Rule 76.03 requires simplified-rules parties to serve affidavits of documents disclosing all relevant material.

Under the CLA, sections 7 and 8 establish that funds received to finance an improvement, along with required holdbacks, constitute a trust fund for the benefit of the contractor or subcontractor carrying out the work; section 7(4) prohibits the owner or contractor from appropriating those funds inconsistently with the trust until all subcontractors are paid. Section 13 extends liability for breach of trust to directors and officers who knowingly assent to or acquiesce in such conduct. Section 39 entitles a lien claimant or trust beneficiary to request information from an owner or contractor, though the court noted no statutory right to a tracing of trust funds existed at the relevant time — only a common-law right upon demonstrating entitlement to receive trust funds.

Reasoning and analysis

The court applied the discovery-relevance framework from Ontario v. Rothmans Inc., 2011 ONSC 2504, noting that discovery questions must be tied to the pleadings, that "fishing expeditions" are impermissible, and that relevance at discovery is broader than at trial but not unlimited — tempered by privilege and proportionality. Citing Fyffe (Fyffe Logging) v. Ontrac Equipment Services Inc., 2008 CanLII 48133 (ON SC), the court affirmed that unconditional undertakings are binding promises enforced by the court regardless of after-the-fact objections.

Reviewing the discovery transcript, the court found that several undertakings — to produce the entire Prime Contract, the first financing agreement, the Con's Electric agreement and related communications, certain La Caisse and Don Narbonne communications, and the Wright Architect contract — had been given unconditionally and must be honoured. One item, proof of a 10 percent holdback rolled into phase 2 financing, had initially been given as an undertaking but was changed to "under advisement" after the client raised concerns about scope; the court treated this as a refusal for the purposes of the motion, but found it relevant to the breach-of-trust claim and ordered production, subject to redaction of irrelevant sensitive information.

On the refusals, the court found the second financing agreement relevant because evidence suggested the defendants may have received funds spanning both project phases to which the plaintiff could be entitled, including holdback funds. On the request for a full tracing of funds from La Caisse, the court distinguished between tracing sought for trial purposes and the tracing order sought as substantive relief in the claim. It held that, at the discovery stage, the plaintiff was not entitled to a full tracing but was entitled to whatever evidence the defendants intended to rely on at trial to show they had not breached their trust obligations, citing St. Mary's Cement Corp. v. Construc Ltd., 1997 CanLII 12114 (ON CTGD), for the principle that a defendant who elects not to produce tracing evidence does so at its own risk.

The court further found that the defendants' trial affidavit appeared to contain documents — including evidence relating to Jain Sustainability Consultants Inc., Winmar, and Wright Architects — not previously disclosed, warranting an order for a further and better affidavit of documents and a case conference under Rule 50.13 to address further discovery needs. On the alternative relief, the court declined to strike the defendants' pleadings, finding their conduct did not meet the high threshold described in Ponnampalam v. Thiravianathan, 2023 ONSC 1361, and declined to strike portions of the trial affidavit, holding that admissibility issues were better addressed at a pretrial motion or trial itself.

Ruling and overall outcome

The court granted the plaintiff's motion in part. It ordered the defendants to produce, within 30 days, the Prime Contract, the first financing agreement, the Con's Electric agreement and related communications, the specified La Caisse/Don Narbonne communications, the Wright Architect contract, and the second financing agreement. Within 60 days, the defendants were also ordered to produce all documentary evidence supporting their position on trust compliance, evidence of the 10 percent holdback (subject to redaction), and a further and better affidavit of documents. The plaintiff's request for a full tracing of funds at the discovery stage was denied, without prejudice to seeking a tracing order at trial. The requests to strike the defendants' pleadings and portions of Roger Rheault's trial affidavit were also denied, without prejudice to renewed motions. The parties were directed to schedule a Rule 50.13 case conference within 15 days, and costs of the motion, if not agreed, were to be addressed by written submissions not exceeding three pages. No fixed monetary award or costs figure was determined in this decision; the court left the quantum of costs to be resolved through that later submissions process.