Executive Summary: Key Legal and Evidentiary Issues

• Prolonged and intentional non-compliance by Schembri with documentary disclosure obligations, despite an undertaking and multiple court orders.

• Delay tactics included refusal to produce documents even after a summary judgment loss and denial of a Supreme Court appeal.

• Inadequate efforts and resources committed to reviewing and producing millions of documents ordered by the court.

• The relevance and necessity of the documents were established as essential to both liability and defence.

• Failure to comply with a clear peremptory order justified severe procedural sanctions.

• Dismissal of Schembri’s action and striking of his defence deemed a proportionate remedy for ongoing default and delay.

The background dispute and business relationship

This case stems from a long-running dispute between Al Way and Gordon Schembri concerning a failed joint real estate venture. In 2007, the two parties formed Triumph Financial Holdings Inc. to pursue development projects in Waterloo, London, and Oshawa. Their partnership was governed by a shareholders’ agreement signed in April 2008. A key provision was a Right of First Refusal (ROFR) clause that required Schembri to offer Way the opportunity to participate in any real estate developments acquired in the Regional Municipality of Waterloo.

The relationship between the parties deteriorated in 2008. Schembri allegedly breached the ROFR clause by developing at least 26 properties in the Kitchener-Waterloo area without offering these opportunities to Triumph. This resulted in two legal actions: the Schembri Action, commenced in 2010 (CV-42-11), and the Way Action, commenced in 2012 (CV-457-12). These actions were eventually joined and proceeded with shared discoveries.

The documentary disclosure controversy

The primary issue addressed in this decision involved Schembri’s failure to comply with his documentary disclosure obligations. During a cross-examination in September 2018, Schembri undertook to produce documents related to the 26 disputed properties (the “Outstanding Documents”) if his pending motion for summary judgment was unsuccessful. That motion was dismissed on appeal on November 2, 2020 (Way v. Schembri, 2020 ONCA 691), obligating him to produce the documents. However, Schembri failed to do so for over four years.

Despite repeated requests from Way’s counsel and multiple court directives—including a production order on September 26, 2023 (Way v. Schembri, 2023 ONSC 5425), and a peremptory order on February 27, 2024—Schembri delayed compliance. He failed to retain adequate assistance to review the voluminous documents and only partially produced materials after deadlines passed. For example, he produced a second partial tranche of 60,000 documents on October 30, 2024, but 92% of the documents remained outstanding at the time of the hearing. His excuse, a server issue in early July 2024, was dismissed as invalid since the issue was resolved by July 11—well before the August 30 deadline.

Policy terms and relevant legal clauses

The key contractual provision at issue was the ROFR clause in the shareholders’ agreement. This clause required Schembri or his company, Schembri Financial Limited, to offer Way an opportunity to invest in any real estate acquisitions in Waterloo. The breach of this clause was central to the Way Action.

From a procedural standpoint, the court relied on Rule 30.08(2) and Rule 60.12 of the Ontario Rules of Civil Procedure. These rules empower the court to strike pleadings or dismiss actions where a party fails to comply with documentary disclosure obligations or court orders.

The court’s reasoning and conclusion

Justice Gibson found that Schembri’s failure to comply with his production obligations was deliberate and repeated, despite knowing the scope and importance of the documents involved. Schembri’s conduct was characterized as a “wait and see” approach that caused unnecessary cost, delay, and burden on judicial resources. The court emphasized that Schembri had the financial capacity and awareness to meet the deadlines but chose not to.

Referring to binding case law, including Falcon Lumber Limited v. 2480375 Ontario Inc., 2020 ONCA 310, the court applied the principles for striking pleadings due to procedural default. These included considering the deliberateness of non-compliance, absence of reasonable justification, continuing default, and impact on the justice system.

Given the sustained failure to comply with multiple orders—including a final “last chance” peremptory order—and the extent to which litigation had been stalled, the court ruled that a proportionate response was warranted.

The court ordered:

1. The Schembri Action (CV-42-11) be dismissed.

2. The Statement of Defence in the Way Action (CV-457-12) be struck.

Justice Gibson concluded that these measures were necessary to uphold the integrity of the civil justice system and ensure timely resolution of disputes.