Date: 20080618
Docket: T-2289-03
Citation: 2008 FC 756
Toronto, Ontario, June 18, 2008
PRESENT: The Honourable Mr. Justice Mosley
BETWEEN:
NETBORED INC.
Plaintiff
and
AVERY HOLDINGS INC., SEAN EREN,
SUSAN EREN, SUSAN KATZ,
COREY KATZ and BINARY ENVIRONMENTS
LTD.
Defendants
REASONS FOR ORDER AND ORDER
[1]
Allan
Crosier, Fiona Anne Ridley and Tyne and Wear Capital Inc. (the “appellants” or the
“moving parties”) appeal from an order of Prothonotary Milczynski dated April
30, 2008 dismissing their motion for leave to intervene in a cost assessment
currently underway. The cost assessment stems from a series of awards in favour
of the defendants (collectively the “Avery defendants”) in an action for
copyright infringement, misuse of confidential information and breach of
contractual relations initiated by the plaintiff in December 2003 and
ultimately dismissed in October 2006.
[2]
Throughout
the various stages of the proceedings in this action, including the overturning
of an Anton Pillar order granted the plaintiff and an aborted appeal from that
decision, costs were awarded to the Avery defendants in the cause and they are
now seeking to recover them. A schedule for each of the steps in the assessment
process was established and deadlines fixed. The assessment hearing has now
been postponed twice pending the outcome of this motion. The plaintiff has yet
to file its written submissions as required by the schedule.
[3]
Mr.
Crosier controls the plaintiff Netbored Inc., Ms. Ridley is his spouse and Tyne and Wear Capital Inc. is a corporation set up in 2005 which Ms. Ridley controls. None
of them are parties to the action before this Court but they are defendants in
a claim filed by the Avery defendants in Ontario Superior Court on October 15,
2007 seeking, among other things:
•
an
order to hold Mr. Crosier personally liable for Netbored’s debts and
obligations including any costs awarded in the assessment before the Federal Court;
•
a
declaration that Tyne and Wear Inc. is a sham corporation;
•
orders
to trace the transfer of funds to other corporations which Mr. Crosier
controls;
•
an
order to set aside a loan and security agreement between Netbored and Tyne and
Wear Capital as having been fraudulently made for the purpose of defeating the
Avery defendants’ costs awards; and
•
Damages
interest and costs.
[4]
The
appellants contend that as a result of the Ontario Superior Court action they
now have direct interests in the cost assessment before this Court and should
be granted intervener status with full rights to productions and examination of
each of the defendants, to attend the assessment hearing and to present written
and oral arguments with respect to the appropriateness and the quantum of
costs. They allege that the Avery defendants have committed a fraud on the
Court in connection with the cost assessment, specifically through the
affidavit evidence and cross-examination of Susan Eren, a defendant.
[5]
The
grounds for appeal are that, in applying the criteria for the exercise of
discretion set out in CUPE v. Canadian Airlines International Ltd., 95
A.C.W.S. (3d) 249 (F.C.A.), Prothonotary Milcyznski erred in accepting the
defendants’ position that:
•
the
moving parties are not directly affected by the outcome of the cost assessment,
•
that
there is no justiciable issue or public interest in the proposed intervention;
•
there
is no lack of reasonable or efficient means to submit the question to the Court
without the moving parties involvement as they and Netbored Inc. have a common
interest to reduce the amount owing from Netbored to the Avery defendants;
•
the
position of the moving parties is adequately defended by the plaintiff;
•
the
interests of justice are not and would not be better served by the intervention
as the assessment has already been delayed as a consequence of the motion and
need not be further delayed; and
•
the
moving parties do not add anything to the assessment of costs process and there
is no evidence that any of them would assist the assessment officer in
determining any of the factual or legal issues related to the cost assessment.
[6]
In
support, the appellants offer the affidavit of Mr. Crosier, sworn on June 9,
2008 and filed with a revised Notice of Motion on June 11, 2008 for the hearing
of this appeal on June 16, 2008. As a preliminary matter, the defendants object
to the admissibility of this affidavit as it was not before Prothonotary
Milczynski. Indeed the moving parties filed no affidavit evidence on their
motion before her.
[7]
The
appellants submit that “special circumstances” exist to allow for the reception
of the Crosier affidavit. They were not aware, they contend, when leave to
intervene was sought that Ms. Eren had perpetrated a fraud upon the Court in
her affidavit and cross-examination. A fraud was committed, they say, as she must
have known in claiming certain legal costs for which she had been sued by the
law firm that provided the services that a settlement had been reached for an
amount less than that claimed prior to swearing her affidavit on December 21,
2006. If permitted to intervene, they argue, they may be able to unearth other
instances of fraud that would support a motion to limit or bar recovery of the
costs.
[8]
Ms.
Eren acknowledged during cross-examination that an error had been made with
respect to the amount of the claim as it had been reduced in the settlement. The
appellants allege that this was not error but fraud. Mr. Crosier says that he
did not come to that realization until in preparing for this appeal, he
compared the date of the Eren affidavit with a case history report obtained from
the Ontario Superior Court of Justice showing that the Court was notified on
December 5, 2006 that the law firm’s claim had been settled.
[9]
As
a general rule, no new evidence should be admitted by the Court when hearing an
appeal from a Prothonotary’s decision: Apotex Inc. v. Welcome Foundation
Ltd., 2003 FC 1229, 29 C.P.R. (4th) 489 at para. 10. No issue of
procedural fairness arises from the Prothonotary’s decision in this case that
might justify the reception of fresh evidence: Ontario Assn. of Architects
v. Assn. of Architectural Technologists of Ontario, 2002 FCA 218, 291
N.R.61 at para. 30. Even where the Court is to review the decision de novo,
the judge should do so on the basis of the material that was before the
Prothonotary: Marazza, Re, 2004 FC 139, [2004] 5 C.T.C. 143.
[10]
The only basis upon
which the affidavit could be accepted as fresh evidence is if special
circumstances exist upon which the Court could exercise its discretion to allow
the affidavit. To establish special circumstances, the evidence must not have
been discoverable with due diligence prior to the first hearing and the new
evidence must be material: Kent v. Canada (Attorney General), 2004 FCA
420, [2004] F.C.J. No. 2083 at para. 33.
[11]
The appellants submit that
the significance of the dates was only discovered when Mr. Crosier, in
preparing for the appeal, finally “connected the dots” between the date of the
settlement notice filed with the Ontario Court and the date of Ms. Eren’s
affidavit containing contrary information. But both of these facts were within
his possession when the intervention motion was filed. Cross-examinations had
taken place on the Eren affidavit in September and February 2007. The case history report
which Mr. Crosier says he personally obtained from the Ontario Superior Court
bears a print date of January 10, 2008.
[12]
Thus the facts set out in Mr. Crosier’s
affidavit were clearly discoverable with due diligence and could have been
presented to the Prothonotary. Had
the appellants wished to pursue the matter by way of a motion for further
cross-examination of Ms. Eren, they were still within the deadline fixed by the
Assessment Officer when they obtained the case history report.
[13]
In
any event, it is not clear that the proposed fresh
evidence is material. In my view, it does not establish fraud. At best, it
would support conjecture about Ms. Eren’s knowledge and intention when she made
her affidavit. It would not assist in the determination of a factual or legal
issue related to the assessment proceeding as the error in the amount claimed
has already been acknowledged.
[14]
The standard of review applicable to a
Prothonotary’s discretionary decisions was established by the Federal Court of
Appeal in Canada v. Aqua-Gem Investments Ltd (C.A.)., [1993] 2 F.C. 425 and
reformulated in Merck & co. v. Apotex Inc., 2003 FCA 488, 315 N.R.
175 as follows:
Discretionary orders of
Prothonotaries ought not to be disturbed on appeal to a judge
unless:
a) the questions in the motion are
vital to the final issue of the case, or
b) the orders are clearly wrong,
in the sense that the exercise of discretion by the Prothonotary was based upon
a wrong principle or upon a misapprehension of facts.
[15]
The
sole issue remaining to be determined on this action is the quantum to be paid
by the plaintiff to the Avery defendants. The appellants did not contend in
their written representations that the questions in the motion are vital to
that issue within the meaning of Aqua-Gem. Rather, they argued that the
Prothonotary erred in applying legal principles that are applicable to
participation in the substantive parts of an action. They submit the existing
case law relied on is not applicable “when intervener status is sought with
respect only to the assessment of the quantum of costs when the proposed interveners
are personally liable for those costs and have a direct financial interest”. No
authority was offered for that proposition and I see no reason to depart from
the established jurisprudence governing the exercise of discretion to allow intervention.
[16]
At
the hearing, the appellants did not contend that Prothonotary Milczynski erred
in identifying the correct test in law, as set out in CUPE, above, for
deciding whether to grant leave to intervene. Rather, they argued that she
erred in her application of that test and interpretation of the facts. I
disagree. In my view, the conclusions she reached on each of the relevant
factors were supported by the record before her.
[17]
A
person seeking leave to intervene under Rule 109 must demonstrate that their
participation will assist in the determination of a factual or legal issue
related to the proceeding. The appellants were content to rely upon Netbored to
deal with the issues in this action until it appeared that the corporate shield
might be pierced. They now argue that Netbored Inc. is impecunious and will not
press the case in favour of limiting the quantum as vigorously as they would,
if permitted to intervene. Moreover, they submit that they now have a direct
financial interest because of the Ontario action.
[18]
The
appellants have not brought forward evidence that Netbored Inc. will not
adequately defend its interests. Indeed the record indicates that counsel
instructed by Netbored’s principal, that is Mr. Crosier, conducted four days of
cross-examinations on the Eren affidavit. In any event, it is not enough to
assert that the company has insufficient resources to defend its own interests.
Those seeking leave to intervene must be able to contribute a different
perspective that would assist the Court. Here, the appellants would be
asserting the same interest. The appellants have no claim to participate at
this late stage in a further round of productions and cross-examinations which
will further delay the assessment.
[19]
It
is suggested that Ms. Ridley and her company, Tyne and Wear Inc. are not in the
same situation as Mr. Crosier, given his control of Netbored Inc., and that
they should be permitted to intervene to challenge an assessment that may be
charged against their interests. But at present, none of the appellants have a
direct interest in the outcome of this action. The claims against the appellants
in the Ontario action have not crystallized as that action has not proceeded to
any determination of fact or finding of liability.
[20]
The
appellants’ interest is at best contingent upon the allegations being proven at
a later date. They express concern about being faced with issue estoppel or res
judicata in the Ontario action if they are not permitted to intervene in
the Federal Court proceedings. But neither the parties nor the issues are the
same. A finding as to the quantum of costs owed by Netbored in the assessment
will not prevent the appellants from examining the Avery defendants and
presenting any defence they may have to the allegations in the Ontario action. That is where their attentions should be focused. Their effort to intervene
in the assessment is misplaced.
[21]
Accordingly,
I see no reason to interfere with the Prothonotary’s decision.
[22]
I
note that Prothonotary Milczynski awarded costs in the amount of $2000.00,
payable forthwith to the Avery defendants, and that payment has been made. In
my view, this appeal was without merit and has unduly delayed the completion of
the assessment process. The effort to introduce fresh evidence was a last-minute
attempt to bolster a weak case. Serious allegations of fraud have been made
without an adequate foundation. I agree with the defendants that there should
be some consequences. Accordingly, I will impose costs in the amount of
$3000.00 payable forthwith to the defendants in addition to those imposed by
the Prothonotary.
ORDER
THIS COURT ORDERS that:
- The affidavit of Allan
Crosier dated June 9, 2008 is not admissible in evidence on this motion and
shall be struck from the record;
- The motion to appeal the
Order of Prothonotary Milczynski dated April 30, 2008 is dismissed and the
moving parties/appellants are denied leave to intervene in the cost
assessment in this action;
- Costs in the amount of
$3000.00 additional to those imposed in the motion below are payable
forthwith to the defendants by the moving parties/appellants.
“Richard G. Mosley”
Judge
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