DIVISIONAL COURT FILE NO.: 363/03
SUPERIOR COURT OF JUSTICE - ONTARIO
(Divisional Court)
RE: S.P.Y. UNDERGROUND CABLE & TRENCHING INC.,
MARIE POIRIER and DAVID YOUNG
Plaintiffs
(Appellants)
- and -
RENIE SIMS, BRIAN SIMS and J. HOWARD JOHNSON
Defendants
(J. Howard Johnson, Respondent)
BEFORE: Mr. Justice Caputo
COUNSEL: John J. Lefurgey, for the Plaintiffs
Gerry J. Gill, for the Respondent, Johnson
HEARD: January 13, 2004
E N D O R S E M E N T
1This is an appeal from the Order of Master Hawkins granting a motion to dismiss an action against one defendant, J. Howard Johnson, as a result of the fact that the plaintiffs had failed to pay two costs orders and had not served an Affidavit of Documents. As part of this appeal, a motion has been brought to introduce fresh evidence on the appeal to explain the default and provide some background to the motion and this appeal.
ISSUE #1 – ADMISSION OF FRESH EVIDENCE
2I will deal first with the application to admit fresh evidence.
3The parties agree that the test for admitting fresh evidence is a four-part test as follows:
(a) the evidence will generally not be admitted if by due diligence it could have been adduced at trial;
(b) the evidence must be relevant and verify a decisive or potentially-decisive issue in the trial;
(c) the evidence must be reasonably capable of belief; and,
(d) it must be such that, if believed, it could reasonably, when taken with the other evidence adduced at trial, be expected to have affected the result.
Palmer v. The Queen (1980), 50 C.C.C. (2d) 194 (S.C.C.)
4The parties agree that only paragraph (a), i. e., due diligence, is at issue.
5Dealing with the due diligence issue, the appellants’ lawyer at the time of the motion had been retained very recently and was not aware that there was a costs order specifying that costs must be paid forthwith or that the Affidavit of Documents was already overdue. He was in the process of having the Affidavit of Documents finalized in any event.
6The plaintiffs’ file at this time was still in the possession of the plaintiffs’ previous lawyer.
7He was taken by surprise by the motion and was unable to have an affidavit prepared and filed by the date set for the motion. He only received the materials on Friday, the 3rd of May, contacted the plaintiffs on Saturday the 4th and the motion was heard on Tuesday, the 6th. He requested an adjournment of counsel for the defendant and, again, when he attended at the motion.
8In the circumstances, an affidavit could not have been prepared in time and the due diligence criteria is met.
9The complete circumstances relating to due diligence are set out in my reasons dealing with the appeal of the Master’s order.
10I am satisfied that counsel for the plaintiff did not have sufficient time or information to prepare, file and serve proper material to contest the motion for dismissal heard on May 6, 2002.
11I am admitting fresh evidence consisting of:
affidavit of Charles Beall, a partner in the law firm of Gowling Lafleur Henderson LLP;
affidavit of Marcus Knapp, partner in the law firm of Paliare Roland Rosenberg Rothstein LLP;
affidavit of Marie Poirier, an individual plaintiff, and an officer and director of the corporate plaintiff; and,
transcripts of the cross-examinations of the above affidavits.
ISSUE #2 – APPEAL OF THE MASTER’S ORDER DISMISSING THE PLAINTIFFS’ ACTION
BACKGROUND OF ACTION
12S.P.Y. Underground Cable & Trenching Inc. (“SPY”) is a company incorporated pursuant to the laws of Ontario engaged in the installation of cables and related activities. The plaintiffs, Marie Poirier and David Young, were principals of the corporation and are husband and wife.
13In 1999, the company hired a new office manager named Renie Sims. Almost immediately after she started her employment, Mrs. Sims started stealing money by a variety of means, including credit cards in the names of company employees; getting new cards in other names; and writing cheques to cash, to herself and to family members. Over the course of roughly a year and a half, she stole in excess of $125,000.
14In early 2001, the theft was detected and Mrs. Sims was eventually charged. She pled guilty to Fraud Over $5,000 and, for the purposes of the guilty plea, the amount was specified as $75,000. She pled guilty in mid-April, 2002.
15The defendant, Brian Sims, is the husband of Renie Sims. Certain of the cheques went through bank accounts he had access to and a number of the items purchased would have been items used by the family. The allegation in the Statement of Claim is that he was aware of his wife’s theft and profited by it.
16The defendant, J. Howard Johnson, is a chartered accountant who acted for SPY. He also provided monthly services where he would attend and look after bank reconciliations, financial statements and the provision of financial advice. The claim against him is that he was negligent or breached his contract by not detecting the theft.
17As a result of the theft, SPY went from a company making a profit to a company operating at a loss. When SPY’s bank was notified of the theft, as opposed to cooperating with SPY, the bank called in all loan and debt obligations of SPY. This caused severe financial consequences over the next couple of years and required a great deal of attention from the individual plaintiffs.
18As a result of negotiations between the plaintiffs, their then-counsel and the bank, the bank problems ended up being resolved by SPY paying off all its debt to the bank and signing an agreement whereby it would not sue the bank for any negligence in dealing with the fraudulent cheques and the fraudulent Visa purchases. In return, SPY received a short extension of time to pay off the loans. By the time of the finish of negotiations with the bank, the plaintiffs and their then-counsel, Lancaster, Brooks and Welch, had determined that the relationship would likely not continue.
FACTS RELEVANT TO ORDER DISMISSING ACTION
19In late 2002, while still retained, the firm of Lancaster, Brooks & Welch was served with a motion from the defendant, J. Howard Johnson, requesting an order that the action be dismissed because an Affidavit of Documents had not been provided. The firm did not notify the plaintiffs about this motion but, instead, obtained an adjournment of the motion which resulted in a $500 costs award against the plaintiffs. Between the first motion date and the return date, the firm was removed as counsel of record. They did not notify the plaintiffs about the motion until the morning of the return date.
20The plaintiffs were able to get an adjournment of the motion when they contacted the Trial Co-ordinator on the morning of the return date of the motion, December 19, 2002. It was adjourned until January to allow the plaintiffs to retain new counsel.
21At the time of the return date, Mr. Charles Beall, of Gowling Lafleur Henderson, had been retained. He was only retained a day or two prior to the return date. In the time between December 19 and the return date, the plaintiffs had contacted Mr. Cal Beresh, a Niagara Falls solicitor, who reviewed the file for several weeks and then referred the plaintiffs to Mr. Beall.
22At the time of taking over the file, Mr. Beall believed there was no conflict. Several months later, that firm discovered a conflict because of the insurer involved in the action. New counsel had to be obtained and Mr. Beall assisted with this. Eventually, the plaintiffs were referred to Mr. Marcus Knapp, of Paliare Roland Rosenberg Rothstein, and retained him as of March 29, 2003.
23By this time, there were two costs orders and an order that an Affidavit of Documents be served. The plaintiffs did not understand that the costs orders had to be paid “forthwith”. Although they were aware the Affidavit of Documents had to be served, they had provided the documents to Mr. Beall and were aware that when he discovered the conflict, Mr. Beall had contacted counsel for the defendants and advised he had to send the plaintiffs to other counsel, but would assist them by preparing an Affidavit of Documents.
24After retaining Mr. Knapp, he was provided with the draft Affidavit of Documents from Mr. Beall and was in the process of obtaining the original documents from Gowling Lafleur Henderson.
25On May 1, 2003, the defendant served a motion on Mr. Beall asking that the action be dismissed for failure to pay the costs orders and for failure to serve an Affidavit of Documents. Mr. Knapp had the motion documents forwarded to him on May 2nd after finding out about them on May 1st. At the time of service of the documents, the defendants were aware that Mr. Knapp was acting for the plaintiffs, although no formal Notice of Change of Solicitor was served until May 2, 2003.
26It was only on Friday, May 2nd that Mr. Knapp realized that there were two outstanding costs awards that had to be paid forthwith. He was not able to contact the plaintiffs until Saturday afternoon and was not able to put together any affidavit materials in time for the return of the motion on Tuesday, May 6th. He received cheques from the plaintiffs to provide to the defendants.
27Mr. Knapp attended at the motion on May 6th and attempted to get an adjournment. The learned Master did not allow the adjournment, with one reason apparently being his belief that Mr. Knapp had only been retained on May 2nd and this was some attempt on the part of the plaintiffs to drag matters out. He dismissed the action against Mr. Johnson. The recent service of the Notice of Change of Solicitor may have caused the confusion about when Mr. Knapp was retained.
28Since the date of the order dismissing the action, the costs awards in issue have been paid. The $3,000 costs award as of the May 6th motion has not been paid as that was an award for costs of the action and depending on the result of this appeal, the action may be reinstated.
29Affidavits of Documents have been served on all defendants. In addition, the defendant, Johnson, would likely have had most of the relevant documents already as he had the financial records of the company for the years in question. He had done the complete books.
LAW
30There is no dispute that the Master had the discretion to dismiss the action.
STANDARD OF REVIEW
31Where a Master’s order is a final order, the judge hearing the appeal is entitled to conduct a re-hearing & – after according some deference to the Master with expertise in the field – to substitute his or her discretion for that of the Master.
Hudon v. Colliers Macaulay Nicholls Inc., [2001] O.J. No. 1588 (Div. Ct.)
ANALYSIS & CONCLUSION
32The Master heard and decided the motion without any written material from the plaintiffs.
33Counsel for the defendant agrees that, although the Master had some verbal information about the late retainer of plaintiffs’ counsel, the Master did not have the detailed particulars filed before me as fresh evidence.
34In the endorsement, the Master said that the material reveals that the plaintiffs have changed solicitors before on the eve of a motion.
35I infer from that comment, combined with the absence of an accurate history of the matter, that the Master concluded the plaintiffs were deliberately disobeying previous orders and delaying the action.
36Counsel for the defendant fairly admits that there is no evidence of deliberate default or delay by the plaintiffs.
37In my view, the Master erred in not allowing an adjournment to the plaintiffs’ new counsel in order to file written material.
38The lack of written material led to the Master coming to an erroneous conclusion about the conduct of the plaintiffs.
39There would have been no prejudice to the defendant by allowing the adjournment that an order for costs could not have met.
40I am satisfied that the cause of the various delays and defaults were caused by the actions or inactions of various counsel acting for the plaintiffs. There was nothing the plaintiffs could have done to change the sequence of events leading up to May 6, 2002, when the action was dismissed.
41The plaintiffs have since cured their default by paying the costs ordered and filing their Affidavit of Documents.
42Order to go re-instating the appellants’ action as against J. Howard Johnson.
43Costs will follow the cause.
44The appellants requested costs on a substantial indemnity basis. There is nothing in the conduct of defendant’s counsel to warrant such costs.
45Costs on a partial indemnity basis fixed in the sum of $2,500, payable to the plaintiffs forthwith.
CAPUTO J.
DATE: 20040115