CITATION: Honest Art Inc. v. Decode Entertainment Inc., 2012 ONSC 2965
DIVISIONAL COURT FILE NO.: 226/12
DATE: 20120525
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
HONEST ART, INC.
Plaintiff/Responding Party
– and –
DECODE ENTERTAINMENT INC., MAINFRAME ENTERTAINMENT, INC., RAINMAKER ENTERTAINMENT INC., and C.O.R.E. DIGITAL PICTURES INC.
Defendants/Moving Parties
AND BETWEEN:
DECODE ENTERTAINMENT INC.
Plaintiff by counterclaim/Moving Party
-and-
HONEST ART, INC.
Defendant to the counterclaim/ Responding Party
John P. Koch and Allison A. Thornton, for the Respondent
Aaron Blumenfeld and Ewa Krajewska, for the Moving Party, Decode Entertainment
HEARD at Toronto: May 16, 2012
JENNINGS J. (ORALLY)
[1] The defendant, Decode, seeks leave to appeal the order of Belobaba J. dated January 30, 2012, dismissing its summary judgment motion.
[2] The defendant moves under both branches of Rule 62.02(4).
[3] The plaintiff brings this action to recover approximately $1,400,000 said to be owing it because of a breach of an agreement with Decode for production and distribution worldwide of a television series and the exploitation of merchandising and licensing rights arising from that series.
[4] A large amount of material was placed before the motions judge on the summary judgment motion. The argument took a full day. The issue was whether the plaintiff’s action was statute barred. The dispute centred upon discoverability – when should the plaintiff have discovered that it had suffered a loss.
[5] The contract between the parties called for two streams of payments to be made to the plaintiff; one arising under s.5 of the contract, covering production and distribution of the television series and the other arising under s.7, covering merchandising and licensing. As pleaded, the claim in this action is restricted to s.7 revenues.
[6] There is a volume of conflicting evidence as to whether communications between the parties prior to the institution of proceedings, which could suggest awareness by the plaintiff of its claim referred to s.5 revenues (not being sought in this action) or both s.5 and s.7 revenues, the latter being sought.
[7] It is the plaintiff’s position, that although it had concerns about non-payment of s.5 revenues, it had no idea that it was being deprived of s.7 revenues until 2009 when it was permitted to audit the defendant’s s.7 records and had received a report from its accountant.
[8] The motions judge was well aware of and thoroughly canvassed the implications of Combined Air v. Flesch, 2011 ONCA 764, [2011] O.J. No. 5431 (C.A.) which had been released after the motion had been launched. He specifically referred to para. 51 of the judgment in Combined Air in para. 3 of his reasons, as follows:
In cases that call for multiple findings of fact on the basis of conflicting evidence emanating from a number of witnesses and found in a voluminous record, a summary judgment motion cannot serve as an adequate substitute for the trial process. Generally speaking, in those cases, the motion judge simply cannot achieve the full appreciation of the evidence and issues that is required to make dispositive findings. Accordingly, the full appreciation test is not met and the “interest of justice” requires a trial.
[9] The motions judge was alive to the discoverability issues. He said at paragraph 10 of his reasons:
The dispute is obviously about discoverability. The question as posed in the relevant section of the Limitations Act is this: when should a reasonable person with the abilities and in the circumstances of the principals at Honest Art have first known that a loss has occurred and that a proceeding would be an appropriate means to remedy that loss?
[10] The motions judge analyzed the problem as follows in paras. 11, 12, 14 and 15 of his reasons:
[11] The question of “who knew what when” cannot be easily answered on the evidence before me. Each side has provided competing evidence across a range of interconnected issues: the financial abilities or accounting expertise of the plaintiff; whether the improper deductions in the 2003 report or the improper cross-collateralizations in the 2006 report were so obvious that they should have started the limitations clock running; whether the plaintiff’s principals and their staff acted reasonably and with due diligence in contacting the defendant about their concerns; whether the defendant obstructed their requests for information or responded reasonably in this regard; whether there was any unreasonable delay in the plaintiff’s decision to hire an auditor and conduct an audit of the defendant’s books and records; and whether the auditor was right to say that the plaintiff’s claim for damages could not have been discovered without a physical inspection of the defendant’s books and records.
[12] In short, a trier of fact will have to make multiple findings of fact on conflicting evidence to determine when the plaintiff should have known that it had a claim against the defendant.
[14] If anything, the debate between counsel about the conflicting discoverability evidence – who knew what when and what was or was not “reasonable” – only persuaded me further as a motions judge that a full appreciation of this evidence in this case could only be achieved by a trial judge hearing the narrative from live witnesses who would explain in person what they knew, when they knew it and why they did what they did.
[15] In sum, this is the very kind of case that Combined Air says should go to trial. This case calls for multiple findings of fact on the basis of conflicting evidence emanating from a number of witnesses and found in a voluminous record. This is a case “where meeting the full appreciation test requires an opportunity to hear and observe witnesses, to have evidence presented by way of a trial narrative and to experience the fact-finding process first-hand.”
[11] The motions judge then said, in part, at para. 16 of his reasons:
[16] Before deciding to use the new powers in Rule 20.04(2.1) the motions judge should assess whether he or she can achieve the full appreciation of the evidence and issues on the basis of the motion record – as may be supplemented by oral evidence under Rule 20.04(2.2) or if the attributes and advantages of the trial process require that these powers only be exercised at a trial.
[12] The motions judge was accordingly quite aware of the full appreciation principle and found that he could not achieve that level of comprehension on the record before him.
[13] I must reject Decode’s submission that the motions judge leapt to that conclusion before considering and weighing the evidence. His reasons clearly to me show the contrary.
[14] There are no conflicting decisions. Certainly there are many cases post Combined Air where summary judgments have determined limitation and discoverability issues. That does not make them in conflict with this decision. Applying the correct principles to the facts on the record, as was done here by the motions judge will inevitably produce decisions both granting and refusing summary judgment.
[15] Nor have I any reasons to doubt the correctness of the decision. The motions judge considered the factors that the Court of Appeal has directed motions judges to consider on summary judgment applications and he determined that he could not on a motion fully appreciate the evidence so as to make dispositive findings. Accordingly, as directed by the Court of Appeal, he held that the interest of justice could only be served by a trial.
[16] Neither branch of Rule 62.02(4) having been met, the motion for leave must be dismissed.
[17] Costs have been agreed by counsel and Decode will pay to the plaintiff $13,500 forthwith.
JENNINGS J.
Date of Reasons for Judgment: May 16, 2012
Date of Release: May 25, 2012
CITATION: Honest Art Inc. v. Decode Entertainment Inc., 2012 ONSC 2965
DIVISIONAL COURT FILE NO.: 226/12
DATE: 20120525
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
JENNINGS J.
BETWEEN:
HONEST ART, INC.
Plaintiff/Responding Party
– and –
DECODE ENTERTAINMENT INC., MAINFRAME ENTERTAINMENT, INC., RAINMAKER ENTERTAINMENT INC., and C.O.R.E. DIGITAL PICTURES INC.
Defendants/Moving Parties
AND BETWEEN:
DECODE ENTERTAINMENT INC.
Plaintiff by counterclaim/Moving Party
-and-
HONEST ART, INC.
Defendant to the counterclaim/Responding Party
ORAL REASONS FOR JUDGMENT
JENNINGS J.
Date of Reasons for Judgment: May 16, 2012
Date of Release: May 25, 2012