Court File and Parties

CITATION: Verge Insurance Brokers Limited et al. v. Daniel Sherk et al., 2017 ONSC 1597

DIVISIONAL COURT FILE NO.: 16-735

DATE: 20170320

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

Sachs, Stewart and Spies JJ.

BETWEEN:

VERGE INSURANCE BROKERS LIMITED, 172968 ONTARIO INC., MARICK BROS. INVESTMENTS INC. AND MARK SHERK

Appellants/Plaintiffs

– and –

RICHARD SHERK, DANIEL SHERK, MARTIN, MERRY & REID LIMITED AND CAL SCHULZ INSURANCE BROKERS LTD., ANDREE SENN, BRENDA FRENCH, RUTH PLUSKA

Respondents/Defendants

COUNSEL:

Ian Dick and Sean Sells, for the Appellants/Plaintiffs

George Limberis and M. Mounir, for the Respondents/Defendants

HEARD at Hamilton: February 7, 2017

Reasons for Judgment

H. Sachs J.

Introduction

[1] This is an appeal from the decision of Turnbull J. dated June 16, 2016, in which the Appellants were ordered to reimburse the Respondent Daniel Sherk for amounts he paid to a consultant for a forensic review of backup tapes containing email communications. This order was made without prejudice to the Appellants’ right to seek indemnification at trial for the amounts in question should they be successful in the cause. In addition, the motion judge ordered that the Appellants pay Daniel Sherk the costs of the motion on a substantial indemnity basis.

[2] The judge who made the order under appeal was acting as a case management judge in the context of a case where the parties had had ongoing disputes about documentary discovery. Central to the motion judge’s conclusion was his finding that the Appellants had failed to comply with their documentary discovery obligations.

[3] The Appellants raise two principal grounds on this appeal. First, they argue that the motion judge’s key finding regarding their failure to comply with an earlier court order related to documentary discovery was made without referring to or dealing with evidence directly to the contrary. Second, they submit that the motion judge acted in a procedurally unfair manner by granting relief that was never requested and of which they had no notice.

[4] For the reasons that follow, I would dismiss the appeal. The evidence that the Appellants rely on in this appeal does not support their assertion that they complied with their documentary discovery obligations under a prior court order. In addition, the relief granted arose directly out of the motion before the court.

Factual Background

[5] The individual Respondents are former employees of the Appellants. The Appellants claim that the Respondents have conspired with each other to lure customers from Verge Insurance Brokers Limited (“Verge”) and cause it damage. The Respondent Daniel Sherk has counterclaimed against the Appellants for wrongful dismissal.

[6] In the course of these lengthy proceedings, the parties each brought motions to compel documentary production. As a result, Quinn J. issued a series of orders. The order that is of the greatest relevance to the motion judge’s decision is the order of March 19, 2015 (the “Quinn Order”).

The Quinn Order

[7] In November 2012, the parties exchanged “hold letters” requiring the preservation of potentially relevant documents. In their “hold letter” to the Appellants, the Respondents requested that any electronic documents remain readily accessible. The motion judge found that counsel for the Appellants admitted before him that the Appellants did not provide specific instructions to their employees to save copies of documents that may be relevant to the proceedings in this court in a separate archive file. Instead, Verge allowed the documents to accumulate in an undifferentiated mass in a series of so-called “Backup Tapes,” each of which contains thousands of documents. For the period from 2011 to 2014, there are 79 Backup Tapes.

[8] By the time of the Quinn Order, the Appellants were claiming to have produced all relevant documents. The Respondent Daniel Sherk was sceptical and, therefore, he suggested that there should be a forensic analysis of all the parties’ storage devices by an independent third party. Verge rejected this suggestion.

[9] Quinn J. ordered that the Appellants produce a further and better Affidavit of Documents, including greater detail about certain categories of documents. The Quinn Order specified that the period of time to be covered was from January 2011 to December 2014 for all internal and external communications of the Appellants and named employees.

[10] The order further provided that the Backup Tapes be provided for forensic analysis by a consultant, Deloitte. Since the Appellants were claiming that they had already reviewed the Backup Tapes for relevant documents, the Quinn Order provided that Daniel Sherk was to pay the costs of the forensic audit.

[11] The Quinn Order also provided that the case management judge was to remain seized of the matter so as to address “any issues arising out of the implementation of this Order.”

Events Following the Quinn Order

[12] Daniel Sherk requested that the Appellants provide 13 of the Backup Tapes for audit by Deloitte (the “Deloitte Review”). These tapes covered a period in 2012.

[13] Verge imposed various conditions on Deloitte, which increased the time and cost incurred to review the Backup Tapes:

For example, Deloitte could only access the tapes on weekends. Deloitte was prevented from removing the tapes offsite in order to have the tapes restored by a third party vendor. Verge required that Deloitte bring in its own staff to assist with the restoration process. Verge further insisted that the backup tapes be encrypted first despite the fact that Deloitte indicated it was not the normal course of practice for that process. (Turnbull Endorsement at para. 31)

[14] At one point, the Appellants insisted that the Respondents hire a Brinks truck to transport the Backup Tapes. In the end, the Deloitte Review cost $200,000.

[15] Deloitte identified 144 documents on the 13 Backup Tapes that were deemed to be relevant.

The Respondent Daniel Sherk Brings a Further Motion

[16] As a result of the discovery of the 144 documents and what he asserted was contradictory evidence from the Appellants’ review of the Backup Tapes about whether the Appellants had ever complied with their discovery obligations, the Respondent Daniel Sherk brought a motion before the new case management judge (Turnbull J.) for the following relief:

1. An order for the [Appellants] to produce the backup tapes, the sixty-six (66) tapes, for Deloitte to restore and review for relevancy and provide Dan [the Respondent Daniel Sherk] with a report of same, pursuant to Justice Quinn’s order dated March 19, 2015;

2. Alternatively, an order for the [Appellants] to provide evidence that they have in fact restored all the backup tapes by providing supporting documentation, steps taken, and the outcome demonstrating the backup tapes were reviewed, and to provide a hard copy or an electronic copy of all the emails to Deloitte to review for relevancy pursuant to Justice Quinn’s order dated March 19, 2015;

3. An Order that the [Appellants] pay Deloitte’s costs for either option 1 or 2 above;

4. Costs of this motion on a substantial indemnity basis; and

5. Such further and other relief as [the] Honourable Court may deem just.

The Motion Judge’s Decision

[17] The motion judge found, contrary to the Appellants’ assertions, that the Quinn Order was not a consent order. The Appellants appear to have taken the position that because the order was a consent order, its terms could not be changed.

[18] The motion judge also found that after receiving the “hold letter” at the end of November 2012, the principal of the Appellants, Mark Sherk, “did not provide specific instructions to its employees to save copies of documents which may be relevant to the proceedings in this court in a separate archive file.” If this had been done, instead of having to restore and review 79 Backup Tapes containing a mass of documents, only one file would have had to be reviewed and produced.

[19] In his reasons, the motion judge adverted to the fact that during the course of the motion, counsel for Verge admitted to him that, contrary to the terms of the Quinn Order, Verge had not reviewed all of the Backup Tapes to find documents that were relevant to the proceedings for the calendar years 2013 and 2014. This was in spite of the position taken by Mark Sherk in his affidavit before Quinn J., sworn June 10, 2014, that when the Appellants provided their Affidavit of Documents, they had reviewed all Backup Tapes and all documents relevant to the litigation had been produced.

[20] The motion judge found that because of this assurance by Mark Sherk, the responsibility of paying for the Deloitte Review had been imposed upon the Respondent Daniel Sherk.

[21] The motion judge then adverted to the evidence of the Appellant Mark Sherk from his examination for discovery on February 24, 2016, that he “absolutely” had not reviewed all of the Backup Tapes and that it would be impossible to do so because there were hundreds of thousands of emails on those tapes. Mark Sherk had further deposed that he did not consider it his obligation to review those tapes.

[22] The motion judge referenced the Sedona Principles, which govern the production of electronically-stored information and that the motion judge found applied to the case before him. These principles make it clear that electronic information is discoverable; that as soon as litigation is reasonably anticipated, each party must take reasonable and good faith steps to preserve potentially relevant electronically stored-information; that the costs of preserving, collecting and reviewing electronically-stored information is generally borne by the party producing it; and that the court should consider sanctions where a party would be materially prejudiced by another party’s failure to meet its obligation to preserve, collect, review or produce electronically-stored information.

[23] Given these principles, the motion judge found that any costs that resulted from Verge’s failure to archive potentially relevant information on one file that could be reviewed and produced to the Respondents were the responsibility of Verge. Thus, to comply with the Quinn Order, it was Verge’s clear responsibility to restore and review the Backup Tapes and to preserve and produce all relevant documents from those tapes to the Respondents in an accessible and legible form. According to the motion judge, this was the first step that the Appellants were obliged to take to fulfill their duty to produce documents in the litigation.

[24] Further, the motion judge found that,

If the [Appellants] had restored all the backup tapes as they were obliged to do to comply with their obligations under the Rules of Civil Procedure and pursuant to the order of Quinn J., they would have been aware of the issues involved from the outset and could have raised their concerns at the time of appearing before Quinn J. or at least before the Deloitte review began at Daniel [Sherk’s] request.

[25] Given that the motion judge found that the Appellants had not complied with their discovery obligations under the Quinn Order; that their failure to do so created a situation where the issues and costs associated with complying with that obligation were not addressed at the time of the Quinn Order; and that the Appellants had taken the above steps that increased the cost of the Deloitte Review, the motion judge ordered that the Appellants were to indemnify the Respondent Daniel Sherk for the costs he had already incurred for the Deloitte Review. This order was made without prejudice to the Appellants’ right to claim at trial that they should be indemnified for those costs if they were successful in the cause.

[26] The motion judge also ordered that the Appellants Verge and Mark Sherk were to restore the remaining 66 Backup Tapes and produce a further and better Affidavit of Documents listing all relevant documents once that review was complete. He directed that the Respondent Daniel Sherk was to retain his right under the Quinn Order to audit those tapes at his own cost.

[27] The motion judge found that if the Appellants had complied with their obligations under the Quinn Order, the motion before him would not have been necessary. He also found that the Appellants had not complied with their production obligations pursuant to the Sedona Principles and the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”). On this basis, he awarded the Respondent Daniel Sherk the substantial indemnity costs of the motion, which he fixed in the amount of $46,854.92.

[28] On the motion, the Respondents relied on the affidavit of a student at law. The motion judge acknowledged that while such affidavits are technically admissible, they deserve to be treated with scepticism and should be given little weight on contentious issues. The motion judge found that the affidavit in question mainly dealt with the steps taken in the litigation that were largely irrelevant to the final decision on the motion, a decision that turned on the Appellants’ non-compliance with the Quinn Order and the Appellants’ “misstatements relative to their review of all of the backup tapes.”

Issues Raised on the Appeal

[29] On this appeal, the Appellants raised four issues:

1. The motion judge erred in finding that the Appellants had failed to comply with the Quinn Order when there was uncontradicted evidence to the contrary;

2. The motion judge acted in a procedurally unfair manner by granting relief that was never requested and of which the Appellants had no notice;

3. The motion judge erred in relying on the affidavit of an articling student; and

4. The motion judge erred in awarding substantial indemnity costs.

Analysis

1. The Finding of Non-Compliance

[30] Absent a palpable and overriding error, findings of fact by a judge do not get set aside on appeal: see Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235.

[31] In this case, the motion judge made a finding that the Appellants had not complied with their obligations under the Quinn Order. This finding is clearly expressed at para. 15 of the motion judge’s decision, where he states:

During the course of the motion, Mr. Gleave [counsel for Verge] admitted that Verge had not reviewed all of its backup tapes to ascertain relevant documents during the calendar years 2013 and 2014 despite paragraph 1 of the order of Quinn, J. dated March 19th, 2015.

[32] The motion judge also made a finding that the Appellants had made misstatements about whether they had complied with these obligations.

[33] According to the Appellants, the motion judge made these findings while ignoring a crucial piece of evidence, namely the fact that after Mark Sherk had been examined for discovery, his counsel wrote a letter to counsel for the Appellants correcting the answers that Mark Sherk had given on his examination for discovery. That letter is dated April 5, 2016 and reads as follows:

At question 1537 you asked Mark Sherk whether he reviewed all of the backup tapes, to which he answered no given the volume of potential email activity. For clarity on this issue we provide the following answer

• Prior to producing its affidavit of documents, Verge did review its backup tapes, which included a review of Mark’s email in its entirety...

[34] On the appeal, counsel for the Appellants were clear that, in fact, the Appellants had not reviewed the Backup Tapes for the years 2013 to 2014. Thus, the above excerpt from the letter, like the statements made by Mark Sherk in his affidavit filed on the motion before Quinn J., was incorrect. In fact, prior to producing their Affidavit of Documents, the Appellants had not reviewed all of the Backup Tapes.

[35] Given this, there is no merit to the Appellants’ submission that the motion judge made a palpable and overriding error when he found that the Appellants had failed to comply with their production obligations under the Quinn Order, the Sedona Principles and the Rules. The motion judge was also correct when he found that the Appellants made misstatements about their review of the Backup Tapes.

2. The Procedural Unfairness Argument

[36] The Appellants submit that the motion judge acted in a procedurally unfair manner and contrary to the principles of natural justice when he granted relief against them that they assert was never requested and of which they had no notice.

[37] No standard of review analysis is required when an allegation of procedural unfairness is made. A decision is either procedurally fair or it is not.

[38] According to the Appellants, the only relief contemplated by the motion was relief related to the 66 Backup Tapes that had not been reviewed, not relief related to the 13 Backup Tapes audited by Deloitte or related to the period from 2011 to 2012.

[39] In making this submission, the Appellants point to the following statements by counsel for the Respondents. These statements were made during the course of argument before the motion judge related to the Appellants’ request to have another chance to review the Backup Tapes for 2013 and 2014, and to then produce a further and better Affidavit of Documents. The Respondents made submissions about what conditions should be put on this review. When the motion judge clarified that what was being discussed was a review for the years 2013 and 2014, counsel for the Respondents stated:

…the only reason why I say ’13 or ’14 is that those are the months they didn’t review. For ’11 and ’12, they say they reviewed it. I don’t believe they did, but it doesn’t matter. They have the evidence they did and I did a spot check for January to November 2012 and I found the relevant emails that they didn’t disclose. For ’13 and ’14, we know for certain they didn’t review. They don’t deny that.

[40] In the context of the same discussion about how a remedy in relation to the Backup Tapes for 2013 and 2014 should be structured, counsel for the Respondents argued that the Appellants could not be trusted and that the court should order that Deloitte review the tapes. As put by counsel for the Respondents,

But again, Your Honour, my concern is that people looking at these emails are not going to provide relevant emails and we’re going to have to do it all over again. Because our spot audit for those 13 tapes showed that they produced very little emails and in fact, there were many relevant emails. And because they did it this way, the Sedona principles – and I ask you to look at them, Your Honour, offer the – or the Court – give the Court the opportunity to levy sanctions on them. And I think the sanctions here have to be, you have to get Deloitte to review them at this point.

[41] Counsel for the Appellants then asked if the Respondents were now proposing a new remedy to which the Court responded “yes.” Counsel for the Respondents replied:

Well, I thought we’re in remedy mode. Are we not in remedy mode? Your Honour, and the search terms, Your Honour, are not with within the order. They were exchanged with the parties after the order was made. The parties know what the search terms are. And again, you look at the Sedona principles, Your Honour. They clearly speak to the parties that have violated the Sedona principles, that the Court can levy sanctions. And I think the appropriate sanction here is not monetary in the sense that – but at least to have a third-party review it. Because they didn’t do what they ought to have done, because they still make the audit that much more difficult to do in the manner in which they did the preserve. The audit is still difficult, because if they had done the archive folder as the Sedona principles have indicated, if we wanted to spot check the ’13 and ’14, it would’ve been a lot less expensive than to have to spot check it now. And we didn’t know about relevant emails being on backup tapes until after the review.

[42] According to the Appellants, these excerpts support their position that the Respondents were not requesting any relief in relation to the 13 Backup Tapes that Deloitte had already audited and were not requesting that any monetary remedy be imposed on the Appellants. The Appellants submit that contrary to what the Respondents were requesting and what the Appellants expected, the motion judge imposed a remedy that did both those things: the motion judge’s order required the Appellants to pay a monetary amount to the Respondent Daniel Sherk for the costs incurred by him to have Deloitte audit the 13 Backup Tapes.

[43] With respect to the Appellants’ claim that they had no notice that the Respondents were seeking any relief in relation to the 13 Backup Tapes that Deloitte had already reviewed, I disagree that the relief requested in the Respondents’ Notice of Motion was not broad enough to encompass the order that the motion judge made. For ease of reference, I will set out the prayer for relief in that Notice of Motion again. It requests the following:

1. An order for the [Appellants] to produce the backup tapes, the sixty-six (66) tapes, for Deloitte to restore and review for relevancy and provide Dan [the Respondent Daniel Sherk] with a report of same, pursuant to Justice Quinn’s order dated March 19, 2015;

2. Alternatively, an order for the [Appellants] to provide evidence that they have in fact restored all the backup tapes by providing supporting documentation, steps taken, and the outcome demonstrating the backup tapes were reviewed, and to provide a hard copy or an electronic copy of all the emails to Deloitte to review for relevancy pursuant to Justice Quinn’s order dated March 19, 2015;

3. An Order that the [Appellants] pay Deloitte’s costs for either option 1 or 2 above;

4. Costs of this motion on a substantial indemnity basis; and

5. Such further and other relief as [the] Honourable Court may deem just. [Emphasis added.]

[44] Paragraph 2 of the Notice of Motion speaks to a review by Deloitte’s of all the emails on the Backup Tapes. Paragraph 3 is a specific request that the Appellants pay all of Deloitte’s costs associated with this review.

[45] In addition, paragraph 4 of the Notice of Motion makes a request for “such further and other relief as is deemed just.” As the Appellants point out the general rule about relying on an omnibus or general prayer for relief clause is set out in Beatty v. Waterloo (Regional Municipality), 2011 CarswellOnt. 4484 (S.C. J.). In that case the court noted that, while the general rule is that a finding of liability must be founded on the issues joined in the pleadings,”…the failure to plead a specific cause of action is not necessarily fatal where the facts contained in the pleadings support the cause of action and the parties have had the opportunity to address the issue. The overriding concern is one of fairness.”(para. 81).

[46] The Appellants did have an opportunity to address the issue of the costs associated with the Deloitte review of the 13 Backup Tapes. It is clear that what was at issue in the motion was who should pay for Deloitte’s costs, given that the Respondents were asserting that the Appellants had failed to comply with their production obligations as contemplated by the Quinn Order. That issue was two-fold. The position of the Respondents was that the Appellants should pay the cost to have Deloitte restore and review the 2013 and 2014 tapes. Secondly there was the requested sanction for the costs already incurred by the Respondents in doing the spot audit. Mr. Limberis submitted to the motion judge:

And if the Court feels that they haven’t preserved it reasonably, then under the Sedona principles, there should be some consideration taken into the account that we still [had][^1] to review all these backup tapes and $100,000 [sic] just to spot audit them. If they did it the appropriate way, we wouldn’t have to do a spot audit that way. So we’re still back down to the Sedona principles.

[47] Both parties fully addressed whether there had, in fact, been non-compliance by the Appellants and fully addressed what consequences the Respondents suffered as a result of that non-compliance, including the costs they incurred for the Deloitte Review. The Respondents maintained that were it not for the conduct of the Appellants in failing to archive relevant documents in an appropriate manner and in making unreasonable demands about how Deloitte conduct its review, those costs would not have been as excessive as they were. They also argued that the Deloitte audit showed that they were justified in having taken the position before Quinn J. that the Appellants could not be trusted to fulfill their disclosure obligations on their own. In support of this argument, the Respondents pointed to the 144 documents that the Deloitte Review uncovered, documents that the motion judge had before him and indicated he had reviewed. The Appellants disputed all of these arguments by the Respondents and asserted that the Appellants made a choice to conduct an expensive audit, a choice that was unnecessary and that yielded nothing in the way of relevant information. The Appellants further submitted that they had not breached their disclosure obligations.

[48] The motion judge heard from the parties about all of these issues and decided, as he was entitled, to reject the Appellants’ position and accept the Respondents’ position. He then decided on a remedy that was clearly contemplated by the Notice of Motion and was clearly available to him on the material before him. It is important to remember that in making the decision he did, the motion judge was acting as a case management judge. As such, he had express authority to revisit the terms of the Quinn Order to see that its intent was carried out. I agree with the comments of Mossip J. in Royal Bank v. 1542563 Ontario Inc., 2006 CarswellOnt 5761 (S.C.J.) at para. 4 concerning the proper approach that should be taken to a request to revisit the territory of an earlier order:

I do not consider this a motion to “vary” the order of Justice Baltman dated July 27, 2006. Nor do I find I am improperly “interpreting” another Judge’s order. Rather, I am following those cases that have held, where there is a dispute, a Judge can make an order to ensure that the original order is carried out in a manner that makes sense.

[49] The motion judge’s task was to ensure that a case bogged down in lengthy and expensive production motions moved forward in a more efficient manner. One way to encourage such efficiency is to make the party who is being non-compliant with their production obligations pay any costs incurred by the other party because of that non-compliance. That is exactly what the motion judge did, and he did so not only after hearing full submissions on the issues before him, but after hearing a number of other motions on the same file.

[50] The rights to full discovery and documentary production were designed to promote justice by encouraging parties to settle and by preventing “trials by ambush.” However, it is well-known that these rights can become weapons that frustrate rather than promote justice. One way this can happen is when parties fail to meet their production obligations, thus causing the opposing parties to take costly and time-consuming steps to enforce their rights to production.

[51] When it is clear that litigation is or may become protracted and expensive, the court can appoint a case management judge. Case management judges become familiar with cases and, as such, are in the best position to efficiently decide issues of contention between the parties about matters like production and to impose remedies designed to promote rather than frustrate the ends of justice. Their role is a crucial one in our current system of justice – a system that is at risk of falling under the weight of the costs associated with ensuring that it works fairly. Their decisions should be given deference on appeal.

[52] With respect to the comments by counsel for the Respondents before the motion judge that the Appellants rely upon, they must be read in context. At the point that the comments were made, counsel for the Appellants was asking that the Appellants be given another chance to comply with their production obligations for 2013 and 2014. What was being discussed was the terms that should be imposed should this happen. The Appellants were submitting that the terms should remain the same as in the Quinn Order, while the Respondents were requesting that a third party had to be part of that review and, by implication, that it should be the obligation of the Appellants to retain the third party. In the end, the motion judge decided to give the Appellants another chance to comply with their obligations for 2013 and 2014.

[53] It is also clear from those comments that the Respondents were not conceding that the Appellants had complied with their production obligations for the years 2011 to 2012. In fact, they were arguing the opposite and relying on the information that Deloitte had discovered in its audit to do so.

[54] It also must be remembered that the motion judge’s order did not finally determine the issue of who was to pay for the costs of the Deloitte Review. The order made clear that those costs could be readjusted at trial, if appropriate.

[55] For these reasons, I find that there is no merit to this ground of appeal.

3. The Respondents’ Affidavit

[56] The Respondents’ affidavit in support of the motion giving rise to this appeal was sworn by an articling student. The motion judge acknowledged that tendering evidence through the affidavit of an articling student, rather than through a party, permitted the party tendering the affidavit to avoid exposure to cross-examination. He further acknowledged that evidence tendered in this way “deserve[d] to be treated with skepticism and on contentious issues they should be given little weight” in accordance with the Court of Appeal’s decision in Armstrong v. McCall (2006), 2006 17248 (ON CA), 213 O.A.C. 229, at paras. 32-34.

[57] The motion judge found that the affidavit filed by the articling student “largely dealt with the steps taken as part of the production battle in this litigation” that were “largely irrelevant to the final decision on this motion as the real issue was the non-compliance with the clear order of Quinn J. dated March 19, 2015 and the [Appellants’] misstatements relative to their review of all of the backup tapes.”

[58] On this appeal, the Appellants claim that while the motion judge took this position with respect to the affidavit in question, the motion judge actually relied on the affidavit to make two key factual findings in support of his order that the Appellants indemnify the Respondent Daniel Sherk for the cost of the Deloitte Review. In support of this submission, the Appellants refer to the following two excerpts from the motion judge’s decision:

[22] The defendant has asserted that if he knew that Mark Sherk had not reviewed all the backup tapes pursuant to his obligations under the rules and based on his sworn testimony that he did review all the backup tapes, he would have disputed the costs that he has incurred (apparently these exceed $200,000) to restore and review 13 of Verge’s backup tapes during the production motion.…

[27]…Upon learning of these possibly relevant documents which had not been produced by Verge, Daniel was of the view that the backup tapes were likely not reviewed by the Plaintiffs to begin with. Hence, he believed that there are possibly relevant communications in the power, possession and control of the plaintiffs which have not been inspected or produced.

[59] The Appellants point out that while the motion judge attributes these statements and views to the Respondent Daniel Sherk, Daniel never filed an affidavit in the proceedings. These statements were, in fact, put into evidence through the information and belief affidavit of the counsel’s articling student.

[60] I agree with the Appellants about the manner in which the statements were put in. I disagree, however, with the Appellants’ assertion that these statements related to contentious issues on the motion. The motion judge was clear what the contentious issues were on the motion – namely, had the Appellants complied with their discovery obligations under the Quinn Order and had they misled the court about their compliance. With or without direct evidence on the point, it is clear that if the Respondents had known that the Appellants were not complying with their production obligations and had not reviewed the Backup Tapes, their position with respect to the initial costs of the Deloitte review would have been very different. In fact, these assertions were the whole basis of the motion. The contentious aspect of the assertions is not whether the Respondents’ beliefs were reasonable, but whether the facts underlying those beliefs were true. In finding that they were true, the motion judge was clear that the impugned affidavit was “largely irrelevant.”

4. The Order of Substantial Indemnity Costs

[61] The first basis for the Appellants’ appeal of the motion judge’s costs order is that there was no basis for that order. The Appellants claim that the motion judge decided the motion on a basis that the parties had no notice of and never addressed. This argument stands or falls on the Appellants’ procedural fairness point, which I have already found has no merit.

[62] The second basis for the Appellants’ appeal of the motion judge’s costs order is that the motion judge did not take into account uncontradicted evidence that the Backup Tapes had, in fact, been reviewed by the Appellants. I have already found against the Appellants on this issue and, thus, this aspect of the Appellants’ costs appeal also has no merit.

[63] The final issue that the Appellants raise with respect to costs is that the motion judge made the decision to award costs on a substantial indemnity basis without providing the Appellants an opportunity to address the issue. This argument arises from the last paragraph of the motion judge’s decision that reads as follows:

[39] The defendant has been successful on this motion. If the plaintiffs had complied with the order of Quinn J., this motion would not have been necessary. I see no reason why the defendant Daniel Sherk should not have his costs on a substantial indemnity basis for this motion. I will receive a costs summary and brief written submissions from Mr. Limberis [counsel for Daniel Sherk] on or before July 1, 2016. A copy shall be served on counsel for the plaintiffs. Counsel for the defendants may serve and file brief written reply materials on or before July 21, 2016.

[64] The Respondents sought costs of their motion on a substantial indemnity basis. While the motion judge was clear in his reasons that he could see no reason why the Respondent Daniel Sherk should not have his costs on a substantial indemnity basis, he did give both parties the opportunity to address costs. Further, the motion judge did not make any order as to costs until after he had received both parties’ submissions on the issue, as outlined in his costs endorsement. If the Appellants had a reason for challenging the motion judge’s view on costs that did not rest on a challenge of the central findings giving rise to that view they could have given that reason in their costs submissions.

Conclusion

[65] For these reasons the appeal is dismissed. The parties agreed on the quantum of costs for the appeal that should be awarded to the successful party. In accordance with that agreement the Respondents are entitled to their costs of the appeal, fixed in the amount of $18,000, all inclusive. Sloan J. fixed the quantum of leave costs at $8,158.66, to which the Respondents are also entitled.

Sachs J.

I agree

Stewart J.

I agree

Spies J.

Released: March 20, 2017

[^1]: Mr. Limberis submitted that the transcript which states “have” is in error and this makes sense in the context of the statement.