CITATION: The British Society of Audiology v. B. C. Decker Inc., 2010 ONCA 543

DATE: 20100806

DOCKET: C50540

COURT OF APPEAL FOR ONTARIO

Doherty, Gillese and Armstrong JJ.A.

BETWEEN

The British Society of Audiology, The International Society of Audiology and The Nordic Audiology Society

Plaintiffs / Defendants by Counterclaim (Respondents)

and

B.C. Decker Inc.

Defendant / Plaintiff by Counterclaim (Appellant)

Chris Argiropoulos, for the appellant

David W. Foulds, for the respondents

Heard: July 23, 2010

On appeal from the judgment of Justice Donald J. Taliano of the Superior Court of Justice, dated April 20, 2009.

Gillese J.A.:

[1] This appeal arises from a dispute over a publishing agreement.

THE BACKGROUND

[2] The plaintiff Societies (the “Societies”) are non-profit organizations that promote hearing care and the audiological profession, and advocate for the hearing impaired. The defendant, B.C. Decker Inc., (“Decker”) is an academic publisher that focuses on medicine, the health sciences and dentistry.

[3] The Societies each had their own academic publication, one of which was published by Decker. In 2001, the Societies decided to combine their efforts and produce a single journal. They distributed a Request for Proposal (“RFP”) to a small group of publishers, including Decker. The RFP estimated that there were 1100 institutional and individual subscriptions for the Societies’ publications.

[4] The contract was awarded to Decker and finalized on October 25, 2001 (the “Agreement”).

[5] The Agreement spanned a three-year period, starting January 2002. Decker was granted the exclusive right to print, promote, sell and distribute the journal. Under the terms of the Agreement, Decker was to give the Societies an educational stipend and a share of the net proceeds.

[6] Clause 3(c) of the Agreement obligated the Societies to give Decker certain information. That clause is central to the dispute between the parties. It reads as follows:

3(c) The Societies agree to provide Decker by September 1, 2001 with complete lists of current subscribers to their respective journals in both print and electronic form. These lists shall include no fewer than thirteen hundred (1,300) institutional subscribers in the aggregate. [emphasis added]

[7] The Societies gave Decker a consolidated list of 1,346 institutional and individual subscribers. Some of the names on the list were duplicates with the result that the list gave only 951 unique subscribers - 758 institutional and 193 individual. The journal was not financially successful and Decker did not fulfill its financial obligations to the Societies.

[8] The Societies brought an action under the simplified procedure to recover the amount they alleged that Decker owed them pursuant to the Agreement. They argued that there was a mutual mistake in clause 3(c), such that the clause should be rectified to read, “These lists shall include no fewer than thirteen hundred (1,300) institutional and individual subscribers in the aggregate”. The Societies submitted that this number included duplicates.

[9] Decker defended on the basis that it was excused from its obligation to pay the Societies because the Societies breached the Agreement by providing the names of significantly fewer than 1300 institutional subscribers. This breach, it was argued, made it impossible for Decker to generate the revenue required to fulfill its financial obligations. In addition, Decker counterclaimed for $150,000, claiming that the Societies had negligently misrepresented the number of subscribers for their publications.

[10] The trial judge found Decker liable and awarded $48,895.28 in damages. He dismissed the counterclaim and ordered Decker to pay the Societies $87,805.28 in costs.

[11] Decker appeals and seeks leave to appeal the costs order.

THE TRIAL JUDGMENT

[12] The trial judge gave detailed, cogent reasons for finding that the wording in clause 3(c) reflected a mutual mistake and that rectification was the appropriate remedy.

[13] The trial judge found that the parties had intended that the Societies would provide the names of 1300 subscribers, and that this number would include both institutions and individuals. He gave the following reasons for this finding.

• Rectification is consistent with the dealings between the parties: Both the e-mail correspondence between the parties and the RFP distinguished between institutional and individual subscribers. One e-mail from the Societies noted that they expected 1100 names, with an 80:20 split between institutional and individual subscriptions. Another e-mail indicated that the Societies had “merged and purged” their subscriber lists into approximately 1100 institutional and individual subscribers. The RFP distinguished between the two groups and indicated that the Societies were not able to ascertain exactly the split between institutions and individuals. Mr. Decker’s testimony that his understanding that clause 3(c) was to relate only to institutional subscriptions did not make good business sense. Individual subscribers are a source of revenue. Decker must have expected the Societies would also name their individual subscribers.

• Decker would have been aware that the Societies did not have 1300 institutional subscribers: it would have been obvious from an examination of the lists provided by the Societies before the Agreement was signed that subscribers were both individual and institutional. Decker would have known, from its lengthy experience in the publishing business, that academic journals of this nature depended on both classes of subscriptions.

• Decker’s post-Agreement conduct is consistent with rectification: there was no complaint at the time that the Societies provided the list. Furthermore, when the dispute first arose, Decker did not allege the Societies were in breach of the Agreement because they had failed to provide a list of 1300 institutional subscribers. Rather, in an e-mail dated January 15, 2003, Decker asserted that there had been a shortfall in subscription revenues from “non-member individuals and institutions”.

• Decker’s own documents support rectification: Decker’s Pro Forma Income Statement, attached to the Agreement, indicates that it projected future income based on receiving 200 individual and 735 institutional subscribers, not 1300 institutional subscribers.

[14] The trial judge rejected Decker’s evidence that it expected to receive a list of 1300 institutional subscribers. The Societies provided Decker with “1346 individual and institutional subscribers in the aggregate, meaning that there might have been and probably were duplicated names in this number. However, that was contemplated by the parties' use of the term ‘in the aggregate’ in clause 3(c).” The Societies provided the list of subscribers in time for Decker to promote the new journal in the fall of 2001. “It is significant that the lists provided by the [Societies] ... have never been produced by [Decker] either prior to or at trial. ... The court must draw an adverse inference from this lack of production of material documents on the part of [Decker].”

[15] Decker’s complaint that it did not receive the lists before September 1, 2001, as required by the Agreement, is undermined by the fact that it did not sign the Agreement until October 25, 2001. Further, Decker did not provide notice of this alleged breach as required by clause 19 of the Agreement.

[16] The trial judge also gave thoughtful, detailed reasons for dismissing the counterclaim. He noted that the RFP was couched in language that was merely suggestive that the Societies could provide 1100 non-overlapping subscriptions and found that this language would not mislead Decker, which had a “wealth of experience in this field of endeavour”. Further, he held that it was Decker’s responsibility to examine the materials that the Societies had provided and raise any concerns it might have had before entering into the Agreement. He found that Decker either did not perform that analysis or, if it did, that Decker did not advise the court of the results of such an analysis. He stated that “The failure to produce the relevant documents must give rise to a negative inference that the documents in question do not support [Decker’s] position”.

THE ISSUES

[17] At the oral hearing of the appeal, Decker pursued only one ground of appeal, namely, that the trial judge’s determination in respect of rectification cannot stand in light of Sylvan Lake Golf & Tennis Club Ltd. v. Performance Industries Ltd., 2002 SCC 19, [2002] 1 S.C.R. 678.

[18] If granted leave to appeal the costs order, Decker would argue that the amount of the costs order is unreasonable because it greatly exceeds the damages awarded to the Societies, fails to reflect the reasonable expectations of the losing party and fails to recognise that costs awarded under the simplified procedure must be proportionate to the amount recovered in the claim.

RECTIFICATION

[19] The court found it unnecessary to call on the respondent on this issue.

[20] In Sylvan Lake, at para. 29, the Supreme Court of Canada stated that:

When reasonably sophisticated business people reduce their oral agreements to written form, which are prepared and reviewed by lawyers, and changes made, and the documents are then executed, there is usually little scope for rectification.

[21] Decker relies on this statement to argue that the trial judge erred in ordering rectification in the present case.

[22] I disagree. In Sylvan Lake, at para. 31, the Supreme Court affirmed that the equitable remedy of rectification for mutual mistake remains and that the court’s task is corrective, to restore the parties to their original bargain and not to belatedly rectify an error in judgment by one party. In light of the findings of the trial judge, it is clear that he followed the dictates in Sylvan Lake. He found that, as a result of mutual mistake, the parties’ original bargain was not reflected in clause 3(c) of the Agreement. He satisfied himself as to what the common intention was and rectified the clause so that it reflected the parties’ original bargain. In so doing, the trial judge relied on the findings that he had made, which were fully open to him on the record. He did not engage in speculation about what the original bargain might have been nor did he attempt to rectify a bad bargain.

[23] Accordingly, I would dismiss the main appeal.

THE COSTS ORDER

[24] The Societies submit that leave to appeal the costs order ought not to be granted. They note that the test for leave to appeal costs orders is a stringent one and argue that Decker has not established strong grounds on which this court could find that the trial judge erred in the exercise of his discretion.

[25] While leave to appeal a costs order is to be granted sparingly, in my view, leave is warranted. In setting costs, the courts must keep in mind what is fair and reasonable: see Boucher v. Public Accountants Council (Ontario) (2004), 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291 (C.A.), at paras. 37-38. Given that the amount of the costs order is significantly more than the amount that the Societies sought by way of damages and that the action proceeded by way of simplified procedure, the reasonableness of the quantum is called into question and leave is warranted.

[26] The trial judge gave detailed, thoughtful reasons for the costs order. He began his analysis by reminding himself of the governing principles in fixing costs, including the “overriding principle of reasonableness” and the need to determine what is fair and reasonable in all the circumstances. He properly noted that cost awards under the simplified procedure should generally be significantly lower than what they would have been under the ordinary procedure and that they must be reasonable and proportionate to the amount in dispute.

[27] The trial judge found that the Societies’ offer satisfied the requirements of rule 49(10). He did not automatically apply rule 49(10), however. Rather, he followed Culligan Springs Ltd. v. Dunlop Lift Truck (1944) Inc. (2006), 2006 CanLII 13419 (ON SCDC), 211 O.A.C. 65 (Div. Ct.), and treated the offer as an important – but not determinative – factor in fixing costs. He then reviewed the factors in rule 57.01, with reference to the objective of the simplified procedure, namely, to promote affordable access to justice. In so doing, he looked at the rates charged and hours that had been spent by counsel for the Societies. He found them to be necessary and reasonable. Although the action had been conducted under the simplified procedure rules, the trial judge observed that it was not uncomplicated and, in addition to prosecuting their own action, the Societies were required to defend Decker’s counterclaim for $150,000, a claim that had “no merit”. In addition, the trial judge noted that the action spanned a period of almost four years, involved a number of motions and required the Societies to bring in witnesses from outside Ontario. As the trial judge observed, both parties would have been aware that the dispute was costly.

[28] While both parties had estimated a week-long trial, the evidence consumed four whole days and final submissions, made in writing, were made over several months.

[29] Further, and importantly, the trial judge found that much of the delay in proceeding was due to Decker. He found that Mr. Decker – Decker’s controlling mind – was a highly intelligent, learned and successful businessman who “stubbornly advanced a position that was implausible and which was unsupported by the documentary materials that were uniquely in [Decker’s] possession”. He must be “taken to have known and understood the risks inherent in the positions being advanced on Decker’s behalf.” The trial judge also found that documents in Decker’s possession that ought to have been produced had never been produced, for unexplained reasons, and this prolonged the duration of the trial. “Its intransigence cannot be rewarded nor condoned, particularly at the expense of the plaintiffs.”

[30] For these reasons, the trial judge concluded that the Societies’ Bill of Costs was reasonable, not out of proportion to what was at stake and did not violate the objectives of the simplified procedure provisions.

[31] The trial judge applied the appropriate principles and gave cogent, compelling reasons for the amount of the costs order. I see no basis for interference by this court.

DISPOSITION

[32] Accordingly, I would dismiss the appeal with costs to the Societies fixed at $10,000, inclusive of all taxes and disbursements.

RELEASED: AUG 06 2010 (“D.D.”)

“E. E. Gillese J.A.”

“I agree. Doherty J.A.”

“I agree. Rob P. Armstrong J.A.”