SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-09-390268
DATE: 20120130

RE: Honest Art Inc., Plaintiff / Responding Party

AND:

Decode Entertainment Inc., Defendant / Moving Party

BEFORE: Justice E. P. Belobaba

COUNSEL:
Aaron Blumenfeld and Ewa Krajewska for the Moving Party
John Koch and Allison Thornton for the Responding Party

HEARD: January 19, 2012

ENDORSEMENT

[1] This motion for summary judgment is dismissed for the reasons that follow.

[2] The motion was filed before the Court of Appeal released its decision in Combined Air.[^1] The Court concluded that before a motions judge uses the new powers in Rule 20.04(2.1) to weigh evidence, evaluate credibility and draw reasonable inferences, he or she must apply the “full appreciation” test and be satisfied that the interest of justice does not require that these powers be exercised only at a trial.[^2]

[3] The implications of the Court’s decision in Combined Air are significant, particularly for summary judgment motions, such as this, that are booked for a day or more of argument with a large volume of material and lengthy factums. The newly imposed “full appreciation” test will generally require that these kinds of motions proceed to trial. The Court of Appeal put it this way:

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.[^3]

[4] I agree with the submission of counsel for the defendant that the determinative criterion must be qualitative not quantitative – that is, whether or not a summary judgment motion should proceed cannot be decided simply by measuring the amount of material that has been filed with the court. There may well be summary judgment motions with numerous affidavits, conflicting evidence and a voluminous record that can nonetheless satisfy the “full appreciation” test and be resolved by the motions judge using the new powers set out in Rule 20.04(2.1). I would venture to say, however, that such cases will be few and far between. In any event, this is not such a case.

[5] Here the parties filed sixteen volumes of material that even on first reading suggested that the full appreciation test would likely not be met, the new powers that are now available to the motions judge should not be used and a trial would probably be required in the interest of justice.

[6] The plaintiff, Honest Art, the creator of a children’s storybook character called Angela Anaconda, has sued to recover approximately $1.4 million for breach of a ‘rights and revenues’ agreement that involved the production and distribution of a television series based on this character and world-wide commercialization. The defendant, Decode Entertainment, who produced the television series and exploited the merchandising and licensing rights for Canada and the U.S., says the breach of contract claim is time-barred and seeks summary judgment because the limitations period has expired.

[7] The plaintiff commenced its action in 2009 shortly after receiving an auditor’s report that detailed the non-payment of monies allegedly owing. The defendant argues that the plaintiff’s cause of action actually materialized years earlier – in 2003 when the plaintiff received one of the defendant’s required accounting reports and should have noticed the “improper deductions” (the deduction of distribution expenses) that were in that report; or, at the very latest, in 2006 when the plaintiff received a further accounting report and should have noticed the “improper cross-collateralizations” (the improper deductions of deficits generated from the exploitation of the television series from the net revenues received from merchandising and licensing) – both of which were “obvious” to any reader.

[8] The plaintiff responds that its principals are creative artists, not accountants, and do not have the financial expertise to understand the content or implications of these accounting reports and that it was only after they hired an auditor and received his report in 2009 that it knew it had a cause of action against the defendant. The auditor himself has filed an affidavit that “it was not clear that an actual claim existed … until I had physical access to Decode’s books and records [in 2009].”

[9] The defendant, in turn, points to various email and other exchanges between the parties that suggest that the plaintiff believed it was owed money in 2006 or even earlier, sat on its rights for years and is now time-barred by the limitations period.

[10] 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?[^4]

[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.

[13] During the course of the hearing before me, as we discussed the impact of Combined Air, counsel for the defendant tried gamely to focus on the items of evidence that favoured his client. He did so in an effort to persuade me to use the new powers set out in Rule 20.04(2.1) and summarily adjudicate the matter. But this was putting the cart before the horse. Or, to use the “forest and trees” analogy, the defendant’s counsel was conducting a detailed examination of the trees, while the motions judge was still considering whether he should even venture into this forest.

[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.”[^5]

[16] The Court of Appeal has reminded motions judges in no uncertain terms that the guiding consideration is whether the summary judgment process, in the circumstances of the case, will provide an appropriate means for effecting a fair and just resolution of the dispute before the court.[^6] Simply being knowledgeable about the entire content of the motion record, said the Court, is not the same as fully appreciating the evidence and issues in a way that permits a fair and just adjudication of the dispute. 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.[^7]

[17] As the Court of Appeal noted in Combined Air:

[T]he amendments to Rule 20 were never intended to eliminate trials. In fact, the inappropriate use of Rule 20 has the perverse effect of creating delays and wasted costs associated with preparing for, arguing and deciding a motion for summary judgment, only to see the matter sent on for trial.

[18] That’s what happened here.

[19] For the reasons set out above, I have concluded that a trial judge will be in a much better position to fully appreciate the parties’ evidence about the limitations defence and make the dispositive findings that are required. The interest of justice requires that this matter proceed to trial.[^8]

Disposition

[20] The defendant’s motion for summary judgment is dismissed with costs.

Costs award

[21] As I have already noted, the amount of material and legal work on this motion was extensive. The motion also required travel to the U.S. The costs award will therefore be significant, even on a partial indemnity basis. The plaintiff asks for $50,075 all-inclusive. The defendant submits that if any costs are awarded the amount should be no more than $25,000. In my view, it is fair and reasonable to award $40,000.

[22] I have come to this conclusion by adhering to the admonition of the Court of Appeal that my primary obligation as a judge in fixing costs is to consider the factors set out in rule 57.01(1) and fix an amount that is fair and reasonable rather than an amount fixed by the actual costs incurred by the successful litigant.[^9]

[23] Having reviewed the plaintiff’s costs outline, I found it fair and reasonable to reduce the plaintiff’s costs claim $40,000 all-inclusive. My considerations included the following: given their years of call, the senior counsel’s hourly rate as based on the guidelines set out in the Rules Committee’s Information to the Profession is probably closer to $280 rather than $300, and the junior counsel’s rate is probably closer to $230 rather than $265; the 26 hours spent by plaintiff’s counsel “preparing motion records” should have been billed at much less than $300 or even $265 per hour; and only a half day was spent in oral argument, not a full day. The disbursements, with the exception of one airline ticket, were reasonable.

[24] Costs are therefore fixed at $40,000 all-inclusive payable by Decode Entertainment to Honest Art within 30 days.

Belobaba J.

Date: January 30, 2012

[^1]: Combined Air Mechanical Services Inc. v Flesch, 2011 ONCA 764

[^2]: Ibid., at para. 50.

[^3]: Ibid., at para. 51.

[^4]: Limitations Act, 2002 S.O. c. 24, s. 5(1). Section 5(2) goes on to state that a person with a claim is presumed to have known about the loss and that a proceeding would be an appropriate remedy on the day the act or omission on which the claim is based took place “unless the contrary is proved.” In other words, the onus here is on the plaintiff. However, the plaintiff has provided what it believes is evidence that satisfies this onus and argues that the issue should not be resolved summarily- that a trial is required in the interest of justice.

[^5]: Ibid., at para. 55.

[^6]: Ibid., at para. 38.

[^7]: Ibid., at para. 53.

[^8]: The plaintiff also argued that the parties were in a fiduciary relationship and as such its claim for damages for breach of fiduciary duties is not time-barred. Because of the outcome on the limitations issue, I did not have to consider this additional submission.

[^9]: Boucher v. Public Accountants Council of Ontario, (2004) 2004 14579 (ON CA).