St. Catharines Court File No.: 49278/07

Date: December 13, 2012

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN: )
THE HEARING CLINIC ) Malte von Anrep, Q.C. and
(NIAGARA FALLS) INC. ) Civita M. Gauley, for the plaintiff
Plaintiff )
─ and ─ )
866073 ONTARIO LIMITED, ) Nicholas F. Ferguson and
TERRY LEWIS and DEE LEWIS ) Harry Korosis, for the defendants
Defendants ) HEARD: April 10-12, 16, 2012,
) at St. Catharines

J.W. Quinn J.: –

INTRODUCTION

[ 1 ] After completing the examination-in-chief of the first witness in this trial and upon the resumption of proceedings following a lengthy hiatus, counsel for the plaintiff moved orally for leave to permit the first witness to give additional evidence in-chief. Should leave be granted? If so, is an adjournment of the trial required? What about costs? The scale? And payable when?

[ 2 ] I ruled on the motion from the bench, with these written reasons to follow.

BACKGROUND

[ 3 ] The corporate defendant owned a business in the City of Niagara Falls called The Hearing Clinic. The individual defendants, husband and wife, are the officers, directors and shareholders of the corporate defendant.

[ 4 ] The plaintiff purchased The Hearing Clinic (“Clinic”) at which Stefan Fridriksson (“Fridriksson”) is an audiologist and manager. His wife is the sole officer, director and shareholder of the plaintiff.

[ 5 ] The statement of claim alleges that the defendants acted in bad faith by failing to complete all of the terms of the purchase and sale and that they made fraudulent misrepresentations to induce the plaintiff to purchase the Clinic.

[ 6 ] The trial began in July of 2011. After eight days of testimony from the first witness, Fridriksson, his examination-in-chief was completed. Cross-examination promised to be lengthy. Although there were several days available to begin the cross-examination, it would not be completed before reaching a scheduled nine-month hiatus in the trial. Over the objection of Mr. von Anrep, lead counsel for the plaintiff, I held that we should not begin the cross-examination in those circumstances because the usual admonition to a witness under cross-examination not to discuss the case with anyone would be impractical (bearing in mind that the next witness was to be Fridriksson’s wife).

[ 7 ] Seven days before the resumption of trial in April of 2012, Mr. von Anrep advised counsel for the defendants that he would be seeking leave for Fridriksson to give additional evidence in-chief regarding: (1) an appointment book used by the defendants in the Clinic prior to the sale to the plaintiff; and, (2) the guidelines of the College of Audiologists and Speech-Language Pathologists of Ontario (“CASLPO”) in the use of supportive personnel. Little indication was given as to the type of questions that would be asked of Fridriksson.

[ 8 ] Disarmed by the vagueness of the proposed additional evidence, counsel for the defendants consented (or, perhaps more accurately, adopted a let-us-see-where-this-goes approach).

[ 9 ] It soon became clear that the specific thrust of the additional evidence from Fridriksson was the allegation that the defendants were guilty of “improper practices” in the provision of services at the Clinic in that they had breached CASLPO guidelines. Counsel for the defendants objected to the admission of this evidence, arguing that they had not been given “previous warning” and that it amounted to “extreme prejudice” at such a late date in the action.

[ 10 ] This being a non-jury trial, where evidentiary lapses need not be lethal, I allowed Fridriksson to give the additional evidence, following which I would hear the full submissions of counsel as to its admissibility.

[ 11 ] In his additional evidence, Fridriksson made seven allegations, all of them serious:

1. The total earnings or sales from the Clinic, when owned and operated by the defendants, were grossly inflated because the services of their hearing instrument practitioner were billed as if she were an audiologist (in contravention of CASLPO guidelines).

2. Certain services of the hearing instrument practitioner were not performed in the presence of an audiologist (again, contrary to CASLPO guidelines).

3. The hearing instrument practitioner used improper, out-dated testing equipment when measuring hearing aids.

4. The hearing instrument practitioner was allowed to perform tasks for which she was not qualified by education, training and experience.

5. Forms were signed by the defendant, Terry Lewis (who is an audiologist), and by another audiologist employed with the Clinic, for services provided on dates when neither was at the Clinic (those services were performed by “supportive personnel”), again in breach of CASLPO guidelines.

6. The defendant, Terry Lewis, and the other audiologist employed by the Clinic, “did not provide follow-up services for Workplace Safety and Insurance Board (“WSIB”) patients.”

7. The defendants improperly billed WSIB for hearing aids prior to the fitting date. Fridriksson described this allegation in these words:

What the [defendants] did is they billed the hearing aid prior to fitting the hearing aid, sometime as much as a month earlier and, and then on the date they actually fit the hearing aid that, that enabled them to be able to bill programming [of the hearing aid] because you cannot bill programming on the same date that you bill the hearing-aid fitting and so for every, for every hearing-aid fitting, they earned an extra $120 . . . I found that they pre-billed every WSIB hearing aid.

[ 12 ] These allegations, if true, arguably support the contention by the plaintiff that the profitability of the Clinic was fraudulently skewed as a result of improper delegation of duties to employees. [1] They also point to possible wrongdoing in respect of dealings with WSIB and misconduct in the eyes of CASLPO. [2]

[ 13 ] The initial arguments on this motion were directed to whether the additional evidence was made relevant by anything pleaded in the statement of claim [3] and whether it was an untimely effort by the plaintiff to remedy incorrect or incomplete answers given on an examination for discovery. [4] Fortunately, I was not required to wrestle with those points, as counsel for the defendants decided to consent to the admission of the additional evidence (a generous gesture, as the additional evidence contained discrete allegations of wrongdoing not previously raised). But, the consent came with two conditions: (1) that the trial be adjourned for a brief period; and, (2) that the defendants be awarded substantial indemnity costs, payable forthwith.

DISCUSSION

The adjournment

[ 14 ] Because the consent of the defendants came on a Thursday and the requested adjournment was to the following Monday, only one sitting day would be lost. Surprisingly, the plaintiff objected. Opposition to the adjournment was so patently unreasonable as to hardly merit mention.

[ 15 ] The plaintiff had five years before the commencement of the trial in July of 2011, and nine months during the hiatus, to address the additional evidence for which leave was sought. Importantly, the documentation in support of the additional evidence consists of 715 pages, 659 of which were not provided to the defendants until the trial resumed at 10 a.m., Wednesday, April 11, 2012.

[ 16 ] The adjournment was requested “so that the defendants may review and evaluate the substantial amount of new documentary material . . . served by the plaintiff and so that the defendants can adjust their trial strategy in response to the new allegations advanced.”

[ 17 ] Even if, as the plaintiff argues, the documentary evidence supporting the additional evidence was in the possession or control of the defendants, it was part of an enormous quantity of paper and had never before been identified in the context of the seven allegations.

[ 18 ] It was the evidence of Fridriksson that he, his wife and six employees, “worked on [the investigation in respect of the seven allegations] for about . . . 13 or 14 weeks.” If it took the plaintiffs that long to identify the additional evidence and formulate the seven allegations, how could it be suggested that a one-day adjournment for the defendants was unreasonable?

Costs

discretion

[ 19 ] The discretionary jurisdiction of the court to award costs flows from s. 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43, pursuant to which “the court may determine by whom and to what extent . . . costs shall be paid.”

factors that may be considered

[ 20 ] Rule 57.01 of the Rules of Civil Procedure , R.R.O. 1990, Reg. 94, sets out factors that may guide the exercise of the court’s discretion, including, “in addition to the result in the proceeding . . .”: “ the complexity of the proceeding”; [5] “the importance of the issues”; [6] “the conduct of any party that tended to . . . lengthen unnecessarily the duration of the proceeding”; [7] and, “any other matter relevant to the question of costs.” [8]

costs against successful party

[ 21 ] “The fact that a party is successful in a proceeding or a step in a proceeding does not prevent the court from awarding costs against the party in a proper case.” [9]

substantial indemnity costs

[ 22 ] The court has full authority “to award all or part of the costs on a substantial indemnity basis.” [10]

costs thrown away not applicable

[ 23 ] During submissions, counsel and I spoke of costs thrown away. Typically, it is said that costs thrown away are intended to provide “indemnity for all steps which were reasonably necessary” for the action “but which have been rendered useless by the other party’s conduct . . .”: see, for an early statement of this principle, Nippa v. C.H. Lewis (Lucan) Ltd . (January 28, 1988), Doc. 17917/84 (Ont. Assess. O.), cited by Steele J. in Royal Bank of Canada v. Blatt, [1991] O.J. No. 688 (Gen. Div.) .

[ 24 ] However, this is not an instance of costs thrown away.

[ 25 ] The “rendered useless” test may be appropriate in situations where, for example, there is a delay in commencing or continuing a trial such that trial preparation will become stale or where a plaintiff jettisons an issue rendering useless work by the other side in preparing for that issue. The test may not be apt where the delay is the result of a change in the complexion of a case due to the conduct of one party necessitating additional work by the other party. For example, if counsel for a defendant, in preparation for trial, reads discovery transcripts with issues A, B and C in mind and this is followed by a pre-trial amendment to the statement of claim requiring counsel for the defendant to re-read the transcripts with an eye now to issue D, the first reading was not rendered useless by the amendment and the second reading was made necessary by the amendment.

entitlement

[ 26 ] The plaintiff, and rightly so, did not ask for costs on the motion.

[ 27 ] On a standard consideration of subrule 57.01(1), I note the following: the plaintiff was successful in obtaining the leave that it sought; there is a degree of complexity to the case and to the motion; the duration of the trial was prolonged by the motion, submissions and the adjournment; and, the issues are important as they involve allegations of fraud and professional wrongdoing. However, a crucial consideration is the fact of the lateness of the leave motion, which would fall under clause 57.01(1)(i) – “any other matter relevant to the issue of costs.”

[ 28 ] The lateness of this leave motion cannot be satisfactorily explained. Trials are not meant to be extemporaneous exercises. The additional evidence has caused turmoil to the trial preparation of counsel for the defendants and is deserving of censure in the form of a costs order.

new allegations and documents versus lateness

[ 29 ] It would be a superficial argument to suggest that all of the time spent by the defendants in the face of the new allegations and documents would have been spent anyway had both been raised before trial and, thus, that they should simply be left as costs in the cause. This ignores both the duty upon a litigant to know his or her case before the trial commences and the disruption to the defence when faced with new allegations and documents.

scale

[ 30 ] According to clause 57.01(4) (c) of the Rules of Civil Procedure , nothing in rule 57 “affects the authority of the court under section 131 of the Courts of Justice Act . . . to award all or part of the costs on a substantial indemnity basis.”

[ 31 ] The inadequately explained late introduction of the additional evidence by the plaintiff and the untimely emergence of the seven allegations are inexcusable and represent the type of litigious misconduct that should attract costs on the substantial indemnity scale.

amount

[ 32 ] Fixing costs, in general, frequently does not permit precision. There is, of necessity, some arbitrariness to the process. However: (1) if competent defence counsel submit that the conduct of the opposing party has caused them to render $X in services for the defendants; (2) if there are dockets or itemized accounts to support the services; [11] (3) if counsel for the plaintiff cannot demonstrate any error or impropriety in the services or the hourly rates used; and, (4) if the services and the rates are not, on their face, patently unreasonable – why should the court not allow the amount sought? I have come across many reported decisions where, with respect, the court seems to tinker with the costs claimed without any clear, articulated justification.

[ 33 ] Here, Mr. Ferguson (23 years at the bar) and Mr. Korosis (11 years), have hourly rates of $375 and $300, respectively. It cannot be said that those rates are unreasonable or otherwise inappropriate.

[ 34 ] The defendants have provided an itemized substantial indemnity account for services rendered in the period since being alerted by Mr. von Anrep regarding the additional evidence. Some of those services relate to trial preparation that would have been necessary in any event. The balance is the result of the additional evidence. Of the total account ($36,713), defendants’ counsel estimate that $10,000 pertains to the additional evidence (approximately 15 hours for each of them). Counsel for the plaintiff could not point to any flaw in that estimate. Accordingly, as the amount strikes me as perfectly reasonable, I see no reason to tinker with it. I allow the amount requested.

services during the period of the adjournment

[ 35 ] During the period of the adjournment, counsel for the defendants will be further reviewing the documents, determining how they will impact the issues in the case and adjusting their trial plan accordingly. Rather than ask the court to fix costs on the motion to include those services (and they could be fixed, with some precision, after the fact), counsel for the defendants are confidently content that the services simply become part of the costs in the cause.

when should the costs be payable?

[ 36 ] Requiring costs to be paid forthwith is more likely to occur early in an action when “the time and certainty of a . . . trial [is] not known”: see Royal Bank v. Blatt, supra.

[ 37 ] Clause 57.03(1) (a) of the Rules of Civil Procedure stipulates that, in respect of a contested motion, “unless the court is satisfied that a different order would be more just, the court shall fix the costs of the motion and order them to be paid within 30 days.” [12]

[ 38 ] I decided against making the costs payable forthwith because of the allegations of fraud against the defendants. I did not think that any money should change hands until those allegations had been litigated. In other words, I was disinclined to make the plaintiff pay to prove a successful case of fraud. Nevertheless, faced with the same situation again, I would require that the costs be payable forthwith by the plaintiff to the law firm representing the defendants, to be held in trust until I render my trial judgment; which is one step closer to actual payment than I have ordered.

CONCLUSION

[ 39 ] I fix the costs of the defendants on the motion in the sum of $10,000 plus HST. These costs shall be paid by the plaintiff at the conclusion of the trial and after allowing for any set-off in respect of costs or damages that might be ordered payable by the defendants to the plaintiff.

The Honourable Mr. Justice J.W. Quinn

RELEASED: December 13, 2012

COURT FILE NO.: 49278/07

DATE: December 13, 2012

ONTARIO SUPERIOR COURT OF JUSTICE BETWEE N: THE HEARING CLINIC (NIAGARA FALLS) INC. Plaintiff - and - 866073 ONTARIO LIMITED, TERRY LEWIS and DEE LEWIS Defendants REASONS FOR JUDGMENT J.W. Quinn J.

Released: December 13, 2012

[1] If services were improperly provided by a non-audiologist, the expenses of the Clinic, while owned and operated by the defendants, are artificially low and the profits are, correspondingly, artificially high.

[2] Inappropriate use and supervision of supportive personnel may result in charges of professional misconduct being brought against a member of CASLPO.

[3] On behalf of the plaintiff it was said that paragraph 12 of the statement of claim renders the additional testimony relevant. Paragraph 12 includes the following: “The defendants Terry Lewis and Dee Lewis have deliberately conducted the affairs of the defendant corporation in such a manner as to cause the plaintiff financial harm . . .” In addition, earlier in the action the plaintiff was ordered to provide particulars of the fraudulent misrepresentations alleged against the defendants and those particulars included the following: “(d) The audiologist was present in the [Clinic] 2 to 3 days per week,” and the appointment book shows this to be a gross exaggeration.

[4] Subrule 31.09(1) of the Rules of Civil Procedure R.R.O. 1990, Reg. 194, reads, in part, that “[w]here a party has been examined for discovery . . . and the party subsequently discovers that the answer to a question on the examination, (a) was incorrect or incomplete when made . . . or (b) is no longer correct and complete . . . the party shall forthwith provide the information in writing to every other party.” Subrule 31.09(3) states that where a party has failed to comply with subrule 31.09(1), the subsequently discovered information, if favourable to the party’s case, is inadmissible at trial “except with leave of the trial judge.”

[5] Clause 57.01(1)(c)

[6] Clause 57.01(1)(d)

[7] Clause 57.01(1)(e)

[8] Clause 57.01(1)(i)

[9] Subrule 57.01(2)

[10] Clause 57.01(4)(c)

[11] I did not ask for a bill of costs. Typically, that is not required unless the costs involved follow “a trial” or “the hearing of a motion that disposes of a proceeding or the hearing of an application”: see subrule 57.01(5) of the Rules of Civil Procedure . Also, I did not ask that the defendants provide a costs outline as set out in subrule 57.01(6). Mid-trial motions frequently lack the trappings of their pre-trial cousins.

[12] Or, “in an exceptional case,” refer the costs for assessment: see clause 57.03(1)(b).