COURT FILE NO.: 02-CV-237070
DATE: 20130402
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
THE UNITED STATES OF AMERICA AND UNITED STATES FEDERAL TRADE COMMISSION
Respondents on the Damages Inquiry
-AND-
Malcolm Ruby, Duncan Boswell and Caryn Narvey for the United States of America and the United States Federal Trade Commission / Plaintiffs
GEORGE MICHAEL YEMEC, ANITA FERN RAPP, JULIA F. BUNGARO, NELSON BUNTING, WORLD MEDIA BROKERS INC., 624654 ONTARIO LIMITED, 537721 ONTARIO INC., DIAL-A-MILLION INC., and TELEGROUP INC., O/A MARKET MONITOR
Claimants on the Damages Inquiry
David Wires and John Wires for George Yemec, Anita Rapp, Julia Bungaro, Nelson Bunting, World Media Brokers Inc., 624654 Ontario Limited, 537721 Ontario Limited, Dial-A-Million Inc., and Telegroup Inc. o/a Market Monitor / Defendants
HEARD: October 1, 2, 3, 4, 5, 9, 10, 11 and 12, 2012, November 14 and 15, 2012, December 13 and 21, 2012, and January 10 and 29, 2013, plus numerous written submissions.
DECISION ON DAMAGES
Justice Edward P. Belobaba
TABLE OF CONTENTS
Paragraphs
I. Overview………………………..………………………………………………………….. 3
II. Framework for analysis
(1) The undertaking to pay damages……….. …………………………………………. 13
(2) The claimants……..……..…………………………………………………………. 20
(3) The impact of the ex parte orders…………....…………………….………………. 31
(4) Causation………..…………………………………………………………………. 39
III. Claims that can be eliminated immediately
(1) The medical claims…………..........…..……………………………….………….. 48
(2) The tort claims……………..…..………………………………………………….. 53
(3) Damages for pain and suffering…………….……………………………………... 67
(4) Punitive and aggravated damages………………………….…………………….... 70
(5) The $19 million U.S. judgment ….…………………..…………..………………... 78
IV. Individual financial losses
(1) George Yemec………………….……… ……………………………….………… 86
(2) Anita Rapp…………...………………………………………………….………… 90
(3) Julia Bungaro…………..……………………………………………….…………. 96
(4) Nelson Bunting………………………………………………………….………… 102
V. Loss of business opportunities
(1) Faby Games……………………………………………………….………………. 117
(2) Cash & Prizes newsletter………………………………………….………………. 119
(3) Whole World Lottery Guide……………………………………….………............ 126
(4) European sales opportunity……………………………………….………………. 130
(5) Loss of transition time ……………………………………………………………. 148
VI. Legal expenses
(1) Costs of setting aside the ex parte orders................................................................... 159
(2) Costs of the damages inquiry..................................................................................... 177
VII. Conclusion………………………………………………………………………………. 194
VIII. Damages award…………………………………………………………………………. 197
Page: 3
Justice Belobaba:
[1] This is my decision on the damages payable by the plaintiff on the undertakings that it provided to this court when it was granted ex parte Mareva and Anton Piller orders in 2002.[^1]
[2] The damages inquiry was ordered in 2009 but did not proceed until 2012. The history of this decade-long litigation, including the parallel American action, was set out in detail in previous decisions of this court[^2] and will not be repeated. My intention here is to provide a brief overview, clarify some scope and content issues, and then move directly to the damages analysis.
I. Overview
[3] More than ten years ago, on October 3, 2002, the United States of America wrongfully obtained ex parte Mareva and Anton Piller orders on misleading affidavit evidence. Counsel for the United States Federal Trade Commission (“FTC”) presented affidavit evidence to this court that the defendants were targeting American seniors in their sale of Canadian lottery tickets and were fraudulently demanding up-front fees. This wasn’t true. The defendants were telemarketing Canadian lottery tickets to American consumers but they were not targeting seniors or demanding up-front fees, or otherwise engaging in any fraudulent activity. However, given the force of the bad affidavit evidence, the ex parte orders were granted and were executed the next day.
[4] The impact was immediate and devastating. The defendants’ multi-million dollar telemarketing business was shut down, more than 200 boxes of business records were removed, computers were seized, assets were frozen and jobs were lost. By the time the ex parte orders were set aside, exactly a year later, on October 3, 2003, the lives of George Yemec, Anita Rapp, Julia Bungaro and Nelson Bunting were ruined irreparably, all because of the wrongfully obtained orders.
[5] Or so we thought.
[6] Over the course of this protracted litigation, the many judges involved in this matter, myself included, have assumed that the losses sustained by the defendants after the execution of the ex parte orders were losses that were caused by these orders. Each of us believed that the wrongfully obtained court orders “effectively put [the defendants] out of business.”[^3] We noted that “the individual defendants…sustained extensive financial losses and health-related consequences that can be traced to the execution of the two ex parte orders in 2002.”[^4]
[7] The individual defendants were equally convinced that the millions of dollars in losses that they sustained after the execution of the ex parte orders (the mounting debt, the unpaid bills, the loss of credit, the employee lawsuits, the forced sale of homes, the resulting stress and anxiety and the need to borrow from family and friends just to survive) all stemmed from the wrongfully obtained orders and are thus fully recoverable as compensation in this damages inquiry. Not to mention the various business opportunities that were also lost because the defendants’ lottery telemarketing business was shut down so abruptly.
[8] However, as this damages inquiry progressed it became increasingly apparent to me, and I think to the defendants as well, that most of the financial losses claimed by the defendants were not caused by the ex parte orders but by a business reality that pre-dated the court orders. The evidence is clear that the lottery telemarketing operation had lost both its source of supply and its target market before the ex parte orders were executed. That is, the legal telemarketing of Canadian lottery tickets to U.S. consumers, and the related cash flow, came to an abrupt end for reasons unrelated to the bad ex parte orders.
[9] That is not to say that the claims for the loss of other business opportunities that would have been pursued “but for” the ex parte orders cannot succeed, such as, the “cash and prizes” newsletters, the sale of the lottery guide and, most importantly, the transition to European sales. But here again, the question that will have to be asked is this: were these actual business opportunities that were about to be pursued and were lost because of the ex parte orders or were they mere possibilities that never materialized for other, unrelated reasons?
[10] The evidence presented in this inquiry leads to an outcome that will no doubt be disappointing to the defendants. However, in my view, this outcome is true to the evidence presented and to the principles upon which this damages inquiry is based.
II. Framework for analysis
[11] The defendants are claiming tens of millions of dollars in compensation for (1) financial and other losses caused by the ex parte orders; (2) the loss of several significant business opportunities; and (3) the legal expenses they incurred in setting aside the wrongfully obtained ex parte orders and participating in this inquiry.
[12] I will analyse the claims in each of these categories. But first, it is useful to set out a legal and factual framework for the analysis.
(1) The undertaking to pay damages
[13] The scope of this damages inquiry is determined by the undertaking that was provided to this court when the ex parte orders were granted on October 3, 2002 and expanded or extended on October 10, 15 and 21, 2002. Tracking the language in Rule 40.03, the United States of America undertook:
To abide by any Order concerning damages that the Court may make if it ultimately appears that the granting of the Order has caused damage to the Defendants for which the Plaintiff ought to compensate the Defendants.
[14] The undertaking under Rule 40.03 is given to the court—not the defendant—to cover damage caused by a wrongly granted injunction. It is the court that exacts the undertaking and conducts the damages inquiry for the defendant’s benefit.[^5]
[15] The legal principles that apply to the damages inquiry are well-established. Damages for a wrongly granted injunction are assessed on the same basis as damages for breach of contract. Causation, foreseeability and mitigation provide the legal framework for the damages analysis. As the Court of Appeal observed when they agreed that this inquiry should proceed:
It will be up to the damages inquiry judge to determine…whether the defendants have sustained any compensable damages, taking into account the principles of causation, remoteness, foreseeability and mitigation, and the general rule of public policy that precludes a person from benefitting from his or her own crime.[^6]
[16] The Court of Appeal added the proviso about illegality because only damages relating to the operation of a lawful business will be considered. And here, as I will explain shortly, the issue of illegality is front and centre.
[17] Of the contractual principles just listed, the most important, certainly in this inquiry, is causation. The defendants/claimants must show that the damages would not have been sustained “but for” the wrongly granted injunction.[^7] They must show that the loss being claimed “flowed directly from the injunction.”[^8] If causation is established, I must then ask if the damage was foreseeable at the time the ex parte orders were granted.[^9] If causation is not established, foreseeability becomes irrelevant.
[18] The focus is on the damage caused by the wrongfully obtained injunction—not on the damage caused by related or subsequent litigation. Damage arising from the litigation itself cannot be recovered on an undertaking inquiry.[^10] The focus of the inquiry is narrow and precise because the undertaking that was provided to the court is narrow and precise—the plaintiff promised to compensate the defendants for any damage “caused” by the granting of the interlocutory orders.
[19] In sum, my task herein is to determine what real harm, however labeled, was caused by the October 2002 orders and what real and foreseeable business opportunities were actually lost because of the October 2002 orders, and to award just and equitable compensation.
(2) The claimants
[20] When this action first began, there were 11 individual defendants and 22 corporate defendants. Only four individuals and five corporations are involved in this inquiry, although, as I discuss below, none of the corporate defendants are claiming compensation.
[21] The claimants in this damages inquiry are George Yemec, Anita Rapp, Julia Bungaro and Nelson Bunting. The corporate defendants involved are World Media Brokers Inc., 624654 Ontario Limited (o/a First Telegroup Marketing), 537721 Ontario Inc. (o/a Canadian Express Club), Telegroup Inc. and Dial-A-Million Inc. As will become important later, Faby Games Inc., Cash & Prizes, Inc. (an Ontario company), Cash & Prizes Inc. (a New York company) and InterMarketing Services have not made any claims for damages.
The individual claimants
[22] George Yemec, the builder and owner of a highly successful lottery telemarketing business—at least until it stopped operating in October 2002—is the primary claimant. Over the course of twenty years, he developed an expertise in world-wide lottery laws, applied that expertise to the Canadian context, established a long-standing relationship with the Atlantic Lottery Corporation as ticket-supplier, and built a thriving Toronto-based telemarketing operation that sold Lotto 6/49 ticket packages to U.S. consumers. Mr. Yemec’s standing in the community, as well as his many honours and achievements, were summarized in my 2009 decision.[^11] I can only add that in the world of lotteries, Mr. Yemec was and remains an impressive individual and a multi-talented entrepreneur.
[23] Anita Rapp has been a friend and business colleague for almost 30 years. She started and then sold a telemarketing company to Mr. Yemec and stayed on board as a consultant. Ms. Rapp was the president and treasurer and day-to-day manager of 624654 Ontario Limited, the Yemec company that ran the telemarketing operation. After the events of October 2002, Ms. Rapp, to her credit, sought work as a real estate agent where she remains gainfully employed to this day.
[24] Julia Bungaro sold her direct marketing company to George Yemec in 1982 and stayed on thereafter as a marketing consultant. Like Mr. Yemec, she was also a committed community volunteer, in her case working with inner-city youth. I mention this because, as I noted in my 2009 decision, none of the four individuals were fraudsters. None of them deserved the ex parte juridical assault of October 4, 2002.
[25] It was that morning that Nelson Bunting, the fourth defendant, decided to return to the Yemec business office to retrieve his cell phone. He arrived just as the Anton Piller search was beginning and literally walked into the middle of the court-ordered raid. His cell phone was seized and he was added as a co-defendant to the ex parte Mareva on October 21, 2002. As a result, his bank accounts were frozen and a lien was placed on his home because, as he puts it, he was simply in the wrong place at the wrong time.
[26] Mr. Bunting was a horse-trainer who occasionally trained horses for Mr. Yemec, a long-time horse-racing enthusiast. He also ran a printing business in the mid-1980s. Mr. Yemec was one of his customers. Mr. Bunting sold the printing business to one of Mr. Yemec’s companies. Much later, in June 2002, Mr. Bunting agreed to help Mr. Yemec start a newsletter called Jackpot & Prizes. The newsletter was designed to provide consumers with information about monthly contests and sweepstakes in the U.S. The plan was to have the Yemec telemarketing operation develop and test market the newsletter.
[27] Each of these four defendants claims damages over a wide range of areas—from lost income and unpaid bills to relocation costs and medical expenses. Mr. Yemec, as the owner of the telemarketing operation, is claiming as well for the loss of several foreseeable business opportunities. There is also a significant claim for legal expenses.
The corporate claimants
[28] All five corporate defendants were owned by Mr. Yemec. 624654 Ontario Limited was the only company operating at the time of the ex parte orders. It employed the telemarketers, held the lease for the Pearl Street premises and owned the phone and computer equipment. The other four companies, as far as I can discern, were used mainly to move the payroll around depending upon what Mr. Yemec’s accountant determined was most beneficial for tax purposes.
[29] Fortunately for my purposes, I am not required to unravel the corporate inter-relationships. As it turns out, none of the companies have filed affidavit evidence and none are claiming compensation. This is not surprising because, as I explain in the footnote below, none of them sustained any losses that can be attributed to the ex parte orders.[^12]
[30] My focus of attention will therefore be limited to the four individual defendants.
(3) The impact of the ex parte orders
[31] After ten years of litigation, hyperbole and exaggeration (on the part of both the plaintiff and the defendants) it is necessary to determine the precise impact of the October 2002 ex parte orders. As already noted, the orders were granted without notice by Justice Nordheimer on Thursday, October 3 and executed by a platoon of lawyers, monitors and police officers on Friday, October 4. The enforcement team was deployed to three locations: the telemarketing centre on Pearl Street; the residence and offices of Mr. Yemec on Widmer Street; and Ms. Bungaro’s home on Russell Hill Road. One member of the team was also despatched to examine a post office box.
[32] By the end of the day, bank accounts were frozen and computers and business records were removed. On the face of it, the impact of the court orders appeared to be severe—the Yemec telemarketing operation was shut down, the cash flow came to a halt, and personal and corporate losses began to mount.
[33] However, the evidence as presented in this inquiry now shows the following:
• There was little to no money in any of the frozen bank accounts—one of the company accounts had about $1,700.
• The “raid” was carefully monitored and all the relevant details were recorded. The monitors’ report notes that the search and seizure was conducted courteously and efficiently, with full co-operation from the defendants. No untoward incidents were recorded and none have been suggested.
• The six computers identified by Mr. Yemec as being important for his day-to-day business were returned the next business day, Monday morning, October 7, 2002.
• The monitors’ report notes that when the computers were returned on Monday morning, employees were seen working the telephones, “business as usual”.
• The plaintiff offered to return all of the defendants’ documents about a month later, in November 2002, but Mr. Yemec declined (no doubt, because he lacked storage space). The seized business documents were returned in the spring of 2005.
• The Pearl Street premises were closed shortly after the “raid” but Mr. Yemec still had access to the premises on Widmer Street for another full year, until October 2003. The landlord had “kept it open” for him. Indeed, Mr. Yemec has submitted an invoice for a year’s worth of rent.
[34] The Court of Appeal summarized the “seizure and return” details as follows:
Six computers, identified by George Yemec as necessary to conduct his business, were returned to him on October 7, 2002—the first business day after the Anton Piller order was executed. Soon after the execution of the ex parte orders, the U.S. government offered to locate and return any documents that defendants’ counsel wished to review. Five boxes of materials were copied and delivered to counsel. Offers were also made to return all original documents, subject to certain conditions.
[35] The plaintiff argues that the impact of the ex parte orders on the defendants’ business operations was relatively minimal. There was little to no money in the frozen bank accounts, the key computers and business records were returned within days, and the Widmer Street premises remained available for use for the one-year duration of the ex parte orders. However, one must remember that the Mareva froze the defendants’ assets and bank accounts, both current and future.[^13] For Mr. Yemec this meant that he could not realistically pursue new business opportunities; he couldn’t approach potential investors for financing because he had no bank account that could hold the investment funds; and most importantly, no investor would risk losing his or her investment while the court-ordered asset freeze remained in place.
[36] One must also remember that the ex parte orders were granted on false affidavit evidence that wrongfully accused the defendants of defrauding their customers. These were serious and corrosive allegations that could not go unanswered. They demanded immediate attention. The impact of the ex parte orders was not as huge as described by the defendants but nor was it “minimal.”
[37] As already noted, the ex parte orders were set aside by Gans J. exactly one year after they were granted. However, the actual impact of the court orders extended well beyond October 3, 2002 and most likely lasted for two and a half years. After Justice Gans set aside the orders, the plaintiff immediately sought leave to appeal. McCombs J. granted leave on March 15, 2004, finding “good reason to doubt the correctness” of Justice Gans’ decision. The judicial finding that there was “good reason to doubt the correctness” of Justice Gans’ decision hung in the air until March 24, 2005 when the Divisional Court released its decision dismissing the plaintiff’s appeal and affirming Justice Gans’ decision to set aside the orders.[^14]
[38] Thus, in my view, the negative impact of the ex parte orders on Mr. Yemec’s efforts to raise money for a new business venture lasted about two and a half years. I will return to this point when I discuss the claims for lost business opportunities.
(4) Causation
[39] As already noted, the over-arching concern in this inquiry is not foreseeability but causation. Were the financial and related losses claimed by the defendants caused by the ex parte orders or by something else altogether? Based on the evidence, it was something else altogether.
[40] I am satisfied on the extensive record before me that almost all of the financial and other losses being claimed by the defendants were caused by a financial reality that pre-dated the orders. Before the orders were even granted, the defendants’ telemarketing business was legally dead. The business was knocked to the canvas by the July 2002 decision of the Atlantic Lottery Corporation to terminate the Lottery Store’s sales licence. This shut down the defendants’ ticket supply. The telemarketing business was then knocked out completely by the Temporary Restraining Order (“TRO”) issued by the District Court judge in Chicago in the American litigation on October 1, 2002, two days before the ex parte orders were granted and three days before they were executed. The American TRO (which eventually became a permanent injunction) prohibited any further telemarketing of lottery products into the U.S. and thus closed down the defendants’ sales market.
[41] Therefore, on October 2, the day before the ex parte orders were granted, the Yemec telemarketing operation, that over many years had successfully sold Canadian lottery tickets to U.S. consumers, was legally dead. It was dead because of the TRO and not because of the ex parte orders. Before the orders were even granted, the defendants had no product to sell and no one to sell it to.[^15] With no cash on hand, no ticket supply and no sales market, there was nothing that the defendants could legally have done on October 2, the day before the ex parte orders were granted, but transition into a new business.
[42] Any suggestion that the telemarketing operation could simply have switched over to selling or re-selling foreign lottery tickets to say, customers in Europe or Australia (rather than in the U.S.) was legally precluded by Judge Fairgrieve’s decision in World Media Brokers in 1998.[^16] In that decision, World Media Brokers, one of the Yemec-company defendants in this inquiry, was convicted under s. 206 of the Criminal Code for selling Spanish lottery tickets to American consumers. This decision surprised the lottery-resale industry because for many years the law was understood to be otherwise.[^17] In any event, given Judge Fairgrieve’s reasoning, as affirmed by the Court of Appeal in 2003,[^18] it followed that the sale or resale of Canadian, or indeed any lottery tickets to American consumers, or indeed to anyone anywhere, would be a violation of Canadian criminal law.[^19]
[43] Thus, it was not the ex parte orders that “shut down” the defendants’ telemarketing business but the American TRO, supported in backdrop by the general prohibition set out in s. 206 of the Criminal Code that such sales were illegal in any event. It follows from this that any claims made by the four individual defendants about the abrupt loss of income and the ensuing inability to pay personal or corporate bills, and the urgent need to borrow money from family or friends just to survive, are claims and losses that cannot be blamed on the ex parte orders.
[44] I will shortly examine each of the individual financial claims in more detail. But the defendants should understand, given the principle of causation, that few if any of the claimed financial losses will be compensable. These losses either pre-dated the ex parte orders and/or were caused by pre-existing circumstances, namely the American TRO.
[45] The defendants may still be able to claim for lost business opportunities such as the telemarketing of the “cash and prizes” newsletters, the world lottery guide, or the transition to European sales using an “agency” or “messenger” model rather than direct selling, thus arguably avoiding the reach of the World Media Brokers decision.[^20] All of these business pursuits were reasonably foreseeable to the plaintiff given its lengthy investigation of the defendants’ operation and the seizure of the defendants’ detailed business records. Foreseeability will therefore not be a concern. The concern will be proof of actual loss and causation. In claiming for lost business opportunities, Mr. Yemec will have to show that these were business opportunities that were actually being considered at the time when the ex parte orders were executed and that would have been pursued but for the ex parte orders.
[46] The defendants will of course be able to claim for all reasonable legal expenses incurred in setting aside the wrongfully obtained ex parte orders and participating in this inquiry.
III. Claims that can be eliminated immediately
[47] There are a number of claims that have no basis in fact and can be eliminated immediately. By clearing away the claims that are non-starters, I can focus attention on the claims that are more plausible. I will now explain why each of the following five categories can be eliminated immediately.
(1) The medical claims
[48] Three of the four individual defendants (all but Mr. Bunting) claim damages for medical expenses and for psychological harms (distress, anxiety and post-traumatic stress disorder) that they say were caused by the ex parte orders. They base their claims on two points: one, the medical problems were caused by the ex parte orders; and two, the shutdown of the telemarketing business resulted in the loss of their group medical coverage and hence their resulting out-of-pocket medical expenses are compensable.
[49] I am not unsympathetic to the defendants’ medical claims. I accept that the ten years of litigation—starting with the American TRO and the Ontario ex parte orders, followed by the Ontario action, the American action, the enforcement of the American judgment in Ontario, and the many related affidavits, cross-examinations, appeals and cross-appeals—has profoundly impacted the health and welfare of each of the individual defendants. I further accept that the relentless, and often over-zealous, prosecution of this decade-long case by a powerful and well-resourced plaintiff has likely caused lasting psychological damage to each of the defendants.
[50] However, I am unable to award damages to any of the individual defendants on their medical claims because there is no evidence that any of these harms were caused, even in small part, by the events of October 4, 2002. Recall that the monitors reported that the entire search and seizure operation was conducted courteously and co-operatively, with no distressing incidents and no complaints from the defendants. If the only unpleasant event had been the October 4 enforcement of the ex parte orders and the effort to have them set aside, I would have been hard pressed to find any evidence of significant psychological harm. The evidence shows that it was the ensuing decade of litigation that (understandably) caused the defendants’ emotional fatigue and mental distress. Indeed, one of the doctor’s notes referred to the stress and anxiety being caused by “the litigation” and not just the interlocutory orders of October 2002. Another medical note, this one produced by Ms. Rapp, attributed the cause of her physical and psychological problems to the loss of the telemarking business and the resulting financial pressures. Here is what the doctor said:
During the month of October 2002, I began to see Anita more regularly as she suffered from excess stress and numerous medical problems all resulting from the onset of the loss of her business and the ensuing financial and legal problems. She developed severe anxiety disorder, a sleep disorder, elevated blood pressure and ongoing chest pains. She required a multitude of medical interventions including the use of medications which she could not afford. [Emphasis added.]
[51] As for the loss of the group medical coverage, and hence the need to pay out-of-pocket for the required medical care, here again there is no evidence that this loss was caused by the ex parte orders. If Mr. Yemec, Ms. Rapp and Ms. Bungaro, who were working as consultants and not as employees even had group/corporate medical coverage (no such evidence was presented), it was most likely lost because of their inability to pay the insurance premiums, a situation that was caused by the TRO and the legal shutdown of the U.S. telemarketing business and not by the ex parte orders.
[52] In short, causation has not been established for any of the medical claims. Mr. Yemec’s and Ms. Rapp’s claims of about $10,000 each and Ms. Bungaro’s claim of about $25,000 have not been proven and cannot be allowed.
(2) The tort claims
[53] The four individual defendants claim damages for what the plaintiff describes as “tort claims”—loss of reputation, damage to one’s credit standing and invasion of privacy. The plaintiff argues, quite rightly, that the undertaking to pay damages for a wrongful injunction is an undertaking that is given to the court and does not found a cause of action.[^21] The defendants cannot sue in tort, says the plaintiff, unless there is evidence of malice or abuse of process[^22]—and there is no evidence of either here.
[54] I accept that the defendants cannot sue in tort on the facts herein. A party seeking damages apart from what is properly available on an inquiry must assert an independent “substantive” claim or counterclaim.^23 Even if heard at the same time as the inquiry, it is an entirely separate form of relief. Here no such independent claims or counter-claims have been asserted.
[55] Nonetheless, it is my view that these “tort claims” are tenable because the defendants are not suing in tort. Rather they are claiming contractual-type damages for all foreseeably caused harms. In doing so, the defendants are tapping into the equitable roots of Rule 40.03 and the breach of undertaking/damages inquiry, and are urging this court to consider all “real harm” foreseeably caused by the wrongly obtained orders. I agree with this approach and I adopt what was said in this regard by an Australian judge in 1922:
I think the word “damages” in [the] undertaking is to be given a very general meaning, and is not necessarily to be given the same meaning as the word “damages” when used in connection with breaches of contract. “Damages” in this case seems to me to mean real harm, rather than to have any strictly defined meaning.[^24]
[56] Assuming the defendants can establish some abuse in the method and execution of carrying out the ex parte orders (and thus an invasion of privacy) or can show a loss of reputation or credit standing that can be attributed to the granting of the ex parte orders, I am prepared to consider these claims.
[57] The defendants, however, have failed to do so. On the invasion of privacy claim, they have not shown any abuse in the execution of the ex parte orders. As confirmed by the monitor’s report, the orders were executed carefully and courteously and in accord with the court’s directions. There is thus no basis for the invasion of privacy claim.
[58] In Mr. Bunting’s case the claim is a non-starter. He was never subjected to an Anton Piller order. His home was not searched and, with the exception of his cell phone which was eventually returned to him, none of his possessions were seized.
[59] As for reputation, none of the defendants has adduced any evidence in support of their assertion that any loss in reputation was caused by the ex parte orders. Mr. Yemec says his reputation was damaged as a result of a posting on the website of the Federal Trade Commission, which was repeated on the CBC website. However, this posting was based solely on the U.S. proceeding. It does not mention the Ontario ex parte orders. In short, none of the defendants offer any credible evidence that their reputation was damaged.
[60] All four defendants claim damages for “loss of credit and interference with economic relations.” But here again, there is little to no evidentiary support for the assertion that the defendants were denied credit or that their credit standing was harmed because of the ex parte orders (rather than by their general inability to pay bills in a timely manner).
[61] Mr. Yemec’s claim for damages for loss of credit and interference with economic relations does not succeed. The evidence shows that Mr. Yemec and his companies had continuing issues in their banking relations well before the ex parte orders. The volume and frequency of chargebacks caused several banks to cancel banking facilities with Mr. Yemec and his companies. Other banks terminated their relationships when they learned that companies such as Faby Games and Cash & Prizes were using their merchant Visa privileges to bill lottery packages when they were not authorized to do so.
[62] Mr. Yemec and his companies were also significantly indebted to the Canada Revenue Agency (“CRA”) for personal income tax and employee source deductions. Because of the general level of indebtedness and overall lack of assets, neither Mr. Yemec nor his companies would have received any credit in any event from any conventional financial institution before the ex parte orders were granted. The problem was exacerbated by the failure to remit employee source deductions. In short, although the lack of credit and the bad credit reports were real problems, there is no evidence that these problems were caused by the ex parte orders.
[63] Ms. Rapp’s claim for loss of credit is based on a credit report that assigned her low marks for failing to pay off certain company purchases that she had placed on her personal credit cards. Ms. Rapp believed, not unreasonably, that “the companies should have paid these amounts.” Nonetheless, she had agreed to place the purchases on her personal credit cards and she was obviously required to make the payments to the bank. If she failed to do so because of insufficient income, the lack of income, as already noted, was caused by the American TRO/business shutdown and not by the Ontario ex parte orders. (I pause to note that by 2005 Ms. Rapp had regained some of her credit cards and today enjoys an excellent credit rating.)
[64] Ms. Bungaro’s relationship with her bank was strained because of charge-back problems, and because her bank account had been garnished by the CRA for income tax arrears, before the ex parte orders were granted. In any event, she was able to open a bank account without difficulty in the autumn or early winter of 2003 after the Mareva was lifted.
[65] Mr. Bunting has also failed to present any evidence that any loss of credit was caused by the ex parte orders. He also candidly admitted that his wife did not allow him to have his own credit cards because of the risk that he would bet all of their money at the racetrack.
[66] In sum, none of the so-called “tort claims” for invasion of privacy, loss of reputation or loss of credit have been proven.
(3) Damages for pain and suffering
[67] Three of the defendants (not Ms. Rapp) claim the maximum allowable amount for pain and suffering. The defendants remind me that the original $100,000 cap,[^25] adjusted for inflation, is currently $340,896. Here again, rather than denying this claim outright as not falling within the scope of a damages inquiry (as argued by the plaintiff) I would prefer to proceed on a more equitable basis and consider the claim if “real harm” is indeed established on the evidence.
[68] Here again, however, there is no evidence of any physical or other injury caused by the ex parte orders that could have conceivably resulted in “pain and suffering”, as that term is generally understood. There was no evidence of harm of any import to Mr. Yemec. Ms. Bungaro claims to have an anxiety disorder and a post-traumatic stress disorder as a result of the ex parte orders, but no medical evidence was tendered documenting these disorders or linking them to the ex parte orders. Mr. Bunting says he’s entitled to general damages because his bank account was frozen and a certificate of pending litigation (“CPL”) was placed on his home. However, he has not presented evidence of any loss caused by the freezing of his bank account. He did not default on any loans or payments. He admitted that he was able to receive withdrawals from his bank account to pay for living expenses pursuant to the court order. He also admitted that he did not take steps to remove the CPL until several years after the orders were set aside because there was no need. There is no evidence that the CPL prevented a sale of the home or otherwise interfered with financing.
[69] In short, there is no basis for any of the pain and suffering claims.
(4) Punitive and aggravated damages
[70] When Justice Gans set aside the wrongfully obtained ex parte orders in 2003, he did not disguise his disapproval of the plaintiff’s conduct. The United States of America and the Federal Trade Commission, said Gans J., “have trifled with, if not torn asunder, the very essence of the integrity of the ex parte process.”[^26] He also found that the failure to provide full and frank disclosure was “not inadvertent.”[^27] I am, therefore, sympathetic to the defendants’ request that the plaintiff be punished for its obvious misconduct. There is every reason for the defendants to insist that punitive damages be awarded.
[71] Unfortunately, I am limited by the language in Rule 40.03 as incorporated in the undertaking provided by the United States of America. The undertaking makes clear that compensation should only be awarded for damage that was caused to the defendants by the granting of the ex parte orders. This is the point that Laskin J.A. was making when he noted in Fleischer that the wording of Rule 40.03 (and the language in the undertaking provided herein) “focuses the inquiry on causation.”[^28]
[72] I therefore agree with the plaintiff that the Rule 40.03 undertaking is a promise to pay compensatory damages only and that punitive damages are not compensatory. The function of the judge on the inquiry is to assess and award compensation, not to punish the party who provided the undertaking.[^29] The Australian Law Reform Commission put it this way:
The purpose of an undertaking…is to ensure that if a court wrongly grants interlocutory relief, the financial or other detriment that is suffered by the defendant as a result of the issuing of the relief can be adequately compensated. If such compensation were unavailable, the awarding of interim relief would be severely impeded by concerns that unrepaired and unjustified harm might be caused to the defendant. On this view, the undertaking enforced is typically one to indemnify the defendant, in the event of an interlocutory injunction subsequently being discharged, for the loss he or she has suffered as a result of being restrained from doing what he or she could otherwise have done. The claim to ‘damages’ is really a claim to payment of an agreed sum, the measure of which is the defendant’s loss; the ‘damages’ are not available for the breach of any duty in the undertaking, contractual or otherwise. By definition an ‘indemnity’ will only extend to losses suffered by the indemnified; the use of an undertaking for the purposes of punishment is, on this reasoning, contrary to principle.[^30]
[73] If a judge disapproves of the plaintiff’s conduct in providing misleading affidavit evidence or otherwise breaching “the integrity of the ex parte process”, the appropriate remedy is an elevated costs award. This is precisely what Justice Gans did when he set aside the wrongfully obtained injunctions in 2003. He concluded that “a punitive order [was] warranted” and he awarded costs on a substantial indemnity basis.[^31] This was the appropriate procedural avenue for imposing punishment.
[74] The defendants’ submission that punitive damages are warranted because the plaintiff made improper use in the American litigation of Ontario documents obtained under the Anton Piller order has already been adjudicated. I will explain this in more detail below in the section dealing with the $19 million U.S. judgment.
[75] Finally, some observations about the defendants’ claim for aggravated damages. Aggravated damages, unlike punitive damages, are considered compensatory. The Supreme Court has defined such measures as “an award that aims at compensation, but takes full account of the intangible injuries, such as distress and humiliation, that may have been caused by the defendant’s insulting behaviour”.[^32] Aggravated damages have been awarded on damages inquiries, but only in cases where the ex parte orders were executed in an excessive and oppressive manner.[^33]
[76] As already noted, the (bad) orders in this case were executed flawlessly, with no evidence of distress or upset. The defendants complain about the way that the orders were obtained—with bad affidavit evidence, etc.—not about the way they were executed. But, as I have already determined, the appropriate sanction for a party’s disregard of its obligations on an ex parte motion is an elevated costs award, not aggravated damages. Indeed, counsel could not find a single decision in which aggravated damages were awarded on an undertaking inquiry based solely on the way an order was obtained (as opposed to how it was executed.)
[77] The claims for punitive and aggravated damages do not succeed.
(5) The $19 million U.S. judgment
[78] The defendants say they should be awarded “equitable compensation” in the amount of the $19 million American judgment that was enforced in 2010 by the Court of Appeal.[^34] They allege improper use in the American litigation of documents seized under the Ontario Anton Piller order and they say that “but for” the wrongly obtained order, the American judgment would have not been granted. That is, without the documents appended to the Krause affidavit (in the Ontario action), the FTC would not have been able to obtain a summary judgment in the American proceeding.
[79] This issue has been fully adjudicated. It was litigated before the U.S. District Court, before this court, and before the Court of Appeal. Each time it was found that the documents had not been used improperly. It was also found that the defendants’ counsel had consented to this use of the seized material, that such disclosure would have been required in any event, and that the U.S. District Court’s decision to grant summary judgment did not depend solely on these impugned documents.
[80] The documents attached to the Krause affidavit were produced in the U.S. proceeding pursuant to the discovery obligations of the defendants. Counsel for the FTC testified that no documents obtained under either the Norwich or the Anton Piller orders were used in the U.S. proceeding until consent had been obtained from the defendants’ American counsel. When the defendants tried to challenge the use of the documents in the U.S. proceeding, the District Court judge ruled that, even though consent was not necessary due to the disclosure obligations, such consent had, in fact, been given. I came to the same conclusion in my 2009 Decision.[^35]
[81] When the Court of Appeal reviewed the matter, it again confirmed that consent had been provided by Mr. Amin, the defendants’ Chicago-based counsel:
Counsel for the U.S. government did not review any of the documents seized under the Anton Piller order, or in the sealed Ontario court file, until defendants’ counsel expressly indicated the defendants’ consent. Mr. Amin explicitly acknowledged that his consent permitting the FTC to use documents produced in the Ontario litigation was unconditional.
The use of Ontario documents in the U.S. proceedings was not inconsistent with Gans J.’s order, which ordered the return of seized documents, “subject to any order of the United States District Court”. In any event, the defendants had an independent obligation to produce relevant documents under applicable U.S. discovery rules.[^36]
[82] In sum, there is no basis for the submission that the defendants are entitled to recover as damages the amount of the judgment that was granted and upheld on appeal in the United States and recognized and enforced by the Court of Appeal in Ontario. I agree with the plaintiff that the defendants are improperly attempting a collateral attack on the U.S. judgment.
[83] In conclusion, I have eliminated the following claims as lacking a legal or factual foundation: claims by the corporate defendants; the medical claims; the “tort” claims for loss of reputation, loss of credit and invasion of privacy; damages for pain and suffering; the claims for punitive and aggravated damages; and the claim for the $19 million U.S. judgment.
[84] What remains are the individual defendants’ claims for their financial losses; Mr. Yemec’s claims for the loss of business opportunities; and the defendants’ claims for all reasonable legal expenses incurred in setting aside the wrongly obtained ex parte orders and participating in this inquiry. I will now consider each of these categories in turn.
IV. Individual financial losses
[85] As already noted, the only financial losses that can properly be claimed as damages are those that were caused by the ex parte orders. Most of the financial losses being claimed herein were caused by the abrupt loss of income that resulted when the defendants’ telemarketing business was shut down by the American TRO—and not by the ex parte orders that were executed three days later. To be sure that I am correct in this regard, I intend to consider each of the financial claims that have been made by individual defendants.
(1) George Yemec
[86] The many debts that Mr. Yemec incurred, both before and after the ex parte orders were granted, and that could not be paid off because the lottery telemarketing business was shut down by the TRO, cannot be blamed on the ex parte orders, however wrongfully they were obtained. As Mr. Yemec readily admitted when cross-examined in this inquiry, his only source of income was the lottery telemarketing business:
Q. As of October 2, 2002, based on your personal assets, you had no means of paying your debts?
A. Without a revenue stream.
Q. Without a revenue stream. And the only revenue stream you had as of October 3, 2002, was selling lottery tickets in the United States, correct?
A. Correct.
[87] Mr. Yemec’s inability to pay his mounting debts after the lottery telemarketing business was rendered legally dead, and his need to borrow from family and friends just to survive, are financial realities that flowed from the abrupt termination of his only “revenue stream” because of the TRO and not from the granting of the ex parte orders. Thus all of Mr. Yemec’s financial claims for unpaid bills, taxes owing, life insurance policies that were not reinstated and loans from family and friends for daily-living expenses are claims that fall outside the language of the plaintiff’s undertaking because they are losses that were not caused by the ex parte orders.
[88] None of Mr. Yemec’s financial claims can succeed including:
• The claims for loss of income.
• Unpaid telephone and credit card bills; unpaid accounting bills; unpaid retirement home bills for a family member; unpaid funeral expenses for a family member; rent arrears owing for office space and residence; and unpaid rent allegedly owing to Ms. Rapp while living in her condominium.
• Unpaid income tax owing to the CRA; unpaid self-employed health taxes owing to the Ontario Ministry of Finance; and unpaid realty taxes.
• Loans from Vista (International) Ltd., Dr. Brian Van Arem, Miraslova Zin, and Edward and Susan Collins, used to pay for living expenses.
• The promissory note in favour of Yvonne Buckingham, part of which was repaid when the Faby Games shares were transferred to her, and the balance of which was an obligation voluntarily assumed by Mr. Yemec to reimburse Ms. Buckingham for the legal costs she incurred as a defendant in this proceeding. However, Ms. Buckingham settled with the plaintiff and executed a mutual release. She is not a claimant in this inquiry. In any event, Mr. Yemec’s desire to indemnify his former friend and colleague is his own concern and is not compensable as damages in this inquiry.
• The “loss” of the life insurance policies, which Mr. Yemec had assigned to the CRA as security for his tax indebtedness before the ex parte orders were even issued. The life insurance policies were terminated because of the non-payment of premiums following the shutdown of the telemarketing lottery business by the TRO. In any event, Mr. Yemec failed to reinstate the life insurance policies after the ex parte orders were set aside, even though he could have done so within the two or three year window provided under the policies—and he failed to do so because of insufficient income.
• The monies allegedly owing to the Ministry of Labour under various “orders” to pay employee wages and owing to the employees’ as severance payments (which involved employees that were terminated in September 2002, before the ex parte orders were even granted and technically were not Mr. Yemec’s responsibility because he was not the employer.
• The Small Claims Court judgment for non-payment of a his mother’s long-term care bills and the various judgments under the Income Tax Act against Mr. Yemec or his companies for failure to remit employee source deductions.
[89] Many of these claims were not documented. Some were incurred after the ex parte orders expired. For my part, I prefer to disallow all of these financial claims on the basis of causation: in my view, none of them were caused by the granting of the ex parte orders. All of them were the result of having no (legal) income after the October 1, 2002 American TRO closed the door to the U.S. market and effectively shut down Mr. Yemec’s business and only source of income. With no income, bills could not be paid and money had to be borrowed from family and friends just to survive. None of the financial losses listed above were caused by the ex parte orders and therefore none of these losses are compensable in this inquiry.
(2) Anita Rapp
[90] As already noted, Anita Rapp was the day-to-day manager of the lottery telemarketing business. She was paid as a consultant. After the telemarketing business was shut down, Ms. Rapp became a real estate agent, earning more than she did in the lottery telemarketing business. Indeed, in the four years after the ex parte orders were granted (2003 until 2006 inclusive), Ms. Rapp earned just over $340,000 in net income. This was about a 60% increase over what she had earned between 1998 and 2002.
[91] Over the four year period from 2007 to 2010, Ms. Rapp was even more successful, earning about $468,000 in net income. Her average net annual income after the ex parte orders was $101,147, compared to an average net income of $42,552 before the ex parte orders—a 138% increase. Ms. Rapp’s claims for loss of income fail on two grounds: proof of loss and causation.
[92] The money owed by Ms. Rapp to the CRA following reassessments for 2004 (because of improper deductions) and for 2011 has nothing to do with the ex parte orders of 2002. Nor does Ms. Rapp’s decision to pay company bills with her personal credit cards and the companies’ inability, even after the ex parte orders were set aside, to repay Ms. Rapp for assuming this indebtedness. These are financial consequences that stemmed from the fact that the companies’ cash flow ended after the telemarketing business was shut down by the TRO. Ms. Rapp’s continuing refusal to pay these amounts, which were reduced substantially by the credit card company’s offers to settle, cannot be attributed in any way to the ex parte orders. The money that Ms. Rapp says she borrowed from five separate individuals is not documented and none of the lenders gave evidence, and, in any event, it would not clear the causation hurdle.
[93] The two life insurance policies that Ms. Rapp identifies in her claim for damages are policies on Mr. Yemec’s life in which Ms. Rapp was listed as the beneficiary. Any loss relating to these insurance policies, as already noted, was due to Mr. Yemec’s failure to reinstate the policies within the two to three year post-termination window. Ms. Rapp has no claim in this regard. Further, this was not a loss that was caused by the ex parte orders.
[94] Ms. Rapp claims for the storage fees she paid from 2003 to 2012 for the storage of the business records that were returned to the defendants after their seizure in October 2002. But here again, Ms. Rapp assumed responsibility for these payments because none of the corporate defendants or Mr. Yemec had the necessary funds. And, the lack of funds, as has now been stated several times, was caused by the American TRO not the Ontario ex parte orders.
[95] Ms. Rapp is also claiming for the taxes that she had to pay when she withdrew money from her Registered Retirement Savings Plan in 2005, and for the loss in the RRSP’s current market value because of the 2005 withdrawal. But, as already noted, Ms. Rapp’s income increased after the telemarketing business was shut down. Her decision to withdraw money from her RRSP in 2005 cannot be attributed to a lack of income, and even if it were otherwise, the lack of income would not have been caused by the ex parte orders.[^37]
(3) Julia Bungaro
[96] When the ex parte orders were granted, Ms. Bungaro had almost nothing in her bank accounts, no accounts receivable, no life insurance, no automobile, and no stocks, bonds or other investments. Her only asset was a beautiful but heavily mortgaged home on Russell Hill Road. Her major indebtedness was the almost $200,000 that she owed the CRA for unpaid taxes.
[97] By September 2002, the CRA was garnishing her wages, seizing money from her bank account for the unpaid taxes and threatening to place a lien on her home. Ms. Bungaro re-mortgaged her home and paid off the CRA debt in December 2003, except for about $2,000 owing on a GST re-assessment.
[98] Ms. Bungaro was not involved in the day-to-day operation of the lottery telemarketing business. But she knew that her salary depended completely on this source of revenue. She was paid by several of the defendant companies for doing a variety of tasks for Mr. Yemec such as redecorating the Highview Farms racehorse facility, vetting Mr. Yemec’s contributions to charitable foundations, depositing and clearing telemarketing proceeds through her personal bank account, and on occasion, attending in person to cash in winning lottery tickets.
[99] Ms. Bungaro understood that the American TRO prevented the companies from selling lottery tickets into the U.S. market and that this prohibition was the cause of the abrupt stoppage in cash flow. Unlike Ms. Rapp, Ms. Bungaro was unable to find alternate employment after the lottery telemarketing business was shut down. She worked in an administrative position at a private school for a short time; she maintained Mr. Yemec’s handicapping website and she attempted to offer her services to the United Way but without success.
[100] Lacking an income, Ms. Bungaro sold her home in March 2004 for about $2.2 million, about $250,000 over the asking price. Her net proceeds, after paying down the mortgages, were about $840,000. She moved into an apartment in the same area of the city and then, several years later, into a smaller apartment.
[101] None of Ms. Bungaro’s financial claims can legitimately be allowed in this inquiry. The income losses she sustained were caused by the TRO, not the ex parte orders. The sale of the Russell Hill Road home cannot be attributed to the ex parte orders. Nor can the consequences of this sale—such as the fact that Ms. Bungaro could have sold the house for more years later, the costs of the sale, the moving and storage charges, the loss of Mr. Yemec’s rental income (even if documented), the fact that family members were displaced from the house and had to find and pay for alternate accommodation, or the rent that Ms. Bungaro had to pay for her apartment. None of these “losses” are compensable because none of them, and least of all the unpaid landscaping bill that resulted in a Small Claims Court judgment, were caused by the ex parte orders.[^38]
(4) Nelson Bunting
[102] The only individual defendant that has established a legitimately compensable financial loss is Mr. Bunting, albeit the amount that will be awarded is small. I will return to this point in a moment.
[103] As I have already noted, Mr. Bunting was a horse trainer by profession. He also made money on the side doing furniture repair work. In 2002, before the ex parte orders were granted, he was asked by Mr. Yemec to set up a sole proprietorship that would publish and distribute a Jackpot & Prizes newsletter. Mr. Yemec’s companies would provide the newsletter content, the telemarketing staff, and would handle sales and distribution. Mr. Bunting’s job was to arrange for a merchant Visa terminal and generally follow Mr. Yemec’s directions. Mr. Bunting would routinely sign blank cheques on the Jackpots & Prizes bank account that were then used by Mr. Yemec or his accountant for whatever payments they deemed appropriate.
[104] Mr. Yemec promised to pay Mr. Bunting a salary of $400 per week for his help in setting up Jackpots & Prizes. Counsel for the plaintiff suggests that Mr. Yemec was essentially paying Mr. Bunting a fee to use the Jackpots & Prizes merchant Visa account. I do not need to make any finding in this regard. Suffice it to say, three $400 payments were made to Mr. Bunting before the ex parte orders were granted. At the time of the October court orders, a Jackpot & Prizes subscription newsletter was being test-marketed.
[105] Mr. Bunting believes that the ex parte orders shut down the Jackpot & Prizes venture and his $400 a week income stream. He says he’s entitled to damages for all of his financial losses—the loss of the weekly income stream, the money lost on the forced sale of three horses, the money he borrowed from a friend, the loss of the deposit on the merchant Visa terminal, the loss of the entire Jackpots & Prizes venture, and the business income he lost because his cell phone was seized.
[106] The claim for loss of income does not succeed. Mr. Yemec was unable to pay the promised $400 per week because his only source of income, the lottery telemarketing business, was shut down by the TRO, not because of the ex parte orders. Mr. Bunting’s decision to give up the three horses (who performed badly in races in Ohio) to pay off their boarding charges back in Ontario (no documentation provided) was prompted by his overall lack of income, which again, had nothing to do with the ex parte orders. As an aside, I note that the $1,600 that Mr. Bunting had in his bank account when it was frozen by the Mareva was released to him on consent to help him with his day-to-day living expenses.
[107] I accept Mr. Bunting’s evidence that he borrowed $5,000 from his friend, Tony Russo, in 2003. However, his need for this loan and his inability to pay it off were attributable to an overall lack of income which, again, was not caused by the ex parte orders. I also accept that Mr. Bunting paid a $10,000 deposit to acquire the merchant Visa account for the Jackpot & Prizes business. He says he returned the merchant terminal to the bank, which should have entitled him to a return of the $10,000 deposit. However, Mr. Bunting admits, quite candidly, that he cannot remember whether or not he received the $10,000 credit from the bank. Any failure on the part of the bank to return the deposit, or on the part of Mr. Bunting to request its return, cannot be attributed to the ex parte orders.
[108] The Jackpot & Prizes venture never got off the ground. Mr. Bunting described this loss of opportunity[^39] as follows:
The ex parte orders of October 3, 2002 effectively destroyed Mr. Yemec’s businesses, thereby depriving Jackpots & Prizes of access to the telemarketers who were marketing the newsletter subscriptions.
[109] However, as already noted, it was the TRO that shut down the lottery telemarketing business into the U.S. and the related revenue stream, not the ex parte orders. The search and seizure raid of October 4 obviously caused a significant disruption in the business operation, and it is true that computers and business records were seized. But the key computers were returned the next business day, Monday, October 7 and, apparently, business continued on that Monday morning “as usual”.[^40] If the telemarketers left or were let go, as no doubt happened, it was most likely because the employer, with no business income, could no longer pay their wages. Again, the cause was the TRO, not the ex parte orders.
[110] The only claim that can be legitimately connected to the ex parte orders is the loss of business income during the two weeks that Mr. Bunting was without his cell phone. Mr. Bunting’s evidence is this:
My cell phone was very important for me to make a living. I was on the call list of several moving companies for last minute installations and insurance claim touch ups and repairs. Since my phone was seized by the plaintiffs, I lost several jobs and some business immediately as my customers could not reach me in a timely manner.
[111] I recognize that Mr. Bunting did not produce any supporting documentary evidence or any of the customers who had taken their business elsewhere when they couldn’t reach him on his cell phone. Nonetheless, I found Mr. Bunting to be a completely credible witness[^41] and I accept his evidence.
[112] The seizure of Mr. Bunting’s cell phone was caused directly by the execution of the ex parte orders at the Pearl Street premises. It was reasonably foreseeable to the plaintiff that Mr. Bunting would have been using his cell phone, at least part of the time, for business purposes. A legitimate financial loss has been established. The next question is quantum. I accept Mr. Bunting’s evidence that over the course of the two weeks that he was without a cell phone, he could easily have lost several jobs. I find it fair and reasonable to quantify the loss of profits at about $500 per week, for a total of $1,000. I therefore award Mr. Bunting $1,000 in lost business profits, plus interest to date.
V. Loss of business opportunities
[113] I now turn to the claims for lost business opportunities. The claims, all made by Mr. Yemec, relate to various projects or ventures that he says he would have pursued but for the ex parte orders.
[114] There is no dispute about the applicable law. Where a breach of contract, or in this case a wrongful injunction, deprives a party of an opportunity that could have been profitable, damages may be awarded for the “loss of chance.”[^42] The quantification of that loss may have to take into account numerous contingencies and will often prove difficult, but the court must do its best to estimate the loss even if such estimation is a matter of “guess work.”^43 The claimant must show that the lost chance was sufficiently real with a substantial monetary value (i.e. more than just speculative) and that “but for” the ex parte orders, there was a reasonable probability (of at least 15 to 20 per cent) that the chance or opportunity would have materialized.[^44] In assessing the claimant’s evidence about the likelihood and value of the lost business opportunity, the court must be particularly careful when the evidence is mainly testimonial (as opposed to documentary), and where credibility may be in issue.[^45]
[115] Mr. Yemec says that but for the wrongfully obtained ex parte orders, he would have pursued lucrative (and legal) business opportunities relating to Faby Games, the Cash & Prizes newsletter, the Whole World Lottery Guide and, most importantly, the transition of his lottery telemarketing business to European sales. The questions for me in this part of the analysis are less about the likelihood that these ventures would have succeeded had they been pursued than they are about several more basic concerns: is Mr. Yemec the proper claimant? Is there sufficient proof that the venture would actually have been pursued? Is there sufficient proof about the value of the alleged loss? And, how exactly did the ex parte orders prevent Mr. Yemec from pursuing this particular initiative? In other words, my concerns are about standing, sufficiency of proof and causation.
[116] I will consider each of the lost business opportunities in turn.
(1) Faby Games
[117] Mr. Yemec is claiming damages for losing the chance to further commercialize, the award-winning Faby wordgame called Word Thief. The problem here is that Mr. Yemec is not a proper claimant. He has no basis for claiming any losses relating to Faby Games Inc. because all of his shares had been assigned to Yvonne Buckingham.
[118] Furthermore, Faby Games, one of the original defendants in this proceeding, has settled with the plaintiff and has executed a full release. It cannot claim and has not claimed any damages in this inquiry. Mr. Yemec did not lose any opportunity to further commercialize the Wordthief game because he had no right to the intellectual property belonging to Faby Games. The Faby Games’ claim is dismissed.
(2) Cash & Prizes newsletter
[119] Mr. Yemec claims that but for the ex parte orders, the Cash & Prizes newsletter that had been designed and printed by his godson, Dean Temple (who is based in New York), would have been mailed out and telemarketed, and would have made millions of dollars in profit. Having been successfully test marketed in 2001 and 2002, the final test-mailers were printed in October 2002 but were never mailed “due to the ex parte orders.”
[120] There are several problems with this claim. The first is standing. Both of the Cash & Prizes companies, the one in Ontario owned by Yvonne Buckingham and the other in New York,[^46] owned by Dean Temple, have settled with the plaintiff in this litigation and have executed full releases. Neither of them can claim, or has claimed, any damages in this inquiry.
[121] Mr. Yemec’s derivative claim appears to be based on two things: a letter agreement in which the New York company promised to pay World Media Brokers a $5,000 weekly consulting fee, and an oral agreement with Mr. Temple to split the profits 50/50. I pause to voice my skepticism about the latter. In my view, if the profit split was actually part of the Yemec-Temple agreement, it would have been mentioned in Mr. Temple’s detailed letter agreement.
[122] During the course of the inquiry, the plaintiff challenged Mr. Yemec about the business plan for this venture, the expected revenues and expenses, the unrealistic financial forecasts, the actual existence of the profit-sharing agreement, and the fact that the newsletter could not be mailed or telemarketed in the U.S. because it contained items promoting the Power Ball Lottery and was thus prohibited by the TRO.
[123] For my part, I do not have to consider or resolve these issues. It is sufficient to note that in his closing written submission, counsel for Mr. Yemec attributed the loss of the Cash & Prizes opportunity to the ex parte orders. He said this:
In October 2002, the Mareva injunction meant that the capital required from Mr. Yemec to finance the business was no longer available. The final test mailers could not be produced and mailed; the business opportunity was lost.
[124] In other words, Mr. Yemec lost the chance to mail and telemarket the newsletter because he lacked funding. But, as has already been noted several times, the lack of funding was caused by the shutdown of the telemarketing business by the October 1, 2002 TRO and not by the October 3 ex parte orders.
[125] The claim relating to the Cash & Prizes newsletter would have probably failed in any event for reasons of standing, insufficiency of proof and inadmissible hearsay (Mr. Temple did not give evidence), but it most certainly fails on the ground of causation.
(3) Whole World Lottery Guide
[126] Mr. Yemec is claiming the $20,000 profit he says he would have earned on the sale of the sixth edition of the Whole World Lottery Guide that, but for the ex parte orders, would have been published and distributed in 2003.
[127] Here again there are problems with standing and sufficiency of proof. According to Mr. Yemec, Dean Temple established InterMarketing Services Inc. in New York “for the purposes of researching and developing the fifth edition of the Whole World Lottery Guide.” Both InterMarketing Services and Mr. Temple, who were defendants in the original TRO and thereafter, have settled with the plaintiff and have executed a full release. Absent any evidence or suggestion to the contrary, I assume that InterMarketing retained the right to publish the sixth edition of the Guide as well. Consequently, I question Mr. Yemec’s standing to make any claim in this regard.
[128] I am also concerned about the sufficiency of the evidence supporting the $20,000 profit claim. Mr. Yemec admitted that the fifth edition “wasn’t a big seller” and that it was sold mostly to companies for “a very minimal profit.” Apart from undocumented assertions, no evidence was presented about expected sales revenues or production costs, target markets or forecast profits, or even that the publication of the sixth edition was actually scheduled for 2003. No evidence was presented to support the suggestion that the sixth edition of the Lottery Guide would also have been published on the internet. Mr. Temple, who apparently had all this information, was not called as a witness.
[129] In addition to the problems with standing and proof, the claim relating to the Whole World Lottery Guide also fails on the basis of causation. Here again, the real reason why this business opportunity was not pursued, lack of “financial resources”,[^47] cannot be attributed to the ex parte orders. The lack of available funding was caused by the TRO when it closed the American market to Mr. Yemec’s lottery telemarketing business.
(4) European sales opportunity
[130] This is the largest and most important claim as far as Mr. Yemec is concerned. In his view, but for the ex parte orders, he would have transitioned into European lottery sales, operating the telemarketing business either out of his Toronto premises or moving off-shore, perhaps to Amsterdam or Gibraltar. With the U.S. market closed down because of the TRO and the sale or resale of lottery tickets or shares in lottery tickets prohibited by s. 206 of the Criminal Code, Mr. Yemec would most likely have adopted the agency or “messenger service” model that was successfully being used by other lottery service companies, both in Canada and abroad. He says that his good friend, Gary Bowman, also an experienced lottery entrepreneur, would have readily loaned or invested the money that was needed for the transition to European sales.
[131] The plaintiff challenged Mr. Yemec on a number of levels. Did he actually consider this option in 2002-03 or was this something that only occurred to him as this inquiry approached? Would he have been financially able to transition to European sales? Was the proposed transition even legal under European law? What exactly was it about the ex parte orders that prevented him from transitioning?
[132] The question of legality was a topic that dominated this inquiry - with hours of cross-examination, dozens of exhibits and testimony from several European legal experts. Counsel for the plaintiff reminded the court at every opportunity that Mr. Yemec’s lottery telemarketing business had been adjudged illegal in both Canada and the U.S. and, with each reminder, implied that it must therefore follow that whatever was being proposed in Europe would also be illegal. But this, of course, did not follow. Every jurisdiction has its own legal regime, particularly with regard to lotteries.
[133] For example, in this proceeding, I must recognize the validity of the TRO and the fact that the American market was legally closed down to the defendants as of October 1, 2002. I also acknowledge that Judge Fairgrieve’s 1998 decision barring the sale of Spanish lottery tickets to American consumers must logically be interpreted as barring the sale of any lottery tickets out of Canada to any consumers living anywhere in the world. The private sale or resale of lottery tickets or shares in lottery tickets is illegal. But
Judge Fairgrieve quite explicitly left open for future consideration the legality of the agency or “messenger service” model[^48]—as did the Court of Appeal.[^49]
[134] Put simply, the “messenger service” model has not (yet) been adjudged illegal. Indeed this appears to have been the business model that was used for years by Vancouver-based C-W Agencies[^50] and by several European-based companies such as the European Lottery Guild. Apart from the agency model, it is also relevant to note that some European jurisdictions have allowed private lottery service companies to operate legally provided they were licensed to operate within that jurisdiction.[^51] I will return to this point in a moment.
[135] Mr. Yemec’s claim for millions of dollars in damages for the loss of the opportunity to transition to European sales fails, but not for reasons of legality. My reasoning is as follows.
[136] I am satisfied on the evidence before me that Mr. Yemec, a talented and experienced lottery services entrepreneur with an expert understanding of the world-wide lottery market, would have, at some point, considered the European sales opportunity. This was an obvious next step. He had already pursued global opportunities in India and Ukraine and in the mid-1990’s he had approached the government of Gibraltar with a licensing application supported by a detailed business plan. He had a European-based credit card clearing system in place with PROfulfil Europe. And two of his business colleagues, Bryan Elwood and Sean O’Reilly, were already working in this market. I am therefore reasonably certain that Mr. Yemec, sooner or later, would have considered European sales.
[137] I am also satisfied that had he pursued this venture, he would have had a very good chance of receiving the required government authorization from at least one of the E.U. jurisdictions. The issues of legality are not, to be sure, clear cut. The European legal experts called by the plaintiff agreed on a number of points, but could not agree on whether or not the agency model would be lawful. The European case law presented by the defendants appears to support their submission that it would have been lawful[^52] and the evidence shows that private lottery service providers have indeed been licensed or authorized by certain European government authorities.[^53] I am not going into more detail on these points because my decision to deny the European sales claim is not based on legality. Indeed, absent the more basic concern that follows, I would have assessed Mr. Yemec’s overall chance of success at 50 per cent or better and would have awarded damages accordingly.[^54] But I do not do so because of a more fundamental problem with this loss of chance claim.
[138] Mr. Yemec stated in his evidence that: “If I had not been precluded from restructuring my companies by operation of the 2002 Orders, I could have pursued the model followed by C-W in the face of the U.S. temporary restraining order.”
[139] I accept that the ex parte orders prevented him from dealing with his assets. I also accept that absent these injunctions Mr. Yemec “could have pursued” the C-W business model and “could have” transitioned to European sales. However, I am not satisfied on the evidence before me that he would actually have done so “but for” the ex parte orders. In other words, I am not satisfied that he actually intended to pursue the European sales opportunity at the time in question or that he was prevented from doing so by the ex parte orders. I will explain each of these points in more detail.
[140] First, intention. It is not enough for Mr. Yemec to say, as he did repeatedly, that he “could have” pursued this opportunity. The case law is clear that he must prove on a balance of probabilities that he would have done so, but for the ex parte orders.[^55] And Mr. Yemec has presented no evidence in this regard. The evidence shows that he pursued at least two new business initiatives after the ex parte orders were granted. He tried his luck with a radio show proposal and a horse-racing idea that he took to Dennis Mills at Magna International (a “complex proposal for the racing industry to restore the fan base of the racing industry”), but neither project succeeded because, as Mr. Yemec explained, he couldn’t raise the necessary financing.
[141] After the ex parte orders were set aside, and his bank accounts (which were essentially empty in any event) were released, Mr. Yemec did not pursue any other business opportunities. Instead, he decided to work for Ms. Rapp, assisting with her real estate business and being paid accordingly. He also arranged for a $100,000 payment from Ms. Bungaro to be paid to “Specialty Publications” instead of into a Canadian bank account apparently to avoid garnishment by the CRA.
[142] To repeat: there is no evidence that Mr. Yemec actually intended to pursue the European sales venture—no business plans, no efforts to obtain relevant legal advice, no evidence of any planning meetings or discussions with any of his colleagues. Indeed, the first time that the “European sales” possibility was even mentioned was in an April 2009 affidavit filed by Mr. Yemec in this proceeding, almost seven years after the ex parte orders were granted and six years after they were set aside.
[143] I accept Mr. Yemec’s evidence that he briefly discussed the possibility with Sean O’Reilly and Bryan Elwood in the summer of 2002. But on the evidence presented, these preliminary discussions were never pursued or implemented even in a preliminary fashion. In sum, I am not persuaded that Mr. Yemec seriously intended to pursue the European sales opportunity at any time over the time period in question.
[144] But even if I had found otherwise, I would still have denied this claim for another reason. Mr. Yemec has not established the necessary causation—that it was the ex parte orders that prevented him from transitioning to European sales. Mr. Yemec’s complaint about not having enough financing for the other business ventures that were pursued does not apply, by his own admission, to the European sales venture.
[145] As Mr. Yemec explained in his evidence, financing would not have been a problem for the transition to European sales. His good friend, Gary Bowman, would have loaned or invested the entire amount that Mr. Yemec would have needed to establish a European sales operation – less than $200,000 if he stayed in Toronto; about $400,000 if he had to move off-shore. I accept this evidence. In other words, had Mr. Bowman been asked to do so, he would have financed the entire cost of the transition to European sales. But Mr. Bowman was never asked to do so, even after the ex parte orders were set aside.
[146] The opportunity to transition to European sales was lost, not because of the ex parte orders, but because it simply was not pursued for reasons (whatever they were) that had nothing to do with the ex parte orders. Although the ex parte orders may have delayed the implementation of the European sales opportunity, they did not cause him to lose this opportunity.
[147] Mr. Yemec may continue to believe to this day that he could have transitioned to European sales, but that is not the relevant legal criterion. He had to prove in this inquiry that he would have done this and he failed to do so.
(5) Loss of transition time
[148] The ex parte orders did cause one particular loss that was plainly foreseeable to the plaintiff when it executed these orders without notice to Mr. Yemec—his loss of an opportunity to consider all available business options in a reasonable and unhurried manner and to transition to a new business, or even sell the current business, in an orderly fashion without the distraction of the fraud allegations and the wrongly granted injunctions.
[149] The FTC had been investigating Mr. Yemec’s telemarketing operation since 1999. They knew the location of his business, its resources, and obviously its current business activity. It was reasonably foreseeable that a successful telemarketing operation with experienced operators and employees, even if barred from selling into the U.S. market, could readily transition and sell lottery service products directly or as an agency into non-U.S. markets, or even non-lottery products, as Mr. Yemec did for years before he focused solely on lottery products. This was not a marijuana grow-op or an opium den.[^56] The Yemec telemarketing business had acquired knowledge and expertise that could readily be re-channelled into a related line of business, such as providing lottery services on a “messenger” or agency model, which has not been shown to be illegal, or telemarketing goods or services that had nothing to do with lotteries. As Mr. Yemec noted in his evidence, “We had trained sales staff that could pretty well convert to anything.”
[150] However, Mr. Yemec was denied the chance to make this transition in an orderly fashion. Recall that the TRO was granted in Chicago on October 1, 2002 without notice to the defendants. And then, just two days later, the Mareva and Anton Piller orders were granted in Toronto, again without notice to the defendants. The execution of these orders on October 4, although by the book, was nonetheless disruptive and debilitating. In addition to having his computers and business records seized and his telemarketing business effectively shut down, Mr. Yemec was immediately preoccupied with the need to respond to the misleading allegations in the FTC affidavit and to set aside these wrongfully obtained injunctions as quickly as possible.
[151] Justice Gans described the unexpected pressures that suddenly confronted Mr. Yemec—the need to retain and instruct counsel, prepare detailed affidavits while all or most of the business records were inaccessible, review the plaintiff’s responding material, and attend numerous times at cross-examinations. Mr. Yemec filed a 59-page affidavit, then reviewed a 103-page FTC affidavit that included some 500 exhibits contained in 63 volumes, added a further 40-page supplementary affidavit and attended eight times for cross-examination.[^57] In addition, he undoubtedly spent many hours with legal counsel drafting and reviewing material and discussing next steps.
[152] I am not suggesting that dealing with the ex parte orders consumed all of Mr. Yemec’s time or energy. The evidence shows that Mr. Yemec found time to pursue two business initiatives—a new radio show and the horse-racing industry idea – and assist Ms. Rapp in her newly established real estate business. He also had to find time to deal with the ongoing American litigation, the appeal in the World Media Brokers case, and the criminal charges that stemmed from the failure of his companies to remit employee source deductions. I accept the plaintiff’s submission that Mr. Yemec had to contend with more than just the ex parte orders and found the time to do so.
[153] Nonetheless, in my view, the instability, uncertainty and general upheaval that was obviously caused by the wrongfully obtained court orders was significant and it must be acknowledged and monetized. But for the ex parte orders, Mr.Yemec would have had more time to consider his options, explore the various possibilities, discuss the various scenarios with his employees, landlords and creditors and transition to a new or parallel line of business in a much more orderly fashion.
[154] The plaintiff argues that there is no evidence that but for the distraction of the ex parte orders, Mr. Yemec would have transitioned to a new business. But this misses the point. The concern here is not the loss of any particular business opportunity but the loss of an opportunity for an orderly and measured transition. We know that Mr. Yemec tried to pursue at least two business projects. Who can say what else Mr. Yemec might have done or what other business ventures would have been pursued after the U.S. sales market was closed down by the TRO, if the asset freeze and seizure orders had not been granted? Or how successful these efforts would have been but for the distraction directly caused by the wrongfully granted injunctions? The concern, again, is not about any specific venture but about a general loss of time for unhurried thought and orderly transition. This was a “real harm” that justifies compensation.
[155] But how should this loss be quantified? I have already concluded that the impact of the ex parte orders was not just one year. Their negative impact lasted for a good two and a half years - until Justice Gans’ decision was affirmed on appeal.[^58]
[156] In my view, it is fair and reasonable to recognize the loss of transition time by awarding Mr. Yemec a relatively modest $100,000 per year for the two-and-a-half years that it took before the ex parte orders were no longer an over-hanging concern.[^59] The total award would therefore be $250,000. I acknowledge that this head of loss was not specifically claimed by the defendants but, in my view, it can be inferred from their evidence. And, as I have already noted, it is the court that exacts the undertaking and conducts the damages inquiry for the defendant’s benefit.[^60] I therefore find it equitable and proper to award compensation where a legitimate loss has been established on the evidence before me.
[157] I award Mr. Yemec $250,000 for the loss of a chance to transition his business in an orderly and unhurried fashion.
VI. Legal Expenses
[158] As I have already noted, the defendants are entitled to their reasonable legal expenses, both for setting aside the wrongfully obtained ex parte orders and for participating in this damages inquiry. The legal expenses claim, as a damages claim, is one that is being made by the defendants and not by their counsel. This means that there is no room for submissions by counsel for additional payments or “premiums” separate and apart from the legal expenses that were actually incurred. The focus is on billed and unbilled legal charges, whether already paid or still payable. Any costs awards paid by the plaintiff to date must, of course, be deducted from the final tally.
(1) Costs of setting aside the ex parte orders
[159] There is no dispute about the fact that the legal expenses incurred by the defendants in setting aside the ex parte orders are an appropriate head of damage in this inquiry. That the Yemec defendants would retain legal counsel and try to counter the misleading evidence presented by the plaintiff and set aside the wrongfully obtained court orders was reasonably foreseeable to the plaintiff. As noted in a recent Saskatchewan decision, “The breach of [the undertaking] would have naturally resulted in the need for legal assistance and the hiring and paying for lawyers.”[^61]
[160] The parties agree that the correct measure of damage is “reasonable full indemnity.” However, as I have already noted, the defendants can only be indemnified for the legal expenses that were incurred in setting aside the ex parte orders.[^62] Any other legal costs incurred by the defendants, whether in the American litigation, the Ontario action or in the enforcement of the American judgment in Ontario do not fall within the terms of the undertaking or the applicable case law.[^63]
[161] Reasonable full indemnity, as that phrase is commonly understood by lawyers and judges in Ontario, is almost always more than partial indemnity and in some cases it may even be more than substantial indemnity. The “reasonable full indemnity” standard means that there may be instances where substantial indemnity costs have already been awarded by the court on a particular motion or appeal, but a “topping up” may be needed to reach the full indemnity level. Here, however, defendants’ senior counsel routinely charged around $400 per hour, and never more than $500 per hour. Thus, in this case, any substantial indemnity award would de facto amount to full indemnity and no further topping up would be justified or required.[^64]
[162] The eligibility and quantum of the defendant’s claims for the reimbursement of legal expenses was a matter of considerable dispute and the subject of numerous written submissions. The defendants argued initially for a “full recovery” of all of their legal costs for the entire ten-year litigation. I asked them to provide a more focused submission that was more appropriately limited to the costs of setting aside the ex parte orders. The submissions that followed were not as helpful as they could have been. On the other hand, the plaintiff prepared a detailed analysis of all of the relevant motions, the costs awarded and the reasons for any reduction, the actual legal fees and disbursements incurred by the defendants’ counsel for each motion, and whether any topping up was now required. The plaintiff’s analysis was on balance reasonable and persuasive. It was not directly rebutted by any follow-up submissions from the defendants.
[163] Before turning to the parties’ submissions, one point must be emphasized. On several occasions, in the course of reviewing the defendants’ costs submissions on motions or appeals relating to the ex parte orders, judges of the Divisional Court or the Court of Appeal reduced the costs awarded by the motions judge because some of the cost claims were found to be “unreasonable” or “excessive.” In my view, I am obliged to accept these findings and the adjustments made by appellate judges. Where, for example, the Divisional Court awarded substantial indemnity costs on the defendants’ successful motion to set aside the ex parte orders, but reduced the motion judge’s award by 40 per cent, I must take the reduced amount as the adjudicated recalculation for purposes of deciding whether any topping up is required. And here, as it turns out, given the defendants’ counsel’s very reasonable billing rates, the substantial indemnity award is akin to full indemnity.
[164] Let me first deal with the legal expenses incurred in setting aside the ex parte orders, including all of the related appeals. The plaintiff says, in a nutshell, that all of the costs awards relating to the motion before Justice Gans have been paid, the defendants have been fully compensated (at a full indemnity level) and no further monies are owing. The plaintiff points to its detailed examination of the defendants’ counsel’s dockets, the hourly rates being charged at the time and the costs that were awarded by the Divisional Court, and argues that the appeal court ended up awarding $24,000 more than was actually incurred. In other words, says the plaintiff, the defendants have already been over-compensated for their full indemnity costs on the motion before Justice Gans to set aside the ex parte orders. The plaintiff’s detailed analysis was not refuted by the defendants. As already noted, I find the plaintiff’s analysis persuasive. No further damages will be awarded for the motion to set aside the orders.
[165] The plaintiff’s appeal of Justice Gans’ decision to the Divisional Court resulted in another costs award to the defendants, this time on a partial indemnity basis. The amount initially claimed was reduced by the appeal court because, here again, some of the claims were found to be “unreasonable” and “excessive”. The plaintiff concedes that the Divisional Court’s (reduced) partial indemnity award of $50,000 could be topped up. Given defendants’ counsel’s billing rates at the time, the plaintiff’s suggested increase to a substantial indemnity level (multiplying the partial indemnity award by 1.5) is not unreasonable. I find that a topping up of $25,000 is required (that is, $75,000 minus the $50,000 costs award that has already been paid.)
[166] The defendants also claimed compensation for unpaid legal bills owing to Goodmans, Thomas Kent and Marin Evans. I will deal with each of these in turn.
[167] First, the Goodmans account. I described the unpaid Goodmans account as follows in my 2009 decision:
The unpaid Goodmans account: Goodmans represented the defendants in the first month or so after the ex parte orders were first granted. The defendants were unable to pay the account and the law firm brought collection proceedings and obtained a default judgment. The defendants tried to recover this amount when they were before Justice Gans. However, Gans J. could not determine if the account was duplicative of the work done by the defendants’ current counsel and therefore suggested that the account should be assessed if only to deal with the duplication of services issue. The Goodmans account is for legal work done on the Mareva and Anton Piller orders. As already noted, these are costs that cannot be connected to the 2002 action. This is precisely the kind of legal expense that should be presented at the damages inquiry which, hopefully, will proceed within the year.[^65]
[168] I find that the Goodmans account in the amount of $52,560 should be paid by the plaintiff. In my view, it is reasonably foreseeable that a party may retain new counsel shortly after commencing a proceeding for any number of reasons. (I note that the plaintiff itself decided to change counsel in the early stages of this dispute, switching from BLG to Gowlings.) It is also foreseeable that when new counsel is retained, there will necessarily be some duplication of effort and thus some duplication in billing. The plaintiff, however, is correct to say that legal accounts that are statute-barred or otherwise uncollectible should not be included in the defendants’ claims for compensation – because no loss, at least on the part of the defendants, has been established.
[169] But a loss on the part of a third party has been established. If this damages inquiry had proceeded more expeditiously, i.e. within a year or so of the dissolution of the ex parte orders, the Goodmans’ account would have been approved for payment and the defendants would not have lost face or reputation. Should the outcome be any different because the damages inquiry, through no fault of the defendants or their third party legal advisors, did not proceed for some ten years? The legal expense claims may now be statute-barred as against the defendants, or, as was the case with Goodmans, may have resulted in a judgment that, without leave of the court, is uncollectible. But nonetheless, the account remains unpaid and the defendants, understandably, want to honour their obligations. In my view, this third-party account falls within the purview of this inquiry. In order to ensure that the compensation awarded on this claim goes to the party that actually sustained the monetary loss, I direct that the $52,560 be paid to the defendants “in trust” for Goodmans.
[170] The Thomas Kent account was also discussed in my 2009 decision:
The unpaid Thomas Kent account: The inadvertent release of privileged documents by Bennett Jones resulted in a motion by the plaintiffs before Justice Gans for recovery of the documents. The defendants opposed the motion and were represented by the law firm Shiner, Kent. Gans J. ordered the material returned and in his letter to counsel dated March 24, 2006 ordered that “the costs associated with the preparation and argument of the matter in respect of the documents over which privilege was ultimately claimed shall be paid to the defendant Yemec in the cause.” The defendants have provided a print-out of the Shiner, Binavince dockets but have not narrowed the costs claim to fit within the specific parameters set out by Justice Gans. It is also not clear whether Justice Gans’ “in the cause” reference relates only to the 2002 action or to the 2005 action. If the former, then it may be that some (small) costs award could now be made; if the latter, then it could not. I will need more input on each of these points from the defendants. Apart from the possibility of a modest costs award suggested herein (provided that appropriate support is submitted), the bulk of the Thomas Kent account, like the Goodmans’ account, is a matter that is best dealt with at the damages inquiry. [^66]
[171] Neither side was able to answer the question that was posed in my 2009 decision: whether Justice Gans’ “in the cause” order referred to the 2002 action (which was stayed for lack of standing) or the 2005 action (in which the plaintiff prevailed). Either interpretation is equally plausible. The most I can do is to split the difference, so to speak, and award one-half of the amount being claimed. I therefore find that half of the Thomas Kent claim (that is, $17,228) and half of the related Wires Jolley claim ($3788) will be allowed.
[172] I recognize that, strictly speaking, these claims do not fall within the “legal costs to set aside the ex parte orders” category. Rather the claims relate to legal expenses incurred when the plaintiff’s former lawyers, who were then with BLG and are now with Bennett Jones, made a mistake in returning the defendants’ seized documents after the ex parte orders were set aside and inadvertently included some of the plaintiff’s own and privileged documents. To deal with this mistake, defendants’ counsel retained Tom Kent of the Shiner Kent firm. But for the bad ex parte orders, the resulting seizure of the documents and their eventual return, these expenses would not have been incurred.
[173] These items could have been dealt with earlier when I considered the various losses that were caused by the ex parte orders, but because the items relate to legal expenses I decided to deal with them here. One-half of both the Thomas Kent claim and the Wires Jolley claim are allowed, to be paid to the defendants “in trust” for each of the two firms.
[174] The Marin Evans claim should also be paid but only in the amount of $10,000. I accept the plaintiff’s detailed assessment of the Marin Evans dockets and its submission that the Divisional Court’s costs award to the Bungaro defendants following Justice Gans’ decision exceeded the actual full indemnity amount as docketed by the law firm. As for the costs of the appeal itself, the plaintiff concedes that a topping up is in order. I agree with this concession. The Divisional Court reduced the initial request substantially, again for reasons of reasonableness and excess, and fixed costs at $20,000 on a partial indemnity basis. Given the actual hourly rates being charged by the Marin Evans firm at the time, the plaintiff’s suggestion for a re-calculation at the substantial indemnity level, given the billing rates, would result in a de facto full indemnity award. I find that a further topping up payment of $10,000 is justified ($20,000 times 1.5 equals $30,000, minus the $20,000 already paid).
[175] None of the other claims can succeed. No motion was ever brought alleging any conflict of interest on the part of plaintiff’s counsel and, in any event, any fees incurred in extracting documents from the Smith Lyons side of the newly merged Gowlings firm were not caused by the granting of the ex parte orders. The costs of the motion for leave to appeal Justice Gans’ decision to the Divisional Court were included in the Court’s overall costs award. The fees incurred by the defendants when my 2009 decision directing a damages inquiry was unsuccessfully appealed were fully covered by the Court of Appeal’s $100,000 costs award. The costs of the 2010 appeal to the Court of Appeal were neutralized by the Court’s decision that “success on the appeal was about equally divided” and that no costs should be awarded. The costs of the 2002 action which was stayed in 2009 cannot be recovered in this inquiry because they were not caused by the ex parte orders.
[176] In sum, I am satisfied on the evidence before me that the following damage claims have been established and the following payments for legal expenses are owing: $25,000 to the defendants; $52,560 to the defendants in trust for Goodmans; $17,228 to the defendants in trust for Thomas Kent; $3788 to the defendants in trust for Wires Jolley; and $10,000 to the defendants in trust for Marin Evans. The total award under this sub-head of damages is $108,576.
(2) Costs of the damages inquiry
[177] The defendants claim approximately $848,000 for the damages inquiry. This is not a surprising amount. The inquiry stretched over 15 court days with numerous follow-up written submissions. The defendants’ in-court legal team consisted of two people, a senior and junior counsel. The plaintiff’s in-court legal team included three counsel and two articling students. Given the size of the plaintiff’s legal team, the extent of their written and oral presentations, and the high billing rates of the large Toronto law firms, I am certain that the legal bills rendered to the plaintiff by their Canadian counsel for the inquiry were several times larger than the $848,000 being claimed by the defendants. In any event, there is no suggestion that the $848.000 amount being claimed by the defendants is in any way unreasonable.
[178] The plaintiff’s primary objection to this claim is based on the fact that it “won” the damages inquiry. That is, when one considers that the defendants initially claimed more than $100 million in damages and were awarded less than $1 million, it follows, argues the plaintiff, that no costs should be awarded to the defendants for their participation in this inquiry. As in a civil trial, says the plaintiff, the costs awarded should reflect the success achieved. And here, where the success achieved is almost negligible compared to what was claimed, the costs award should follow suit. Indeed, the plaintiff suggests that if anything the defendants should pay the plaintiff’s costs.
[179] I agree that claimants on a Rule 40.03 damages inquiry are not automatically entitled to recover all of their legal expenses even when, as here, they are claimed as damages and not as “legal costs.” However, several points bear repeating, particularly about the role of the court in the context of this kind of damages inquiry. The undertaking at issue is given by the plaintiff to the court, not to the defendants. The court exacts the undertaking for the defendants’ benefit. Where a wrongfully granted injunction is set aside, an inquiry as to damages will “ordinarily” be granted “in any case where it appears that loss may have been caused as a result.” [^67] It is the court that decides whether an inquiry is needed.
[180] In my 2009 decision, I believed, based on my review of the evidence at the time, that the individual defendants had sustained extensive financial losses and health-related consequences that could be traced to the execution of the two ex parte orders and I concluded that an inquiry was warranted:
In sum, the evidence before the court – substantial in scope and largely uncontroverted – shows that the individual defendants have sustained extensive financial losses and health-related consequences that can be traced to the execution of the two ex parte orders in 2002. Whether or not these losses are recoverable in law is, of course, another matter.
As I have already noted, it remains to be seen whether any of the defendants’ damages claims are recoverable under the principles of contract law. However, it is only right that the defendants be given the opportunity to prove their claims at a damages inquiry.[^68]
[181] My decision directing an inquiry was affirmed on appeal. The Court of Appeal voiced legitimate concerns about illegality and about the amount of compensation that may actually be awarded but agreed that the inquiry should nonetheless proceed:
It will be up to the damages inquiry judge to determine, considering this and other evidence of illegality, whether the defendants have sustained any compensable damages, taking into account the principles of causation, remoteness, foreseeability and mitigation, and the general rule of public policy that precludes a person from benefitting from his or her own crime …
Taking into account those principles, it may be difficult for the defendants to prove that they have suffered compensable damages. Nonetheless, I am not satisfied that their entire damages claim is plainly unsustainable such that they should be denied the opportunity to present their evidence and make full argument.
In conclusion, while evidence of illegality is an important consideration in determining whether to order a damages inquiry, I agree with the motion judge that, taking into account the circumstances of this case, there should be an assessment of damages to determine what, if any, compensable damages the defendants have sustained as a result of the wrongfully obtained orders.[^69]
[182] Note the point made in the last sentence – that there should be an assessment of damages to determine what, if any, compensable damages the defendants have sustained as a result of the wrongfully obtained orders. Before this inquiry began, it is fair to say that both trial-level judges and appeal court judges agreed on at least two points: one, that the defendants’ business was shut down by the wrongfully obtained ex parte orders, and two, that a damages inquiry was needed to determine what if any compensable damages were sustained. Given that the undertaking was exacted by the court for the benefit of the defendants, that the damages inquiry was directed by the court, that trial and appeal-level judges believed that the defendants were correct in thinking that the shut-down of their business was indeed caused by the ex parte orders and agreed that an inquiry was needed to determine if any losses were caused by the October, 2002 orders, is it now fair or reasonable for this court to require the defendants to pay their own legal costs because most of their claims did not succeed? Should the answer not depend on whether any of the unsuccessful claims were inherently or obviously unreasonable and thus ‘wasted’ inquiry time?[^70]
[183] Consider also the following. The defendants’ claim for the legal expenses incurred in the inquiry is being advanced as a foreseeable head of damages.[^71] I have accepted this remedial avenue because it was plainly foreseeable to the plaintiff that if the ex parte injunctions were set aside, it would be liable on its undertaking to pay damages; and, if the parties could not agree to otherwise settle the matter, an inquiry would be ordered by the court. In my view, the damages inquiry is simply the last stage of the judicial process to enforce the damages undertaking for the benefit of the defendants[^72] and it is reasonable and foreseeable that the costs of this inquiry, provided they were reasonably incurred, be absorbed by the party who initially set the process in motion with the wrongfully obtained court orders.[^73]
[184] The question to ask is whether the costs incurred related to reasonable claims. I agree with the plaintiff that unreasonable legal costs (i.e. the costs relating to unreasonable claims) cannot be said to be foreseeable. The question then is whether any of the claims made by the defendants were inherently or obviously unreasonable, and if so, how much of the inquiry was “wasted” on these unreasonable components?
[185] The core of the inquiry, as I have already noted, was concerned with causation and illegality. Given the nature of the undertaking as just discussed and, in particular, the lower and appellate court’s apparent endorsement of the defendants’ belief that their losses were caused by the ex parte orders, I cannot in good conscience find that the core claims in this inquiry were inherently or obviously unreasonable. Most of the inquiry was devoted to these two key issues, causation and illegality. None of this time was wasted on unreasonable claims.
[186] However, some of the claims advanced by the defendants were untenable and, in my view, unreasonable from the outset. There are two in particular: one, the claims relating to unpaid income taxes, credit card bills or other charges that clearly pre-dated the ex parte orders and could not be attributed to the court orders; and two, the obviously exaggerated quantums, particularly in the business loss categories where in aggregate the claims exceeded $100 million. There was no reasonable basis for these exaggerated amounts and this was obvious from the outset. Thus, as I have already noted, if unreasonable claims are not reasonably foreseeable, the damages awarded must reflect this proposition.
[187] In my view, about 10 to 15 percent of the inquiry was devoted to obviously unreasonable claims, that is, on claims that pre-dated the ex parte orders. Little if any time was spent dealing with or refuting unreasonable quantums such as the $100 million business loss amount. The plaintiff’s primary focus was on the type of claim itself and its threshold eligibility (i.e. the loss was not caused by the ex parte orders) not the quantum being (unreasonably) alleged. I can recall only one instance where the plaintiff accepted the category of the claim but tried to reduce the quantum, namely the category just discussed, the legal expenses incurred in setting aside the ex parte orders. Every other claim was rejected from the outset on the basis of causation. In my analysis of the various claims as set out in the first part of these reasons, I rarely if ever mentioned quantum because the amounts, and particularly the obviously exaggerated amounts, were not the focus of attention.
[188] Therefore my best estimate is that only about 10 to 15 percent of the inquiry was taken up with testimony exploring and rebutting obviously unreasonable claims.
[189] One must also note that the overall length of the inquiry can be attributed, in large part, to plaintiff’s counsels’ desire not to leave any stone unturned. Even in the face of signals from the court that certain claims were clearly untenable - for example, those that pre-dated the ex parte orders - counsel for the plaintiff pressed on to prove the obvious, adding hours to the proceeding. Also, in the face of signals from the court that some of the proposed experts would not be helpful (such as the banking expert) or would provide self-evident and obvious testimony (such as the publishing expert), counsel pressed on, again adding hours to the inquiry.
[190] Counsel for the plaintiff presented European legal experts on the legality of selling or reselling European lottery tickets in their respective jurisdictions even though it was apparent by this point in the inquiry that the business model at issue was not direct sales but agency or “messenger” services. Ironically, although the legal experts agreed about the illegality of the former, they could not agree about the illegality of the latter and, in the end, were completely unhelpful. My point is simply this: whatever time was spent dealing with the defendants’ arguably unreasonable claims was more than exceeded by the time and effort devoted by the plaintiff, through its counsel, to unnecessary analysis, amounting on occasion to evidential overkill.
[191] In sum, for the reasons given, this is not a case where the damages awarded for legal expenses to the defendants (for participating in the inquiry) should be drastically reduced, or as the plaintiff urges denied altogether, because the final award is only a fraction of the amount that was claimed. On a damages claim, the operative criterion is reasonable foreseeability. I find that a 10 to 15 percent reduction is justified on grounds of foreseeability and on the basis that plainly unreasonable claims are not foreseeable and cannot fall within the scope of a damages award.
[192] Turning then to the damages award. The defendants claim $848,423. The plaintiff says, based on its review of defendants’ counsel’s dockets and disbursements, that the legal expenses incurred by the defendants participating in this inquiry amount to $641,737. I agree with the plaintiff that the legal costs incurred on the 2012 recusal motion do not fall within the parameters of this inquiry because the issues in that motion related to my 2012 Atlantic Lottery decision[^74] and cannot be attributed to the 2002 ex parte orders. However, I do not agree with the plaintiff’s review of the defendants’ counsel’s dockets. In my view, the defendants are entitled to claim for all of the time that their counsel devoted to damages questions in preparation for the damages inquiry. By my calculation, at least a further $50,000 should be awarded for time spent before the June 12, 2011 date that was selected by the plaintiff. I would therefore increase the plaintiff’s suggested amount of $641,737 to $700,000. Here again there was no suggestion that this recalibrated amount is in any way unreasonable.
[193] Based on the discussion above, I reduce the $700,000 amount by 15 percent (erring on the high side) for a final award of $595,000 in damages for the legal costs of the inquiry.
VII. Conclusion
[194] After more than ten years of difficult litigation, the end is now in sight. The damages inquiry that should have been held immediately after the wrongfully obtained ex parte orders were set aside, or at least in 2005 when Justice Gans’ decision was affirmed on appeal, has now been concluded. The defendants’ (and judges’) belief that all or almost all of the losses sustained were caused by the ex parte orders has been proven wrong. It was the American TRO, issued just two days before the Mareva and Anton Piller orders, that shut down the defendants’ sales market and caused almost all of the damage.
[195] Mr. Yemec, a talented and experienced lottery entrepreneur, could have transitioned into European sales using the agency or messenger-service business model that was not precluded by Justice Fairgrieve’s 1998 decision and was obviously and successfully being used by other lottery service companies, including one based in Vancouver. But if Mr. Yemec was actually and contemporaneously planning to pursue this European sales opportunity, this was not made clear in the evidence. Indeed I found little to no evidence supporting this proposition and I therefore had to deny what could have been a significant claim for the loss of a viable and probably legal business opportunity.
[196] The most that the defendants were able to establish on the evidence presented is about $251,000 in actual damages and a further $703,576 in foreseeable legal costs. Nonetheless, as I have already explained, the damages inquiry was justified and (most of) the time taken for the inquiry was well spent.
VIII. Damages award
[197] I find on the evidence before me that the following damage claims have been established and are therefore awarded as follows:
➢ To Mr. Yemec for loss of reasonable transition time $250,000;
➢ To Mr. Bunting for the seizure of his cell-phone $1000;
➢ To the defendants in trust for Goodmans $52,560;
➢ To the defendants in trust for Thomas Kent $17,228, and in trust for Wires Jolley $3788;
➢ To the defendants in trust for Marin Evans $10,000;
➢ To the defendants as a topping up of the legal costs of setting aside the ex parte orders and the related appeals $25,000;
➢ To the defendants for the legal costs of this inquiry $595,000.
[198] The total amount of the damages awarded herein is therefore $954,576 plus interest due and owing to date.
[199] The calculation of the interest due and owing may require further adjudication. There may also be some errors in my calculations that should be corrected before final judgment is issued. I therefore intend to remain seized in order to deal with these or any other matters that may arise even after final judgment is issued or that require resolution as this litigation finally draws to a conclusion. Please let me know if I can be of assistance.
[200] My thanks to counsel on both sides for the quality of their advocacy and their overall courtesy and good humour in sometimes trying circumstances.
[201] Finally, a word to Mr. Yemec, Ms. Rapp, Ms. Bungaro and Mr. Bunting. Each of you conscientiously attended all or nearly all of the court sessions, no doubt hoping for a significant, and from your point of view, a deserving damages award. Unfortunately, such an award did not materialize. I hope you will accept my reasons for decision and put this long and difficult matter behind you. I wish you well in the years ahead.
Belobaba J.
Released: April 2, 2013
COURT FILE NO.: 02-CV-237070
DATE: 20130402
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
THE UNITED STATES OF AMERICA AND UNITED STATES FEDERAL TRADE COMMISSION
Respondents on the Damages Inquiry
- AND -
GEORGE MICHAEL YEMEC, ANITA FERN RAPP, JULIA F. BUNGARO, NELSON BUNTING, WORLD MEDIA BROKERS INC., 62454 ONTARIO LIMITED, 537721 ONTARIO INC., DIAL-A-MILLION INC., and TELEGROUP INC., O/A MARKET MONITOR
Claimants on the Damages Inquiry
REASONS FOR JUDGMENT
BELOBABA J.
Released: April 2, 2013
[^1]: The ex parte orders were granted on October 3, 2002 by Nordheimer J.
[^2]: The factual background was set out by Gans J. when he set aside the ex parte orders: USA v. Yemec, 2003 CanLII 23436 (ON SC), [2003] O.J. No. 3863 (S.C.J.) (“2003 Yemec Decision”); by me in more detail when I heard three motions, including the motion for a damages inquiry, in 2009: USA v. Yemec, 2009 CanLII 44418 (ON SC), [2009] O.J. No. 3546 (S.C.J.) (“2009 Yemec Decision”); and by the Court of Appeal in USA v. Yemec, 2010 ONCA 414, [2010] O.J. No. 2411 (“2010 Yemec Decision”).
[^3]: 2003 Yemec Decision per Gans J., supra, note 2 at para. 2.
[^4]: 2009 Yemec Decision per Belobaba J., supra, note 2 at paras. 108, 140. Also see the comments of the Court of Appeal in the 2010 Yemec Decision, supra, note 2 at para. 58: “Having obtained the ex parte orders, the U.S. raided the defendants’ Toronto premises, seized computers and more than 250 boxes of documents, and froze their bank accounts. The effect was to shut-down the defendants’ business virtually overnight.”
[^5]: Hoffmann-La Roche & Co. A.G. v. Secretary of State for Trade and Industry, [1975] A.C. 295 at 361.
[^6]: 2010 Yemec Decision, supra note 2 at para. 84, citing Nordstrom v. Baumann, 1961 CanLII 51 (SCC), [1962] S.C.R. 147 at 156 for the final proviso about illegality.
[^7]: Air Express Ltd. v. Ansett Transport Industries (Operations) Pty. Ltd., [1981] HCA 75.
[^8]: Sharpe, Injunctions and Specific Performance, loose-leaf (2012-Rel. 21) at 2-53; see also International Pediatric Products v. Lambert (1967), 1967 CanLII 568 (BC CA), 66 D.L.R. (2d) 157 (B.C.C.A.) at para. 9.
[^9]: European Bank Limited v. Robb Evans of Robb Evans & Associates, [2010] HCA 6 at para. 29.
[^10]: Douglass v. Bullen (1913), 1913 CanLII 461 (ON SC), 12 D.L.R. 652 (Ont. S.C.) at para. 18; Gault v. Murray (1892), 21 O.R. 458 at para. 18; Lambert, supra note 8 at para. 20; Village Gate Resorts Ltd. v. Moore (1999), 1999 CanLII 6249 (BC SC), 29 C.P.C. (4th) 118 (B.C.S.C.) at para. 9, aff’d 1999 BCCA 626; Air Express Ltd., supra note 7.
[^11]: See 2009 Yemec Decision, supra note 2, at paras. 80-98.
[^12]: The Dial-A-Million company had about $1714 in its bank account when the ex parte orders were executed. None of the other companies had any funds in their accounts. All of them were indebted. 624654 Ontario was substantially in arrears on its rent, owed more than $180,000 on its line of credit and more than $1 million in unpaid source deductions to the Canada Revenue Agency. 537721 Ontario Inc. (Canadian Express Club) owed tax arrears going back to 1997. World Media Brokers Inc. was indebted to the CRA for unpaid source deductions and was receiving dunning letters from collection agencies on another unpaid bill. Telegroup Inc. was indebted to the Ontario Ministry of Finance. Dial-A-Million Inc. owed money to the CRA for unpaid source deductions. All of these obligations pre-dated the ex parte orders, sometimes by several years. Any inability to pay down these debts, as will be explained below, was a consequence of the business shutdown and not the ex parte orders. In sum, even if separate claims had been made for the corporate defendants, they would not have succeeded.
[^13]: The plaintiff incorrectly argues that Mr. Yemec was not prevented from setting up new companies and that these would not fall within the scope of the Mareva. The court-ordered injunction made clear that the defendants were enjoined “from selling, mortgaging, pledging, transferring, assigning, diminishing or otherwise disposing of or dealing in any manner with any of their assets, wheresoever located including but not limited to the property and assets set out in Schedule B.” (emphasis added)
[^14]: United States of America v Yemec, (2005) 2005 CanLII 8709 (ON SCDC), 75 O.R. (3d) 52 (Div. Ct.)
[^15]: After the Lottery Store lost its Atlantic Lottery Corporation licence in July 2002, the defendants tried to find other ticket suppliers by contacting small convenience stores located in P.E.I and Ontario. I suspect that if the ex parte orders had not been granted, the defendants may well have extended the life of their lottery telemarketing business by another few months by continuing to sell into the U.S. market and would have done so until the American TRO was directly enforced in Ontario. But this scenario, if pursued, would not have been legal. It would have breached both the TRO and s. 206 of the Criminal Code, and thus cannot be used in my damages analysis, which can consider only the losses sustained by a lawfully operating business: see the 2010 Yemec Decision, supra note 2 at paras. 84, 86.
[^16]: R. v. World Media Brokers Inc. (1998), 1998 CanLII 27760 (ON CJ), 132 C.C.C. 3d 180 (Ont. Ct. J.).
[^17]: See 2009 Yemec Decision, supra note 2 at paras. 53-62.
[^18]: (2003), 2003 CanLII 42526 (ON CA), 174 C.C.C. (3d) 385 (C.A.).
[^19]: In its 2010 decision, supra note 2 at para. 79, the Court of Appeal also concluded that the 1998 conviction of World Media Brokers of violating s. 206 of the Criminal Code for selling Spanish lottery tickets to U.S. residents was “clear evidence of illegality” under Canadian law.
[^20]: In the World Media Brokers decision, supra note 16, at paras. 29-35, Judge Fairgrieve made clear that he was not deciding the “agency” or “agent for the purchaser” business model because on the facts before him, the issue did not arise. The same point was affirmed on appeal: supra note 18, at paras. 5, 9. It appears that a number of “lottery ticket service” companies based in both Canada and Europe are using the agency or “courier service” business model, thus avoiding the reach of the lottery laws that prohibit the direct sale or resale of lottery tickets. I will return to this point in the loss of business opportunities section.
[^21]: Sharpe, supra note 8 at 2-52, citing Robb Evans, supra note 9.
[^22]: Gee, Commercial Injunctions, (5th ed., 2004) at para. 11.017.
[^24]: Victoria Onion and Potato Growers Assoc. v. Finnigan, [1922] V.L.R. 819 at 822 (per Cussen J.). In Stonehocker v. King, 1998 CanLII 7187 (ON CA), [1998] O.J. No. 3924 at para. 29, the Court of Appeal noted that “rule 40.03 is but the codification of equitable practice…to be exercised within the bounds of discretion dictated by equitable principles.”
[^25]: The $100,000 cap for pain and suffering was imposed by the Supreme Court of Canada in 1978 in a “trilogy” of cases: Andrews v Grand &Toy Alberta Ltd., 1978 CanLII 1 (SCC), [1978] 2 S.C.R. 229, Arnold v Teno, 1978 CanLII 2 (SCC), [1978] 2 S.C.R. 287, and Thornton v Prince George School District No. 57, 1978 CanLII 12 (SCC), [1978] 2 S.C.R. 267.
[^26]: United States v. Yemec, [2005] O.J. No. 6275 (Sup. Ct.) (“2005 Yemec Decision”) at para. 15.
[^27]: Ibid. at para. 22, aff’d (2007), 2007 CanLII 65619 (ON SCDC), 85 O.R. (3d) 751 (Div. Ct.) at para. 32, although the quantum was reduced by 40 per cent.
[^28]: 642947 Ontario Ltd. v. Fleischer (2001), 2001 CanLII 8623 (ON CA), 56 O.R. (3d) 417 (C.A.) at para. 57.
[^29]: Universal Thermosensors Ltd. v. Hibben, [1992] 1 W.L.R. 840 (Ch. D.) at 858. Also see Gee, supra note 22, at para. 11.030: “the wording of the undertaking obliges the claimant to pay damages only in respect of losses suffered by reason of the order, and therefore is restricted to damages awarded to compensate the defendant.”
[^30]: Australian Law Reform Commission, Aggravated, Exemplary and Restitutionary Damages (Report No. 247) at para. 1.75.
[^31]: 2005 Yemec Decision, supra note 26, at paras. 21, 26. The award of costs on a substantial indemnity basis was affirmed by the Divisional Court but the quantum of the award was reduced: supra, note 27.
[^32]: Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30, [2006] 2 S.C.R. 3 at para. 51.
[^33]: Columbia Picture Industries v. Robinson, [1986] 3 All E.R. 338.
[^34]: 2010 Yemec Decision, supra, note 2.
[^35]: 2009 Yemec Decision, supra, note 2, at para. 156.
[^36]: 2010 Yemec Decision, supra, note 2, at paras. 33-34.
[^37]: Counsel for the plaintiff also points out that in 2005, aside from her RRSPs, Ms. Rapp declared a negative income. Therefore, she did not pay tax at a higher tax rate on her RRSPs than she would have at any other time.
[^38]: Counsel for the plaintiff points out that in March 2004, as a result of the sale of the Russell Hill Road home, Ms. Bungaro had $841,000 cash in her bank account. Less than a year later, by January 2005, the money was spent.
[^39]: Strictly speaking, I should have dealt with this claim under the next section, “Loss of Business Opportunities” but it was easier to deal with it here.
[^40]: Recall above, at para. 33.
[^41]: For example, he candidly admitted on cross-examination that he could no longer remember whether or not the $10,000 Visa deposit had been returned to him. Frankly, I found his candour to be quite disarming.
[^42]: Waddams, The Law of Contracts, 5th ed. (2005) at para. 728.
[^44]: Eastwalsh Homes Ltd. v. Anatal Development Ltd. (1993), 1993 CanLII 3431 (ON CA), 12 O.R. (3d) 675 (C.A.) at para. 42, leave to appeal refused [1993] S.C.C.A. No. 225; Domowicz v. Orsa Investments Ltd. (1993), 1993 CanLII 5472 (ON SC), 15 O.R. (3d) 661 (Gen. Div.) at para. 42; Ticketnet Corp. v. Air Canada (1997), 1997 CanLII 1471 (ON CA), 154 D.L.R. (4th) 271 (Ont. C.A.), leave to appeal refused [1998] S.C.C.A. No. 4; Pitch, Damages for Breach of Contract (1985) at 29-46. Also see Folland v. Reardon (2005), 2005 CanLII 1403 (ON CA), 74 O.R. (3d) 688 (C.A.) at paras. 73-74.
[^45]: Hollis v. Birch, 1995 CanLII 55 (SCC), [1995] 4 S.C.R. 634 at para. 33; Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., 2011 SCC 23, [2011] 2 S.C.R. 175 at para. 174; Masterpiece Inc. v. Alavida Lifestyles Inc., 2011 SCC 27, [2011] 2 S.C.R. 387 at para. 103.
[^46]: The Ontario company has a comma in its name: Cash & Prizes, Inc. There is no comma in the name of the New York company.
[^47]: In an affidavit sworn on December 3, 2002, Mr. Yemec described the impact of the ex parte orders, in part, as follows: “Other business interests have collapsed and it is difficult to start further businesses with others without financial resources.”
[^48]: That is, where the lottery services company agrees to purchase a lottery ticket on behalf of (as an agent or courier for) the purchaser. There is no actual sale or resale of the ticket by the lottery services company. See Judge Fairgrieve’s decision and the “agency” discussion in World Media Brokers, supra, note 16, at paras. 29-35.
[^49]: Supra, note 18, at para. 5.
[^50]: See generally Nardulli v. C-W Agencies Inc., 2012 BCSC 1686, [2012] B.C.J. No. 2363.
[^51]: For example, according to a newspaper report attached to one of Mr. Yemec’s affidavits, two lottery service providers were granted licences in 1995 in Gibraltar to sell lottery tickets into the E.U. And, in 2008, both a C-W Agencies company and the European Lottery Guild were licensed by the U.K. government to sell “lottery syndicate products” into the U,K,: see Nardulli, supra, note 50, at para. 41.
[^52]: See the decisions of the European Court of Justice interpreting the EC Treaty to apparently allow an untrammelled flow of trans-border services, including lottery services: HM Customs and Excise v. Schindler, C-275/02 (discussed in part in Nardulli, supra, note 50, at para. 38); Gambelli and Others Case, [2003] E.C.R. 1-13031.
[^53]: See supra, note 51.
[^54]: For the record, I would have awarded damages by using Mr. Yemec’s last three or four years of revenue as a guideline, that is no more than $5 million in sales per year. I would also have had to determine a reasonable “cut off” date, probably three years, and not the ten-year timeframe urged by the defendants. I would then have applied the admitted 6% net profit calculation to, say, $15 million of total sales (three years of harm times $5 million), and then discounted the 6% net profit tally by 50% for an award of $450,000. Thus, even if Mr. Yemec had prevailed, the damages that would have been awarded for losing the European sales opportunity would have been less than $500,000 and nowhere near the millions that were claimed.
[^55]: See Folland v. Reardon, supra note 44, at paras. 61, 82-84. Also see Beale, Chitty on Contracts (2012) at para. 26-069: “The [claimant] must prove on a balance of probabilities that he would have [acted in a certain way]… unless he can prove this, he fails to establish the causal link” (emphasis added).
[^56]: As Strathy J. noted in Loveless v. Ontario Lottery and Gaming Corp., [2011] O.J. No. 3783 at paras. 2 and 6-8: “Once illegal in Canada, lotteries have become big business for governments. Realizing that they could be a useful way of raising money without overt taxation, governments decided that lotteries were not such a bad thing after all, if they could be controlled by the state and if the profits flowed to the treasury. The "numbers game", formerly orchestrated by shady gangsters collecting slips and distributing cash in seedy neighbourhoods, is now played in thousands of convenience stores across the nation … Since the inception of the lottery in Ontario, more than ten billion tickets have been sold, yielding $53 billion in revenues … Ontarians are avid consumers of lottery products of all kinds. It has been estimated that over 60 per cent of Ontario adult residents are lottery players. About 25 per cent of adult Ontario residents play the lotteries weekly…Lottery games offered by OLG have varied over the years and include "on-line" games such as Lotto 6/49, Super 7 and Lotto Max (which are run across Canada on a national basis by the Interprovincial Lottery Corporation), provincial on-line games such as Lottario, sports betting games such as Pro-Line, and numerous instant ticket games.” Not to be outdone, the Atlantic Lottery Corporation recently announced another product line – betting on the winners of the Academy Awards. There seems to be no end in sight to the ever-growing supply of government lottery products. It is no wonder, then, that lottery-service providers have discovered a real demand for their services.
[^57]: 2003 Yemec Decision, supra, note 2 at paras. 16-17.
[^58]: Recall the discussion above at paras. 37 and 38.
[^59]: I determined that $100,000 a year was a fair and equitable quantum based on the following. First, I noted that Mr. Yemec earned between a half a million and $1 million a year - he said he took a base salary of about $250,000 and then added bonuses based on the year’s sales. I took his annual draw only as a guideline because analytically I had no basis for tying the amount that should be awarded for “loss of transition time” to his salary and I was satisfied that I had to award less than his after-tax take home pay. But I also had to award enough to reflect the fact that the loss of transition time was a significant and real harm. My best judgment, based on all of the evidence, was that $100,000 per year was the appropriate quantum – for a total over two and a half years of $250,000.
[^60]: Supra, note 5.
[^61]: Potash Corp. of Saskatchewan v. Barton, 2011 SKQB 477, [2011] S.J. No. 793, at para. 41, following the decision of the Ontario Court of Appeal in Stonehocker v. King, 1998 CanLII 7187 (ON CA), [1998] O.J. No. 3924 (C.A.) at paras. 29 and 41.
[^62]: In theory, full indemnity would be the proper measure because the object of this exercise is to make the defendants whole and compensate them for all reasonably foreseeable losses (including legal expenses) that were caused by the wrongful injunctions. I have added the word “reasonable” simply to protect the plaintiff against the (unlikely) possibility that the actual legal fees being charged are too high or the amount of time devoted to a particular legal task was clearly excessive and thus unreasonable.
[^63]: The defendants’ argument that they are entitled to recover their legal expenses for the entire litigation, however incurred, is utterly without merit.
[^64]: For example: A partial indemnity award, using the Rules Committee’s suggested grid (see Rule 57) would cap senior counsel fees at $350 per hour. A substantial indemnity award, defined in Rule 1.03(1), as “1.5 times” partial indemnity, would raise the awardable hourly rate to $525. If the lawyer’s actual hourly rate is more than $525 per hour, then the application of the “reasonable full indemnity” standard would mean that a topping up may be required. If, as here, senior counsel’s hourly billing rate was well under $500 no further topping up is needed.
[^65]: See my costs decision in Federal Trade Commission (United States) v Yemec et al, [2009] O.J. No. 4735 (Sup. Ct.) at para. 10(ii).
[^66]: Ibid., at para. 10(iii).
[^67]: Yukong Line Ltd. v. Rendsburg Investments, [2000] E.W.J. No. 6987 (Eng. C.A.), at paras. 32–33, discussed in the 2009 Yemec Decision, supra, note 2, at para. 143.
[^68]: 2009 Yemec Decision, supra, note 2, at paras. 108 and 141.
[^69]: 2010 Yemec Decision, supra, note 2, at paras. 84, 85 and 87.
[^70]: One should also recall what was said by the Court of Appeal in Nelson Burns & Co. v Granthan Industries Ltd., 1987 CanLII 9814 (ON CA), [1987] O.J. No. 1100 (C.A.) at para. 11: “In the ordinary course the unsuccessful plaintiff must understand that he is obliged to pay damages in accordance with his undertaking without quibble and courts generally will be unsympathetic towards those who seek to resile from such an obligation.” It would seem to follow from this that if you do resile from the obligation to pay damages, and force the other party to seek an inquiry, the reasonable costs of this inquiry must necessarily be paid by the “resiler”.
[^71]: I recognize that in the two cases cited by the plaintiff, the parties claimed post-inquiry costs not as foreseeable damages but as costs following the event, in the more conventional Rule 57 fashion: see Fleischer, supra, note 28, and Village Gate Resorts Ltd. v. Moore, 1999 CanLII 6249 (BC SC), [1999] B.C.J. No. 127, aff’d 1999 BCCA 626, 37 C.P.C. (4th) 5 (B.C.C.A.).
[^72]: Recall that the plaintiff agreed in its undertaking to abide by any order concerning damages that the court may make “if it ultimately appears” that the granting of the order has caused damage to the defendants. By agreeing to this language, the plaintiff understood that some kind of adjudication or inquiry may be needed to determine the damages question.
[^73]: As noted in Harris Scientific Products Ltd. v. Araujo, 2005 ABQB 603, [2005] A.J. No. 1107, at para. 150, where a Mareva or Anton Piller order goes wrong (or, I would add, should not have been granted in the first place) the defendants “should not be out one dime for the time, trouble and expense required to redress the situation.”
[^74]: Yemec and Rapp v. Atlantic Lottery Corporation, 2012 ONSC 4207, [2012] O.J. No. 3956.