SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

Action No.: CV-11-9536-00CL

RE: RuggedCom Inc., Plaintiff v. Haeem Samuel Hyams, Mike Spasov, Josip Kozar, Steve Kozar, Nikolaus Walther Wolf and Sidney Lugassy, Defendants

Action No.: 07-CL-7327

RE: RuggedCom Inc., Plaintiff v. Korona Group Ltd. aka The Korona Group Ltd., The Korona Group Ltd., Korona Group Ltd., Steve Kozar, Josip Kozar and Mike Spasov, Defendants

AND BETWEEN:

Korona Group Ltd., aka The Korona Group Ltd., Plaintiff by Counterclaim v. RuggedCom Inc., Defendant to the Counterclaim

BEFORE: D. M. Brown J.

PRESENT: William A. Chalmers, for RuggedCom Inc.; Dean Peroff, for Josip Kozar and Steve Kozar; Helen Daley, for Korona Group Ltd. et al.; Susan Chapman, for Mike Spasov; Justin Jakubiak, for Sam Hyams; Sidney Lugassy, in person

ABSENT: Nikolaus Wolf

CASE CONFERENCE DATE: September 17, 2013, with subsequent correspondence dated September 19, 2013

case conference memorandum no. 1

I. Brevity is the hallmark of effective advocacy

[1] A case conference was held on September 17, 2013 in these proceedings, pursuant to the directions given in my endorsement of July 15, 2013. That endorsement required the parties to submit trial plans for the Korona action (07-CL-7327), a litigation plan for the 2011 action (11-CL-9536-00CL) and a less than 10 page brief from Mr. Chalmers explaining why I should not send counsel to obtain a trial date in the Korona action.

[2] The two month delay in releasing this memorandum was caused by the parties’ response to my July 15 directions for this case conference – they filed about 18 inches of materials. Much of the material filed by all parties was poorly organized, resulting in the expenditure of unnecessary time to locate exhibits and to figure out what had taken place in these proceedings; proceedings which only can be described as “procedural train wrecks”.

[3] I appreciate that counsel operate under their own constraints and pressures. But materials filed with the court on behalf of clients should be designed to assist the court in understanding, in a reasonably quick period of time, the problems or issues in a proceeding.

[4] When it comes to materials provided to a judge, volume rarely helps; brevity and concise analysis always do.

[5] Such an avalanche of paper must not occur again in this proceeding. Case management will only work where counsel exercise their professional skill to distill their clients’ disputes to their essence.

II. The 2007 RuggedCom v. Korona action

A. The nature of the dispute

[6] RuggedCom (OBCA) manufactures communication components for harsh environments. In recent years it became part of the Siemens family of companies. In earlier, start-up times in 2002 and 2003, several loan agreements were entered into by RuggedCom, as borrower, and a Korona company, as lender. Steve and Josip Kozar were behind the Korona companies. Some of the loan agreements purported to grant Korona conversion rights for RuggedCom shares. I confess to having difficulty following the line of thought expressed in the Amended Statement of Claim; the pleading’s length obfuscated the essence of the dispute, and the pleading contained more evidence than material facts. However, having read all pleadings, I conclude that, at its core, this action involves a dispute under which the Korona defendants claim they are entitled to the issuance of shares by RuggedCom under some of the agreements. The plaintiff denies any such right and claims the defendants acted to harm its economic interests.

[7] Based on the prayer for relief, RuggedCom seeks the following orders in respect of certain of the loan agreements:

(i) A declaration that (a) an October 24, 2002 loan agreement was cancelled effective July 25, 2003, (b) RuggedCom owes no obligations under it and (c) that none of the defendants enjoy any benefits under it;

(ii) A declaration that an Agreement Regarding Loan Agreement of March 23, 2003, styled by the plaintiff as the “Alleged Agreement”, among RuggedCom, Korona Turks and Mike Spasov was void ab initio and that no rights or obligations exist under the Alleged Agreement;

(iii) Claims of breach of fiduciary duty against Josip Kozar, as a former director of RuggedCom, including claims for damages for conduct which took place in 2002, 2003 and 2004. Some of the allegations concerned conflicts of interest, the plaintiff contending that the interests of Josip in the defendant companies caused him to breach duties to the plaintiff. The conduct pleaded included both the making of representations and the entering into material transactions. The plaintiff contended that it did not learn of these breaches until 2009, leading to one of several amendments to the statement of claim;

(iv) Although Steve Kozar was not a director of RuggedCom, the plaintiff claims against him breaches of fiduciary duties, as well as misrepresentations;

(v) Claims of conspiracy against Josip, Steve and the Korona companies. As put in the statement of claim: “the precise purpose or objects of the conspiracy is to use the confusion and ambiguity regarding the relationship of Josip and/or Steve and/or Korona (Ontario) and/or The Korona Group to the actual entity who contracted with, owes obligations to and has rights with respect to RuggedCom regarding the Key Documents that results from having a number of different entities with confusingly similar names to the advantages of Josip and/or Steve for business and tax planning reasons, to the detriment of RuggedCom”;

(vi) Mike Spasov appears to be named as a defendant as a necessary party because of the declaratory relief sought in respect of some agreements, although he is lumped in with a general claim against all defendants for damages for conspiracy at the end of the prayer for relief.

[8] The Korona defendants, including Steve and Josip Kozar, defended and counterclaimed. According to their pleading Steve and Josip used Korona Turks to provide angel financing in 2002 and 2003 to RuggedCom. The investments totaled $1.525 million. Part of the consideration for the first and third investments were stock options and warrants in RuggedCom. According to the defendants, as part of a financing with OPG Ventures Inc., the parties entered into the Alleged Agreement or related agreement. The defendants claim they are entitled to the issuance of common shares by RuggedCom pursuant to the Alleged Agreement, or a related agreement, or the monetary equivalent now that RuggedCom has been taken-over by Siemens.

B. Steps taken to date

[9] Mike Spasov was noted in default on February 21, 2008. Statements of Admitted Facts by the defendants were appended to the December 11, 2008 order of Cumming J.

[10] Affidavits of documents have been served (2008 – 2012). Several examinations for discovery have been conducted:

(i) May 4, 2010: Bruce Twa, Korona Group Ltd. (Turks);

(ii) May 5, 6 and 26, 2010: Josip Kozar, on his own behalf and on behalf of Korona (Ontario);

(iii) July 5 and 13, 2010: Steve Kozar, on his own behalf and The Korona Group; and,

(iv) December 18, 2012 and January 25, 2013: Marzio Pozzuoli on behalf of the plaintiff.

The Korona defendants provided their answers to undertakings in December, 2012.

C. The parties’ positions on future steps

C.1 The need for case management to avoid “train wreck” cases

[11] There have been 15 endorsements or orders of judges of this Court in this proceeding from December 20, 2007 through to July 15, 2013. I am troubled that given that number of attendances before several different judges, a case management order was not made earlier in this proceeding.

[12] In my view, if a civil or commercial case returns before this Court on an interlocutory basis more than, say, one or two times, it should be assigned to case management. A repeat appearance before a judge or master on an interlocutory issue, particularly ones involving pleadings, productions and discoveries, usually signals a lack of co-operation between counsel in moving the proceeding along to its intended destination – a final adjudication on the merits – and necessitates greater judicial intervention and supervision to prevent a procedural “train wreck”. Such “train wrecks” inevitably suck up a disproportionate amount of judicial motion hearing time with little overall benefit to the parties and therefore are prime candidates for more active judicial case management.

[13] Most of the attendances in this action dealt with pleadings and discovery issues. Although fault lay on both sides of the action, from my reading of the endorsements I formed the view that the Korona defendants have been resisting the timely prosecution of this action.

C.2 Discovery/production issues, including refusals

[14] In its case conference “motion record”, the plaintiff contended that the action was not ready for trial because it foresees the following additional steps:

(i) A refusals motion (674 refusals);

(ii) A motion regarding privilege claims asserted by the Korona defendants in connection with Wolf and Anthony Maddalena;

(iii) Further examinations of the Korona defendants on their undertakings (160) and any refusals ordered answered; and,

(iv) An examination for discovery of Spasov who was noted in default in 2008.

Directions regarding refusals

[15] At the case conference counsel for both sides indicated that they were prepared to deal with the refusals on the basis that the parties would refrain from bringing refusals motions, but on the clear understanding that by so doing they would not be faced at trial with the submission by an opposite party that their failure to move on refusals should work against them. Under this scenario, if, at trial, an issue arises about a question refused, then the trial judge can consider the matter. If the trial judge concludes that the refusal was proper, so be it. If the trial judge concludes that the refusal was improper, then an adverse inference would be drawn against the refusing party for failing to disclose material evidence. I direct that the issue of refusals be dealt with in this way.

Undertakings

[16] Evidently the defendants are awaiting receipt of answers to some of the undertakings given by RuggedCom on its examination for discovery.

[17] All parties must deliver answers to any of their outstanding undertakings no later than December 15, 2013.

Proposed further amendment of the statement of claim

[18] At the case conference the plaintiff presented a proposed Amended Amended Statement of Claim which it sought leave to issue. This would be the third version of its statement of claim. The current, 2009 version runs to some 43 pages; the plaintiff proposes to expand that to 54 pages and, as well, add two new defendants, Haeem Hyams and Nikolaus Wolf, both of whom are defendants in the 2011 action which I will shortly describe. From what I can see, the gist of the amended claim relates to “false” warrant and anti-dilution demands which took place in 2007; RuggedCom contends it did not discover those claims until September 12, 2011.

[19] In light of the directions I give below, I defer dealing with this issue.

Trial plan

[20] In my July 15 endorsement I directed the parties to file a trial plan (i) identifying and scheduling witnesses, (ii) estimating the length of the trial, (iii) estimating the number of documents for the trial, and (iv) proposing trial dates for the first quarter of 2014. The defendants’ materials disclose that plaintiff’s counsel sent a chart on August 9 identifying the witnesses the plaintiff intended to call and estimating five (5) days for the plaintiff’s case in chief. The plaintiff estimated seven (7) trial days would be required to cross-examine the defendants. No estimate was given for the number of documents to be adduced at trial.

[21] Counsel for the Korona group responded on August 16 proposing the trial of three issues, but offering no information about witnesses, length of trial, etc. Defendants’ counsel did not complete the trial plan chart sent by plaintiff’s counsel. I am quite troubled by that failure. The chart sent over by the plaintiff enabled defendants’ counsel to fill in what they proposed should happen at trial. It was an invitation to co-operate in preparing the case for trial, and “co-operation” is one of the 3Cs of the Commercial List which remain alive (but perhaps not all that well).

[22] On August 22 plaintiff’s counsel responded proposing a timetable for discoveries concerning its proposed amendments to the claim. On August 26 defendants’ counsel replied with a proposed timetable for a motion – Toronto counsel always rise to the opportunity of another motion – but the defendants made no further response to the plaintiff’s proposed trial plan. And then counsel continued back and forth about a motion timetable. So, while the plaintiff attempted to comply with the directions contained in my July 15 endorsement concerning a trial plan, the defendants ignored them. The defendants should have completed the chart and returned it to plaintiff’s counsel.

[23] What the Korona defendants did propose was that there should be a trial of three of the issues in the Korona Action: whether Korona is entitled to the issuance of shares in RuggedCom, or their monetary equivalent, as a result of (i) an alleged breach of a unanimous shareholders’ agreement, (ii) pursuant to the October 2002 Loan Agreeement or (iii) pursuant to the Alleged Agreement. RuggedCom opposed that course of action, no doubt because what the defendants were proposing was that the Court adjudicate their counterclaim and some of the related “negative” declaratory relief sought by RuggedCom, but not the plaintiff’s breach of fiduciary duty claim.

[24] Spasov agreed with the litigation plan proposed by the other defendants and opposed RuggedCom’s motion for leave to further amend its statement of claim.

[25] No party expressed an intention to call expert evidence at the trial.

III. The 2011 Expanded Action

[26] Its 2007 action bogged down in procedural wrangling, RuggedCom thought the time ripe to start yet another, related action. On January 7, 2011 it commenced what was styled as the Conspiracy Action. It discontinued that proceeding and on October 4, 2011 commenced the “Expanded Action” (CV-11-9536-00CL). In addition to suing three of the individual defendants in the Korona Action – Josip Kozar, Steve Kozar and Mike Spasov – RuggedCom now included as defendants Haeem Hyams, Nikolaus Wolf and Sidney Lugassy. Hyams and Wolf are the two individuals whom RuggedCom now seeks to add as new defendants to the Korona Action.

[27] This past April the defendants moved to strike out the third iteration of the statement of claim in the Expanded Action. I struck out the claim, but with leave to amend. However, further directions were required in my July 15, 2013 endorsement before RuggedCom finally filed a proper form of amended claim, although the Kozars maintain their objection to the substantive adequacy of the pleading.

[28] The Expanded Action sounds in conspiracy. It alleges that two former directors of RuggedCom, Hyams and Spasov, breached their fiduciary duties to the company by misusing confidential corporate information, including by providing it to other entities in legal actions involving RuggedCom, and also by making false claims of entitlements to shares in RuggedCom. Both allegations relate in part, but not entirely, to the Korona counter-claim for shares of Rugged Com. Some of the events pleaded in furtherance of the conspiracy took place in 2007 and 2008. As put by RuggedCom in its case conference “motion record”:

The conspiracy allegations in the Expanded Action can be grouped into two broad categories: (i) the allegations relating to the three central matters in issue in the Korona Action namely, the warrant claim, the account dip claim and the anti-dilution claim (the “Three Issues Allegations”); and (ii) the allegations involving the other court actions (the “Actions Allegations”). The former are inextricably connected to the other issues in the Korona action, the latter are not connected to the same degree.

Dare one ask why, if some of the allegations “are inextricably connected to the other issues in the Korona action”, they were not pleaded in the Korona action in the first place or in its amended statement of claim? The Courts of Justice Act stipulates that “as far as possible, multiplicity of legal proceedings shall be avoided”.

[29] Hyams, Spasov, Lugassy and Wolf have filed statements of defence. The Kozars have not. Not surprisingly, their preference is to bring a motion; this is Toronto-style litigation after all. At the July 15 case conference Josip and Steve Kozar presented a motion record seeking, for a second time, an order striking out the recently amended statement of claim as disclosing no reasonable cause of action. So, the action is two years old and the parties remain embraced in a fight over the propriety of initiating process.

[30] Evidently RuggedCom sent a letter to other counsel on August 9, 2013 proposing the next steps in this proceeding. Unfortunately the three inch thick “motion record” filed by the plaintiff failed to enclose any of the exhibits to Ms. Abbott’s initial September 13, 2013 affidavit, including that letter. (Yet, the supplementary affidavit sworn by her on the same day took great care to attach 32 pieces of correspondence which had passed amongst counsel between July 16 and September 11, 2013. I did not read any of the correspondence. Such bickering between counsel is of little assistance or interest to a judge. The essence of such disputes usually can be summarized in 25 words or less.) I eventually found the August 9 letter in a separate brief filed by the plaintiff on September 13, 2013.

[31] As summarized by Ms. Abbott, a legal secretary, the plaintiff proposes to take the Korona-action related Three Issues Allegations pleaded in the Expanded Action and adjudicate them in the Korona Action – a push-me-pull-you of bifurcation and consolidation? – allow the Korona action proceed to trial, and hold off on taking any further steps dealing with the Actions Allegations until after the Korona action trial. In other words, the plaintiff starts a second action, knowing full well that some of its allegations are inextricably linked with those in its first action, then proposes bifurcating the issues in its second claim so that those which should have been asserted in the first claim end up being adjudicated with the first claim.

[32] With all due respect, while such a procedural approach might be permissible in some world beyond the Looking Glass, it is not appropriate for civil litigation conducted under our Rules. If parties wish to engage in tactical gamesmanship, they should go out, hire an arbitrator and then “pay as you play” until their wallets are drained. But, parties cannot use the basically free public service offered by this Court as a playing field for tactical gamesmanship.

[33] On their part the Korona defendants propose that the Expanded Action be stayed pending the adjudication of the three issues they propose for trial in the Korona Action, and they filed a formal notice of motion to that effect at the September 17 case conference. The notice of motion appended about 150 pages of documents. No index was provided; a glaring omission by counsel. Flipping through the attachments, they consisted of 2011 and 2012 correspondence and dealings between counsel.

IV. Analysis and directions

[34] Frankly, these proceedings strikingly illustrate why the judiciary can no longer allow the party prosecution system of civil litigation to operate unchecked in this province. Greater judicial supervision over the civil litigation process is required to ensure the use of limited court resources in a way which achieves access to timely, cost-effective justice.

[35] By way of case management orders, first, based on my review of the pleadings, both actions contain common questions of fact and, in part, arise out of the same transactions or occurrences. I order that they either be heard at the same time or immediately one after the other; there will be further trial management under my direction to decide the final form of the trial. As a result, there is no need to schedule a consolidation motion, which has been the desire of RuggedCom for quite a while. In any event, given the parties’ track record to date, were consolidation ordered they would spend at least a year sorting out the consolidated pleadings. Formal consolidation is a “no go”.

[36] Second, this Court will only hear these commercial disputes between the parties once. No bifurcation or quasi-bifurcation will take place. The delays to date clearly demonstrate that bifurcation would only increase legal costs, not reduce them. So, all issues in dispute between the parties shall be heard at the same time or one after the other.

[37] Third, I do not plan to wade into the swamp of “next steps” proposed by the parties without some further key information. Rule 1.04(1.1) of the Rules of Civil Procedure stipulates that in applying the Rules:

[T]he court shall make orders and give directions that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding.

[38] What amount really is involved in these proceedings? Notwithstanding the 18 inches of materials filed for the case conference, I cannot tell with any degree of accuracy. There are bald pleadings of large amounts of general damages, but experience shows that such bald pleadings most often do not provide a reliable indication of the damages ultimately proved at trial. Now the plaintiff, in its August 14, 2013 Amended Amended Further Fresh as Amended Statement of Claim in the 2011 Expanded Action disclosed, for the first time, that the schedule of special damages attached to its claim recorded legal fees and disbursements incurred between July, 2006 and September, 2012 in the amount of approximately $1.049 million. It was not possible to discern from the pleading what circumstances caused those legal fees to be incurred.

[39] In sum, the parties have not disclosed, in any intelligible fashion, the real amount of their claims. Consequently, I cannot accurately assess the “amount involved” or the “importance” of the issues. It follows that I lack needed information to consider how to apply the principle of proportionality in formulating the case management orders and directions concerning the next steps in these proceedings.

[40] To ensure that I have the information necessary to exercise my case management powers in accordance with the Rule-stipulated principle of proportionality, I make the following order for directions:

(i) By December 20, 2013, all parties which or who are represented by counsel shall exchange and file to my attention through the Commercial List Office:

a. Item 1: A statement (not exceeding three (3) pages in length, including attachments) setting out the amount of damages claimed, or the value of the relief sought (e.g. in respect of the monetary equivalent of the shares), as well as a clear statement of how those amounts will be proved and calculated at trial and the pleaded claim to which they relate;

b. Item 2: One draft opening statement, not to exceed seven (7) pages in length, in which the party sets out its position on the issues in both proceedings;

c. Item 3: A bill of costs setting out the work performed to date in each action, calculated on a partial indemnity and a full indemnity basis;

d. Item 4: A bill of costs setting out the work the party anticipates remains to be performed to prepare the case for trial, as well as the work involved at trial, broken down by discrete step and, again, calculated on a partial indemnity and full indemnity basis; and,

e. Item 5: A statement or letter signed by counsel’s client(s) confirming that they have reviewed what the party will submit for Items 1, 2, 3 and 4.

Item 1 will enable me to ascertain the amounts involved in these proceedings. Item 2 will enable a more accurate assessment of the “complexity” of the issues in both proceedings, as well as their inter-relatedness for the purpose of shaping the form of the trial. Items 3 and 4 will allow me to get a handle on the costs incurred to date as well as forecast costs, thereby assisting in determining the proportionately of any further directions which I must give when bench-marked against the amounts involved in these proceedings and the complexity of the issues. Crafting orders so that they achieve the cost-effective adjudication of a dispute on its merits is a very important part of the application of the principle of proportionality;

(ii) Counsel for the defendants in the Korona action shall complete and file with the Court, no later than December 20, 2013, the trial plan chart sent to them by the plaintiff in early August;

(iii) Counsel shall then book a one-hour case conference before me for either the week of January 13 or 20, preferably for a time towards the end of the day;

(iv) Three days in advance of that case conference counsel shall exchange and file, to my attention, a statement on behalf of their client(s) stating the amount of additional costs (on a full indemnity basis) their client(s) consider as representing costs proportionate to the future steps required to secure the final adjudication of these two proceedings. That information will allow me to determine the parties’ “reasonable expectations” regarding the costs of this proceeding which, in turn, will inform my proportionality analysis; and,

(v) The parties shall bring to the case conference a representative of their client who is responsible for authorizing the expenditure of legal costs in these proceedings. At the case conference we will discuss the proportionality of the steps required to take these proceedings to trial, specifically the amount of court time (if any) which should be allocated to any further pre-trial motions in these proceedings.

[41] Since, left to their own devices, the parties have been unable to bring this dispute to trial over the past six years, it is my goal to conduct a concrete, “dollars and cents” proportionality discussion with counsel and their clients at the next case conference about what further costs (i.e. litigation steps involving the use of judicial time) should be incurred to take these cases to trial. The discussion shall not deal with any possible settlement of the case; the parties are free to engage in such discussions off-line at any time. Instead, I intend the discussion to focus on the proportionality of future legal costs and how much further judicial time, if any, should be allocated to pre-trial steps in these proceedings. Given the history of these proceedings, I see no other practical way to assist the parties in moving these cases forward to trial and meeting the fundamental principle expressed in Rule 1.04(1) of securing the fair, timely and cost-effective adjudication of these cases on their merits.

D. M. Brown J.

Date: November 23, 2013