SUPERIOR COURT OF JUSTICE – ONTARIO

St. Catharines Court File No.: 49278/07
Date: November 28, 2014

RE: The Hearing Clinic (Niagara Falls) Inc. (plaintiff/responding party) v. 866073 Ontario Limited, et al. (defendants/moving parties)

BEFORE: The Honourable Mr. Justice J.W. Quinn

COUNSEL:
Malte von Anrep, Q.C. and Civita M. Gauley,
for the plaintiff/responding party

Nicholas F. Ferguson and Harry Korosis,
for the defendants/moving parties

HEARD: November 21, 2014, at St. Catharines

ENDORSEMENT

Introduction

[1] Shortly after receiving a favourable trial judgment, the defendants brought a motion asking that a receiver be appointed for the plaintiff, owner of a hearing clinic in the City of Niagara Falls, Ontario. On behalf of the plaintiff, it is argued that this court is without jurisdiction to grant such relief because the plaintiff has delivered a notice of appeal in respect of the judgment. Reliance is placed upon Rule 63.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, which provides for a stay.

Background

the action

[2] The plaintiff sued the defendants over the purchase of the hearing clinic, alleging breach of contract, breach of fiduciary duty, fraudulent misrepresentation and negligence, seeking damages of $792,404.70, together with other unspecified damages. The core of the case was the allegation that the defendants, and their accountant, knowingly made fraudulent misrepresentations and withheld information such that the plaintiff overpaid for the hearing clinic. (One of an unlimited number of curiosities in the case is that the plaintiff never presented any evidence during the trial as to the value of the hearing clinic.)

the trial

[3] The trial lasted 72 days, spread over three years. It began in July of 2011. I released my decision on October 7, 2014: see Hearing Clinic (Niagara Falls) Inc. v. 866073 Ontario Limited, et al., 2014 ONSC 5831.

the judgment

[4] I allowed five specific claims for breach of contract and awarded damages of $423.20. Costs (both as to entitlement and amount) were to be the subject of written submissions.

[5] In my decision, I found that Stefan Fridriksson (“Fridriksson”), an audiologist, who runs the plaintiff/hearing clinic and who is its de facto owner and directing mind: knowingly gave false testimony; fabricated documentary evidence; and, in his evidence, guessed randomly and frequently. I also held that his wife, Carol Klassen (“Klassen”), the sole officer, director and shareholder of the plaintiff, was merely a puppet for Fridriksson, doing and saying his bidding.

motion by defendants to appoint a receiver

[6] By notice of motion dated October 16, 2004, the defendants sought an order appointing “a receiver, manager and provisional liquidator of the plaintiff,” on an interim and interlocutory basis until the costs of the trial are determined and on an interim interim basis until the motion can be fully heard. The motion materials include an undertaking as to damages, signed by the defendants.

[7] The affidavit evidence delivered on behalf of the moving parties is that of an associate lawyer with the firm representing the defendants. It indicates that the defendants have spent $1.35 million defending the action brought by the plaintiff and that there is a real risk that the assets of the plaintiff will be dissipated to avoid paying costs (in the responding affidavit, the “legal fees” of the plaintiff are said to total $839,772.72, which may or may not include disbursements).

[8] The affidavit in support of the motion sets out a table of figures tending to show that revenue from the plaintiff is being misappropriated to hearing clinics owned by Fridriksson in the City of St. Catharines and in the Town of Fort Erie, revealing a corresponding increase in the revenues of another company – the Stefan Fridriksson Audiologist Professional Corporation (hereinafter referred to as “the Fridriksson Professional Corporation”). The Fridriksson Professional Corporation operates the St. Catharines and Fort Erie hearing clinics. At trial, Karl Bowley, the accountant for the plaintiff, confirmed, in cross-examination, that “the same bookkeeping person is responsible for both companies.” He was questioned as follows:

Q. And that’s an internal function, basically, there’s one bookkeeper that is employed to do the books in both corporations?

A. Yes.

Q. And that bookkeeper reports to Mr. Fridriksson?

A. And Ms. Klassen, yes.

Q. And if directed to track sales or allocate sales from the Niagara Falls Clinic to [the Fridriksson Professional Corporation], you wouldn’t know if they’ve done that or not?

A. I would not know.

consent interim interim order

[9] The motion came before me on October 20, 2014, at which time I heard preliminary submissions. On October 24th, I signed a relatively comprehensive interim interim order, on consent (the “October 24th order”), by which the plaintiff, Fridriksson and Klassen agreed to produce, among other things, certain financial statements and profit and loss statements not only for the plaintiff but also for the Fridriksson Professional Corporation. Further, the plaintiff was to produce its appointment book and information as to its employees, and Klassen and Fridriksson were to prepare and provide sworn statements describing “the nature, value . . . and location of all of the plaintiff’s assets worldwide . . .”

[10] The October 24th order also stipulated that previous costs awarded against the plaintiff (following motions heard during the trial) totalling $42,482.61, “are now payable forthwith to the defendants” and that $30,000.00 then held in trust by the law firm representing the plaintiff be paid forthwith to the lawyers for the defendants.

[11] The October 24th order begins with the following warning:

NOTICE

If you, the plaintiff, or one of its servants, employees, agents, assigns, officers, directors, or anyone else acting on their behalf or in conjunction with any of them, disobey this Order, you may be held to be in contempt of court and may be imprisoned, fined or have your assets seized.

[12] The motion was adjourned without a date, to be returned at the pleasure of counsel.

motion returned for hearing

[13] In an unwarranted surge of optimism, I thought that the October 24th order might suffice until the issue of costs could be addressed. However, the defendants delivered a supplementary motion record on November 11, 2014 and the matter again came before me on November 21st.

[14] The supplementary material provided comparative figures for the plaintiff and for the Fridriksson Professional Corporation as follows:

The Hearing Clinic (Niagara Falls) Inc.

2007
2008
2009
2010
2011
2012
2013 (Dec 31)
2014 (June 30)
2014 (Nov 3)

Goodwill

963,017
963,017
963,017
963,017
963,017
963,017
963,017
963,017

Temporary Investments

0
294,000
294,000
294,000
294,000
294,000
294,000
0
0

Accounts Receivable

51,696
15,158
11,631
24,910
69,219
28,761
18,792
36,858
0

Inventory

1,653
3,060
2,362
3,084
2,586
8,392
6,168
6,168
0

All Other Assets

111,426
71,301
61,101
54,533
88,958
32,890
18,642
12,902
-17,942.13*

Total Liabilities

1,019,707
1,009,561
954,517
950,666
1,001,375
973,832
854,348
814,331.70

Current Liabilities

499,629
589,122
467,618
370,618
194,867
392,003
96,804
663,030.16

2007
2008
2009
2010
2011
2012
2013
2014 (9 Months)

Sales

930,687
879,676
853,880
730,035
778,251
628,711
664,508
479,729.31

Income before Other Items/Income from Operations

308,896
341,817
278,905
260,946
277,925
142,097
90,221

2007
2008
2009
2010
2011
2012
2013
2014 (9 Months)

Sales

747,532
1,043,922
1,180,722
1,298,958
1,262,723
1,079,641
1,069,679
899,136.96

Income before Other Items/
Income from Operations

41,951
160,922
194,459
355,555
334,165
178,897
220,183

The Fridriksson Professional Corporation

[15] The above figures are compiled from trial exhibits and documents attached as exhibits to the affidavits delivered on behalf of the defendants in support of the motion. It is argued that they are “highly suggestive of the complete dissipation of [the plaintiff’s] assets within the last two years” and that “the plaintiff is quickly spiralling into financial oblivion.” Accordingly, the defendants ask for “the appointment of an interim and interlocutory receiver to protect [the plaintiff’s] assets from [Fridriksson] and [Klassen].”

Discussion

[16] The motion is complicated by the fact that, on November 5, 2014, the plaintiff delivered a notice of appeal in respect of the trial judgment. Pursuant to rule 63.01(1) of the Rules of Civil Procedure, the delivery of a notice of appeal from a final order stays any provision therein “for the payment of money”:

63.01(1) The delivery of a notice of appeal from an interlocutory or final order stays, until the disposition of the appeal, any provision of the order for the payment of money, except a provision that awards support or enforces a support order.

An “order,” of course, includes a “judgment.”

[17] The cases relied upon by the parties, while providing helpful points to consider, do not precisely match the facts of this case. The plaintiff cites Bruno Appliance and Furniture, Inc. v. Cassels Brock & Blackwell LLP (2011), 2011 ONSC 1305, 17 C.P.C. (7th) 197 (Ont. S.C.J.), at paras. 40-47. The defendants point to: Longley v. Canada (Attorney General), 2007 ONCA 149, [2007] O.J. No. 929 (C.A.), at para. 11; the dissent of Laskin J.A. in Dickie v. Dickie (2006), 2006 576 (ON CA), 78 O.R. (3d) 1 (C.A.), at para. 104, which dissent was affirmed at 2007 SCC 8, [2007] 1 S.C.R. 346; Carmen Alfano Family Trust (Trustee of) v. Piersanti, 2012 ONCA 612, at paras. 15 and 16; Sottomayer Bank Canada Inc. v. 929348 Ontario Inc. (1995), 57 A.C.W.S. (3d) 343 (Ont. Ct. Gen Div.) [Div. Ct], at para. 5.

[18] Rule 63.01(1) is concerned with staying the enforcement of a money judgment, that is to say, an order for the payment of money. The stay also applies to enforcing an order for costs: see rule 63.03(3).

[19] The motion brought by the defendants involves neither enforcement nor an order for the payment of money. It deals with the preservation of an asset: the plaintiff/hearing clinic. The entitlement of the defendants to money (in the form of costs) is yet to be argued, decided and quantified (although it is virtually certain that the defendants will be awarded a significant sum for costs).

[20] The notice of motion refers to the appointment of “a receiver, manager and provisional liquidator of the plaintiff.” However, the defendants now seek only the appointment of a receiver to fulfill a preservative role (perhaps to distance themselves from any suggestion that they are engaged in enforcement or quasi-enforcement). The order sought, appointing a receiver, is intended to preserve the plaintiff as a going concern until the issue of trial costs is determined. I do not consider such an order to be in aid of execution or a restraint upon the plaintiff.

[21] Section 101(1) of the Courts of Justice Act, R.S.O. 1990, Chap. C.43, provides that a judge of the Superior Court of Justice may order the appointment of a receiver where it is “just or convenient to do so”:

101(1) In the Superior Court of Justice, an interlocutory injunction or mandatory order may be granted or a receiver or a receiver and manager may be appointed by an interlocutory order, where it appears to a judge of the court to be just or convenient to do so.

(2) An order under subsection (1) may include such terms as are considered just.

However, we do not get to the point of considering whether the appointment of a receiver is “just or convenient” if a stay exists.

[22] Rule 41 deals with the appointment of a receiver. Such an appointment under s. 101 of the Courts of Justice Act “may be obtained on motion to a judge in a pending or intended proceeding”: see rule 41.02. “Proceeding” is defined in rule 1.03 to mean “an action or application.” The motion brought by the defendants is the correct vehicle for the relief sought, as long as the stay in rule 63.01(1) is inapplicable.

Conclusion

[23] In the circumstances, I find that the motion is not caught by rule 63.01(1) and, therefore, is not stayed by the mere delivery of the notice of appeal. This court has jurisdiction to entertain a motion to appoint a receiver to play a protective or preservative role pending the costs disposition to ensure that the plaintiff/hearing clinic is being operated properly and in accordance with its historical practice.

[24] The defendants are at liberty to return their receivership motion for a hearing on the merits as to whether the relief sought is “just or convenient” (which, in turn, will require a finding that the plaintiff, Fridriksson and Klassen are engaged in some sort of financial or accounting impropriety).

[25] Costs of this motion to date are reserved until that time.

The Honourable Mr. Justice J.W. Quinn

DATE: November 28, 2014

COURT FILE NO.: 49278/07
DATE: November 28, 2014

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: The Hearing Clinic (Niagara Falls) Inc. v. 866073 Ontario Limited, et al.

BEFORE: The Honourable Mr. Justice J.W. Quinn

COUNSEL: Malte von Anrep, Q.C. and Civita M. Gauley, for the plaintiff/responding party

Nicholas F. Ferguson and Harry Korosis, for the defendants/moving parties

ENDORSEMENT

J.W. Quinn J.

DATE: November 28, 2014