ONTARIO

SUPERIOR COURT OF JUSTICE

CITATION: The Hearing Clinic (Niagara Falls) Inc. v. 866073 Ontario Limited, et al., 2015 ONSC 1177

ST. CATHARINES COURT FILE NO.: 49278/07

DATE: 2015/02/23

BETWEEN:

THE HEARING CLINIC (NIAGARA FALLS) INC.

Malte von Anrep, Q.C. and Civita M. Gauley, for the Plaintiff

Plaintiff

• and -

866073 ONTARIO LIMITED, TERRY LEWIS and DEE LEWIS

Nicholas F. Ferguson and Harry Korosis, for the Defendants

Defendants

HEARD: in writing January-February

2015, at St. Catharines

J.W. Quinn J.: ─

I. INTRODUCTION

[1] We have a marvellous legal system in Ontario. Anybody is permitted to walk into a courthouse and commence a civil law suit about anything. The court will patiently provide all of the time and services reasonably (and, sometimes, unreasonably) necessary. The matter may go on interminably (and, usually, does) but our accommodating nature does not abate; our patience persists; we listen, we sit and we listen some more. However, when the law suit ends, the idioms arrive: the chickens come home to roost;[1] the jig is up;[2] the second shoe is about to drop;[3]the cat is out of the bag;[4] the fat lady sings;[5] one sows what one reaps;[6] and, here, so aptly, the cacophonous wail in the background is that of a piper, warming up and waiting to be paid[7] – the sum of $1,316,535.16, to be precise.

[2] The costs of this action are now to be determined.

1. The purchase

[3] The plaintiff paid $1,000,000.00 to purchase the assets of a hearing clinic (“Niagara Falls Clinic”): $45,000.00 for the hard assets and $955,000.00 for goodwill.

2. The claim

[4] The plaintiff sued the defendants over the purchase (a transaction in which both sides were represented by lawyers and accountants at every step), alleging breach of contract, breach of fiduciary duty, fraudulent misrepresentation and negligence. It sought compensatory damages of $792,404.70, together with other, unspecified, damages for “egregious” conduct. After 72 days of trial, spread over three years, the plaintiff was successful only to the extent of having proved five minor breaches of contract, producing damages which I fixed at $423.20: see The Hearing Clinic (Niagara Falls) Inc. v. 866073 Ontario Limited, et al., 2014 ONSC 5831 (hereinafter referred to as the “Trial Reasons”).

3. The parties

[5] The plaintiff was incorporated for the purpose of purchasing the Niagara Falls Clinic. The sole officer, director and shareholder of the plaintiff is Carol Klassen (“Klassen”). She is the wife of Stefan Fridriksson (“Fridriksson”), an audiologist. Fridriksson is the de facto owner and directing mind of the plaintiff. He owns two other hearing clinics in the Niagara Region.

[6] The individual defendants, Terry Lewis and Dee Lewis, are husband and wife. They are the owners of the corporate defendant, the latter being the vendor in this matter. They also own two hearing clinics in Toronto. Terry Lewis is an audiologist.

[7] Two important witnesses were the accountants, Karl Bowley, for the plaintiff and Andy Gunarsons, for the defendants.

[8] Another prominent name in the trial was that of Donna Bradley, a former key employee of the Niagara Falls Clinic who was discovered to be soliciting its patients for her new employer, a competing hearing clinic.

4. The trial

[9] The trial, Fridriksson’s folly, featured the following:

(a) two significant amendments to the statement of claim, the first two months before the trial commenced and the second occurring mid-trial, with allegations raised of bad character, criminal wrongdoing, professional misconduct, quasi-criminal wrongdoing and breach of fiduciary duty, along with fraudulent misrepresentation and breach of contract;

(b) the addition of the defendants, Terry Lewis and Dee Lewis, in their personal capacities despite this being a commercial transaction between two corporations;

(c) the testimony of Fridriksson who was in the witness box for 26 days where he guessed, lied and exaggerated uncontrollably in a deliberate effort to mislead the court and who failed in his attempt to prove 11 fraudulent misrepresentations, despite the use of fabricated evidence, all with the intention, effectively, of perpetrating a fraud upon the court;[8]

(d) 19 allegations of breach of contract, of which five were proved with damages fixed at $423.20;

(e) the testimony of Klassen, who was found to be a mere puppet of Fridriksson and a willing supporter of the fraud he was attempting to perpetrate upon the court.

5. The costs

[10] The defendants seek full indemnity costs in the sum of $1,316,535.16 (inclusive of applicable taxes and more than $50,000.00 in disbursements).

6. The issues

[11] As was so with the trial, this costs hearing percolates with issues, the two central ones being these: Firstly, should the defendants receive all or a portion of their costs on a full indemnity basis? Secondly, should two non-parties, Fridriksson and Klassen, be jointly and severally liable with the plaintiff for any of the costs?

[12] The plaintiff is not seeking costs for the minuscule success it achieved and acknowledges that the defendants are entitled to their costs. However, the scale of those costs (full indemnity) is disputed as is the request by the defendants that the costs be awarded against Fridriksson and Klassen personally.

[13] In the end, I divided the action into three parts and fixed costs using all three available scales (partial, substantial and full indemnity) and I made Fridriksson and Klassen personally responsible for the full indemnity costs (jointly and severally with the plaintiff).

II. RULE 57.01(1)

[14] Rule 57.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, as amended, lists almost all of the factors that a court should consider when exercising its jurisdiction under s. 131 of the Courts of Justice Act, R.S.O. 1990, Chap. C.43, as amended:

57.01(1) In exercising its discretion under section 131 of the Courts of Justice Act to award costs, the court may consider, in addition to the result in the proceeding and any offer to settle or to contribute made in writing,

(0.a) the principle of indemnity, including, where applicable, the experience of the lawyer for the party entitled to the costs as well as the rates charged and the hours spent by that lawyer;

(0.b) the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed;

(a) the amount claimed and the amount recovered in the proceeding;

(b) the apportionment of liability;

(c) the complexity of the proceeding;

(d) the importance of the issues;

(e) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding;

(f) whether any step in the proceeding was,

(i) improper, vexatious or unnecessary, or

(ii) taken through negligence, mistake or excessive caution;

(g) a party’s denial of or refusal to admit anything that should have been admitted;

(h) whether it is appropriate to award any costs or more than one set of costs where a party,

(i) commenced separate proceedings for claims that should have been made in one proceeding, or

(ii) in defending a proceeding separated unnecessarily from another party in the same interest or defended by a different lawyer; and

(i) any other matter relevant to the question of costs.

[15] I will discuss the various factors in Rule 57.01(1), beginning with the two mentioned in the preamble to the Rule.

1. “. . . the result in the proceeding . . .”

[16] The first factor found in the preamble is “the result in the proceeding.”

[17] The plaintiff was unsuccessful in the action except to the extent of establishing five minor breaches of contract for which damages of $423.20 were awarded.

2. “. . . any offer to settle . . . made in writing . . .”

[18] The second factor in the preamble to Rule 57.01(1) refers to offers to settle. I will outline the offers in this case, along with a reference to the stage of the proceedings at which they were served:

2007

Jan.

A notice of action was issued claiming $200,000.00.

Feb.

A statement of claim was filed claiming $500,000.00.

2010

Nov.19

The defendants offered to settle by paying to the plaintiff the sum of $60,000.00, inclusive of costs.

Nov.22

The plaintiff offered to settle for a payment of $470,000.00 from the defendants, inclusive of costs.

2011

Apr.13

The defendants offered to settle by paying to the plaintiff the sum of $150,000, inclusive of costs.

May

The statement of claim was amended to allege fraudulent misrepresentations.

July

The trial commenced.

2012

May

Fridriksson completed his original evidence and was followed into the witness box by his wife and by their accountant, Karl Bowley.

July

In the middle of the testimony of Karl Bowley, the plaintiff moved for an amendment to the statement of claim alleging that the Comparative Year-Over-Year Summary, dated September 14, 2006 and prepared by Andy Gunarsons, was false and fraudulent. This led to new examinations for discovery, dueling reports between accountants and many days of additional testimony.

Sept.28

After the plaintiff had completed calling all of its witnesses, counsel for the plaintiff wrote to counsel for the defendants suggesting a settlement by which the defendants would pay to the plaintiff the sum of $53,531.01, with each party to bear their own costs.

Oct.12

Counsel for the defendants wrote to counsel for the plaintiff and proposed a settlement by which the plaintiff would pay to the defendants the sum of $500,000.00 (being their partial indemnity costs to that point).

[19] Rule 49.10(1) of the Rules of Civil Procedure addresses the costs consequences of failing to accept an offer to settle made by a plaintiff: [Underlining added]

49.10(1) Plaintiff’s offer – Where an offer to settle,

(a) is made by the plaintiff at least seven days before the commencement of the hearing;

(b) is not withdrawn and does not expire before the commencement of the hearing; and

(c) is not accepted by the defendant,

and the plaintiff obtains a judgment as favourable as or more favourable than the terms of the offer to settle, the plaintiff is entitled to partial indemnity costs to the date the offer to settle was served and substantial indemnity costs from that date, unless the court orders otherwise.

[20] Rule 49.10(2) deals with an offer to settle by a defendant: [Underlining added]

49.10(2) Defendant’s offer – Where an offer to settle,

(a) is made by a defendant at least seven days before the commencement of the hearing;

(b) is not withdrawn and does not expire before the commencement of the hearing; and

(c) is not accepted by the plaintiff,

and the plaintiff obtains a judgment as favourable as or less favourable than the terms of the offer to settle, the plaintiff is entitled to partial indemnity costs to the date the offer to settle was served and the defendant is entitled to partial indemnity costs from that date, unless the court orders otherwise.

[21] Only two of the offers in this case were outstanding when the trial commenced and, therefore, made in accordance with Rules 49.10(1) and (2): the offer of November 22, 2010 by the plaintiff and the offer of April 13, 2011 by the defendants. Of those, only the April 13th offer is relevant.

[22] I have never understood why, in a case where a defendant makes an offer higher than the recovery of the plaintiff, the defendant, in accordance with Rule 49.10(2), receives only partial indemnity costs from the date of the offer, whereas a plaintiff who makes an offer and obtains a judgment greater than the offer is entitled to substantial indemnity costs from the date of the offer, as seen in Rule 49.10(1). A provision for substantial indemnity costs in Rule 49.10(2) would be in keeping with the intent of Rule 49 to encourage settlements and avoid trials.

[23] As befits an area of the law (costs) with such a generous discretion available to the court, one can find a reported decision that says whatever you want it to say. Yet, Rule 49.10(2) has withstood all jurisprudential assaults and glancing blows and has remained worded as it was when introduced in 1985 (except for the substitution of “partial indemnity costs” for “party and party costs”) leading me to the conclusion that its drafters are serious about this phraseology and mean what they say.

[24] Although the presence of the words “unless the court orders otherwise” would entitle the court to award, for example, substantial indemnity costs to a defendant under Rule 49.10(2), this should only be done where: (1) the integrity and predictability in the application of the Rule is maintained; and, (2) there are factors present consistent with the historical availability of substantial indemnity costs. In other words, a court should not abuse the unless-otherwise-ordered discretion available in Rule 49.10(2).

[25] Perhaps I should add an obvious observation. It is unreasonable for the plaintiff (having been so modestly successful in the action) to receive partial indemnity costs prior to April 13, 2011, as is available in Rule 49.10(2). Indeed, the plaintiff does not ask for costs.

[26] Rule 49.13 of the Rules of Civil Procedure allows the court, despite Rule 49.10, when exercising its costs discretion, to “take into account any offer to settle made in writing, the date the offer was made and the terms of the offer.” Thus, in a proper case, an offer to settle that does not meet the requirements of Rule 49.10 will, nevertheless, activate the costs consequences therein described.

[27] There were two offers made after the trial commenced: September 28, 2012 by the plaintiff and October 12, 2012 by the defendants. The former is not relevant and the latter probably has been bettered by the defendants.

[28] In the end, none of the offers to settle is of much assistance to me as my decision regarding costs is based upon other considerations. The presence of so many issues and allegations at trial render blanket offers to settle unhelpful. My decision is issue-based.

[29] I will move on and discuss the other provisions in Rule 57.01(1).

3. “. . . experience . . . rates charged and the hours spent . . .”: Rule 57.01(1)(0.a)

[30] In the course of awarding costs to the defendants arising out of the mid-trial amendments to the statement of claim concerning what has been referred to as the CASLPO allegations (CASLPO being the College of Audiologists and Speech-Language Pathologists of Ontario), I stated, at 2012 ONSC 7067 paras. 32 and 33 (footnote omitted):

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

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

[31] The above continues to represent my views. Mr. Ferguson and Mr. Korosis conducted the defence of this action with great skill (and I had the best seat in the house from which to observe their efforts). The hourly rates that they have charged are relatively modest. The hours spent and docketed are wholly in keeping with the nature of the case.

[32] In fact, counsel for the plaintiff do not quarrel with the hourly rates of Mr. Ferguson, called to the bar in 1989 ($350.00 in 2011, $375.00 in 2012 and $400.00 in 2013) or those of Mr. Korosis, called to the bar in 2001 ($275.00 in 2011, $300.00 in 2012 and $325.00 in 2013) and agree that they are reasonable “for counsel of their respective experience.” However, the plaintiff points out that Mr. Ferguson, senior counsel for the defendants (but not lead counsel in the trial), attended every day of the trial “but did not examine or cross-examine any of the witnesses of the plaintiff or the defendants.” It is submitted that the functions performed by Mr. Ferguson, as a non-lead counsel, “should have been more appropriately performed by junior counsel at an hourly rate of not more than $170.00” and that the full indemnity bill of costs of the defendants should be reduced by $88,260.00 (substituting $170.00 as the hourly rate for Mr. Ferguson over the 72 days of trial time). In support, counsel for the plaintiff cite Paletta v. Paletta, [2003] O.J. No. 5197 (S.C.J.) at para. 7:

Some of the tasks performed by the senior counsel in this case were simple and otherwise of a routine nature such that clerical staff, or lawyers of less expertise than him, could have properly performed them. While a senior lawyer may perform such tasks, the costs awarded for them should be discounted, in part, from the rates s/he usually charges for his/her services.

[33] It is worth commenting that, in the course of making two mid-trial costs orders in favour of the defendants (for which full submissions were provided by both sides), counsel for the plaintiff did not complain that the presence of Mr. Ferguson rendered the defendants over-lawyered.

[34] Mr. Ferguson was not a mere note-taker. He was not performing the “simple” and “routine” tasks contemplated in Paletta v. Paletta. It was obvious to me that he had an intimate knowledge of the history and evidence of the case. He contributed significantly to all submissions made during the trial and played a major role in the success enjoyed by Mr. Korosis in cross-examining the witnesses for the plaintiff. His grasp of the documentary evidence was obvious and of great benefit to the defendants (and to the court). Although Mr. Ferguson did not question any witnesses, he was not a passive presence at the counsel table.[9]

4. “. . . unsuccessful party could reasonably expect to pay . . .”: Rule 57.01(1)(0.b)

[35] I have often viewed this factor as the least helpful one in a Rule 57.01(1) analysis. In Verge Insurance Brokers Ltd. v. Sherk, 2013 ONSC 7855 I stated, at paragraph 243, in respect of the costs for a lengthy motion:

[243] How helpful can it be to use, as a guide, the expectation of someone whose judgment is so flawed that he or she was unable to correctly gauge the outcome of the proceeding? Also, the level of expertise and industriousness among members of the litigation bar varies wildly. Who does the unsuccessful party have in mind when forming his or her expectation? And, is the expectation of the unsuccessful party to be determined when the motion is served? When it is argued? At some point in between? Here, I expect that no one could have anticipated, when the injunction motion was served, that it would unfold as it did. Yet, as the months passed, anyone paying attention would have known that the tab was escalating rapidly.

[36] Although my thinking remains the same, I now have found an exception. Prior to the within costs submissions, the defendants, fearing that Fridriksson and Klassen were stripping the plaintiff of its assets and value, brought a motion seeking the appointment of a receiver for the plaintiff (“receivership motion”) which was decided, in part, on November 28, 2014: see The Hearing Clinic (Niagara Falls) Inc. v. 866073 Ontario Limited, et al., 2014 ONSC 6917. In the receivership motion, co-counsel for the plaintiff delivered an affidavit stating that the legal fees of the plaintiff from 2011 to June 30, 2014, were $839,772.72. There is evidence before the court that the “solicitor-and-client costs” of the plaintiff before 2011 were $200,000.00 (the action was commenced in 2007). That would bring the costs of the plaintiff to $1,039,772.72, as of June 30, 2014. But, there were additional costs incurred after June 30th when both sides provided approximately 12 rounds of supplementary written submissions in response to questions that I forwarded to counsel. Thus, it may be the case that the costs of the plaintiff today are very, very close to those claimed by the defendants (and actually may exceed them if HST and disbursements are not included in the figure of $839,772.72).

[37] Apart from the foregoing, in this costs hearing, the plaintiff has filed a bill of costs in the sum of $945,838.52 (inclusive of taxes and disbursements) for the period from the commencement of the action to the conclusion of the trial. Ms. Gauley, junior counsel for the plaintiff, sat at the counsel table as a student when the trial began in 2011 and the bill of costs reflects her hourly rate then of $85.00. She was called in 2012 at which time her hourly rate became $170.00.

[38] If one were to substitute for Ms. Gauley a junior lawyer with, perhaps, five to seven years of experience, the confessed costs of the plaintiff would grow even closer to what is being claimed by the defendants. Furthermore, I agree with the submissions of counsel for the defendants that it took more labour to respond to the fabricated evidence of Fridriksson than it did to create the fabricated evidence. Therefore, one would expect the costs of the defendants to exceed those of the plaintiff.

[39] The plaintiff, the unsuccessful party in this case, could reasonably expect to pay costs in the amount that is being sought by the defendants. Those costs are not a surprise to the plaintiff.

5. “the amount claimed and the amount recovered . . .”: Rule 57.01(1)(a)

[40] The notice of action, issued on January 22, 2007, claimed $200,000.00 for breach of contract, negligence and breach of fiduciary duty. The statement of claim, dated February 21, 2007, sought $500,000.00 for breach of contract, negligence and breach of fiduciary duty.

[41] In May of 2011, two months before trial, the plaintiff amended its statement of claim to add allegations of fraudulent misrepresentation.

[42] During the trial, the plaintiff again amended its statement of claim to allege further fraudulent misrepresentations. The damages sought were increased to $750,000.00.

[43] I awarded judgment to the plaintiff in the sum of $423.20, representing damages for five minor contract breaches by the corporate defendant, which may be summarized as follows:

▪ failed to deliver a number of keys to the premises ($120.20);

▪ failed to maintain the customary level of inventory at the time of closing ($300.00);

▪ removed computer software discs required for the daily operation of the business ($1.00);

▪ failed to provide the QuickBooks accounting data file on the date of closing (1.00);

▪ refused to sign the joint agreement required by Canada Post to amicably resolve the “name confusion” issue ($1.00).

[44] The amount of the judgment brings into play Rule 57.05(1):

57.05 (1) Recovery within monetary jurisdiction of Small Claims Court – If a plaintiff recovers an amount within the monetary jurisdiction of the Small Claims Court, the court may order that the plaintiff shall not recover any costs.

[45] The monetary jurisdiction of the Small Claims Court was $10,000.00 when this action was commenced in 2007.

[46] On behalf of the defendants, it is submitted that, by analogy to Rule 76.13(6) (simplified procedure), where a plaintiff proceeds with an ordinary action but recovers an amount within the monetary limit of Rule 76, this court may require the plaintiff to pay to the defendants their costs associated with the five breach-of-contract issues. Rule 76.13(6) states:

76.13 (6) Plaintiff may be ordered to pay defendants costs – The plaintiff may, in the trial judges discretion, be ordered to pay all or part of the defendants costs, including substantial indemnity costs, in addition to any costs the plaintiff is required to pay under subrule 49.10(2) (defendants offer to settle).

[47] Had the drafters of the Rules of Civil Procedure desired to give similar authority to the court under Rule 57.05(1) as is available pursuant to Rule 76.13(6), they would have done so. Although time was expended in the evidence and in the written submissions concerning the five breach-of-contract issues, it must be remembered that the plaintiff successfully proved those breaches (and litigation is almost all about winning). I see my choices, therefore, as awarding the plaintiff costs on the Small Claims Court scale or awarding no costs. I think that fairness is best achieved by this court ordering no costs. Thus, the parties shall be responsible for their own costs related to the five breach-of-contract issues.

[48] I requested additional submissions from the defendants regarding the portion of the full indemnity costs allocated to the services associated with the five contract breaches and it amounts to $39,759.36.

6. “the apportionment of liability”: Rule 57.01(1)(b)

[49] The plaintiff alleged eleven instances of fraudulent misrepresentation and did not prove any of them. It unsuccessfully alleged negligence. It alleged numerous breaches of fiduciary duty, and I held that a fiduciary relationship did not even exist in this case. Also, the plaintiff contended that there were 19 breaches of contract and I found that five had been proven as against the corporate defendant (I make that distinction because all 19 breaches were unsuccessfully alleged as against the defendants, Terry Lewis and Dee Lewis).

[50] The success achieved by the plaintiff is statistically insignificant. There is no “apportionment of liability” to consider under Rule 57.01(1)(b) apart from carving out of the bill of costs of the defendants those costs associated with the five breaches of contract.

[51] Counsel for the plaintiff accurately point out that I made a number of adverse findings against the defendants:

(a) that the defendant, Dee Lewis, had “an inherent mistrust of everyone and everything”;[10]

(b) that the defendants and Andy Gunarsons “were aware Donna Bradley was soliciting patients of the Niagara Falls Clinic” prior to the sale to the plaintiff;[11]

(c) that Dee Lewis was “paranoid . . . aggressive, combative, condescending, elitist, pompous, arrogant, conceited, rude and stubborn”;[12]

(d) that the defendant, Terry Lewis, signed third party payor forms in blank for use at the Niagara Falls Clinic;[13]

(e) that the defendants sent “pending” invoices to WSIB for payment, which included invoices for services they had not performed;[14]

(f) that the defendants removed “an unascertained quantity of inventory” along with other items from the Niagara Falls Clinic;[15] and,

(g) that Dee Lewis was “vindictive and puerile.”[16]

[52] Based upon the above findings, it is submitted on behalf of the plaintiff that “the defendants have not proven themselves blameless victims in the proceedings . . .” True, but: (a), (c) and (g) are not actionable; the plaintiff did not prove any loss associated with (b); the plaintiff did not prove that (d) and (e) were improper; and (f) was one of the minor breaches of contract for which I fixed damages at $300.00.

[53] The findings in respect of Dee Lewis, at (a), (c) and (g) above, although harsh sounding at this late date, are not subjective suppositions on my part. They are unambiguously apparent on the face of the e-mails referenced in the Trial Reasons.[17]

7. “the complexity of the proceeding”: Rule 57.01(1)(c)

[54] Even a sleepy, one-eyed glance at my Trial Reasons should convince anyone that the trial was complex. The legal issues were numerous (I catalogued more than 30)[18] and they came in trial-prolonging waves, bringing with them further examinations for discovery, dueling experts’ reports and more testimony. The exhibits were voluminous and the written submissions unending (due, in part, to the many written questions that I forwarded to counsel over the course of almost one year following the completion of the trial).

[55] Complex? Yes.

8. “the importance of the issues”: Rule 57.01(1)(d)

[56] The issues were extremely important to the defendants (and to their accountant, Andy Gunarsons). The plaintiff made allegations of bad character, criminal wrongdoing, professional misconduct and quasi-criminal wrongdoing against the individual defendants and against Mr. Gunarsons.

[57] The allegations of fraudulent misrepresentation concerning Terry Lewis, an audiologist, amounted to allegations of punishable professional misconduct. Section 37 of Ontario Regulation 749/94, made under the Audiology and Speech-Language Pathology Act, 1991, defines “professional misconduct”:

37. Engaging in conduct or performing an act, relevant to the practice of the profession, that, having regard to all the circumstances, would reasonably be regarded by members as disgraceful, dishonourable or unprofessional.

[58] Allegations made by the plaintiff that the defendants falsified the Comparative Year-Over-Year Summary,[19] improperly billed the Workplace Safety and Insurance Board (“WSIB”) and other payors,[20] and breached the guidelines of CASLPO (again, the College of Audiologists and Speech-Language Pathologists of Ontario), By-Law No. 2011-8,[21] also, if proved, would have constituted professional misconduct.

[59] It merits mention that the allegations made by the plaintiff against Andy Gunarsons (lying, falsifying records and fraud) would have amounted to serious breaches of the Rules of Professional Conduct of the Chartered Professional Accountants of Ontario adopted under the authority of the Chartered Accountants Act, 2010, S.O. 2010, Chapter 6, Schedule C.

[60] I further point out that the allegations made by the plaintiff in respect of the WSIB would constitute provincial offences punishable by fine or imprisonment: see Workplace Safety and Insurance Act, 1997, S.O. 1997, c. 16, ss. 149 and 158. Some of the allegations regarding CASLPO would be breaches of ss. 27, 28, 30 and 31 of the Regulated Health Professions Act, 1991, S.O. 1991, c. 18 and subject to a fine or imprisonment: see ss. 40-42.

[61] Thus, the allegations of the plaintiff were extremely serious with enormous and career-ending ramifications for Terry Lewis and for Andy Gunarsons, the accountant representing the defendants. (It is only for completeness that I have mentioned the implications to Mr. Gunarsons of the allegations. He is not a party and the effect of the unproved allegations against him probably is not appropriately a consideration for an award of costs against the unsuccessful plaintiff. Yet, the allegations are relevant to an understanding of the lengths to which the plaintiff was prepared to go to make out a case against the defendants.)

[62] Important? Very.

9. “. . . conduct . . . that tended to . . . lengthen unnecessarily . . .”: Rule 57.01(1)(e)

[63] It would take much time and thought to imagine a clearer example of a litigant unnecessarily lengthening the duration of the proceeding, than the conduct of the plaintiff (through Fridriksson and Klassen). My Trial Reasons chronicle that conduct. It became an enormous undertaking for the defendants to respond to the catch-me-if-you-can approach of Fridriksson and to cross-reference his false and ever-changing story with the voluminous documentary evidence. Fraud and deception practiced upon the court will always unnecessarily prolong a proceeding.

[64] Counsel for the plaintiff submit that the 14-day cross-examination of Fridriksson “included many areas . . . which dealt with irrelevant issues” and should be excluded from the bill of costs of the defendants. Five areas were identified, three of which are covered in my Trial Reasons as identified in this excerpt from the table of contents, with the applicable paragraph references:

1. Is there a Doctor in the house? ........................................................ [31]

2. Gilding the academic lily .................................................................. [43]

3. Fridriksson plays Lieutenant Columbo with Inspector Clouseau results ..... [55]

I disagree that the five areas should be excluded. At the time of the cross-examination, those matters were relevant (or at least had a semblance of relevance) to the issue of Fridriksson’s credibility. The fact that, in the end, for appeal purposes, I cautiously relied upon other evidence (which existed in abundance) as being more material to the issue of credibility, does not mean that the cross-examination is open to criticism. Quite the contrary. It contributed to my understanding of Fridriksson and to the fabric of the case.

10. “whether any step . . . was improper, vexatious or unnecessary . . .”: Rule 57.01(f)

[65] According to the New Shorter Oxford English Dictionary, “improper” means: “incorrect, inaccurate, irregular, wrong, unsuitable, inappropriate, unbecoming, unseemly, indecorous.” The definition of “vexatious” is: “causing or tending to cause vexation, annoyance or distress; annoying, troublesome; of an action: instituted without sufficient grounds for winning purely to cause trouble or annoyance to the defendant.” And “unnecessary” means: “not necessary or requisite, needless; redundant; more than is necessary, excessive, not requiring much.”

[66] These terms have overlapping meanings. How can a proceeding be “vexatious” without being “improper”? What about “unnecessary” without being “improper”?

[67] I should think that “improper” involves an element of willfulness.

[68] Vexatious proceedings include proceedings which have been brought that cannot succeed: see Mascan Corp. v. French, 1988 CanLII 5747 (ON CA), 1988 CarswellOnt 1031 at paras. 15 and 16 (C.A.); and, proceedings which have been brought for the purpose of harassing the defendants: see Thornton v. Tittley, 1987 CarswellOnt. 482 at para. 3 (C.A.).

[69] “Vexatious” means “not having sufficient grounds for action and seeking to annoy the defendant . . . [and] must be determined by an objective standard”: see Law Society of Upper Canada v. Chavali, 1998 CarswellOnt 1581 at paras. 20 and 21; aff’d [1998] O.J. No. 5344 (C.A.).

[70] How did the plaintiff expect to succeed in its action? Answer: with lies, fabrication of evidence and improper allegations of fraud and other wrongdoing on the part of the defendants and their accountant. And, although the purchase and sale of the Niagara Falls Clinic was a commercial transaction between two corporations, the plaintiff dragged Terry Lewis and Dee Lewis into the action. There never was justification for such a reckless legal maneuver. It was improper and vexatious.

[71] I have reached the point where I believe that counsel for the defendants are correct in theorizing that, emboldened by the absence of Terry Lewis as a witness (explained at paragraphs [14]-[19] of the Trial Reasons), Fridriksson assumed that his lies, deceit and fraud would go undetected. If the court shared the high opinion that he had of himself, how could he lose? The truth was for him to invent. This makes the action improper and vexatious.

[72] The core of the case was the allegation that the plaintiff received a hearing clinic worth less than the purchase price, yet the plaintiff never adduced supporting evidence of the proper purchase price.[22] I suppose any action that attempts to prove the unprovable is unnecessary and improper and vexatious.

[73] The plaintiff, through Fridriksson and Klassen, attempted to use the courts to perpetrate a fraud and to extort damages from the defendants to remedy an imagined loss.[23] If such an abuse of the legal system is not an instance of vexatious conduct, it would be a challenge to suggest a better example.

[74] The plaintiff submits that merely because claims were unsuccessful does not make the action vexatious. I agree. But deliberately fabricating evidence and deliberately and repeatedly lying to and misleading the court are indicia of vexatious proceedings.

11. “a party’s denial of or refusal to admit anything . . .”: Rule 57..01(1)(g)

[75] Counsel for the defendants, in their written costs submissions, outline 45 facts that the plaintiff should have admitted but, instead, chose to vigorously and tirelessly litigate. I agree and I will mention a few of them:

(f) that the purchase price of the Niagara Falls Clinic was negotiated based upon a multiple of earnings;

(g) that a representation that the Niagara Falls Clinic had 5,000 patients, regular, active or otherwise, was never made to Fridriksson;

(h) that a representation that the Niagara Falls Clinic had 500 WSIB patients, regular, active or otherwise, was never made to Fridriksson;

(j) that a referral from an ENT specialist is different from the presence of an audiogram in a patient chart ‘generated’ by an ENT specialist;

(k) that the alleged representation about the frequency of attendance of an audiologist The Niagara Falls Clinic, if it ever occurred, was, in fact, true;

(n) that no promise, representation or misrepresentation was ever made that Fridriksson and Klassen would be allowed to complete due diligence, including access to the patient list, once a letter of intent was signed;

(s) that the Comparative Year-Over-Year Summary was substantially accurate, and certainly not fraudulently misrepresented;

(u) that there was no reliance on the non-delivery of financial statements for the Niagara Falls Clinic;

(w) that Fridriksson did not rely upon any of the alleged misrepresentations of the defendants in making his decision to purchase the Niagara Falls Clinic;

(x) that there were no damages resulting from any of the alleged fraudulent misrepresentations, presuming that Fridriksson had relied upon them, which he did not;

[76] Instead of admitting these and other facts, Fridriksson squandered days and days of trial time and forced counsel for the defendants to devote days and days of preparation time.

[77] On the other hand, counsel for the plaintiff submit that time was wasted by the refusal of the defendants to admit that they were aware Donna Bradley had a list of clinic patients and was soliciting their business. I dealt with this aspect of the case at paragraphs [1180] and [1181] of my Trial Reasons: [Footnotes omitted]

[1180] Although, in addition to Ginette Galati, there were other witnesses who testified on the issue of Donna Bradley and Linda Fraser using a patient list, I consider the e-mail to the Office of the Information and Privacy Commissioner to be convincing proof that: (1) Donna Bradley and Linda Fraser improperly possessed a list of at least some of the patients of the Niagara Falls Clinic; (2) Donna Bradley was soliciting the business of those patients, particularly at times when they were eligible for new hearing aids; and (3) Terry Lewis and Dee Lewis were aware of (1) and (2) as of September 6, 2006, if not sooner.

[1181] The defendants had a duty to disclose to the plaintiff the extent of their knowledge and belief as to the use of a patient list by Donna Bradley. Ms. Bradley was a key employee of the Niagara Falls Clinic. Her departure was the subject of discussion amongst those involved in the purchase and sale negotiations and it also was a point of concern to Fridriksson. In those circumstances, a duty arose requiring the defendants to provide full disclosure to the plaintiff.

[78] The important point here is not whether the defendants refused to admit that Donna Bradley had a patient list and was soliciting the patients of the Niagara Falls Clinic (the defendants made this admission by providing a copy of the e-mail from Terry Lewis to the Privacy Commissioner of September 6, 2006). Instead, it is whether Terry Lewis and Andy Gunarsons knowingly made false statements to Fridriksson over the telephone on the matter (and they did not) and whether Fridriksson relied on the alleged statements, suffering damages as a result (and he did not). Both of those allegations were pressed by Fridriksson and resisted by the defendants.

12. “. . . separate proceedings . . .”: Rule 57.01(1)(h)

[79] Rule 57.01(1)(h) is not applicable in the circumstances of this case.

13. “any other matter relevant to the question of costs”: Rule 57.01(1)(i)

[80] May I suggest, perhaps facetiously, perhaps not, that the costs expectations of the trial judge are a relevant matter to consider. In my Trial Reasons, at paragraph [1496], when the trial still was pungently fresh in my nostrils, I stated: “. . . I would not be surprised to learn that solicitor-and-client costs exceed $1 million for each side.” I was close, but low for both sides.

III. THE SCALE OF COSTS

[81] The defendants seek full indemnity costs throughout. On behalf of the plaintiff, it is acknowledged that the defendants should receive their costs, but not on that scale.

1. Wide authority and generous discretion

[82] Nothing in Rules 57.02-57.07 of the Rules of Civil Procedure affects the authority of the court, under s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43, “to award all or part of the costs on a substantial indemnity basis” or “to award costs in an amount that represents full indemnity”: see Rules 57.01(4)(c) and (d).

[83] Section 131(1) of the Courts of Justice Act provides a generous discretion to the court in determining costs:

131(1) Subject to the provisions of an Act or rules of court, the costs of and incidental to a proceeding or a step in a proceeding are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid.

2. When substantial indemnity costs are appropriate

[84] There are numerous reported decisions holding that failed allegations of fraud or other serious misconduct attract substantial indemnity costs. For example: (1) Costs may be awarded “on a substantial indemnity basis where unfounded allegations of a fraud or dishonesty or other improper conduct seriously prejudicial to the character or reputation of the party are made”: see DiBattista v. Wawanesa Mutual Insurance Co., 2005 CarswellOnt 6604 (Ont. S.C.J.) at para. 5; aff’d 2006 CarswellOnt 6011 (C.A.); (2) “[U]nsubstantiated allegations of conspiracy and improper conduct” allow a trial judge to award costs on a substantial indemnity basis: see Jazz Air LP v. Toronto Port Authority, 2007 CarswellOnt 1268 at para. 10 (S.C.J. – Div. Ct.); (3) “Solicitor and client costs”[24] may be awarded where a plaintiff advanced “numerous allegations of fraud and deceit on the part of the defendants” that were “pursued unrelentingly through to the conclusion of trial”: see Toronto Dominion Bank v. Leigh Instruments Ltd. (Trustee of), 1999 CarswellOnt 2812 at paras. 32 and 33 (C.A.).

[85] I do not think that the presence of failed allegations of fraud or other serious misconduct means that an entire action should attract substantial indemnity costs, unless the action was all about those allegations. It makes sense to restrict that scale of costs to the part of the case to which such allegations apply.

[86] This case has more than failed allegations of fraud or other serious wrongdoing. The plaintiff attempted to prove its allegations by deliberately preparing false documents, deliberately lying to and misleading the court and doing so repeatedly.

3. When full indemnity costs are appropriate

[87] Counsel for the defendants argue that the collective weight of a number of factors makes full indemnity costs appropriate: (1) the defendants bettered their offers to settle; (2) the plaintiff made, and failed to prove, allegations of bad character, criminal misconduct, professional misconduct, quasi-criminal conduct and breach of fiduciary duty; and (3) the plaintiff (through Fridriksson and Klassen) was guilty of improper and vexatious conduct that greatly added to the length of the proceedings. As bad as all of that is, if the analysis ended there, I do not think that anything more than substantial indemnity costs would be warranted. But, it does not end there. Fridriksson, supported by Klassen, lied and fabricated evidence and did so on behalf of the plaintiff in a concerted effort to perpetrate a fraud upon the court. This was not a case about an honest difference of opinion concerning events or about a disagreement over the legal consequences flowing from an honest collection of facts.

[88] Fridriksson produced at least 33 sets of handwritten notes purporting to record telephone conversations that he had with Terry Lewis and with the accountants, Andy Gunarsons and Karl Bowley. I specifically rejected seven sets as being false and fabricated. Counsel for the plaintiff submit that I did not make the same finding for the rest. It is true that I did not go through each of the remaining sets of handwritten notes individually, but this was because of pointless redundancy. Paragraphs [76] and [147] of my Trial Reasons make that clear:

[76] . . . There are so many instances of this fiction that it would be pointlessly redundant to deal with each one. Thus, I will select only a few representative examples.

[147] There were numerous other handwritten notes of telephone calls tendered in evidence by Fridriksson. However, most suffer from the same shortcomings (or variations thereof) that I have chronicled above. I do not see the benefit in my continuing with this line of analysis.

[89] The purpose of this action was to extort damages from the defendants to remedy an imagined loss. It is the repeated fabrication of evidence and the repeated untruths that elevate this case to the realm of full indemnity costs; yet, only for that part of the case affected by such conduct.

[90] A statement which is apt here and with which I agree entirely is found in Moreira v. Dasilva, [1977] O.J. No. 1458, 5 C.P.C. 73 (Ont. H.C.J.) at para. 14: “. . . it was the intention of the plaintiff to mislead the Court and to deceive it with respect to the material facts . . . no defendant should in those circumstances be put to any expense whatsoever in defending herself from such claims . . . [and] the defendant is entitled to her costs on a solicitor and [her] own client basis so that she will be completely indemnified for her costs of defending herself from the claims in this action.”

4. The 11 allegations of fraudulent misrepresentations

[91] I view this case as being divisible into three parts: (1) the 11 allegations of fraudulent misrepresentations; (2) the 19 allegations of breach of contract; and (3) the CASLPO allegations.

[92] I am restricting my award of full indemnity costs to the 11 allegations of fraudulent misrepresentation, which is where the fabrication was focused and most of the deliberate untruths can be found. If full indemnity costs are not warranted in such circumstances, what, pray tell, is missing from the factual matrix in order to achieve that result?

[93] Lest there be any doubt in the matter, I will outline the 11 misrepresentations by repeating the applicable portion of the table of contents from my Trial Reasons along with the companion paragraph references (for the curious):

1. Number of “active” patients ………………………………………….. [1108]

2. Donna Bradley and the patient list ………………………………….. [1149]

3. Referrals from ENT specialists ………………………………….. [1187]

4. Presence of an audiologist ………………………………………….. [1202]

5. “Unfettered access” to Niagara Falls Clinic records by Carol Klassen …. [1214]

6. “Complete due diligence, including access to the patient list” …………. [1223]

7. “Able to contact . . . Ginette Galati prior to the closing” …………………. [1225]

8. “Steady growth of patients and hearing aids sold per month since 2000” …. [1228]

9. “22 years’ worth of unrecalled patients” …………………………. [1244]

10. The “fall mailing” ............................................................................ [1257]

11. Comparative Year-Over-Year Summary ........................................ [1264]

[94] I asked counsel for the defendants to particularize the portion of their $1,316,535.16 full indemnity bill of costs allocated to the 11 allegations of fraudulent misrepresentation. They provided a detailed analysis and came up with the figure of $1,001,094.10, which I accept, but round down to $1,001, 000.00 for convenience.

5. The 19 breach-of-contract allegations

[95] The second major chunk of the case was devoted to largely breach-of-contract issues, which I will set out, again, from the table of contents in my Trial Reasons, with paragraph references:

1. “Failed to give to the plaintiff a number of the high security keys” ............... [1314]

2. “Failed to notify Bell Canada of the change in ownership” ........................... [1327]

3. “Failure to notify . . . Internet Service to remove the defendants” ............... [1331]

4. “Failed to send out postcards to the existing patients” ........................... [1339]

5. “Failed to deliver the letter of introduction” ....................................... [1343]

6. “List of its patients . . . permitted . . . to get into the possession of . . .” ... [1360]

7. “Failed to maintain the customary level of inventory” ........................... [1378]

8. “Failed to notify the landlord . . . of its intention to transfer the lease” ... [1404]

9. “The defendants removed computer software discs” ........................... [1415]

10. “Failed to provide QuickBooks accounting data file” ............... [1421]

11. “Failed to notify the security alarm service provider” ........................... [1425]

12. “Improperly billed WSIB” ............................................................... [1429]

13. “Improperly billed third party insurers” ....................................... [1436]

14. “Caused Canada Post to take the position that the mail would be held . . .” ... [1440]

15. “Contacted the various manufacturers . . . to divert delivery of goods” ... [1448]

16. “Caused . . . Fridriksson and Carol Klassen to spend many hours” ............... [1464]

17. “Harassed the plaintiff’s employees after closing” ........................... [1467]

18. “Failed to notify the Privacy Commissioner of the sale” ........................... [1471]

19. “Failed to notify ADP of the asset sale” ....................................... [1474]

(a) partial indemnity costs

[96] With one exception to which I will return in a moment, these unsuccessful allegations, as silly as some were, should only attract partial indemnity costs. They are breach-of-contract allegations, not misconduct allegations.

[97] The full indemnity costs of the defendants for the breach of contract matters amount to $292,007.72. I indicated earlier that no costs are to be awarded in respect of the five allegations on which the plaintiff was successful (items 1, 7, 9, 10 and 14 above). For those five allegations the full indemnity costs of the defendants are $39,759.36 which amount should be subtracted from $292,007.72, leaving $252,248.36. This produces $151,300.00 (rounded down) on a partial indemnity scale. (I have calculated partial indemnity costs at 60% of full indemnity costs, a figure which I regard as reasonable in the circumstances of this case and within a range found to be acceptable in the reported decisions.)

(b) substantial indemnity costs

[98] The one exception, to which I referred above, is Item 12 in the table of contents. It includes an allegation by the plaintiff that the defendants improperly billed the Workplace Safety and Insurance Board. This is a serious allegation of wrongdoing that, if proved, could lead to conviction for provincial offences and to a finding of professional misconduct against Terry Lewis. Consequently, the “wrongdoing” part of Item 12 should be visited with substantial indemnity costs, rather than partial indemnity costs. [25]

[99] This requires clawing back $17,700.00 and adding it to my figure of $151,300.00. (The defendants allocated $59,000.00 as full indemnity costs for the WSIB allegations of wrongdoing. I allowed partial indemnity costs in arriving at $151,300.00, but those costs now must be bumped up to the substantial indemnity level which means increasing the WSIB portion by 30% (30% being the difference between partial indemnity costs of 60% and substantial indemnity costs of 90%).

[100] This brings the total costs awarded for the breach-of-contract issues to $169,000.00.

6. The CASLPO allegations

[101] The third part of the case consisted of the allegations against the defendants concerning CASLPO and includes failed attempts by Fridriksson to show that Terry Lewis was guilty of professional misconduct. They are particularized at paragraph [1485] of my Trial Reasons and are as follows:

1. The total earnings or sales from the Niagara Falls Clinic, when owned and operated by the defendants, were grossly inflated because the services of their hearing instrument practitioner, Donna Bradley, were billed as if she were an audiologist (in contravention of CASLPO guidelines). [26]

2. Certain services of Donna Bradley were not performed in the presence of an audiologist (again, allegedly contrary to CASLPO guidelines).[27]

3. Donna Bradley used improper, out-dated testing equipment when measuring hearing aids.

4. Donna Bradley was allowed to perform tasks for which she was not qualified by education, training and experience.

5. Forms were signed by the defendant, Terry Lewis, an audiologist, and by another audiologist, Sarah Peverley, for services provided on dates when neither was at the Niagara Falls Clinic (those services were performed by “supportive personnel”) once more, allegedly, in breach of CASLPO guidelines.

6. The defendant, Terry Lewis, and the other audiologist, Sarah Peverley, did not provide follow-up services for WSIB patients.

7. The defendants improperly billed WSIB for hearing aids prior to the fitting date. (This is part of the “pending”-invoices issue.)

[102] Although these allegations were serious and even suggested professional misconduct, the case law seems to say that “only” substantial indemnity costs are appropriate. They were failed allegations, not fabricated allegations. Of the total full indemnity bill of costs of $1,316,535.16, the sum of $23,434.34 pertains to the CASLPO allegations. This amounts to $21,090.00 on the substantial indemnity scale. I have calculated substantial indemnity costs at 90% of full indemnity costs. According to Rule 1.03 of the Rules of Civil Procedure, substantial indemnity costs “mean costs awarded in an amount that is 1.5 times” partial indemnity costs (being 1.5 x 60% = 90%.)

[103] Accordingly, and in summary, I fix the costs of the defendants as follows:

1. for the 11 allegations of fraudulent misrepresentation for which evidence was deliberately fabricated and Fridriksson and Klassen lied and deliberately attempted to mislead, and perpetrate a fraud upon, the court, full indemnity costs of $1,001,094.00;

2. for the failed CASLPO allegations, some of which would constitute professional misconduct, if proved, substantial indemnity costs of $21,090.00;

3. for the 19 breach-of-contract allegations, partial indemnity costs of $169,000.00 (although this figure includes a substantial-indemnity component related to the WSIB issue).

[104] The total of the costs payable to the defendants by the plaintiff, therefore, is $1,191,184.00 all-inclusive.

IV. PERSONAL LIABILITY FOR COSTS

[105] This brings me to the hottest issue on this costs hearing: whether, along with the plaintiff, Fridriksson and Klassen, non-parties to the action, should be jointly and severally responsible for the costs of the defendants.

[106] If this issue is not decided in favour of the defendants, any costs order may be rendered meaningless. Counsel for the defendants submit that the plaintiff is a shell corporation. Evidence on the receivership motion (first mentioned at paragraph [36] above) shows that the assets of the plaintiff consist of the following; a bank balance overdrawn by $41,631.13; leasehold improvements valued at $2,971.00; the business lease itself, of unknown value; and some audiometric and office equipment, with an unknown value.[28] However, the impecuniosity of the plaintiff is not relevant. This is a costs hearing not a judgment debtor examination. Impecuniosity is not a factor in reaching my costs decision (but it may have practical implications in implementing my decision).

[107] I will set out again s. 131(1) of the Courts of Justice Act which is key to this particular issue: [Underlining added]

131(1) Subject to the provisions of an Act or rules of court, the costs of and incidental to a proceeding or a step in a proceeding are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid.

[108] Do the underlined words “by whom” include non-parties? Or should they be interpreted to mean “by which of the parties”? I would not restrict my interpretation to the latter but, instead, give to the underlined words in s. 131(1) their plain and ordinary meaning. Section 131(1) has its origins in the Ontario Judicature Act, 1881, c. 5 which means that 134 years have passed without that plain and ordinary meaning having been amended. It is my view that “by whom” includes non-parties.

[109] There is ample authority for the court to award costs against a non-party who is the real litigant and who has put forward someone else, a “man of straw,” in whose name proceedings are commenced: see, for example, Sturmer v. Beaverton (Town), 1912 CanLII 588 (ON SCDC), [1912] O.J. No. 184, 25 O.L.R. 566 (Div. Ct.) at paras. 15 and 17; Curry v. Davidson, [1922] 23 O.W.N. 3 (Div. Ct.) at para. 5; and Rockwell Developments Ltd. v. Newtonbrook Plaza Ltd., 1972 CanLII 531 (ON CA), [1972] 3 O.R. 199 (C.A.) at paras. 33-37. However, this is not the situation before me. Neither Fridriksson nor Klassen, in their personal capacities, had legal standing to commence proceedings against the defendants. The plaintiff is not a “man of straw.” The fact that, of the $1,000,000.00 purchase price for the Niagara Falls Clinic, $250,000.00 came from the personal savings of Fridriksson (and the balance consisted of a loan guaranteed by Fridriksson personally and by his professional corporation), does not mean that Fridriksson could have commenced the within action in his own name. It only means that he is interested in the outcome and has a connection to the action. The same can be said of Klassen.

[110] Counsel for the plaintiff understandably place great reliance upon paragraph 26 of Rockwell Developments Ltd. v. Newtonbrook Plaza Ltd., 1972 CanLII 531 (ON CA), [1972] 3 O.R. 199 (C.A.):

It is my view that a literal interpretation of the words . . . ‘and the court or judge has full power to determine by whom and to what extent the costs shall be paid’ would lead to obvious absurdities, and that the decisions to which I have already referred correctly held that such a literal interpretation should not be given to the words in question. In my view the words ‘by whom’ should be interpreted to mean ‘by which of the parties to the proceeding before the court or judge.’

[111] With the greatest of respect to the Court in Rockwell Developments Ltd. v. Newtonbrook Plaza Ltd., the suggestion that a literal interpretation of s. 82(1) of the Judicature Act, R.S.O. 1970, c. 22, now s. 131(1) of the Courts of Justice Act, “would lead to obvious absurdities” is not sufficient reason to avoid a literal interpretation. The solution? Avoid the absurdities, not the literal interpretation. The law is never advanced by holding that words do not mean what they say.[29]

[112] A case that is more factually relevant than any provided on behalf of the plaintiff, is Oasis Hotel Ltd. v. Zurich Insurance Co., 1981 CanLII 433 (BC CA), [1981] B.C.J. No. 690, 124 D.L.R. (3d) 455 (B.C.C.A.), relied upon by the defendants. There, a corporation owned a hotel that burned down under suspicious circumstances and the insurer denied the claim. An individual named Surowiec, along with his wife, were the sole directors, officers and shareholders of the corporation. The trial judge found the testimony of Surowiec to be patently untrue. In affirming the personal costs ordered by the trial judge, Lambert J.A., writing for the Court, held, at para. 23:

I conclude that there is no authority in Canada that either binds me or persuades me to the conclusion that in a case where the court is made the instrument to perpetrate a fraud, the court cannot award the costs of the proceedings that are instigated as part of the fraud to be paid by the active mind that put the fraud into effect and directed the institution of the court proceedings.

and at para. 29:

. . . I do not regard this case as a case about the piercing of the corporate veil . . . I am satisfied that the [personal costs] order made by [the trial judge] does not violate the sanctity of the corporate personality. This was a case of fraud. In such cases the individual who conceives and carries out the fraud cannot shield behind a corporation that he controls.

[113] The decision in Oasis Hotel Ltd. was cited with approval by the Ontario Court of Appeal in Dallas/North Group Inc., Re, 2001 CanLII 3636 (ON CA), [2001] O.J. No. 2743 at para. 12 and continues to be cited with approval by the British Columbia Court of Appeal, as recently as Lower v. Stasiuk, 2013 BCCA 389 at paras. 28 and 33. Consequently, I think that Rockwell Developments Ltd. v. Newtonbrook Plaza Ltd., 1972 CanLII 531 (ON CA), [1972] 3 O.R. 199 (C.A.) should be confined to its facts.

[114] This area of the law would benefit from more clarity. Both sides referred me to a number of decisions which did not assist, with the exception of one case supplied by counsel for the defendants. At para. 15, in Dallas/North Group Inc., Re, 2001 CanLII 3636 (ON CA), [2001] O.J. No. 2743 the Court states, “we recognize that the power to assess costs against non-parties must be used sparingly . . .” The Court found that “special circumstances” existed in Dallas/North Group Inc., Re, and held a non-party personally responsible for costs. I do not think that the nature of those “special circumstances” is important, as they will vary, obviously, from case to case.

[115] Dallas/North Group Inc., Re, provides guidance for an interpretation of s. 131(1) of the Courts of Justice Act that does not violate the plain and ordinary meaning of the words of that section: costs may be awarded against a non-party, but, with the common sense proviso that this should be done sparingly and only in special circumstances.

[116] It is not a prerequisite, as argued by the plaintiff, for the non-party to be a “man of straw” in order to attract an award of personal costs.

[117] The essence of this case was the allegation by Fridriksson, that Terry Lewis and Andy Gunarsons, primarily in telephone conversations, as purportedly recorded by Fridriksson in his infamous handwritten notes, knowingly provided incorrect information about the business and operations of the Niagara Falls Clinic, thus inducing the plaintiff to make the purchase. I found the handwritten notes to be almost entirely concocted and false.

[118] Fridriksson used a closely held corporation, which he controls, as a vehicle for an attempted fraud upon the court. He was the chief witness for the plaintiff, testifying for 26 days. I found that he knowingly and almost continually gave deliberately false or misleading testimony in support of the many allegations made against the defendants. In an action commenced by a corporation for the purpose of perpetrating a fraud upon the court, the owner and the de facto owner and directing mind of the corporation may be required to pay costs personally. The corporate veil was never intended to serve as a bandit’s mask.

[119] Certain other aspects of this case establish a very close connection between Fridriksson and the plaintiff. Although they are not sufficient to support a finding of personal responsibility, I will mention them only for completeness:

1. There can be no doubt that Fridriksson is the de facto owner of the plaintiff and its directing mind. The evidence is gorged with references by Fridriksson and Klassen to that effect. For example, Fridriksson testified: “If I would have known the true facts, I would have not purchased the clinic”; “I would not have bought the clinic”; “I would have paid zero dollars for the clinic”; “Part of my reasons for buying the clinic . . .”; “We are the owners of the clinic . . .”; “We are a tenant . . .”

2. The testimony of Klassen repeatedly reaffirms that Fridriksson is the true and real owner of the Niagara Falls Clinic. She stated in evidence: “I don’t understand exactly, it was something the accountant and [Fridriksson] figured out, it was a way to, for the kids to inherit something”; “[Fridriksson] was doing the negotiations and making the arrangements . . .”; “It seemed to make sense that I owned the clinic but, really, [Fridriksson] owns it”; “Because the clinics[30] are basically [Fridriksson’s] . . . it’s all his call.”

3. Counsel for the defendants point out that evidence on the receivership motion indicates that the assets, business and affairs of the plaintiff are tangled up in a complex relationship involving three other closely held corporations belonging to Fridriksson, together with assets held personally by Klassen, allegedly in trust. Klassen has been paying large sums of money to the plaintiff to finance the litigation with the defendants.

[120] As for Klassen, in my Trial Reasons, at paragraph [5] and elsewhere, I found that, although “the sole officer, director and shareholder of the plaintiff, she was merely a puppet for Fridriksson, doing and saying his bidding.” Klassen was in court for the entirety of the testimony of Fridriksson and when her turn to testify came, she continued with the evidentiary charade and supported his attempt to perpetrate a fraud upon the court. I did not find her to be credible. It was obvious that her role was to plug the holes left by the testimony of Fridriksson. She knowingly allowed “her” corporation, the plaintiff, to be used as an instrument of fraud.[31]

[121] Fridriksson and Klassen should be jointly and severally responsible, along with the plaintiff, for the costs that I have awarded in connection with the 11 failed allegations of fraudulent misrepresentation in which my findings at trial were that evidence had been deliberately fabricated and the truth deliberately withheld. Although I did not say so in my Trial Reasons, I say now, that it was all in an effort, effectively, to perpetrate a fraud upon the court.

[122] It would be a cowardly court that failed to fix personal responsibility with Fridriksson and Klassen. If not now, when?

[123] Litigants who abuse the legal system as they did can expect to be dealt with severely when it comes to costs. Courts are not a playground for the unscrupulous.

[124] It is the pinnacle of irony that Fridriksson and Klassen are attempting to wiggle out of personal responsibility for costs in a case where they drew the defendants, Terry Lewis and Dee Lewis, into the action, in their personal capacities.[32] Paragraph 11 of the statement of claim reads:

11. The defendants Terry Lewis and Dee Lewis have deliberately conducted the affairs of the defendant corporation in such a manner as to cause the plaintiff financial harm, such that it would be flagrantly unjust not to pierce the corporate veil and impose personal liability.

[125] I will add that I am satisfied the plaintiff was incorporated for the legitimate commercial purpose of purchasing the Niagara Falls Clinic. It was not incorporated to shield Fridriksson and Klassen from the costs of this action.

V. CONCLUSION

[126] The defendants are entitled to their costs, which I fix at $1,191,184.00, all inclusive, and payable as follows:

1. from the plaintiff, Fridriksson and Klassen, jointly and severally, the sum of $1,001,094.00;

2. from the plaintiff, the sum of 190,090.00.

[127] In the written submissions of the plaintiff, a request is made for time to pay the costs awarded. Such a request is not one which I have the authority to address on a costs hearing.

[128] Although I have not received any submissions on the matter, I should think that the defendants (absent relevant offers to settle) would be entitled to their costs of the costs hearing on a partial indemnity basis. In the event that common sense continues to boycott this case and the parties cannot agree on those costs, counsel should contact the trial co-ordinator for further instructions.

The Honourable Mr. Justice J.W. Quinn

RELEASED: February 23, 2015

CITATION: The Hearing Clinic (Niagara Falls) Inc. v. 866073 Ontario Limited, et al., 2015 ONSC 1177

COURT FILE NO.: 49278/07

DATE: 2015/02/23

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

THE HEARING CLINIC (NIAGARA FALLS) INC.

Plaintiff

• and -

866073 ONTARIO LIMITED, TERRY LEWIS and DEE LEWIS

Defendants

COSTS

J.W. Quinn J.

Released: February 23, 2015

[1] “Curses are like young chickens, they always come home to roost”: Robert Southey [1774-1843] The Curse of Kehama.

[2] “The game is up, it is all over” (slang): The New Shorter Oxford English Dictionary.

[3] “Waiting for the other shoe to drop,” meaning “to await a seemingly inevitable event, especially one that is not desirable”: Wiktionary.

[4] “Reveal a secret, esp. involuntarily”: The New Shorter Oxford English Dictionary.

[5] “It ain’t over until the fat lady sings,” a colloquialism cautioning against prematurely declaring an event over, said to have been operatically inspired and coined, on March 10, 1976, by journalist Ralph Carpenter of the Dallas Morning News.

[6] “For whatsoever a man soweth, that shall he also reap”: Galatians 6:7.

[7] “Pay the piper – to pay a monetary debt or experience unfavourable consequences, especially when the payment or consequences are inevitable . . .”: Wiktionary.

[8] Too strongly worded? How else should such conduct be described?

[9] Without the involvement of Mr. Ferguson, I expect that the trial would still be in progress.

[10] See Trial Reasons at para. [312].

[11] See Trial Reasons at paras. [341] and [361].

[12] See Trial Reasons at paras. [597] and [ 723].

[13] See Trial Reasons at paras. [829] and [830].

[14] See Trial Reasons at paras. [860]-[864].

[15] See Trial Reasons at para. [873].

[16] See Trial Reasons at para. [1041].

[17] As a trial judge, I am endlessly thankful for e-mails, text messages and all social media postings. It is like having my own private investigator.

[18] See Trial Reasons at para. [11].

[19] See Trial Reasons at para. [1264].

[20] See Trial Reasons at para. [1429].

[21] See Trial Reasons at para. [1483].

[22] The preliminary report from a forensic accountant appointed in the receivership motion indicates that, in 2008, two years after the purchase by the plaintiff and one year after the action was commenced, Fridriksson negotiated an option for a major player in the audiological world to purchase the Niagara Falls Clinic at a price substantially in excess of what the plaintiff paid.

[23] I recognize that this is strong language. Nevertheless, I think that it is merited by the facts. The issues and money at stake are too important for minced words.

[24] The term “solicitor and clients costs” was replaced by “substantial indemnity costs,” effective January 1, 2002.

[25] A further item in the table of contents – “17. Harassed the plaintiff’s employees after closing …..[1467]” is a scurrilous allegation of misconduct that also merits substantial indemnity costs, but it only occupied a few minutes of the trial and so I am leaving it in the partial-indemnity-costs category for convenience.

[26] If services were improperly provided by a non-audiologist, the expenses of the Niagara Falls Clinic are artificially low and the profits are, correspondingly, artificially high.

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

[28] If correct, I am surprised that CASLPO does not consider such a sorry financial state to be contrary to the best interests of the public.

[29] I have not mentioned, but should, that the Rockwell Developments Ltd. decision was authored by Arnup J.A. I am certain that there is a special, very uncomfortable, place in Hell reserved for judges who have the temerity to disagree with Justice Arnup.

[30] Fridriksson owns three hearing clinics (St. Catharines, Fort Erie and Niagara Falls).

[31] Let me attempt a laboured analogy: It is as if she freely and voluntarily drove her motor vehicle to and from a bank, with a passenger who was masked and armed while he was in her vehicle, masked and armed when he entered the bank and masked, armed and carrying a bag of money, when he ran from the bank and jumped back into her vehicle. That would make her an accomplice to the robbery. In this trial, she knowingly provided the corporate vehicle by which Fridriksson attempted to carry out his fraud. She was his get-away driver, so to speak. She was fully complicit in his litigious wrongdoing.

[32] Unfortunately, tit-for-tat is not a recognized ground for relief.