ONTARIO – SUPERIOR COURT OF JUSTICE
Technology Incentives Inc. v. 979072 Ontario Inc.
2016 ONSC 656
Court File No.: CV-10-395775
Motion Heard: January 21, 2016
George A. Bougadis for the plaintiff
Tanya Walker for the defendants
ENDORSEMENT
Master R.A. Muir -
[1] This motion is brought by the plaintiff. There are four remaining issues. These issues were the subject of argument on January 21, 2016. They can be summarized as follows:
• leave to bring this motion pursuant to Rule 48.04(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”);
• payment of the plaintiff’s expert fees;
• amendments to the statement of claim and a request for leave to issue certificates of pending litigation (“CPL”); and,
• further production pursuant to previous orders of this court.
BACKGROUND
[2] The defendant 979072 Ontario Inc. c.o.b. Aurora Microsystems (“Aurora”) provides consulting services to businesses seeking to claim scientific research and experimental development tax credits. The other defendants are officers and directors of Aurora or are otherwise related parties.
[3] The plaintiff alleges that pursuant to an agreement dated September 26, 2007, the plaintiff supplied Aurora with trade secrets, intellectual property and training to assist Aurora’s clients with their tax credit applications (the “Agreement”). The plaintiff claims that Aurora and the other defendants breached the Agreement with the plaintiff by, among other things, failing to remit to the plaintiff a portion of the fees generated by Aurora in connection with the tax credit applications made on behalf of its customers. As a result, the plaintiff alleges that it has suffered significant losses. The statement of claim seeks damages from the defendants in the amount of $5,000,000.00. The plaintiff’s initial financial loss report identifies damages as high as $430,000.00.
[4] This action is nearly six years old. The defendants have been represented by several different lawyers and were self-represented for a period of time. There have been numerous interlocutory proceedings. For the purposes of this motion, it is important to note that the plaintiff has been required to bring several motions in order to obtain full production from the defendants and in order to compel the defendants to comply with outstanding court orders. At one point, Master Hawkins cautioned the defendants that they were “running a substantial risk that the plaintiff’s motion to strike their defence will succeed”. No order was made striking the statement of defence. However, it is clear from the evidence that substantial compliance with the court’s production orders was not made until September 21, 2015, more than four years after the initial production order was made. Ms. Walker suggested that the production made on September 21, 2015 was a duplicate of documents that had previously been provided to the plaintiff. However, there is no documentary evidence before the court to support that assertion. The evidence of the plaintiff and its expert suggests otherwise. I am satisfied on the evidence that the defendants repeatedly failed to meet their production obligations under the Rules and pursuant to several court orders.
LEAVE PURSUANT TO RULE 48.04(1)
[5] I am satisfied that it is just to grant the plaintiff leave to bring this motion pursuant to Rule 48.04(1). This rule provides that a party who has set an action down for trial may not bring further motions without leave of the court (subject to certain exceptions, one of which involves the disclosure of documents). In most cases, leave will be granted if the moving party can show a substantial and unexpected change in circumstances such that it would be manifestly unjust to deny the party the opportunity to bring the motion. See Jetport Inc. v. Global Aerospace Underwriting Managers, 2013 ONSC 2740 (Master) at paragraphs 40 and 62. Some of the relief sought by the plaintiff on this motion meets this test. The balance of the motion seeks relief for which leave is not required under Rule 48.04(1).
[6] The plaintiff filed its trial record on November 7, 2014. At that time, the defendants remained in breach of their production obligations under the Rules and pursuant to several court orders. The Rule 48.04(1) leave requirement does not relieve a party of its ongoing production obligations under Rule 30.07 in respect of documents subsequently discovered or where it appears a party’s affidavit of documents is incomplete. Leave is not required to bring a motion seeking compliance with Rule 30.07. See Rule 48.04(3). That is obviously the situation before the court on this motion as the most recent production by the defendants was not made until after the initial return date of this motion. Moreover, a party to a civil proceeding is required to comply with court orders. The plaintiff should not be required to seek leave to obtain an order that the defendants comply with previous court orders regarding the discovery of documents. No leave is required for the portion of this motion dealing with additional production.
[7] A portion of the expert fees the plaintiff seeks to collect from the defendants were incurred after this action was set down for trial. In my view, this fact, along with the defendants’ ongoing failure to comply with court orders, presents a substantial and unexpected change in circumstances. Moreover, the relief with respect to the payment of the expert fees should really be viewed as an element of the plaintiff’s costs request in relation to the part of this motion seeking compliance with the court orders and complete production, for which leave is not required. To the extent the plaintiff requires leave to bring its motion in respect of the expert fees, leave is hereby granted.
[8] Finally, it is also my view that leave should be granted to the plaintiff to bring its motion to amend its statement of claim and seek leave to issue the CPL’s (the proposed amendments to the statement of claim are all in relation to the CPL issue). It is true that the plaintiff became aware of the possibility that a CPL may be an appropriate remedy when it examined the defendant Kelly Fitzgerald on October 15, 2014. However, it was not until January 9, 2015, when the defendants produced certain banking documents and answered undertakings from their examinations for discovery, that the plaintiff had the necessary evidence to proceed with a CPL motion. The answers given to undertakings and the additional production after the date this action was set down constitutes a substantial and unexpected change in circumstances. It would be unjust to refuse leave to bring the amendment motion and the CPL motion in the face of the defendants’ lack of timely production of relevant documents. Leave is hereby granted.
EXPERT FEES
[9] I am in my view, it is appropriate in the circumstances of this action to order the defendants to pay a portion of the plaintiff’s expert fees incurred to date. The plaintiff argued that the fees it has paid to its expert were significantly increased as a result of the piecemeal manner in which the defendants have made production. Each time the defendants made further production, the plaintiff’s expert had to review this matter once again and update his opinion. The plaintiff submits that this kind of inefficient process has resulted in unnecessary expense to the plaintiff. The defendants consented to the production portion of this motion that was heard by Master Haberman on June 19, 2015. Although Master Haberman made a costs order on that date (being no costs), her order expressly adjourns the expert reports costs issue without a date. That issue remains extant and was properly before me on January 21, 2016.
[10] It is clear from the evidence that the expert fees incurred by the plaintiff are greater than they would have been had the defendants made full production in a timely manner. Each time the defendants delivered additional production, the expert had to review that production, determine whether the production was complete in view of the earlier court orders and update his report. Common sense leads to the conclusion that such a process is inefficient and that time was wasted. Moreover, it is clear that the defendants were not in compliance with the production orders as of the date of the appearance before Master Haberman. This fact is confirmed by the many pages of production made by the defendants three months later. A portion of the expert fees are properly viewed as costs incurred in connection with the motion to compel the defendants to comply with the court’s previous orders. It is within the court’s costs discretion to order payment of those costs in appropriate circumstances. See General Electric Company (c.o.b. GE Energy) v. CSX Transportation Inc., 2011 ONSC 7167 at paragraph 42. The plaintiff is entitled to a portion of the costs incurred.
[11] Unfortunately, the plaintiff has not provided a breakdown of what portion of those costs can be considered wasted and what portion will be useful at trial. During the course of argument, the plaintiff’s counsel suggested $20,000.00 was wasted. The total expert fees billed to date are approximately $29,000.00. The initial financial loss report is dated June 13, 2011. The expert billed the plaintiff approximately $19,000.00 for that initial report. In my view, this is a reasonable estimation of what the expert report would have cost the plaintiff assuming full and timely production. The balance of the fees charged in the amount of $10,000.00 can be viewed as costs thrown away due to the defendants’ lack of timely production. I am therefore ordering the defendants to pay the plaintiff’s expert costs of the production portion of this motion fixed in the amount of $10,000.00, inclusive of HST. These costs shall be paid within 30 days after I have determined the costs disposition for the balance of the relief on this motion. The remainder of the expert fees can be dealt with by the trial judge.[^1]
AMENDMENTS TO THE STATEMENT OF CLAIM
[12] I am granting leave to the plaintiff to amend its statement of claim as requested. All of the proposed amendments deal with the plaintiff’s request for leave to issue the CPL’s. Rule 26.01 is mandatory. The court shall grant leave unless the responding parties would suffer non-compensable prejudice. The court may refuse leave in circumstances where a new cause of action is being asserted after the expiry of a limitation period.
[13] I see no prejudice to the defendants arising from the proposed amendments. This action has been set down for trial but no trial or pre-trial date has been set. No new parties are being added. The defendants will have ample opportunity to respond, if necessary. It would also appear that no limitation period has expired. The plaintiff did not learn that a CPL may be necessary until the examination of Kelly Fitzgerald in October 2014, at the earliest. The CPL portion of this motion was brought in September 2015.
LEAVE TO ISSUE CPL
[14] Although I have granted leave to the plaintiff to amend its statement of claim, I am not prepared to grant leave to issue the CPL’s as requested. I am simply not satisfied that the plaintiff has met the initial burden of demonstrating a reasonable claim to an interest in land. See Todd Family Trust v. Barefoot Science Technologies Inc., 2013 ONSC 523 (Div Ct) at paragraph 13.
[15] The plaintiff alleges that Aurora received payment from its customers for services provided in connection with several tax credit applications. The plaintiff’s services were used in connection with those applications. Pursuant to the Agreement, the plaintiff was to be compensated by an amount equal to 25% of all fees generated by Aurora through assisting its customers with their tax credit applications. The plaintiff further alleges that those fees received from customers were paid out of Aurora to the defendant Kevin Fitzgerald and were then used to pay down mortgages on two properties owned by Kevin and Kelly Fitzgerald. The plaintiff therefore claims an interest in those properties. The plaintiff claims that pursuant to the Agreement, the defendants owed fiduciary duties to the plaintiff and seeks a tracing order in respect of all profits earned by Aurora from the tax credit applications. The plaintiff claims an interest in the two properties to the extent of $190,000.00.
[16] In my view, the evidence does not support the plaintiff’s assertion of a reasonable claim to an interest in land. The Agreement is a straightforward commercial arrangement between arms’ length parties. Although the plaintiff alleges in its statement of claim that the Agreement was really a joint venture, no such language appears in the Agreement. The Agreement does not mention any sharing of profits and losses. The plaintiff’s compensation is based on 25% of the fees generated by Aurora. The plaintiff’s compensation does not appear to be dependent on any profit being made by Aurora. There is no suggestion that the fees earned by Aurora were to be held in trust by Aurora for the benefit of the plaintiff. The specific wording of the Agreement when it comes to the plaintiff’s fees simply reads as follows:
Aurora agrees to compensate [the plaintiff] by an amount equal to twenty-five percent of all fees generated by Aurora through assisting third-parties to receive [tax credits].
[17] This clause simply provides a formula for calculating the plaintiff’s compensation under the Agreement. It does not impose any obligations on Aurora when dealing with the actual receipt of the fees earned from its customers’ tax credit applications. If the plaintiff wanted its relationship with Aurora to constitute a partnership or a joint venture with attendant fiduciary obligations it could have used explicit language to that effect. The bald allegations in the pleadings of a fiduciary relationship and the existence of a joint venture are insufficient to support the plaintiff’s claim to an interest in land on this motion. The supporting affidavit filed by the plaintiff in connection with the CPL relief does not even address the issue of the plaintiff’s entitlement to trace the payments made by Aurora to Kevin Fitzgerald. The proposed amendments do not plead the existence of a trust over any specific funds, constructive or otherwise. These are necessary elements to support the remedy of a tracing order. See Todd Family Trust at paragraph 29. The plaintiff may have a potential claim for damages against Aurora and the other defendants. I do not view the evidence on this motion as supporting the plaintiff’s claim for an interest in the two properties owned by Kevin and Kelly Fitzgerald.
FURTHER PRODUCTION
[18] The final contested issue on this motion is the plaintiff’s request for a limited amount of further production from the defendants. It appears that this issue was largely disposed of by Master Haberman in her June 19, 2015 order. In fact, the amended fresh as amended notice of return of motion before the court on January 21, 2016 does not include a request for such relief. The only portion of Master Haberman’s order that appears to be outstanding (based on the Collins Barrow letter of December 10, 2015) is the requirement for the ongoing production of Aurora’s financial statements and other documents up to the date of trial. The order requires the defendants to make such production when available. I see no need to make a further order in that respect. Obviously, the defendants are under an ongoing obligation to comply with Master Haberman’s order in a timely fashion.
REMAINING ISSUES
[19] The plaintiff did not pursue the relief seeking an order striking the statement of defence and counterclaim.
[20] I have granted leave to the plaintiff to amend its statement of claim. An amended trial record will need to be filed to include the amended pleading as issued along with any amended defence.
[21] The parties have agreed on a mediator and a date for the mediation.
[22] I have no jurisdiction to deal with the fixing of trial and pre-trial dates. If the parties cannot agree on the content of the certification form, they may arrange for an appearance before a judge at trial scheduling court. In the interim, this matter shall not be struck from the trial list.
ORDER
[23] I therefore order as follows:
(a) the plaintiff is hereby granted leave to bring this motion pursuant to Rule 48.04(1);
(b) the defendants shall pay the plaintiff’s expert costs of the production portion of this motion fixed in the amount of $10,000.00, inclusive of HST, within 30 days after I have determined the costs disposition for the balance of the relief on the this motion;
(c) the plaintiff is hereby granted leave to amend its statement of claim in the form of the draft amended statement of claim at exhibit L to the supplementary affidavit of Boris Goryayev sworn September 25, 2015;
(d) the plaintiff’s motion for leave to issue certificates of pending litigation is dismissed;
(e) the plaintiff is hereby granted leave to deliver an amended trial record;
(f) the trial-coordinator shall not strike this action from the trial list without further order of the court;
(g) the parties shall attend a mediation session with Franceen Rogovein on March 2, 2016; and,
(h) if the parties are unable to agree on the issue of the costs of this motion they shall provide the court with brief written submissions by February 22, 2016;
Master R.A. Muir
DATE: January 26, 2016
[^1]: It is important to note that Ms. Walker was retained by the defendants on September 8, 2015. The defendants’ failure to comply with court orders is in no way the responsibility of Ms. Walker.