CITATION: Verge Insurance Brokers v. Richard Sherk et al., 2016 ONSC 711
COURT FILE NO.: 53982/12
DATE: 2016/02/16
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Verge Insurance Brokers Limited, 172968 Ontario Inc., Marick Bros. Investments Inc. and Mark Sherk Plaintiffs
AND:
Richard Sherk, Daniel Sherk, Martin, Merry & Reid Limited and Cal Schulz Insurance Brokers Ltd., Andree Senn, Brenda French and Ruth Pluska Defendants
BEFORE: Turnbull, J.
COUNSEL: Stephen F. Gleave/ Richelle M. Pollard, for the Plaintiffs
George Limberis, for defendant, Daniel Sherk
John M. Wigle, for the defendant, Richard Sherk
HEARD: January 27, 2016
ENDORSEMENT
[1] The plaintiffs have brought a motion for an order that the defendant Daniel Sherk shall have his counterclaim stayed pending payment of costs of approximately $138,000.00 ordered to be paid to the plaintiffs after an unsuccessful motion. Alternatively, the plaintiffs seek an order that the costs shall be paid no later than February 19th, 2016 which is shortly after the dates reserved for examinations for discovery in this protracted matter are scheduled.
[2] The defendant, Daniel Sherk seeks leave to pay the costs which have been ordered by this court within 45 days of the hearing of this motion.
Background of the Litigation
[3] The plaintiff Mark Sherk (Mark) and the defendant Richard Sherk (Rick) are brothers and both are 50% shareholders of the plaintiff Verge Insurances Brokers Limited (Verge). Rick is Daniel Sherk’s (Daniel) father and Mark is Daniel Sherk’s uncle. In or about April 2012, Rick retired from his participation in Verge. Shortly after Rick retired from Verge, it appears that he and his son Daniel may have become involved in competitive activities against Verge. This resulted in the plaintiffs commencing this action against Rick, Daniel and other parties.
[4] On January 22nd, 2013, Ramsay, J. issued and interim injunction in this action, in favour of Verge, to protect the company against the alleged wrongful competition by Rick, Daniel and the other defendants. On May 6th, 2013, Quinn, J. issued a consent order granting injunctive relief in favor of Verge against the defendants. That order restricted Rick and the other defendants from soliciting or serving Verge’s clients and misusing its confidential information until the time of trial.
[5] Mark was required to buy Rick’s shares upon his retirement. However, Rick and Mark did not agree as to the value of the shares and consequently a dispute arose. The dispute escalated.
[6] On or about April 23rd, 2012, Verge terminated Daniel’s employment and pleads that it was “for cause”. Daniel alleges in his counterclaim that his employment was terminated without cause.
[7] Ultimately the plaintiffs commenced the present action in October 2012. In the statement of claim, and as against Daniel in particular, the plaintiffs have made three principle allegations:
a. That Daniel breached restrictive covenants contained in his contract of employment by soliciting customers of Verge.
b. That Daniel had removed confidential business information from Verge’s premises.
c. That Daniel was a fiduciary and that he had breached fiduciary duties that he allegedly owed to Verge.
[8] In defending the statement of claim, Daniel denied each of the three forgoing allegations. In addition, he then brought a counterclaim against the plaintiffs in which he alleged that the plaintiff’s breached his employment contract by wrongfully dismissing him and by failing to deal in good faith in negotiating the sale of Daniel’s books of business to him. He further pleads that the actions of Verge and Mark against him, upon his termination from Verge, constituted the torts of injurious falsehood and unlawful interference with economic and contractual relations. Daniel further alleged that Mark is the shareholder, director and officer of Verge and should be held personally liable for the wrongs committed by Verge against him.
[9] The effect of the consent injunction granted against Daniel, and the passage of time, led Daniel to bring a motion to set aside portions of the injunction order that prevented him from earning a living in the insurance broker industry. He brought that motion in or about July 2014. Finally in June 2015, that motion was heard in writing by Quinn, J. who had been appointed as the motions judge for this matter under Rule 37.15 until he resigned from that assignment recently. He ruled that given the consent form of the order, the court did not have the jurisdiction to grant the remedy requested. Quinn, J. further ordered that Daniel should pay the plaintiffs $133,686.00 substantial indemnity costs for the aforesaid motion. Leave to appeal from that order was dismissed by Lococo, J.
[10] Daniel was further ordered to pay costs of $2,500.00 with respect to that unsuccessful leave application.
[11] The two orders of Quinn, J. and Lococo, J. required the costs to be paid within 30 days. The defendant Daniel did not appeal from the costs ruling of Quinn, J.
[12] To this date, the costs orders have not been paid.
Position of the Plaintiffs
[13] Verge argues that Daniel should be ordered to pay the two outstanding costs orders (with interest) by February 19th, 2016 failing which his action should be stayed. Mr. Gleave on behalf of the plaintiff has noted that these costs orders have been outstanding since September 15th, 2015. Mr. Gleave argued that there is nothing on the record before the court indicating that Daniel is unable to make the required costs payment. His 2013 and 2014 tax returns have not been filed with the court. Mr. Gleave urged the court not to give any weight to the alleged impecuniosity of Daniel to pay the costs order.
[14] Mr. Gleave further noted that the defendant Daniel has continued to vigorously pursue the litigation against the plaintiffs over the past 6 months. He has incurred legal costs and costs to retain experts to review electronic devices of the plaintiff rather than pay the costs order. In that respect, paragraph 22 of the factum filed by Verge on this motion, outlines a series of steps that have been taken by Daniel since the issuance of the costs order by Daniel. It is submitted that the failure of Daniel to pay the costs orders results from Daniel’s economic choice to spend his money on other aspects of this proceeding rather than complying the direct orders of the court.
Position of Daniel
[15] Mr. Limberis agreed that no motion was brought to vary the order of Quinn, J. or Lococo, J. In essence he is relying upon the inherent jurisdiction of the court to “allow justice to be done” by giving his client 45 days to pay the costs rather than the 21 days which Mr. Gleave has stated would be appropriate. In other words, Mr. Limberis’ position is that a further 23 days should be allowed to Daniel to pay the costs and he submits that it is not unreasonable in the context of this very extensive and expensive litigation which has been waging over the past 3 years.
[16] Mr. Limberis notes that as the successor to Quinn, J. as the motions judge under Rule 37.15, I have directed that this action be placed on the Long Trial list of cases to commence October 3rd, 2016. Counsel have set side two weeks for the examinations for discovery of the parties commencing February 16th, 2016. Mr. Limberis noted that if his client is not granted 45 days to pay the costs, and they are not paid by February 19th as requested by Mr. Gleve, Daniel’s action would be stayed. That effectively will mean that he will not be able to participate in the examinations for discovery and the further delays in bringing the matter to trial will be self-evident. He submitted that it would essentially mean that all the examinations for discovery would have to be rescheduled and the effect will be to bring this litigation to a grinding halt.
[17] Mr. Limberis argued that Daniel has complied with every court order and costs award in this matter except for this large costs order made by Quinn, J. and the much smaller costs order by Lococo, J. Mr. Limberis urged the court to look at the merits of the case and to recognize that this litigation is effectively “a war of attrition.”
[18] Mr. Limberis noted that his client Daniel is divorced and has joint custody of the children of the marriage. Daniel has been forced to move to Bracebridge and is presently working at a hardware store. As a result of the litigation which has been brought against him by the plaintiffs, he has allegedly been effectively removed from his profession as an insurance broker. This litigation has literally cost him his career and all his income, according to Mr. Limberis. Mr. Limberis asserts that Verge is simply trying to stop Daniel from defending himself and bringing a rightful action for damages as outlined above.
[19] Mr. Limberis advised the court that in seeking that injunction in this matter, the plaintiffs relied upon a restrictive covenant contained in Daniel’s employment agreement. However since that time, they have agreed they will not rely upon the restrictive covenant and Mr. Limberis asserts that is because of its ambiguity and unenforceability.
Issues before the Court
a) Can the court vary the order of Quinn, J. by extending the time for payment of the costs?
b) Can the court vary the order of Lococo, J. by extending the time for payment of the costs?
c) Should the court hear from Daniel while the costs orders on the variation motion remains unpaid?
[20] Mr. Gleve has helpfully referred the court to several decisions of this court where similar issues have been considered. Under Rules 57.03(2) and 60.12 of the Rules of Civil Procedure, the court has a broad discretion to dismiss or stay proceedings, strike out pleadings, refuse to grant relief to a litigant or make such other order as is just where the party fails to pay a costs order.
[21] In Bottan v Vroom [2001] O. J. No 2737, affirmed at [2002] O. J. No. 1383 (ONCA), Nordheimer J. of this court struck out the statement of claim and the statement of defence to the counterclaim due to the plaintiff’s failure to pay outstanding costs awards and to post security. There, the court found that the repeated failure of the plaintiffs to obey orders of the court was rampant and had been the subject of comment by several judges.
[22] In Esposito v Toronto (City), [2011] O.J. No. 4631 (Master), affirmed [2012] O.J. No. 1156 (SCJ), the court stayed the action until costs were paid which were outstanding. The court found that the plaintiff had expended sums of money that could have been used to satisfy a costs order to fund other steps in the proceeding. At para 37, Master Hawkins found this was tantamount to ignoring a court order as opposed to not having the means to pay the order.
[23] In Stacey v Barrie Yacht Club, [2003] O. J. No. 4171 (SCJ), Eberhard J. expressed the concern articulated by Mr. Gleave that non-payment of this large costs order has among its effects the danger of shifting of the economic burden of the proceedings to which the order relates to the Plaintiff. At para 13, the learned judge stated that if the court permitted such unsanctioned conduct, “the court would lose all pretence of control over the party’s conduct”. In the case at bar, I am not concerned that Mark is in difficult financial straits to the extent that a delay in payment would unduly shift the economic burden of these proceedings to him.
[24] These, and the other cases referred to me, show the concern the court must have over controlling its process and requiring parties to obey court orders.
Analysis
[25] In making such a decision, the context of the entire litigation must be borne in mind. This is a complicated litigation involving three different actions which are closely inter-related. The parties have spent hundreds of thousands of dollars in legal and experts’ fees to get the cases to the present stage.
[26] In an effort to help co-ordinate the various actions and to reduce the costs to the parties so that the matters can be tried or resolved as expeditiously as possible, I have appointed myself as the motions judge under Rule 37.15.
[27] I have ordered that all these actions shall be tried commencing October 3, 2016 and have already scheduled a judge for that purpose. A schedule for the examination for discoveries of the parties was worked out with counsel.
[28] This costs order has been outstanding for quite a period of time. I am acutely aware that the court must enforce its process or public respect for the administration of justice will be lost. However, there is no evidence that the defendant Daniel Sherk has in any other way not complied with the orders of this court or failed to pay any other costs orders. It is a very large costs order which will be difficult for Daniel to pay.
[29] In my view, it will not subvert the ends of justice nor bring the administration of justice into disrepute if the defendant is given 45 days from January 27, 2016 to pay the costs order.
[30] In the larger context of the litigation, there is a commercial closing scheduled on February 26, 2016 at which time Daniel’s father will be paid approximately $4.8 million as a partial payment for shares in Verge. I imagine that shortly after the closing, funds will be available to be loaned to Daniel so that the outstanding costs orders can be paid. The difference between February 19th and March 11, 2016 is not significant considering the passage of time since the costs order was made. Furthermore, it will allow the parties to proceed with the scheduled examinations for discovery so that the court approved schedule to get these matters “trial ready” can be maintained. I am able to attach conditions to the payment of those costs as ordered herein.
Conclusion
[31] It is ordered that the outstanding costs orders of Quinn J. and Lococo J. together with accrued interest thereon in accordance with the Courts of Justice Act be paid to the plaintiffs on or before March 11, 2016. If the commercial closing presently scheduled for February 26, 2016 is delayed, the costs order shall be paid 15 days after the date of the rescheduled commercial closing. If such payment is not made in full as ordered, the counterclaim of Daniel Sherk shall be stayed until the costs orders are paid in full or until further order of the court.
[32] I will receive brief written submissions and costs summaries from counsel on or before March 30, 2016. The plaintiffs shall serve and file their submissions on or before February 28, 2016. The defendant Daniel Sherk shall serve and file his submissions on or before March 15, 2015 and the plaintiffs may serve and file a short reply, if required, on or before March 30, 2016.
[33] I also heard a motion on January 27th, 2016 wherein Daniel sought his costs with respect to the production motion he brought before Quinn J. Having heard those submissions and having considered the matter, I feel that I should hear the submissions of Mr. Wigle on his client’s request for costs for attending at the same motion with response by Mr. Gleave before making a decision on those matters. Mr. Wigle’s motions have been adjourned to March 7th, 2016 at 10:00 a.m.
Turnbull, J
Date: February 16, 2016