Sycor Technology Incorporated v. Kiaer et al.

CITATION: Sycor v. Kiaer et al, 2016 ONSC 7384

COURT FILE NO.: 04-CV-264018

DATE: 2016-11-28

SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: SYCOR TECHNOLOGY INCORPORATED Plaintiff

AND:

JOHN KIAER, DUANE ASTRAUSKAS, PHOENIX/EDT INC., PHOENIX/EDT, A SOLE PROPRIETORSHIP CARRIED ON BY DUANE ASTRAUSKAS and PHOENIX/PMA INC. Defendants

BEFORE: Newbould J.

COUNSEL: Charles F. Scott and Andrew J. Winton, for the plaintiff Milton A. Davis and Robert B. Macdonald, for the defendant John Kiaer Michael R. Kestenberg and Thomas M. Slahta, for the Astrauskas defendants

HEARD: November 21, 2016

ENDORSEMENT

[1] On October 23, 2014 I found that Mr. Astrauskas and the remaining Astrauskas defendants acted in contempt of court by Mr. Astrauskas swearing a further and better affidavit of documents that he knew was false and in failing to produce sales invoices contrary to the orders of Morawetz J. dated September 14, 2010 and September 27, 2012 and in failing to produce e-mail correspondence contrary to orders of Morawetz J. of July 3, 2009 and September 27, 2012. I also held that Mr. Kiaer knowingly assist in a cover-up of the truth by failing to ensure that sales invoices were produced as required by the orders of Morawetz J. and in permitting his lawyer Ms. Willson to write a letter of February 13, 2013 that he had to know was not truthful or not afterwards requiring her to write a correcting letter telling the whole truth. On February 2, 2015 after further argument, I held that Mr. Kiaer was in contempt of court.

[2] In this penalty phase, Sycor requests orders that the defendants’ statements of defence be struck; in addition or in the alternative, an order that the defendants shall pay to Sycor $190,000 on account of costs thrown away to seek production of sales invoices; in addition or in the further alternative, an order that the defendants pay to Sycor a fine in an amount to be determined by the Court; punitive damages in the amount of $500,000 and the costs of this motion on a full indemnity scale.

[3] Both Mr. Astrauskas and Mr. Kiaer have filed affidavits in which they apologize to the Court. Both put the blame on Ms. Willson who was the lawyer for Mr. Kiaer but who also effectively acted for Mr. Astrauskas as well. Mr. Astrauskas states that he never intended to disobey court orders and that his conduct was based on oral advice and communications from Ms. Willson, considerable detail of which is contained in his affidavit. Mr. Kiaer states that he never intended to flout or disobey any court order or to violate or participate in any behaviour that disregarded or disobeyed a court order and that he relied and acted on Ms. Willson's advice. He said that had Ms. Willson advised differently, he would have willingly produced any of the documents that he was advised to produce.

[4] A problem with these statements of Mr. Astrauskas and Mr. Kiaer is that I previously made findings that contradict their evidence now.

[5] With respect to Mr. Astrauskas, I found that he had sworn a further and better affidavit of documents that he knew was false and I rejected his explanation that he acted on advice was given to him by Ms. Willson, saying:

[35] I cannot accept this explanation as an excuse. Mr. Astrauskas admitted that he had been advised by Ms. Willson when he swore his further and better affidavit of documents what kind of documents would likely be relevant and that he needed to make full disclosure. He also knew that sales invoices were relevant, and that copies had been kept a day or two after the original invoices had been sent to customers. The notion that it would make a difference whether the copy was made before or after the original had been sent, particularly when the copies had been used to record payments and were kept from the outset in customer files, is fanciful.

[6] Regarding Mr. Astrauskas’ failure to produce emails and correspondence, I held:

[57] I find that it is clear and proven beyond a reasonable doubt that Mr. Astrauskas knew that correspondence, including e-mail correspondence with common customers, was to be produced pursuant to the orders of Morawetz J. of July 3, 2009 and September 27, 2012 and that he knowingly did not produce it. It is no answer that three years after he knew of the obligation that the e-mails were lost by some corruption of the software.

[7] Mr. Astrauskas and Mr. Kiaer told Ms. Willson on April 23, 2012 that they did not keep sales invoices but that the information was contained in the computer. In an email from Mr. Kiaer to Ms. Willson of December 19, 2012 Mr. Kiaer said that sales invoices did not exist. In fact a copy of each sales invoice was made within a day or two of the original invoice being sent to a customer. Mr. Kiaer told Ms. Willson in an email copied to Mr. Astrauskas of February 12, 2013 that a draft letter to be sent to counsel for Sycor was correct and the letter was sent on February 13, 2013. I found that letter to be untruthful to the knowledge of Mr. Kiaer:

[50] While technically the sales invoices were the property of Phoenix to produce, what Mr. Kiaer did was knowingly assist in a cover-up of the truth by failing to ensure that the sales invoices were produced as required by the orders of Morawetz J. and in permitting his lawyer Ms. Willson to write the letter of February 13, 2013 that he had to know was not truthful or not afterwards requiring her to write a correcting letter telling the whole truth. I find that this has been established beyond a reasonable doubt.

[8] Mr. Astrauskas and Mr. Kiaer contend that Ms. Willson was well aware of the existence of the copies of the invoices and that she was mistaken in her belief as to what they were. They contend that the mistake Ms. Willson made was that she thought that they were not required to generate documents but only to produce what existed, that she knew that invoices had been generated from the sales data after the original invoices had been sent to customers but advised them not to produce them as they were regenerated documents. There is admittedly no direct evidence of such a mistake. Ms. Willson denied on her examination that she ever told anyone not to produce documents that were in the files. So far as Ms. Willson being mistaken, that theory was not put to her on her examination by defence counsel.

[9] There is some evidence that at various times that Ms. Willson knew of the existence of invoices. In a letter to counsel for Mr. Astrauskas of August 30, 2008 Ms. Willson referred to sales invoices and said she did not think that they should copy them as they would be too voluminous. On her examination as a witness Ms. Willson agreed that she had been told in 2008 that sales invoices existed. An October 20, 2011 disclosure brief provided by the defendants’ valuation expert to the plaintiff’s valuation expert contained copies of invoices from 1999 to 2001, some of which were stamped paid and at least one that contained handwritten notes. Ms. Willson acknowledged on her examination that she saw the draft disclosure brief and had reviewed the invoices in it and she said that she thought they had been produced.

[10] It may be that Ms. Willson was mistaken or it is possible that at the time of the preparation of the further and better affidavit of documents she forgot that she had sometime earlier known of or seen copies of invoices.[^1] That does not excuse Mr. Astrauskas and Mr. Kiaer from what they later told Ms. Willson. What is clear is that on April 23, 2012 Ms. Willson made a note that Mr. Astrauskas and Mr. Kiaer told her that they did not keep sales invoices and that later she was told by Mr. Kiaer on December 19, 2012 that sales invoices did not exist and this was confirmed to her by Mr. Kiaer and copied to Mr. Astrauskas in his approval of the letter she sent on February 13, 2013.

[11] Regarding the emails that were not produced, Mr. Astrauskas has said in his affidavit that there was no urgency in their production and had he been told otherwise to produce them sooner, he would have done so. However, Ms. Willson told Mr. Kiaer on August 25, 2009 that they were to be produced and in July, 2010 Mr. Astrauskas said they would be produced in two weeks. Yet they were not produced before the apparent data corruption/hardware failure in July 2012.

[12] I am certainly not prepared to find on the evidence that the findings of intentional misconduct of Mr. Astrauskas and Mr. Kiaer that I earlier made should be revisited or changed, or that their explanations now of relying on Ms. Willson for what they did should be accepted.

[13] Mr. Scott contends that the apologies of Mr. Astrauskas and Mr. Kiaer are hollow and insincere in that they attempt to blame Ms. Willson for what they did. He contends that an acceptance of responsibility is the hallmark of a sincere apology. I must say there is something in this and that the apology given by each is an apology “of sorts”.

[14] Sycor relies on rules 60.11 (5) and rule 60.12, which provide:

60.11(5) In disposing of a motion under subrule (1), the judge may make such order as is just, and where a finding of contempt is made, the judge may order that the person in contempt,

(a) be imprisoned for such period and on such terms as are just;

(b) be imprisoned if the person fails to comply with a term of the order;

(c) pay a fine;

(d) do or refrain from doing an act;

(e) pay such costs as are just; and

(f) comply with any other order that the judge considers necessary,

and may grant leave to issue a writ of sequestration under rule 60.09 against the person’s property.

60.12 Where a party fails to comply with an interlocutory order, the court may, in addition to any other sanction provided by these rules,

(a) stay the party’s proceeding;

(b) dismiss the party’s proceeding or strike out the party’s defence; or

(c) make such other order as is just.

[15] The principles of sentencing for a civil contempt of court are well known. See Pronesti v. 1309395 Ontario Ltd., 2015 ONSC 1139 at para. 35. See also Boily v. Carleton Condominium Corporation 145, 2014 ONCA 574 at para. 90.

[16] With respect to the remedy of striking a pleading, there is no doubt a court has such powers. In Vacca v. Banks (2005) 6 C.P.C. (6th) 22 (Ont. Div. Ct.) Ferrier J. for the Divisional Court stated:

27 There comes a time when this court is obliged to meet its responsibility for the effective administration of justice through case management by dismissing an action. Such is the case when the plaintiff repeatedly fails to comply with orders of the court whether or not there has been prejudice to the defendants.

[17] However, there is authority that prejudice should be considered. See Werner v. Warner Auto-Marine Inc. (1996), 235Co. C.P.C. (4th) 110 at para. 23 and Gomommy Software.com Inc. v. Blackmount Capital, 2014 ONSC 2478 at paragraphs 50 to 52 and 57 to 58. Further, the power to strike a pleading should only be used in exceptional circumstances where no other remedy would suffice. It is a serious one that should be used only in unusual cases. See Purcaru v. Purcaru, 2010 ONCA 92 at paras. 47 and 49.

[18] I have found the contempt in this case to be intentional, and the apologies to be less than ideal. However, the invoices were eventually produced, albeit after notice of the pending contempt motion was provided to the Astrauskas defendants’ new counsel. As well, sales information was provided in the form of sales reports, although the reports did not provide all of the information contained in the sales invoices. In the circumstances I do not think that the defences of the defendants should be struck. There are other remedies that will suffice.

[19] Sycor requests punitive damages in the amount of $500,000. Punitive damages are generally given only where the misconduct would otherwise be unpunished or where other penalties are or are likely to be inadequate to achieve the objectives of retribution, deterrence and denunciation. See Whitten v. Pilot Insurance Co., 2002 SCC 18 at para. 94. I do not think punitive damages should be awarded. Other remedies will suffice.

[20] Sycor seeks costs it says it has thrown away in the past because of the failure of Mr. Astrauskas and Mr. Kiaer to produce the invoices. It refers to a number of invoices in relation to matters involved in the action. However, two of the invoices were for costs ordered to be paid to Sycor and which were paid. Some relate to a case conference involving claims by each side that documents were not produced in which Sycor was ordered to produce some documents. One invoice relates to a motion in which it was ordered that there be no costs. A large claim for some $89,000 was spent on a motion heard Morawetz J. (as he then was) in June and July, 2012 in which it was ordered that there be no costs because success was divided except for $35,000 which he ordered to be paid by Sycor for costs thrown away because of Sycor’s decision to withdraw its claim for damages and claim a disgorgement of the defendants’ profits for the alleged breach of confidentiality. In making those decisions Justice Morawetz said:

59 In this case, I also have to take into account that there has been ongoing squabbling for 13 years in this matter. It is not appropriate, in my view, at this time to allocate blame to one side or the other. However, I can only offer the observation that, having case managed this matter for a number of years, there has been a decided lack of cooperation and communication between the parties which has adversely affected progress. At this point in time, the sum of $35,000 is awarded to the defendants "on account" for costs thrown away. This matter can be revisited by the trial judge in due course.

60 With respect to costs on the within motions, there has been divided success and, in my view, it is not appropriate to award costs.

[21] It is contended that if Justice Morawetz had been aware of the existence of the invoices that had not been produced and had he decided there had been contempt of court, he would have made a cost order in favour of Sycor. I would not speculate on that.

[22] There are other costs claimed of $16,145.44 that involved preparation and attending to the cross-examination of Mr. Astrauskas on his further and better affidavit of documents. By that stage Mr. Astrauskas had disclosed in that affidavit the compromise of the software that lost the email correspondence with customers of the defendants. That would presumably have not been necessary if the emails had been produced in a timely manner long before the data system was compromised. It is appropriate to order Mr. Astrauskas to pay to Sycor those costs of $16,145.44.

[23] Sycor has also incurred costs of its expert in attempting to obtain documents. Mr. Rudson advises that out of $53,842 in billings, $51,149 is said to be attributable to attempts to obtain the documents necessary to assess the damages in this matter. The preliminary work in 2010 when Mr. Rudson was first retained appears to have been in relation to a damage claim. It is apparent that much of the work after that would have been necessary even if the invoices had been earlier produced, such as the work in 2012 and 2013. Work in 2014 in reviewing the 3000 sales invoices finally produced would presumably have had to be done if these invoices had been produced at the outset. It is apparent that Mr. Rudson, however, has spent some time in dealing with the need for all invoices, and in the circumstances I think it appropriate to order Mr. Astrauskas and Mr. Kiaer to jointly and severally pay a modest amount of $4,000 to Sycor for that work.

[24] Sycor in its factum claimed that the defendants on a joint and several basis pay “a sizeable fine” to Sycor. In argument it was put that Mr. Astrauskas and Mr. Kiaer are wealthy men and that anything less than $250,000 would only be a slap on the wrist. Counsel for Mr. Astrauskas said there should be no fine for not disclosing the sales invoices and that if a fine for the lack of production of the emails is to be imposed, it should not be more than $5,000 and should be payable to the Treasurer of Ontario. Counsel for Mr. Kiaer said that if there is to be a fine, it should be in the range of $3,000.

[25] In Boily, in which a fine was ordered to be paid by directors of a condominium corporation to the condominium corporation of $7,500 each, Epstein J.A. reviewed the range of fines in other cases and said that in general, awards for civil contempt in Canada range between $1,500 and $5,000. She further stated that the few instances in which fines have been imposed at $100,000 or higher have been against unions with large membership or against large corporations in egregious circumstances.

[26] Some of the principles to be considered in setting a fine for civil contempt are the need for proportionality to the gravity of the offence, any aggravating or mitigating circumstances, the need for deterrence and denunciation, the similarity of fines in like circumstances and the reasonableness of the fine. See Boily at para. 90. Failure to take into account the ability to pay a fine that is imposed is an error. See Boily at para. 134.

[27] In this case, it is apparent that Mr. Astrauskas and Mr. Kiaer are men of considerable means, although exactly how considerable is not on the record. They refused on their cross-examinations to disclose their net worth, but they have substantial business interests. I am satisfied that they have the ability to pay the fines I intend to impose as well as the other amounts ordered to be paid to Sycor.

[28] In this case, an apology has been given by both Mr. Astrauskas and Mr. Kiaer, but I view these as somewhat lacking in that each blames someone else. However, it is the first time each has been involved in a contempt of court and the invoices have been produced. The email correspondence has not been able to be produced, for which I have found Mr. Astrauskas in contempt of court. In all the circumstances, I find that an appropriate fine to be paid by Mr. Astrauskas is $7,500 and by Mr. Kiaer is $5,000. Like Boily, I order these amounts to be paid to the plaintiff Sycor. The Astrauskas defendants are each liable for the amounts ordered to be paid by Mr. Astrauskas.

[29] Sycor is also entitled to its costs of the contempt proceedings. It is acknowledged that Sycor is entitled to its costs but it is asserted the costs should be only on a partial indemnity basis. I decline to do that. A contempt of court is an extremely serious issue involved wrongdoing. Sycor is entitled to its costs on a full indemnity basis. If costs cannot be agreed, brief written submissions along with a proper cost outline may be made in writing within 10 days and brief written submissions in response may be made within a further 10 days.

Newbould J.

Date: November 28, 2016

[^1]: I hesitate to say too much as it may be that a claim has been made against Ms. Willson. It was argued on the motion that she was in a conflict position, which is not relevant to the issue of the proper punishment for contempt of court.