COURT FILE NO.: CV-10-395775
DATE: 20180307
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Technology Incentives Inc.
AND:
979072 Ontario Inc. (c.o.b. Aurora Microsystems), 1232342 Ontario Inc. (c.o.b. Aurora Research or Rebate$.Net or Rebates.Net, Kevin Fitzgerald and Kelly Fitzgerald (also known as Kelly Trainor)
BEFORE: Allen J.
COUNSEL: Boris Goryayev, for the Plaintiff
James Coristine, for the Defendants
HEARD: February 9, 2018
ENDORSEMENT
THE MOTION
[1] The Plaintiff brings this motion to quash the Defendants’ appeal of the Endorsement of Master Pope dated July 12, 2017. The Plaintiff seeks an order to quash the Notice of Intent to Appeal (“the Notice”) on the bases that the appeal lacks merit and that the appeal is an abuse of process as being brought for the purpose of delaying the action.
[2] The Plaintiff also seeks an order to quash on procedural grounds on the basis that the Defendants did not properly serve the Notice dated July 19, 2017.
[3] The Defendants oppose the order to quash asserting that they have a meritorious case for appeal. They bring a cross-motion seeking retroactive rectification of what the Defendants call “an irregularity” or “error” in the service of the Notice. The Defendants seek an order validating service.
AN ORDER TO QUASH
[4] A court may quash an appeal under s. 134 of the Courts of Justice Act in the appropriate case. Not every case is appropriate for an order to quash. Such an order may only be granted where the moving party demonstrates the appeal is “manifestly devoid of merit” or where an appeal can be said to be an abuse of process because it was brought only for the purpose of delay: Oatway v. Canadian Wheat Board, 1945 43 (SCC), [1945] S.C.R. 204 (SCC).
[5] The background facts of this case are as follows:
The Defendant companies were in the business of providing consulting services to other businesses to assist them with obtaining research tax credits;
The principal Defendant Corporation is a numbered company 979072 Ontario Inc. (“979”) and the agent company of 979, also a Defendant, is 1232342 Ontario Inc. (“123”);
The individual Defendant Kevin Fitzgerald was at all material times the controlling mind of both 979 and 123;
On September 26, 2007, the Plaintiff entered into a contract with 979 for consulting services in relation to research tax credits;
The Plaintiff supplied the Defendants with intellectual property and trade secrets to assist the Defendants’ clients with establishing eligibility for tax credits;
The Plaintiff would receive information from the Defendants’ clients and propose the necessary tax forms for the Canada Revenue Agency (“CRA”);
The Plaintiff claims the Defendants breached the contract by failing to remit fees due to the Plaintiff under the contract; and
The Defendants, according to the Plaintiff, also used intellectual property and trade secrets of the Plaintiff for their own financial gain and failed to deliver to the Plaintiff agreements related to non-disclosure, correspondence from CRA, and financial statements of fees received from the Defendants’ clients.
[6] The central issue before Master Pope concerned undertakings given by Kevin Fitzgerald at examinations for discovery. Before the matter reached Master Pope a number of production matters came before other Masters in relation to undertakings given by the Defendants. Those motions took place over the years from 2011 to 2015. The Defendants have been under multiple orders to answer undertakings.
[7] The Plaintiff retained an expert on June 13, 2011 to prepare a Financial Loss Report. The expert prepared a schedule of the corporate records that he needed from the Defendants to complete his Report. Further requests for records were made up until June 2015. The Plaintiff asserts that until today the expert does not have the records he requires.
[8] The Plaintiff brought a motion on July 11, 2017 before Master Pope for an Order compelling the Defendants to answer the undertakings given at examinations for discovery that were still outstanding. The focus, for the purpose of the motion before me, is the undertakings that Defendant Kevin Fitzgerald gave with respect to a numbered company 1594653 (“159”), a company related to his business, which company is not a party to this action.
[9] Kevin Fitzgerald gave undertakings at his examination for discovery held on October 15, 2014 that pertained to 159. The Plaintiff’s motion before Master Pope involved those undertakings by Kevin Fitzgerald, among others.
[10] Master Pope received evidence on the motion that seemed to suggest that Kevin Fitzgerald was the director of 159. An issue arose during Kevin Fitzgerald’s examination for discovery as to whether his elderly mother, Bernice Fitzgerald, once the director of 159, remained the director of 159 at the material time. The corporate profile for 159, obtained on September 9, 2011, shows Bernice Fitzgerald as the director. She also is not a party to this action.
[11] Master Pope made a finding that Kevin Fitzgerald is the director of 159. Master Pope therefore ordered that Kevin Fitzgerald make best efforts to answer the undertakings which could include requests of the CRA and of 159’s accountants.
[12] The question raised on the motion to quash is whether there was sufficient evidence before Master Pope for a finding that Kevin Fitzgerald was the director at the material time. Flowing from this is whether he has the obligation to produce records of 159.
[13] The evidence on the record before Master Pope was a letter dated April 18, 2017 from a lawyer retained by Bernice Fitzgerald, Mr. Choban. In the letter he states that it is his “understanding” that Kevin Fitzgerald was a director of 159 “at the material time”. Master Pope also had before her the above-mentioned corporate profile for 159 which indicates Bernice Fitzgerald as the director.
[14] Master Pope also had before her Kevin Fitzgerald’s transcripts from his examinations for discovery held on September 13, 2011 and October 15, 2014.
[15] On September 13, 2011, Kevin Fitzgerald answered “No” to the question whether he was the director of 159. He said he was the president “at that point”. He indicated he became president after 2007 and said it would have been in 2011. Kevin Fitzgerald undertook to provide information as to when he became president.
[16] On October 15, 2014, Kevin Fitzgerald answered questions that referred to the financial affairs of “his mother’s” company, 159. He gave undertakings to produce records or make his best efforts to produce the 159 records requested.
[17] The Defendants seek to appeal Master Pope’s finding that Kevin Fitzgerald was a director of 159 at the material time. The Defendants submit that Master Pope relied on the corporate profile showing Bernice Fitzgerald as the director of 159 and the letter from Bernice Fitzgerald’s mother stating his “understanding” that Kevin Fitzgerald was the director of 159 at the material time.
[18] The Defendants submit that the appeal is meritorious because Master Pope had insufficient evidence to support her finding of Kevin Fitzgerald being the director. The Defendants submit that Master Pope made errors of mixed fact and law.
[19] In terms of a legal error, in the Defendants’ view, the finding was in part based on Bernice Fitzgerald’s lawyer’s letter that was improperly before the court. The letter was not before the court through sworn affidavit evidence and therefore has the value of unsworn unsupported hearsay. The Defendants’ further submission is that the letter is contradicted by other documentary evidence such as the corporate profile for 159.
[20] On the error of fact, the Defendants submit that there was no supporting evidence before Master Pope of Kevin Fitzgerald’s duties in relation to 159 and therefore no factual basis to determine Kevin Fitzgerald was a director. Kevin Fitzgerald actually stated that he was the president of 159, and if that were the case, there is no evidence of what his duties would have been in that capacity.
[21] The Plaintiff’s position is that the letter from Bernice Fitzgerald’s lawyer, together with Kevin Fitzgerald’s testimony at his discoveries, provide sufficient proof that Kevin Fitzgerald was the director of 159 at the material time. The Plaintiffs take the position that the Defendants’ appeal is without merit.
[22] I disagree with the Plaintiff’s position. The test as set out by the Supreme Court in the Oatway case requires that the appeal be “manifestly without merit”. “Manifestly” means unmistakably without merit. I do not find that the Defendants’ appeal meets that test.
[23] There is certainly scope in the grounds of appeal for the appeal court to consider whether the evidence relied upon by Master Pope to find Kevin Fitzgerald to have been a director at the material time is sufficient to arrive at that finding. The corporate profile contradicts the Plaintiff’s position and there was no updated corporate profile. There is also the question of the weight to be given to Bernice Fitzgerald’s lawyers’ letter. Kevin Fitzgerald’s evidence from his examination for discovery is far from conclusive as to his role and duties with 159 at the material time of his relationship with the Plaintiff.
[24] I find the Defendants’ appeal has merit.
[25] On the question whether the appeal should be quashed for abuse of process on the view that the appeal was simply being used as a delay tactic by the Defendants, I do not accept that submission. There may have been some delay in the past on the Defendants’ part in satisfying undertakings. However, in the context of this motion, I do not think delay marks the reason for bringing the appeal. This is particularly in light of the fact that I find the appeal is meritorious. It is reasonable that Kevin Fitzgerald would have an interest, if he is successful on appeal, in not being burdened with obligations that are not legally justified.
SERVICE OF THE NOTICE
[26] On the question of service of the Notice, I do have some concerns about defence counsel’s conduct. The delivery, not proper service as required by the rules, of a Notice to the opposing party without providing a date for the appeal is not proper. Failing to respond to the Plaintiff’s correspondence about the deficiency in the Notice, correspondence that the record shows was delivered to defence counsel, also falls short of good practice.
[27] The record also shows that defence counsel filed the Notice with the court that contains a misrepresentation that the Plaintiff had been served when the record shows the Plaintiff has never been served up to the present. In fact, the Plaintiff only learned that the appeal was actually scheduled months after they received the deficient Notice. Whether through error or intention that conduct reflects substandard practice for a lawyer, of course more so if done intentionally. Defence counsel’s conduct resulted in extra effort by the Defendants in their attempts to communicate with defence counsel and quickly prepare for and bring this motion.
[28] The important substantive issue here is that the Defendants have a meritorious appeal. The concerns about service, though not to be taken lightly, are procedural in nature. I can see no prejudice to the Plaintiff for not being properly served. The appeal proceeding is set for April 24, 2018, which will provide sufficient time for the Plaintiff to prepare for the appeal. The Plaintiff is concerned about their expert receiving the records he requires to prepare his Report. I find the Plaintiff will have sufficient time to obtain the records by the required 90 days before the pre-trial conference since it is set for July 17, 2019. The trial is set to begin on September 16, 2019.
[29] In view of the merits of the appeal it will go forward. I grant the Defendants’ request to retroactively validate service. The Plaintiff is not without a remedy for their concerns about the defence counsel’s conduct. I will take those concerns into account in awarding costs of this motion.
Order
[30] I deny the Order to quash the appeal and retroactively validate service of the Notice of Appeal.
Costs
[31] The Defendants seek costs of the motion of $4,395.98 inclusive. I deny the Defendants their costs for reasons set out above.
ALLEN J.
Date: March 7, 2018