Apex Sound and Light Corporation v. 1878170 Ontario Ltd.

COURT FILE NO. 94108/15SR

DATE: 2021-07-20

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Apex Sound and Light Corporation Plaintiff

– and –

1878170 Ontario Ltd., o/a Ashen White Audio Visual Executives Defendant

– and –

Metalworks Productions Inc. Third Party

COUNSEL:

Kyle Armagon, for the plaintiff

Michael Simaan, for the defendant Arnold Schwisberg and Adam Giel, for the third party

HEARD: May 31 and June 1, 2021

REASONS FOR DECISION

S.T. Bale J.

[1] The trial of this action was scheduled to begin on May 31, 2021. However, prior to the start of trial, counsel for the third party made three motions. I found it necessary to reserve my decision on the motions, with the result that the trial was adjourned to September 13, 2021.

[2] The three motions were:

• a motion to permanently stay the third party claim, based upon an alleged failure of the plaintiff and defendant to immediately disclose a Mary Carter agreement;
• a motion to permit the third party to call Chris Angleberger as an expert witness; and
• a motion to permit the third party to cross-examine the plaintiff’s witness, notwithstanding that the third party has not defended the plaintiff’s claim.

Factual and procedural background

[3] Apex Sound and Light Corporation rented 20 Martin MAC Aura lights to Ashen White Audio Visual Executives. Ashen White cross-leased the equipment to Metalworks Productions Inc. Following its use by Metalworks, the equipment was returned to Apex late, and in a damaged condition. The plaintiff’s claim is for the resulting damages.

[4] In its statement of claim, Apex pleads:

• that its contract with Ashen White prohibited Ashen White from subleasing the lights, and that the sublease to Metalworks was in breach of that contract;
• that Aura lights are not approved for outdoor use;
• that Metalworks used the equipment at an outdoor music festival;
• that the lights sustained water damage while in use at the festival; and
• that as a result, Ashen White is liable to Apex for the damage to the equipment.

[5] In its statement of defence, Ashen White denies that the Aura lights were not approved for outdoor use (by means of the general denial in paragraph 3) and pleads:

• that the contract pleaded by Apex was not signed by Ashen White, and that the governing contractual terms were contained in a quotation;
• that none of the contractual terms Apex purports to rely upon were contained in the quotation;
• that Ashen White had advised Apex that the lights were to be subleased as part of a larger rental contract, and that such arrangements are common in the industry; and
• that Apex failed to exercise proper care and maintenance of the lights, and in particular, failed to put a silicone coat on the sensitive electronic components to prevent water damage.

[6] In the third party claim, Ashen White:

• “repeats and relies upon the allegations contained in its statement of defence”;
• alleges that it was not aware that Metalworks would use the equipment outdoors, and did not authorize them to do so; and
• pleads that the damage was due solely to the negligence and misuse of the equipment by Metalworks.

[7] In its third party defence, Metalworks pleads:

• that it was not aware that Ashen White was renting the equipment from Apex, and that industry practice requires that such arrangements be disclosed;
• that Ashen White was aware that the equipment was to be used at an outdoor music concert, and that it was understood that the equipment would be suitable for such use;
• that the equipment had not been prepared for outdoor use, and in particular, Ashen White had failed to ensure that the electronic components were coated with silicone so that they could be used outdoors;
• that Ashen White had interfered with Metalworks’ attempts to air dry and restore functionality to the lights; and
• that Ashen White failed to take steps to mitigate its damages.

Metalworks’ motion to permanently stay the third party claim

[8] For the following reasons, Metalworks’ motion to permanently stay the third party claim will be dismissed.

[9] On the first day of trial, just after 9:00 a.m., counsel for Ashen White provided an agreed statement of facts (as between Apex and Ashen White) to counsel for Metalworks and to the court. Counsel for Metalworks then moved for an order staying the third party claim on the ground that the agreed statement was “tantamount to a Mary Carter agreement”, or a “Mary-Carter-like agreement” that had not been disclosed immediately upon completion. In the alternative, counsel argued that the trial should be adjourned or that the agreed statement should be excluded from evidence.

[10] The agreed statement of facts begins with the following statement: “[Apex and Ashen White] agree to the following statement of facts as the basis for judgment in the trial of this action.” The facts stated included the following:

• that the equipment was not approved for outdoor use, and its user manual specifically states that it is not to be exposed to moisture or rain and is to be used indoors only;
• that the total cost to repair the equipment would be $43,245.68, and that the repairs would not guarantee that the equipment would be operational;
• that Apex replaced the equipment at a total cost of $98,310;
• that the damages incurred by Apex were a rental fee of $3,955 that Apex incurred to rent replacement equipment on a short-term basis, and the pre-damage value of the equipment; and
• that the value of the equipment before it was damaged was “somewhat more that the $43,245.68 repair costs … and somewhat less that the $98,310 cost for the new lights … ”

[11] The agreed statement of facts ends with the following statement: “The parties agree that the value of the Equipment is between $50,000 and $60,000 and request this Honourable Court’s determination of the value of the Equipment between these two amounts based upon the facts set out in these Agreed Statement of facts.”

[12] In Handley Estate v. DTE Industries Ltd., 2018 ONCA 324 (a case with which I am intimately familiar), the court, in overturning the motion judge’s decision, referred to its decision in Aecon Buildings v. Stephenson Engineering Limited, 2010 ONCA 898, 328 D.L.R. (4th) 488, leave to appeal refused, [2011] S.C.C.A. No. 84, as follows (at para. 45):

Several clear messages emanate from Aecon:

(i) The obligation of immediate disclosure of agreements that "change entirely the landscape of the litigation" is "clear and unequivocal" -- they must be produced immediately upon their completion: at paras. 13 and 16;

(ii) The absence of prejudice does not excuse the late disclosure of such an agreement: at para. 16;

(iii) "Any failure of compliance amounts to abuse of process and must result in consequences of the most serious nature for the defaulting party": at para. 16; and

(iv) The only remedy to redress the wrong of the abuse of process is to stay the claim asserted by the defaulting, non-disclosing party. Why? Because sound policy reasons support such an approach:

Only by imposing consequences of the most serious nature on the defaulting party is the court able to enforce and control its own process and ensure that justice is done between and among the parties. To permit the litigation to proceed without disclosure of agreements such as the one in issue renders the process a sham and amounts to a failure of justice: at para. 16.

[13] Ashen White argues that the agreed statement of facts is not a Mary Carter agreement, and that it was disclosed in a timely manner.

[14] I agree that the agreed statement of facts does not amount to a Mary Carter agreement. However, in Handley Estate, at para. 39, the court said the following with respect to litigation agreements covered by the obligation of immediate disclosure:

The obligation of immediate disclosure is not limited to pure Mary Carter or Pierringer agreements. The disclosure obligation extends to any agreement between or amongst parties to a lawsuit that has the effect of changing the adversarial position of the parties set out in their pleadings into a co-operative one: Aviaco International Leasing Inc. v. Boeing Canada Inc. (2000), 2000 CanLII 22777 (ON SC), 9 B.L.R. (3d) 99 (Ont. S.C.), at para. 23. To maintain the fairness of the litigation process, the court needs to "know the reality of the adversity between the parties" and whether an agreement changes "the dynamics of the litigation" or the "adversarial orientation": Moore v. Bertuzzi, 2012 ONSC 3248, 110 O.R. (3d) 611, at paras. 75-79.

[15] The agreed statement of facts in this case changes the adversarial orientation of the law suit. Nothing could be clearer. Not only does Ashen White appear to have abandoned the defences raised in its statement of defence, Apex and Ashen White go so far as to jointly request the court to fix Apex’s damages at somewhere between $50,000 and $60,000 for the value of the equipment, plus the $3,955 that Apex incurred to rent replacement equipment.

[16] However, I do agree with Ashen White that the agreed statement was disclosed in a timely manner. According to counsel for Ashen White, it was fashioned over the weekend, with the final version of the agreement being forwarded by him to counsel for Apex, for approval, on Sunday evening. He said that he did not have approval of the final version until Monday morning, at which time it was formatted and emailed to the court and counsel for the third party.

[17] Counsel for Metalworks argues that this was not good enough, and that the agreement should have been disclosed sooner. He argues that the obligation of immediate disclosure means just that – in effect, as soon as the pen drops. He says that had the agreement been disclosed on Sunday, he would have prepared his cross-examinations differently.

[18] I find it difficult to respond to Metalworks position on the timeliness of the disclosure other than to say that in the context of this case, I find the disclosure to have been immediate, within the meaning of that term as used in both Aecon and Handley Estate. The litigation did not proceed without disclosure of the agreement.

Motion to permit the third party to call Chris Angleberger as an expert witness

[19] For the following reasons, Metalworks will be allowed to call Chris Angleberger as an expert witness.

[20] In October 2017, Chris Angleberger provided Metalworks with a statement of what he would say if called upon as an expert in this proceeding. Copies of his statement and an acknowledgement of expert’s duty were then served on Apex and Ashen White. At the time, Mr. Angleberger was the North American Service Manager for Christie Lites Inc. Metalworks’ intention was to deliver a more formal report, if a settlement could not be reached.

[21] In February 2018, counsel for Ashen White wrote to counsel for Metalworks advising that Mr. Angleberger would not be giving evidence upon behalf of Metalworks. He said that his client had been contacted by the CEO of Christie Lites who advised that Mr. Angleberger did not support the expert’s statement he had provided and that “outside influence” had been used to make him sign the statement.

[22] In March 2018, Gil Moore, owner of Metalworks, spoke with Mr. Angleberger’s boss at Christie Lites, as well as the owner of Christie Lites. In an affidavit sworn in June 2018, Mr. Moore swears that as a result of those conversations, he came to the firm conclusion that someone at Ashen White had contacted Christie Lites and advised that if Mr. Angleberger continued to maintain his opinion supportive of Metalworks, Ashen White would cease to do business with Christie Lites.

[23] As a result, it became necessary for Metalworks to retain a new expert to replace Mr. Angleberger.

[24] A pre-trial of the action was scheduled for June 21, 2018. On May 15, 2018, counsel for Ashen White, relying on the timeline for service of expert reports in rule 53.03 (not less than 90 days before the pre-trial conference) advised counsel for Metalworks that he would not consent to delivery of a new expert report.

[25] Metalworks then successfully moved at the pre-trial conference for an order extending the time for service of an expert report. The order of the pre-trial judge provided that Apex and Ashen White would be entitled to file responding reports. The report of Paul Dexter, Metalworks’ replacement expert was served on July 21, 2018. Neither Apex nor Ashen White have served responding reports.

[26] During the course of Metalworks’ recent preparations for trial, counsel discovered that Mr. Angleberger no longer worked for Christie Lites and would be willing to testify at trial. However, counsel for Ashen White opposes Mr. Angleberger’s involvement, resulting in this motion.

[27] Ashen White’s primary argument against the involvement of Mr. Angleberger is that his evidence will be duplicative, given that Metalworks also intends to rely upon the evidence of their replacement expert, Paul Dexter. However, Metalworks is entitled to have two experts, the qualifications and experience of the two are different, and one may fare better under cross-examination than the other. It is also relevant that Christie Lites was consulted by Metalworks at the time of the incident in question, with the result that Mr. Angleberger has some contemporaneous knowledge of the matters in issue.

[28] Whether it was Ashen White (as Mr. Moore believes) or not, someone interfered with Metalworks’ retainer of Chris Angleberger, and but for that interference, this issue would not have arisen. In these circumstances, I have no hesitation in ordering that Metalworks be allowed to call Mr. Angleberger as an expert witness.

[29] The report of Mr. Angleberger served in October 2017 was not fully compliant with rule 53.03(2.1). While it contains the substance of his opinion, it lacks the instructions he was given, the sources he consulted, and the assumptions that he made. In response to a question from the bench as to whether, if I were to allow Mr. Angleberger to testify, he would require a fully-compliant report, counsel for Ashen White said that he would prefer that no new report be delivered. I will therefore leave it up to counsel for Metalworks whether he revises the report to be compliant, but if he intends to do so, the revised report must be served no later than July 30, 2021.

Motion to permit the third party to cross-examine the plaintiff’s witness

[30] For the following reasons, counsel for Metalworks will be allowed to cross-examine the plaintiff’s witness.

[31] This is a simplified procedure action with the presentation of evidence in chief to be by affidavit. Apex’s evidence in chief consists of one affidavit – an affidavit sworn by its president, Graham Northam.

[32] Metalworks did not defend the plaintiff’s claim. Based upon its failure to do so, Apex and Ashen White argue that counsel for Metalworks is not entitled to cross-examine Mr. Northam. I disagree.

[33] While there is a dearth of precedent on this issue, there is appellate authority supporting Metalworks’ position. In Alie v. Bertrand & Frère Construction Co., 2000 CanLII 50976 (ON SC), [2000] O.J. No. 1360 (S.C.J.), a number of third parties who had not defended the main action were allowed to cross-examine the witnesses in the main action, limited to evidence affecting issues in the third party claim (see para. 12). On appeal, the court found this to be “entirely proper”: 2001 CanLII 62748 (ON CA), [2001] O.J. No. 2014 (C.A.), at para. 13.

[34] One of the primary issues in the case is whether the Aura lights are suitable for outdoor concerts. In his affidavit, Mr. Northam sets out his credentials in the audio/video industry, including with respect to lighting equipment. He then goes on to say that “it is known throughout the industry … that [Aura] lights are for indoor use only” and that “these particular lights are not meant for any exposure to water.”

[35] This evidence is contrary to the positions relating to the outdoor use of Aura lights pleaded by both Ashen White and Metalworks. However, given that the positions on liability of Apex and Ashen White now appear to be aligned, there will be no reason for Ashen White to cross-examine Mr. Northam on this evidence. The evidence is relevant to Metalwork’s defence to Ashen White’s claim, and it would be unfair to Metalworks to allow the evidence to go unchallenged. In my view, it is the effect of Mr. Northam’s evidence on Metalworks’ position that is important, and not the absence of an issue, as between Apex and Metalworks, on the face of the pleadings.

[36] Counsel for Apex argues that Metalworks elected years ago not to defend Apex’s claim and that it was now trying to get rights that it would have had, had it done so. He refers to rule 29.05(2)(a) which provides that a third party who delivers a statement of defence in the main action has the same rights and obligations in the main action, including those in respect of discovery, trial and appeal, as a defendant in the main action. However, in my view (and as conceded by counsel for Apex in argument), while rule 29.05(2)(a) affords rights to a third party who defends the main action, it does not displace the court’s discretion to allow cross-examination of a plaintiff by a third party who does not, where the cross-examination is relevant to the third party’s defence to the third party claim.

[37] Counsel for Apex argues that his client will be put at a disadvantage if he is cross-examined by Metalworks, because he does not know what will be put to him and may not be prepared. He says that this is unfair because Metalworks did not deliver a pleading in the main action which would set out its position. However, Metalworks’ position is set out in its third party defence and has been since April 2016.

[38] Counsel for Ashen White then took up the cause for Apex and argued that it would be unfair to Apex to allow Metalworks to cross-examine Mr. Northam, when Apex had not had the opportunity to examine Metalworks’ representative for discovery. However, Apex did not request discovery of Metalworks and there is no suggestion of what counsel for Apex might have covered on such a discovery that was not covered by counsel for Ashen White.

[39] It is also not clear that Apex would not have been entitled to examine Metalworks’ representative for discovery. Counsel for Metalworks says that he would have permitted it. In Air Canada v. Meridien Credit Corp. Canada, [1985] O.J. No. 1692 (Dist. Ct.), the court allowed the plaintiff to examine the third party for discovery, even though the third party had not defended the main action. But see Dunlaw Life Insurance Agency Ltd. v. Citadel Life Assurance Co., [2000] O.J. No. 4675, at para. 28, where the case management master disagreed with the result in Meridien.

[40] Counsel for Ashen White also argued that Metalworks could not pursue its mitigation arguments in the third party claim, because that could result in findings inconsistent with findings in the main action. I disagree. Given that Apex and Ashen White appear to have invited the court to grant judgment in the main action against Ashen White (for the pre-damage value of the lights plus the replacement rental fee), no findings of fact relating to mitigation need be made in the main action. In any event, the main action and the third party claim are to be tried together, pursuant to rule 29.08(2), and as requested by Metalworks in the third party claim. If they are being tried together, the evidence in one proceeding is evidence in the other, provided that it is relevant to both.

Disposition

[41] For the reasons given, the motion to stay the third party claim is dismissed, and the motions to allow Metalworks to cross-examine Graham Northam and to call Chris Angleberger as an expert witness are allowed. I will deal with the costs of these motions as part of my disposition of the action following trial.

[42] The trial is adjourned to September 13, 2021.

[43] The parties shall agree to a trial management plan, compliant with rule 76.10(2), and provide a copy of same to my judicial assistant, no later than August 30, 2021. If they fail to do so, a trial management conference will be required during the week of September 7, 2021.

[44] Following the hearing of the three motions, counsel for Metalworks advised that he may wish to bring further motions. After failing to agree on a hearing date for such motions, counsel agreed that any further motions will be made in writing. In order to ensure that the trial is not derailed a second time, all motion materials (moving party’s and responding party’s) must be served and filed no later than August 23, 2021. I trust that I can leave it to counsel to cooperate to see that this is done.

“S.T. Bale J.”

Released: July 20, 2021

REASONS FOR DECISION

S.T. Bale J.

Released: July 20, 2021