Levchak v. Automation Now Inc. et al, 2023 ONSC 4205

Court File and Parties

COURT FILE NO.: CV-22-0086-00 DATE: 2023-07-18

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Larry Levchak v. Automation Now Inc., 1852168 Ontario Ltd., 2563906 Ontario Ltd., Edward Fukushima, Kelly Campbell

HEARD: June 28, 2023

BEFORE: Nieckarz J.

COUNSEL: Roderick Johansen, for the Plaintiff Eric Zablotny, for the Defendants

Endorsement on Costs

1Each party seeks costs of the Plaintiff’s motion for particulars. On April 6, 2023, the motion was resolved on consent, subject to argument on costs. This was not before there were various court appearances, extensive materials delivered on behalf of the Plaintiff and the Defendants, and cross-examination by the Defendants of the Plaintiff.

2The Plaintiff argues that he is entitled to costs on a substantial indemnity basis in the amount of $25,790.40 inclusive of fees, disbursements, and HST. In the alternative, he seeks partial indemnity costs totalling $15,248.85 inclusive. He argues that the Defendants’ refusal to provide particulars, and other conduct throughout the motion proceedings warrants a level of costs that demonstrates condemnation from the court.

3The Defendants seek costs of $22,628.65, inclusive, on a substantial indemnity scale, or $15,621.87 on a partial indemnity scale. The Defendants argue that the motion was unnecessary as is evidence by the Plaintiff’s settlement for no further particulars than they had prior to the motion, and that they were the successful parties to the Defendants’ motion to compel attendance at cross-examination.

4For the reasons set out below, the Plaintiff shall have his costs of the motion for particulars. There was divided success on the motion for cross-examination and therefore there shall be no costs to either party of that motion.

Facts

5This is an action commenced by a former employee, and shareholder of the Defendant corporation, Automation Now. The action pertains to the termination of his employment, and allegations that the Defendants have conducted themselves in a manner that is oppressive to the interests of the Plaintiff contrary to s. 248 of the Business Corporation Act, R.S.O. 1990, c. B-16.

6On April 14, 2022, the Defendants served their Statement of Defence and Counterclaim (“SOD”) on the Plaintiff. The Defendants brought a Third-Party Claim against Sharon O’Shea, sister of the Plaintiff and a former employee of the Defendant corporation who has also commenced a wrongful dismissal action.

7In the SOD, the Defendants allege that the Plaintiff and O’Shea have committed extensive acts of fraud, conspiracy, misrepresentation, and breaches of fiduciary duties while employed by the Defendant corporation.

8In May 2022, the Plaintiff served a Demand for Particulars (the “Demand”) of these allegations. A demand for particulars was also served in the Third-Party claim. The Plaintiff took the position that particulars were required of the allegations against him to properly defend against the counterclaim.

9The Defendants served a Response to Demand for Particulars dated June 2, 2022 (the “Response”). The Response provided some additional information, but primarily stated that all particulars requested were contained in the SOD, or otherwise within the Plaintiff’s knowledge.

10The Plaintiff took the Response as being non-responsive to the Demand. He brought a motion for particulars. The Defendants vigorously opposed the motion and sought cross-examination of the Plaintiff on his affidavit, alleging that he already had knowledge of the particulars sought.

11The Plaintiff resisted the Defendants’ request to examine him. The Plaintiff argued that the request for cross-examination was nothing more than an attempt to obtain discovery prior to particulars of the allegations being provided. Similarly, the Defendants argued that the Plaintiff’s request for particulars was discovery in disguise. Each party made allegations of inappropriate conduct against the other with respect to the litigation.

12On November 29, 2022, I delivered my Endorsement and reasons for decision on the motion to cross-examine (see Levchak et. al. v. Automation Now Inc., et. al., 2022 ONSC 6703). Relevant parts of the decision are:

21I share the concerns of the Plaintiff that the examination sought may amount to a premature discovery and potential fishing expedition, with little relevant to the motion for particulars. I question the Defendants’ motives in proceeding in this manner. It strikes me that they are attempting to conduct a premature discovery without having to reveal their hand by providing particulars of the alleged wrongdoings, such as the alleged unauthorized and unlawful transactions (the who, what, where, when of these transactions).

24The only potentially controversial statement in the affidavit may be found at paragraphs 5 and 9, where the Plaintiff attests that he has no knowledge of the allegations in the Defence and Counterclaim and Third-Party claim, which he denies.

25The Defendants shall be permitted to cross-examine the Plaintiff on his affidavit, but in order to avoid a premature discovery being conducted, and to guard against the dangers and prejudice of subjecting a party to discovery when the pleadings have yet to close due to a claim by that party that he had insufficient information to plead, I am exercising my discretion to limit the scope of cross-examination. Relevance and proportionality shall be the guiding factors in the cross-examination.

26Cross-examination shall be limited to questions pertaining to the Plaintiff’s knowledge of the particulars sought. This is the only relevance to the motion for particulars. While I appreciate that cross-examinations do not need to be limited to relevance to the motion if an issue is raised in an affidavit, it is appropriate to do so in this case…

27Costs of this motion shall be reserve to the judge hearing the motion for particulars. That judge will be in a better position to determine whether there was any necessity for a cross-examination, and therefore this motion.

13Cross-examination of Mr. Levchak occurred on January 20, 2023. I have reviewed the transcript. Unfortunately, the scope of cross-examination went beyond that contemplated by my order and in my view, crossed into territory that could be considered examination for discovery.

14On March 23, 2023, counsel for the Plaintiff wrote to counsel for the Defendants asking, in part, as follows:

“Based on your examination of Mr. Levchak and your statement below that Mr. Levchak “has all the information necessary to plead” it suggests that the defendant has no further particulars in support of its defence and counterclaim and related third party claim.

If that is correct please confirm.

If that is not correct it is necessary to proceed with the motion. Motion will proceed with respect to request 3,4,5,9,10-13 in the main action and request 1,2,5-8 of the third party claim.”

15The motion for particulars was to be argued April 6th, 2023. On March 31st, 2023, the Defendants delivered their factum. In paragraph 34 of the factum, the Defendants stated that “…each and every “particular” demanded by Levchak is contained within the pleadings of the Plaintiffs, as shown below.”. What followed was a chart comparing the “demand” and the “particular”. The particulars are references to the paragraphs of the SOD where the allegations appear.

16The parties agreed that the motion was resolved. The Plaintiff was satisfied that paragraph 34 of the factum was a comprehensive response to the Demand. The Plaintiff sought to have paragraph 34 incorporated into the trial record as forming part of the Defendants’ response to the Demand. The Defendants disagreed. I granted the order sought by the Plaintiff on April 6th, 2023.

Legal Framework Re Costs

17By virtue of s. 131(1) of the Courts of Justice Act, an award of costs is in the discretion of the judge. It is a wide discretion, to be exercised taking into consideration the factors outlined in Rule 57.01 of the Rules of Civil Procedure.

18In Fong v. Chan, (1999), 46 O.R. (3d) 330 (Ont. C.A.), the Court of Appeal set out three fundamental purposes of modern costs rules:

1. To indemnify successful litigants for the cost of litigation;
2. To encourage settlements; and
3. To discourage and sanction inappropriate behaviour by litigants.

19The Ontario Court of Appeal has also made it clear that in assessing costs, the overriding principle is one of reasonableness, and that the failure to follow that principle can produce a result that is contrary to the fundamental objective of access to justice (Boucher v. Public Accountants Council for the Province of Ontario, (2004), 71 OR (3d) 291 (Ont CA) at para. 37).

Positions of the Parties

The Plaintiff

20The Plaintiff argues that the motion was directed at securing a proper response to the Demand and he was successful in securing the same. The motion was necessary, while the Defendants’ opposition and conduct with respect to the motion was unreasonable, including the Defendants’ decision to cross-examine. Having said this, the Plaintiff acknowledged that there was some benefit derived from the cross-examination in that, combined with paragraph 34 of the factum of the Defendants, it allowed the Plaintiff to form the conclusion that there were no further allegations other than as set out in paragraph 34.

21The Plaintiff further argues that the SOD made broad and extensive allegations of fraud, conspiracy, embezzlement, concealment, unauthorized purchases, clandestine and unauthorized misuse of company credit cards, fraud of company property, and fraud of company funds and benefits. No specifics were provided, other than as contained in paragraph 18 of the SOD, which stated:

18. Some of the personal expenditures enjoyed by the Plaintiff and his sister, and fraudulently charged to the Company include the following:

-boat fishing electronics; -airplane electronics and parts; -air conditioners shipped to the Plaintiff’s Jamaican properties; -cell phones; -building supplies destined for the Plaintiff’s Jamaican properties; -tractor repairs; -airplane insurance; -family airfare and other travel costs, including pandemic and vaccination expenses; -vacation accommodations; -solar pool heating equipment for the plaintiff’s Jamaica resort property; -Paypal transactions of a personal nature; -Amazon purchases of a personal nature; -personal utility bills.

[emphasis mine]

22While paragraph 34 of the factum does not provide further details of the allegations other than what is in the SOD and Response, it does link the specific paragraphs of the SOD to the Demand and confirms that “each and every” particular demanded is in the pleading.

23The Plaintiff argues that it took a motion in order for the Defendants to confirm that there was nothing more to their allegations of misconduct than what was contained in paragraph 18 of the SOD. The Plaintiff states that had the Defendants said this from the outset in their Response, the motion could have been avoided.

The Defendants

24The Defendants argue that the Plaintiff’s materials should not be considered as they were not delivered and uploaded to CaseLines 7 days before the hearing as required by my order.

25In any event, the Defendants argue that the motion for particulars was entirely unnecessary. The Plaintiff knows what he did. He did not need particulars. He did know the scope because he committed the acts alleged.

26The Defendants further argue that their position is supported by the fact that the Plaintiff acknowledged various details of the allegations against him in cross-examination (making this motion necessary), and on the eve of the motion he abandoned it with no further particulars having been provided than prior to the motion. The Plaintiff’s conduct with respect to the unnecessary motion exacerbated the complexity of the proceeding. Had he acknowledged that he had the requisite knowledge and information to plead from the onset of this litigation, rather than on the eve of the motion, the motion to compel the cross-examination as well as preparation of materials and argument for the particulars motion would have been avoided entirely.

27The Plaintiff’s allegations and particulars motion necessitated the motion to cross-examine which demonstrated that the Plaintiff had the knowledge of the particulars he claimed not to have, and as his counsel has acknowledged, lead to him abandoning his motion. The motion for cross-examination was necessary. The Defendants were successful and are presumptively entitled to their costs.

Analysis

Motion for Particulars

28It is trite to say that litigation is a costly venture, both financially and emotionally. I agree with counsel for the Plaintiff that litigation demands a practical approach.

29I find that the Defendants’ conduct necessitated the motion and unnecessarily increased costs with respect to the same when there was a practical approach at the outset that could have been adopted.

30The allegations of the Defendants as against the Plaintiff are serious. Such allegations demand that material facts be plead. Ideally the who, what, where, and when of what is alleged. That did not happen. I appreciate that the motion ultimately was not resolved on this basis either. I agree with the Plaintiff that there was still something gained by the motion.

31The Plaintiff demanded particulars with respect to various paragraphs of the SOD. In paragraph 2 of the Response, the Defendants state:

2. Apart from the responses provided below, the Demand for Particulars of the Plaintiff, Larry Levchak (the “Demand”), dated May 5, 2022, is improper, as the demand pertains to particulars contained within the Statement of Defence and Counterclaim, Third Party Claim or otherwise demands evidence which may be explored during the discovery process.

32It would have been very simple for the Defendants to have said – except as otherwise set out in this Response, all alleged misdeeds are contained in the SOD, there is nothing further with respect to the specific allegations, other than what is in paragraph 18. The Plaintiff did not know the scope of what he was alleged to have done. Paragraph 18 of the SOD specifically said that it was referencing only “some” of the misdeeds. It took the motion to confirm that these were all as opposed to merely some of the misconduct alleged against the Plaintiff.

33The Defendants’ argument that the Plaintiff knows what he did and does not require particulars, is not an answer. Certainly, the Plaintiff knows whether he committed acts of misconduct. What the Plaintiff does not know is what is in the knowledge of the Defendants or specifically what they were alleging him to have done. This was important information for him to have to properly defend the counterclaim. Knowing that everything he is alleged to have done was contained in the SOD and other paragraphs of the Response is what the Plaintiff needed. Given the Defendants’ approach to the Demand, a motion was necessary to achieve this clarity. This clarity was gained only through the cross-examination and factum of the Defendants.

34With respect to the motion for cross-examination the Defendants argue they were the successful parties to the motion, and the motion was necessary. They point to the Affidavit of the Plaintiff in which he says he has no knowledge of the allegations. They claim that his responses to the questions asked at the cross-examination revealed that he did have knowledge of the allegations.

35Again, this misses the point. What is important for the purpose of a particulars motion is what knowledge the Plaintiff has of the particulars of the allegations against him. He may know, for example, whether he charged family travel to the corporate account, but he does not know what the Defendants are alleging him to have done, when, and what the other material facts surrounding those allegations are.

36I find that the Plaintiff was successful on the motion for particulars. I further find that despite my disagreement with the Defendants’ position taken on the motion, the Defendants’ conduct does not amount to conduct that warrants the exceptional aware of substantial indemnity costs.

Motion for Cross-Examination

37I find that there was divided success on the motion and each party should bear their own costs. The Defendants argued for unfettered cross-examination as their absolute right. I disagreed and limited the scope of cross-examination, agreeing with certain of the concerns raised by the Plaintiff. Unfortunately, during the conduct of the cross-examination those limits were not always respected and crossed into territory of an examination for discovery. Nonetheless, the Plaintiff acknowledged there was some benefit to it in helping him glean from the questions asked what the Defendants are alleging. Given the divided success I see no reason to award the Plaintiff his claimed costs associated with the motion and cross-examination.

38I also do not accept the Defendants’ argument that the cross-examination was necessary and therefore they should have their costs. While the Plaintiff may have found some benefit from the cross-examination, there is little in the transcript that would have assisted with an adjudication of the issues on the particulars motion. There was divided success. In light of the foregoing, a fair and reasonable result is no costs of the cross-examination motion or the cross-examination itself.

April 6th Order

39With respect to the Defendants’ argument that the Plaintiff did not follow timelines provided for in my April 6th order for delivery of materials, I gather this argument applies to the original date scheduled for the hearing of the costs argument that was adjourned at the request of the court. The Plaintiff’s costs outline is dated June 12th, 2023. The CaseLines information shows that the Plaintiff’s materials were uploaded on June 12th. The original hearing date was June 16th. My endorsement indicates that materials were to be “served, filed and uploaded to Caselines 7 days in advance, with no late filings accepted without leave of the court”.

40The materials were delivered and uploaded more than 7 days prior to the ultimate hearing of the costs argument, but not the original date that was set. That date was adjourned at the request of the court on the day of, due to another pressing matter that required my attention. I presume he did not seek leave given that the delivery of his materials were not in violation of my order with respect to the new date set for argument. Counsel for the Plaintiff did not know that the costs argument would be adjourned when materials were delivered and uploaded late, contrary to my order.

41Court orders setting out timelines for materials are orders and not guidelines or suggestions. They are to be respected as such. Fortunately for the Plaintiff he is not in default now, but he was originally. This is a factor I have considered in determining the quantum of costs as opposed to conduct that warrants depriving him of costs.

Quantum

42With respect to the amount of costs, both Bill of Costs are roughly similar. Taking into consideration my findings in this decision, certain disbursements that are not proper costs in these motions (fee to file Defence), and that the Bill of Costs includes some costs associated with the motion for particulars in the third-party claim that is not before me, I find that a fair and reasonable amount for the Defendants to pay on account of costs for the motion for particulars in this action is $7,500 inclusive of fees, disbursements, and HST.

Order

43The Defendants shall pay to the Plaintiff, within 30 days of the date of this Endorsement, costs in the amount of $7,500 inclusive of fees, disbursements and HST.