CITATION:
Kaiser (Re) , 2011 ONCA 713

DATE: 20111114

DOCKET: M40462

COURT OF APPEAL FOR ONTARIO

Cronk J.A. (In Chambers)

In the Matter of
          the Bankruptcy

of Morris Kaiser

of the City of
          Toronto

in the Province of
          Ontario

BETWEEN

Morris Kaiser, a Bankrupt

Applicant

and

Soberman Inc.,
          Trustee in Bankruptcy

of the Estate
          of Morris Kaiser

Respondent

Melvyn L. Solmon and Cameron J. Wetmore, for the applicant

Neil Rabinovitch and Milton A. Davis, for the respondent

Heard:
October 18, 2011

On a motion for leave to appeal from the
          order of Justice F.J.C. Newbould of the Superior Court of Justice, dated
          August 16, 2011.

ENDORSEMENT

[1]

This is a motion for leave to appeal to this court from the order of
    Newbould J. of the Superior Court of Justice, In Bankruptcy, dated August 16,
    2011, refusing to order the removal of a law firm as counsel of record for a
    trustee in bankruptcy.

I.         Background

[2]

The applicant, Morris Kaiser (Kaiser), was adjudged bankrupt on
    October 17, 2009.  The respondent, Soberman Inc. (the Trustee), was appointed
    trustee of the bankrupt estate.

[3]

For more than a decade, Milton Davis (Davis), a partner in the law
    firm of Davis Moldaver LLP, has acted as counsel in various legal proceedings
    against or involving Kaiser.  Specifically, since the spring of 1999, Davis has
    acted as counsel for approximately 20 individual or corporate litigants in more
    than 14 actions against Kaiser or his interests.  By reason of these
    professional engagements, Davis has gained considerable knowledge of Kaiser as
    a litigant.

[4]

Davis, through Davis Moldaver LLP, also acts for the Trustee in the
    Kaiser bankruptcy.

[5]

As set out in an affidavit sworn by Kenneth Tessis (Tessis) of the
    Trustees offices on July 14, 2010, as a result of Davis extensive experience
    with Kaiser, the Trustee regards Davis Moldaver LLP as the best suited law
    firm to be acting on behalf of the Trustee in the Kaiser bankruptcy.

[6]

Representatives of three of Kaisers largest creditors  Bernie Ghert,
    Lautec Properties Inc. (Lautec) and the Canada Revenue Agency  serve as
    inspectors in Kaisers bankruptcy.  It is undisputed that each of these
    creditors has unequivocally advised the Trustee of their desire to have Davis
    Moldaver LLP continue to act for the Trustee in the Kaiser bankruptcy.

[7]

It is against this general background that this leave to appeal motion must
    be understood.

(1)       Removal
    Motion

[8]

In the summer of 2011, Kaiser moved for an order removing Davis Moldaver
    LLP as counsel of record for the Trustee (the Removal Motion).  As relevant
    to this leave motion, Kaiser alleged on the Removal Motion that Davis Moldaver
    LLP was in a conflict position because: (1) while acting for the Trustee, Davis
    was also acting for Lautec; and (2) in breach of obligations that Kaiser
    claimed are owed to him by Davis and the Trustee (in particular, the alleged
    duty to protect Kaisers right to solicitor-client privilege), Davis advised
    and permitted the Trustee to take steps that preferred Lautecs interests over
    those of the Trustee and the Kaiser estate.

[9]

By order dated August 16, 2011, the motion judge dismissed the Removal Motion
    and awarded costs to the Trustee.

(2)       Leave
    to Appeal Motion

[10]

Kaiser seeks leave to appeal from the motion judges order dismissing
    his request for a removal order.  If leave be granted, he also seeks an order
    expediting the appeal.

[11]

Section 193 of the
Bankruptcy and Insolvency Act
, R.S.C. 1985, c.
    B-3 (the BIA) provides for an appeal as of right to the Court of Appeal from
    any order or decision of a judge in bankruptcy in limited circumstances as set
    out in ss. 193(a) to (d).  Under s. 193(e), leave of a judge of the Court of
    Appeal is required to appeal to this court in any other case.

[12]

Thus, the preliminary issue on this motion is whether leave to appeal
    the motion judges decision to this court is required.

[13]

In his notice of motion, Kaiser seeks leave to appeal, if leave is
    required, pursuant to s. 193(e) of the BIA.  Kaiser previously filed a Notice
    of Appeal and Amended Notice of Appeal in which he invoked ss. 193(a) and (c)
    and, if necessary, s. 193(e) of the BIA as the jurisdictional basis for
    appealing the motion judges decision to this court.

[14]

In both his leave motion materials and his oral submissions, Kaiser took
    the position that leave to appeal under s. 193(e) is not required.  At the same
    time, he also expressly sought leave to appeal under s. 193(e) of the BIA.  He advanced
    no argument regarding an appeal as of right under any of ss. 193(a) to (d)
    of the BIA.  Leave to appeal was the only relief sought on the motion, apart
    from an expedited appeal date.

[15]

Argument of the leave motion proceeded on the basis that s. 193(e) of
    the BIA applies in the circumstances.  It is the Trustees position that s.
    193(e) is engaged, that leave to appeal to this court is required, and that
    leave should be denied given the history of this matter, as outlined below.

[16]

I am not persuaded that Kaisers proposed appeal from the motion judges
    decision falls within any of the appeal as of right categories set out in s.
    193 of the BIA.
[1]
Nor, as I have said, did Kaiser urge a contrary conclusion.  I therefore
    proceed on the basis that leave to appeal to this court is required under s.
    193(e) of the BIA.

II.        Governing Legal
    Principles

[17]

The jurisprudence of this court indicates that a flexible approach
    should be applied to the factors to be considered on a motion for leave under
    s. 193(e) of the BIA.  As Armstrong J.A. of this court explained in
Fiber
    Connections Inc. v. SVCM Capital Ltd.
(2005), 10 C.B.R. (5th) 201 (in
    chambers), at para. 19, There is a variety of factors to consider depending
    upon the circumstances presented to the court.  These factors include: (1) whether
    the judgment at issue appears to be contrary to law, amounts to an abuse of
    judicial power or involves an obvious error, causing prejudice for which there
    is

no remedy; (2) whether the point of the appeal is of
    significance to the practice or to the action itself; (3) whether the appeal is
prima facie
meritorious or frivolous; and (4) whether the appeal will
    unduly prejudice the progress of the action: see
Fiber Connections
,
per
Armstrong J.A., at para. 15;
GMAC Commercial Credit Corp. of Canada
    v. TCT Logistics
, [2003] O.J. No. 5761 (C.A.) (in chambers),
per
Feldman J.A., at para. 9.  The relevant factors to consider will vary according
    to the circumstances of each case.

[18]

One factor that is considered in all cases where leave to appeal under
    s. 193(e) of the BIA is sought is whether the proposed appeal is
prima facie
meritorious.  In assessing the merits of a leave to appeal motion under this
    provision, the courts inquiry is informed by the principle of deference owed
    to a commercial court judge.  Absent demonstrable error, an appeal court will
    not interfere.  See
Ravelston Corp. (Re)
2007 ONCA 268, (2007), 31 C.B.R.
    (5th) 233 (in chambers),
per
Borins J.A., at paras. 11-12;
Fiber
    Connections
,
per
Armstrong J.A., at paras. 15-19;
GMAC Commercial
    Credit
,
per
Feldman J.A., at para. 9.

[19]

In addition, where the order sought to be appealed from is
    discretionary, as in this case, this court has recognized that leave will not
    be granted unless the matter is of importance either to the administration of
    justice generally or to the respective rights of the parties to the litigation:
Fiber Connections
,
per
Armstrong J.A., at para. 15;
GMAC
    Commercial Credit
,
per
Feldman J.A., at paras. 9 and 14;
Zurich
    Indemnity Co. of Canada v. Reemark Rideau Developments Ltd.
(1992), 22
    C.B.R. (3d) 291 (B.C.C.A.) (in chambers),
per
Southin J.A., at para. 21.

[20]

Given the nature of the order sought to be appealed, Kaisers leave motion
    is also informed by those principles that govern the court-ordered removal of a
    litigants counsel of record.  These principles were relevant to the motion
    judges discretionary decision to deny the relief sought by Kaiser.  They are
    also a relevant consideration in assessing the merits of Kaisers proposed
    appeal.

[21]

As the motion judge properly noted, A litigant should not be deprived
    of counsel of its choice without good cause.  See
McDonald Estate v. Martin
,
    [1990] 3 S.C.R. 1235.  For this reason, Canadian courts exercise the highest
    level of restraint before interfering with a partys choice of counsel.  Where
    such discretionary, equitable relief is invoked, there must be a possibility of
    real mischief should a removal order be refused.  The test is whether a
    fair-minded and reasonably informed member of the public would conclude that
    counsels removal is necessary for the proper administration of justice: see
    for example,
McDonald
;
Zawadzki v. Matthews Group Ltd.
(1998), 18
    C.P.C. (4th) 373 (Ont. Gen. Div.);
Colville-Reeves v. Canadian Home
    Publishers Inc.
(2002), 111 A.C.W.S. (3d) 1202 (S.C.);
Lautec Properties
    Inc. v. Barzel Windsor (1984) Inc.
(2002), 26 C.P.C. (5th) 131 (S.C.).

III.      Discussion

[22]

In my opinion, it cannot be said that Kaisers appeal is
prima facie
meritorious.  Far from it.

[23]

Kaiser sought discretionary, equitable relief of a type that is granted
    only sparingly and with great caution  the involuntary removal of counsel
    chosen by a client in the face of the clients opposition to the removal.  That
    relief was denied by the motion judge for clear and cogent reasons.  On the
    motion judges findings, the requested relief was sought for improper and
    tactical, rather than legitimate, reasons.  This factor alone tells strongly
    against granting equitable relief.  Further, in all the circumstances, I do not
    regard any of the issues sought to be raised on appeal as important either to
    the administration of justice generally or to the rights of the parties.

[24]

I therefore conclude that Kaiser has failed to satisfy the test for
    leave under s. 193(e) of the BIA.  I note, in particular, the following.

[25]

First, the record suggests that Kaiser has a demonstrated history of
    initiating proceedings, including removal motions, for purely strategic
    reasons.  His motive for bringing the Removal Motion, which was a central issue
    before the motion judge, bears directly on the merits of his proposed appeal.

[26]

The motion judge declined to exercise his discretion in favour of
    granting the requested removal order in part because he concluded that the
    Removal Motion had been brought for tactical purposes to try to delay actions
    by the [T]rustee [to recover Kaisers assets for the estate].   In his view,
    the Removal Motion was completely miscast.  These conclusions are firmly
    grounded in the evidentiary record.

[27]

The record reveals that the Removal Motion was not Kaisers first
    attempt to secure Davis removal as counsel of record in proceedings against
    Kaiser or his interests.  In 2002, Kaiser moved for an order removing Davis as
    counsel of record in 14 related actions.  In dismissing that motion, Epstein
    J., then of the Superior Court of Justice, concluded that: (1) the motion was
    brought for an improper, tactical purpose; (2) the moving parties knew that
    such an order would cause delay and inconvenience; and (3) the evidence before
    her did not support the allegations of misconduct advanced against Davis:
Lautec
    Properties
, at paras. 42-45.  These were serious findings of impropriety by
    Kaiser.  Justice Epstein put it this way, at para. 46: [T]he case made out in
    support of the relief sought ... was like a blanket heavily patterned with
    strong animus toward Mr. Davis and woven together with speculation and
    conjecture.

[28]

Further, Kaiser had attempted in the past, without success, to secure a
    removal order against Davis predecessor  also a senior member of the
    litigation bar in Toronto  as counsel of record for parties opposite in
    interest to Kaiser.  On that removal motion as well, Kaiser alleged serious
    professional wrongdoings by the involved counsel, allegations that were later
    found to be wholly groundless.

[29]

Moreover, it is uncontested that Kaiser previously sued Davis for
    conspiracy, but adduced no evidence to support this serious claim when the
    matter proceeded to arbitration.  The experienced arbitrator, a former judge of
    the Superior Court of Justice, held that there was no evidentiary basis for any
    criticism of Davis and that the allegations against him were unfounded and
    persistent.  He awarded costs to Davis and others on a substantial indemnity
    scale.

[30]

This troublesome history of improperly-motivated litigation strongly
    supports the motion judges conclusion in this case that removal motions
    appear to be part of Mr. Kaisers
modus operandi
 and that Kaiser holds
    a clear
animus
towards Davis.  Kaisers pattern of advancing serious
    unfounded allegations of professional improprieties against counsel opposite
    and of initiating ill-founded removal motions, raises a sharp red flag,
    necessitating close scrutiny of the merits of any proposed appeal from the
    motion judges ruling on the Removal Motion.

[31]

Second, the record also indicates that Kaiser, in numerous ways, has
    declined to co-operate with the Trustee and has sought to frustrate the
    disclosure of his financial resources and assets and the efficient
    administration of his bankrupt estate by the Trustee.

[32]

The motion judge held that Kaiser, who has an obligation to the trustee
    to assist in locating assets belonging to the bankrupt estate, was taking
    every opportunity to refuse to provide information that could assist the
    trustee.  This finding was not challenged during argument of the leave
    motion.  Nor is it attacked by Kaiser in his Notice of Appeal or Amended Notice
    of Appeal as a factual finding tainted by palpable and overriding error.

[33]

Again, there was considerable evidence before the motion judge to support
    this finding.  Consider the following:

(1)

the Trustee provided evidence on the Removal Motion that although Kaiser
    claimed to be impecunious at the time of his bankruptcy, he engaged in a
    lifestyle, both
before and after
the date of his bankruptcy, that belied
    this claim.  This included evidence of frequent gambling trips to the United
    States, the loss of significant funds at gambling tables during these trips and
    numerous cash withdrawals on credit cards belonging to or controlled by a third
    party (who is suspected by the Trustee to be complicit in Kaisers efforts to
    conceal his assets) at or near various casinos;

(2)

it was also the Trustees uncontradicted evidence on the Removal Motion
    that the Trustee has not been able to determine much regarding Kaisers
    affairs, that a motion is pending to determine the source of funds being used
    by Kaiser to finance this litigation, that Kaiser appears to have structured
    his affairs in such a way as to have [a third party act] as a straw man
    thereby shielding his funds from the Trustee and his creditors and, further,
    that Kaiser appears to have access to funds, which he did not have before, the
    source of which is unknown to the Trustee, to pay for his various family,
    living and day-to-day expenses;

(3)

on his examination conducted under s. 163 of the BIA, Kaiser or his
    counsel objected to approximately one-half of the questions asked on the ground
    of privilege.  Yet, in the opinion of the motion judge following a review of
    the relevant questions, most, if not all, the refusals related to factual
    matters in respect of which a privilege claim could not be advanced; and

(4)

on June 30, 2011, Kaiser was cross-examined in respect of the pending
    Removal Motion.  The motion judge noted that every question asked of Kaiser
    regarding his affairs was objected to, as being irrelevant to the Removal
    Motion.

[34]

In part on the basis of these facts, Tessis indicated in his affidavit
    sworn on behalf of the Trustee in response to the Removal Motion that, in the
    Trustees opinion, the Removal Motion was brought to deflect attention from
    the fact that [Kaiser] seems to have access to significant sums of money which
    he has not disclosed to the Trustee.

[35]

The foregoing circumstances militate in favour of the conclusion that
    the Removal Motion and, arguably, this associated leave motion, are merely the
    latest steps taken by Kaiser to delay and impede the expeditious and efficient
    administration of his bankrupt estate.  At the very least, they provide a solid
    foundation for the motion judges decision to deny discretionary equitable
    relief of the type sought by Kaiser.  They also undercut Kaisers contention
    that his proposed appeal from that decision is meritorious or of significance
    either to the parties or to commercial bankruptcy practice in general.

[36]

Finally, a word about the merits of the specific proposed grounds of
    appeal identified by Kaiser.  To be blunt, I consider the merits of the
    identified grounds to be highly dubious.

[37]

Kaiser raised numerous grounds of appeal in his Amended Notice of
    Appeal.  However, during oral argument of this motion, these grounds became
    more focused.

[38]

Kaisers principal complaint is that Davis, while acting as counsel for
    the Trustee, also acted for Lautec, one of Kaisers major creditors.  Kaiser
    seeks to renew his argument on appeal, advanced before the motion judge, that
    Davis dual engagement as counsel placed him and Davis Moldaver LLP in a
    conflict position, that Davis allegedly abused his role as counsel to the
    Trustee and breached alleged duties to Kaiser by advising the Trustee to take
    steps that favoured Lautecs interests over those of the Trustee and Kaiser,
    and that, by so doing, Davis exposed Davis Moldaver LLP to an influence that
    impaired its professional judgment in respect of the Kaiser bankruptcy.

[39]

At the heart of this complaint is a written waiver document dated
    February 10, 2010, prepared by Davis and executed by the Trustee (the
    Waiver), pursuant to which the Trustee purported to waive Kaisers
    solicitor-client privilege and authorized certain solicitors to disclose
    information that might otherwise have been subject to that privilege.

[40]

In the main, Kaiser contends that Davis, as counsel for the Trustee,
    owed a duty to Kaiser to protect his solicitor-client privilege.  Kaiser
    invokes the professional standards set out in the
Bankruptcy and Insolvency
    General Rules
, C.R.C., c. 368 (the Rules), in support of his claim that
    Davis breached this duty by drafting and arranging for the execution and subsequent
    use of the Waiver for the benefit of Lautec in breach of Kaisers right to
    solicitor-client privilege.  Kaiser describes the Waiver as an unlawful,
    misleading and prejudicial document, the preparation and use of which was a
    misuse of the process and powers of the BIA.

[41]

These arguments were raised before the motion judge and fully addressed
    by him in his reasons on the Removal Motion.  He rejected Kaisers claims of any
    impropriety by the Trustee, Davis or Davis Moldaver LLP generally and, in
    particular, in respect of the Waiver.  I see no reviewable error in this
    ruling.

[42]

Kaiser argued before the motion judge, and seeks to re-argue on appeal,
    that duties are owed directly by a trustee in bankruptcys counsel to the
    bankrupt.  In support of this proposition, he relies on
Engels v. Richard
    Killen & Associates Ltd.
(2002), 60 O.R. (3d) 572 (S.C.) (In
    Bankruptcy), affd (2004), 69 O.R. (3d) 183 (C.A.) and
Dugas (Re)
, 2003
    NBQB 197, (2003), 41 C.B.R. (4th) 168 (N.B.Q.B.) and various of the Rules.

[43]

The Rules do not appear to have been raised before the motion judge.  The
    motion judge considered the above-mentioned cases cited by Kaiser and declined
    to follow them, preferring instead to adopt his own prior reasoning on this
    issue in
Turbo Logistics Canada Inc. v. HSBC Bank Canada
, 2009 CanLII
    55292 (S.C.).
Turbo
involved yet another solicitor-removal motion
    brought by counsel who act for Kaiser on this motion, albeit against another
    law firm in an unrelated proceeding.  In
Turbo
, after considering the
    decisions in
Engels
and
Dugas
, the motion judge said, at para. 16
    :

I cannot agree with the notion that counsel for a
    trustee in bankruptcy, or for a court-appointed receiver, normally owes any
    duty to the creditors of the bankrupt or debtor under a court-appointed
    receiver.  The obligation of a solicitor is to his or her client.  The fact
    that the solicitor is an officer of the court does not change that.  It is the
    trustee in bankruptcy or the court-appointed receiver that owes a fiduciary
    duty to the creditors or other stakeholders.  To suggest that the lawyer
    advising the trustee in bankruptcy or the court-appointed receiver owes a duty
    to those creditors or other stakeholders would, amongst other things, lay the
    solicitor open to actions at the hands of the creditors of the trustee in
    bankruptcy or court-appointed receiver for failure to properly carry out the
    lawyers obligations to those creditors or stakeholders.  This is not the law
    and would make no sense.  A solicitor giving advice to a client, whether the
    client is a trustee in bankruptcy or court-appointed receiver or otherwise, is
    responsible to the client to give proper advice to the client.  It is the
    client, and not the solicitor, that owes duties to creditors and other
    stakeholders in the case of a trustee in bankruptcy or court-appointed
    receiver.

See also
Manufacturers Life Insurance Co. v. Juno
    Developments (North Bay) Ltd.
, 2011 ONSC 3945, (2011), 79 C.B.R. (5th) 229
    (S.C.).

[44]

I see no error in the motion judges reasoning on this issue or in the
    proposition that it is the trustee in bankruptcy, as principal, rather than his
    or her solicitor, as agent, who owes direct legal duties to the creditors of a bankrupt
    or the bankrupt.  Nor do I read the Rules now cited by Kaiser as undermining
    this conclusion.

[45]

I reject Kaisers contention that his proposed appeal raises an
    important question of law for which there are conflicting authorities in
    Ontario, namely, whether a trustees counsel owes direct legal duties to a
    bankrupt and, if so, the scope of those duties.

[46]

Engels
is the only Ontario decision cited by Kaiser that is said
    to be contrary to the motion judges ruling on this issue.
Engels
was
    concerned primarily with whether the bankrupt in that case was bound by a
    common law non-solicitation restriction following the sale by a trustee in
    bankruptcy of a book of business to a third party.  It was in this context that
    the trial judge in
Engels
commented on the duties of trustees in
    bankruptcy and the obligation of the trustee and its counsel to act fairly and
    neutrally in the conduct of the administration of a bankrupt estate.

[47]

In any event, it is not in every instance in which potentially
    conflicting decisions exist that leave to appeal to this court is warranted.  The
    issue has now been addressed squarely in two recent Superior Court decisions
Turbo
and
Manufacturers Life
.  In both cases, the notion of duties of counsel
    of the type urged by Kaiser was rejected.

[48]

Perhaps more importantly, on the motion judges findings, neither Davis
    nor Davis Moldaver LLP breached any obligations to Kaiser.

[49]

The motion judge considered, and rejected, Kaisers contention that the
    drafting, execution and use of the Waiver required the removal of Davis
    Moldaver LLP as the Trustees counsel.  In my view, this conclusion is
    overwhelmingly supported by the record.

[50]

First, the Waiver was prepared following the numerous privilege-based
    refusals by Kaiser on his BIA s. 163 examination, described above.  Although
    Davis sent the Waiver to Kaisers previous solicitors, he did not, in fact,
    request the disclosure of privileged information by those solicitors.  In
    addition, it is uncontroverted that no privileged information was obtained as a
    result of the Waiver.  Thus, regardless of the propriety of the Waiver, no
    prejudice was occasioned to Kaiser by its creation, execution or use.

[51]

Second, the motion judge granted a declaration, without opposition from
    the Trustee, that the Waiver was null, void and of no effect.

[52]

Third, the motion judge accepted the Trustees argument that the issue
    of the Waiver, and the attempt to invoke it as a basis for the removal of Davis
    Moldaver LLP as counsel for the Trustee, was part of a continuing effort to
    protect Kaiser from having to provide information to the Trustee.

[53]

Fourth, and importantly, the record indicates that Kaiser instructed his
    counsel to object to Davis representation of the Trustee about one month
before
the Waiver was signed.  Thus, Kaisers reliance on the Waiver to support the
    Removal Motion was an after-the-fact stratagem.

[54]

Fifth, the motion judge, as he was entitled to do, accepted the
    Trustees evidence that the Waiver was used in an effort to trace funds that
    the Trustee has grounds to believe either emanated from Kaiser or from persons
    who hold money at his behest.  He also accepted that at least part of the funds
    at issue may have been applied to reduce the debt owed to Lautec, one of
    Kaisers largest creditors.  The reduction of this debt, if it occurred, could
    only have decreased the amount of Lautecs claim in the bankruptcy and,
    consequently, increased the funds potentially available for recovery by Kaisers
    other creditors.  In these circumstances, the Trustee had a legitimate interest
    in attempting to trace the funds in question.

IV.      Disposition

[55]

I end where I began.  It bears repeating that none of the Trustee or
    Kaisers major creditors and estate inspectors has voiced any objection to the representation
    of the Trustee by Davis and his law firm.  Nor have they voiced any concern
    about Davis conduct or a conflict of interest arising from the fact that Davis
    acts for both Lautec and the Trustee.

[56]

To the contrary, the Trustee has sworn that there is no conflict, that
    Davis has not preferred Lautecs interests over those of the Trustee, and that
    Kaisers largest creditors, together with the Trustee, wish Davis to continue
    as counsel to the Trustee.  The Trustees position was succinctly stated in
    Tessis affidavit on the Removal Motion:

[I]t would be a disservice to the creditors and
    bankruptcy estate and ultimately a large and expensive impediment to the smooth
    administration of this bankruptcy if [Davis Moldaver LLP] was to be removed as
    solicitor of record.

[57]

Accordingly, for the reasons given, I conclude that Kaiser has not
    satisfied the test for leave to appeal under s. 193(e) of the BIA.  The leave
    motion is dismissed.

V.        Costs

[58]

The Trustee is entitled to its costs of this motion.  I have now
    received and reviewed the parties written submissions concerning costs.  The
    Trustee seeks its costs of the leave motion on a full indemnity basis, in the
    sum of $21,521.48.  The Trustee argues that this motion, like the Removal
    Motion, was tactical in nature and designed to further delay the proper administration
    of Kaisers bankrupt estate.  Consequently, the Trustee says that the dismissal
    of the leave motion should attract a costs award on the full indemnity scale.

[59]

Kaiser submits that his leave motion was reasonable and justified.  He
    argues that, based on the decisions in
Engels
and
Dugas
, he had a
    legitimate legal foundation on which to object to Davis Moldaver LLPs
    continuing representation of the Trustee.  He argues that the costs of the
    leave motion should be fixed in the amount of $5,000.

[60]

The Trustee emphasizes that the motion judge awarded costs to the
    Trustee in the amount of $50,000  almost the entire amount of the Trustees
    full indemnity costs ($53,758.76).  In large part, that award was based on the
    motion judges conclusion that the Removal Motion was misconceived and tactical
    in nature.  He viewed the Removal Motion as merely one more effort by Kaiser to
    stone wall the Trustees efforts to ascertain and realize on Kaisers assets
    for the benefit of his bankrupt estate.

[61]

I have strong suspicions that, like the Removal Motion, Kaisers leave
    motion was brought for tactical reasons.  That said, the record before me does
    not clearly establish an improper purpose in the decision to seek leave to
    appeal.

[62]

I therefore conclude that the Trustee is entitled to its partial
    indemnity costs of the leave motion.  Contrary to Kaisers submission, I regard
    the amount of $14,200, inclusive of disbursements and all applicable taxes, as
    an appropriate award of partial indemnity costs in this case and I so order.  I
    decline to grant any other relief in respect of the Trustees costs of this
    motion.

E.A. Cronk J.A.

[1]
For example, s. 193(a) of the BIA provides for an appeal as of right if the
    point at issue involves future rights.  The proposed appeal concerns the
    motion judges discretionary ruling refusing to order the removal of Davis
    Moldaver LLP as ongoing counsel of record for the Trustee.  Kaiser has no
    existing, let alone future, right to dictate the Trustees choice of counsel.
    I do not regard the Trustees selection of counsel as implicating Kaisers
    future rights.  Similarly, it is difficult to see how s. 193(c) of the BIA is
    engaged in this case.  That provision applies if the property involved in the
    appeal exceeds $10,000 in value.


CITATION:
Malenfant v. Lavergne, 2011 ONCA 725

DATE: 20111121

DOCKET: C52375

COURT OF APPEAL FOR ONTARIO

Laskin, Rosenberg and Rouleau JJ.A.

BETWEEN

Jules Malenfant and The Estate of Valerie Malenfant

Plaintiffs (Appellants)

and

Manon Lavergne

Defendant (Respondent)

Christopher Arnold, for the appellants

Brian Parnega, for the respondent

Heard and released orally:
November 15, 2011

On appeal from the judgment of
          Justice Timothy D. Ray of the Superior Court of Justice, dated June 7, 2010
          and the costs endorsement dated June 22, 2010.

ENDORSEMENT

[1]

The appellant was injured in a car accident in 1991.  He brought this
    action in 2004.  At trial, he submitted that the discoverability principle
    postponed the running of the two-year limitation period until May 2002.  Until
    then, he contended, he did not know and was incapable of knowing that his
    injuries from the car accident were serious and permanent and so met the
    threshold.

[2]

The trial judge rejected the appellants contention.  The trial judge concluded
    that the appellant knew or ought to have known he met the threshold well before
    May 2002.  The appellant challenges the trial judges conclusion.  However, the
    trial judges conclusion rests on several findings of fact, which were adverse
    to the appellants position.  We are not persuaded that these findings are
    tainted by any palpable and overriding error.  They are, therefore, entitled to
    deference from this court.

[3]

At bottom, the appellant rests his case on the medical opinions he
    received shortly after the accident and on Dr. Judsons expert evidence
    concerning cognitive impairment from alcohol and drug use.  Of the
    post-accident opinions, the appellant especially relies on Dr. Wannans opinion
    that he would get better with time.  However, Dr. Wannans evidence, which was
    accepted by the trial judge, was that he never communicated this opinion to the
    appellant.

[4]

The trial judge rejected Dr. Judsons opinion concerning the appellants
    cognitive impairment and its impact, and the trial judge had ample basis for
    doing so (see paras. 37 and 47 of his reasons).  In particular, it was apparent
    that Dr. Judsons opinion was based on an incomplete understanding of the
    appellants extensive history of interaction with doctors and others since
    1991.

[5]

On appeal, we must decide whether it was open to the trial judge to find
    that a reasonable person with the appellants abilities and his circumstances
    ought to have known of his claim before May 2002  in other words, that he
    ought to have known that he had a serious and permanent injury resulting from
    the 1991 accident.  In our view, the trial judge could reasonably make this
    finding.

[6]

The appellants own evidence shows that he knew that his injury was
    serious.  He was in constant pain and unable to work.  The only remaining
    questions are whether a reasonable person in these circumstances ought to have
    known the injuries were permanent and caused by the car accident.  We agree
    with the respondent that the trial judge could reasonably answer these questions
    yes.  Seventeen months after the accident the appellants pain was increasing
    and his treatment was not working.  At least by 1999, when he saw Dr.
    Patterson, he ought to have known his injuries were caused by the car accident
    and were permanent.

[7]

Accordingly, the appeal is dismissed, with costs of $13,500 plus
    disbursements and applicable taxes.

John Laskin J.A.

M. Rosenberg J.A.

Paul Rouleau J.A.


CITATION:
McCalla v. Sliwin, 2011
          ONCA 754

DATE:  20111129

DOCKET: C53566

COURT OF APPEAL FOR ONTARIO

Doherty, Armstrong JJ.A. and Hoy J. (
ad hoc
)

BETWEEN

Luna McCalla

Plaintiff (Respondent)

and

Albert Sliwin, Avon Sportswear Limited, Albert
          Sliwinski Limited
, Faylaura Investments Inc. and
Shain Sportswear
          Limited

Defendants (
Appellants
)

Michael R. Kestenberg, for the defendants (
appellants
)

John R. Evans and Neil J. Keating, for the plaintiff (respondent)

Heard:
November 28, 2011

On appeal from the judgment of Justice Gray of the Superior
          Court of Justice dated March 29, 2011.

APPEAL BOOK ENDORSEMENT

[1]

The appellant moved under Rule 37.14 to set aside the order striking the
    statement of defence.  As we read the reasons, the motion judge found that the
    non-attendance by counsel on the day of the initial motion was not on account
    of mistake or accident, but was the culmination of a pattern of conduct
    intended to delay and stonewall the action in the hope that the plaintiffs
    would not pursue their claims (see paras. 3, 40, 55 and 57 of motion judges
    reasons).  That factual finding is fully justified on this record.  Counsel for
    the appellants acknowledges that without a finding of accident or mistake,
    the appellants could not access relief under Rule 37.14.

[2]

The appeal is dismissed.  Costs to the respondents in the amount of
    $7,500, inclusive of HST and disbursements.


CITATION:
Oz Optics Limited v. Timbercon, Inc., 2011
          ONCA 714

DATE: 20111115

DOCKET: C51799

COURT OF APPEAL FOR ONTARIO

Simmons, Armstrong and LaForme JJ.A.

BETWEEN

Oz Optics Limited

Plaintiff (Appellant)

and

Timbercon, Inc.

Defendant (Respondent)

Stephen Victor, Q.C. and David Cutler, for the appellant

Jonathan Stainsby, Mark E. Davis and Andrew McIntyre, for the
          respondent

Heard:
April 29, 2011

On appeal from the judgment of
          Justice Julianne A. Parfett, of the Superior Court of Justice, dated February
          10, 2010, with reasons reported at 2010 ONSC 310, 73 B.L.R. (4
th
)
          120.

Armstrong J.A.:

INTRODUCTION

[1]

Oz Optics Limited (Oz) appeals from the judgment of Parfett J. dated February
    10, 2010, in which she dismissed Ozs action against Timbercon, Inc. (Timbercon).
    The action concerned the parties business relationship through which they had
    sought to design, manufacture and sell manual and automated attenuators for use
    in the construction of jet fighter planes.  The appeal raises issues relating
    to the nature of the business relationship between Oz and Timbercon, negligent
    misrepresentation and the breach of the obligation to act in good faith.

[2]

Specifically, Oz challenges the trial judges conclusion that the 900
    manual attenuators were provided on the basis of a consignment agreement and
    that, therefore, Timbercon is not liable for the cost of the unsold units.  Oz
    also challenges the trial judges conclusion that Timbercon was neither liable
    for negligent misrepresentation nor the breach of the duty to act in good faith
    with respect to the purchase of automatic attenuators.

[3]

For the following reasons, I would allow the appeal, in part, on the
    basis that the trial judge erred in dismissing Ozs claim for negligent
    misrepresentation.  I would dismiss the remaining grounds of appeal.

FACTUAL BACKGROUND

(i)        The Manual
    Attenuators

[4]

Oz and Timbercon are both engaged in the fibre-optic industry.  In late
    2002, Timbercon approached Oz to design and manufacture a fibre-optic product
    known as a manual attenuator, which Timbercon intended to supply to Lockheed Martin
    for use in the construction of jet fighter planes.  Attenuators adjust the
    amount of light passing through a fibre-optic component.

[5]

Initially, Oz manufactured ten manual attenuators, which were delivered
    to Timbercon and paid for by Timbercon.  By March 2003, Timbercon advised Oz
    that it expected a further order of 900 manual attenuators.

[6]

On March 27, 2003, Eric Meslow, the president of Timbercon, met with
    Omur Sezerman, vice-president of Oz, at a trade show in Atlanta, Georgia.  Each
    has a very different recollection of a discussion they had there about the
    manual attenuators.  According to Mr. Sezerman, he was told that Timbercon
    required the attenuators to be provided over a 12-month period and that
    Timbercon would pay when it received payments from Lockheed Martin.  According
    to Mr. Meslow, he was surprised to learn from Mr. Sezerman that Oz had already
    produced 900 attenuators.  Mr. Sezerman asked him to take the attenuators off
    his hands as a favour.  Mr. Meslow asserts that he responded that the sale of
    the manual attenuators should take place by way of a consignment order and that
    Mr. Sezerman agreed to proceed by consignment.

[7]

On March 31, 2003, Timbercon faxed a purchase order to Oz for 500 manual
    attenuators.  The purchase order contained the following notation:

This purchase order is issued for consignment
    agreement only.  Please review attached pages (exhibit A) for terms and
    conditions of the consignment agreement.  A signed and returned copy of this
    purchase order indicates acceptance of these terms.

[8]

Oz did not sign either the purchase order or the consignment agreement.
    In an e-mail dated March 31, 2003 from Oz to Timbercon, a representative of Oz stated,
    thank you in advance for your understanding and co-operation for this
    matter.  Oz shipped 500 manual attenuators to Timbercon.  The invoice, which
    accompanied the delivery, indicated a payment due of $73,125.00 (U.S.) net 30 [days]
    for the order of 500.  Upon Ozs request, Timbercon increased the order to 900
    units.  During the spring of 2003, Oz shipped the additional 400 manual
    attenuators to Timbercon, bringing the total due to $131,565.00 (U.S.).

[9]

Timbercon paid approximately $52,650.01 (U.S.) for the attenuators, leaving
    an unpaid balance of approximately $78,974.99 (U.S.) remaining.

[10]

Although the consignment agreement was never signed, Oz did not advise
    that it was not accepting the order on a consignment basis before shipping the
    attenuators.

[11]

Oz claims that Timbercon owes the remaining $78,974.99 (U.S.) for the
    purchase and sale of the manual attenuators.  Timbercons position is that Oz
    delivered the manual attenuators on consignment for a potential sale to
    Lockheed Martin.  Since none of the manual attenuators, apart from the initial delivery,
    were sold to Lockheed Martin, nothing is required of Timbercon other than to
    return the unsold attenuators.

(ii)       The Automated
    Attenuators

[12]

The initial discussion between Oz and Timbercon only involved the design
    and production of manual attenuators.  However, by January 2003, they began to
    consider the design of an automated attenuator, which came to be known as the
    FiberStar Project.  In furtherance of this project, Oz and Timbercon entered
    into a non-disclosure agreement in order to protect their respective
    proprietary and confidential information.

[13]

From the outset, Timbercon represented that Oz would be the sole
    supplier of the automated attenuator.  In an e-mail of January 3, 2003, Timbercon
    advised Oz that: there is no competition.

[14]

On July 16, 2003, Timbercon reported to Oz on the current status of the
    project:

Little background.  [The situation is one
    of]...hurry up and wait, etc. etc....We are in a situation where they are
    asking for items without wanting to completely commit.  [Non-recurring
    engineering fee and purchase orders] have all be [
sic
] slow in coming;
    but at the same time the client wants our/your specific command list.  So there
    is little doubt we are in...just paperwork at this point.

[15]

Timbercon advised Oz that it anticipated an initial order of about 80
    automated attenuators with a forecast of 600 to 1,000 over the next three to
    five years.  A witness from Lockheed Martin testified at trial that less than
    70 to 90 units were contemplated as being required by Lockheed Martin.

[16]

Throughout the spring and early summer of 2003, Timbercon made a number
    of e-mail representations indicating that an order for the automated
    attenuators for Lockheed Martin was imminent.

[17]

Lockheed Martin requested a meeting at Timbercons facilities on August
    14, 2003 in order to conduct a technical audit of the product.  Timbercon asked
    Oz to send an engineer to Timbercons Portland, Oregon facilities for the
    meeting to answer technical questions raised by Lockheed Martin.  In preparation,
    a conference telephone call was arranged between Oz and Timbercon on August 4,
    2003 to discuss the details of the Lockheed Martin visit.

[18]

Oz was represented on the conference call by the following staff: Mr.
    Sezerman; Ersoy Uygur, the product manager; and Saidou Kane, the product
    engineer.  Timbercon was represented by James Davies, the executive
    vice-president, and Jayson Lizardo, the sales engineer.

[19]

There is a conflict in the evidence as to what was said during the
    conference call.  Mr. Sezerman testified that it was a very cordial
    discussion.  Mr. Davies testified that he was bullied by Mr. Sezerman, who is
    alleged to have made a number of insulting allegations against Timbercon.
    According to Mr. Davies, Mr. Sezerman demanded an upfront fee for his
    engineers attendance at the meeting in Portland and Mr. Sezerman raised the
    issue of the outstanding payment for the manual attenuators.

[20]

After the August 4, 2003 telephone call, Timbercon adopted a completely
    different stance toward Oz and the FiberStar Project.  However, Oz was not
    advised of this change in position until several weeks later.

[21]

The day after the telephone call, Timbercon contacted DiCon Fiberoptics,
    Inc. (DiCon), a competitor of Oz, with a view to involving DiCon as a
    potential supplier of the automated attenuators.

[22]

Unaware of this turn of events, Oz continued to prepare for the meeting
    in Portland.  These preparations included answering technical questions posed
    by Timbercon in advance of the meeting, preparing a block diagram of an
    automated attenuator and providing draft specifications.

[23]

Ozs lead engineer, Mr. Kane, attended the meeting in Portland and
    answered Lockheed Martins questions.  While at the Portland meeting, Mr.
    Meslow confirmed to Mr. Kane that they were expecting a purchase order soon
    from Lockheed Martin.  In addition, Mr. Lizardo advised that there was no other
    bidder or competitor involved in the project.  The evidence regarding Mr.
    Lizardos statement was uncontradicted at trial.

[24]

On August 28, 2003, Mr. Davies of Timbercon sent an e-mail to An Thuan
    Triew of DiCon, which said:

We are very excited about this opportunity.  You
    have instilled a high level of confidence in this project being successful now
    that we understand DiCons delivery time and product capabilities.  We are
    looking forward to working with your team and on future opportunities.

[25]

Oz was still in the dark about Timbercons new initiative to involve
    DiCon.  It is significant that this e-mail was not included in Timbercons
    affidavit of documents in the action. The email only surfaced as a result of an
    order requiring DiCon to produce its documents.

[26]

Following the August 4, 2003 telephone call, Oz made some changes to its
    proposal.  The time for delivery was changed from 14-16 weeks to 22-24 weeks.
    The NRE (non-recurring engineering) expenses were increased.  Oz added an
    expedited delivery fee of $110,000 for delivery within the 14-16 week
    timeframe.  Oz also requested that it receive certain deposits prior to
    commencing production.

[27]

On September 8, 2003, Messrs. Meslow and Davies met with representatives
    of Lockheed Martin in Orlando, Florida.  They informed Lockheed Martin that
    there was an alternative supplier for the FiberStar Project.

[28]

On September 9, 2003, Mr. Sezerman met with Messrs. Meslow and Davies in
    Orlando at the National Fiber Optic Engineering Conference.  They discussed
    Ozs quote for the FiberStar Project.  Mr. Sezerman was not told that there was
    a second bidder for the project.  The trial judge referred to Mr. Sezermans
    evidence on this point at para. 119:

Sezerman indicated that if he had been told that
    there was competition, and there was a risk they might lose the order, then he
    might have made changes to the quote to satisfy Timbercons concerns.  I accept
    this latter statement.  Sezerman was clearly frustrated with the pace of
    negotiations and he was legitimately concerned about whether the units could be
    produced on time.  He thought that he was the only supplier and could
    manipulate the process.  Had he known otherwise, he would undoubtedly have
    acted differently.

[29]

When Timbercon received the DiCon quotation, it informed DiCon that its
    price was higher than the competitors price.  At that point, as found by the
    trial judge,
[
Ozs] prices were significantly lower
    than DiCons.  DiCon accordingly reduced its quote.  With both quotes in hand,
    Timbercon then marked up the Oz unit price by 72 percent and the DiCon unit
    price by only 42 percent and submitted them to Lockheed Martin.

[30]

The delivery dates quoted by Oz were less favourable than those quoted
    by DiCon.  However, the evidence at trial suggested that if production had
    proceeded on the basis of the expedited dates offered by Oz, the timeline would
    have been acceptable to Lockheed Martin.  Nevertheless, in this scenario, Lockheed
    Martin would have been charged an expedite fee.

[31]

Joseph Costro of Lockheed Martin was called as a witness at trial.  He
    testified that if Oz had been the only bidder, its bid would have been
    acceptable.  Specifically, during examination-in-chief, he stated in response
    to questions from counsel for the appellant:

Q.        If, if, if the OZ quote had been the only
    quote that had [been] submitted, would that have been accepted by Lockheed?

A.        I, I believe so.

Q.        And you had, you and your team had a
    greater understanding of the OZ solution at that time [when the competing bids
    were submitted]?

A.        Thats correct.

[32]

On October 3, 2003, Lockheed Martin sent a letter of contract to
    Timbercon incorporating the purchase of the automated attenuators as quoted by
    DiCon.  A purchase order followed on October 6, 2003.

[33]

The following day, Oz learned for the first time that another supplier
    was involved and that DiCon had been granted the order to supply the automated
    attenuators for the FiberStar Project.

[34]

Timbercon issued a press release in respect of the FiberStar Project on
    February 20, 2004.  In the press release, DiCon was referred to as Timbercons
    key strategic technology partner for the project and its primary technology
    partner.

THE TRIAL JUDGMENT

[35]

The trial judge considered the following issues:

1.
        Was the order for the 900 manual attenuators a consignment order only?

2.
        Did Timbercon misappropriate confidential and/or proprietary information
    belonging to Oz Optics?

3.
         Did Timbercon make fraudulent and/or negligent misrepresentations to Oz
    Optics concerning the opportunities for sale of both manual and automated
    attenuators?

4.      Did Timbercon act
    in bad faith in the bidding process?

[36]

The trial judge observed that the first issue relates solely to the
    manual attenuators.  The remaining three issues relate to the automated
    attenuators.   The trial judges findings with regard to the use of
    confidential information (Issue 2) were not challenged on appeal.
    Consequently, the trial judges discussion of this issue is not included in these
    reasons.

(1)

The Manual Attenuators

[37]

The issue concerning the manual attenuators was whether the deal was
    merely a consignment order or an outright sale to Timbercon.  The trial judge
    concluded that it was a consignment order and therefore the only obligations
    Timbercon had were to: (1) pay Oz for those units that were sold to Lockheed Martin,
    and (2) return the unsold attenuators to Oz.

[38]

Oz shipped 900 manual attenuators to Timbercon without advising the
    latter that Oz did not accept the consignment order.  The nature of the order
    was left unresolved as between the parties.  The trial judge discussed the
    impasse at para. 21 of her reasons:

The primary reason why the consignment order issue
    was never resolved was because both companies had bigger fish to fry  the
    automated attenuator solution.  The issue of the manual attenuators did not
    appear on the radar in any concrete form until the teleconference call of
    August 4, 2003.  During that call, Sezerman advised James Davies...that the
    manual attenuators had not yet been paid for, that Oz Optics was owed $132,000
    by Timbercon and that he wanted immediate payment.  Davies responded by
    advising him that the attenuators were on consignment only, very few had been
    purchased at that point, and that Timbercon would be more than happy to return
    the manual attenuators to Oz Optics.  Sezerman refused.

[39]

In concluding that the arrangement in respect of the manual attenuators
    was a consignment order, the trial judge relied on the following findings of
    fact:

(a)
       Oz was aware from the outset that Timbercon took the position that this was
    a consignment order;

(b)
       Oz delivered the manual attenuators to Timbercon although it did not sign
    the consignment agreement and it did not express any objection to a consignment
    order.   The first indication of a dispute appeared during the  August 4, 2003
    conference call, long after the goods had been delivered; and

(c)
       the trial judge did not accept Mr. Sezermans evidence concerning the
    meeting of March 27, 2003 where he and Mr. Meslow discussed the deal.

(2)       Negligent
    Misrepresentation

[40]

Oz alleged that Timbercon made a number of representations concerning
    the FiberStar Project and Ozs involvement in the project, which turned out to
    be false.  In general, Oz alleged that Timbercon misrepresented that it would
    receive large orders from Lockheed Martin for the supply of automated
    attenuators that were to be designed and manufactured by Oz, as the sole
    supplier.

[41]

The trial judge concluded that Timbercon was not liable for negligent
    misrepresentation.

[42]

She began her analysis of the issue by reference to the oft-cited case
    of
Queen v. Cognos Inc.
, [1993] 1 S.C.R. 87, at p. 110, which
    established that the following elements are required to make out a case for
    negligent misrepresentation:

(1)

there must be a duty of care based on a special relationship between
    the representor and the representee;

(2)

the representation in question must be untrue, inaccurate or misleading;

(3)

the representor must have acted negligently in making said
    misrepresentations;

(4)

the representee must have relied, in a reasonable manner, on said
    negligent misrepresentation; and

(5)

the reliance must have been detrimental to the representee in the sense
    that damages resulted.

[43]

In addressing the issue whether there was a special relationship between
    the parties, Oz submitted at trial that the description used by Timbercon in
    its press release, which described the position of DiCon as a key strategic
    technology partner, should apply to Oz.  Timbercon submitted that its
    relationship with Oz was simply that of customer and supplier.  The trial judge
    rejected Timbercons submission at para. 86 of her reasons:

I disagree.  Although the relationship was not one
    of joint venturers given the absence of any contract between the parties, it
    was certainly more than a customer/supplier relationship.  The parties
    relationship did share some of the characteristics of a joint venture  both
    parties contributed knowledge and effort in the pursuit of a common venture,
    and it was a single undertaking in which both parties had a mutual expectation
    of profit.

Accordingly, she concluded that there was a special
    relationship between Timbercon and Oz that gave rise to a duty of care.

[44]

The trial judge then turned to the issue whether the representations
    referred to above were untrue, inaccurate or misleading.  She concluded at
    para. 99 of her reasons:

In the present case, Timbercons assertions that a
    contract was 1) possible, 2) was in the works, 3) was imminent, and only needed
    the final details worked out, and 4) might involve large quantities, were in
    fact mostly accurate.  The contract  albeit only for a small quantity of units
     was awarded to Timbercon in October 2003.  Unfortunately for Oz Optics,
    Lockheed-Martin chose the quote involving DiCon as the supplier for the units.
    Therefore, the Plaintiff has failed to show that the representations made by
    the Defendant were untrue, inaccurate or misleading.

I note that the trial judge made no reference to the
    representation made by Timbercon that Oz was to be the sole supplier for the
    FiberStar Project.  However, she did refer to this representation in her
    analysis concerning the alleged breach of duty of good faith.

[45]

The trial judges conclusion that Timbercons representations were
    mostly accurate effectively determined that the claim for negligent
    misrepresentation would fail.  However, she went on to conclude that the
    representations were not made negligently and that Oz did not rely on the
    representations to its detriment because it had accepted the risk that
    Timbercon would not be awarded the FiberStar contract.

(3)       Breach of Duty of
    Good Faith

[46]

The trial judge found that Timbercon was not liable for a breach of the
    duty of good faith.  In considering this issue, the trial judge found that
    Timbercon represented to Oz that Oz was the sole supplier for the FiberStar
    Project and that this representation was false.  She also found that DiCon was
    told that there was a competitor without telling Oz that it would be facing a
    competing bid.  To this effect, at para. 110 of her reasons, she said:

The only conclusion that can be drawn from this
    evidence is that Timbercon told DiCon that it was dealing with a competitor  a
    courtesy that they did not extend to Oz Optics  thereby providing DiCon with
    an unfair advantage in the bidding process.  As Sezerman pointed out in his
    testimony, knowing that a competitor is also working to get a contract has a
    significant influence on the price quoted.

[47]

The trial judge also concluded that Timbercon rigged the bids that were
    sent to Lockheed Martin so that the DiCon bid was clearly preferential.  The
    trial judge concluded at para. 124 of her reasons:

The only conclusion that can be drawn from
    Timbercons actions in manipulating their profit margins in preparing the two
    quotes that were sent to Lockheed-Martin is that they intended to make the
    DiCon quote more attractive and ensure that Lockheed-Martin chose that quote
    over Oz Optics quote.  I do not accept Timbercons argument that they did not
    intend to make the DiCons quote more attractive, since they would then make
    less profit.  The only possible reason for lowering their profit margin on the
    DiCon quote in comparison to the Oz Optics quote would be to compensate for
    DiCons higher prices, thereby making the DiCon quote more attractive to Lockheed-Martin.
I find that Timbercon did deliberately rig the two bids in a manner that was
    unfair to Oz Optics
.  [Emphasis added.]

[48]

Turning to the legal question of whether there was an actionable breach
    of a duty of good faith on the part of Timbercon, the trial judge concluded
    that there was none.  She cited
Martel Building Ltd. v. Canada
, 2000 SCC
    60, [2000] 2 S.C.R. 860 for the proposition that there is no duty to bargain in
    good faith.  She further concluded that there was no obligation on the part of
    Timbercon to treat Oz fairly in the tendering of the bids, because there was no
    contract governing their relationship and, in fact, Timbercon did not embark
    on a tendering process with respect to either Oz Optics or DiCon.  The
    tendering process was between Timbercon and Lockheed Martin.

[49]

In reaching her conclusion that there was no actionable breach of a
    duty of good faith, it is apparent that the trial judge was not impressed by
    Mr. Sezerman, whom she described as excitable, bellicose and loud and whom she
    found to be the author of Ozs misfortune.  According to the trial judge, this misfortune
    had its genesis in the August 4, 2003 telephone call.  At para. 146 of her
    reasons, the trial judge said:

Finally, although the evidence indicates that
    Timbercon did act unfairly in its dealings with Oz Optics with respect to the
    bidding process, absent a contractual relationship, a fiduciary relationship,
    or some other exceptional circumstance, there is no legal duty to act in good
    faith.  It also must be noted that Oz Optics brought much of its fate down on
    itself.  Sezermans behaviour at the August 4
th
meeting may have
    been considered quite normal by his employees, but it was considered over the
    top by Timbercon, and in the end that was all that mattered.

THE APPEAL

[50]

Counsel for Oz submits that the trial judge made three errors:

(1)

The trial judge erred in concluding that the order for the manual
    attenuators was a consignment order.

(2)

The trial judge failed to find that Timbercon committed the tort of
    negligent misrepresentation.

(3)

Although the trial judge found Timbercon acted unfairly in rigging the
    bids in favour of DiCon, she erred in failing to find that Timbercon breached
    its obligation to act in good faith.

[51]

In his factum, counsel for the appellant raises three other grounds of
    appeal related to procedural and evidentiary rulings made by the trial judge.
    Counsel did not pursue these grounds in oral argument.  In any event, I do not
    find it necessary to address these grounds in order to decide the appeal.

(1)       Was the order for the
    manual attenuators a consignment order?

[52]

I see no basis upon which to interfere with the trial judges conclusion
    on this ground.  The trial judge reviewed and analyzed all of the relevant
    evidence on the factual issue whether the order was a consignment order.  In
    order to interfere with her factual finding in this regard, I must find a palpable
    and overriding error:
Housen v. Nikolaisen
, 2002 SCC 33, [2002] 2 S.C.R.
    235, at para. 10.  I can detect no such error.  It was open to the trial judge
    to conclude, on the evidence that she accepted on this issue, that the order
    was a consignment order.  In particular, it was open to her,
inter alia
,
    to: (1) reject the testimony of Mr. Sezerman on this point; (2) rely on the
    fact that Oz was aware from the beginning of Timbercons position that the
    order constituted a consignment agreement; and (3) rely on the fact that the
    written orders from Timbercon described the arrangement as a consignment
    agreement and that Oz proceeded to deliver the products as per the orders
    without express objection to the relevant terms.

[53]

I would not give effect to this ground of appeal.

(2)       Negligent
    misrepresentation

[54]

In my view, the trial judge erred in her analysis of the negligent
    misrepresentation claim.  She correctly concluded that there was a special
    relationship between Timbercon and Oz thereby satisfying the first requirement
    of the test set out in
Cognos
.  I part company with the trial judge,
    however, on the remainder of her analysis in respect of the
Cognos
criteria.
    In particular, the trial judge erred in failing to consider that the central
    misrepresentation by Timbercon was that Oz remained the sole potential supplier
    for the production of the attenuators.  In my view, it is immaterial that the
    other representations referred to by the trial judge were mostly accurate.
    From the initiation of the project until its conclusion, Timbercon represented
    to Oz that the latter was the sole supplier.  Oz accepted this representation
    and proceeded on that basis.  Once Timbercon began discussing a potential
    proposal with DiCon, the representation that Oz was the sole automated
    attenuator supplier for its bid was no longer accurate.

[55]

After the telephone call of August 3, 2003, which the trial judge
    referred to as a watershed moment, the nature of Oz and Timbercons
    relationship changed; however, Timbercon maintained the representation that Oz
    would be the sole supplier.  Indeed at the Portland meeting of August 14, 2003,
    Mr. Lizardo of Timbercon assured Mr. Kane of Oz that there was no other bidder
    or competitor involved on the project.  The trial judge made no reference to
    this evidence even though counsel for Oz requested that she draw an adverse
    inference from the failure of Timbercon to call Mr. Lizardo as a witness.  As
    indicated above, the evidence of Mr. Lizardos statement was uncontradicted at
    trial.

[56]

Turning to the remaining three elements of the test in
Cognos
,
    Timbercon acted negligently, if not nearly fraudulently, in continuing to make
    the representation that Oz remained the sole supplier under consideration.

[57]

Moreover, it is my view that Oz, in relying on the representation, acted
    reasonably and to its detriment.  That Oz was disadvantaged by virtue of not
    being informed of the competing bid is recognized by the trial judge in her
    analysis of the good faith obligation at paras. 119 and 136 of her reasons:

Sezerman indicated that if he had been told that
    there was competition, and there was a risk they might lose the order, then he
    might have made changes to the quote to satisfy Timbercons concerns.  I accept
    this latter statement.  Sezerman was clearly frustrated with the pace of
    negotiations and he was legitimately concerned about whether the units could be
    produced on time.  He thought that he was the only supplier and could
    manipulate the process.
Had he known otherwise, he would undoubtedly have
    acted differently
.

...

Sezerman indicated that if there is no competitor
    involved in a project, the company can charge a higher price and have a higher
    profit margin.  Oz Optics will generally ask if they are bidding against other
    suppliers, so that they know how competitive their quote has to be.  There was
    no dispute that this approach is a common custom or usage in this type of
    bidding situation.
Therefore, Oz Optics was disadvantaged by the fact that
    they did not receive the information that after August 4, 2003 a competitor was
    involved in the bidding process.
[Emphasis added.]

[58]

This reliance was reasonable in light of the ongoing relationship
    between the parties, and the ongoing representation throughout their
    relationship assuring Oz of its status as the sole supplier.

[59]

Finally, reliance on this representation was detrimental to Ozs bid.
    Ozs belief that it was the sole possible supplier caused it to stand firmly
    behind the terms of its proposal  including the proposed timeline  when it
    would undoubtedly have acted differently if aware of the existence of a
    competing bid.  As the trial judge found, at para. 122, the only significant
    difference between the two quotes was, ultimately, the delivery timeline.

[60]

I am satisfied that Oz has established the case for negligent
    misrepresentation, and the appeal on this ground should be allowed.

(3)       Breach of duty of
    good faith

[61]

The obligation to act in good faith has been the subject of considerable
    discussion both by the judiciary and the legal academy.  As things currently
    stand, it is difficult to ascertain in what circumstances it will be applied.

[62]

The common law has not recognized a free standing duty of good faith based
    in tort.

[63]

Likewise, the law has not recognized a general duty to bargain in good
    faith in contract.  However, in specific circumstances, a duty to enforce or
    perform a contract in good faith has been recognized.  Notably, some courts
    have criticized the recognition of any duty of good faith in contract, holding
    that such a duty runs counter to the individualistic and adversarial nature of
    contracting: see,
e.g.

Mesa Operating Ltd. Partnership v. Amoco
    Canada Resources Ltd.
(1994), 19 Alta. L.R. (3d) 38 (C.A.), leave to appeal
    to S.C.C. refused (1994), 21 Alta. L.R. (3d) xxxvii.

[64]

The Supreme Court of Canada has recognized that an obligation of good
    faith exists in the context of termination of employment contracts: see
Wallace
    v. United Grain Growers Ltd. Ltd.
, [1997] 3 S.C.R. 701, at paras. 91-95, 98;
Honda Canada Inc. v. Keays
, 2008 SCC 39, [2008] 2 S.C.R. 362, at paras.
    58-59.  Members of this court have recognized the existence of a duty of good
    faith in various circumscribed situations including: between a franchisor and franchisee:
Shelanu Inc. v. Print Three Franchising Corp.
(2003), 64 O.R. (3d) 533
    (C.A.), at paras. 5, 66; and from a condominium developer to the condominium
    corporation:
Peel Condominium Corp. No. 505 v. Cam-Valley Homes Ltd.
(2001),
    53 O.R. (3d) 1 (C.A.), at paras. 50, 56, 97-100 (Weiler J.A., concurring in the
    result).

[65]

The existence of a pre-contractual duty of good faith is less certain.
    According to the Supreme Court of Canada in
Martel
, at para. 73, a duty
    to bargain in good faith has not been recognized to date in Canadian law.  In
Martel
,
    the cause of action at issue concerned negligence by a party during contract
    negotiations; the court rejected the recognition of duty of care in that
    context.  Significantly, the duty of good faith was not raised as an issue on
    appeal, and thus, the court emphasized, the analysis in that case did not directly
    address the question of whether such a duty exists: at para. 73.  However, the
    policy considerations raised by the court in dismissing the existence of a duty
    of care in negligence between parties to contractual negotiations are,
    nonetheless, instructive on the question of whether a duty to bargain in good
    faith should be recognized.  Among the various policy considerations the court
    relied upon in this regard, it observed that other causes of action already
    provide appropriate remedies.  Among these, the court noted, that the doctrines
    of undue influence, economic duress and unconscionability provide redress
    against bargains obtained as a result of improper negotiation.  In addition, negligent
    misrepresentation, fraud and the tort of deceit cover much of the wrongful
    conduct committed during negotiations where an agreement is ultimately not
    concluded: at para. 70.

[66]

This court left open the possibility of a duty of good faith in
    bargaining in
978011 Ontario Ltd. v. Cornell Engineering Co
(2001),

53
    O.R. (3d) 783, leave to appeal to S.C.C. refused (2001), 158 O.A.C. 195,

at
    para. 32, where the court said, [a]bsent a special relationship, the common
    law in Canada has yet to recognize that in the negotiation of a contract, there
    is a duty to have regard to the persons interests, mainly, to act in good
    faith.  In considering what constitutes a special relationship, the court
    adopted an approach originally articulated by P. Finn in The Fiduciary
    Principle in T. Youdan, ed.,
Equity, Fiduciaries and Trusts
, (Scarborough,
    Ont.: Carswell, 1989) 1, at pp. 17-18, 20.  The court stated at para. 34:

The circumstances where the law requires more than
    self-interested dealing on the part of a party share certain characteristics.
    Firstly, one party relies on the other for information necessary to make an
    informed choice and, secondly, the party in possession of the information has
    an opportunity, by withholding (or concealing) information, to bring about the
    choice made by the other party.  See Finn...at pp. 17-18 and Waddams,
The
    Law of Contracts
, 3d ed. (Toronto: Canada Law Book, 1993) at para. 438.  If
    one party to a contract relies on the other for information, that reliance must
    be justified in the circumstances.  Finn...suggests at p. 20 that the following
    five factors are indicative of situations where reliance is justified:

(1)

A past course of dealing between the parties in which reliance for advice,
    etc., has been an accepted feature;

(2)

The explicit assumption by one party of advisory responsibilities;

(3)

The relative positions of the parties particularly in their access to
    information and in their understanding of the possible demands of the dealing;

(4)

The manner in which the parties were brought together, and the
    expectation that could create in the relying party; and

(5)

[W]hether trust and confidence knowingly [has] been reposed by one
    party in the other.

[67]

Cornell Engineering
can be distinguished from the case at bar.
Cornell
    Engineering
dealt with a situation where a contract had eventually formed,
    however, one of the parties sought relief from the contract based on bad faith
    in the negotiation of its terms.  Arguably, if recovery had been granted in that
    case, the remedy would have been grounded in contract.  However, in the case at
    bar, no agreement was ever reached.  As this court recognized in
Coco Paving
    (1990) Inc. v. Ontario (Minister of Transportation)
, 2009 ONCA 503, 252
    O.A.C. 47, at para. 4, if a duty of good faith in bargaining does exist, it is
    a remedy grounded in contract; that is, it is not a freestanding obligation, which
    exists independent of a concluded contract.

[68]

Courts have also recognized that a duty of good faith and fair dealing
    arises during the commercial tendering process: see
Ontario v. Ron Engineering
,
    [1981] 1 S.C.R. 111, at pp. 113-14, 119;
M.J.B. Enterprises Ltd. v. Defence
    Construction (1951)
, [1999] 1 S.C.R. 619, at para. 41
.

[69]

In the commercial tendering process, the obligation arises in the
    context of a model of imputed Contract A/Contract B between the parties:
Ron
    Engineering
, at pp. 119, 121-122;

Tercon
    Contractors Ltd. v. British Columbia
,
    2010 SCC 4, [2010] 1 S.C.R. 69, at para. 17
.  Contract A is formed upon
    the submission of a tender and requires fair dealing with respect to the
    consideration of all bids.  Contract B is the actual agreement entered into between
    the successful bidder and the party seeking the bids.

[70]

The situation that exists in the case at bar does not fit within the paradigm
    of the traditional commercial tendering process.  There was no formal bidding
    process as is typically found in such situations.  Oz was totally unaware that
    there was any bid submitted to Lockheed Martin other than its own.  From the
    circumstances, it cannot be said that the intention of Timbercon and Oz was to
    enter into contractual relations with each other upon the submission of Ozs
    quote:
M.J.B. Enterprises Ltd.
, at para. 23.  The ordinary elements of
    contractual tendering relations were not present: there was no period of
    irrevocability of the quote, there was no requirement of bid security, there
    was no request for tender providing the specific terms of the request and procedure
    for assessment or other factors common to the tendering process: see
Tercon
    Construction,
at paras. 18-21.

[71]

I concede that it is tempting to extend the good faith doctrine to the
    present circumstances given the following factors:

(i)     the
    representation by the respondent that Oz would be the sole supplier and the
    failure to advise otherwise;

(ii)    the respondents
    involvement of DiCon;

(iii)
      the respondent provided advice to DiCon that its bid was not competitive,
    while not providing similar information to Oz; and

(iv)
      the respondent rigged the two bids in favour of DiCon.

It may be arguable  in light of that fact Timbercon
    chose to seek an alternative quote from DiCon  that Timbercon unilaterally imposed
    a commercial relationship akin to the tendering process.  In fact, if the duty
    of good faith applies to a formal tendering process, which all the parties
    enter into voluntarily, there is perhaps an even stronger argument to be made that
    a duty should be recognized in an analogous situation where the bidder is
    unknowingly considered as one bid among many.  In such a circumstance the
    bidder is placed in an even more vulnerable situation.  However, in light of
    the reluctance of the courts, in particular the Supreme Court of Canada, to
    extend the doctrine of good faith beyond the context of a contractual
    relationship (whether formal or implied) I would be hesitant to invoke the
    doctrine here given that recovery can be grounded in negligent
    misrepresentation. This approach is suggested by the Supreme Court in
Martel
.
    Therefore, I do not find it necessary to consider this issue further.

DAMAGES

[72]

As indicated, I am satisfied that the appellant has made out a case for
    negligent misrepresentation.  I now turn to the quantification of damages.
    Unfortunately, the trial judge did not make any assessment of the damages,
    which raises the question of whether this court should order a new trial in
    respect of damages or make its own assessment.  Given the amounts in issue and
    the costs already involved in this litigation, it would be preferable for this
    court to deal with the damages if at all possible.

[73]

The evidence in respect of the claim for damages at trial came mainly
    from the testimony of Mr. Sezerman.  Documentary evidence was filed setting out
    the heads of damages; however, it simply reflected the testimony of Mr.
    Sezerman, without further proof of the numbers provided.  If this court were to
    make the assessment of damages, we would do so without the advantage of seeing and
    hearing the testimony firsthand.  The Supreme Court of Canada has cautioned appellate
    courts against taking such action when the evidence is mainly testimonial  as
    opposed to documentary  and where credibility may be in issue: see
Hollis
    v. Dow Corning Corp.
, [1995] 4 S.C.R. 634, at p. 662;
Sharbern Holding
    Inc. v. Vancouver Airports Centre Ltd.
, 2011 SCC 23, [2011] 2 S.C.R. 175,
    at para. 174; and
Masterpiece Inc. v. Alavida Lifestyles Inc.
,
2011 SCC 27,
[2011] 2 S.C.R. 387, at para. 103.

[74]

In the circumstances of this case, I do not believe that we are in a
    position to make an assessment of quantum.  I would refer the matter back to
    the Superior Court for a new trial limited to the assessment of damages.

CONCLUSION

[75]

I would allow the appeal in respect of negligent misrepresentation and order
    a new trial limited to damages before a different judge.  I suggest that a
    different judge hear the damages trial, because the trial judge has already
    made an adverse finding of credibility against Mr. Sezerman in respect of part
    of his evidence in her reasons on liability.  The requirement that justice must
    appear to be done suggests that another judge should deal with the new trial on
    damages.  I would dismiss the appeal regarding the manual attenuators and take
    this fact into account on the costs of the appeal.

[76]

Since the majority of the trial concerned the various issues of
    liability in respect of the FiberStar Project, I would allow the appellant its
    costs of the trial; however, I would adjust those costs to account for the fact
    that Oz did not succeed in respect of the issue related to the manual
    attenuators.

[77]

If the parties cannot agree on the trial costs, they may make written
    submissions, double spaced and limited to 10 pages.  The appellants submission
    should be made within 15 days of the release of these reasons.   The
    respondents submission should be made within 30 days of the release of these
    reasons.

COSTS OF THE APPEAL

[78]

I would grant the appellant its costs of the appeal on a partial
    indemnity scale fixed in the amount of $40,000 including disbursements and
    applicable taxes.

RELEASED:

NOV 15 2011                                            Robert
    P. Armstrong J.A.

JS                                                                I
    agree Janet Simmons J.A.

I
    agree H.S. LaForme J.A.


WARNING

The President of the panel hearing this appeal directs that
    the following should be attached to the file:

An order restricting publication in this proceeding under ss.
    486.4(1), (2), (3) or (4) or 486.6(1) or (2) of the
Criminal Code
shall continue.  These sections of
the Criminal Code
provide:

486.4       (1)
Subject to
    subsection (2), the presiding judge or justice may make an order directing that
    any information that could identify the complainant or a witness shall not be
    published in any document or broadcast or transmitted in any way, in
    proceedings in respect of

(a)       any of the following offences;

(i)   an offence under section 151, 152, 153, 153.1, 155, 159,
    160, 162, 163.1, 170, 171, 172, 172.1, 173, 210, 211, 212, 213, 271, 272, 273,
    279.01, 279.02, 279.03, 346 or 347,

(ii)  an offence under section 144 (rape), 145 (attempt to
    commit rape), 149 (indecent assault on female), 156 (indecent assault on male)
    or 245 (common assault) or subsection 246(1) (assault with intent) of the
Criminal
    Code
, chapter C-34 of the Revised Statutes of Canada, 1970, as it read
    immediately before January 4, 1983, or

(iii) an offence under subsection 146(1) (sexual intercourse
    with a female under 14) or (2) (sexual intercourse with a female between 14 and
    16) or section 151 (seduction of a female between 16 and 18), 153 (sexual
    intercourse with step-daughter), 155 (buggery or bestiality), 157 (gross
    indecency), 166 (parent or guardian procuring defilement) or 167 (householder
    permitting defilement) of the
Criminal Code
, chapter C-34 of the
    Revised Statutes of Canada, 1970, as it read immediately before January 1,
    1988; or

(b)       two or more offences being dealt
    with in the same proceeding, at least one of which is an offence referred to in
    any of subparagraphs (a)(i) to (iii).

(2)
In proceedings in respect
    of the offences referred to in paragraph (1)(a) or (b), the presiding judge or
    justice shall

(a)  at the first
    reasonable opportunity, inform any witness under the age of eighteen years and
    the complainant of the right to make an application for the order; and

(b)  on application
    made by the complainant, the prosecutor or any such witness, make the order.

(3)
In proceedings in respect
    of an offence under section 163.1, a judge or justice shall make an order
    directing that any information that could identify a witness who is under the
    age of eighteen years, or any person who is the subject of a representation,
    written material or a recording that constitutes child pornography within the
    meaning of that section, shall not be published in any document or broadcast or
    transmitted in any way.

(4)
An order made under this
    section does not apply in respect of the disclosure of information in the
    course of the administration of justice when it is not the purpose of the
    disclosure to make the information known in the community. 2005, c. 32, s. 15;
    2005, c. 43, s. 8(3)(b).

486.6       (1)
Every person who fails to
    comply with an order made under subsection 486.4(1), (2) or (3) or 486.5(1) or
    (2) is guilty of an offence punishable on summary conviction.

(2)
For greater certainty, an
    order referred to in subsection (1) applies to prohibit, in relation to
    proceedings taken against any person who fails to comply with the order, the
    publication in any document or the broadcasting or transmission in any way of
    information that could identify a victim, witness or justice system participant
    whose identity is protected by the order. 2005, c. 32, s. 15.

CITATION:
R. v. Agha, 2011 ONCA 751

DATE: 20111129

DOCKET: C51948

COURT OF APPEAL FOR ONTARIO

Goudge, LaForme and Rouleau JJ.A.

BETWEEN

Her Majesty the Queen

Respondent

and

Hicham Agha

Appellant

Joseph Markin, for the appellant

Nadia Thomas, for the respondent

Heard:
November 28, 2011

On appeal from the decision of the Summary Conviction Appeal
          Court dated March 16, 2010 by Justice S. Casey Hill of the Superior Court of
          Justice, dismissing the appeal from the conviction entered on May 26, 2009 by
          Justice Richard J. LeDressay of the Ontario Court of Justice.

APPEAL BOOK ENDORSEMENT

[1]

We see no error in the decision of Hill J.  On May 6, 2009, prior to the
    plea, the appellant twice acknowledged that the facts supporting the existence
    of the constituent elements of sexual assault were accurate.  There was nothing
    equivocal about this.

[2]

We see no issues to grant leave or to allow the appeal.  Appeal
    dismissed.