Date: 20010515
Docket: T-2161-98
Neutral Citation: 2001 FCT 489
Vancouver, British Columbia, Tuesday, this 15th day of May 2001
PRESENT: THE HONOURABLE MR. JUSTICE PELLETIER
BETWEEN:
JAMES FISHER & SONS PLC, a body politic and corporate
of Barrow-in-Furness, England
Applicant
- and -
PEGASUS LINES LIMITED S.A.,
a body politic and corporate
of Panama, with a place of business c/o Amican Navigation Inc.,
in Montreal, Canada
Respondent
REASONS FOR ORDER AND ORDER
PELLETIER J.
[1] In 1996 James Fisher & Sons PLC ("Fisher") recovered judgment against Pegasus Lines Limited S.A. ("Pegasus") for services rendered to or on behalf of Pegasus. Fisher sought to enforce the judgment but Pegasus proved to be elusive quarry. It is a Panamanian corporation with nominee directors. It appears to have been incorporated on instructions received from New York attorneys. Those attorneys looked to James Karathanos for instructions. Mr. Karathanos, for his part, maintains that the only relationship between him and Pegasus was the fact that his company Amican Holdings ("Amican") was an agent for Pegasus. There is evidence which suggests that the relationship is more complex than it is being made to appear.
[2] On motion made by Fisher, an order was made permitting the examination in aid of execution of Mr. Karathanos as an officer of Pegasus on the basis of his involvement in its affairs. Mr. Karathanos submitted to examination as required. The examination was acrimonious. The lawyers who appear on the record as Pegasus' lawyers defended Mr. Karathanos' interests zealously. Documents were not produced so much as they were extracted. Such documents as were produced were incomplete. A motion for better production was made and dismissed by the Prothonotary. An appeal was taken from that decision. Concurrently, a motion was made for an order releasing Mr. Karathanos from the obligation to submit to further examination. The two motions were argued before me, and after an unacceptably long delay, I will dispose of both motions in these reasons.
[3] On the theory that the order as to production of documents and compliance with undertakings which is the subject of the appeal may become moot if Mr. Karathanos is relieved of the obligation to attend for further examinations, I shall dispose of the latter motion first.
[4] These proceedings are somewhat unusual in that they are the examination in aid of execution of a person said to be an officer of the judgment creditor when that person denies that he is anything but a former agent of the judgment creditor. If that were in fact the case, then the examination should have proceeded fairly simply. Mr. Karathanos would be asked what he knows about the assets of Pegasus. He would answer the questions. Fisher's lawyers would use the information to locate and seize assets. As a former agent, Mr. Karathanos has no stake in the outcome and no reason to protect Pegasus.
[5] But things have not developed in that fashion. Mr. Karathanos has not been forthcoming with answers to various questions, particularly those involving the movement of money from him and his company to Pegasus. He has denied the existence of documents which common sense suggests should exist. He has produced volumes of other documents but the documents not produced raise more questions than the documents produced answer. He has been accused of perjuring himself in the course of his oral examination. All in all, Mr. Karathanos has not conducted himself as someone who has no stake in the outcome of these proceedings. Quite the contrary.
[6] The application to have Mr. Karathanos released from the obligation of attending for further examinations is contemplated in the original reasons of Lutfy J. (as he then was) designating Mr. Karathanos as an officer of Pegasus for purposes of examination in aid of execution. Those reasons, in their material parts, read as follows:
Finally, if Mr. Karathanos is satisfied, on the basis of new information disclosed in his responses during the examination, that my finding that he is an "officer" of Pegasus under Rule 426, as interpreted in these reasons, can be rebutted, he may seek an order that he be relieved from further examination. The Court's discretion concerning costs should assure that the possibility of any such motion will not be abused.
James Fisher & Sons PLC v. Pegasus Lines Ltd. S.A [1999] F.C.J. No. 1248 at para. 37.
[7] In order to be released from the obligation to be examined, Mr. Karathanos would need to show one of two things. He could show that the evidence does not support Justice Lutfy's conclusion that Mr. Karathanos is "officer" of Pegasus for purposes of Rule 426. This involves displacing findings made by Justice Lutfy on the basis of evidence produced since the making of the order from which Mr. Karathanos now seeks to be released. Or, if he unable to discharge that burden, he could show that the examination has run its course and nothing further will be added if he is required to reattend.
[8] Dealing with the first possibility, Justice Lutfy made two key findings which led him to conclude that Mr. Karathanos was an officer of Pegasus. The first is that Mr. Karathanos was responsible for the incorporation of Pegasus. The second is that Amican were the Managers of Pegasus and that Amican or Mr. Karathanos continue to act in the interests of Pegasus.
[9] Justice Lutfy's findings with respect to the incorporation of Pegasus are as follows:
[para11] Pegasus was incorporated in Panama in October 1984. Its nominee directors, president and legal representative, vice-president and treasurer, and secretary were, from the outset, three lawyers with the Panamanian law firm of Tapia, Lenares y Alfaro. [See Note 2 below] The same lawyers continue to act in these capacities. [See Note 3 below] The legal address of Pegasus, originally and as late as 1996, is that of the Panamanian law firm. Since 1988, the president and legal representative of Pegasus is no longer associated with the law firm and he no longer lives in Panama. [See Note 4 below]
----------------
Note 2: Charity affidavit, exhibit DEC1, pp. 2-3. The Charity affidavit is in the applicant's motion record under tab A. Exhibit DEC1 is a bundle of documents attached to the Charity affidavit and filed as part of the undertakings made during the cross-examination of the applicant's deponent (Applicant's Answers to Undertakings). The page numbers are those referred to by Mr. Charity in his affidavit and noted in handwriting at the bottom of the respective sheets.
Note 3: The motion record of Mr. Karathanos, affidavit of Me. C. Jacques, exhibit B.
Note 4: Charity affidavit, exhibit DEC1, pp. 17 and 30.
----------------
[para12] In May 1995, Joseph F. De May Jr., a lawyer in New York, N.Y., wrote to Mr. Karathanos to advise that his firm would no longer be attending to matters concerning
Pegasus in Panama. He asked Mr. Karathanos to advise "to whom you wish to transfer your file and we will make arrangements accordingly". [See Note 5 below] In the same letter, Mr. De May also forwarded to Mr. Karathanos correspondence he received from "Tapia & Associates" concerning Pegasus.
----------------
Note 5: Charity affidavit, exhibit DEC1, p. 11. Mr. De May's letter is to Mr. Karathanos personally but forwarded to the office address for Amican.
----------------
[para13] It was Mr. De May's firm which instructed Tapia, Lenares y Alfaro when Pegasus was first established. The Panamanian law firm is not familiar with Amican. [See Note 6 below]
----------------
Note 6: Charity affidavit, exhibit DEC1, p. 17 at paragraph 4.
----------------
[para14] In May 1995, Mr. Karathanos was asked by Mr. De May to name the person to whom the Pegasus file could be transferred. Mr. De May was a member of the firm which originally instructed Panamanian counsel in 1984 concerning the incorporation of Pegasus. This is the limited information now available to the Court. In the absence of any other evidence, I find, on the balance of probabilities, that in 1984 Mr. Karathanos personally retained Mr. De May's firm who in turn instructed the Panamanian solicitors to incorporate Pegasus, even prior to Amican acting as its general agent.
[para15] In March 1996, Mr. De May also looked to Mr. Karathanos when the English action against Pegasus was brought to his attention by the same Panamanian law firm.
[10] In his examination, Mr. Karathanos was asked about the disposition of the file which respect to which Mr. DeMay had contacted him. Mr. Karathanos' evidence is that following the death of Mr. Callan, Cichanowicz and Callan decided not to continue to act as instructing solicitors to Panamanian lawyers (Transcript of Cross examination of Mr. Karathanos, Sept. 10, 1999 at p. 101 lines 9-20). He indicated that Mr. DeMay sent him all the files. He says that he didn't know what to do with the files so, upon receipt, he sent them to Tapia Linares y Alfaro ( "Tapia Linares") the Panamanian lawyers. While it is not inconceivable that Mr. Karathanos could have sent the files on to Tapia Linares for safekeeping, that does not answer Mr. DeMay's inquiry as to who would thereafter be instructing Tapia Linares.
[11] It may be argued that Mr. Karathanos' evidence that he sent the file on to Tapia Linares is evidence that Mr. Karathanos did not instruct them with respect to incorporating Pegasus as Justice Lutfy concluded. Such an assertion asks the Court to prefer Mr. Karathanos' assertion as to what he did i.e. forwarding the file to Tapia Linares, over the evidence of Mr. Charity on two major points. The first is that Mr. DeMay or his firm instructed Tapia Linares as to the incorporation of Pegasus. See paragraph 13 of the portion of Justice Lutfy's reasons cited above. The second is that in response to Mr. Charity's inquiry as to when Pegasus had knowledge of Fisher's claim, Mr. DeMay replied that he telephoned Mr. Karathanos the day he received the claim and immediately thereafter faxed it to him. Both of those facts lead to the inference that Mr. Karathanos was the person who instructed Mr. DeMay and was the directing mind of Pegasus. It was, and still is, open to Mr. Karathanos to rebut this inference by demonstrating that someone else was in fact the directing mind of Pegasus. But all attempts to show a trail to someone else ultimately lead nowhere. All the indications point to Mr. Karathanos and none point elsewhere. In the end result, Mr. Karathanos' denial is insufficient to displace the inference arising from the facts out of the mouths of those who have no interest in the outcome.
[12] The second ground for Justice Lutfy's conclusion that Mr. Karathanos was an officer of Pegasus within the meaning of Rule 426 was the fact that he instructed the English solicitors in the defence of the Fisher claim against Pegasus.
[para16] The applicant first obtained default judgment against Pegasus in the English action which eventually led to this proceeding.
[para17] The affidavit of David Ellis Charity, a solicitor representing Pegasus in England, was filed in support of the motion to set aside the default judgment entered against Pegasus on the ground that valid service had not been effected. The Certificate as to Particulars of Judgment to be Registered Abroad, which was filed with the notice of application in this proceeding, explained the circumstances concerning the default judgment, its setting aside on consent and the eventual service of the action in England:
... the said writ was originally served upon the said Defendant Pegasus Lines Limited SA personally by the Plaintiff's agents in Panama on 5th February 1996. Default judgement was obtained on 6th March 1996 but was subsequently set aside, by consent, by order of the court dated 6th August 1996. The consent order contained an undertaking by the above Defendant to nominate solicitors within the jurisdiction of England and Wales with authority to accept service of proceedings. The writ was subsequently served, by first class post, upon Davies Grant & Horton (later Davies Johnson & Co), the solicitors to the above named Defendant on 17th October 1996. The Defendant duly acknowledged service of the writ on 30th October 1996. [See Note 7 below]
----------------
Note 7: After Pegasus acknowledged service of the writ, a defence and counterclaim and a reply and defence to counterclaim were filed. Judgment was obtained against Pegasus on October 30, 1997. The notice of application for the registration of the English judgment in this Court was commenced on November 19, 1998.
----------------
[para18] On July 9, 1996, Mr. Charity wrote to Mr. De May's firm concerning the English action to determine "when the Writ first came to the attention of an officer of the company". Mr. Charity was asking the New York counsel when the action first came to the attention of his client, Pegasus.
[See Note 8 below]
----------------
Note 8: Charity affidavit, exhibit DEC1, pp. 19-20.
----------------
[para19] Mr. De May immediately replied that he had received the writ by mail from the Panamanian law firm on March 15, 1996. On the same day, he advised Mr. Karathanos of the proceeding by telephone and also faxed to him a copy of the writ, together with other papers received from the Panamanian solicitors. [See Note 9 below]
----------------
Note 9: Charity affidavit, exhibit DEC1, pp. 4-8, 19-20 and 21. Mr. De May telecopied the documents to Mr. Karathanos at a telephone number other than that indicated on Amican's letterhead. The English action was purportedly served on Pegasus at the offices of the Panamanian law firm (pp. 4-5), one of whose members sent the documents to Mr. De May's law firm on March 4, 1996 (p. 6). The papers were apparently received by Mr. De May on March 15, 1996 (p. 21).
----------------
[para20] In paragraph 1 of his affidavit, Mr. Charity stated:
I am a solicitor of the Supreme Court and a partner in the firm of Stockler Charity, solicitors for the Defendant herein. I am duly authorised by the Defendant to swear this affidavit on their behalf. The contents of this affidavit, except where otherwise indicated, are derived from documents and information provided to me by Mr James D Karathanos, the President of Amican Navigation Inc. Amican are the managers of Pegasus Lines Limited S.A. in Montreal. The contents of this affidavit are true to the best of my information and belief. [Emphasis added.]
Contrary to the position taken by counsel for Mr. Karathanos at the hearing of this motion, I am satisfied that an ordinary reading of the paragraph discloses that Mr. Charity was authorized and informed by Mr. Karathanos for the purposes of his affidavit. If, as suggested by counsel, some person from Pegasus (someone other than Mr. Karathanos) authorized Mr. Charity to swear the affidavit, evidence to that effect from Mr. Charity or perhaps from Mr. Karathanos himself should have been filed.
[para21] I am satisfied on the record before me that Mr. Karathanos through Amican acted as general agent or manager for Pegasus, at least for the purposes of the English action. Mr. Charity described Amican as "the managers" of Pegasus in Montréal.
[13] This transaction was critical to Justice Lutfy's determination that Mr. Karathanos was indeed an officer capable of being examined on behalf of Pegasus. The reference in Mr. Charity's affidavit to the fact that upon receipt of the Writ, Mr. DeMay contacted Mr. Karathanos is as significant as the reference to Amican as Pegasus' managers. In the course of these proceedings another affidavit was produced from Mr. Charity explaining his prior affidavit. The relevant part of the latter affidavit, affirmed in London England on December 7th, 1999, is as follows:
4. The allegation in my Affidavit of 1995 was an assumption on my part and I had no express instructions or information as to whether Amican Navigation Inc. were in fact the managers of Pegasus Lines Limited S.A.
[14] Mr. Charity had good reason to believe that there was a close relationship between Amican and Pegasus. Mr. Charity knew that Mr. Karathanos had been instrumental in instructing him in the default judgment proceedings.
[15] We know this because of a letter produced in the course of the cross-examination of David Charity. The letter, dated December 15, 1999 is from Mr. Charity to Mr. Karathanos. It recites that the draft affidavit (in which Amican is referred to as the general agent for Pegasus) was forwarded to Mr. Karathanos on July 22, 1996 "for authority to swear it on behalf of Pegasus Lines". The letter goes on to say that Mr. Charity received instructions with respect to the default proceedings "variously from George Pollack of Sproule Castonguay Pollack, Cary Thompson of Liverpool & London Association, yourself and Mr. Ahmed Mrabti." Mr. Charity notes that he "had no contact with Dan American Corporation, Cominco Corporation or Admiral Trading" all of whom Mr. Karathanos says instructed him from time to time.
[16] This letter is interesting in several respects. First, it shows that one of the persons providing instructions to Mr. Charity was Mr. Karathanos. It also shows that Mr. Karathanos saw the draft affidavit in which Amican was described as the Manager of Pegasus prior to its execution and took no exception to it at the time. The failure to object is capable of being construed as an admission of the truth of that proposition. This possibility is not weakened by the fact that the letter authorizing Mr. Charity to proceed was signed "Amican Navigation Inc. As Agents for Pegasus Lines Ltd S.A." The paper on which the letter was prepared has a small logo in the bottom left hand corner showing a winged horse and the words "General Agents, Pegasus Lines Ltd. S.A.".
[17] One of the time honoured, and frequently misunderstood, exceptions to the classic hearsay rule is the failure to object in circumstances where objection or denial is the natural and predictable response if the person truly believes the statement in question to be false. This is frequently transformed into the principle that anything said in the presence of the accused in a criminal matter is not hearsay. That is not the case. Not everything which is said in the presence of the accused is such as to require a response. But, for example, an outright accusation of wrongdoing which is not denied leads to the inference that it cannot be denied because it is true.
[18] In this case, the failure to correct the statement in the draft affidavit to the effect that Amican were the Managers of Pegasus when the corporate entity specifically describes itself in its letter as the agents of Pegasus suggests that the author did not disagree with the characterization of Amican as Manager. It is unlikely that someone who took the trouble to describe themselves as agent or General Agent, would be insensitive to the use of the word Manager to describe their role.
[19] There is another letter produced by Mr. Charity which is also interesting. It is a letter to Sproule Castonguay Pollack, Pegasus' solicitors, from Mr. Charity, also dated July 22, 1996 in which the draft affidavit is forwarded with a request for authority to swear it. The letter shows a copy as having gone directly to Amican. We know that on the same date Amican authorized Mr. Charity to swear the affidavit. The significance of this letter is that not only did Mr. Karathanos see the letter and the draft affidavit but so did counsel for Pegasus. It is therefore somewhat surprising to read the following in Justice Lutfy's reasons:
Contrary to the position taken by counsel for Mr. Karathanos at the hearing of this motion, I am satisfied that an ordinary reading of the paragraph discloses that Mr. Charity was authorized and informed by Mr. Karathanos for the purposes of his affidavit. If, as suggested by counsel, some person from Pegasus (some one other than Mr. Karathanos) authorized Mr. Charity to swear the affidavit, evidence to that effect from Mr. Charity or perhaps Mr. Karathanos himself should have been filed.
[20] It should be reasonably clear why no affidavit was filed identifying someone other than Mr. Karathanos as the one who authorized the swearing of the affidavit. What is less clear is the basis on which submissions that Mr. Karathanos did not authorize the swearing of the affidavit could have been made by someone with knowledge of these facts. There are other facts which would make such submissions even more surprising, specifically, a letter from counsel for Pegasus dated June 7, 1996 to Stockler Charity in which counsel advises that he is instructed by Pegasus Lines Ltd. S.A. for the purpose of retaining Stockler Charity to investigate opening up the default judgment against Pegasus. The letter then says:
We have been authorized by Pegasus to instruct your firm in this matter specifically with a view to obtaining your advice a to whether the default judgment can be set aside and then taking the steps to bring the necessary application in this regard. My partner Andrew Ness, and Mr. James Karathanos of Amican Navigation Inc,. general agents for Pegasus, will be in London next week and would propose to meet with you at your office on Monday June 10, 1996 at 2:30 p.m. Mr. Ness will have with him a full copy of the Motion. We trust that you are free to act on our client's behalf and that you would be available to meet with Messrs. Ness and Karathanos on Monday afternoon or, if you are not available on that date, some time on Tuesday the 11th.
[21] Assuming, as one must, that counsel was aware of and complied with his duty not to mislead the Court, one is left to wonder what additional facts could explain the submissions which were made to Justice Lutfy on the issue of who authorized Mr. Charity to swear the affidavit in question.
[22] The result is that Mr. Karathanos has not shown that the basis upon which Justice Lutfy made his order is not supportable. In fact, Justice Lutfy's conclusions have been confirmed. As a result, there is no reason to relieve Mr. Karathanos of his obligation to re-attend on the basis of evidence produced in the course of his examination. Quite the contrary.
[23] The other ground upon which Mr. Karathanos could be relieved of the obligation to reattend is that Mr. Karathanos has submitted to examination and had provided such information as he can. If there is no realistic possibility that any further information is forthcoming, no useful purpose is served by Mr. Karathanos' reattendance. In order to succeed on this point, Mr. Karathanos would have to show that he has in fact answered all that he can answer.
[24] This argument ignores the fact that Mr. Karathanos voluntarily agreed to reattend at the close of his examination on September 21, 1999. At the conclusion of the examination, the following exchange occurs:
Me Vincent M. Prager:
As I say, it would appear that subject to whatever questions arise out of the undertakings, I would have two(2) - between two (2) and three(3) hours more questioning or maybe slightly less than that, once I filter through my notes, but I would therefore suggest that it might be appropriate to try to have as many of the undertakings dealt with, and then try to finish everything in one (1) final session, that we wouldn't drag it on any further.
So, perhaps rather than setting a date right now, Miss Rosen and I can get some ideas of dates and try to see if Mr Karathanos can obtain the information within that context, so that we can --
A. Fine
Q. Meet just once more. Is that okay?
Me Elyse Rosen:
I have no problem with that.
Me Vincent M. Prager
Thank you
[25] In the circumstances, is it appropriate to allow Mr. Karathanos to resile from his agreement to attend for re-examination arising out of the responses to undertakings? In principle, the agreement to reattend should be upheld. But as a practical matter, one needs to consider what is to be gained by compelling reattendance. That leads to an inquiry as to the compliance with the undertakings given and the statements made as to the inquiries undertaken by Mr. Karathanos. This will also have consequences for the appeal from the order of Prothonotary Morneau.
[26] At this point, it is useful to review the purpose and scope of the examination to which Mr. Karathanos was required to subject himself. Fisher is a judgment creditor of Pegasus. It seeks to enforce a judgment obtained in the United Kingdom against the assets of Pegasus wherever they may be found. Pegasus is a shadowy entity but it seems clear that Mr. Karathanos, in his personal capacity and as the directing mind of Amican Navigation Inc. has knowledge of the affairs of Pegasus. He is therefore ordered to be examined as an officer of Pegasus pursuant to Rule 426. However, that order does not pierce the corporate veil or constitute Mr. Karathanos the alter ego of Pegasus. It is not the assets of Amican which are subject to seizure for the debts of Pegasus. The scope of the examination therefore is limited to identifying the knowledge which Mr. Karathanos has of the assets of Pegasus. The entire course of business between Amican and Pegasus is relevant only to the extent that it assists in locating assets.. The main issue is the disposition of the funds which came into Amican's hands for the benefit of Pegasus. The identity of the principals of Pegasus and their places of business is also a relevant field of inquiry as it can lead to further inquiries of them as to the assets of Pegasus. Mr. Karathanos' dealings with Tapia Linares is also relevant.
[27] That said, what has Mr. Karathanos produced in response to his undertakings. He has produced a number of bundles of documents organized by vessel. Each bundle has a sheet recapitulating various expenses incurred and revenue collected. This is followed by one or more records of money transfers by cable, which are followed in turn by various accounts. An examination of some of these bundles shows that:
1- In many cases, the documents themselves would not permit one to determine if they are in respect of Pegasus ships and voyages, or those of others.
2- The amounts of the cable money transfers may or may not correspond to any particular amount shown in the recapitulation, nor to the total of all amounts expended.
3- There is no money transfer in the amount of the difference between revenue and expenses incurred.
4- Most of the money transfers are dated prior to the date of the last account.
5- In many cases, the accounts submitted do not include all expenses or even all expenses within a particular head of expense.
[28] There are many questions which could be asked about this production. If these are all the documents, what happened to the others? What explains the fact that some documents of a category are available but others from the same category are not? Why is it that there is no record of any remittances to Pegasus? These are all matters which should be within Mr. Karathanos' knowledge and which are relevant to the tracing of Pegasus' assets.
[29] The answers to these questions and others like them may be of assistance to Fisher in determining the location of Pegasus' assets. The absence of any record of transfer of funds from Amican or Karathanos to Pegasus is a matter requiring explanation. The examination of Mr. Karathanos has not yet run its course.
[30] As a result, I am not satisfied that Mr. Karathanos is entitled to be released from his obligation to attend for examination. He has not succeeded in showing that Justice Lutfy's order was made in error and in fact, I am of the view that new evidence establishes that Mr. Justice Lutfy was fully justified in coming to the conclusions he did. Nor has he shown that nothing further can be expected to come of further examination. Much remains unexplained and much of what has ostensibly been explained strains credulity. Mr. Karathanos says that he has nothing at stake and behaves as though he does. Mr. Karathanos is not relieved of his obligation to attend for reexamination.
[31] The appeal from the order or Prothonotary Morneau requests that his decision with respect to certain undertakings be set aside and that Mr. Karathanos be ordered to provide answers, or better answers to certain undertakings. The undertakings in respect of which better answers are requested (identified by number) can be paraphrased as follows:
14- where were funds received on behalf of Pegasus deposited? Were they deposited in Amican's general account or in some other account. To whom was that money paid?
21- to inquire and identify the accounts in which funds payable to Pegasus were deposited and to produce vouchers for payments out of that account.
23- how did Amican keep track of funds advanced to others on Pegasus' behalf?
25- verify if money was owed to Pegasus in respect of the last statement of account in 1995 and if so, where was it sent. If Pegasus owed Amican money, was it received and from where?
[32] In his affidavit filed in support of his application to be relieved of the obligation of re-attending, Mr. Karathanos deposes that:
2. I am not, be it through Amican or personally, and never was, the person in authority, manager or person who decides with respect to the Defendant, nor am I, nor have I ever been an officer of the Defendant.
...
10. I do not have in my possession and never have had in my possession, the records of transfers of funds to and from any of Defendant's shareholders or directors. The same is true of Amican.
11. Other than the documentation which I have already provided to Plaintiff on October 26, 1999, I do not have any records of transfers of funds to ro from any and all related or affiliated companies of Defendant. The same is true of Amican
[33] Mr. Karathanos has consistently described himself as an agent of Pegasus and it may be in that capacity that he attended upon Mr. Charity to instruct him to open up the default judgment against Pegasus and later authorized him to swear an affidavit on behalf of Pegasus to open up the default judgment. On the other hand, all corporations act by agents, since they are incorporeal, so that saying one is an agent for a corporation does not mean that one has no legal or beneficial interest in the corporation. When Mr. DeMay was asked when Fisher's Statement of Claim to the attention of an officer of the company, Mr. DeMay replied in terms of when it came to Mr. Karathanos' attention. As for the statements that Mr. Karathanos (or Amican) does not have any record of transfers of funds between Pegasus shareholders or directors, these do not address the issue of transfers of funds between Amican/Karathanos and Pegasus. The same is true of the statement about transfers of funds between related and affiliated companies of the Defendant.
[34] In so far as the appeal from Prothonotary Morneau is concerned, the standard upon which such decisions are reviewed by this Court is found in Canada v. Aqua-Gem Investments Ltd. (C.A.), [1993] 2 F.C. 425 (F.C.A.), (1993), 149 N.R. 273. A judge hearing an appeal from the decision of a prothonotary should not interfere unless it is shown that the Prothonotary acted upon a wrong principle. A simple disagreement with the result does not justify interference.
[35] Prothonotary Morneau declined to order Mr. Karathanos to produce bank or accounting records confirming transfers of funds from Amican to or from Pegasus on the ground that the undertakings given did not extend that far. A review of the transcripts shows that inquiries were made as to the account into which funds received on behalf of Pegasus were deposited and an undertaking given to provide the details of the account together with documentation substantiating that the account or accounts in question were for the benefit of Pegasus. See Undertaking U-14. This was covered again in Undertaking U-21A where Mr. Karathanos agreed to ask his accountants for whatever documentation they had as to outgoing funds. In Undertaking U-23, Mr. Karathanos agreed to inquire of his accountants how the state of accounts between Amican and Pegasus was maintained. Undertaking U-25 deals with the state of accounts between Amican and Pegasus at the conclusion of their last piece of business. I am satisfied that the Undertakings do require Mr. Karathanos to make inquiries of his accountants and to document the existence and use of accounts containing Pegasus funds. To that extent, the undertakings do extend as far as suggested by the counsel for Fisher. The prothonotary's decision with respect to these undertakings will be set aside and Mr. Karathanos ordered to comply.
[36] Fisher asks that the balance of the examinations be held before a judge. I have read the transcripts of the examination of Mr. Karathanos and of his cross examination upon his affidavit. The latter shows a pattern of aggressive intervention on the part of counsel who attended with Mr. Karathanos. In my view, counsel behaved in a way designed to frustrate the purpose of the examination. Her interventions went beyond the zealous protection of her client's interests to the point of being obstructive. On the other hand, the examination of Mr. Karathanos while he was assisted by Mr. Pollack was relatively uneventful. It is not for the court to tell Mr. Karathanos who his legal representative will be. But Fisher and its counsel should not be required to endure another session like Mr. Karathanos' cross examination on his affidavit. As a result, counsel for Mr. Karathanos will advise counsel for Fisher as to who will attend with Mr. Karathanos upon the resumption of his examination. In the event that Mr. Karathanos is attended by Mr. Pollack, the examination shall proceed in the usual way. In any other case, the examination shall proceed in the presence in the presence of a prothonotary. If the Court's confidence in Mr. Pollack is misplaced, the appropriate motion can be made at a later time.
[37] Both sides raised the issue of costs. Mr. Karathanos asks for costs on the basis that there was no foundation for the order which was made against him. I disagree. There was a foundation for the order being made and, in my view, the correctness of the order has been confirmed.
[38] Fisher also asks for costs. It points to the order of Justice Lutfy which explicitly refers to the court's power over costs as a balance to Mr. Karathanos right to apply to be relieved from the obligation to attend for examination. Fisher points to Mr. Karathanos' request for some $25,000 in costs and argues that Mr. Karathanos ought to be condemned to pay that which he asked for.
[39] In my view, Justice Lutfy's comments about costs were intended to exert a moderating influence with respect to an inappropriate application to be excused from further examination. This application could not have been expected to succeed in showing that Justice Lutfy's order was ill-considered. As for the notion that the examination had run its course, this too has little support. But it does not seem appropriate to deal with the amount of costs until the examination of Mr. Karathanos is finally concluded. To do otherwise is to invite multiple considerations of the same issue. I will therefore make an order that Fisher is entitled to its costs of all proceedings taken with respect to the examination of Mr. Karathanos except for those, if any, previously awarded to Mr. Karathanos in respect of particular motions, such costs to be spoken to at the conclusion of the examination. The judge hearing the matter of costs shall determine the amount of costs or refer them for assessment, in his or her discretion, and shall determine whether such costs are to be paid by Pegasus, by Mr. Karathanos personally or, upon proof by Fisher of circumstances justifying such a measure, in whole or in part by Pegasus' solicitors personally.
ORDER
For the reasons set out above, it is hereby ordered that:
1- the appeal from the order of Prothonotary Morneau is allowed.
2- the motion that Mr. Karathanos be excused from further examination is dismissed.
3- Counsel for Pegasus will advise counsel for Fisher, 21 days prior to the day set for the examination, as to who will attend with Mr. Karathanos upon the resumption of his examination. In the event that Mr. Karathanos is attended by counsel other than Mr. George Pollack, the examination shall be conducted in the presence of a Prothonotary.
4- Fisher shall be entitled to their costs for all proceedings taken in connection with the examination of Mr. Karathanos except for those, if any, previously awarded to Pegasus. The amount of costs shall be spoken to at the conclusion of the examination. The judge hearing the matter shall either fix the costs or refer them for assessment, in his or her discretion, and shall determine whether such costs are to be paid by Pegasus, by Mr. Karathanos personally, or upon proof of circumstances justifying such a measure, in whole or in part by Pegasus solicitors personally.
(Sgd.) "J.D. Denis Pelletier"
Judge