Court File and Parties
CITATION: Thomas v. The Thomas Health Care Corporation, 2014 ONSC 1692
DIVISIONAL COURT FILE NO.: 515/13
DATE: 20140414
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
R.D. GORDON R.S.J., LEDERMAN and KITELEY JJ.
BETWEEN:
Conrade Thomas and David Thomas Plaintiffs/Respondents
– and –
The Thomas Health Care Corporation, Augustus Thomas, Rita Thomas, Shirley Thomas-Weir, Natalie Thomas also known as Natalie Thomas-Morgan and 1426622 Ontario Inc. Defendants/Appellants
COUNSEL:
Sean Sullivan, for the Plaintiffs/Respondents
Hendrik Keesmaat, for the Defendants/Appellants
HEARD: March 12, 2014
Reasons for Decision
R. D. Gordon, R.S.J. and Kiteley J.
[1] This is an appeal from the interlocutory order of Whitten J. dated November 28, 2012 in which, pursuant to s. 249(4) of the Ontario Business Corporations Act[^1] (OBCA), he ordered The Thomas Health Care Corporation (THCC) to pay interim fees and disbursements to the plaintiffs and other relief. For the reasons that follow, we allow the appeal in part.
Background
[2] The plaintiffs are brothers and are the sons of the defendants Augustus and Rita Thomas. The defendants, Shirley Thomas-Weir and Natalie Thomas-Morgan are the sisters of the plaintiffs.
[3] Gus and Rita started The Thomas Health Care Corporation in 1967 and built up the nursing home and retirement home business. An estate freeze was implemented in 2000 as a result of which each of the children received 25% of the common shares of THCC. Gus and Rita retained voting control through their special shares. At one point, all the children were employed at THCC. Both brothers allege that they were wrongfully dismissed from their positions in the corporation in 2003 and 2004. The parents and sisters maintain that the brothers were either fired for just cause or left of their own accord.
[4] In 2007 the share structure of THCC was reorganized as a result of which the sisters’ share interest in THCC was preserved, Augustus and Rita received common shares, and, it is alleged, the common share holdings of Conrade and David were wrongfully significantly diluted.
[5] In 2010, the plaintiffs launched their oppression remedy application pursuant to s. 248 of the OBCA. They seek declarations and an order restoring their equity percentage share interest as it existed prior to the transaction in 2007.
[6] The plaintiffs brought a motion pursuant to s. 249(4) of the OBCA for the following relief: an order directing THCC to pay their interim legal fees to date and on a go forward basis; an order for disclosure of all legal fees and professional fees paid by THCC for the action; or alternatively, an order that the personal defendants and Shirley’s corporation repay all interim legal and professional fees already paid by THCC; and or, an order prohibiting THCC from paying all legal fees and professional fees respecting the litigation of any of the parties with the exception of THCC.
Order Under Appeal
[7] The motions judge gave detailed written reasons in which he noted that the plaintiffs had been paying their own significant legal fees personally while all of the defendants had had their legal fees paid by the corporation. He held that s. 249(4) establishes the possibility of interim cost relief based on the discretion of the judge which he said had to be exercised in a fair and principled way. He referred to Alles v. Maurice[^2] and concluded that the plaintiffs had presented a “case of sufficient merit”. He focused on the second aspect of the test and noted that the corporation had been paying all of the legal fees of all of the defendants while the brothers were “in a way underwriting the legal effort against their oppression remedy”. He observed that “the situation does not present as a “level playing field” nor was it “particularly equitable”. He held as follows[^3]:
It is quite obvious that the corporation and the individual defendants have prospered. The salaries to the sisters, the non-interest bearing loan to Shirley’s corporation are indicative of that prosperity. This observation is above and beyond many of the expenses claimed in the financials of the corporation, would undoubtedly have personal benefits to the defendants. The brothers have not fared as well. David is quite impecunious. Conrad is recently unemployed.
Finally, this is a picture, pardon the same name, of David v. Goliath. The impact of section 249(4) and the judgment of Justice Blair in Alles v. Maurice is that the oppressors not use the remaining resources of the corporation to attack the minority. To do otherwise would allow the more economically powerful to win by attrition. That would undermine the efficacy of the oppression remedy. The remedy would become in effect, hollow, toothless.
Therefore for all of the above this court exercises its discretion with respect to interim costs.
The plaintiffs indicated at the outset have sought alternative relief. What is the best relief to ensure a level playing field? The corporation and THCC do present as the more economically favoured. The brothers have established that they have to date paid significant legal fees. There is no evidence before the court as to how much THCC has paid on behalf of all the defendants.
[8] The motions judge then considered the request by the plaintiffs that the corporation not pay the fees and disbursements of the personal defendants. He pointed out four reasons why such an order would be inappropriate.
[9] The motions judge explained that, if he made an order requiring further attendances to approve the breakdown of legal fees, it would simply add to the legal expenses that would be incurred and, accordingly, he directed that fees and disbursements be paid “at face value”. He held that the relief sought by the plaintiffs, namely that the corporation pay all the fees incurred to date was “the most practical” and would put the plaintiffs “on a level playing field”. He assumed that the corporation had not paid the fees and disbursements of the defendants on a “partial indemnity rate or reduced basis”. The motions judge concluded as follows:
Obviously, all of the above illustrates the point stressed at the outset of this motion, it is in everyone’s best interests to try and resolve the matter before further costs are incurred.
As costs are now being paid by the same source, everyone has a vested interest. If they actually want to realize something tangible at the end of the day, to treat each other with fairness.
Given the order above, the question of costs of today’s motions is somewhat academic as no doubt the plaintiffs will be submitting their legal fees for payment by the corporation. In keeping with the idea of vigilance over legal fees, the defendants will provide copies of all interim professional and legal fees already paid by THCC, and as well this applies to all future accounts paid on behalf of the defendants. . . .
[10] The order provided as follows:
THCC shall pay to the plaintiffs all the fees and disbursements incurred to date by the plaintiffs at face value;
the plaintiffs shall submit copies of the accounts incurred to date within 30 days and payment shall be made within 30 days thereafter;
the plaintiffs shall provide copies of all further accounts for fees and disbursements on a monthly basis to counsel for the defendants and THCC shall pay such accounts within 30 days of receipt;
all fees paid by THCC to either party shall be considered as part of the costs to be considered by the trial judge at the time of judgment;
the security for the costs paid by THCC lies in the shares presently held by all the parties;
the defendants shall provide to counsel for the plaintiffs copies of all interim, professional and legal fees already paid by THCC as well as copies of all future accounts paid on behalf of the defendants;
any communication between solicitor and client if referred to in any of the legal accounts submitted may be redacted.
Motion to Strike Affidavit
[11] The defendants launched a motion for leave to appeal. In support of that motion, they filed an affidavit of Natalie which they intended to rely on as fresh evidence. Counsel for the plaintiffs brought a motion to strike the affidavit. In a ruling dated February 13, 2013, Nightingale J. granted the motion and struck the affidavit. In his endorsement, he observed that the defendants could pursue the issue by way of a motion before Whitten J. under rule 59.06 to set aside or vary his order.
Motion pursuant to Rule 59
[12] The defendants brought the rule 59 motion before Whitten J. and it was dismissed in an endorsement dated April 3, 2013. The affidavit of Conrade sworn October 15, 2012 indicated that his employment had terminated effective October 12, 2012. The evidence on which the defendants sought to rely in April indicated that he had obtained employment before the motion had been heard but that information only became available to the defendants after the motion had been decided. The defendants also attempted to introduce fresh evidence to demonstrate that their salaries were reasonable in the industry. The motions judge dismissed the motion and in so doing, repeated his description that this was a “David v. Goliath” situation. He concluded with this observation:
If anything, this motion presents as an effort to sidetrack this litigation. The very thing this court sought to prevent in its original order of November 28, 2012. The aim of that order was to maintain a level playing field and to trumpet the fact that this litigation was hurting everyone equally. That reality it was hoped would foster the need to work towards resolution, not to go tangentially off in a war of attrition. For all of the above, the motion to vary is dismissed in its entirety.
Motion for leave to appeal
[13] The defendants’ motion for leave to appeal both of the orders of Whitten J. was heard by Lofchik J. on June 17, 2013. In reasons released June 28, 2013[^4], Lofchik J. held that Whitten J. had applied the correct tests as articulated in Alles v. Maurice[^5] and he had found that the plaintiffs’ case was of sufficient merit to warrant pursuit and that the plaintiffs were genuinely in financially difficult circumstances which, but for an order under s. 249(4), they would be precluded from pursuing. Lofchik J. also held that there was no basis for granting leave to appeal from those findings of fact and with respect to making an award of interim costs under s. 249(4), nor was there a basis for granting leave to appeal from his decision that THCC was financially able to pay interim costs.
[14] However, Lofchik J. had some difficulty with respect to the nature of the award in that it covered 100% of legal fees already incurred and paid as well as 100% of legal fees to be incurred. He questioned why fees already paid should have been ordered. He also questioned the “unfettered, carte blanche” award of costs and noted that the usual practice is to award costs for a specific purpose or for a limited duration with an opportunity to review if necessary. Lofchik J. found that there was a reasonable doubt as to the correctness of the order and he found that there were conflicting decisions[^6] as to the “manner in which an award of interim costs should be dealt with”. He concluded that the issues of principle upon which interim costs in oppression remedy cases could be awarded was important enough for leave to appeal to be granted and that it was desirable to do so for the purpose of obtaining appellate direction on this issue. He granted leave to appeal and, although the appeal did not relate to all aspects of the order, Lofchik J. ordered a stay of the order made November 28, 2012.
Notice of Appeal
[15] The appellants[^7] delivered a Notice of Appeal asking that the court set aside the order of Whitten J. dated November 28, 2012 to the extent that it required THCC to pay for all fees and disbursements incurred by the plaintiffs to that date and all fees and disbursements to be incurred. As an alternative, the appellants asked that the order be varied to specify what amounts, if any, of the fees and disbursements of the plaintiffs incurred or to be incurred must be paid by the appellant corporation.
Positions of the Parties
[16] On this appeal, counsel took the position that the amount of fees and disbursements incurred by the plaintiffs was disproportionate to those incurred by the defendants. The appellants also asserted that THCC has no available cash flow and was unable to pay the costs ordered for reasons related to its financial situation. Counsel conceded that the first branch of the Alles test had been met. However, in addressing the second branch of the test, counsel for the appellant took the position that the motions judge made a clear and palpable error in law by making an award of the payment of costs already incurred and going forward; by making an award of interim costs and interest for full indemnity costs which counsel asserted was far in excess of the appellants’ costs; and by failing to take into account the financial condition and risks for survival to the corporation.
[17] At the outset of the appeal, counsel for the appellants did confirm that, based on paragraph 31 of the reasons for decision of Lofchik J., the issue of the financial condition of the corporate defendant was not before us because the motions judge had made a contrary finding of fact and leave was not granted on that issue. Nonetheless, counsel continued to assert that this court ought to take the financial circumstances of the corporation into consideration.
[18] On behalf of the respondents, counsel took the position that the motions judge had correctly applied the test and had not committed an error of law and that the financial circumstances of the corporation ought not to be a consideration in this appeal.
Standard of Review
[19] The reasons of Lofchik J. make it clear that the basis upon which leave was granted was the “nature of the award of interim costs” (at paragraph 32) and “the manner in which an award of interim costs should be dealt with” (at paragraph 36). Based on the facta and the oral submissions, we find that there are two issues of mixed fact and law as follows:
(a) Whether the motions judge made a palpable and overriding error in the open-ended award which provided that all accounts of the plaintiffs would be paid “at face value” without an approval process;
(b) Whether the motions judge made a palpable and overriding error by requiring the appellant corporation to pay the accounts incurred and paid at the time of the motion.
Analysis
[20] Section 249(4) of the OBCA is as follows:
In an application made or an action brought or intervened in under this Part, the court may at any time order the corporation or its affiliate to pay to the complainant interim costs, including reasonable legal fees and disbursements, for which interim costs the complainant may be held accountable to the corporation or its affiliate upon final disposition of the application or action.
[21] In Alles v. Maurice, Blair J. (as he then was) was encouraged to follow the test laid out in Wilson v. Conley[^8] namely that the applicant must demonstrate financial difficulty that arises out of the alleged oppressive actions of the respondents and the applicant must make out a strong prima facie case. Blair J. reformulated the test to exclude the requirement that the financial difficulty had to arise out of the alleged oppressive actions. He articulated a two step test, namely that an applicant for relief under what is now s. 249(4) of the OBCA needs to establish that there is a case of sufficient merit to warrant pursuit and establish that the applicant is genuinely in financial circumstances which, but for an order under s. 249(4), would preclude the claim from being pursued.
[22] We agree that the motions judge properly applied the appropriate test and made findings on the basis of the evidence before him that there is a case of sufficient merit to warrant pursuit and that the plaintiffs were genuinely in financial circumstances which, but for the order, would preclude them from pursuing the application.
[23] In order to address the two issues before us, it is appropriate to provide the context in which the motion was heard. The action had been commenced in February 2010. The statement of claim had been amended in December 2011 to include Shirley and Natalie and the statement of defence had subsequently been amended. A reply had been delivered. Pleadings were complete.
[24] In support of and in opposition to the motion, counsel filed approximately 300 pages of evidence including the following:
(a) affidavit of Kenning sworn July 26, 2012 consisting of 45 paragraphs and 24 exhibits;
(b) affidavit of Shirley sworn September 19, 2012 consisting of 45 paragraphs and 5 exhibits;
(c) affidavit of Conrade sworn October 15, 2012 consisting of 36 paragraphs and 21 exhibits;
(d) affidavit of David sworn October 15, 2012 consisting of 12 paragraphs and 3 exhibits;
(e) affidavit of Tracy L. Salmon sworn October 25, 2012 consisting of 4 paragraphs and 1 exhibit;
(f) affidavit of Shirley sworn October 29, 2012 consisting of 15 paragraphs and 3 exhibits.
[25] In the affidavit of Leanne Kenning sworn July 26, 2012 she attached as Exhibit X a document that included a four page detailed bill of costs which indicated that the fees and disbursements incurred to that date totaled $119,830.91. She also attached a 25 page document with detailed daily entries of services rendered.
[26] In Shirley’s first affidavit, she said that the defendants’ fees and disbursements to date were $47,630.47. Although the notice of motion asked for an order requiring the defendants to provide copies of all legal and professional accounts paid by THCC, she did not provide any documents to support that statement. She asserted that the amount requested by the plaintiffs was “inordinately high for a matter that has only proceeded to examinations for discovery” and that it was not proportional to the amount at stake.
[27] Tracy L. Salmon is a law clerk employed by counsel for the plaintiffs. In her affidavit she provided a table that listed the four accounts dated between June 28, 2012 and September 28, 2012 that totaled $61,511.17 that had not been paid. A copy of the summary page for each account was attached. Salmon also deposed that, based on advice from Mr. Sullivan, he estimated that if the matter proceeded to trial, in excess of $100,000 would be required for legal and professional fees.
[28] In Shirley’s reply affidavit, she gave evidence of the financial circumstances of THCC and she opined that the plaintiffs should retain counsel on a contingency fee basis.
[29] In summary, the evidence before the motions judge consisted of the following:
Plaintiffs:
Accounts rendered and paid and documented $119,830
Accounts rendered and not paid and documented $ 61,511
Estimate for trial including professionals $100,000
Defendants:
Amount incurred to September 19, 2012; not documented $ 47,630.
[30] There had been no cross-examinations but, as the list of affidavits makes clear, there had been opportunity for the defendants to respond. The notice of motion requested payment of the legal and professional fees already incurred and to be incurred.
[31] Counsel on the appeal advised that, at the time of the motion in November, 2012, considerable documentary disclosure had taken place and examinations for discovery were concluded. As Exhibit X to the affidavit of Kenny indicates, the disbursements for examinations for discovery and transcripts was over $3000 along with litigation support services for scanning and coding documentation in the amount of over $500. Counsel on the appeal indicated that at the time of the motion, the parties anticipated that the next step was the trial. Counsel advised us that the trial is scheduled to be heard in May 2014.
[32] This is important context for this appeal.
[33] The two step test in Alles has been adopted in many cases. However, that test speaks to entitlement to an order pursuant to s. 249(4); it does not specifically address the amount of costs ordered. We turn to consider some of the authorities relied on by counsel as to what order was made once entitlement was established.
[34] In Alles, the applicant had brought a motion for directions respecting certain scheduling matters and whether there should be a trial of the issues and had sought an order for interim legal fees and disbursements. There had been no cross-examinations on the applicant’s affidavit and no responding materials had been filed. According to the applicant’s affidavit, she had incurred legal fees and other expenses of $45,301 in attempting to determine and fulfill her obligations as a director of the corporations. She had paid approximately $32,000 of that amount and had paid $15,000 to a professional for financial and valuation advice. Her unbilled fees and disbursements to her counsel were estimated at approximately $68,000. She deposed that she had almost depleted her family savings and was unable to pay the amounts outstanding or her future legal fees, or the estimated $10,000 to $15,000 needed to retain a forensic accountant. Blair J. directed a trial of the issues and established a timetable for pleadings, productions, discovery and a hearing.
[35] After articulating the two step test and finding that the applicant met both tests, Blair J. turned to the question “how much”. He observed that the evidence was not as complete as one might have hoped in that there was no bill of costs or outline of the anticipated costs as is customary in analogous motions for security for costs. He noted that $13,000 remained unpaid but he had no supporting invoices to confirm that and he had no information regarding the legal fees and disbursements, nor the expert fees expected to be incurred. He pointed out that motions of this nature should be supported by a realistic amount of information and verification sufficient to assist the court in making an assessment of what is a fair quantum to be awarded.
[36] Having said that, he observed that an oppression lawsuit would be costly both in legal fees and disbursements and in forensic advice. He ordered the corporate respondent to pay interim costs in the amount of $55,000 which was intended to encompass the billed and unpaid fees of $13,000, the estimated forensic accounting fees of $10,000 to $15,000 and past and future legal fees and disbursements to the completion of discoveries. He noted that the amount was not calculated on a party and party basis because he did not think that s. 249(4) was limited to costs on that scale. Blair J. also held that there was merit in approaching an order of this nature similar to those where security for costs is sought, namely to allow for a motion for a further order after examinations for discovery.
[37] Blair J. did refer to costs incurred in the past, some of which had been paid and some of which were outstanding. The order he made appears to contemplate payment on account of past unpaid fees and disbursements. He was making an order at a preliminary stage and before the defendants had had a full opportunity to respond. Making an order that took account of those factors was fair and principled and consistent with the analogous security for costs procedure.
[38] In Reay v. Landcorp Ontario Ltd. Forestell J. had heard a prior oppression application and on June 21st, 1991, he had made an order in which he found that the defendants had oppressed the plaintiffs. In April, 1993[^9], he heard a motion by the plaintiffs for an order appointing a receiver-manager and an order for advance payment for the value of the shares and for interim costs. He dismissed the motion for the appointment of a receiver-manager but did set a trial date 4 months in the future. Pursuant to s. 248(4), he ordered an advance payment of $500,000 to be applied against the final sum owing to the plaintiff. He referred to s. 249(4) and both Wilson v. Conley and Alles v. Maurice. He did not specifically refer to the first branch of the test but he had noted that he had previously made a finding of oppression. As for the second branch of the test, he was satisfied that the plaintiff had demonstrated that he was genuinely in financial circumstances and, but for an order, he would be precluded from pursuing the claim. Having made the order for an advance payment, he declined to make an order for costs under s. 249(4). In his consideration of s. 249(4), he pointed out that, based on his interpretation, it allowed him to award already incurred legal costs and disbursements and legal costs to be incurred in the future.
[39] Forestell J. went on to consider his jurisdiction to award costs pursuant to s. 131 of the Courts of Justice Act and ultimately ordered payment of interim fees in the amount of $200,000. In so doing, he observed that the finding of oppression had already been made and awards of costs had already been paid in the amount of $152,000, and that it was neither fair nor just for the corporate defendant to use its funds to pay its counsel and to deprive the oppressed shareholder of funds to pursue his claim.
[40] The prior finding of oppression and the absence of details with respect to the amount of costs ordered means that the reasons for decision in this case are not of assistance. Forestell J. did observe that s. 249(4) included already incurred legal costs and disbursements, but he did not distinguish between already incurred and paid and already incurred and not paid.
[41] In Waxman v Waxman[^10], the conflict between two brothers had led to a trial involving five lawsuits that lasted over 200 days. The trial judge granted significant money judgments in favour of the plaintiffs and, because appeals were taken in all five actions, the money judgments were automatically stayed. The successful plaintiffs moved for directions and other relief. The successful plaintiffs (respondents in the appeal) moved for an order pursuant to s. 249(4). Goudge J.A. adopted the test in Alles v. Maurice and noted that the appellants did not contest that the first branch of the test had been met. The focus was on the second branch. He concluded that the respondents could not meet that test because, notwithstanding a debt to their counsel in the amount of $2.6 million, there was nothing to suggest that without an interim costs order, it was possible that the respondents would be unrepresented on the appeals.
[42] The respondents brought a motion before a panel of the Court of Appeal to vary that dismissal order[^11]. Their motion for an order of interim costs in the amount of $5 million was dismissed on the basis that it was, in substance, no different than the motion to lift the automatic stay of the money component of the trial judgments which Goudge J.A. had dismissed. The Court of Appeal dismissed the motion after consideration of the jurisdiction issues arising from a motion for costs after judgment at trial. It is a reasonable inference that the Court of Appeal approved the two step test in Alles but the reasons for decision are otherwise not of assistance in the matter before us.
[43] In his reasons for decision granting leave, Lofchik J. referred to Morden v. Morden Construction[^12] in which he said interim costs had been awarded for the limited purpose of allowing the plaintiff to retain experts. In that case, the respondents brought a motion to require the receiver of Morden Construction to pay the respondent’s interim legal costs and costs for retaining experts. The endorsement of C. Gilmore J. was released on May 21, 2010 and the trial was to begin on May 31, 2010. She directed the payment of specific legal and professional fees. However, the analysis that includes the factors in both Alles v. Maurice and in Wilson v. Conley as well as the unique facts means that the decision does not assist in giving guidance in the circumstances before us.
[44] The other decision on which Lofchik J. relied was Moyer v. Michael Von Zuben Ltd.[^13] In that oppression remedy case, Howden J. directed the defendant corporation to pay to the plaintiff the sum of $16,000 for a forensic accounting investigation and examinations for discovery, and including work in progress of $3,000 together with $2,000 on account of costs of the motion. He was not satisfied that the accounting report should exceed $5,000 to $8,000. He also ordered that a pre-trial conference be held following completion of discoveries. This case is also not of assistance.
[45] Section 249(4) does not provide any criteria which a court might apply in determining how much the costs ought to be. The cases to which counsel referred and on which Lofchik J. relied do not provide much guidance in the determination of the manner in which an award of costs ought to be made, once the test for entitlement has been met. We consider the following factors to be relevant:
(a) Sections 248 and 249 of the OBCA provide the court with very broad discretionary power by enabling the court to make orders it thinks fit (as in s. 248(3) and 249(2)). As the motions judge held, the amount of costs awarded must be decided on a fair and principled basis;
(b) the earlier the motion, the less will be known about the claims advanced and the less legal and accounting services will have been performed. This gives the opportunity to stage the payments such as is often the case in motions for security for costs;
(c) the later the motion, the more will be known about the claims advanced, the defendants will have had a chance to respond, the legal and other professional services already performed will be more substantial, and the estimate of fees and disbursements to and including trial will be documented and be more reliable;
(d) the court has discretion to make an order for payment of fees, disbursements and professional fees already incurred and paid; already incurred and unpaid; and to be incurred;
(e) where the plaintiff is claiming reimbursement of legal fees already paid, the court should consider whether the evidence establishes that, but for reimbursement of those amounts, the plaintiff would be precluded from pursuing the claim;
(f) the amount that the defendant corporation has paid on behalf of the corporation or personal defendants, whether sued in their capacity as officers/directors or as shareholders;
(g) whether any of the non-corporate defendants have had access to funds of the corporation for non-corporate purposes;
(h) the principle of proportionality.
[46] Applying those factors in the context of this case to the first of the two issues in this appeal, we are not persuaded that the motions judge made a palpable and overriding error in his order that the invoices for fees and disbursements rendered on account of the plaintiffs be paid at face value without a process for approval. In so doing, he applied his very broad discretion on a fair and principled basis designed to level the playing field; he directed that payments made by THCC would be secured by the shares; he was aware that the corporation had made a no interest, no term of repayment loan to Shirley’s corporation in the amount of almost $400,000; he was aware that the plaintiffs had incurred more substantial fees and disbursements than had the defendants but he was aware that the plaintiffs bear the burden of proof; he knew that the action had progressed to the end of discoveries and that considerable fees had been incurred and would be incurred in what he described as a David v. Goliath conflict; he anticipated that the trial was the next stage in the action; he had been given substantial documentation to corroborate the fees and disbursements incurred to date and he was aware that the defendants had refused for months to provide copies of the invoices for professional fees and disbursements; he was of the view that a detailed approval process would delay the matter proceeding to trial promptly; he anticipated that the corporation and the personal defendants would incur legal fees and disbursements for professional fees that would also be paid “at face value”; and he noted that, with all parties being paid from the same source, their claims would be moderated. Contrary to the position taken by the appellants, the motions judge did not abdicate the exercise of his discretion by not establishing an approval process for accounts as rendered.
[47] The motions judge did not specifically refer to proportionality. However, the evidence before him indicated that, as of December 31, 2003, the value of the class B special shares owned by Gus and Rita exceeded $3 million and the value of the special and common shares owned by each of the children approximated $358,000. In June, 2008, after David asked to be bought out, he received a letter from counsel suggesting a total price of $400,000 including his common and special shares. At trial, the defendants will likely argue that the value of the shares owned by Conrade and David is much less. However, using that letter as a basis for assessing proportionality, a pre-litigation offer of that amount suggests that the fees and disbursements claimed are proportional to the amount at stake.
[48] As to the second issue before us, we are persuaded that the motions judge made a palpable and overriding error in making the order that the defendant corporation pay for all fees and disbursements for invoices that the plaintiffs had paid. In his affidavit sworn October 15, 2012, Conrade provided considerable detail about his financial circumstances and attached many documents to corroborate his evidence. At paragraph 35, he said that without THCC reimbursing his legal fees that had been incurred to date as well as payment of his on-going fees, his ability to continue paying the expenses going forward would be significantly jeopardized. In his affidavit sworn October 15, 2012, David made similar statements. There was no evidence before the motions judge that if the defendant corporation did not repay the amounts that each of them had already paid, that either of the plaintiffs would be precluded from pursuing their claims. Accordingly, there was no evidence on which the motions judge could order that the payments already made in the amount of $119,830 be repaid.
[49] The plaintiffs had asked for an order that the defendants provide copies of all legal and professional accounts paid by THCC and the motions judge made that order. Although we amend the order by deleting repayment of paid accounts, the defendants should nonetheless be required to provide copies of legal and professional accounts which THCC had paid as at the date of the motion. We do not alter the disclosure aspect of the order made.
ORDER TO GO AS FOLLOWS:
[50] The appeal is allowed in part.
[51] The order dated November 28, 2012 is varied to delete paragraphs 1 and 2 and substitute the following:
THIS COURT ORDERS that the Defendant, The Thomas Health Care Corporation shall pay to the Plaintiffs all the fees and disbursements incurred and unpaid as of November 28, 2012 in the amount of $61,511.
THIS COURT ORDERS that the Plaintiffs shall submit to counsel for the Defendants copies of the accounts incurred, paid and unpaid, as of November 28, 2012.
[52] Counsel shall make written submissions not exceeding three pages each as to costs of the appeal within 7 days (appellants) and 7 days thereafter (respondents).
R. D. Gordon R.S.J.
Kiteley J.
Lederman J. (dissenting in part)
[53] I agree with my colleagues that no palpable and overriding error was made by the motions judge in his order that the invoices for fees and disbursements rendered on account of the plaintiffs be paid without a process for approval.
[54] However, I disagree with my colleagues’ approach to the quantum of costs and in particular the distinction that they make in this case between costs incurred to date that the plaintiffs have already paid and those costs incurred to date but remain outstanding and unpaid. The rationale (as stated by Lofchik J. in granting leave to appeal at para. 32 of his reasons) is that “if one aspect of the test for awarding interim costs under s. 249(4) of the OBCA is to avoid a situation where the plaintiff is precluded from pursuing an oppression remedy because of lack of finances there would appear to be little justification for the reimbursing a plaintiff for fees already paid particularly where the order provides for payment of all future legal fees at ‘face value’’.
[55] Such a distinction is not grounded in any jurisprudence. Both the Alles and Reay decisions indicate that legal fees and disbursements incurred in the past may be awarded under s. 294(4). They do not expressly exclude past legal costs that were incurred and paid.
[56] Nor does such a distinction have any rational basis for the following reasons:
(a) the wording of s. 249(4) is very broad and gives a motions judge wide latitude and discretion to craft the appropriate order as to quantum in the circumstances without restriction. A judge is not to be fettered in such a way in determining the appropriate amount;
(b) s. 249(4) states that the motion for an interim order of costs can be brought “at any time”. To maintain a distinction between past paid and unpaid legal fees could give rise to paradoxical situations where a party who obtains the order early in the proceeding would be entitled to all of his or her prospective costs; but a party who brings it later in the proceeding may be entitled only to be covered for any past unpaid invoices and future costs. Parties should not be prejudiced in what they can be awarded under s. 249(4) because of the timing of the motion.
(c) such a distinction could result in different results depending on whether counsel in their arrangement with their clients agree to defer payment of their invoices until after a motion is brought and an order obtained.
[57] Further, in this case, the evidence given by Conrade Thomas concerning the need for reimbursement did not distinguish between incurred legal fees that have been paid and those that remain unpaid.
[58] For these reasons, I do not see any palpable and overriding error made by the motions judge with respect to the quantum of costs that he ordered.
[59] Accordingly, I would dismiss the appeal in its entirety.
Lederman J.
Released: April 2014
CITATION: Thomas v. The Thomas Health Care Corporation, 2014 ONSC 1692
DIVISIONAL COURT FILE NO.: 515/13
DATE: 20140414
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
R.D. GORDON R.S.J., LEDERMAN and KITELEY JJ.
BETWEEN:
Conrade Thomas and David Thomas Plaintiffs/Respondents
– and –
The Thomas Health Care Corporation, Augustus Thomas, Rita Thomas, Shirley Thomas-Weir, Natalie Thomas also known as Natalie Thomas-Morgan and 1426622 Ontario Inc. Defendants/Appellants
REASONS FOR JUDGMENT
R.D. Gordon R.S.J., Kiteley J.
Lederman J. (partial dissent)
Released: April 14, 2014
[^1]: R.S.O. 1990, c B.16 [^2]: [1992] O.J. No. 297 [^3]: The endorsement of Whitten J. is handwritten. Counsel provided modestly different typewritten versions. [^4]: Conrade Thomas v. The Thomas Health Care Corporation, 2013 ONSC 4404. These reasons indicate that only the request for leave to appeal the November 28, 2012 was at issue. [^5]: FN 2 [^6]: Lofchik J. referred to Morden v. Morden Construction [2010] O.J. No. 2179 and Moyer v. Michael Von Zuben Ltd. [1995] O.J. No. 4982 [^7]: The order of Whitten J. directed the defendant corporation to pay the fees and disbursements of the plaintiffs. In the Notice of Appeal, all defendants are the appellants although only the corporation is required to comply. Counsel for the plaintiffs did not object that all defendants appealed the order. [^8]: (1990) 1 B.L.R. (2d) 220 [^9]: [1993] O.J. No. 883 [^10]: [2002] O.J. No. 3805 [^11]: 2003 22440 (ON CA), [2003] O.J. No. 73 [^12]: FN 6 [^13]: FN 6