Court File and Parties
COURT FILE NO.: CV-18-594670 DATE: 2022-04-07 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Vestacon Limited
AND:
Huszti Investments (Canada) Ltd. o/a Eyewatch, 2603553 Ontario Inc., Nikhil Chhelavda, Veronica Huszti and Leslie Alexander Huszti, a.k.a. Leslie Huszti a.k.a. Leslie A. Huszti
BEFORE: J.T. Akbarali J.
COUNSEL: J. Minster, for the plaintiff D. Michaud, J. Jamil and J. Hamilton, for the defendant 2603553 Ontario Inc. No one else appearing
HEARD: April 4, 2022
Endorsement
Overview
[1] The defendant 2603553 Ontario Inc. (“260”) brings a motion for summary judgment. The plaintiff, Vestacon Limited, cross-moves for a certificate of pending litigation.
Brief Background
[2] The genesis of this litigation was the purchase by the defendant, Huszti Investments (Canada) Ltd o/a Eyewatch, of three commercial units in a building in Toronto.
[3] Bogdan Muzychka, the principal of 260, is an officer and director of Benson Custodian Corporation, a private mortgage lender which brokers and finances residential and commercial mortgages. Benson brokered and administered a first mortgage loan in respect of the three units in which Huszti Investments was the borrower and two of Benson’s clients were the lenders. The loan was guaranteed by Leslie Huszti and Veronica Huszti, Leslie Huszti’s mother.
[4] The defendant Nikhil Chhelavda was an employee of Huszti Investments against whom this action has been discontinued. When necessary, I refer to all the defendants except 260 and Mr. Chhevlavda as the Huszti defendants.
[5] In connection with the purchase of the units, Huszti Investments obtained a vendor takeback mortgage which was registered in second position.
[6] At the time of the purchase, the commercial units were unfinished. Benson itself, as lender, financed a construction mortgage loan, registered in third position, to Huszti Investments and Veronica Huszti as borrowers, and Veronica Huszti and Leslie Huszti as guarantors.
[7] Huszti Investments hired Vestacon around March 2017 to do the construction work on the units.
[8] The units were substantially complete and ready for occupancy by June 11, 2017. Vestacon delivered a number of invoices to Huszti Investments, most of which went unpaid. The last invoice to Huszti Investments is dated August 31, 2017. A summary of invoices delivered to Huszti Investments on September 11, 2017 indicated that the total amount outstanding on the invoices was $449,819.31.
[9] Vestacon and Huszti Investments had discussions about the outstanding invoices at least as early as the summer of 2017. Huszti Investments made numerous promises to pay. On October 23, 2018 Mr. Huszti proposed a payment schedule, commencing on November 30, 2017, by way of post-dated cheques to satisfy the outstanding amounts. Vestacon accepted the proposal on October 25, 2017.
[10] At no time did Huszti Investments register a lien under the Construction Lien Act, R.S.O. 1990, c. C.30 (“CLA”). It appears Vestacon trusted Huszti Investments’ assurances that it would pay the outstanding invoices and did not take the typical steps to safeguard its interests.
[11] At the same time that Huszti Investments was not paying Vestacon’s invoices, it was not paying its mortgages. It defaulted on its mortgages on September 1, 2017. On October 11, 2017, the first mortgagee issued a notice of power of sale.
[12] Benson was concerned for two reasons. First, it worried that the first mortgagees, who were its clients, would be unhappy with Benson due to the default. Second, Benson was worried that if the property sold under power of sale, it would not sell for enough for Benson to recoup its investment in the construction mortgage loan.
[13] As I address in greater detail below, Benson negotiated to purchase the units from Huszti Investments for value. It did so through a numbered company, 9306781 Canada Corp., which directed that title to the units be taken by 260, a single purpose company that Mr. Muzychka incorporated for the purpose of holding the units.
[14] Vestacon subsequently brought this action against the Huszti defendants and 260. Apart from its breach of contract claim against the Huszti defendants for the debt owing on the construction work that went unpaid, Vestacon alleges that Huszti Investments transferred the units to 260 in a fraudulent conveyance, and that 260 knowingly participated in the fraudulent conveyance. The fraudulent conveyance claim is the sole claim made against 260 in this action.
[15] In this motion, 260 seeks to have the action against it dismissed on a summary basis. Vestacon argues that this is not an appropriate case for summary judgment, because, it argues, the issue engages questions of credibility, and the Huszti defendants have not attended examinations for discovery despite examinations having been scheduled, making this motion premature. It also raises concerns about partial summary judgment having the potential to result in inconsistent findings of fact.
[16] Vestacon cross-moves for a certificate of pending litigation (“CPL”), arguing that the test for a CPL is met in the context of a claim for fraudulent conveyance. In response to Vestacon’s motion, 260 argues that, having allowed its statutory lien rights under the CLA to lapse, Vestacon is not entitled to a CPL. Moreover, 260 argues that Vestacon has admitted its interest is monetary only, such that it does not have a triable interest in land justifying a CPL. The parties agree this issue only arises if the summary judgment motion is not successful.
Issues
[17] The issues that arise on this motion are:
a. Is this case an appropriate case for summary judgment?
b. If so, should the action against 260 be dismissed? This requires me to determine whether there is genuine issue requiring a trial with respect to whether 260 had knowledge of Huszti Investment’s alleged fraudulent intention in conveying the three units to 260.
c. If the action is not dismissed, is Vestacon entitled to a CPL?
Brief Conclusion
[18] For the reasons below, I conclude this is one of the exceptional cases in which partial summary judgment is appropriate. 260 had no knowledge of any fraudulent intention, if one existed, on the part of Huszti Investments, to defeat creditors. The action against 260 is dismissed. It is not necessary to deal with Vestacon’s motion for a CPL under the circumstances.
Is summary judgment appropriate?
[19] The test for summary judgment is well-known. Under r. 20.04(2)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, summary judgment must be granted whenever there is no genuine issue requiring a trial. In Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, the Court held, at para. 49, that there will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a summary judgment motion. “This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.”
[20] Summary judgment motion judges may have resort to the enhanced fact-finding powers set out in r. 20.04(2.1) unless it is in the interests of justice for them to be exercised only at trial. In Hryniak, at para. 66, the Court set out a roadmap to a motion for summary judgment. First, the judge should determine if there is a genuine issue requiring trial based on the evidence before her without using the fact-finding powers. If there appears to be a genuine issue requiring a trial, she should determine whether the need for a trial can be avoided by using the fact-finding powers. Using the fact-finding powers will not be against the interest of justice “if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.”
[21] In this case, in the context of the action as a whole, 260 seeks partial summary judgment. The judgment it seeks would extricate it from the action, but the action would continue as against the Huszti defendants.
[22] Courts must be particularly careful when partial summary judgment is sought. As Brown J.A. described in Malik v. Attia, 2020 ONCA 787, at para. 61, there are risks to a motion for partial summary judgment, including the risk of inconsistent findings, delay, and increased expense. At para. 62, Brown J.A. identified three questions that counsel must answer when seeking a partial summary judgment:
a. Demonstrate that dividing the determination of this case into several parts will prove cheaper for the parties;
b. Show how partial summary judgment will get the parties’ case in and out of the court system more quickly;
c. Establish how partial summary judgment will not result in inconsistent findings by the multiple judges who will touch the divided case.
[23] Vestacon argues that summary judgment is not appropriate in this case for several reasons. First, it argues that there is a risk of inconsistent findings at trial. If I find 260 had no knowledge of Huszti Investments’ fraudulent intent to defraud creditors by selling the property, a trial judge may find that Huszti Investments was scheming with 260 for that purpose. Second, it argues that, despite serving the Huszti defendants with Notices of Examination, they have not attended examinations for discovery. Vestacon states that it is premature to proceed with this motion before it can obtain evidence from the Huszti defendants.
[24] With respect to the first two Malik v. Attia factors, I note that if summary judgment is granted, 260 will be extricated from the action. 260 is the only remaining defendant that is not part of the Huszti defendant group. The allegations against it are narrow, and relate solely to the transfer of the property. If the motion succeeds, the trial will be shortened significantly, and will be less expensive for all the parties. A successful summary judgment motion will get 260 out of the court system faster. Moreover, a shorter trial with fewer parties will bring the case to a conclusion faster.
[25] I do not agree with Vestacon that partial summary judgment in this case runs the risk of inconsistent findings of fact. As a practical matter, the fraudulent conveyance claim is raised against Huszti Investments and 260 because there is equity in the three units that 260 holds. Vestacon is trying to maximize its potential sources for recovery. If 260 is successful on the summary judgment motion, and is no longer a viable source of recovery for Vestacon, there is no need for Vestacon to pursue the fraudulent conveyance claim. Rather, its claim against the Huszti defendants will sound in its most natural home: breach of contract. Streamlining the claims at trial would both make the action shorter and less expensive, and avoid any possibility of inconsistent factual findings.
[26] I asked Vestacon’s counsel what Vestacon would gain by pursuing the fraudulent conveyance claim if 260 were no longer a party. He advised me that the claim would still remain in the pleading, but he acknowledged that no greater damages award would attach to it over and above the breach of contract claim.
[27] I thus see no reason why partial summary judgment should not be considered in this case.
[28] With respect to Vestacon’s concern that the motion is premature, I note that the motion was originally scheduled to be heard by Ferguson J. over two years ago, on February 22, 2019. The motion was adjourned at that time to allow for completion of discoveries of all parties. Vestacon’s counsel confirmed that although it has a court order requiring the discoveries of the Huszti defendants, it never sought to enforce the orders through, for example, a motion for contempt of court.
[29] I am not prepared to adjourn the motion for another couple of years when Vestacon has not availed itself of its remedies to require the discoveries of the Huszti defendants. While Vestacon has done nothing on this front, 260 is unable to deal with the units by either mortgaging or selling them. It wants to sell them. It is time that the motion be heard.
[30] As will become apparent, for the most part, I need not have resort to my enhanced fact-finding powers to resolve this motion. On those few occasions where it is necessary to resort to them to draw inferences or make limited findings of credibility, I find it is in the interests of justice to do so. Using my enhanced fact-finding powers in this limited way allows me to reach a fair and just result while serving the goals of timeliness, affordability and proportionality in light of the litigation as a whole.
Should summary judgment be granted?
[31] Vestacon’s claim against the plaintiff is grounded in the Fraudulent Conveyances Act, R.S.O. 1990, c. F. 29. Sections 2 - 4 are relevant:
Every conveyance of real property or personal property and every bond, suit, judgment and execution heretofore or hereafter made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures are void as against such persons and their assigns.
Section 2 does not apply to an estate or interest in real property or personal property conveyed upon good consideration and in good faith to a person not having at the time of conveyance to the person notice of knowledge of the intent set forth in that section.
Section 2 applies to every conveyance executed with the intent set forth in that section despite the fact that it was executed upon a valuable consideration and with the intention, as between the parties to it, of actually transferring to and for the benefit of the transferee the interest expressed to be thereby transferred, unless it is protected under section 3 by reason of good faith and want of notice or knowledge on the part of the purchaser.
[32] The parties agree that the intention of Huszti Investments is relevant to establishing a fraudulent conveyance, and that 260 must have had knowledge of Huszti’s alleged fraudulent intention to void the transfer of the units.
[33] Vestacon relies on Urbancorp Toronto Management Inc. (Re), 2019 ONCA 757, at para. 52, where the Court of Appeal found that fraudulent intent under s. 2 of the Fraudulent Conveyances Act is a question of fact to be determined from all the circumstances as they existed at the time of the transfer. The court held that the plaintiff bears the primary burden of proving its case on a balance of probabilities. However, the existence of one or more of the traditional badges of fraud may give rise to an inference of intent to defraud the creditor in the absence of an explanation from the defendant. In such circumstances, a defendant has the onus to adduce evidence showing an absence of fraudulent intent. I note that this case concludes that badges of fraud “can provide an evidentiary shortcut that may help to establish the subjective intention of a transferor” under the Fraudulent Conveyances Act. It does not speak directly to the transferee’s knowledge, although I accept that the presence of badges of fraud, if known to the transferee, may be relevant to the transferee’s knowledge of the transferor’s intent.
[34] Badges of fraud include: (i) the transferor has few remaining assets after the transfer; (ii) the transfer was made to a non-arm’s length person; (iii) there were actual or potential liabilities facing the transferor, he was insolvent, or he was about to enter upon a risky undertaking; (iv) the consideration for the transaction was grossly inadequate; (v) the transferor remained in possession or occupation of the property for his own use after the transfer; (vi) the deed of transfer contained a self-serving and unusual provision; (vii) the transfer was effected with unusual haste; and (viii) the transaction was made in the face of an outstanding judgment against the debtor: Bank of Montreal v. Bibi, 2020 ONSC 2949, at para. 23.
[35] Moreover, a conveyance without adequate consideration that serves to defeat, hinder or delay creditors may justify an inference that the transfer was made with this intention. The inference may be rebutted by cogent evidence that the transfer was made for an honest purpose: Bibi, at para. 24.
[36] Where a debtor transfers her only remaining asset with which she may pay her debts, there is a presumption of an intention to defeat creditors: Bibi, at para. 25.
[37] Where a transaction is for valuable consideration, the plaintiff’s obligation is to prove an intention to defraud creditors that must be based on something beyond mere suspicion: Bank of Montreal v. Smith, at para. 66: Cybernetic Exchange Inc. v. J.C.N. Equities Ltd., at para 220. The fraudulent intent shown must be of both parties: Cybernetic, at para. 218.
[38] A grantee’s knowledge of a grantor’s insolvency or indebtedness does not cause a grantee to cease to be an innocent purchaser for value without notice of the grantor’s fraudulent intent. As the court held in Solomon v. Solomon (1977), 16 O.R. (2d) 769 (H.C.), at p. 779, and quoted with approval in Cybernetic, at para. 221:
It does not necessarily follow, however, that knowledge on the part of the intending purchaser of the vendor’s insolvency imputes to the purchaser knowledge of the vendor’s intent to defraud his creditors, and it is incumbent upon the plaintiff to bring home to the purchaser knowledge of that intent in order to impeach….a conveyance made upon a valuable consideration…There is no law to prevent one who is insolvent from disposing of his property. He may be doing so in good faith and for the purpose of realizing the monies with which to pay his creditors. So that a purchaser for value is not, merely because of his knowledge of the vendor’s insolvency, to be presumed to have knowledge of a fraudulent intent which may not in fact exist.
[39] In this case, the plaintiff alleges there are a number of badges of fraud that raise a genuine issue requiring a trial as to whether the conveyance of the three units from Huszti Investments to 260 was fraudulent. I address each of these in turn.
[40] First, Vestacon alleges that there was a longstanding relationship between the Benson entities and the Huszti entities that was more than a typical business relationship. It relies on the fact that Benson and its related entities had made a series of mortgage loans to various Huszti entities before Benson brokered the first mortgage in respect of the units, and before it advanced a construction mortgage loan in respect of the units. The record reveals that the mortgages had all been made prior to the transactions involving the three units at issue in this litigation. No loans were made by any Benson entity to any Huszti entity following the default of the mortgages on the units in September 2017. In oral argument, counsel suggested that the relationship between 260 and the Huszti defendants was elevated beyond a regular business relationship, and pointed to Mr. Muzychka’s evidence that he said demonstrated that Mr. Muzychka had not done proper due diligence before facilitating and making the loans in respect of the units. However, on a review of the transcript, counsel agreed that Mr. Muzychka was making an after-the-fact assessment that perhaps he should have dug a little deeper into the Huszti defendants’ creditworthiness, and that a fair reading of the transcript did not support an inference that the relationship between the Benson entities and the Huszti entities was elevated beyond a normal business relationship. There is no evidence to support a conclusion that there was anything other than a normal, arm’s-length commercial relationship between the Benson entities and the Huszti entities.
[41] Second, Vestacon alleges that Huszti Investments’ offer to settle its invoices with Vestacon on a payment plan was made on the same day the transfer of the units was put into motion. That may be, but it is not a recognized badge of fraud. It is consistent with Huszti Investments seeking to address its debts, including by realizing on its assets to pay its debts. Moreover, there is no evidence that 260 knew that the settlement proposal was made at the same time as the transfer was put in motion, and no reason for 260 to have found it suspicious if it did know.
[42] Third, Vestacon alleges that the consideration paid by 260 for the units was “undervalue”. The record does not support this conclusion. An appraisal for the properties valued them at $1,880,000. 260 purchased the units for 1,730,000, consisting of a $740,000 contribution of its funds, and a mortgage from the Royal Bank of Canada, personally guaranteed by Mr. Muzychka, for $1,070,000. The purchase price is over 93% of the appraised value, and the deal was done privately, without incurring real estate commissions, and in circumstances where the first mortgagees had issued a Notice of Sale. I note too that the first mortgagees only agreed to forebear on enforcing their Notice of Sale because Benson paid them the arrears in interest on the first mortgage in the amount of $36,528.32.
[43] Fourth, Vestacon argues that the APS included a self-serving provision allowing Huszti Investments to remain in possession of the units. This requires some explanation.
[44] Originally, through a corporate vehicle, Mr. Muzychka entered into an APS with Huszti Investments to purchase the units for $1,750,000. That APS included terms that Huszti Investments could lease-back the units for $7,000 monthly base rent for the first year, and could repurchase the units within a year of closing for $2,100,000. This APS was conditional on financing. The financing was not approved, and the APS became null and void.
[45] Subsequently, the second APS was entered into for $1,730,000. It did not include either a lease-back or a buy-back clause. Huszti Investments was still interested in leasing back the units, but it was unable to come up with first and last month’s rent. Huszti Investments did not remain in possession of the property at any time after closing. Rather, 260 has leased the units to unrelated tenants. Given that the operative time to consider fraudulent intent is at the time of the transfer, the terms of the first APS have no bearing on the intention behind the second APS. [1]
[46] Fifth, Vestacon argues that the transaction was conducted with undue haste. It was not. The negotiations that led to the conveyance took place over several months.
[47] Sixth, Vestacon argues that, around the time of the transfer, Huszti Investments had accumulated significant debts and liabilities and was insolvent or facing imminent insolvency. Seventh, it argues that by making the transfer, Huszti Investments effectively dispossessed itself of its last remaining asset that could have been used to pay its outstanding debts to credits.
[48] Vestacon is likely correct that Huszti Investments was insolvent or nearly insolvent around the time of the conveyance. But the first mortgagees had issued a Notice of Sale. If Huszti Investments did not realize on its assets (the units), the first mortgagees were going to proceed to sell them. While imminent insolvency and dispossessing oneself of one’s last asset are recognized badges of fraud, in my view, they create a stronger suspicion of fraud when the conveyance at issue is of an unencumbered asset. In this case, Huszti Investments’ last remaining assets – the units – were encumbered by three separate mortgages. The Statement of Adjustments indicates that, after paying out the mortgagees and discharging the arrears of property taxes, Huszti Investments was left with only about $80,000. In effect, Huszti Investments did use its last remaining asset to pay its creditors. It just paid out its secured creditors, which it was required to do. Vestacon, by failing to avail itself of its statutory lien rights, ranked below the creditors that were paid out on closing. Selling the asset and paying out creditors is not indicative of a fraudulent intention on the part of Huszti Investments, and certainly does not suggest that 260 knew or should have known that Huszti Investments was conveying the units to it for good consideration to defeat creditors.
[49] There is some evidence that 260 may have known that Huszti Investments’ counsel claimed to be owed about $60,000 which, if taken from the proceeds of sale, would have further decreased the amounts available to Huszti Investments to pay whatever other creditors it had. 260 likely knew that Huszti Investments had an outstanding debt to Vestacon. But it was not 260’s job to determine how to prioritize or satisfy Huszti Investments’ unsecured creditors. 260 had no reason to suspect that Huszti Investments would use its net proceeds of sale to fraudulently defeat any creditor, let alone Vestacon in particular. Moreover, there is no claim against Huszti Investments’ lawyer for taking $60,000 of the $80,000 in net proceeds, if in fact it did so, although that is the only potential creditor preference made out on this record that is even possibly questionable.
[50] Finally, Vestacon argues that the second APS contemplated the lack of funds available from the proceeds of sale for Huszti Investments to satisfy the settlement agreement. I have difficulty with concluding this is indicative of a fraudulent conveyance for several reasons.
[51] First, as I have just noted above, to 260’s knowledge, almost all the proceeds of sale went to satisfy Huszti Investments’ secured creditors and property tax arrears. If there were insufficient funds to pay unsecured creditors, that is because there was not enough money to pay them, not because 260 participated in a fraudulent scheme to defraud creditors in general or Vestacon in particular.
[52] Second, to the extent 260 made sure that the closing documentation protected itself from a construction lien claim by, for example, requiring a statutory declaration that the last construction work done in the units was done in August 2017, it was taking prudent steps to ensure it would not become responsible for Huszti Investments’ debts. I note again that Vestacon could have protected itself by taking advantage of its right to a statutory lien under the CLA. It is not 260’s responsibility that Vestacon did not do so.
[53] Moreover, Vestacon relied on an email from Mr. Muzychka to 260’s real estate lawyer which was disclosed inadvertently in 260’s affidavit of documents, and which Vestacon argues supports its contention that 260 knew that the conveyance of the property was designed to defeat Vestacon’s interest. Although the email is, on its face, subject to solicitor and client privilege, Vestacon argues that privilege has been waived, or that the interests of fairness and consistency require privilege to be waived.
[54] 260 relies on the decision of Myers J. in Whitty v. Wells, 2016 ONSC 7716, leave to appeal refused 2017 ONSC 3682. At para. 10 of Whitty, Myers J. concluded that when counsel receives communications that appear privileged, it is “duty bound” to advise opposing counsel to ensure that the disclosure of the privileged communication was an intentional waiver of privilege. Justice Myers held that the privileged document ought to be set aside and not reviewed or used until the issue has been clarified between counsel. In this case, counsel made no such contact with 260’s counsel. Rather, it proceeded to simply use the privileged document and allege waiver of privilege.
[55] Vestacon’s “fairness and consistency” argument amounts to a contention that it thinks the email calls into question some of Mr. Muzychka’s sworn evidence and it is only fair for it to be allowed to raise the email to test Mr. Muzychka’s credibility. I disagree. Among other things, even if I were to admit the email, it would change nothing. It is yet another example of 260 taking steps to protect its interest, like any responsible purchaser would do. To find the inconsistency between the email and the affidavit evidence that Vestacon alleges, I would have to make a series of inferences that are not justified on the record before me.
[56] Vestacon’s evidence does not come anywhere near establishing a fraudulent intent on the part of Huszti Investments, and it is weaker still when it comes to establishing that 260 had knowledge of Vestacon’s fraudulent intent or shared a fraudulent intent with Vestacon.
[57] The record establishes that Huszti Investments was near insolvency, if not already insolvent. It sold its units to 260, which had a legitimate business purpose in acquiring them, both to shore up its relationship with its clients, the first mortgagees, and to protect its own equity as third mortgagee. The sale was commercially reasonable. The proceeds went, as they had to, to pay out the secured creditors which did not include Vestacon since it, of its own accord, failed to lien the units under the CLA.
[58] 260 has established that there is no genuine issue requiring a trial. The claim against it is dismissed.
[59] It is thus not necessary to deal with the cross-motion for a CPL.
Costs
[60] The three main purposes of modern costs rules are to indemnify successful litigants for the costs of litigation, to encourage settlement, and to discourage and sanction inappropriate behaviour by litigants: Fong v. Chan (1999), 46 O.R. (3d) 330, at para. 22.
[61] Subject to the provisions of an Act or the rules of court, costs are in the discretion of the court, pursuant to s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43. The court exercises its discretion taking into account the factors enumerated in r. 57.01 of the Rules of Civil Procedure, including the principle of indemnity, the reasonable expectations of the unsuccessful party, and the complexity and importance of the issues. Overall, costs must be fair and reasonable: Boucher v. Public Accountants’ Council for the Province of Ontario, 71 O.R. (3d) 291, at paras. 4 and 38. A costs award should reflect what the court views as a fair and reasonable contribution by the unsuccessful party to the successful party rather than any exact measure of the actual costs to the successful litigant: Zesta Engineering Ltd. v. Cloutier, 2002 CarswellOnt 4020, 118 A.C.W.S. (3d) 341 (C.A.), at para. 4.
[62] At my request, Vestacon filed its costs outline on the motion. 260 filed three bills of costs, one related to the motion only, one related to the action if it were successful on the motion, and one relates to original counsel’s costs in the action. The parties agreed that once I had reached a determination on the merits, I would determine costs having regard to these documents and without further submissions.
[63] 260 seeks costs of $48,495.65 for original counsel, all-inclusive on a substantial indemnity scale. Time spent by original counsel was significant, and included managing the case up to and including discoveries, and preparation of some of the summary judgment motion materials and related, earlier attendances. 260 also seeks costs of its motion counsel on a substantial indemnity scale of $52,372.62 all-inclusive. This amount includes preparation of motion materials and cross-examinations on the motion. Together, this amounts to $100,868.27 in all-inclusive substantial indemnity costs for the entirety of the action.
[64] If it were successful, Vestacon would have sought costs on a partial indemnity scale in the amount of $26,782.56, all inclusive. Its substantial indemnity costs are $34,585.21, and its actual costs are $42,387.86 all-inclusive. For clarity, these costs do not relate to the action as a whole, but only the motion.
[65] 260 is the successful party and is presumptively entitled to its costs of the action. In my view, given the allegations of fraudulent conveyance made and unproven, costs on a substantial indemnity scale are warranted.
[66] While there may have been inadequate information for Vestacon to properly assess the weaknesses of its claim against 260 at the outset, at some point well before the hearing of the motion it should have been apparent to Vestacon that its claim for fraudulent conveyance against 260 was not going to succeed. The fact that there was only ever $80,000 in net proceeds of sale available to Huszti Investments after paying out its secured mortgagees and property tax arrears speaks volumes as to the proportionality of including 260 in this action. Collectively, as it relates to the proceedings between Vestacon and 260, much more has been spent than ever was realistically at issue in the claim.
[67] The hourly rates of counsel are reasonable. The time spent is high, but some of that is explained by reference to the size of the record, and in particular, the fact that the parties were both, cross-examined and examined for discovery, a course of action approved by Ferguson J. who granted the earlier endorsement for that purpose.
[68] There is likely some duplication of work between 260’s law firms; although the file transitioned primarily from the original firm to the current firm, original counsel remains involved.
[69] Vestacon’s own costs are lower than 260’s; costs of the magnitude being sought here are likely to have been outside of Vestacon’s reasonable expectations.
[70] On the whole, I am of the view that an all-inclusive costs award of $85,000 on a substantial indemnity scale is fair and reasonable.
Conclusion
[71] In summary, I grant the following orders:
a. 260’s motion for summary judgment is granted. Vestacon’s action against 260 is dismissed.
b. Vestacon’s motion for a CPL need not be addressed. In the circumstances, it is dismissed.
c. Vestacon shall pay all-inclusive substantial indemnity costs of the action to 260 in the amount of $85,000 within thirty days.
J.T. Akbarali J.
Date: April 7, 2022
[1] In any event, there were legitimate business reasons for each party to be interested in the terms of the first APS. If those terms had been taken advantage of, 260 would have had a ready-made tenant for the space, and an opportunity to make a decent return on investment if Huszti Investments’ business was to succeed such that it could buy the units back. At the same time, Huszti Investments would have been able to continue to grow its business in the space that was designed for that purpose. I do not draw any inference that the terms of the first APS were suspicious. They were certainly not commercially unreasonable.