Court File and Parties

COURT FILE NO.: 31-159301 DATE: 20230424 SUPERIOR COURT OF JUSTICE – ONTARIO IN BANKRUPTCY AND INSOLVENCY

IN THE MATTER OF THE BANKRUPTCY OF MEDCAP REAL ESTATE HOLDINGS INC. OF THE CITY OF BRAMPTON, IN THE PROVINCE OF ONTARIO

BEFORE: Associate Justice Ilchenko, Registrar in Bankruptcy

COUNSEL: B. Jaffe for A. Farber & Partners Inc., the Trustee in Bankruptcy (the “Trustee”) of Medcap Real Estate Holdings Inc. (“Medcap”) F. Scott Turton (“Turton”) for creditors Teresa Clarizio, Carmen Rae, Neil Proctor, Carlos Teixiera and Maria and Fernando Ribeiro (collectively the "Moving Creditors”) on Motion heard on October 18, 2022 F. Scott Turton also for John Cardillo (“Cardillo”) as a “Designated Person” under s.159 of the Bankruptcy and Insolvency Act, R.S.C. 1985 c.B-3 (the “BIA”) for the Bankrupt corporation Medcap, for the Motion heard on December 6, 2022

HEARD: Related Motions heard on October 18, 2022 and December 6, 2022 with costs submissions for second motion to be filed by Turton by December 13th, 2022

Combined Cost Endorsement

I) Nature of Relief Sought by the Moving Creditors and Trustee on Motions

[1] In this matter two motions were brought, the first Motion (the “Claim Examination Motion”) by the Moving Creditors, represented by Turton, returnable on October 18, 2022 where the Moving Creditors sought the following relief against the Trustee represented by Jaffe:

“1. An order to compel the Trustee to: (a) Forthwith examine the proofs of claim of the moving parties; (b) Within 10 days of the date this motion is determined, or such other time as the Court may determine, to determine whether each of the proofs of claim of the moving parties is allowed or disallowed, and to notify in writing the moving party creditors accordingly.”

[2] The Parties exchanged Motion Records and Facta and Responding Facta. After discussion at the hearing, and an opportunity for discussion by the counsel in the Zoom break-out room, Turton advised that the Claim Examination Motion was being withdrawn. Jaffe requested that this withdrawal be with prejudice, and I made the following endorsement (the “October 18 Endorsement”):

“After discussion at my suggestion this Motion by the Moving Party Creditors under s.37 of the BIA for the relief sought in the Notice of Motion is being withdrawn by the Moving Parties. This withdrawal shall be with prejudice.

[3] In my October 18 Endorsement I also dealt with the scheduling of the second Motion in this Estate, that of the Trustee to authorize the conduct of an examination under s.163(1) of the BIA of Cardillo as the “Designated Person” under s.159 of the BIA on behalf of the corporate Bankrupt, MedCap, and to compel Cardillo’s attendance at that Motion (the “Cardillo s.163(1) Motion”), and to schedule the exchange of materials for that Motion. This was necessitated by no inspectors having been appointed at the First Meeting of Creditors and the conduct of Cardillo.

[4] This Motion was heard by me on December 6, 2022 where I made the following endorsement.

“As a consequence of my endorsement of October 18, 2022, the Trustee brings this Motion to, inter alia, authorize the conduct of a s.163(1) examination of Cardillo on behalf of the Bankrupt Corporation as a “Designated Person” under s.159 of the BIA under the provisions of s.34 of the BIA as the sole officer and director of the Bankrupt, and other relief.

Firstly, as there are no inspectors appointed for this Estate, the Trustee is authorized and directed by this Court to conduct a s.163(1) examination of Cardillo on behalf of the Bankrupt Corporation as a “Designated Person” under s.159 of the BIA under the provisions of s.34 of the BIA.

The issues that arose today are twofold. An attempt to conduct a s.163(1) occurred on December 6, 2022. Mr. Cardillo attended but felt ill during the examination and the examination was adjourned on the consent of Mr. Jaffe as counsel for the Trustee.

Mr. Jaffe wishes to reconvene the adjourned s.163(1) examination and is requesting an Order that states:

1. THIS COURT ORDERS that John Cardillo attend at an examination conducted pursuant to section 163(1) of the BIA on Friday, December 16, 2022 to be conducted by video conference through the auspices of Arbitration Place, with zoom details to be sent a day prior to the scheduled examination.

Mr. Turton advises that Cardillo is presently undergoing medical tests and may not be available on that date if not medically cleared. He argues that in these circumstances the Court should not Order Cardillo’s attendance on December 16th.

However, from the materials filed on this Motion, including the Report of the Trustee and exhibits thereto, it appears that Notices of Examination for this s.163(1) examination have now been served by counsel for the Trustee on at least 4 separate occasions, and a s.163(1) examination has still not been conducted for various reasons, including for the October 6, 2022 Examination date when Cardillo disputed the validity of the Notice of Examination.

The s.163(1) examinations are, as stated in the Trustee’s Report, necessitated by the failure by Cardillo to comply with his duties as Designated Person to date to cooperate with the Trustee. Mr. Turton submits that documentation has been provided and that other documentation is missing, but factually it cannot be disputed that a s.163 examination has not been completed to date.

The bankruptcy occurred in April of 2022 when the Court of Appeal rejected the Appeal of the Bankruptcy Order for the Bankrupt.

In these factual circumstances, and exercising my Registrar’s Discretion, I Order Cardillo to appear at the s.163(1) examination on Friday, December 16, 2022. If Cardillo does not appear on the grounds of health, those issues can be dealt with on a subsequent Motion to Compel Re-Attendance.

The second issue that arises today is the request by the Trustee for an Order that:

2. THIS COURT ORDERS that John Cardillo produce and deliver to Brandon Jaffe, the lawyer for the Trustee, by email at bjaffe@jaffeperitz.com, the following documents at least three business days prior to the proposed examination:

3. CIBC statements (account # ending 2312) from September 1, 2015 to December 31, 2020 for Medcap Real Estate Holdings Inc. (“Medcap”);

4. Medcap’s financial statements, externally prepared and internally prepared for the fiscal years ending 2015 to 2020;

5. Medcap’s trial balance and general ledger for the fiscal years ending 2015 to the date of bankruptcy, December 6, 2021 and any activity reflected thereafter;

6. Medcap’s HST returns and supporting documents for the fiscal years ending 2015 to 2021;

7. An appraisal for the 2008 Bentley and the 2003 Hummer, respectively, provided by an accredited appraiser;

8. Proofs of payment made by you personally in relation to the lease of the 2008 Bentley; and

9. Minute books, corporate records, and directors, officers, and shareholders registers for Medcap.”

Mr. Turton argues that there should be no order today compelling the production of this documentation, because Mr. Jaffe did not make this request a specific ground for this relief for today’s motion. In that he is correct.

Except, by my count, just from the Appendices to the Trustee’s Report, the documentation listed in the Order has been requested by either the Trustee or Mr. Jaffe from either Cardillo or Mr. Turton, in correspondence or listed on a Notice of Examination, on:

May 26, 2022 July 5, 2022 July 13, 2022 July 25, 2022 August 3, 2022 August 15, 2022 September 29, 2022 September 30, 2022 Motion materials before me on October 18, 2022 October 19, 2022 October 25, 2022 November 2, 2022

In each case of the Notices of Examination served by the Trustee, the examinations were being conducted under both s.163(1) and s.164 of the BIA.

None of these demands are a mystery to Cardillo or Turton. Cardillo signed his acknowledgement of duties under the BIA on or about May 6, 2022. On that acknowledgement are listed the following relevant duties under s.158 of the BIA:

“158 A bankrupt SHALL (a) make discovery of and deliver all his property that is under his possession or control to the trustee or to any person authorized by the trustee to take possession of it or any part thereof; (b) deliver to the trustee all books, records, documents, writings and papers including, without restricting the generality of the foregoing, title papers, insurance policies and tax records and returns and copies thereof in any way relating to his property or affairs; (e) make or give all the assistance within his power to the trustee in making an inventory of his assets; (j) submit to such other examinations under oath with respect to his property or affairs as required; (k) aid to the utmost of his power in the realization of his property and the distribution of the proceeds among his creditors; (n) in case any person has to his knowledge filed a false claim, disclose the fact immediately to the trustee (o) generally do all such acts and things in relation to his property and the distribution of the proceeds among his creditors as may be reasonably required by the trustee, or may be prescribed by the General Rules, or may be directed by the court by any special order made with reference to any particular case or made on the occasion of any special application by the trustee, or any creditor or person interested;

As I noted at the hearing, the s.163 examination is not a discovery, and the duty to produce documentation to the Trustee, and the other duties listed above for a Designated Person under s.159, are not voluntary, but mandatory. They exist independently of any wording of a Motion Record or Notice of Examination.

In Re Carlson, 2012 ABCA 173 Berger, J.A. held that preservation of the integrity of the Bankruptcy process was a paramount consideration. The court, in keeping with its duty to maintain the integrity of the bankruptcy process, must be mindful of the duties of a bankrupt as set out in s. 158 of BIA.

The documentation has been demanded numerous times by the Trustee and its counsel. Mr. Turton advises that some has been provided and some is missing. Mr. Manski has been retained to assist in the production of the documentation and I am sure he will be an excellent resource, but the duties under the BIA, and the requirement to fulfill them, are imposed on Cardillo alone.

It is now 7 months since the date of Bankruptcy, and the s.163(1) examination is necessitated by the Trustee’s position that Cardillo has not complied with this acknowledged obligations to produce documentation. I must be mindful of the effect this has had on the Trustee’s ability to administer the estate. The production to the Trustee of financial records and records relating to the property of the Bankrupt is one of the most elementary and important duties of a Bankrupt, or a Designated Person under s.159 for a Corporate Bankrupt.

Mr. Jaffe advises that the documentation requested on the numerous Notices of Examination has not been completely provided and Mr. Turton acknowledges this. His issue is that some of the documentation requested may not be capable of being produced by Cardillo, and without an order Mr. Jaffe should simply ask questions about these documents at the s.163(1) examination.

As I noted at the hearing, that neither fulfils Cardillo’s duties nor makes for an efficient examination, where Mr. Jaffe has no opportunity to review documentation that is available ahead of the examination or prepare questions regarding the missing documentation.

Accordingly, given the history of production of documentation to date, and the history of the fulfillment of Cardillo’s duties to date, exercising my Registrar’s Discretion under the BIA, I will Order that the requested documents be produced by Cardillo three days prior to the examination date, as requested by the Trustee.

If they are produced Mr. Jaffe can properly prepare for the examination. If they are not Cardillo can explain why at the s.163(1) Examination, under Oath and in accordance with his duties under s.158 of the BIA and in particular (j), as well as s.166 and s.167 of the BIA.”

[5] Having made this Order I required Turton to provide his submissions on the Costs Outline provided by Counsel for the Trustee on the Cardillo s.163(1) Motion.

[6] The interplay of these two motions was that one of responding arguments made by the Trustee on the Claim Examination Motion was that the relief being sought by the Moving Creditors, represented by Turton, for an Order under s.37 requiring the Trustee to allow or disallow the proofs of claim filed by them, was being frustrated by the alleged failure of Cardillo, also represented by Turton, to fulfill his duties by providing the information and documentation of Medcap to the Trustee, that the Trustee required to determine the validity of the Moving Creditors’ claims, thus necessitating the Cardillo s.163(1) Motion.

[7] Given the commonality of counsel, and interrelation of issues, I have chosen to deal with both sets of costs submissions in this one endorsement.

II) Law and Analysis

[8] All underlined text in these reasons is emphasis added by me for these reasons.

[9] The Court has considered all materials and arguments raised by the parties in their Costs Submissions. Any failure by the Court to refer in these reasons to specific arguments and materials raised does not reflect that the Court has not considered those arguments.

General Principles

[10] Subject to the provisions of an Act or the Rules, the costs incurred during a proceeding or a step in a proceeding are in the discretion of the Court. The Court must determine by whom and to what extent costs shall be paid (s. 131(1), Courts of Justice Act (Ontario)).

[11] Under the relevant general provisions of s.197 the BIA:

197(1) Costs in discretion of court Subject to this Act and to the General Rules, the costs of and incidental to any proceedings in court under this Act are in the discretion of the court.

197(2) How costs awarded The court in awarding costs may direct that the costs shall be taxed and paid as between party and party or as between solicitor and client, or the court may fix a sum to be paid in lieu of taxation or of taxed costs, but in the absence of any express direction costs shall follow the event and shall be taxed as between party and party.

[12] Courts sitting in Bankruptcy have interpreted these provisions in exercising their discretion as to costs under s.197 of the BIA by citing jurisprudence generally interpreting the provincial Rules of Civil Procedure, such as the Registrar in Eastern Ontario District Soccer Association (Re) 2017 ONSC 4932 stating:

“13 In my view section 197 of the BIA does in fact govern the issue of costs on this motion but it does not do so in a vacuum. There is ample case law in bankruptcy proceedings applying the factors set out in rule 57.01(1) in the determination of costs.”

And the Registrar in that case also applied the very influential Ontario Civil decision of Boucher v. Public Accountants Council (Ontario) (“Boucher”) in assessing the costs award.

[13] Similarly in Sally Creek Environs Corp., Re 2010 ONCA 312 (“Sally Creek”) the Ontario Court of Appeal stated:

“148 We agree, in part, with the appellant. We note that s. 197 of the BIA grants a very broad discretion on the court to award costs. Section 197(1) states that, subject to the BIA and the General Rules, “the costs of and incidental to any proceedings in court under this Act are in the discretion of the court.” Subsections (2) and (3) create presumptions for party and party costs to be paid from the estate unless the court orders otherwise. In our view, this wide discretion allows the court to balance the myriad factors and diverse interests at play in bankruptcy proceedings.

149 We agree with the respondents that, in exercising this discretion, registrars and courts have often been guided by the Rules of Civil Procedure, the Courts of Justice Act and the case law flowing from them. Rule 3 of the General Rules states: “In cases not provided for in the Act or these Rules, the courts shall apply, within their respective jurisdictions, their ordinary procedure to the extent that that procedure is not inconsistent with the Act or these Rules.” Provincial rules of procedure thus perform a gap filling function in the interpretation and application of the General Rules. With respect to costs, reference to the Rules of Civil Procedure has been made in determining whether an appellant should post security for costs of an appeal (Towers Marts & Properties Ltd., Re) and the effect of an offer to settle on a costs award (Baltman v. Coopers & Lybrand Ltd. (1997), 47 C.B.R. (3d) 121 (Ont. Bktcy.)).

150 In the present case, although reference to the Rules of Civil Procedure or Courts of Justice Act may have been helpful, the Supreme Court’s clear direction in Young v. Young governs. As noted above, this case held that solicitor and client costs are to be awarded only in the rarest of occasions. Although not decided in the bankruptcy context, that case laid out broad principles that we would apply to the present case.”

[14] Similarly, in Kaptor Financial Inc. v. SF Partnership, LLP, 2016 ONSC 6607 (“Kaptor”) Newbould J. applied civil jurisprudence including Davies v. Clarington (Municipality) (2009), 2009 ONCA 722 (“Davies”) to a costs determination in a Bankruptcy context.

[15] Accordingly, as per Sally Creek and Kaptor, I will apply the Rules of Civil Procedure and the cases interpreting those rules in this Bankruptcy context, unless there is specific authority in Bankruptcy that contradicts those principles.

[16] In exercising its discretion, in addition to considering the result and any offer to settle made in writing, the court may consider the other factors set out in Rule 57.01(1) of the Ontario Rules of Civil Procedure which reads:

Factors in Discretion

57.01 (1) In exercising its discretion under section 131 of the Courts of Justice Act to award costs, the court may consider, in addition to the result in the proceeding and any offer to settle or to contribute made in writing,

(0.a) the principle of indemnity, including, where applicable, the experience of the lawyer for the party entitled to the costs as well as the rates charged and the hours spent by that lawyer;

(0.b) the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed;

(a) the amount claimed and the amount recovered in the proceeding;

(b) the apportionment of liability;

(c) the complexity of the proceeding;

(d) the importance of the issues;

(e) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding; whether any step in the proceeding was,

(i) improper, vexatious or unnecessary, or

(ii) taken through negligence, mistake or excessive caution;

(f) a party’s denial of or refusal to admit anything that should have been admitted;

(g) whether it is appropriate to award any costs or more than one set of costs where a party,

(h) commenced separate proceedings for claims that should have been made in one proceeding, or

(ii) in defending a proceeding separated unnecessarily from another party in the same interest or defended by a different lawyer;

(h.1) whether a party unreasonably objected to proceeding by telephone conference or video conference under rule 1.08; and

(i) any other matter relevant to the question of costs. R.R.O. 1990, Reg. 194, r. 57.01 (1); O. Reg. 627/98, s. 6; O. Reg. 42/05, s. 4 (1); O. Reg. 575/07, s. 1; O. Reg. 689/20, s. 37.

Costs Against Successful Party

(2) The fact that a party is successful in a proceeding or a step in a proceeding does not prevent the court from awarding costs against the party in a proper case. R.R.O. 1990, Reg. 194, r. 57.01 (2).

Fixing Costs: Tariffs

(3) When the court awards costs, it shall fix them in accordance with subrule (1) and the Tariffs. O. Reg. 284/01, s. 15 (1).

Assessment in Exceptional Cases

(3.1) Despite subrule (3), in an exceptional case the court may refer costs for assessment under Rule 58. O. Reg. 284/01, s. 15 (1).

Authority of Court

(4) Nothing in this rule or rules 57.02 to 57.07 affects the authority of the court under section 131 of the Courts of Justice Act,

(a) to award or refuse costs in respect of a particular issue or part of a proceeding;

(b) to award a percentage of assessed costs or award assessed costs up to or from a particular stage of a proceeding;

(c) to award all or part of the costs on a substantial indemnity basis;

(d) to award costs in an amount that represents full indemnity; or

(e) to award costs to a party acting in person. R.R.O. 1990, Reg. 194, r. 57.01 (4); O. Reg. 284/01, s. 15 (2); O. Reg. 42/05, s. 4 (2); O. Reg. 8/07, s. 3.

Bill of Costs

(5) After a trial, the hearing of a motion that disposes of a proceeding or the hearing of an application, a party who is awarded costs shall serve a bill of costs (Form 57A) on the other parties and shall file it, with proof of service. O. Reg. 284/01, s. 15 (3).

Costs Outline

(6) Unless the parties have agreed on the costs that it would be appropriate to award for a step in a proceeding, every party who intends to seek costs for that step shall give to every other party involved in the same step, and bring to the hearing, a costs outline (Form 57B) not exceeding three pages in length. O. Reg. 42/05, s. 4 (3).

Process for Fixing Costs

(7) The court shall devise and adopt the simplest, least expensive and most expeditious process for fixing costs and, without limiting the generality of the foregoing, costs may be fixed after receiving written submissions, without the attendance of the parties. O. Reg. 42/05, s. 4 (3).

[17] Fairness and reasonableness are the overriding principles in a Court determining costs: Boucher and Deonath v. Iqbal, 2017 ONSC 3672 at paras. 20-21 (“Deonath”).

[18] Generally, costs on a partial indemnity scale should follow the event, and this principle should only be departed from for very good reasons such as findings of misconduct by a party, where there has been a miscarriage in procedure or where there is oppressive or vexatious conduct (1318706 Ontario Ltd. v. Niagara (Regional Municipality) (2005); 394 Lakeshore Oakville Holdings Inc. v. Misek, 2010 ONSC 7238 at paras. 10, 12-14).

[19] Under the wording of s.197 of the BIA the Court may award “party and party” costs or “solicitor and client costs” or a lump sum. In Kaptor, Newbould, J. states the following regarding the general rules of awarding costs in a bankruptcy context:

“3 The normal rule is that costs are to be paid on a partial indemnity basis. However, conduct of a party that is reprehensible, scandalous or outrageous are grounds for costs to be awarded on a substantial or complete indemnity basis. See Young v. Young. The conduct giving rise to such an award can be conduct either in circumstances giving rise to the cause of action or in the proceedings themselves. See Orkin, The Law of Costs, 2nd ed. at para. 219.1; Ford Motor Co. of Canada v. Ontario (Municipal Employees Retirement Board) (2006), 17 B.L.R. (4th) 169 (Ont. C.A.) and Mortimer v. Cameron (1994).

4 Unfounded allegations of improper conduct seriously prejudicial to the character or reputation of a party can give rise to costs on a substantial indemnity scale. See 131843 Canada Inc. v. Double “R” (Toronto) Ltd. (1992), 7 C.P.C. (3d) 15 (Ont. Gen. Div.) per Blair J. (as he then was). In Bisyk (No. 2), Re (1980); aff’d [1981] O.J. No. 1319 (Ont. C.A.), Robins J. (as he then was), held that unproven allegations of undue influence in the preparation of a will were allegations of improper conduct seriously prejudicial to the character or reputation of a party deserving of costs on a solicitor and client basis. Both of these cases were referred to with acceptance in Davies v. Clarington (Municipality) (2009), 2009 ONCA 722 at para. 47.”

[20] In order for a Court to make its determination as to costs, Rule 1.04(1) must also be considered, to ensure that the Court makes a just, expeditious and least expensive determination of every civil proceeding on its merits and under Rule 1.04(1.1) so that costs orders are made which are proportionate to the importance and complexity of the issues and to the amount in dispute in the proceeding between the parties (Deonath at para. 21).

[21] In Davies the Court of Appeal stated as follows (at paragraph 52):

“Rather than engage in a purely mathematical exercise, the judge awarding costs should reflect on what the court views as a reasonable amount that should be paid by the unsuccessful party rather than any exact measure of the actual costs of the successful litigant.”

[22] In 1465778 Ontario Inc. v. 1122077 Ontario Ltd. the Court of Appeal stated the following in the factual context of pro bono counsel seeking costs:

“[26] Traditionally the purpose of an award of costs within our "loser pay" system was to partially or, in some limited circumstances, wholly indemnify the winning party for the legal costs it incurred. However, costs have more recently come to be recognized as an important tool in the hands of the court to influence the way the parties conduct themselves and to prevent abuse of the court's process. Specifically, the three other recognized purposes of costs awards are to encourage settlement, to deter frivolous actions and defences and to discourage unnecessary steps [page765] that unduly prolong the litigation. See Fellowes, McNeil v. Kansa General International Insurance Co. (1997), at pp. 467 and 472 O.R.”

Interpretation of Rules and Proportionality

[23] Rule 1.04 of the Rules of Civil Procedure reads:

Interpretation

General Principle

1.04 (1) These rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits. R.R.O. 1990, Reg. 194, r. 1.04 (1).

Proportionality

(1.1) In applying these rules, the court shall make orders and give directions that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding. O. Reg. 438/08, s. 2.

Matters Not Provided For

(2) Where matters are not provided for in these rules, the practice shall be determined by analogy to them. R.R.O. 1990, Reg. 194, r. 1.04 (2).

Proportionality

[24] Perrell, J. in Ontario v. Rothmans Inc., 2011 ONSC 3685 (“Rothmans”) states regarding the interpretation of the proportionality principle in R.1.04 that:

“The general principle in interpreting the rules set out in subrule 1.04(1) requires that the rules be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits. Subrule 1.04(1.1), subtitled "Proportionality", was added which states: In applying these rules, the court shall make orders and give directions that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding”

Positions of the Parties on the Claim Examination Motion

[25] The Trustee in its Costs Outline claims that costs, on a Full Indemnity Scale incurred for this motion were $27,354.48, $24,737.96 on a Substantial Indemnity Scale and $16,650.55 on a Partial Indemnity Scale. The relevant Costs Submissions of the Trustee are:

“1. The Moving Parties, certain creditors in the estate of Medcap Real Estate Holdings Inc. (“Medcap”), withdrew their motion on the hearing date. The Moving Parties abandoned their motion (Rule 37.09(3) of the Rules of Civil Procedure) . The Trustee is entitled to its costs of the motion forthwith against the Moving Parties on a joint and several basis. Attached as Schedule A is the Trustee’s Bill of Costs.

2. In exercising its discretion to award costs, the court may consider the factors set out in Rule 57.01 of the Rules of Civil Procedure and in Boucher v. Public Accountants Council for the Province of Ontario, including: (0.a) the principle of indemnity; (d) the importance of the issues; (f) whether any step in the proceeding was improper, vexatious or unnecessary; (g) a party’s denial or refusal to admit anything that should have been admitted; and (i) any other matter relevant to the question of costs. (ii) The principle of indemnity

3. The Trustee submits that the principle of indemnity applies because the Moving Parties were ill advised to bring their motion and as a result abandoned their motion. The importance of the issues

4. The issues were important to the Estate and the other creditors. The Moving Parties failed to provide any statutory authority in their Notice of Motion for the relief they sought – in effect they sought a mandamus order against the Trustee, which was not within the jurisdiction of the court to grant. Whether any step in the proceeding was improper, vexatious or unnecessary

5. The Trustee submits the proceeding itself was improper because John Cardillo, the director of Medcap, failed to provide all the financial information the Trustee requested in order to be able to review the proofs of claim.

6. The Moving Parties unilaterally scheduled the hearing of the motion for under one hour over the objection of the Trustee who advised that it was improper to unilaterally schedule the hearing and the hearing would take more than one hour.

7. The Moving Parties lawyer, Scott Turton, was in a conflict of interest concerning his interest as a creditor in the Estate and as lawyer for the Moving Parties, John Cardillo, and other corporations related to or controlled by Mr. Cardillo in court proceedings with the Trustee as a party.

8. Scott Turton’s wife swore the Affidavit in support of the motion, depriving the Trustee of the opportunity to cross examine the Moving Parties, some of which rely on proofs of claim derived from taking an assignment from other creditors, such as Aird & Berlis LLP.

9. The Moving Parties submitted 42 questions to the Trustee. The Trustee submits that many questions were inappropriate and irrelevant and served to drive up costs. The Moving Parties did not refer to the questions or responses in their Factum, but asked for further relief - the Trustee provide better responses. (Schedule B - questions and responses, without schedules).

10. The Moving Parties provided their Factum on October 13, 2022, three days before the motion, rather than 7 days, as required by the Rules and only after the Trustee provided its Factum in accordance with the Rules. The Moving Parties maligned the Trustee in their Factum: "the Trustee can effectively block the preservation of these assets (which is to the benefit of certain parties who are defendants in some of these actions and who, interestingly, provided funding to the Trustee.” (Moving Parties Factum) A party's denial or refusal to admit anything that should have been admitted

11. On October 16, 2022, the Trustee obtained a Certificate of Non-Attendance for Mr. Cardillo who failed to attend his scheduled examination pursuant to Rule 39.03 of the Rules.”

[26] The scale that the Trustee is seeking costs on is not clearly specified. It is not clear what conduct the Trustee is alleging that Substantial Indemnity Scale or Full Indemnity Scale costs should be awarded for, and whether that conduct warrants a costs award on those elevated scales.

[27] The fees and disbursements claimed are 17 hours of work by Mr. Jaffe (a 1989 Call) at a Full Indemnity Rate of $570 per hour ($520 per hour Substantial Indemnity Rate, and $350 per hour Partial Indemnity Rate) and 24.2 hours of work by Ms. Peritz at (a 1987 Call), at the same rates, totaling 42.1 hours. I note that Mr. Jaffe’s junior is currently on Maternity Leave, and accordingly there is no other person in his office at the current time that has a lower rate.

[28] I note that of the amounts claimed, 2 hours of Mr. Jaffe’s time was spent on the costs submissions, and both Mr. Jaffe and Ms. Peritz collectively docketed 9.6 hours preparing arguments for, attending at the Claim Examination Motion, and reporting to and advising the Trustee on the outcome of the Motion, with Mr. Jaffe docketing 6.6 hours and Ms. Peritz docketing 3 hours. Ms. Peritz appears to have done the bulk of the work preparing the Trustee’s Report and Factum, for collective time spent of 18.3 hours, although this is difficult to determine with precision, given some block docketing. It also appears that counsel for the Trustee attempted to examine Cardillo on this Motion under R.39.03 as the supporting materials for the Moving Creditors’ Motion were sworn by a law clerk, but that Cardillo did not attend the examination.

[29] The position of the Moving Creditors on the Claims Examination Motion in their Costs Submissions was:

“1. The cost outline of the moving parties shows 10.3 hours spent on this motion. Given the brevity of the materials, and no cross-examinations, this informs the reasonable expectations of the moving parties as to the amount of costs that might be ordered against them in the event the motion were not successful. A reasonable amount is $5,000.00.

2. The motion request form was submitted on 9 August 2022 for a one hour motion. The Trustee's counsel's concern was not the return date per se (which was a date the trustee's counsel was available, but whether the motion required a longer time, which the Trustee's counsel could not judge in the absence of having seen the motion record). Notwithstanding, the trustee's counsel proposed a timetable for the motion which was based on the one hour hearing date. The motion record was served on the date in the timetable, 15 August 2022. The Trustee's counsel did not thereafter take issue with the one hour hearing date.

3. The Trustee's position, as is clear from the six brief paragraphs in the "Law and Argument" section of the Trustee's factum, was that there is no fixed time within which the Trustee must allow or disallow proofs of claim and s.37 does not confer jurisdiction to order the Trustee to allow or disallow proofs of claim. At the outset of me hearing the Registrar read to both counsel from a case that the Trustee had not referred to in its factum. That case indicated that in the absence of enumerated circumstances, which did not arise here, s. 37 did not confer jurisdiction to override the Trustee's discretion. The moving parties therefore withdrew the motion. Thus the actual time on the hearing date was very brief.

4. The affidavit in support of the motion was by a law clerk and was four pages and four lines long. It primarily appended the proofs of claim and communications between the trustee's counsel and the moving party's counsel. It was, as is appropriate for such affidavits, confined to uncontroversial factual matters. The Trustee in its factum and cost submissions refers to the deponent as "Scott Turton's wife" or "Mrs. Turton". There is nothing in the affidavit concerning the marital status of the law clerk and it is difficult to understand how it would be relevant. The affidavit deposes to Susan Turton being an employee of Scott Turton, a fellow member of the Institute of Law Clerks of Ontario, and having worked as a law clerk since 1986. Regrettably it creates the impression of demeaning a female professional due to her gender.

5. There was a supplementary affidavit by the law clerk, one paragraph long, that appended copies of pleadings in the lawsuits that were potentially at risk with approaching Rule 48 deadlines. Like the attachments to the first affidavit of the law clerk, these pleadings were all documents in the possession of the Trustee prior to this motion and therefore ones with which the Trustee was already familiar.

6. The response of the Trustee was by way of a report and a brief supplementary report. It follows that the Trustee wrote the report not the lawyers. The factum of the trustee is primarily a repetition of the report and it is not apparent how it could take in excess of 10 hours to write it.

7. Written questions were submitted to the trustee. The answers are a widely spaced two pages. A review of the answers shows that the majority were either refused or given non-responsive answers. Here again this should be the answers of the Trustee, not the lawyers and there should be no time for lawyers preparing these answers.

8. Seven hours of the dockets relate to an examination of John Cardillo. There was no examination. With no creditors and no inspectors there was no one to authorize an examination under s. 163. The Trustee apparently sought to conduct a Rule 39 examination but did not comply with the requirement to serve Mr. Cardillo with a summons to witness as required by Rule 39.03(5) and 53.04. The moving party creditors bear no responsibility for the errors of the Trustee or the examination not taking place as a result.

9. The dockets indicate excessive time. The sum of $5,000.00 is reasonable.”

[30] The Jurisprudence counsel for the Moving Creditors is referring to above is Chief Justice Morawetz’s statement in Re Giambattista (“Giambattista”) that was directly relevant to the relief sought by the Moving Creditors on the Claim Examination Motion, probably dispositive of that motion, and binding upon me, that reads:

[in the context of a motion under s.37 to set aside a settlement entered into by the Trustee]

“[19] Counsel further submits that it is settled law that the courts should not interfere with the Trustee’s exercise of discretion under s.30 of the BIA which gives the Trustee the power to compromise and settle any debts owing to the bankrupt and to compromise any claim made by or against the estate.

[20] The standard of review has been described in Groves-Raffin Construction Ltd. (No.2) Re (1978) as follows:

In considering the conduct of a trustee it is well to keep in mind that the scheme of the Act is to allow the trustee to administer the estate under the supervision of the inspectors without interference unless there has been an excess of power, fraud, a lack of bona fides, or unless the actions of the trustee and the inspectors are unreasonable from the standpoint of the good of the estate.

[20] In this case, the estate had no assets and continuing the litigation would result in additional expenses being incurred by the estate and potentially expose the estate to litigation costs of the other party.

[21] I am in agreement with the submission of counsel to the Trustee that there was no excess of power, fraud, or lack of bona fides on the Trustees part, nor were the actions of the Trustee and the inspector contrary to the interests of the estate and, in my view, there is no basis for Court to interfere with the Trustee’s exercise of discretion.

… [in the context of a motion to expunge a proof of claim by the Bankrupt]

[31] However, from the standpoint of the creditors, there is no benefit to the Estate in having this issue determined until such time as there are realizations in the Estate or in the Fraudulent Conveyance Action. The reason is straight forward. If there are no assets to distribute, the quantum of the claims filed against the Estate is, for distribution purposes, irrelevant. If the situation changes, and there are realizations in the estate or if proceeds are realized in the Fraudulent Conveyance Action, it could be that this issue becomes relevant. However, at this point, it is not relevant and, it seems to me that the Estate should not be burdened with any additional administrative costs in addressing this issue until it is, for distribution purposes, a relevant issue.

[32] From the standpoint of Ms. Giambattista, she makes the point in her affidavit sworn October 29, 2008 that the existence of the Proof of Claim may make it more difficult for her to be eventually discharged from bankruptcy and, in addition, her discharge may be subject to more onerous conditions if the claim of Movado is allowed to stand. I need not comment on this issue other than to repeat my views that neither the Trustee nor the Estate should be subjected to additional costs to address this issue at this time.

[33] In my view, the appropriate disposition with respect to this issue is to stay the proceedings initiated by Ms. Giambattista to expunge the Proof the Claim pending further order of the court. This matter can be revisited in the event that there are assets available for distribution to creditors in the Estate or to the participating creditors in the Fraudulent Conveyance Action. It could also be revisited in the event that Ms. Giambattista or some third party indicates that they are prepared to fully cover the expenses of the Trustee and Movado and costs associated with the application to expunge the Proof of Claim.”

[31] Like Giambattista, in this case there are currently no amounts distributable to creditors in this estate. Unlike Giambattista in this case creditors objected to all claims filed at the meeting of creditors, including the claims of the Moving Creditors, and as a result no inspectors were appointed at the first meeting of creditors.

[32] In the Moving Creditor’s costs outline for the Claim Examination Motion the Moving Creditors claim 10.3 hours of which attendance at Court is 1.1 hours by Turton, and the preparation of Motion materials is approximately 8.8 hours, all by Turton (1978 Call) at an actual full indemnity hourly rate of $550 per hour and a partial indemnity rate of $325 per hour, very similar to the hourly rates charged by Jaffe and Peritz. No time appears to be charged by Turton in relation to the R.39 examination. No time is charged by any other timekeeper.

[33] I do not find the hourly rates charged by either counsel to be inappropriate given their 40+ years of experience. I find that the hourly rates claimed by counsel for the Trustee would be in the contemplation of the Moving Creditors on this Motion, for the purposes of determining costs under the principle of indemnity in R.57.01(0.a) and (0.b).

[34] The Moving Creditors do not dispute that their withdrawal of the Claims Examination Motion entitled the Trustee to Costs, but dispute the quantum of the claim, making the submission that the amount of $5,000 was reasonable, an amount that would appear to approximate the full indemnity rate for 10.3 hours at $550 per hour claimed by counsel for the Moving Creditors.

DISPOSITION OF COSTS OF CLAIMS EXAMINATION MOTION

Analysis of Tests under s.197 of the BIA and R.57.01 and R.1.04

[35] In my view, the Trustee, as a result of the withdrawal of the Claim Examination Motion by the Moving Creditors, was largely successful on the Motion, and the Trustee is entitled to costs.

Importance of issues

[36] This motion was important to the Trustee’s administration of the Estate, as the Motion specifically asked the Court to usurp the Trustee’s discretion to administer the estate, for which the Giambattista case has established a high bar under s.37 that must be met for the Court to interfere.

[37] Given the lack of inspectors having been appointed in the Estate and the fact that there are currently no distributable assets, this motion raised alleged conduct issues of the Trustee, as specified in the Motion Materials and Factum served by the Moving Creditors.

[38] On the evidence that was before me I did not see how the Moving Creditors would be able to establish that the actions of the Trustee in this case constitute “…excess of power, fraud, a lack of bona fides, or unless the actions of the trustee and the inspectors are unreasonable from the standpoint of the good of the estate” sufficient to meet the Giambattista test and I advised Turton of this. After Turton conferred with Jaffe while I dealt with other Motions that day the Claims Examination Motion was withdrawn.

[39] Accordingly I made no findings of fact on the issue, but the Claims Examination Motion was withdrawn with prejudice.

[40] For the purposes of the various aspects of the tests under s.197 and R.57.01, I find that the issues determined on this Claims Examination Motion were important.

Complexity of Motion

[41] The Motion was not overly complex in terms of the volume of materials or evidence presented. The Materials were not lengthy, although given the issues with the legal foundation for the Motion being brought, or lack thereof as argued by Jaffe on behalf of the Trustee, it needed to be answered because of the importance of the issues raised and the allegations made by the Moving Creditors relating to the conduct of the Trustee.

The conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding

[42] Having been confronted with the Jurisprudence, the Claims Examination Motion was withdrawn which shortened the proceeding.

Whether any step in the proceeding was improper, vexatious or unnecessary

[43] Having read the Giambattista decision to the Parties, I did not see how this motion could have met the high bar for s.37 Motions that is set by the Chief Justice in that case.

[44] With respect to the issues tennis-ed back and forth between the Facta relating to the scheduling of the Motion, I do not have sufficient evidence before me to determine culpability, but that issue pales by comparison to the issue of the fundamental legal viability of the Motion in the first place.

[45] I also do not accept that Jaffe was insulting Turton’s spouse, who was the law clerk that swore the Affidavit in support of the Claims Examination Motion, as alleged by Turton, given that Jaffe practices with his own spouse.

[46] Whether Giambattista was or was not in the Factum of the Trustee is not relevant to whether or not the Motion should have been brought in the first place. Turton should have considered the issue before the motion was brought.

[47] Whether Turton should be acting for the Moving Creditors of the Bankrupt on the Claims Examination Motion, and also acting for Cardillo as the “Designated Person” for the Bankrupt Medcap on the Cardillo s.163(1) Motion, is for a different forum to decide, and there is insufficient evidence before me to determine these issues on the costs submissions.

[48] There is no evidence before me on the Motion that this case meets the expansive test of vexatiousness set out by Henry, J. in Re Lang Michener and Fabian.

[49] I find that the conduct of the Moving Creditors in bringing the Claims Examination Motion, was unnecessary, and poorly founded in law, but cannot conclude that it was “vexatious”.

Scale of Costs

[50] No scale of costs is specifically advocated for in the Trustee’s costs submissions. Per Davies:

“[14] Rule 57.01(4) allows for elevated levels of costs:

57.01(4) Nothing in this rule or rules 57.02 to 57.07 affects the authority of the court under section 131 of the Courts of Justice Act, . . . . .

(c) to award all or part of the costs on a substantial indemnity basis;

(d) to award costs in an amount that represents full indemnity

[28] The first issue is whether the trial judge erred in relying on the February 2005 offer as justification for an elevated costs award. This court, following the principle established by the Supreme Court, has repeatedly said that elevated costs are warranted in only two circumstances. The first involves the operation of rule 49.10, where substantial indemnity costs are explicitly authorized. The second is where the losing party has engaged in behaviour worthy of sanction.

[29] In Young v. Young, at p. 134 S.C.R., McLachlin J. described the circumstances when elevated costs are warranted as "only where there has been reprehensible, scandalous or outrageous conduct on the part of one of the parties".

[30] The same principle was expanded upon in Mortimer v. Cameron (1994), at p. 23 O.R., where Robins J.A., speaking for the court, set out the restricted circumstances in which a higher costs scale is appropriate with reference to Orkin, at para. 219. [page75]

An award of costs on the solicitor-and-client scale, it has been said, is ordered only in rare and exceptional cases to mark the court's disapproval of the conduct of a party in the litigation. The principle guiding the decision to award solicitor-and-client costs has been enunciated thus:

[S]olicitor-and-client costs should not be awarded unless there is some form of reprehensible conduct, either in the circumstances giving rise to the cause of action, or in the proceedings, which makes such costs desirable as a form of chastisement.

[40] In summary, while fixing costs is a discretionary exercise, attracting a high level of deference, it must be on a principled basis. The judicial discretion under rules 49.13 and 57.01 is not [page77] so broad as to permit a fundamental change to the law that governs the award of an elevated level of costs. Apart from the operation of rule 49.10, elevated costs should only be awarded on a clear finding of reprehensible conduct on the part of the party against which the cost award is being made. As Austin J.A. established in Scapillati, Strasser should be interpreted to fit within this framework -- as a case where the trial judge implicitly found such egregious behaviour, deserving of sanction.”

[51] From the evidence before me, I cannot find that the conduct of the Moving Creditors, in making the allegation "the Trustee can effectively block the preservation of these assets (which is to the benefit of certain parties who are defendants in some of these actions and who, interestingly, provided funding to the Trustee.” in their Factum, but unsubstantiated by any evidence presented to the Court on the Motion, was not proper, but also did not rise to the standard of “…reprehensible, scandalous or outrageous conduct” per Young v Young, or that I can make”…a clear finding of reprehensible conduct on the part of the party against which the cost award is being made” on the evidence before me as per Davies.

[52] Accordingly, I will be determining the costs of this Claim Examination Motion on a Partial Indemnity Scale.

Quantum of costs

[53] On a partial indemnity basis the Trustee is claiming costs (inclusive of HST) of $16,650.55 with fees of $14,735.

[54] The Moving Creditors take issue with the quantum of fees claiming that the amount of $5,000 is appropriate. They take issue with the quantum of hours spent by the counsel for the Trustee on what they say is a brief Factum, and that the Report of the Trustee should have prepared by the Trustee and not counsel.

[55] Given my findings regarding the importance of the Motion to the administration of the Estate, and the Moving Creditors having made allegations against the Trustee I see no impropriety in counsel for the Trustee preparing the Report of the Trustee in response.

[56] As stated by Mesbur, J. in Farber v. Goldfinger, 2011 ONSC 2044, in factual circumstances far more contentious than this Motion:

“…[10] Trustees and Receivers are officers of the court with particular duties of impartiality and fair dealing. When someone acts as a Trustee of a bankrupt estate, additional obligations are imposed by the terms of the Bankruptcy and Insolvency Act and the overriding supervisory status of the Superintendent of Bankruptcy.

[11] Those who act as Trustees or Receivers, in bankruptcy proceedings, receiverships or restructuring under the CCAA, routinely report to the court and set out recommendations and responses to questions by way of reports. The courts routinely accept the reports as evidence. Courts do so not only in the situations specifically enumerated under the Bankruptcy and Insolvency Act.

[13] Trustees’ or Receivers’ reports have been accepted as admissible evidence on motions by an interim receiver for a finding of contempt against a shareholder of the debtor.[2] Courts have accepted reports as evidence in opposed motions by a Chief Restructuring Officer to file a CCAA plan[3], opposed motions seeking approval to make payments[4] or to sell property[5], and responding to opposed motions for leave to take proceedings against a receiver[6]. Other instances are set out in Farbers’ factum.

[14] From these cases I conclude it is entirely proper for the Trustee to submit its evidence on this motion in the form of a report.

[36] As a result, I conclude a Trustee’s report constitutes an exception to the hearsay rule, in the same way as an official statement is excepted. I also conclude the report, insofar as it contains information from others is admissible in the same way as an affidavit containing similar information.”

[57] Following Goldfinger Newbould, J. in Luigi Martellacci, Re, 2014 ONSC 5188 stated:

“[19] It was contended in argument that there is a distinction between an interim motion or proceeding and a final proceeding such as an appeal from an order disallowing a claim. I do not agree. There is no principled reason for the distinction. Nor is there a principled reason for distinguishing amongst a report of a monitor, a trustee in bankruptcy and a receiver. If the reasoning of the registrar were correct and a trustee’s report could not be introduced as evidence unless a statute or rule specifically allowed it, it would mean that reports of receivers and monitors that are routinely and widely accepted in many proceedings, interim or final, contested or not, could no longer be used. In my view, a report of a trustee in bankruptcy, a monitor or a receiver is admissible in evidence regardless of the nature of the particular motion or application, and whether interim or final or contested or not, unless there is some statutory prohibition of the use of such a report. The rules of practice do not prevent these reports from being admissible evidence.”

[58] Given this jurisprudence, why would counsel for the Trustee be precluded from assisting the Trustee in the preparation of the Responding Report on this Motion as admissible responding materials on this Motion?

[59] The Moving Creditors also take issue with 7 hours of time spent by counsel for the Trustee in preparing for the examination of Cardillo as a substitute witness under R. 39.03 for the law clerk who swore the Affidavit in support of the Motion of the Moving Creditors.

[60] Given that the examination never took place, and therefore the evidence from that examination could not have been used at the hearing of this Motion, I would tend to agree with that submission. Given the paucity of the information-and-belief evidence presented by the Moving Creditors to support the Claims Examination Motion, it is questionable whether the Claims Examination Motion would have succeeded on that evidentiary ground alone, had it not been withdrawn.

[61] By my calculation Jaffe spent approximately 3.6 hours on the R.39.03 examination and Peritz spent approximately 2 hours for a total of 5.6 hours at a $350 partial indemnity rate for a total of $1,960. Accordingly I will reduce the costs award by that amount.

[62] Otherwise, I find that the amount of costs claimed by the Trustee are in amount that the Moving Creditors could reasonably have expected to pay in relation to this Motion. Therefore for the purposes of calculating the quantum of the claim I will use the total amount of $12,775 in fees claimed, which with HST would total $14,435.75 on the Partial Indemnity Scale.

[63] Following Davies, rather than engaging in a purely mathematical exercise, I find that the costs awards to the Trustee of $14,435.75 on the Partial Indemnity Scale is a fair and reasonable amount that should be paid by the unsuccessful Moving Creditors, jointly and severally, rather than any exact measure of the actual costs of the successful litigant.

[64] I find that the costs claimed by the Trustee are fair and reasonable in the circumstances, and in terms of the provisions Rule 1.04(1.1) I find that the costs requested are proportionate to the importance and complexity of the issues and to the amount in dispute in the proceeding between the parties, as per the test in Deonath and Rothmans, above.

DISPOSITION OF COSTS OF CARDILLO S. 163(1) MOTION

Analysis of Tests under s.197 of the BIA and R.57.01 and R. 1.04

[65] In my view, the Trustee, as a result of the findings and orders I made in my December 6th Endorsement, reproduced in full in these reasons, is entitled to Costs from Cardillo.

Importance of issues

[66] Cardillo has duties under, inter alia, s.158 and s.159 of the BIA to produce documents and appear at an examination that he has apparently not fulfilled in the now 12 Months since the date of the Bankruptcy, and I found that he had not fulfilled in the December 6th Endorsement. That conduct necessitated the Trustee bringing the Cardillo S.163(1) Motion and costs were incurred by the Estate that require compensation.

[67] For the purposes of the various aspects of the tests under s.197 and R.57.01, I find that the issues determined on this were important.

Complexity of Motion

[68] This Motion was not complex in terms of the volume of materials or evidence presented, but the precision of the materials was required due to the prior conduct of Cardillo, necessitating a precise Order. The Materials of 140 pages were required to be prepared and I reject the arguments of Cardillo that the motion materials prepared by the Trustee were unnecessary.

The conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding

[69] This Motion was necessitated by Cardillo failing to fulfill his duties under s.158 and s.159 of the BIA. My endorsement was necessitated by the need to enforce compliance with those duties as required by Re Carlson.

Whether any step in the proceeding was improper, vexatious or unnecessary

[70] This motion should not have been opposed and complaints about what the Trustee did or did not have in his Notice of Motion should not have been argued. Neither should have arguments regarding the jurisdiction of the Trustee to compel Cardillo to attend at the s.163(1) examination without inspector approval, necessitating my Order authorizing that examination.

[71] An examination would not have been required had Cardillo fulfilled his duties under s.158 and s.159 of the BIA in the (now) 12 Months since the date of Bankruptcy of Medcap.

[72] The arguments by Cardillo that the 1.3 hours claimed by counsel for the Trustee “which is indicative of the simple uncontroversial nature of the Motion” are rejected. The only reason that this Motion and the order for documentary production made under s.164 of the BIA was necessary was Cardillo’s persistent failures to fulfill his duties under s.158 and s.159 of the BIA.

Scale of Costs

[73] I did not require the Trustee to expend further estate funds for Jaffe to prepare Costs arguments.

[74] In Re Thow, 2010 BCSC 1534 (“Thow”), Burnyeat, J states:

“14 Costs can be awarded against a bankrupt or against a proposed bankrupt. Section 197(1) of the B.I.A. is general in its nature. I am satisfied that the ability to award costs against a bankrupt need not be specifically set out. Rather, the question of costs remains “in the discretion of the Court”.

15 While there is discussion in the decisions noted above as to whether it is appropriate to award Special Costs, I am satisfied that the type of costs which can be awarded are set out under s. 197(2) of the B.I.A. and, that the choice available is either “party and party” or “solicitor and client” costs. The provisions in the B.I.A. prevail over the Supreme Court Rules if there is a conflict.

16 What is requested by the Trustee is an order for lump sum cost of $100,000. While I am satisfied that s. 197(2) is broad enough to allow the Court to fix a sum to be paid “in lieu of taxation”, there is insufficient information before me to allow me to conclude that those costs should be set at $100,000. As well, I am satisfied that the costs referred to in s. 197(1) of the B.I.A. do not include costs incurred by the Trustee in Seattle as they are not costs “in court under this Act “.

17 Taking into account the nature of the legal fees that were necessitated by the actions of Mr. Thow, I am satisfied that an order for solicitor and client costs is warranted. It would be entirely inappropriate for the creditors of Mr. Thow to have to fund the legal fees that have been incurred as a result of the failure of Mr. Thow to cooperate, to provide appropriate books and records to the Trustee, and to provide an explanation for his business dealings in Canada and elsewhere and prior to and after his bankruptcy.

18 If I am found to be incorrect in arriving at the conclusion that an award of Special Costs is not available, I would have awarded Special Costs based on the reprehensible, outrageous and scandalous actions of Mr. Thow throughout the bankruptcy proceeding.”

[75] Given that Cardillo, by virtue of the provisions of s.159 of the BIA, has all of the duties of a bankrupt under s.158 of the BIA, if find that the reasoning of Burnyeat, J. is equally applicable to this Motion where Cardillo has failed to fulfill those duties, necessitating the Trustee incurring expense to bring the Cardillo s.163(1) Motion.

[76] From the evidence before me, I do find that the conduct of Cardillo in failing to fulfill his duties under the BIA did rise to the standard of “…reprehensible, scandalous or outrageous conduct” per Young v Young, and that I can make”…a clear finding of reprehensible conduct on the part of the party against which the cost award is being made” on the evidence before me as per Davies and that “It would be entirely inappropriate for the creditors … to have to fund the legal fees that have been incurred as a result of the failure …to cooperate, to provide appropriate books and records to the Trustee, and to provide an explanation for his business dealings” as per Thow.

[77] Accordingly, I will be determining costs of the Cardillo s.163(1) Motion on a Substantial Indemnity Scale.

Quantum of costs

[78] On a substantial indemnity basis the Trustee is claiming costs (inclusive of HST) of $9,930.44 with fees of $8,788.

[79] Cardillo takes issue with the quantum of fees claiming that the amount of $1,200-$1,500 is appropriate as the Trustee should only prepared “a notice of motion and a one to two page legal assistant affidavit”.

[80] I completely reject that submission, given my findings and orders made at the hearing, set out in full above. I have found that, given Cardillo’s behavior, that the materials prepared by the Trustee to enforce compliance with Cardillo’s duties were entirely appropriate.

[81] The Moving Creditors also take issue with 7 hours of time claimed by counsel for the Trustee in preparing for the examination of Cardillo at the s.163 examination, rather than for this motion specifically.

[82] I agree with a portion of that submission. That is time required for the administration of the estate and the prepared questions may be reused when, or if, Cardillo reattends the s.163 examination, and once the Trustee is provided with the documents that I have ordered Cardillo to produce. The Trustee can argue on the (likely) motion relating to the conduct of the Examination that the Estate is entitled to costs of preparation of the Examination.

[83] I will however permit the costs of the communications to arrange the examination and the actual attendance at the examination as costs thrown away, as NONE of this expense should have been necessary had Cardillo fulfilled his duties prior to his illness on the at least three other occasions where the Trustee has sought to examine Cardillo.

[84] By my calculation Jaffe spent approximately 3.1 hours preparing for the examination and Peritz spent approximately .9 hours for a total of 4 hours at a $520 substantial indemnity rate for a total of $2,080. Accordingly I will reduce the costs award on this Motion by that amount.

[85] Otherwise, I find that the amount of costs claimed by the Trustee are in amount that could reasonably have expected to pay in relation to this Motion. Therefore for the purposes of calculating the quantum of the claim I will use the total amount of $6708 in fees claimed, which with HST would total $7,580.04 on the Substantial Indemnity Scale.

[86] Following Davies rather than engaging in a purely mathematical exercise, I find that the following costs awards to the Trustee of $7,580.04 on the Substantial Indemnity Scale is a fair and reasonable amount that should be paid by the unsuccessful parties rather than any exact measure of the actual costs of the successful litigant.

[87] I find that the costs claimed by the Trustee are fair and reasonable in the circumstances, and in terms of the provisions Rule 1.04(1.1) I find that the costs requested are proportionate to the importance and complexity of the issues and to the amount in dispute in the proceeding between the parties, as per the tests in Deonath, Re Thow and Re Carlson.

III) Summary of Costs Order Granted

[88] Considering the factors in s.197 of the BIA, rule 57.01, and R.1.04(1.1), and the application of the binding jurisprudence I have cited, I have concluded that given:

1. the significance of the relief sought on these motions,
2. the time spent,
3. the amount at stake,
4. the complexity of the issues, and
5. the conduct of the Trustee, the Moving Creditors and Cardillo, and in their respective costs submissions,

and employing my Registrar’s discretion, that the partial indemnity costs as claimed by the Trustee from the Moving Creditors on the Claim Examination Motion, and the substantial indemnity costs claimed by the Trustee from Cardillo in the Cardillo s.163(1) Motion, each calculated by me above, are fair, reasonable, proportionate and an amount that the respective parties should reasonably have expected to pay in the event they were unsuccessful on this motion, given that the costs listed in their respective Costs Outlines and Costs Submissions.

[89] I am satisfied that the parties are entitled to the costs claimed, as analyzed above.

[90] In my view the all-inclusive sum of $14,435.75 payable to the Trustee by the Moving Creditors, jointly and severally, on the Claim Examination Motion calculated on a partial indemnity scale, and the all-inclusive sum of $7,580.04 payable to the Trustee by Cardillo on the Cardillo s.163(1) Motion calculated on a substantial indemnity scale, are each fair and reasonable amounts that the parties could expect to pay for costs in all of the circumstances of these Motions, and within the reasonable expectations of the parties, payable to the Trustee by the Moving Creditors, jointly and severally, and by Cardillo, respectively, within 30 days of the release of this endorsement.

Associate Justice Ilchenko Registrar in Bankruptcy Date: April 24, 2023