Court File and Parties
COURT FILE NO.: CV-17-00588323-0000 DATE: 2023-07-25
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 781526 ONTARIO INC. et al, Plaintiffs AND: ELLIOTT GERSTEIN et al, Defendants
BEFORE: ASSOCIATE JUSTICE R. FRANK
APPEARANCES: Linda Galessiere for the Moving Defendants, Alexander Gerstein and Ethan Gerstein James P. McReynolds for the Plaintiffs
HEARD: June 1, 2023
REASONS FOR DECISION
[1] The defendants, Alexander Gerstein and Ethan Gerstein (the “Moving Defendants”) brought a motion for an order dismissing this action for delay and to vacate a certificate of pending litigation on a property owned by them. Prior to the hearing of the motion, the Plaintiffs discontinued the action and agreed to an order vacating the certificate of pending litigation.
[2] The Moving Defendants seek the costs of their motion on a full indemnity basis. The Moving Defendants submit that the Plaintiffs’ conduct was egregious and warrants an elevated scale of costs. They assert that they are entitled to full indemnity costs on the basis of: (i) the Plaintiffs numerous and blatant material misrepresentations and omissions to the court when they sought and obtained an ex parte CPL, (ii) the unfounded allegations of fraud; and (iii) the Plaintiffs’ conduct on this motion, including that the Plaintiffs were uncooperative and delivered voluminous responding materials that unnecessarily complicated the motion and increased the costs incurred by the Moving Defendants. The Plaintiffs do not dispute that the Moving Defendants are entitled to costs but submit that they are not entitled to costs on an elevated scale and take issue with the quantum of costs the Moving Defendants are seeking.
[3] For the reasons that follow, I find that costs should be awarded on an elevated scale and that, in all the circumstances, should be fixed on a full indemnity basis.
Background
[4] The Moving Defendants are brothers. They are the sons of the Defendants Elliott Gerstein (“Elliott”) and the late Iris Gerstein (“Iris”). Iris, who was divorced from Elliott, passed away in March 2016.
[5] In July 2006, more than 11 years prior to the commencement of this action, Brenthall Apartments Limited (“Brenthall”) commenced an action against Elliott, Iris and others for, among other things, damages for breach of fiduciary duty, breach of trust, fraud, and misappropriation of funds from Brenthall (the “2006 Brenthall Action”). In the 2006 Brenthall Action, Brenthall brought a motion seeking various forms of interim relief, including a certificate of pending litigation on the matrimonial home of Elliott and Iris at 35 Cantertrot Court, Vaughan, Ontario (the “Matrimonial Home”). The Court did not grant leave to issue a certificate of pending litigation on the Matrimonial Home.
[6] In 2007, Brenthall brought a motion for summary judgment against Elliott in the Brenthall 2006 Action. As part of that motion, Brenthall sought a declaration that it had an equitable interest in the Matrimonial Home. In October 2007, Brenthall obtained summary judgment against Elliott for $1,283,028, plus prejudgment interest in the amount of $213,102.05, and costs in the amount of $250,000 (the “2007 Elliott Judgment”). In the 2007 Elliott Judgment, the court granted Brenthall a right to pursue a tracing order but expressly excluded the Matrimonial Home at 35 Cantertrot Court, Vaughan, Ontario from Brenthall’s right to trace funds. Paragraph 4 of the 2007 Elliott Judgment provides as follows:
THIS COURT DECLARES that Brenthall Apartments Limited together with the other interested parties, who may assert a like right, retain the right to pursue a tracing order or such other relief as may be appropriate ( except in respect of the 35 Cantertrot Court, Vaughan, Ontario property ). (emphasis added)
[7] Iris lived in the Matrimonial Home until June 2013 when she purchased a property at 524 Whitmore Avenue, Toronto, Ontario (the “Whitmore Property”). A few weeks after Iris purchased the Whitmore Property, the Matrimonial Home was sold by Iris and the trustee for Elliott’s bankruptcy estate. Iris and Elliott’s bankruptcy estate were each entitled to and received 50% of the net proceeds of sale of the Matrimonial Home.
[8] On March 8, 2016, the day she passed away, the Whitmore Property was transferred to Iris’s sons, the Moving Defendants.
[9] On December 13, 2017, Brenthall commenced this action against Elliott, Iris’s estate and the Moving Defendants, seeking, among other things:
(a) a declaration that the transfer by Iris of the Whitmore Property to the Moving Defendants was a fraudulent conveyance;
(b) an order setting aside the transfer of the Whitmore Property to the Moving Defendants; and
(c) a certificate of pending litigation on the Whitmore Property, and damages for fraud.
[10] On the same day as the action was issued, Brenthall brought a motion without notice to any of the defendants (including the Moving Defendants) seeking an order for leave to register a certificate of pending litigation on title to the Whitmore Property. In support of the motion to obtain a CPL on the Whitmore Property, Brenthall filed the affidavit of Harley Mintz (“Harley”) sworn November 20, 2017. Master Abrams (as she was then titled) granted leave to Brenthall to issue a certificate of pending litigation on the Whitmore Property (the “CPL Order”), and Brenthall registered a CPL on the Whitmore Property in December 2017.
[11] By order dated January 11, 2021, the claims in this action were assigned to two of Brenthall’s shareholders: 781526 Ontario Inc. and Dawn Trading Ltd. On July 29, 2021, the Court granted an order to continue this action in their name, as assignees in place of Brenthall. [1]
[12] In October 2021, the Moving Defendants advised the Plaintiffs of their intention to bring a motion to dismiss the action for delay and to lift the CPL which Brenthall had registered on title to the Whitmore Property (the “Discharge Motion”). In response, the Plaintiffs advised of an intended cross-motion for an order validating service of the statement of claim on the Moving Defendants.
[13] After the parties exchanged motion materials, including certain responding and reply materials, and prior to the hearing of the Moving Defendants’ Discharge Motion, the Plaintiffs served a notice of discontinuance of the action and agreed to a discharge of the CPL on the Whitmore Property. The parties were unable to agree on costs of the Discharge Motion and appeared to make oral submissions on costs.
Law and Analysis
(i) Obligation of full and frank disclosure
[14] A party seeking leave to issue a CPL may do so without notice under Rule 42.01(3) of the Rules of Civil Procedure. Rule 39.01(6) of the Rules of Civil Procedure provides that where a motion is made without notice, the moving party shall make full and fair disclosure of all material facts, and failure to do so is in itself sufficient ground for setting aside any order obtained on the motion. When a party moves ex parte:
(a) the onus to make complete disclosure is “heavy” and “very strong”. The moving party must ensure that the facts before the court are complete, true and plain, and the court must be made aware of all facts which might have impacted the original granting of the order; [2]
(b) The moving party must ensure that the court is fully aware of what the responding party would have said had it been given an opportunity to be present to speak for itself. [3] “[A] party who chooses to move without notice must, at their peril, accept the higher standards of candour that apply to such motions.” [4]
(c) Second-guessing what a party’s adversary knows and what would be said about the responding party’s position is not an easy task and the consequences of getting it wrong include exposure to cost sanctions and to damages. [5]
[15] In Moses v Metro Hardware and Maintenance Inc., Myers J. stated as follows:
[28] The duties to make full and fair disclosure replace the checks and balances of the adversarial system. The court has no choice but to trust the moving party when he or she says they are fully disclosing and fairly presenting all material facts and the applicable law. It is the need to trust an otherwise zealously adversarial party that makes the situation so fraught with risk and renders justice so vulnerable to abuse.
[30] Justice Sharpe also discussed the scope of the obligation to disclose all material facts. Materiality is determined objectively. He held that a party cannot be heard to say that she or he (or their lawyer) did not believe a point was relevant to the case. He adopted the following expression of the rule:
... The duty extends to placing before the court all matters which are relevant to the court’s assessment of the application, and it is no answer to a complaint of non-disclosure that if the relevant matters had been placed before the court, the decision would have been the same. The test as to materiality is an objective one, and it is not for the applicant or his advisers to decide the question; hence it is no excuse for the applicant subsequently to say that he was genuinely unaware, or did not believe, that the facts were relevant or important. All matters which are relevant to the ‘weighing operation’ that the court has to make in deciding whether or not to grant the order must be disclosed. [6]
(ii) Elevated costs for failure to make full and fair disclosure, unfounded allegations of fraud, egregious and reprehensible conduct
[16] The court may award costs on an elevated scale where a party has failed to make full and frank disclosure. [7] In Zare v. Rahmanian, Hood J. made the following observations about the scale of costs in circumstances where a party failed to make full and fair disclosure when seeking a certificate of pending litigation on an ex parte basis:
In Friedland and Yemec the courts awarded costs against those who had failed to provide full and frank disclosure in seeking an ex parte injunction on a substantial indemnity basis and not a full indemnity basis. It is clear in the matter before me that the plaintiff failed to make full and frank disclosure in obtaining the CPLs. No case law was provided to me by the plaintiff as to what would be required to award the higher level of full indemnity costs. I however believe it to be appropriate in circumstances which are far more exceptional than those justifying substantial indemnity costs. The conduct of the one party must be egregious or reprehensible. I cannot find that the plaintiff’s conduct reached this higher level worthy of sanction. In argument, the respondents proposed that the plaintiff’s conduct was deliberate and designed to financially drain or at least cripple the defendants. I make no finding on that other than to point out that Ali Rahmanian makes one reference to this in his affidavit at paragraph 100, that the CPLs caused him financial hardship, a far cry from being almost financially drained and crippled. In any event, he has his remedies for damages under s. 103(4) of the Courts of Justice Act to pursue if so advised. [8]
[17] An elevated award of costs may also be appropriate where there have been unfounded allegations of fraud. For example, the court has awarded costs on a substantial indemnity basis where the allegations of fraudulent conveyance were unproven. [9]
[18] The Court of Appeal has explained the principles with respect to an elevated scale of costs as follows:
8 …Substantial indemnity costs is the elevated scale of costs normally resorted to when the court wishes to express its disapproval of the conduct of a party to the litigation. It follows that conduct worthy of sanction would have to be especially egregious to justify the highest scale of full indemnity costs.
9 In this case, full indemnity costs were warranted given the factual findings that the motion judge made regarding the conduct of the appellants… We would reiterate, however, that it is only in rare and exceptional cases where such a costs award is justified. [10]
[19] In Petersen v. Petersen, Newbould J. found that there were egregious failures to provide full disclosure to the court on an ex parte application and that the conduct was sufficiently reprehensible to merit an award of costs on a full indemnity basis. [11] In Pirbhai v. Singh, Quinn, J. held that based on the extreme and pervasive misconduct by the defendant, “Equity requires that the plaintiff not be put to one penny of expense in this pursuit of justice.” [12]
(iii) Brenthall’s failures to make full and fair disclosure
[20] In support of the ex parte motion to obtain a CPL against the Whitmore Property, Brenthall relied on Harley’s November 20, 2017 affidavit. That affidavit includes the following statements with respect to Iris’s financial means and sources of funding to purchase the Whitmore Property:
(a) “In March, 2007, Iris commenced an action against Elliott in family court. To support that proceeding, Iris swore an affidavit stating that she was unemployed, had no income, and limited assets. Now shown to me and marked as Exhibit “B” to this my affidavit is a true copy of that affidavit.” [para 11]
(b) At the time Iris acquired the Whitmore Property, she had “to our knowledge, a paltry income from a dog-walking business and no means of making such a purchase.” [para 16]
(c) “At the end of June, 2013, Iris received proceeds from the trustee sale of another residential property, and used the funds to discharge a mortgage on 524 Whitmore.” [para 17]
(d) “Based on the above, I verily believe it to be true that the funds used by Iris to purchase 524 Whitmore include funds taken by Elliott from Brenthall.” [para 18]
(e) Iris acquired the Whitmore Property “without any observable means of doing so”. [para 22]
(f) “I verily believe that the purpose of the transfer was to put a significant asset out of reach of Brenthall regarding the 2006 Brenthall Action, and with the specific intention on the part of the defendants to defeat, hinder and delay or defraud Brenthall of its just and lawful debts owed to it.” [para 23]
[21] As outlined below, I find that there were numerous and significant failures to make full and fair disclosure in Harley’s affidavit, including the omission of material information. Taken together, the failures to make full and fair disclosure amounted to a misrepresentation of Iris’s financial means and sources of funding to purchase the Whitmore Property, and other pertinent facts.
a. Failures to make full and fair disclosure regarding the source of funds used to purchase the Whitmore Property
[22] With respect to the source of funds used to purchase the Whitmore Property, I find the following failures to make full and fair disclosure:
(a) Brenthall was aware that Iris obtained a mortgage from BMO for $250,000.00 (the “BMO Mortgage”) for the purchase of the Whitmore Property, but he did not advise the court of this source of funding. In particular, although Brenthall’s counsel had a copy of the parcel register for the Whitmore property showing the BMO Mortgage registered on title, neither the parcel register, nor a copy of the BMO Mortgage were disclosed to the court.
(b) On cross-examination for this motion, Harley acknowledged that when he swore his affidavit in November 2017, he believed that Iris had two sources of funding for the purchase of the Whitmore Property: (i) the $250,000.00 BMO Mortgage; and (ii) another mortgage, which he referred to in his affidavit as “a mortgage”, which was later discharged with funds from the sale of the Matrimonial Home. The failure to advise the court of this information about Iris’s source of funding to purchase the Whitmore Property was not full and fair disclosure, particularly given Harley’s statement in his affidavit that Iris was “without any observable means” of acquiring the Whitmore Property.
(c) Harley also acknowledged that he knew that the Matrimonial Home was sold for $750,000 within 3 weeks of the purchase of the Whitmore Property and that Iris received half of the proceeds of sale. The court was never advised of this. Harley’s explanation for not including this information in his affidavit is that he did not think it was relevant because the funds from the Matrimonial Home were only available to Iris after she purchased the Whitmore Property and, therefore could not have been used to purchase it. Although I accept this as technically correct, it is not a satisfactory explanation for Harley’s failure to disclose to the court that the Matrimonial Home was sold for $750,000 within 3 weeks of the purchase of the Whitmore Property and that Iris receive half of the proceeds of sale. Even if Iris’s portion of the sale proceeds from the Matrimonial Home was not available to be used on the date the Whitmore Property was purchased, at a minimum, this is relevant information about Iris’s means and her interest in the Matrimonial Home at the time that she purchased the Whitmore Property. Simply put, Iris’s one‑half interest in the Matrimonial Home (that was sold for $750,000) was a material asset in the context of the purchase of the Whitmore Property for $585,000. I also find that Harley was not as forthcoming as required when he simply referred to the sale of the Matrimonial Home as being a “trustee sale of another residential property” at paragraph 17 of his affidavit. He knew it was the sale of the Matrimonial Home and that Iris had a one-half interest in it and in the net proceeds of sale.
(d) I also find that there was a failure to make full and fair disclosure of the facts known to Harley that: (i) Brenthall had previously sought to obtain a CPL on the Matrimonial Home, (ii) the request was denied; and (iii) the 2007 Elliott Judgment excluded tracing of funds into the Matrimonial Home. All of these are pertinent facts that should have been disclosed to the court in Harley’s affidavit in order to make full and fair disclosure.
(e) Harley’s affidavit states that in 2007 Iris swore an affidavit indicating that she had “limited assets”. In my view, this is another failure to make full and fair disclosure. It was also misleading. Although Harley’s affidavit attaches Iris’s 2007 affidavit and the exhibits to that affidavit, Harley failed to bring to the court’s attention an exhibit to Iris’s affidavit showing that she believed she had assets valued at approximately $714,000 at the time she swore her 2007 affidavit. While there is no evidence with respect to whether Iris’s 2007 valuation of her assets remained accurate when she purchased the Whitmore Property in June 2013, that is beside the point. Harley purported to rely on Iris’s 2007 affidavit as evidence she had “limited assets”, but he failed to bring to the court’s attention that the exhibits to the very affidavit he referred to indicated that Iris had assets valued at approximately $714,000. Again, this is material, and it was materially misleading, in the context of the purchase of the Whitmore Property for $585,000. In this regard, in order to discharge the onus of making full and fair disclosure, “it is insufficient for a moving party to simply append a document as an exhibit without highlighting in the body of the affidavit itself any important clauses or portions of the document”. [13]
(f) Harley alleged in paragraph 16 of his affidavit that Iris had a “paltry” income. His evidence on cross-examination on this point, included the following:
Q. So, you actually don’t know she has a paltry income, you have no idea how much she earns from her dog, or earned from her dog walking business? A. I know it was a paltry income. We were, we know people that know her, we asked about the success of that business and we were told that she, it’s a fledgling business and she had a paltry income.
Q. And who told you this? A. These were people that know Iris. I can’t remember at this moment, perhaps I could tell you after.
Harley did not disclose in his affidavit that his statement on this point was based on information and belief, the source of that information, or that the source is some unknown person(s).
b. Failures to make full and fair disclosure relevant to the alleged fraudulent conveyance
[23] With respect to the alleged fraudulent conveyance of the Whitmore Property, Harley’s affidavit evidence was that he believed that the purchase funds “include funds taken by Elliott from Brenthall” to purchase the Whitmore Property, and that the Whitmore Property was transferred to “put a significant assets [sic] out of the reach of Brenthall, and with the specific intention of the defnednats [sic] to defeat hinder and delay or defraud Brenthall of its just and lawful debts owed to it”. Harley also states that at the time of transfer of the Whitmore Property, “Iris was a party to an action in which relief was sought from her, and had acquired real property without any observable means of doing so”.
[24] I find that there was a failure to make full and fair disclosure with respect to these statements. For example, the statement “Iris was a party to an action in which relief was sought from her” references the 2006 Brenthall Action in respect of which the Plaintiffs obtained the 2007 Elliott Judgment. (This is also the action in which, as noted above, the Plaintiffs were denied a CPL against the Matrimonial Home). However, the affidavit fails to advise the court that the Plaintiffs, who were not judgment creditors, had taken no steps in the 2006 action against Iris for more than 10 years. Harley’s explanation for not disclosing this to the court is that “We don’t think it’s relevant”. I do not agree. Given that the Plaintiffs were not yet judgment creditors and that there was no claim to an interest in the land in the main action, this information should have been disclosed to the court. In circumstances where a plaintiff is not yet a judgment creditor, a plaintiff may be required to meet a higher threshold in order to obtain a CPL in a fraudulent conveyance action, namely by satisfying the court that there is high probability that it would successfully recover judgment in the main action. [14]
c. Failures to make full and fair disclosure regarding Brenthall’s entitlement to commence this action
[25] In his November 20, 2017 affidavit, Harley states that he is a “representative” of Brenthall. On cross‑examination, Harley acknowledged that he has never been an employee, officer or director of Brenthall, and his evidence is that his representation of Brenthall was on behalf of his father, Irwin (Al) Mintz.
[26] The evidence in the record indicates that Irwin (Al) Mintz was a director of Brenthall but had been removed as a director in September 2017. Harley’s affidavit was sworn in November 2017, two months after his father was removed as director. There is also evidence in the record that at the time Harley swore his affidavit, there was an ongoing dispute between the Brenthall shareholders as to who were the properly elected Brenthall directors at that time and whether Brenthall should pursue this action. The evidence in the record shows that prior to swearing his affidavit and having the statement of claim in this action issued, Harley was aware that: (i) in September 2017, Brenthall’s shareholders held a meeting resulting in the election of a new slate of directors; and (ii) one of the newly elected directors, Howard Mintz, had sent a letter to the Plaintiffs’ counsel, Mr. McReynolds at Solomon Rothbart, advising that Harley was not authorized to represent Brenthall and that no further steps should be taken by Mr. McReynolds on behalf of Brenthall until the new directors had an opportunity to review matters. Mr. McReynolds’ response took a contrary position. Importantly, however, none of this was disclosed to the court.
[27] It is clear from the record and from Harley’s evidence on cross-examination that Harley did not accept the results of the September 2017 shareholder’s meeting with regard to the election of Brenthall’s directors. In particular, Harley disputes the election and authority of Ira Gerstein as a Brenthall director. There is also evidence in the record that the results of the September 2017 shareholders meeting were never overturned. However, the ultimate result with respect to the disputed election of Brenthall directors and a final determination as to Harley’s authority to represent Brenthall are beside the point. Regardless of Harley’s position or personal belief at the time, it was incumbent on him to disclose that there was an ongoing dispute among the shareholders and that his authority to represent Brenthall was directly in issue at the time he swore his affidavit. This was a very significant and material failure to make full and fair disclosure to the court.
d. Failures to make full and fair disclosure regarding Elliott’s bankruptcy and amount outstanding on the 2007 Elliott Judgment
[28] Harley failed to advise the court that Brenthall had collected approximately $1,400,000 on account of the 2007 Elliott Judgment. This was relevant information so that the court could consider the value of the Whitmore Property relative to the amount outstanding on the 2007 Elliott Judgment.
[29] Further, Harley failed to advise the court that Elliott (one of four named defendants in this action along with Iris’s estate and the two Moving Defendants) was involved in ongoing bankruptcy proceedings, and that Brenthall required leave of the court to commence this action against Elliott. [15]
e. Conclusion with respect to the Plaintiffs’ failures to make full and fair disclosure
[30] Taken together, the Plaintiffs’ numerous and significant failures to make full and fair disclosure amounted to a material misrepresentation of the pertinent facts presented to the court at the December 2017 hearing of the Plaintiffs’ ex parte motion for a certificate of pending litigation.
(iv) Scale and quantum of costs
[31] As noted, when a party chooses to move without notice must, it accepts the higher standards of candour that apply to such motions, and the court may award costs on an elevated scale where the party has failed to make full and frank disclosure. [16] In this case, the Plaintiffs failed to act with the necessary candour to meet their obligations of full and frank disclosure. As listed above, there were numerous and significant failures by the Plaintiffs to disclose material information to the court on the ex parte motion. This created an overall misrepresentation to the court about Iris’s financial position and ability to purchase the Whitmore Property, and other pertinent facts.
[32] In addition, this action was commenced in December 2017 even though the Plaintiffs were aware since at least January 2017 that Iris had purchased the Whitmore Property in June 2013 and had questions about her ability to have funded that purchase. For example, in January 2017, counsel for the Plaintiffs examined Elliott in aid of execution on the 2007 Elliott Judgment and asked him questions about the purchase of the Whitmore Property. One of the exhibits to that examination is a copy of the title search of the Whitmore Property and the Plaintiff’s counsel asked Elliott the following question (among others) about the purchase of that property:
- Q. Do you know where the funds came from that Iris used to purchase the [Whitmore Property]? A. I don’t know.
[33] Despite the Plaintiffs’ apparent concern from at least January 2017 about Iris’s ability to fund the purchase of the Whitmore Property, they provided no explanation as to why they waited until December 2017, 11 months later, before moving for a CPL on an ex parte basis.
[34] I have considered: (i) the Plaintiffs’ decision to seek a certificate of pending litigation without notice and on a belated basis; and (ii) the Plaintiffs’ numerous and significant failures to make full and fair disclosure of material information such that the information before the court at the hearing of the Plaintiffs’ ex parte motion amounted to a material misrepresentation of the relevant facts. In all the circumstances, this is one of the rare cases where the Plaintiffs’ conduct was sufficiently egregious and reprehensible so as to merit an award of costs on a full indemnity basis. [17]
[35] With respect to quantum, the Plaintiffs submit that the Moving Defendants are responsible for much of the significant costs incurred on the Discharge Motion. They argue that the motion could have been avoided if the Moving Defendants had simply provided sufficient information to allow the Plaintiffs to satisfy themselves that the CPL should be vacated. Specifically, the Plaintiffs argue that the Moving Defendants’ motion materials provided the first viable explanation of how Iris was able to purchase the Whitmore Property legitimately, including information that Iris had obtained bridge financing to fund the purchase. The Plaintiffs submit that as soon as the Moving Defendants provided the information about Iris’s bridge financing, the Plaintiffs discontinued the action and agreed to an order vacating the CPL on the Whitmore Property.
[36] The problems with this explanation include the following. First, it is no answer to virtually all of the Plaintiffs’ significant failures to make full and fair disclosure, as outlined above. Even accepting the Plaintiffs’ submission that they did not know and could not have known that Iris had obtained bridge financing, many of the statements in Harley’s affidavit fail to disclose material information known to Brenthall at the time and are misleading. [18] Further, contrary to the Plaintiffs’ submissions that the information about the bridge financing “changed the trajectory of the proceeding”, [19] the Plaintiffs did not act reasonably when the Moving Defendants furnished information explaining the means Iris used to purchase the Whitmore Property. Even after the Plaintiffs were given details of the bridge financing, they refused to vacate the CPL on the Whitmore Property. Instead, they filed voluminous responding materials on the Discharge Motion. They took the position that they were not satisfied with the Moving Defendants’ explanation and needed to investigate it. They demanded that the Moving Defendants take additional steps to confirm the legitimacy of the bridge financing, including a demand that the Moving Defendants provide them with the entire file from the real estate lawyer involved in Iris’s purchase of the Whitmore Property. Further, they refused to pay upfront for the disbursements involved in obtaining that file and other information from Iris’s real estate lawyer. This conduct purported to place the onus on the Moving Defendants to prove to the satisfaction of the Plaintiffs that the CPL should be vacated in circumstances where the Plaintiffs had wrongfully obtained it based on a misleading affidavit that failed to make full and fair disclosure.
[37] I recognize that the Plaintiffs have a high level of distrust given the fraud claims against Elliott and the 2007 Elliott Judgment. In that context, I accept that the Plaintiffs would apply a certain level of skepticism in assessing information presented to them in relation to Elliott and his immediate family members. Nevertheless, the Plaintiffs moved on an ex parte basis without making full and fair disclosure and were unable to substantiate their fraud claims, ultimately consenting to an order lifting the CPL and discontinuing their action. Even recognizing the distrust and skepticism, the Plaintiffs’ conduct in responding to the Discharge Motion created unnecessary hurdles for the Moving Defendants, which resulted in increased and unnecessary costs.
[38] In assessing the quantum claimed, I accept the Moving Defendants’ submission that in addition to the ordinary costs involved in a motion such as the Discharge Motion and the conduct described above, the court should take note of the following:
(a) the increased costs due to the incorrect assertion by the Plaintiffs that the Moving Defendants had previously been represented by a lawyer representing Elliott, and demanding that the Moving Defendants’ lawyer serve a notice of change of lawyers;
(b) connected to the above,
i. the Plaintiffs’ failure to serve the Moving Defendants with the statement of claim, the motion record for the motion for leave to issue a CPL, the CPL Order, or the order to continue in the name of the current Plaintiffs; and
ii. the Plaintiffs refusal to cooperate with the Moving Defendants’ counsel, thereby requiring the Moving Defendants’ counsel to search the court file for records relating to service of the statement of claim.
[39] I also note that, unlike the situation in Zare where the plaintiff acknowledged its failure to make full and fair disclosure and agreed to vacate a certificate of pending litigation it had obtained on an ex parte basis, the Plaintiffs in this action “doubled down” on their position in the face of the Discharge Motion and even after they received the Moving Defendants’ motion materials that included information about Iris’s bridge financing. In these circumstances, it is the Plaintiffs who should bear the responsibility for the significant costs with respect to the Discharge Motion, and it would not be appropriate to shift those costs onto the Moving Defendants.
[40] In the Moving Defendants’ bill of costs, they seek costs on a full indemnity basis in the amount of $143,695.71. Relying on Pirbhai v. Singh and Petersen, [20] they argue that, given the Plaintiffs’ reprehensible conduct, the Moving Defendants should not be put to one penny of expense.
[41] The Plaintiffs submit that costs should not awarded on a full indemnity basis. They also submit that, in any event, the amounts claimed are excessive and that some of the costs claimed by the Moving Defendants relate to issues that were raised in the Plaintiffs’ cross-motion (to validate service of the statement of claim), which was resolved on a without costs basis. The Plaintiffs advise that their costs are approximately $35,000 on a full indemnity basis, and that an appropriate costs order should take into consideration that the fees in their bill of costs are in the amount of $21,131 on a partial indemnity basis.
[42] The Moving Defendants submit that I should not consider the costs expended by the Plaintiffs as a reasonable comparison of costs because the Plaintiffs have acknowledged that they are not being charged for fees associated with any aspects of the Moving Defendants’ Discharge Motion related to the dismissal of the action for delay or the Plaintiffs’ cross-motion for an order validating service of the statement of claim. In any event, they submit that the Plaintiffs’ bill of costs is not reflective of a reasonable quantum of costs. Specifically, in terms of the reasonable expectations of an unsuccessful party, the Moving Defendants submit that the court should consider the position taken by the current Plaintiffs when they took an assignment of this action and obtained the order to continue it in their name. At the time they sought the order to continue, the current Plaintiffs advised the court that they foresaw expending well in excess of $100,000.00 to pursue the matter and appreciated that, if they were unsuccessful, they would be liable for an adverse costs award. I recognize that this estimate was an expression of anticipated costs of the action as opposed to costs of the Discharge Motion, and that it is in no way determinative. Nevertheless, the views expressed by the current Plaintiffs in seeking the order to continue are a recognition that the nature of the proceedings could very well involve significant legal fees and adverse costs awards.
[43] While I have found that the Plaintiffs’ conduct merits an award of costs on full indemnity basis, the fixing of costs is not a mechanical exercise. The quantum claimed should reflect an amount the court considers to be reasonable costs on a full indemnity basis. [21] I have considered the parties’ respective cost submissions, the steps undertaken by the Moving Defendants with respect to the Discharge Motion, the conduct of the Plaintiffs in opposing the motion, and the parties’ respective bills of costs. In all the circumstances, I find that that it is appropriate for the Plaintiffs to pay costs to the Moving Defendants fixed on a full indemnity basis in the amount of $115,000, inclusive of disbursements and taxes, within 30 days.
Disposition
[44] I order as follows:
- The Plaintiffs shall pay costs of the Discharge Motion to the Moving Defendants in the amount of $115,000, inclusive of disbursements and taxes, within 30 days.
R. Frank Associate J DATE: July 25, 2023
[1] For simplicity, in this endorsement, I use the term “the Plaintiffs” to refer to Brenthall or the current plaintiffs 781526 Ontario Inc. and Dawn Trading Ltd., as applicable, except where context requires identification to distinguish between Brenthall and the current plaintiffs.
[2] Horrocks v. McConville et al, 2021 ONSC 522 at paras 11 and 12
[3] Morris v. Lazaridis (“Lazaridis”) at p. 2
[4] McNeil v. Kaloustian, 2022 ONSC 118 at para 29
[6] Moses v Metro Hardware and Maintenance Inc., 2020 ONSC 6684 at paras 28 and 30
[7] See Zare v. Rahmanian, 2015 ONSC 7303 (“Zare”); United States v. Friedland, [1996] O.J. No. 4399 (Ont. Gen. Div.); United States v. Yemec, [2007] O.J. No. 2066 (Ont. Div. Ct.); and Petersen v. Petersen, 2010 ONSC 2525 (“Peterson”)
[8] Zare at para 13
[9] Vestacon Limited v. Huszti Investments (Canada) Ltd., 2022 ONSC 2104, at paras 65 and 66
[11] Petersen at paras 18-20 and 25-28
[12] Pirbhai v. Singh, 2011 ONSC 1366, at para 120
[13] Levy v. Fitzgerald, 2012 ONSC 2105, at para 49
[14] See, for example, Grefford v. Fielding at para 26
[15] The record indicates that Brenthall brought a motion in 2018 seeking leave to commence this action against Elliott nunc pro tunc, but that motion was adjourned and has never been heard.
[16] McNeil v. Kaloustian, 2022 ONSC 118 at para 29; Moses v Metro Hardware and Maintenance Inc., 2020 ONSC 6684 at paras 28 and 30; Zare at para 13
[18] The Moving Defendants dispute the Plaintiffs’ argument that specific information about Iris’s bridge financing was a material fact that the Plaintiffs only learned of during the course of the Discharge Motion. The Moving Defendants submit that, based on the evidence and given the sophistication of Harley and Brenthall, Brenthall knew or should have known about the possibility of bridge financing, and that Harley’s failure to advise the court of the possibility of bridge financing was an additional failure to make full and fair disclosure.
[19] Plaintiffs’ responding factum, para. 75
[20] Pirbhai v. Singh, 2011 ONSC 1366, at para 120; Petersen at paras 25-28
[21] Peterson at para 29