DATE: 20060316
DOCKET: C41312 & C41450
COURT OF APPEAL FOR ONTARIO
ROSENBERG, CRONK and ARMSTRONG JJ.A.
IN THE MATTER OF Ford Motor Company of Canada, Limited
AND IN THE MATTER OF an action under section 190 of the Canada Business Corporations Act and section 185 of the Business Corporations Act (Ontario)
B E T W E E N:
Frank J.C. Newbould, Q.C,
FORD MOTOR COMPANY OF CANADA, LIMITED
Christopher D. Bredt and
Benjamin T. Glustein
for OMERS Shareholders, appellants
(respondents by counterclaim)
Plaintiff (Respondent in C41312)
(Appellant in C41450)
James A. Hodgson, Peter W.
Hogg, Q.C., Hugh M. DesBrisay
- and -
and Jason M. Squire
for Ford Motor Company of Canada,
ONTARIO MUNICIPAL EMPLOYEES
Limited and Ford Motor Company,
RETIREMENT BOARD AND THE PERSONS SET OUT IN SCHEDULES “A” AND “B”
respondents
(appellants by counterclaim)
Defendants (Appellants in C41312)
(Respondents in C41450)
AND BETWEEN:
ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD AND THE PERSONS SET OUT IN SCHEDULE “B”
Plaintiffs by Counterclaim
(Appellants in C41312)
(Respondents in C41450)
- and -
FORD MOTOR COMPANY OF CANADA, LIMITED and FORD MOTOR COMPANY
Heard: June 20-24, 2005
Defendants by Counterclaim
Reasons released: January 6, 2006
(Respondents in C41312)
(Appellants in C41450)
On appeal from the judgment of Justice Peter A. Cumming of the Superior Court of Justice dated January 22, 2004.
C O S T S
BY THE COURT:
[1] On January 6, 2006, we released our reasons for judgment in this matter dealing with all issues raised in the appeals and cross-appeal save the costs appeals. We invited counsel to provide further submissions respecting the costs appeals in light of the reasons and also to provide submissions for costs of the appeals. We have received those submissions. Following is our disposition of the costs appeals and the costs of the appeals.
CHRONOLOGY
[2] It may be helpful to set out a brief chronology to understand the costs issues raised by these appeals:
February 6, 1995 Letter from Mr. Bennett to president of Ford Canada raising question of unfairness in transfer pricing system
April 25, 1995 Ford U.S. announces intention to offer minority shareholders $150.00 per share
July 5, 1995 Ford increases offer to $185.00 per share
September 12, 1995 Ford U.S. takes Ford Canada private
January 10, 1997 Ford makes an interim payment to the dissenting shareholders of $117.91 per share
July 2000 Mr. Bennett’s letter is disclosed to dissenting shareholders
August 9, 2001 Ford provides revised divisional income data
August 29, 2001 Ground J. finds that error re divisional income data was inadvertent but orders that costs incurred by OMERS in obtaining new expert’s report be paid by Ford on solicitor/client basis
April 9, 2002 Ford offers to settle at $220.00 per share[^1]
April 22, 2002 Ford offers to settle at $265.00 per share
April 29, 2002 Trial commences
January 22, 2004 Cumming J. renders judgment holding that fair value of shares was $207.00 but that OMERS shareholders[^2] entitled to additional $52.36 per share (plus interest) for oppression depending on how long they had held the shares (to be determined by a Master on a reference)
January 6, 2006 This court allows Ford appeal in part holding that OMERS shareholders only entitled to proportion of the oppression premium for one day (i.e. additional 9 cents)
THE COSTS DISPOSITION BY THE TRIAL JUDGE
[3] The trial judge’s reasons for making his costs award are reported at (2005) 2004 ONSC 53391, 3 B.L.R. (4th) 306. He ordered that the OMERS shareholders be compensated for their costs on a substantial indemnity basis up to April 22, 2002. Ford (Ford Canada and Ford U.S.) were entitled to one set of costs on a partial indemnity basis after April 22, 2002.
[4] After earlier noting the broad discretion vested in the court by s. 241(3) of the Canada Business Corporations Act, R.S.C. 1985, c. C-44, the trial judge held that he was entitled to depart from the normative rule set out in Rule 49 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. He held at para. 56 that the OMERS shareholders should have their costs on a substantial indemnity basis up to the time of the April 22 offer “because of the nature of the proven oppression, the fact of the difficulties facing the minority shareholders in any valuation dispute (and specifically, the one at hand given the complexities of the quantification of value), the fact of the substantial costs undoubtedly incurred by the OMERS shareholders through extensive discovery and expert opinions which led to Ford making the April 22 offer, the fact the April 22 offer was forty-three percent higher than the initial statutory offer and the fact that the amount of the final judgment was proximate to the global quantum in the April 22 offer to settle (and would have been very substantially higher but for the impact of the limitation period)”. He expanded on those reasons in paras. 57 and 58:
The statutory ‘squeeze out’ afforded to the controlling shareholder by s. 190 of the CBCA is an extraordinary remedy. The minority shareholders are being forced out of the corporation and their property rights expropriated. The corporation is in a very dominant position. From a practical standpoint, it is impossible for virtually any minority shareholder to effectively challenge a corporation's statutory offer because the costs of a court proceeding are prohibitive. It is only the institutional shareholder that can even consider mounting a meaningful challenge. Even if successful in obtaining a higher value, and receiving costs on a partial indemnity basis, the minority shareholder would perhaps suffer a net loss because of the net costs to be absorbed. Most corporations can be comfortable in their view that virtually all minority shareholders will take the statutory offer made rather than fight it with attendant non-reimbursable costs and accompanying opportunity costs in waiting for their money. Indeed, the corporation may discount its offer in the first instance because of the knowledge of the cost to dissenting shareholders of a challenge.
I do not suggest that in all situations of "going private" that costs on a substantial indemnity basis are in order. I am of the view that in the exceptional situation at hand, costs on a substantial indemnity basis to the April 22 offer are appropriate. In my view, this result is in accord with the intent of the scheme of s. 190 of the CBCA and is an appropriate disposition under s. 241(3) of the CBCA taking into account the significant aspect of the oppression. The concluding five words of Rule 49.10(2) confirms that the Court can make exceptions in appropriate situations.
[5] The trial judge gave only brief reasons for awarding Ford its costs on a partial indemnity basis after April 22:
OMERS submits that it should receive costs for the trial and, indeed, on a substantial indemnity basis. I disagree. The impact of the April 22 offer is to be taken into account in respect of costs incurred after April 22. In my view, Ford is entitled to its costs from the OMERS shareholders on a partial indemnity basis after April 22, 2002, as provided for in Rule 49.10(2).
[6] The trial judge held that if the parties could not agree on quantum, the costs were to be assessed by an assessment officer. The parties agree that no matter the disposition of the costs appeals and the costs of the appeals, if the parties cannot agree, the quantum should be assessed by an assessment officer.
THE ISSUES ON THE COSTS APPEALS
[7] Ford seeks leave to appeal that part of the costs order requiring it to pay costs on a substantial indemnity basis up to the date of the offer. It is agreed among the parties that the date to consider is April 9, 2002 since, in light of our decision, the $220 per share offer made on that day is more favourable than the judgment. Ford submits that it should only be required to pay those costs on a partial indemnity basis.
[8] The OMERS shareholders appeal that part of the costs order requiring them to pay costs on a partial indemnity basis after the Ford offer. They submit that they should receive their costs throughout on a substantial indemnity basis or, in the alternative, should receive their costs on a partial indemnity basis after the offer to settle or, in the further alternative, there should be no costs after the offer to settle.
DISPOSITION OF THE COSTS APPEALS
The Ford Appeal
[9] Ford’s basic submission on its costs appeal is that substantial indemnity costs should only be awarded because of misconduct in the litigation. Ford submits that none of the considerations that led the trial judge to award substantial indemnity costs concerned its conduct during the litigation. In our view, the court’s discretion under s. 241(3) of the CBCA is not so limited. The law is accurately summarized by Blair J. in Naneff v. Con-Crete Holdings Ltd. (1993), 11 B.L.R. (2d) 218 (Ont. Ct. (Gen. Div.)) at 264:
Austin J. (as he then was) considered the scale of costs to be awarded in an oppression remedy case, where the applicant had been successful, in Arthur v. Signum Communications Ltd. (unreported) [1991] O.J. No. 86 (Ont. Ct. (Gen. Div.)). Acknowledging that solicitor and client costs are not awarded except in special circumstances, he went on to conclude (at p. 125 of the Quicklaw Report) that "a finding of oppression, by definition, almost always provides some foundation for an award of costs above and beyond the party and party scale." His decision, and the appropriateness of a finding of oppression providing a foundation for such an award of costs, were upheld by the Divisional Court (Oral Reasons, released August 25, 1993, not yet reported). See also the unreported decision of Jenkins J. in Fedoriw v. Fazio, [1991] O.J. No. 1143 (Ont. Ct. (Gen. Div.)).
[10] On appeal, this court[^3] varied the judgment of Blair J. in respect of the remedy for oppression but upheld his costs order (1995), 1995 ONCA 959, 23 O.R. (3d) 481 at 495:
Blair J. awarded the respondent his costs of the trial on a solicitor and client basis. It is apparent that a very large part of this trial involved an attempt by the appellants to defeat the claim of oppression and to prove that Alex's job performance and personal life justified his expulsion from the family business. Without a doubt, that stance must have greatly prolonged the trial and must have been calculated to humiliate Alex. While I respectfully disagree with Blair J. upon the appropriate remedy in this case, the stance of the appellants on the issue of oppression convinces me that his order of costs at trial should not be interfered with.
[11] We also note that the decision of Jenkins J. in Fedoriw v. Fazio referred to by Blair J. was upheld by this court at [1993] O.J. No. 3532. In Fedoriw the defendants made the same argument that Ford makes in this case. Jenkins J. rejected it:
In this case there was no impropriety by the defendants in the conduct of the litigation. The discretion to award solicitor and client costs is not however confined to that circumstance in cases involving shareholder oppression.
[12] On appeal, this court held that Jenkins J. did not err in awarding solicitor and client costs. Since the trial judge’s power to order solicitor and client costs did not depend upon a finding of impropriety in the conduct of the litigation, it was then a matter of the exercise of discretion. This court is reluctant to interfere with the exercise of discretion by a trial judge, especially, as in this case, where the trial judge has presided over a lengthy and complex proceeding. See Bell Canada v. Olympia & York Developments Ltd. (1994), O.R. (3d) 135 (C.A.) at 137 and Greater Toronto Airports Authority v. International Lease Finance Corp. (2004), 2004 ONCA 32169, 69 O.R. (3d) 1 (C.A.) at para. 216. The court will “set aside a costs award only if the trial judge has made an error in principle or if the costs award is plainly wrong”: Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303 at para. 27.
[13] The trial judge’s discretion extends not only to the ultimate decision of whether or not to award substantial indemnity costs but, absent an error in principle, extends to the factors that the judge may consider. While we might not have considered the same factors as did the trial judge, he was in a preferred position and we would not interfere. Moreover, we think that there are matters that occurred during the litigation that could also be taken into consideration to support the order, including the fact that Mr. Bennett’s letter was not disclosed until July 2000 and the misleading (admittedly inadvertent) disclosure of the divisional income data that led to Ground J.’s order.
The OMERS Shareholders’ Costs Appeal
[14] The standard of review of this order is the same as in the Ford costs appeal. The principal submission by the OMERS shareholders is that the trial judge erred in applying Rule 49 to this proceeding, which is governed by s. 241(3) of the CBCA. They argue that the trial judge should have been guided by the holding in Re Domglas Inc. v. Jarislowsky et al. (1980), 1982 QCCA 2950, 13 B.L.R. 135 (Que. S.C.) at 233 (affirmed (1982), 22 B.L.R. 121 (Que. C.A.)) that the guiding principle is “fairness and equity”. The OMERS shareholders submit that Rule 49 cannot fetter the court’s broad discretion under s. 241(3). On the other hand, they concede that offers to settle may be one consideration in assessing costs.
[15] In our view, the trial judge did not consider that the Rules of Civil Procedure fettered his discretion. In his reasons, he merely held that Ford’s “offer is to be taken into account”. The weight to be given to that factor was a matter for the trial judge, unless it can be said that his decision was unreasonable. We have not been persuaded that his decision was unreasonable. While the OMERS shareholders were successful in establishing oppression at trial, they obtained only a token award as a result of that oppression and the April offer substantially exceeded the fair value as determined by the trial judge and upheld by this court.
[16] The OMERS shareholders heavily rely upon the comments of Austin J. in Arthur Signum Communications Ltd., [1991] O.J. No. 86 (Gen. Div.) at 39:
To give him [the plaintiff] party and party costs in such circumstances would be to penalize him for his persistence, for being right. It would be to concede that might is right. [Emphasis added.]
[17] The trial judge was aware of his wide discretion under s. 241(3). He referred at para. 44 of his reasons to Re Domglas Inc. and to the principle enunciated by Austin J. in Arthur Signum Communications Ltd. to which he referred at para. 46. The trial judge could properly find that while the OMERS shareholders were to be rewarded for their persistence prior to the April offer, other factors took on greater prominence after that time. The fact is that while the OMERS shareholders were right about the oppression they were wrong about their entitlement to compensation and they were also wrong in their assessment of fair value; the fair value did not exceed the April offers. Given the trial judge’s preferred position in dealing with the matter, we would not interfere with his decision to give the April offers substantial weight.
[18] Accordingly, while we would grant leave to appeal the costs awards, those appeals are dismissed.
COSTS OF THE APPEALS
Submissions of the Parties
[19] Ford submits that since it was successful on its appeal, it is entitled to its costs on a partial indemnity basis.
[20] The OMERS shareholders take a different position. They submit that there should be no costs of the appeals because of divided success.
[21] We agree with the OMERS shareholders. We refer back to the summary of issues at para. 12 of the reasons for judgment:
THE FORD CANADA APPEAL
- The trial judge erred in finding that the transfer pricing system was oppressive. In particular, the trial judge erred in his treatment of the doctrine of reasonable expectations and failed to properly apply the business judgment rule.
I agree with the trial judge.
- The trial judge erred in directing a reference to the Master that would allow the OMERS defendants to lead evidence of their shareholdings.
I agree with Ford Canada that the trial judge erred. As a result, in my view, the OMERS shareholders are only entitled to the historical component of oppression for a single day, September 11, 1995.
- The trial judge erred in his calculation of damages/compensation for oppression.
I agree with the trial judge.
THE OMERS SHAREHOLDERS’ APPEAL
- The trial judge erred in his holding that historical oppression is not an element of fair value.
I agree with the trial judge.
- The trial judge erred in holding that a person must be a shareholder at the time of the alleged oppression in order to obtain a remedy for that oppression.
I agree with the trial judge.
- The trial judge erred in holding that the historical oppression was discoverable before 1985.
I do not agree with the trial judge. However, in view of my holding concerning the error in directing a reference to the Master, this error does not affect the result.
- The trial judge erred in holding that the Limitations Act applied.
I have some concern with the trial judge’s conclusion. But in view of my findings concerning the reference to the Master and the discoverability issue, the error, if any, is of no consequence.
- The trial judge erred in dismissing the counterclaim against Ford U.S.
In my view, the trial judge erred in dismissing the claim against Ford U.S. However, my answer to issue no. 2 applies in respect of Ford U.S. and the OMERS shareholders are not entitled to any greater relief against Ford U.S. than against Ford Canada.
- The trial judge erred in his valuation of the shares.
I agree with the trial judge.
- The trial judge erred in awarding prejudgment interest at 5 percent.
I agree with the trial judge.
[22] Thus, success was divided in the proceedings before this court. Moreover, this was a complex case raising important issues, some of first impression in this court, involving compensation for historical oppression and the impact of oppression on fair value. In those circumstances, we are of the view that it would fair and equitable to make no order as to the costs of the appeals. In making this order, we take into account that while Ford achieved substantial monetary success on its appeal because of the reference issue, that issue accounted for only a very small amount of the time that would have gone into the preparation for the appeals and was the subject of only brief argument during the appeals.
Signed: “M. Rosenberg J.A.”
“E.A. Cronk J.A.”
“Robert P. Armstrong J.A.”
RELEASED: “MR” March 16, 2006
[^1]: With interest the offer and the judgment are considerably higher. However, for convenience we will use figures not taking interest into account. Adding interest does not change the impact of the offers. [^2]: See our Reasons for Judgment for the definition of these terms. [^3]: An intermediate appeal to the Divisional Court ((1994), 1994 ONSC 7542, 19 O.R. (3d) 691, 16 B.L.R. (2d) 169) was dismissed except for a minor variation. That court did not deal with the costs issue.