The Corporation of the City of Peterborough v. Kawartha Native Housing Society Incorporated et al.

[Indexed as: Peterborough (City) v. Kawartha Native Housing Society Inc.]

104 O.R. (3d) 38

2010 ONCA 705

Court of Appeal for Ontario,

Rosenberg, R.P. Armstrong and Juriansz JJ.A.

October 26, 2010

Corporations -- Directors -- Receivership -- Directors of corporation having authority to retain counsel on behalf of corporation in respect of receivership litigation if they believe that appointment of receiver or steps taken by receiver are not in corporation's best interests -- Consent of receiver or approval of court not required -- Counsel retained by board of directors entitled to payment out of corporation's assets for work done in receivership litigation.

The appellant corporations were established to operate affordable rental housing units. As a result of concerns of the Ministry of Municipal Affairs relating to the administration and governance of the corporations, the Ministry commenced an action against the appellants for a declaration that they were in breach of their operating agreements, and sought an order for the appointment of a receiver and manager over the appellants' assets and undertakings. The boards of the appellants retained counsel to defend the action and to oppose the application for a receiver and manager. A receiver was appointed. Counsel for the appellants also appeared on motions for extensions of the receivership. On the basis of his analysis of the operating agreements, the motion judge found that the boards did not have the right to retain counsel without leave of the court after the receivership order was made. However, he found that fairness required him to authorize some payment of legal expenses. He made a costs order in favour of the boards in the amount of $15,000 for legal expenses rendered in the receivership litigation. The appellants appealed.

Held, the appeal should be allowed in part.

Nothing in the operating agreements prohibited the boards from retaining counsel without the consent of the receiver or approval of the court in respect of the receivership litigation. If they believed that the appointment of a receiver was not in the best interests of the corporations or if they believed that the steps being taken by the receiver on behalf of the corporations were not in the corporations' best interests, the boards were entitled to retain counsel to bring the matter to the attention of the court. Approval of the court was not a prerequisite, although it would be for the court to decide if the boards had acted responsibly and reasonably in doing so. In the circumstances of this case, there was no basis for denying the boards the right to retain counsel in respect of the receivership litigation without seeking the consent of the receiver or the approval of the court.

Counsel retained by the boards were entitled to be paid out of the corporations' assets for work done in the receivership litigation. However, the motion judge did not err in denying the claim for costs in respect of general corporate advice related to services for strategic planning and/or corporate restructuring.

APPEAL from the order of MacDougall J., [2009] O.J. No. 2541, 178 A.C.W.S. (3d) 116 (S.C.J.) with respect to a claim for costs.

Cases referred to Maple Leaf Foods Inc. v. Markland Seafoods Ltd., [2007] N.J. No. 22, 2007 NLCA 7, 279 D.L.R. (4th) 682, 264 Nfld. & P.E.I.R. 126, 27 B.L.R. (4th) 1, 29 C.B.R. (5th) 270, 154 A.C.W.S. (3d) 853, consd [page39 ] Other cases referred to Brad-J Investments Ltd. v. Szijjarto, 2006 CanLII 42636 (ON CA), [2006] O.J. No. 5078, 218 O.A.C. 315, 154 A.C.W.S. (3d) 226 (C.A.); British Columbia (Attorney General) v. Christie, [2007] 1 S.C.R. 873, [2007] S.C.J. No. 21, 2007 SCC 21, 280 D.L.R. (4th) 528, 361 N.R. 322, [2007] 8 W.W.R. 64, J.E. 2007-1072, 240 B.C.A.C. 1, 66 B.C.L.R. (4th) 1, 155 C.R.R. (2d) 366, 2007 D.T.C. 5225, 2007 G.T.C. 1488, 156 A.C.W.S. (3d) 1061, EYB 2007-119921; Inter-Trust Mortgage Investment Corp. v. 1071005 Ontario Ltd., [1999] O.J. No. 1875, 1999 CanLII 2724 (C.A.); Inyx Canada Inc. (Re), [2007] O.J. No. 3846, 36 C.B.R. (5th) 154, 160 A.C.W.S. (3d) 940 (S.C.J.); Peterborough (City) v. Kawartha Native Housing Society Inc. (2009), 2009 CanLII 92134 (ON CA), 99 O.R. (3d) 573, [2009] O.J. No. 5594, 62 C.B.R. (5th) 171 (C.A.); Toronto Dominion Bank v. Fortin, 1978 CanLII 1934 (BC SC), [1978] B.C.J. No. 1196, 85 D.L.R. (3d) 111, [1978] 2 W.W.R. 761, 26 C.B.R. (N.S.) 168, [1978] 2 A.C.W.S. 8 (S.C.) Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 57

Frank Bennett and Vilko Zbogar, for appellants. Douglas O. Smith, for respondent. Mervyn D. Abramowitz, for receiver Mintz & Partners Limited. Murray Klippenstein and Basil Alexander, for intervenors Co-operative Housing Federation of Canada, Ontario Non-Profit Housing Association and National Aboriginal Housing Association.

The judgment of the court was delivered by

R.P. ARMSTRONG J.A.: -- Introduction

[1] Although the parties raise a number of issues, this appeal raises two main questions: (i) Are the directors of a corporation, which has been placed into receivership, entitled to retain counsel on behalf of the corporation without prior approval of the receiver or the court? (ii) If so, is counsel so retained entitled to be paid out of the assets of the corporation for reasonable services rendered by such counsel?

[2] A third issue relates to the quantum of costs to which the boards of the appellant corporations may be entitled in respect of services provided by their counsel. [page40 ]

[3] Counsel for the appellants objected to counsel for the receiver appearing on the appeal. Since this appeal involves, to some extent, a dispute between the receiver and the boards of the appellant corporations in regard to their proper roles in the receivership, we considered it appropriate to receive written and oral submissions from counsel for the receiver. The objection to the participation of the receiver in this appeal is accordingly dismissed.

The Facts

[4] The appellant corporations were established by the federal government to operate affordable rental housing units for approximately 300 persons from the Aboriginal community in the Peterborough area. The corporations received their funding pursuant to operating agreements, first entered into in 1989, with the Canada Mortgage and Housing Corporation ("CMHC"). In 1999, the federal government transferred the responsibility for administering and funding the corporations to the province through the Ministry of Municipal Affairs. Finally, in 2006, the administration and funding responsibility was transferred by the province to the City of Peterborough (the "City").

[5] Each of the corporations is governed by a board of directors. Otonabee Native Homes Inc. has four directors. Kawartha Native Housing Society Incorporated has the same four directors, plus a fifth director, on its board.

[6] As a result of concerns of the Ministry of Municipal Affairs relating to the administration and governance of both corporations, the Ministry commenced an action against the corporations for a declaration that the corporations were in breach of their operating agreements and sought an order for the appointment of a receiver and manager over the assets and undertakings of the corporations. The boards of the corporations retained counsel to defend the action and to oppose the application for a receiver and manager.

[7] On April 10, 2006, Mintz & Partners Limited was appointed receiver and manager for six months. On September 29, 2006, the receivership was extended for 18 months to March 18, 2008.

[8] On March 14, 2008, the Ministry moved for a further extension of the receivership, approval of the receiver's accounts and reports, and related relief (the "March 14, 2008 motion").

[9] On April 10, 2008, the motion judge delivered his reasons on the March 14, 2008 motion. He granted, inter alia, a further one-year extension of the receivership and approved the receiver's accounts up to December 17, 2007 as well as certain accounts of [page41 ] the receiver's counsel. Also, on consent of the parties, the City of Peterborough was added as a plaintiff in the action. The motion judge also ordered the receiver to pay from the funds of the corporations costs of $32,130.64 for counsel retained by the boards of each corporation for the period from May 22, 2006 to March 13, 2008 -- roughly the period since the appointment of the receiver. The motion judge also ordered the receiver to make disclosure of its reports and accounts to the boards of the corporations. In respect of the costs awarded in favour of the boards, the motion judge said [at paras. 19-20]:

In considering the position taken by legal counsel for Kawartha and Otonabee on the initial motion for the interim appointment of the Receiver, although on the facts it might be questionable whether the Board of Directors' opposition to the appointment was realistic, nevertheless, the specific grounds for the appointment were of some significance because of the unusual circumstances involved in the financial difficulties, among other things, of the Corporations. Under the peculiar circumstances of this case, I cannot say that it was frivolous and vexatious for the Board to retain counsel to defend the action and to appear on the initial motion for the appointment of a receiver and on the "extension motions".

I also find that counsel's appearance on the motions before me to extend the time and deal with other issues has been of some assistance. Under the circumstances, therefore, and in considering the amount of the counsel fee submitted, I am prepared to authorize the Receiver to pay counsel fees for Kawartha and Otonabee as submitted.

[10] The City then brought an application for leave to appeal the costs order and the disclosure order to a single judge of the Divisional Court.

[11] The Divisional Court judge did not decide the motion for leave to appeal. In a rather unusual procedural move, he recommended that the parties return to the motion judge and request him to re-open the costs and disclosure issues.

[12] The parties accepted the recommendation of the Divisional Court judge and returned to the motion judge. The City requested the motion judge to set aside the costs and disclosure orders in favour of the boards. The motion judge agreed to set aside only the costs order but ordered that the costs order be re-argued on a more complete record.

[13] On the re-argued motion, the boards increased their claim for costs. The boards sought reimbursement not only for their legal expenses related to the receivership litigation but also for the legal expenses related to general corporate advice provided between April and November 2008. They also sought approval for the payment of future legal costs for general corporate advice. The total of the costs sought at that time was $75,397.94, which included the $32,130.64 previously ordered. [page42 ]

The Motion Judge's Decision

[14] Based upon the motion judge's analysis of the operating agreements, originally entered into between the corporations and CMHC, he concluded that the boards did not have the right to retain counsel after the receivership order was made. In particular, the motion judge relied upon the following provisions of para. 16(3)(a) of the operating agreements:

(i) The receiver shall be entitled to take control, direction and possession or any of them of the Project, its revenues, and the assets, operations and books, records and accounts of the sponsor [the corporation], or any part of them, and the control and direction of the employees and agents of the Sponsor, all as may be authorized by the Contributor [the City], but in no event shall the receiver or the Contributor be accountable for any money or other property except that actually received by it. . . . . . (iii) The receiver shall at all times and in all respects be the agent or attorney of the Sponsor and the Sponsor shall be solely responsible for all the decisions, actions, inactions and defaults of the receiver, and for payment of its fees and disbursements. (iv) The Contributor may at any time and from time to time change, terminate or renew the mandate of the receiver or replace or reinstate the receiver, but the Sponsor shall have no power to appoint, replace, reinstate or remove or change, terminate or renew the mandate of the receiver. (v) The powers and objects of the receiver shall be such as the Contributor may in good faith stipulate, and regardless of said stipulation shall, except as limited by the Contributor, include, to be exercised in the discretion of the receiver, preservation and protection and use of the Project, revenues, assets, books, records and accounts, and compliance by the Sponsor with all aspects of this Agreement, and correction and avoidance of breaches of this Agreement, and receipt and recovery of all revenues, assets and claims, and pursuit or defence of all actions or claims, and payment of liabilities, and rental maintenance, operation and repair of the Project and incurring liabilities in that regard, and conduct of the affairs of the Sponsor, and enactment of bylaws and resolutions of the Sponsor in place of and without interference by any officers, directors or members of the Sponsor, and preservation of and compliance with the rights of the Contributor, and to carry out its decisions, borrowing of money with or without security, and concurrence in any or all of the foregoing.

[15] The motion judge's reading of the above provisions led him to make the following findings [at paras. 46, 47, 49 and 50]:

I find that the provisions of the Operating Agreements take precedence over any "residual rights" that a Board might retain when the Corporations were placed into Receivership. When the Contributor exercises its remedy for the appointment of a Receiver, the Receiver takes control and direction over the housing projects and also becomes the agent of the Sponsor. The Receiver is also empowered to "conduct the affairs of the Sponsor in place of and without interference by any officer, directors or members of the Sponsor" and carry out the decisions of the Sponsor. [page43 ]

In addition, the Appointment Order putting the Corporations into receivership gave very broad powers to the Receiver, who basically took over the operation of the Corporations. . . . . .

I find that the Boards, on behalf of the Corporations, did not have the legal right to retain counsel after the Receivership appointment without leave of the court. In the particular circumstances of this case and how it developed, however, I am prepared to consider the equities and the issue of fairness in considering whether I should authorize the Receiver to compensate from the Corporations' funds any amount for the effort expended by counsel who was "retained" by the Boards.

With respect to legal expenses pertaining to this litigation subsequent to the Receivership Order, it is noteworthy that up until this point neither the Ministry, (being the former Plaintiff) nor the City of Peterborough, now the Plaintiff, took issue with whether the Boards were legally authorized to retain legal counsel to appear in opposition to the matters before the court. As a result, counsel "retained" by the Boards has expended a considerable amount of time and effort in striving to represent "the interests of the Boards".

[16] Although the motion judge concluded that the boards of the corporations had no legal right to retain counsel after the appointment of the receiver without leave of the court, he nevertheless was prepared to make a costs order in their favour.

[17] The motion judge observed that given the history of the matter, it would have been advisable for the boards to have at least sought the opinion of the receiver on its position concerning the retaining of counsel and related funding. If the response was negative, then counsel could have moved for directions pursuant to the terms of the receivership order.

[18] The motion judge then turned his mind to whether the boards should be awarded any costs for their representation by counsel on the March 14, 2008 motion. In denying the boards' costs, he again made reference to the terms of the operating agreements and also to certain criticism of the conduct of the boards contained in operational reviews ordered by the Ministry of Municipal Affairs and in the first report of the receiver. The motion judge then concluded, at paras. 69 and 70 of his reasons:

In my assessment, the Boards seem to have handed over to legal counsel many of the duties, responsibilities and decisions normally made by the Boards. As well, the Boards have expended, through legal counsel, considerable time and resources in litigating all conceivable issues.

I find, therefore, that the approach taken by the Boards in having legal counsel engaged to the extent it has was not in the genuine interests of these Corporations. The Boards seem to have ignored the critical fact that the Corporations are bound by the provisions of the Operating Agreements.

[19] The motion judge also declined to award any costs to the boards of the corporations in respect of the aborted application [page44 ] for leave to appeal to the Divisional Court. The motion judge observed that on the suggestion of the Divisional Court judge, all parties agreed to abandon the leave to appeal hearing and return before the motion judge on a re-opening of the March 14, 2008 motion. He also observed that the costs of the aborted application had not been raised in the Divisional Court and that he was accordingly disinclined to make any costs order in respect of an application that was not before him.

[20] Finally, the motion judge addressed the non-litigation costs for corporate work between April 2008 and November 2008, which was characterized as "primarily advice" for strategic planning and corporate restructuring in the amount of $9,412.60. The boards also sought prior approval for similar services in the future. The motion judge declined to make any order in respect of these costs.

[21] In spite of his legal conclusion concerning no entitlement to retain counsel, the motion judge made a costs order in favour of the boards of the corporations in the amount of $15,000 for legal services rendered in the receivership litigation [at paras. 84-87]:

On an equitable basis, given the unusual way in which this matter proceeded, fairness requires me to authorize some payment of legal expenses for the efforts expended.

I fix this amount at $15,000.00 for legal services for this litigation. As noted below, any further involvement by legal counsel on behalf of the Boards during the Receivership will have to be authorized either by the Receiver or by the court.

On the evidentiary record before me, I am not prepared to either allow or deny expenses for services for strategic planning and/or corporation/governance restructuring. I suggest that any future retaining of legal counsel by the Boards while the Corporations are in Receivership should be either pre-approved by the Receiver or an application would have to be made for directions pursuant to the provisions of the Appointment Order prior to any legal expenses being incurred that may not be paid out of the Corporations' funds.

In summary then, on the issue of the Boards'/Corporations' legal expenses, the Receiver is authorized to pay out of the Corporations' funds the sum of $15,000.00 for legal expenses for this litigation.

This Appeal

[22] Before addressing the issues in this appeal, I must first address the failure of the appellants to formally seek leave to appeal the costs orders made by the motion judge. Counsel for the City submits that the failure to seek leave to appeal in the notice of appeal ends the matter. I disagree. Here we have a case that has been fully prepared on all sides in terms of written material and oral argument. It cannot be said that any prejudice [page45 ] could possibly be suffered by the respondent if leave were to be granted at this stage.

[23] In Brad-J Investments Ltd. v. Szijjarto, 2006 CanLII 42636 (ON CA), [2006] O.J. No. 5078, 218 O.A.C. 315 (C.A.), at para. 21, this court said:

Leave to appeal a costs order will not be granted save in obvious cases where the party seeking leave convinces the court that there are "strong grounds upon which the appellate court could find that the judge erred in exercising his discretion". This court has also said that "[l]eave to appeal a costs order, standing alone, is granted only sparingly": see Inter-Trust Mortgage Investment Corp. v. 1071005 Ontario Ltd., [1999] O.J. No. 1875, 1999 CanLII 2724 (C.A), at para. 12.

[24] In my view, there are strong grounds upon which we could find that the motion judge erred in exercising his discretion in respect of the costs awards in this case. I would therefore grant leave to appeal.

[25] I now turn to the three issues raised in this appeal.

(i) Are the directors of the appellant corporations entitled to retain counsel without prior approval of the receiver or the court?

[26] It is trite law to say that the right to retain counsel is essential to the efficient operation of our system of justice. In British Columbia (Attorney General) v. Christie, 2007 SCC 21, [2007] 1 S.C.R. 873, [2007] S.C.J. No. 21, the Supreme Court said, at para. 22:

[I]t is important to note that this Court has repeatedly emphasized the important role that lawyers play in ensuring access to justice and upholding the rule of law: Andrews v. Law Society of British Columbia, 1989 CanLII 2 (SCC), [1989] 1 S.C.R. 143, at p. 187; MacDonald Estate v. Martin, 1990 CanLII 32 (SCC), [1990] 3 S.C.R. 1235, at p. 1265; Fortin v. Chretien, [2001] 2 S.C.R. 500, 2001 SCC 45, at para. 49; Law Society of British Columbia v. Mangat, [2001] 3 S.C.R. 113, 2001 SCC 67, at para. 43; Lavallee, Rackel & Heintz v. Canada (Attorney General), [2002] 3 S.C.R. 209, 2002 SCC 61, at paras. 64-68, per LeBel J. (dissenting in part but not on this point). This is only fitting. Lawyers are a vital conduit through which citizens access the courts, and the law. They help maintain the rule of law by working to ensure that unlawful private and unlawful state action in particular do not go unaddressed. The role that lawyers play in this regard is so important that the right to counsel in some situations has been given constitutional status.

[27] In the case at bar, the motion judge concluded from his analysis of the operating agreements and the receivership order that the boards, on behalf of the corporations, did not have the legal right to retain counsel without leave of the court. He was of the opinion that the provisions of the operating agreement take precedence over any residual rights that a board retains when a corporation is put into receivership. According to the motion [page46 ] judge, the retaining of counsel is a matter for the receiver or the court.

[28] Counsel for the City and for the receiver take the position that the motion judge did not deprive the boards of the corporations of the right to retain counsel. They submit that the order of the motion judge only required the boards to seek the consent of the receiver or leave of the court in order to do so. In my view, this is a distinction without a difference.

[29] On my reading of the provisions of the operating agreements, relied upon by the motion judge, I do not find anything that prohibits the boards from retaining counsel without the consent of the receiver or approval of the court in respect of the receivership litigation. Similarly, I do not agree that the terms of the receivership order prevent the boards from retaining counsel on behalf of the corporations.

[30] There was considerable argument before us concerning the extent of the residual authority of a board of directors of a corporation in receivership. In a recent judgment of the Newfoundland and Labrador Court of Appeal, Maple Leaf Foods Inc. v. Markland Seafoods Ltd., 2007 NLCA 7, [2007] N.J. No. 22, 264 Nfld. & P.E.I.R. 126 (C.A.), Mercer J.A. did a thorough review of the Canadian jurisprudence on the residual powers of boards of directors of companies placed in receivership. At paras. 37 and 38, Mercer J.A. said:

Upon a receivership the directors retain residual powers. [Though] they are displaced in respect of powers exercisable by the receiver-manager, they remain in office and can exercise limited functions.

The powers of the receiver-manager are stated in the court order of appointment or in the private appointment as authorized by the security instrument . . . Powers which the receiver-manager is not authorized to exercise remain vested in the directors. (Citations omitted)

Maple Leaf Foods involved the receivership of a share capital corporation. The motion judge concluded that cases concerning share capital corporations although "helpful for analogy purposes" do not "apply to the situations before the court". While these cases are certainly distinguishable, both on their facts and the legal structure of the corporations, I find that the general principles articulated by the Newfoundland and Labrador Court of Appeal to be relevant to the circumstances here. Morawetz J., of the Ontario Superior Court, adopted the above principles in Inyx Canada Inc. (Re), [2007] O.J. No. 3846, 36 C.B.R. (5th) 154 (S.C.J.), at para. 5. See, also, Toronto Dominion Bank v. Fortin, 1978 CanLII 1934 (BC SC), [1978] B.C.J. No. 1196, 26 C.B.R. (N.S.) 168 (S.C.), at pp. 171-72 C.B.R. The receiver's authority in this case is derived from the order of the [page47 ] court. Beyond the limits of that order, residual authority to act for the corporations rests with the boards of directors.

[31] Whatever their residual authority may be, the boards continue to have an obligation to act in the best interest of the corporations. If, in their opinion, the appointment of a receiver is not in the best interest of the corporations or if they believe that the steps being taken by the receiver on behalf of the corporations are not in the corporations' best interest, then they are entitled to retain counsel to bring the matter to the attention of the court. It will be for the court to decide if the boards have acted responsibly and reasonably in doing so. Clearly, if the boards were to advance defences in the action then they have a right to retain counsel in order to do so. To the extent that the boards need to be paid out of the funds of the corporations, then they may decide to bring an application for an advance costs award. However, approval of the court is not a prerequisite to retain counsel.

[32] That said, the right to retain counsel by the board of a corporation in receivership is not unfettered. If, for example, a lawyer is retained for a purpose that has the effect of interfering with the receiver's legitimate duties as an officer of the court or his or her duties as the manager of the ongoing operation of the corporate enterprise, then I would agree with the motion judge that such a retainer is not appropriate. One can think of other examples where the retainer would not be appropriate.

[33] In the case at bar, I can see no basis for denying the boards the right to retain counsel in respect of the receivership litigation. Indeed, this is particularly so when neither the City nor the receiver took any objection to the boards' retaining counsel and appearing on the various motions. It is also particularly so when the motion judge has made a finding, as he did on the March 14, 2008 motion, that he could not say that "it was frivolous and vexatious for the Board[s] to retain counsel to defend the action and to appear on the initial motion for the appointment of a receiver and on the 'extension motions'". He added that he found counsel's appearance on the motions to extend the time and deal with other issues of some assistance.

[34] I note that in addition to appearing on the motion for the appointment of the receiver, counsel retained by the boards of the corporations appeared on eight interlocutory motions (six of which were initiated by the City) and related cross-motions. It is also important to bear in mind that the defendants in these actions are the corporations. I have no difficulty in concluding that the boards had the right to retain counsel on behalf of the corporations in respect of the receivership litigation without [page48 ] seeking the consent of the receiver or the approval of the court. Absent the ability to retain counsel, the boards would be unable to advance a defence on issues that are put against them by the City. In a different fact scenario, this point was made by Anderson J. of the British Columbia Supreme Court in Toronto Dominion Bank, at p. 172 C.B.R.

(ii) Is the counsel retained by the boards of the corporations entitled to be paid out of the assets of the corporation for reasonable services rendered by counsel?

[35] There are no blank cheques. The court will decide whether a board is to be reimbursed for the legal expenses in taking a particular course of action. On exercising its discretion to make a costs award in favour of a board of a corporation in receivership, the court may, in addition to the factors under Rule 57 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, consider the following: (i) whether the position advanced by counsel for the board had any merit; (ii) whether the board was acting in the interest of the corporation; (iii) whether the position advanced by the board was properly advanced by the board rather than by the receiver; and (iv) whether the position advanced by the board detracted from the orderly administration of the receivership. The above is obviously a non-exhaustive list and, as always, each case will turn on its own particular facts.

[36] In respect of the boards' involvement in the receivership litigation, the motion judge was not able to say in the March 14, 2008 motion that the retaining of counsel was frivolous. Indeed, he said that counsel's appearance was of some assistance to him. Although, in his reasons on the re-argument of the motion, he said that the retaining of counsel "was not in the genuine interest of the Corporations", he did so on the basis of his interpretation of the provisions of the operating agreements with which I disagree.

[37] It is clear that the positions advanced by counsel for the boards were properly advanced by the boards rather than by the receiver. Counsel was taking positions adverse to the positions advanced by counsel for the receiver, particularly in respect of the receiver's appointment and in respect of the extension of the receivership. [page49 ]

[38] While there were suggestions by counsel for the City and for the receiver that the participation of counsel for the boards may have been disruptive to the receivership, there was, as was pointed out by the motion judge, no objection taken to counsel appearing for the boards in the receivership litigation.

[39] It is worth noting that our colleague Blair J.A., sitting in chambers, made an order permitting the boards of the corporations to retain counsel on behalf of the corporations for the purpose of this appeal and that reasonable legal fees and expenses of counsel are to be paid out of the corporations' assets after assessment. In coming to this conclusion, Blair J.A. said, at paras. 5 and 6 of his reasons of December 3, 2009 [(2009), 2009 CanLII 92134 (ON CA), 99 O.R. (3d) 573, [2009] O.J. No. 5594 (C.A.)]:

Here, the Board[s]' ability to pursue the important issues that are raised on the appeal would be hollow in the extreme if they are not in a position to retain and properly pay legal counsel. The appeal cannot be effectively prepared, presented and argued on behalf of the Corporations without the benefit of counsel.

Accordingly, I have no hesitation in directing and ordering that the appellants may be represented by counsel on the appeal and that the Boards are entitled on their behalf to retain counsel for purposes of the appeal.

Counsel for the City submitted that there were alternative sources of funding that should have been explored by the boards of the corporations in order to retain counsel. A reference was made to the National Aboriginal Housing Association and the Ontario Non-Profit Housing Association. There was no evidence before us as to whether funding from these associations fell within their organizational mandate in respect of the issues in this litigation. I am not persuaded that there was any obligation on the part of the boards of the corporations to pursue funding from outside organizations.

[40] In my view, the boards of the corporation are entitled to their costs on a partial indemnity scale for their participation in the receivership litigation. Such costs should be paid by the receiver out of the funds of the corporations.

[41] I take a different view of the claim for costs by the boards in respect of general corporate advice apparently related to services for strategic planning and/or corporate restructuring. Given the reality of the receivership, it seems to me that any legal work in respect of strategic planning should be done in conjunction with the receiver and with the approval of the court as long as the receivership is in place. I would not interfere with the motion judge's decision to deny these costs. Also, in respect of a claim for the approval of future legal expenses for strategic planning and/or corporate restructuring, I see no reasonable [page50 ] basis upon which that could or should be done without seeking the co-operation of the receiver and/or the approval of the court. If the boards have a specific strategic plan or project in mind for which they need corporate legal advice, then they should seek the co-operation of the receiver and/or take it to the court for its approval. On such an application to the court, counsel would have to persuade the court that the expenditure of legal fees for strategic planning or corporate restructuring by the boards was in the best interest of the corporations.

(iii) What is the quantum of costs that should be ordered in favour of the corporate boards of the appellant corporations?

[42] In respect of the costs award for the receivership litigation, I would restore the award of $32,130.64 made by the motion judge on the March 14, 2008 motion. The aforesaid figure is the figure that the motion judge thought was appropriate prior to changing his mind on the re-argument of the appeal. I am satisfied that the figure is fair and reasonable.

[43] I would also make an order granting the boards reimbursement for the costs of the corporations on the March 14, 2008 motion as originally argued. I note that the corporations were largely successful on that motion. There is no reason to deny them their costs. Counsel for the boards filed written costs submissions to the motion judge in which he claimed costs on a partial indemnity scale in the amount of $9,435 for fees and $626.68 for disbursements. On this appeal, he amended his request to $7,500. In my view, such an amount is fair and reasonable and I would make an award in the amount of $7,500, inclusive of disbursements and applicable taxes.

[44] In my view, the boards are also entitled to be reimbursed for the costs of the corporations on the re-argument of the March 14, 2008 motion on a partial indemnity basis. If the parties cannot agree on quantum, then they may submit written submissions to us double-spaced and not to exceed five pages in addition to a bill of costs within 15 days of the release of this order.

Disposition

[45] For the above reasons, I would delete paras. 2 and 6 of the order of the motion judge dated June 17, 2009. Paragraph 2 provides that "any further involvement by legal counsel on behalf of the Boards of Directors of the Corporations during the Receivership will have to be authorized either by the Receiver or by the Court". In my view, the boards are not required to seek prior authorization to retain counsel in respect of this litigation. [page51 ] However, as indicated above, the retaining of counsel for other purposes such as strategic planning and corporate restructuring should be preceded by consultation with the receiver and/or the approval of the court. Paragraph 6 provides "that there shall be no costs for the motion heard on March 14, 2008". As I have indicated, it is my view that the boards are entitled to be reimbursed for their costs of the March 14, 2008 motion.

[46] For the above reasons, I would order that costs of counsel retained by the boards on behalf of the corporations be paid out of the funds of the corporations by the receiver as follows: (i) $32,130.64 as provided in para. 42 herein; and (ii) $7,500 as provided in para. 43 herein. In the event that there are not sufficient funds available to the corporations, then I would order that the City should be responsible for the above costs.

Costs of the Appeal

[47] I would grant the appellants their costs of the appeal in accordance with the order of Blair J.A. dated December 3, 2009.

Appeal allowed in part.