COURT OF APPEAL FOR ONTARIO
CITATION: Conforti (Re), 2015 ONCA 708
DATE: 20151022
DOCKET: C57476
Laskin, Blair and Pepall JJ.A.
In the Matter of the Bankruptcy of Vincenzo Francesco Conforti
Robert A. Klotz, for the appellant, Vincenzo Francesco Conforti
Howard F. Manis and Debora Miller-Lichtenstein, for the respondent Trustee in Bankruptcy, Pat Robinson Inc.
On appeal from the order of Justice James M. Spence of the Superior Court of Justice, dated May 3, 2012, with reasons reported at 2012 ONSC 2656, and the supplemental order dated March 6, 2013.
COSTS ENDORSEMENT
Pepall J.A.:
[1] The appellant seeks an order of costs on a full indemnity scale. He asks this court to award $20,345 for the costs of his appeal, $18,655 for the costs of the motion in issue in the appeal, and $27,235 for the costs of a related motion. For the reasons that follow, I would award $5,000 for the costs of the proceedings under appeal and $10,000 for the costs of the appeal, both on a partial indemnity scale.
[2] A brief chronology of material events assists in understanding the proceedings.
[3] In September 2009, the appellant filed an assignment in bankruptcy. He did not disclose or advise the Trustee of a personal injury action he had commenced in 2007 or of a claim he had made in 2008 for additional statutory accident benefits, both of which arose from a serious motor vehicle accident. He subsequently settled the action and the claim for $275,000 and $21,000, respectively.
[4] When the appellant applied for a discharge from bankruptcy, it was opposed by both the Trustee and the appellant’s principal creditor, Central Mortgage and Housing Corporation. At the same time, the Trustee sought directions from the court on the issues of property and income inclusions so as to ascertain amounts, if any, payable to the bankrupt’s estate.
[5] The Trustee’s motion for directions proceeded in two stages.
[6] In an endorsement released in 2012, Wilton-Siegel J. determined that the settlement payment allocation of $100,000 for future loss of competitive advantage was not property under s. 67 of the Bankruptcy and Insolvency Act, but rather income under s. 68. The parties were given 30 days to provide written submissions on costs. Neither did and no costs order was ever made. Neither party appealed the order of Wilton-Siegel J.
[7] The Trustee then sought directions on proposed inclusions in the appellant’s income calculations and whether conditions should be imposed on his proposed bankruptcy discharge.
[8] Spence J. heard the second motion. He made numerous determinations, only some of which were appealed. In his reasons, he established a schedule for costs submissions.
[9] A flurry of correspondence between counsel for the appellant and counsel for the Trustee ensued. Spence J. granted leave to make further submissions in writing on the calculations reflected in the order he had granted. He subsequently concluded that counsel’s submissions did not show any mathematical errors and there was no reason to change the order. On the issue of costs, he observed that this was a case of mixed success. Unless a Rule 49 offer had been made, there was no reason for submissions on costs.
[10] Based on the record before this court, it would appear that Spence J. was not advised of any Rule 49 offer and no costs order was made.
[11] The appellant’s appeal from portions of Spence J.’s order was allowed in part. The order was varied the order to remove the requirement to pay surplus income and by reducing the payment of $42,986.28 payable by the appellant to $15,000.
Parties’ Positions
[12] As mentioned, the appellant claims full indemnity costs for three proceedings. In support, he argues that:
His position that the $100,000 damages allocation for future loss of competitive advantage constituted income was vindicated by Wilton-Siegel J. Even through the Trustee had not appealed Wilton-Siegel J.’s order, the Trustee maintained his position before Spence J.
His position that no surplus income was owed was vindicated on appeal.
The Trustee persisted in maintaining that the appellant was a malingerer and not disabled, notwithstanding the findings to the contrary of both Wilton-Siegel and Spence JJ.
The Trustee sought 100 per cent of the appellant’s damages allocation for loss of future income and pain and suffering, which would have resulted in the appellant receiving nothing from his tort recovery.
The appellant conceded the fact and quantum of the $15,000 penalty.
The appellant made numerous settlement offers, all of which benefited the Trustee more than the outcome of either the motion or the appeal.
Pending Wilton-Siegel J.’s decision, the Trustee refused to consent to the release of some funds for Christmas.
The Trustee received less than what the appellant had conceded at the inception of the dispute.
Without at least an award of partial indemnity costs, the appellant will lose almost all of his compensation for future lost income and pain and suffering.
An element of misconduct increased the costs and rancour of the proceeding. Mr. Manis, counsel for the Trustee, had advised Mr. Klotz, counsel for the appellant, that he intended to correspond with the application judge but did not copy the appellant’s counsel in advance, nor did he advise the application judge that Mr. Klotz would be responding. Shortly thereafter, Mr. Klotz received a copy of the judgment, not having had an opportunity to respond to Mr. Manis’ letter.
The appeal involved $179,000, was important and complex, incorporated a Charter challenge, clarified several issues of national importance in personal bankruptcy law, and the proceedings consumed 101.9 billable hours.
[13] Furthermore, the appellant asks that if the costs order exceeds $15,000, such costs should be made payable by the Trustee personally as there is nothing in the estate to pay such costs and no party should litigate with impunity.
[14] The Trustee resists the appellant’s request. It submits that if costs are awarded, they should be on a partial indemnity scale and limited to the appeal. In support, it submits that:
The appellant is not entitled to recover costs of previous court appearances. The motion before Wilton-Siegel J. was separate and distinct and no costs were requested or awarded and the order was not appealed.
The appeal stems from a discharge hearing where the Trustee opposed the discharge for valid reasons. The appellant had been deceitful. It is a general principle that costs are not awarded at a discharge hearing as parties, especially the Trustee, must be encouraged to administer the estate for the benefit of creditors. A costs award for the discharge hearing would serve to discourage trustees from opposing discharges in spite of the existence of valid grounds to do so.
No costs award was made by Spence J.
Substantial indemnity costs should only be awarded in rare and exceptional circumstances. They are warranted only where there is a Rule 49 offer or where a party has engaged in behaviour worthy of sanction.
Moreover, no Rule 49 offers were exchanged prior to the discharge hearing or the appeal. In spite of Spence J.’s invitation, Mr. Klotz did not take the position before him that there was a Rule 49 offer. In any event, a defendant is not entitled to substantial indemnity costs based on Rule 49.
The costs claimed by the appellant are excessive, exaggerated and unreasonable.
The Trustee should not be required to pay a bankrupt’s costs personally, especially given the bankrupt’s reprehensible behaviour.
Both parties should bear their own costs. If costs are awarded, a reasonable amount for the appeal is $5,500, inclusive of disbursements and HST.
Analysis
(a) Scale of Costs
[15] Neither Rule 49.10 nor the conduct of the Trustee justifies an award of costs on a full or substantial indemnity scale.
[16] The appellant’s offer addressed “the matters currently pending and returnable” before Wilton-Siegel J. and was stated to expire upon the commencement of the hearing. Ambiguously, it also stated that if the offer was accepted after the commencement of the hearing, the settlement amount was to be reduced by the appellant’s partial indemnity costs.
[17] Additionally, the offer did not address all of the issues before Spence J. Furthermore, the Trustee was requesting directions of the court. Given the state of the law, it was fair and reasonable for it to do so. Additionally, for purposes of those directions, the appellant stood in the shoes of a defendant under Rule 49.10. A defendant is not entitled to a substantial indemnity award under Rule 49.10 where it makes an offer to settle that is greater than the amount awarded: St. Elizabeth Home Society v. Hamilton (City), 2010 ONCA 280, 319 D.L.R. (4th) 74, at para. 90. Accordingly, full or substantial indemnity costs are not merited based on Rule 49.10.
[18] An award of substantial or full indemnity costs may be based on conduct including circumstances where there has been “reprehensible, scandalous, or outrageous conduct on the part of one of the parties”: Young v. Young, 1993 34 (SCC), [1993] 4 S.C.R. 3, at p. 134. As stated by Robins J.A. in Mortimer v. Cameron (1994), 1994 10998 (ON CA), 17 O.R. (3rd) 1 (C.A.) at p. 23, such an award “is ordered only in rare and exceptional cases to mark the court’s disapproval of the conduct of the party in the litigation.”
[19] The conduct in this case does not rise to that level. Recall the context of the Trustee’s conduct – it was responding to circumstances where the appellant had misrepresented his assets and where the Trustee was justifiably wary of acting in the absence of court direction, particularly given the uncertain state of the law relating to personal injury settlements. While the Trustee’s skepticism surrounding the appellant’s disability was misplaced and his Christmas response may have been churlish, these factors alone or taken together with those enumerated by the appellant do not demand an award of full or substantial indemnity. Furthermore, there was delay caused by the appellant and Spence J. was aware of the conduct of both parties when he did not award costs absent a Rule 49.10 offer.
[20] For these reasons, I would decline to order full or substantial indemnity costs as requested by the appellant.
(b) Proceedings in Issue
[21] The costs of the motion before Wilton-Siegel J. are not properly before this court. He made no order for costs and his order was not appealed. In these circumstances, I would decline to impose a costs order for that proceeding.
[22] In contrast, Spence J.’s order was under appeal and the appeal was allowed in part.
[23] In considering the appellant’s request, I note that:
the appellant only appealed some aspects of the order, although he was successful on most of what he appealed.
Although he made mention of costs and the parties’ mixed success, Spence J. was not asked to make a further costs disposition.
The hearing before him addressed in part the discharge of the appellant from bankruptcy. In the face of the appellant’s admitted deceit, the Trustee cannot be faulted for opposing his discharge nor can his primary creditor, CMHC. Although available, generally costs are not awarded on discharge hearings. See: Frank Bennett, Bennett on Bankruptcy, 17th ed. (Markham, ON: LexisNexis Canada Inc., 2014) at p. 640; and Lloyd Houlden, Geoffrey Morawetz, & Janis Sarra, The 2015 Annotated Bankruptcy and Insolvency Act (Toronto: Carswell, 2015) at p. 992, and Vattese (Re) (2006), 2006 36966 (ON SC), 26 C.B.R. (5th) 124 (S.C.).
[24] That said, given the appellant’s significant success on appeal, he should be entitled to some costs of the motion before Spence J.
(c) Quantum
[25] The appellant requests partial indemnity costs before Spence J. of $12,915. Given the aforementioned reasons, I would grant $5,000 as a fair and reasonable award of costs.
[26] The appellant also seeks partial indemnity costs of $14,085 for the appeal. The appeal was allowed in part and for the most part. I would grant the appellant costs of the appeal fixed in the amount of $10,000 inclusive of disbursements and HST.
Released: “OCT 22 2015” “S.E. Pepall J.A.”
“JL” “I agree John Laskin J.A.”
“I agree R.A. Blair J.A.”