Court of Appeal for Ontario

Citation: J.M.J. Family Trust v. Simcoe Block (1979) Limited, 2020 ONCA 741

Date: 2020-11-23

Docket: C68088

Before: van Rensburg, Hourigan and Brown JJ.A.

Between

J.M.J. Family Trust and Marna Gariepy Applicants (Respondents)

and

Simcoe Block (1979) Limited Respondent (Appellant)

Counsel: Marc Kestenberg and Kevin Schoenfeldt, for the appellant Danny Nunes, for the respondents

Heard: November 17, 2020, by videoconference

On appeal from the order of Justice Markus Koehnen of the Superior Court of Justice, dated January 27, 2020.

Reasons for Decision

[1] The issue on this appeal is whether the application judge made a palpable and overriding error in ordering the reimbursement of legal fees related to the enforcement of certain promissory notes.

[2] The facts may be briefly stated as follows. Three siblings, Marc, Gregory and Matt Gariepy, each lent $1 million to the appellant corporation, Simcoe Block (1979) Limited ("Simcoe"). Marc Gariepy advanced funds through the respondent J.M.J Family Trust, Gregory Gariepy advanced funds through his wife, the respondent Marna Gariepy, and Matt Gariepy advanced funds through his family trust. All three siblings were shareholders and directors of Simcoe. Matt Gariepy managed Simcoe.

[3] The parties that advanced the loans each received promissory notes for $1 million. A general security agreement (the "GSA") secured the promissory notes and, among other costs, reasonable legal fees that the noteholders incurred in collecting the promissory notes. Simcoe failed to pay the promissory notes when due. The lenders had previously executed an agreement that required them to discuss any collection steps before enforcing the promissory notes. Discussions ensued over several months regarding the collection of the promissory notes, as well as the global resolution of other litigation between the parties. No resolution was reached.

[4] In response to an application brought by the respondents for the appointment of a receiver, Simcoe repaid the promissory notes. The respondents sought an order for reimbursement of $118,242.11 in legal fees it had expended on collecting the promissory notes. Simcoe's position was that enforcement costs were owed by it, but only in the range of $10,000 to $15,000.

[5] The application judge rejected Simcoe's argument that most of the legal fees claimed were associated with the overall settlement of the siblings' disputes and, therefore, not recoverable as costs incurred in collecting the notes. In reaching that conclusion, he noted that Matt Gariepy or Simcoe proposed that a global resolution of all disputes occur before the promissory notes would be repaid. In his analysis, the application judge also noted that the creditors were effectively dragged into the discussion of a global resolution in their effort to collect on the promissory notes.

[6] Ultimately, the application judge ordered the reimbursement of legal fees in the amount of $78,039.79. He concluded that the legal fees claimed were expenses connected to the collection of the notes. However, he accepted Simcoe's argument that some of the legal fees were duplicative, as there was overlap in the descriptions of tasks in the docket entries. For this reason, he reduced the legal fees claimed by a third.

[7] Simcoe submits that the motion judge made palpable and overriding errors in finding that: (1) the settlement discussions were a necessary step in collecting the promissory notes; (2) all the commercial disputes arose out of the operation of Simcoe; (3) the respondents were dragged into a discussion of a global resolution; and (4) the GSA permitted the awarding of all sums incurred for legal fees rather than reasonable sums.

[8] We are not persuaded by any of these submissions.

[9] Regarding whether the settlement discussions were necessary to collect the promissory notes, the application judge concluded that enforcement efforts on the promissory notes were inextricably linked to the settlement discussions. There was ample support for that finding in the record, including correspondence from counsel for Matt Gariepy and/or Simcoe that linked the payment of the promissory notes to the overall settlement of the litigation. Similarly, the record supported the application judge's conclusion that Simcoe was a central player in the commercial disputes among the parties.

[10] Simcoe argues that the application judge erred in finding that the respondents were dragged into a discussion of the global resolution of the issues between the parties. On the contrary, it submits that the respondents were willing participants. We agree with the respondents' submission that this is a tortured interpretation of the application judge's reasons. Fairly read, it is clear that the application judge was not finding that the respondents were forced into the discussions against their will. Instead, he accurately observed that Simcoe used repayment of the amounts due under the promissory notes as leverage to secure a global resolution of all issues between the parties.

[11] Simcoe's final submission is that the application judge erred in awarding the respondents' legal fees on a full indemnity basis because this contravened the GSA, which limited the respondent's recovery to only reasonable legal costs. It argues that if the parties intended that the respondents would recover all of their legal costs, the GSA would have stated so explicitly. It relies on Boucher v. Public Accountants Council for the Province of Ontario, (2004), 2004 14579 (ON CA), 71 O.R. (3d) 291 (C.A.), for the proposition that the application judge was obliged to determine what a fair and reasonable amount was for costs.

[12] There is no merit to this submission. The GSA was a commercial document. It did not import litigation concepts of full, substantial or partial indemnity costs. It provided for recovery of "reasonable sums for expenses incurred" and did not tie the measure of "reasonableness" to the cost regime used for civil proceedings. The application judge carefully reviewed the costs claimed and reduced them by a third to an amount that he found was reasonable. This was what he was required to do under the GSA.

[13] The appeal is dismissed. Simcoe shall pay the respondents their costs of the appeal in the agreed upon all-inclusive sum of $10,000.

"K. van Rensburg J.A."

"C.W. Hourigan J.A."

"David Brown J.A."