SUPERIOR COURT OF JUSTICE - ONTARIO

Court File No.: CV-10-414955
Date: 20120109

RE: Cobalt Engineering (Ontario) Limited Partnership et al. v. GENIVAR Inc. et al.

Before: Master Glustein

Counsel:
Allyson M. Fischer for the plaintiffs

Jeffrey Goodman and Chris Pigott for the defendant GENIVAR Inc.

Barry Kuretzky and Monty Verlint for the defendant Andre Kaptein

Costs Endorsement

Background to the costs endorsement

[1] By consent order dated November 17, 2011 (the “Consent Order”), the plaintiffs Cobalt Engineering (Ontario) Limited Partnership, Cobalt Engineering LLP, and Cobalt Engineering & Consulting Inc. (collectively, “Cobalt”) agreed to pay into court by no later than December 15, 2011 (i) the sum of $150,000 as security for the costs of the defendant GENIVAR Inc. (“GENIVAR”) up to the end of discoveries and (ii) the sum of $100,000 as security for the costs of the defendant Andre Kaptein (“Kaptein”) up to the end of discoveries.

[2] Pursuant to the Consent Order, “any one of the parties may bring a motion to increase or decrease the amount of security for costs at any time after the end of examinations for discovery”.

[3] This costs endorsement arises out of the Consent Order, as the parties agreed in the Consent Order that they would submit written submissions to the court regarding the costs of the security for costs motion that was scheduled to be heard on November 21, 2011 but was settled pursuant to the Consent Order.

[4] I reviewed the extensive written costs submissions delivered by the parties. I find that it is appropriate to order costs in favour of GENIVAR and Kaptein (the “moving parties”) for the reasons set out below.

Analysis

[5] Cobalt submits that the motion was not necessary because (i) Cobalt sought to avoid the motion prior to the scheduling of the motion; (ii) after the moving parties scheduled the motion, Cobalt provided an explanation of its current financial situation and offered an undertaking from the nine “individual partners” of Cobalt “to satisfy a cost award of $800,000”; (iii) Cobalt accepted a purported offer to settle from each of the moving parties through which “Cobalt’s partners agree to provide a promissory note”; and (iv) the conduct of the moving parties disentitle them to costs.

[6] For the reasons discussed below, I do not agree with Cobalt’s position. I find that the motion was necessary and as such the moving parties are entitled to costs on a partial indemnity scale. I first address Cobalt’s submissions and then address the basis on which I order costs.

I. Cobalt’s costs submissions

A. Cobalt did not initially seek to avoid the motion prior to the scheduling of the motion

[7] On August 31, 2011, one week after I released my reasons granting security for costs in favour of the defendants Abbarch Architecture Inc. and Abbarch Architecture (Ontario) Inc. (collectively, “Abbarch”), each of the moving parties wrote to Cobalt and asked that Cobalt post security for costs in their favour. Through follow-up letters on September 7 and 8, 2011 from GENIVAR and Kaptein respectively, the moving parties again sought Cobalt’s position on the proposed motion for security for costs.

[8] Cobalt responded by letter dated September 8, 2011 that it would “not be posting security for costs for Genivar and Mr. Kaptein” and that “Genivar and Mr. Kaptein are obviously free to bring their own motion for security for costs”. This cannot be seen as an attempt by Cobalt to avoid the scheduling of the motion.

[9] Subject to the purported “heads up” discussion at the September 21, 2011 examination for discovery of Mr. Grotzky discussed below, Cobalt did not respond until October 7, 2011 (after the motion was booked as discussed below) to GENIVAR’s September 9, 2011 letter asking for an explanation of Cobalt’s position including an explanation of whether Cobalt’s “circumstances have changed since the date of Master Glustein’s decision”. Such conduct again does not demonstrate an attempt by Cobalt to avoid the scheduling of the motion.

[10] Cobalt relies on a purported September 21, 2011 “heads up” conversation between counsel at Mr. Grotzky’s examination for discovery to submit that the moving parties could have avoided scheduling the motion since Cobalt advised the moving parties at that examination for discovery that “Cobalt was involved in a major corporate change that Cobalt believed would alleviate the Defendants’ concerns and render the motion unnecessary”.

[11] However, as counsel for Cobalt acknowledged in their written costs submissions, Cobalt’s counsel “explained that Cobalt was not at liberty to discuss these corporate changes”. Further, even the general statement relied upon by Cobalt that “Cobalt was involved in a major corporate change that Cobalt believed would alleviate the Defendants’ concerns and render the motion unnecessary” does not provide any detail sufficient to cause a potential moving party to avoid scheduling the motion.

[12] Consequently, I accept the uncontested evidence of GENIVAR that Cobalt’s counsel did not provide a “heads up” but rather made a general statement that “change was in the air” without any details which would justify not bringing the motion. The evidence does not establish a “heads up” conversation which would cause the moving parties not to schedule the motion.

[13] I find that it was reasonable for the moving parties to schedule the motion, after repeated attempts to obtain a further explanation as to why Cobalt was opposing the security for costs motion.

[14] The security for costs motion was scheduled on October 4, 2011, after Cobalt failed to respond to GENIVAR’s September 21, 2011 letter and GENIVAR’s September 22, 2011 email requesting available dates for the motion.

[15] For the above reasons, I do not find that Cobalt sought to avoid the motion prior to the scheduling of the motion. To the contrary, it was the moving parties who sought the information necessary to avoid scheduling the motion, but Cobalt did not provide explanations which would have justified such avoidance by the moving parties.

B. After the motion was scheduled, Cobalt’s explanation of its current financial situation and offer of an undertaking from the nine “individual partners” of Cobalt “to satisfy a costs award of $800,000” is not a basis to order no costs of the motion

[16] Cobalt seeks to rely on its letter dated October 7, 2011, in which it advised GENIVAR and Kaptein that (i) “Cobalt has just been partially purchased by another engineering firm”; (ii) “this buy out will put considerable money in the hands of individual partners”; (iii) “as a result of this merger, the nine Cobalt partners will now collectively receive their first payment of over $5 million, which amount has now been forwarded to Cobalt’s solicitors”; (iv) “one of these partners currently resides in Ontario”; and (v) “in light of this, the nine partners collectively have sufficient assets to satisfy a cost award of $800,000 and give their undertaking to do so”.

[17] In the letter, Cobalt further advised that “each of these partners are prepared to provide Genivar and Kaptein with evidence to substantiate this”.

[18] Cobalt submits that the moving parties ought to have accepted the undertaking and as such the motion could have been avoided.

[19] Cobalt relies on case law in which undertakings from principals of a corporation were sufficient to satisfy the court that the corporate entity did not have to post security for costs.

[20] However, it is not the role of the court on a costs hearing arising from a consent order on the substantive relief sought to determine which of the parties would have been correct in law had the substantive motion been argued. Master MacLeod addressed this issue in Les Terraces Amélie v. J. Stuart Hall and Associates Ltd. , [2009] O.J. No. 5341 (S.C.J. – Mast.) (“ Hall ”), at paras. 48 and 49 :

It would be highly unsatisfactory if to determine that issue, the court had to actually determine the motion that might have been argued but was not. It would of course have been open to the moving party to advise the court and the other parties that the motion was not resolved and was to be argued because the parties had not reached agreement. That is not what was done. As noted above, the confirmation sheet indicated that the motion was to proceed solely as a "hearing respecting the award of costs".

… I am therefore not prepared to rule on whether or not there was in fact a disqualifying conflict of interest and whether the court would have removed counsel from the record. I will rule only on whether the conflict was so self evident that no reasonable lawyer and no reasonable client properly advised would have persisted with the plan to be represented by one counsel. To put this another way I propose only to determine whether or not there was a genuine prospect that the motion could have been successfully resisted. It remains the position of the responding parties and their former and current counsel that there was no disqualifying conflict of interest at all. [underlining in original text]

[21] I agree with the approach of Master MacLeod in Hall . In the present case, it is not “self-evident” that the moving parties would have been required to accept the personal undertakings offered, if that issue had been argued before the court.

[22] First, even on the cases relied upon by Cobalt, there are two lines of authority on the issue of whether a personal undertaking of a corporate principal is sufficient for the corporate plaintiff to avoid posting security for costs (see Printing Circles Inc. v. Compass Group Canada Ltd. (2007), 2007 57095 (ON SC) , 88 O.R. (3d) 685 (S.C.J.) at paras. 3 and 23-26 ) .

[23] Second, the moving parties distinguish the cases relied upon by Cobalt on the basis that those cases involve small amounts for security for costs in which it could be found that it would not be just to require the corporation to post security for costs.

[24] Third, Cobalt did not provide any details of the transaction itself on which the undertaking was based until November 15, 2011, after several requests to do so. It is arguable that there may have been terms or conditions of the transaction that might have placed in jeopardy any recovery on an undertaking to pay costs.

[25] If Cobalt had wanted to argue the motion on the basis that the personal undertakings of the individual partners were sufficient to avoid Cobalt posting security for costs, it could have done so, and the court would have considered all of the evidence and the case law. However, having chosen to settle the motion, I apply the test in Hall and find that Cobalt’s position as to the sufficiency of the undertakings is not so “self-evident” that the moving parties ought not to have brought their motion.

C. Cobalt’s alleged acceptance of the moving parties’ purported offers to settle is not a basis to order no costs of the motion

[26] Cobalt further submits that even if it was reasonable for the moving parties to refuse to accept Cobalt’s “undertaking” offer, it was not reasonable for the moving parties to deliver their motion record after Cobalt purported to accept the moving parties’ alleged offers to resolve the scheduled security for costs motion through delivery of promissory notes from Cobalt’s partners.

[27] The moving parties’ alleged offers were contained in their letters of October 12, 2011 stating that (citing from the GENIVAR letter): “GENIVAR is, however, prepared to withdraw its motion for security for costs if the individual Cobalt partners immediately provide it with a promissory note in the amount of $150,000 to cover the period up until the end of examinations for discoveries”; and “thereafter, we will expect the partners to provide additional promissory notes on a pay-as-you-go basis mirroring the schedule that would apply if your client were to post security for costs in the normal course”. In the letter, GENIVAR asked Cobalt to “please confirm that the Cobalt partners are willing to provide GENIVAR with a promissory note in the amount of $150,000 immediately, and are willing to providing [sic] further promissory notes on a pay-as-you-go basis”.

[28] Kaptein made a similar proposal by letter on the same date.

[29] Cobalt purported to accept these alleged offers by a letter dated October 25, 2011, in which Cobalt advised that “Cobalt accepts Genivar’s offer to resolve its motion for security for costs by providing a promissory note in accordance with the terms of Genivar’s letter dated October 12, 2011 letter [sic]”, and that “this letter also confirms that Cobalt accepts Mr. Kaptein’s offer to settle his motion for security for costs on the same terms, namely Cobalt’s partners have agreed to provide a promissory note”.

[30] Again, I adopt the approach of Master MacLeod in Hall . It is not the role of the court on a costs endorsement to determine a substantive issue that would have arisen on the motion, i.e. whether an offer to settle was accepted. Provided that it was not “self-evident” that there was a concluded offer, it was reasonable for the moving parties to proceed with their motion.

[31] In the present case, there was a reasonable basis for the moving parties to take the position that there was no settlement reached. First, the moving parties submit that the alleged “offer” was instead a proposal to discuss possible acceptable terms of a promissory note to avoid the motion, not an offer to settle capable of being accepted which contained all of the substantive terms. Such a position is reasonable given the uncontroverted evidence that in voice mails and in written communications after the October 12, 2011 letters, Cobalt sought clarification of the terms applicable to the promissory note. In a letter dated October 20, 2011, Cobalt’s counsel stated:

“In respect of Genivar and Kaptein’s motion for security for costs, Cobalt is open to exploring a resolution which addresses Kaptein and Genivar’s concerns including the suggestion of providing a promissory note. Please confirm, in writing, your proposal in respect of Cobalt providing promissory notes.”

[32] Second, the moving parties submit that Cobalt’s “acceptance” was not an acceptance of an offer to settle since the “acceptance” did not result in any agreement on the substantive terms of the promissory notes, which would have included the form and any guarantees which could have been attached to the notes. While Cobalt takes the position that these are an “ancillary issue” and as such an agreement was reached, it is not “self-evident” that the moving parties take an unreasonable position that the terms of the promissory note are a “substantive” issue and as such no settlement was reached.

[33] The reasonableness of the moving parties’ position that no settlement was reached is supported by the detailed November 1, 2011 written proposals of both moving parties regarding the terms of the promissory notes.

[34] I note that Cobalt failed to respond to the November 1, 2011 proposals until November 10, 2011, two days after the court-ordered deadline for the moving parties to deliver their motion record. Even in that November 10, 2011 letter, Cobalt switched from a “promissory note” position to a more direct position in which it stated that it would “post” security for costs into court.

[35] Finally, even after the moving parties requested clarification of the terms under which Cobalt would “post” security (by letters dated November 11 and 14, 2011 from GENIVAR and Kaptein respectively), Cobalt prepared a responding motion record which it delivered on November 14, 2011, and did not engage in discussions as to the form of posting security for costs until after a follow-up letter from GENIVAR on November 15, 2011, with email correspondence between counsel on November 15-17, 2011 to reach the terms of the Consent Order, days prior to the scheduled hearing of the motion.

[36] In light of the moving parties’ reasonable position that there was no settlement, and the failure by Cobalt to timely respond to the moving parties’ written proposals to address the “promissory note” issue, the moving parties had little choice but to deliver their motion material on November 8, 2011 in compliance with the court-ordered timetable.

[37] Had Cobalt sought to bring a cross-motion to enforce the purported settlement, or even if the issue had otherwise been argued on the merits, the parties could have raised all of the evidentiary and legal issues necessary to make that determination. Having agreed to settle the motion by posting security for costs (and not providing a promissory note), the appropriate test is whether it is self-evident that the moving parties took an unreasonable position that no settlement was reached. For the reasons discussed above, I find that it is not self-evident that the moving parties took an unreasonable position that no settlement was reached.

[38] Consequently, for the above reasons, Cobalt’s alleged acceptance of the moving parties’ purported offers to settle is not a basis to order no costs of the motion.

D. The conduct of the moving parties does not disentitle them to costs

[39] Cobalt’s submissions as to the alleged improper conduct of the moving parties are based on Cobalt’s submissions that (i) “The Defendants refused to engage in any meaningful discussions about whether the purchase of Cobalt resolved their concerns and rendered the motion unnecessary”; and (ii) “They then refused to accept Cobalt’s reasonable offer of an undertaking and later refused to complete the agreement reached”.

[40] I addressed the same issues above with respect to the same arguments made by Cobalt. I found that the moving parties did engage in meaningful discussions on the “undertaking” issue by requesting details of the transaction. I found that Cobalt took a reasonable position that the “undertaking” offer was not sufficient. I further found that there was a reasonable argument that no settlement agreement was reached, and the moving parties took reasonable steps to put forward a written proposal to which Cobalt did not reply until after the court-ordered deadline for the moving parties to deliver their motion records.

[41] Consequently, I find that the conduct of the moving parties does not disentitle them to costs.

II. The basis on which I order costs

[42] As I discuss above, I find that the moving parties acted reasonably throughout the process leading to the motion. At all times, they sought to avoid the motion, whether through (i) attempting in late August 2011 to obtain Cobalt’s consent to post security for costs (which was ultimately what Cobalt agreed to provide as security for costs two and a half months after the moving parties’ initial requests), (ii) responding to the “undertakings” proposal of Cobalt promptly and taking a reasonable position, (iii) offering to accept a promissory note and taking a reasonable and prompt position that no settlement was reached because they had not yet provided a written proposal with acceptable terms, and (iv) seeking to avoid preparing motion materials even at the last minute before delivery by offering a written proposal of acceptable terms for the promissory note that Cobalt did not address until after the deadline for serving motion records.

[43] In light of the above, I find that since the moving parties obtained substantially the relief sought in their notice of motion as a result of the Consent Order (albeit the remaining installments after examinations for discovery will have to be agreed upon by the parties or addressed by the court), the moving parties are entitled to their reasonable costs of bringing the motion.

[44] I find that the partial indemnity costs sought by Kaptein of $7,647.28 are reasonable given the importance of the motion to the parties and the volume of material filed for the motions. Consequently, I order Cobalt to pay costs of $7,647.28 (inclusive of taxes) to Kaptein within 30 days of this order.

[45] I agree with Cobalt’s submission that the partial indemnity costs sought by GENIVAR of $21,033.26 are more than an unsuccessful party would reasonably expect to pay for a motion of this nature. I note that Cobalt’s costs are approximately $6,500 and Kaptein’s costs are only slightly more. I further note that Abbarch’s partial indemnity costs on the contested motion before me in August 2011 were $23,797.18, a motion which involved “lengthy material and cross-examinations, and the detailed factums and briefs of authorities provided to the court” (as I found at paragraph 39 of those reasons). Partial indemnity costs for GENIVAR ought to reflect the significantly less preparation time which would have been required for the present motion.

[46] Consequently, I fix costs of GENIVAR at $10,000 (inclusive of taxes) to be paid by Cobalt to GENIVAR within 30 days of this order.

Master Benjamin Glustein

DATE: January 9, 2012