SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-10-8970 CL
DATE: 20120530

RE: Zoran Cocov and Dita Cocov, Applicants

AND:
Dimitar Gorgiev and Lyric Century Apartments Inc., Respondents

BEFORE: L.A. Pattillo J.

COUNSEL:
John Gray , for the Applicants
Richard J. Worsfold , for the Respondents

HEARD: May 25, 2012

ENDORSEMENT

Introduction

[ 1 ] On May 3, 2011, Morrocco J. ordered, among other things, that the Respondent Dimitar Gorgiev (“Gorgiev”) purchase the Applicant Dita Cocov’s (“Cocov”) shares in the Respondent Lyric Century Apartments Inc. (the “Company”) at a fair market value to be determined by an independent evaluator and set by the court (the “Order”).

[ 2 ] The Respondents now move to set aside the Order and for various ancillary orders including that property located at 14 Mary Street in Hamilton (the “Property”) and owned by the Company be sold and that subsequently the Company be wound up.

[ 3 ] The Respondents rely on rule 59.06(2)(a) and (d). They submit that because of facts arising after the Order was made as well as the delay occasioned in the litigation to date, the Order should be set aside, the Property sold and the Company then wound up. The Applicants oppose the motion and submit that there are no facts arising after the Order which entitle the Order to be set aside. They further submit that fairness requires that the Order not be set aside.

Background

[ 4 ] Dita Cocov and Dimitar Gorgiev each own 50% of the shares of the Company. The Company’s assets consist of cash from a prior sale of property which is held in trust by a solicitor and the Property. As a result of not being able to agree on the proper direction for the Company, the Applicants commenced the Application in November 2010 to windup the Company. It was initially adjourned to permit completion of a pending sale of the Property. Unfortunately, the sale was not completed.

[ 5 ] The Application came back on before Morrocco J. in April 2011. The Applicants sought an order selling the Property and winding up the Company. Gorgiev opposed the Application and requested that he be allowed to buy Cocov’s shares in the Company because he wanted to develop the Property. Following submissions and based on the material filed, Morrocco J. found that there had been a complete breakdown in the relationship between the parties and concluded that the fairest way to resolve the dispute was to have Gorgiev purchase Cocov’s shares in the Company as he requested. Morrocco J. also established a valuation process. The decision was embodied in the Order.

[ 6 ] On September 14, 2011, following the filing by the parties of appraisals for the Property and valuations for the shares of the Company, Morrocco J. accepted the share valuation approach taken by Mr. Stephen Hacker, the valuator for the Applicants with the exception that he substituted a different value for the Property. Morrocco J. ordered the sale of Cocov’s shares based on the value he determined.

[ 7 ] The Applicants appealed Morrocco J.’s September 14, 2011 order to the Divisional Court. On January 13, 2012, the Divisional Court allowed the appeal and remitted the matter back to the Commercial List “to assign a judge to determine the value of the Mary Street property to be used in the recalculation of the tax-adjusted value of the shares using the methodology in the Hacker Report.”

[ 8 ] Rather than proceed with the determination of the value of the Property, the Respondents commenced this motion to set aside the Order and require the Property to be sold and the Company to be wound-up.

Discussion

[ 9 ] Rule 59.06(2) provides, in part, that a party who seeks to (a) have an order set aside or varied on the ground of fraud or of facts arising or discovered after it was made and (d) obtain other relief than that originally awarded, may make a motion in the proceeding for the relief claimed.

[ 10 ] In order to set aside or vary an order under Rule 59.06(2), the moving party must establish that there are facts which have arisen after the order was made and which could not have been discovered prior to the order by the reasonable diligence of the moving party. Further, the facts must be credible and material to the order made. See: Abed Ali Dawi v. James Donald Armstrong , [1992] O.J. No. 2525 (OCJ – Gen Div.); Millard v. North George Capital Management Ltd ., [1999] O.J. No. 3957 (SCJ – Commercial List) at para. 4.

[ 11 ] The Respondents submit that the deterioration in Gorgiev’s health and the decline in interest from developers towards the Property since the Order are facts arising after the Order which enable the court to set it aside pursuant to Rule 59.06(2)(a). The Respondents further submit, relying on Rule 59.06(2)(d), because of the delay which has been occasioned in the litigation to date, the Order should be set aside and the sale of the Property ordered to achieve the most expeditious way of disposing of the litigation between the parties.

[ 12 ] In my view, the facts relied upon by the Respondents as arising after the Order are not “new” facts. They are facts which were or clearly should have been within the contemplation of the Respondents at the time of the Order. The position taken by the Respondents on the Application and subsequently embodied in the Order entailed certain risks for the Respondents. The fact that some of those risks have now come to fruition in a negative way for the Respondents is no basis for setting aside the Order.

[ 13 ] Gorgiev’s health is not a new issue that has only arisen subsequent to the Order. He had open heart surgery in 2003 to replace a valve and has had heart issues ever since. He is on several medications for his condition. Some and perhaps all of the medications pre-date the Application. When he took the position in April 2011 that he wanted to develop the Property he knew that he had significant health issues and that it was possible in the future his health could further deteriorate affecting his ability to conduct his business affairs.

[ 14 ] Similarly, the fact that the market for development of the Property might not now exist is not a “new” fact either. It too was something that was or clearly should have been within the contemplation of the Respondents at the time of the Order. The initial interest in the development of the Property came from a discussion Gorgiev had with an official at the City of Hamilton concerning interest from third party developers. In his affidavit in support of this motion Gorgiev says that he “believes” that the interest has disappeared without indicating any basis for the belief. Apart from the lack of an evidentiary basis establishing that the development market for the Property has disappeared, in my view such likelihood was clearly a risk that the Respondents were aware could happen at the time of the Order.

[ 15 ] Accordingly, the Respondents have failed to establish facts arising after the Order which would permit the Order being set aside under Rule 59.06(2) (a).

[ 16 ] As noted, the Respondents also rely on Rule 59.06(2) (d). They submit that the litigation has taken too long and that it will be much quicker and fairer to set aside the Order and require the sale of the Property. That will bring an end to the litigation. Once the Property is sold, all that will remain is splitting the Company’s cash on a 50/50 basis.

[ 17 ] While I understand the Respondents concern over the delay that has occurred in finally resolving the issues between the parties, I do not consider that the time period has been that long. Morrocco J.’s order establishing the sale price for the shares was on September 14, 2011. The Applicants’ appeal was completed by January 13, 2012. The delay in finalizing the matter since then has been primarily because of the Respondents motion to set the Order aside.

[ 18 ] Nor do I think requiring the sale of the Property will expedite a final resolution of the issues between the parties. The Property will have to be listed. The parties were unable to agree on the value of the Property or a valuator for the shares so it is unlikely they will agree on a sales agent, a listing price or any offer to purchase. Even assuming they can agree on all the necessary steps, the evidence indicates that it will likely take a year and a half to two years to sell the Property. Once the sale occurs, it is apparent from Gorgiev’s supplementary affidavit that he wants an accounting of the respective shareholder interests and he does not agree with the Company’s accounting records as prepared by the Company’s accountant. In other words, the litigation will necessarily continue for some time.

[ 19 ] On the other hand, the hearing ordered by the Divisional Court can take place in short order. Once the value of the shares is finalized, Gorgiev can purchase Cocov’s shares and the dispute between them concerning the Company and the Property will come to an end. Gorgiev will own the Company and he can do what he wants with the Property.

[ 20 ] I also have a concern with respect to the relief requested by the Respondents given that since the Order, the court has issued a further order of September 14, 2011 which effectively superseded it. That order, as varied by the Divisional Court, remains in place. As a result, I am further of the view that the relief requested by the Respondents cannot be granted.

[ 21 ] Accordingly, the Respondents have failed to establish that the Order should be set aside or varied as requested based on Rule 59.06(2)(d).

Conclusion

[ 22 ] For the above reasons, therefore, the Respondents motion is dismissed. The parties are ordered to contact the Commercial List office to arrange a 9:30 appointment within one week from this decision to schedule the hearing for the determination of value of the Property ordered by the Divisional Court.

[ 23 ] The Applicants having been successful on the motion are entitled to their costs on a partial indemnity basis. I have reviewed the Costs Outlines submitted. In my view Mr. Gray’s partial indemnity rate of $275 is reasonable. As Mr. Gray is new on the brief, some of his initial time was likely spent getting up to speed on the issues. The Respondents should not have to pay for those costs. I assess the Applicants’ costs at $7,500 inclusive of disbursements and taxes. That amount is both fair and reasonable in my view having regard to the issues. Further, and based on the Respondents’ Cost Outline, it is also an amount the Respondents could reasonably have expected to pay. Payable forthwith.

L. A. Pattillo J.

Released: May 30, 2012