ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO. 10-CV-415821-CP
DATE: November 26, 2012

BETWEEN:

MICHAEL FRANK
Plaintiff

– and –

FARLIE, TURNER & CO., LLC, BAYSHORE PARTNERS, LLC, R. PATRICK CALDWELL, STEPHEN GIORDANELLA, LARRY MOELLER, NEIL E. SCHWARTZMAN, JASON A. WILLIAMS, BRIAN L. STAFFORD, HENRY H. SHELTON, FRANK E. JAUMOT, KEITH J. ENGEL, RICHARD P. TORYKIAN, SR., CHARLES E. PETERS, JR., AND DEON VAUGHAN
Defendants

Proceeding under the Class Proceedings Act, 1992

John Archibald for the Plaintiffs

David W. Kent and Richard McClusky for the Defendants Farlie, Turner & Co., LLC and Bayshore Partners, LLC
John J. Chapman and Adam J. Stephens for the Defendants R. Patrick Caldwell, Larry Moeller, Neil E. Schwartzman, Jason A. Williams, Brian L. Stafford, Henry H. Shelton, Frank E. Jaumot, Keith J. Engel, Richard P. Torykian, Sr., Charles E. Peters, Jr., and Deon Vaughan

HEARD: In writing

REASONS FOR DECISION - COSTS

PERELL, J.

[1] Michael Frank, Sheldon Zamick, and Norman Spurgeon bring a proposed class action under the Class Proceedings Act, 1992, S.O. 1992, c. C.6 on behalf of all persons who voluntarily or involuntarily disposed of shares of Protective Products of America, Inc. (“Protective Products”) between October 8, 2009 and January 13, 2010. Messrs. Frank, Zamick, and Spurgeon, were shareholders of Protective Products.

[2] The Plaintiffs’ action is against certain officers and directors of Protective Products, namely: R. Patrick Caldwell, Larry Moeller, Neil E. Schwartzman, Jason A. Williams, Brian L. Stafford, Henry H. Shelton, Frank E. Jaumot, Keith J. Engel, Richard P. Torykian, Sr., Charles E. Peters, Jr., and Deon Vaughan. The plaintiffs sue for breach of Part XXIII.1 of Ontario’s Securities Act, R.S.O. 1990 c. S.5.

[3] The directors and officers moved to strike the Plaintiffs’ punitive damages claim from the Fresh as Amended Statement of Claim. In their factum, they stated that the sole issue was whether there can be a claim for punitive damages in an action which is purely a statutory claim under Part XXIII.1 of the Securities Act, R.S.O. 1990 c. S.5.

[4] The directors and officers were successful on their motion and I struck the claim for punitive damages. My reasons are reported as Frank v. Farlie, Turner & Co., LLC, 2011 ONSC 5519.

[5] The directors and officers now seek partial indemnity costs in the amount of $43,643.20 (inclusive of disbursements ($1,927.20) and HST ($5,020.90).

[6] The directors and officers submit that the normal principles with respect to costs apply to their successful motion and that the costs award should not be impacted by s.31 (1) of the Class Proceedings Act, 1992, which states:

31 (1) In exercising its discretion with respect to costs under subsection 131 (1) of the Courts of Justice Act, the court may consider whether the class proceeding was a test case, raised a novel point of law or involved a matter of public interest.

[7] The Plaintiffs, however, submit that no costs should be awarded because the case raised a novel point of law and, therefore, falls within the reach of section of s. 31 (1) of the Act. They also submit that the case was a matter of public interest.

[8] The court has discretion to order no costs be paid when a case raises a novel issue of law, and I agree with the Plaintiffs that this case raised a novel point of law.

[9] For an issue to be novel in a legally significant way that would justify the court in ordering no costs against the party who unsuccessful advanced the issue, it is not enough that the issue is unprecedented or that the issue has not been decided before. The legally significant novelty of a legal issue is found in the circumstance that the existing case law is inadequate to resolve the issue and there would be no proper reason for the party advancing the issue to expect to fail: Baldwin v. Daubney, 2006 33317 (ON SC), [2006] O.J. No. 3919 (S.C.J.) at paras. 19-22; Fisher v. IG Investment Management Ltd., [2010] O.J. No. 2036 (S.C.J.).

[10] In the case at bar, the directors and officers had a strong argument that ultimately succeeded, but the argument was not so strong that the Plaintiffs ought to have conceded the point. It was reasonable for the Plaintiffs to resist the motion, and I think that it is reasonable and fair for them to submit that there should be no costs for this motion.

[11] In the circumstances of this case, it is not necessary for me to discuss whether s.31(1) of the Class Proceedings Act, 1992 influences my decision. I would have come to the same decision, if the Plaintiffs had sued only to advance individual claims.

[12] In the circumstances of this case, I exercise my discretion to make no order as to costs. I observe that had the Defendants been unsuccessful, I also would have no order as to costs.

Perell, J.

Released: November 26, 2012

COURT FILE NO. 10-CV-415821-CP
DATE: November 26, 2012

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

MICHAEL FRANK

Plaintiff

‑ and –

FARLIE, TURNER & CO., LLC, BAYSHORE PARTNERS, LLC, R. PATRICK CALDWELL, STEPHEN GIORDANELLA, LARRY MOELLER, NEIL E. SCHWARTZMAN, JASON A. WILLIAMS, BRIAN L. STAFFORD, HENRY H. SHELTON, FRANK E. JAUMOT, KEITH J. ENGEL, RICHARD P. TORYKIAN, SR., CHARLES E. PETERS, JR., AND DEON VAUGAN

Defendants

REASONS FOR DECISION - COSTS

Perell, J.

Released: November 26, 2012