SUPERIOR COURT OF JUSTICE - ONTARIO

BARRIE COURT FILE NO.: 08-0361
DATE: 20120207

IN THE MATTER OF: The Business Corporations Act, R.S.O. 1990, c.B.16, as amended;

IN THE MATTER OF: The Winding-up and Restructuring Act, R.S.C. 1985 c.W-11, as amended;

IN THE MATTER OF: Cookstown Greens Inc.

RE: David Cohlmeyer and Barbara Cohlmeyer, Applicants

AND:

Simon Ffrench, Caroline Ffrench, 1558801 Ontario Inc. and Cookstown Greens Inc., Respondents

BEFORE: THE HON. MR. JUSTICE G.M. MULLIGAN

COUNSEL:
P.J. Brett, Counsel for the Applicants

Respondents Self-represented

HEARD: January 12 and 13, 2012

COSTS ENDORSEMENT

[ 1 ] On November 1, 2011, the applicants and respondents concluded years of litigation by entering into Minutes of Settlement. The Minutes of Settlement concluded all issues save for a determination of costs. There was no agreement in the Minutes of Settlement as to which party would pay costs. Both the applicants and the respondents seek costs from the opposite party. By consent, the parties agreed to a costs hearing, which proceeded before me on January 12 and 13, 2012. In addition to costs submissions, both parties filed affidavits in support of their position. The parties waived their right to cross-examine on these affidavits. Because there was no adjudication of the matter, the applicant filed a Book of Extracts, exceeding 700 pages, detailing the history of the litigation, including the application, and the six interlocutory motions, accompanied by numerous affidavits and responding affidavits filed in connection with the interlocutory motions.

[ 2 ] The following history of litigation will provide some context for the discussion about costs. The applicants, David Cohlmeyer and Barbara Cohlmeyer (“Cohlmeyers”) started a business growing and marketing produce under the name Cookstown Greens. The business was incorporated in November 2002 as Cookstown Greens Inc. In April of 2003, Simon Ffrench became an investor and shareholder in the business. Mr. Cohlmeyer described the relationship as more like a partnership between them than a corporate arrangement. By 2007, unhappy differences developed between the parties. Lawyers became involved and before any litigation was commenced, Cohlmeyer offered to sell his shares to Ffrench for $600,000. On January 2, 2008, through his counsel, Mr. Ffrench offered to purchase the Cohlmeyers’ shares for $300,000 plus “a package of incentives of up to an additional $100,000”. The letter was written without prejudice and requested a response by January 9, 2008. Matters were not resolved and in April of 2008, the applicants brought this application and accompanying motions pursuant to the provisions of the Business Corporations Act, R.S.O. 1990, c.B.16, and pursuant to the Winding-up and Restructuring Act, R.S.C. 1985 c.W-11. Once litigation commenced, the previously referred to offers were not crystallized into a Rule 49 offer by either side.

SEPARATE CLAIMS

[ 3 ] In addition to the application, the applicants, David Cohlmeyer and Barbara Cohlmeyer, each brought separate claims against the respondents. Those claims were also settled as part of the Minutes of Settlement. In his claim, David Cohlmeyer sought a declaration amending the agreement between the parties as unconscionable as a result of undue influence, together with special damages of $200,000 and other related relief. Barbara Cohlmeyer sought a similar declaration, together with a claim that she was entitled to retain ownership of her shares, special damages of $100,000 and related relief. A Statement of Defence was filed with respect to these two claims and the plaintiffs then served and filed Replies. No further action was taken with respect to these two claims; discoveries were not conducted. The applicants concede that the respondents are entitled to their costs with respect to these claims commenced but not pursued. The applicants further concede that the respondents are entitled to costs on a partial indemnity basis with respect to these two claims. I am satisfied that an award of costs of $4,000 to the respondents, all inclusive, is fair and reasonable under the circumstances.

INTERLOCUTORY MOTIONS

[ 4 ] Throughout the proceedings that followed, there were six motions commenced by the parties. The first two motions were argued motions which resulted in judicial determinations. The third motion was resolved on consent with the assistance of the court. The first three motions were commenced by the applicant. The respondent commenced motion number 4. The applicant responded with detailed affidavits. Ultimately, the motion did not proceed and was adjourned sine die . The respondent brought motion number 5. The applicant once again responded with detailed responding affidavit material. The motion did not proceed and was adjourned sine die. The sixth motion proceeded before me on November 1, 2011. However, the parties took the initiative that day to have detailed lengthy discussions, and as a result, Minutes of Settlement were arrived at. All matters were resolved save for the issue of costs. The result of the Minutes of Settlement was that Simon Ffrench acquired all of the shares in the corporation from Cohlmeyer, releases were exchanged with respect to this application and the two claims, and payments were agreed to be made to the applicants in accordance with a formula set out in the Minutes of Settlement. Although it is difficult to determine the exact amount paid to the applicants, the respondent states in his affidavit in para. 10 (iv): “September 2011: The Cohlmeyers settled for a purchase package worth $180,000 plus $40,000 of variables.”

THE FIRST MOTION

[ 5 ] After an argued motion, Justice McIsaac issued an endorsement dated May 12, 2008, appointing auditors to audit the financial statements of the corporation, and provided certain corporate restrictions in the interim. Paragraph 1 of his endorsement provides context for the dispute as it appeared before the court at that time:

Unfortunately, an enterprise with so much promise must be sold due to the inability of the major shareholders to trust each other. Fortunately, they have agreed to most of the terms for that transition. The only outstanding issue of consequence is the status of Simon Ffrench on the Board.

Costs of that motion were reserved to the judge hearing the application on its merits.

THE SECOND MOTION

[ 6 ] The applicants brought a further motion requesting that the respondent, Simon Ffrench, be removed as a director of the corporation, and requesting that the respondent, Caroline Ffrench be removed as a signing officer and employee of the corporation, together with other relief. As a result of this argued motion, Justice Stong issued an endorsement. He prefaced his remarks by stating:

Irreconcilable differences between the applicants and the respondents still prevail with respect to the running of Cookstown, the applicants being primarily responsible to grow and market crops, and the respondents being responsible for the finances and administration of Cookstown.

[ 7 ] The motions judge noted certain irregularities as reported in the auditor’s report. He removed Caroline Ffrench as a signing officer of the corporation, and substituting David Cohlmeyer as the sole signing officer. In a separate endorsement on costs dated the 12 th day of November 2008, the motions judge awarded costs to the applicants on a substantial indemnity basis. By agreement between the parties, these costs were settled at $27,000 and paid by the respondents to the applicants.

THE THIRD NOTICE OF MOTION

[ 8 ] The applicants commenced a third Notice of Motion seeking the court’s approval with respect to banking and lines of credit arrangements. That motion began in front of Justice DiTomaso, but after a resolution meeting, resolved on consent and there was no order as to costs.

THE FOURTH MOTION

[ 9 ] The respondents had benefit of counsel in the early part of these proceedings, but elected to act on their own on a going forward basis. The respondents brought a motion returnable June 30, 2010 requesting various relief, including a listing for sale of the business for $1.2 million. The applicants filed a detailed 77-paragraph affidavit in response. The matter did not proceed and was adjourned sine die.

THE FIFTH MOTION

[ 10 ] The applicants brought a motion returnable March 11, 2011, seeking certain disclosure and seeking direction from the court with respect to a trial of certain enumerated issues. By order dated March 11, 2011, McEwen J. ordered an extension of the listing agreement for the sale of the property. The balance of the motion was adjourned sine die and the issue of costs was also adjourned sine die .

THE SIXTH MOTION

[ 11 ] The respondents brought a motion originally returnable Wednesday, September 28, 2011, and the applicants sought a return of the fifth motion adjourned previously by McEwen J. However, the parties arrived at Minutes of Settlement, reserving the issue of costs for judicial determination.

POSITION OF THE APPLICANT AS TO COSTS

[ 12 ] The applicants submit that they are entitled to costs on a partial indemnity basis in the amount of $197,313.90. This figure credits the respondents for the costs sought and paid with respect to the earlier motion when the applicants recovered costs of $27,000.

POSITION OF THE RESPONDENTS

[ 13 ] The respondents seek costs of $104,253.29 on a substantial indemnity basis or alternatively, $69,495.24 on a partial indemnity basis. The respondents’ costs included costs for their lawyer of record to October of 2010. Thereafter, Mr. Ffrench represented himself and others and seeks costs as a self-represented litigant. He has indicated that his costs as submitted represent 69 hours of time at $100 per hour plus HST. Both parties were provided with a copy of the decision of the Divisional Court in Mustang Investigations v. Ironside, [2010] ONSC 3444 (Div. Ct.). There are circumstances when a self-represented litigant can recover costs for his or her own time expended on the litigation. However, it is incumbent on the litigant to show to the court a lost opportunity cost wherein they gave up remunerative employment to pursue the litigation. Mr. Ffrench acknowledges that he was unable to do so. He pursued his career as a financial advisor and could not provide any information to indicate he had lost any income during this period.

[ 14 ] In addition to his claim for his own costs, Mr. Ffrench claims consultation fees for his previous lawyer of record, whom he continued to consult with respect to the subsequent motions.

[ 15 ] When arriving at Minutes of Settlement, the parties did not exchange costs outlines and therefore they were not aware of what the other side might be seeking by way of costs.

ANALYSIS

[ 16 ] It is well settled that the Courts of Justice Act section 131 provides considerable judicial discretion on the issue of fixing costs. Rule 57.01 of the Rules of Civil Procedure sets out various factors that the court can consider in exercising this discretion, including the principle of indemnity, the amount of costs an unsuccessful party could expect to pay, the complexity of the proceedings and the importance of the issues. These principles were highlighted in the Court of Appeal decision Boucher v. Public Accountants Council for the Province of Ontario, 2004 14579 (ON CA) , [2004] O.J. No. 2634. At para. 6, Armstrong J.A. stated:

Overall, as this court has said, the objective is to fix an amount that is fair and reasonable for the unsuccessful party to pay in a particular proceeding, rather than an amount fixed by the actual costs incurred by the successful litigant.

[ 17 ] Modern costs rules are designated to foster three fundamental purposes:

(i) to partially indemnify successful litigants for the costs of litigation;

(ii) to encourage settlement; and

(iii) to discourage and sanction inappropriate behaviour by litigants. See Serra v. Serra, (2009) CarswellOnt 2475 (C.A.)

[ 18 ] A consideration of reasonableness is a factor that provides assistance to the court in determining the appropriate level of fees in matters such as this. In Clarington (Municipality) v. Blue Circle Canada Inc., 2009 ONCA 722 () , [2009] O.J. No. 4236, Epstein J.A. stated at para. 52:

As can be seen, the overriding principle is reasonableness. If the judge fails to consider the reasonableness of costs award, then the result can be contrary to the fundamental objective of access to justice. Rather than engage in a purely mathematical exercise, the judge awarding costs should reflect on what the court views as a reasonable amount that should be paid by the unsuccessful party, rather than the exact nature of the actual cost of the successful litigant.

SUCCESSFUL PARTY

[ 19 ] When matters are resolved by way of a settlement, it becomes difficult for a court to determine who the successful party was. Although there were six motions commenced, only one motion resulted in a costs ruling. That motion was resolved in favour of the applicants. The applicants were awarded substantial indemnity costs and recovered $27,000. With respect to the others motions, the costs were either reserved, or were not dealt with because the motions were resolved on consent, or adjourned sine die .

[ 20 ] By the time settlement was reached, both parties had expended a tremendous amount on legal fees, but they were unaware of what the other side had expended on legal costs. They also had a great deal more information about the value of the business. The financial statements had been audited; the business had been exposed to the market without achieving a satisfactory offer. The matter was ripe for settlement.

CONCLUSION

[ 21 ] The parties arrived at a settlement after lengthy litigation and numerous motions. The settlement did not determine which party was entitled to costs. The parties did not exchange costs outlines in arriving at a settlement and thus had no knowledge of what the other side was seeking for costs. The applicant was awarded costs with respect to the second motion and those costs have been paid. One of the principles of modern costs rules is to encourage settlement. When parties do so, in circumstances such as these, they should not be penalized by a costs order. With the exception of the Statements of Claims actions previously noted, I find that it is fair and reasonable under the circumstances that each party bear its own costs.

[ 22 ] It is ordered that the applicant pay the respondents $4,000 all inclusive, with respect to the Statements of Claims brought against the respondents, within 30 days of the release of this costs ruling. With respect to this application, there should be no order as to costs.

MULLIGAN J.

Date: February 7, 2012