COURT FILE AND PARTIES

COURT FILE NO.: 08-CL-7409

DATE: 2013-07-10

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: GRANT THORNTON LIMITED, IN ITS CAPACITY AS COURT APPOINTED RECEIVER OF NEW STYLE METAL STORE FIXTURES LTD., Plaintiff

AND:

BALJINDER KAUR DHUDWARR, DIDAR DHUDWARR, DIDAR SINGH AND SARABJIT DHUDWARR, Defendants

BEFORE: MORAWETZ J.

COUNSEL:
Rachel Moses, for Grant Thornton Limited, Receiver

Ranbir S. Mann, for the Moving Party, Didar Singh (Defendant in Action)

HEARD: JUNE 7, 2013

ENDORSEMENT

[1] The defendant, Mr. Didar Singh, brings this motion for an order that he be allowed to have his costs of this Action on a full-indemnity basis, including all applicable taxes, together with costs for the previous motion of March 21, 2013 also on a full-indemnity basis.

[2] The plaintiff, Grant Thornton Limited, in its capacity as court-appointed receiver of New Style Metal Store Fixtures Ltd. (the “Receiver”) has discontinued the Action as against Mr. Singh.

[3] The grounds for bringing this motion are set out in Rule 23.05(1) which reads as follows:

23.05(1) If all or part of an action is discontinued, any party to the action may, within thirty days after the action is discontinued, make a motion respecting the costs of the action.

[4] Mr. Singh also relies on section 131(1) of the Courts of Justice Act which reads as follows:

131. Costs – (1) Subject to the provisions of an Act or rules of court, the costs of an incidental to a proceeding or a step in a proceeding are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid.

[5] Rule 57.01 which addresses factors in discretion is also referenced by Mr. Singh. This Rule reads as follows:

57.01(1) In exercising its discretion under section 131 of the Courts of Justice Act to award costs, the court may consider, in addition to the result in the proceeding and any offer to settle or to contribute made in writing,

(0.a) the principle of indemnity, including, where applicable, the experience of the lawyer for the party entitled to the cost as well as the rates charged and the hours spent by that lawyer;

(0.2b) the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are fixed;

(a) the amount claimed and the amount recovered in the proceedings;

(b) the apportionment of liability;

(c) the complexity of the proceeding;

(d) the importance of the issue;

(e) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding;

(f) whether any step in the proceeding was,

(i) improper, vexatious or unnecessary or

(ii) taken through negligence, mistake or excessive caution;

(g) a party’s denial or a refusal to admit anything that should have been admitted;

(h) whether it is appropriate to award any costs or more than one set of costs for a party,

(i) commenced separate proceedings for claims that should have been made in one proceeding, or

(ii) in defending a proceeding separated unnecessarily from another party in the same interest or defended by a different lawyer; and

(i) any other matter relevant to the question of costs.

[6] The applicable legal principles on this issue were summarized by Brown J. in Carriere Industrial Supply Limited v. 2026227 Ontario Inc., 2013 ONSC 1016:

[8] As a result of changes to Rule 25 which came into effect in 2010, the entitlement of a defendant to costs for a discontinued action requires the bringing of a motion. Rule 23.05(1) of the Rules of Civil Procedure provides:

23.05(1) If all or part of an action is discontinued, any party to the action may, within thirty days after the action is discontinued, make a motion respecting the costs of the action.

[9] As Master McLeod observed in N12 Consulting Corp. v. Hulford, “whether the action is treated as dismissed for delay or discontinued, the court has complete discretion to fashion a costs award that is in the interests of justice”.[^1] The authors of Archibald, Killeen and Morton, 2013 Ontario Superior Court Practice, regard the cost consequences of Rule 23.05(1) as “presumptive” and consider that “the appropriate test to be applied by the court in the exercise of its discretion under r. 23.05 may be called the ‘justified action test’”:

P must satisfy the court on a balance of probabilities that it had a bona fide cause of action, that it was not frivolous or vexatious and that there was some justification for commencement of the claim. Although r. 23.05 establishes a prima facie right to costs in favour of the defendant, it does not restrict the broad discretion of the court to determine costs on a case-by-case basis.[^2]

The authors of Morden & Perell, The Law of Civil Procedure in Ontario, First Edition, take a similar view:

In our opinion, the former case law remains relevant. Under the case law on the former rule, to be relieved of costs, the plaintiff must satisfy the court that the material filed discloses a bona fide cause of action that is not frivolous or vexatious and that he or she was justified in commencing a lawsuit.[^3]

Obviously, whether or not a defendant should be awarded costs on the discontinuance of an action will require a very fact-specific analysis of the circumstances giving rise to the initiation of the action and its discontinuance.

Relevant Circumstances Giving Rise to the Initiation of the Action and the Circumstances

[7] Mr. Singh takes the position that the discontinuance of the Action against him amounts to no recovery by the Receiver against him and results in his complete success in this matter. Mr. Singh is of the view that he owed no liability to the Receiver at any time and the claim against him was devoid of merits from the outset.

[8] Mr. Singh also takes the position that the Receiver cannot rely on any untested evidence, for example the transcript of the tracing exercise of non-parties to the Action, reports of the Receiver, charts, diagrams, etc. showing merits of the Receiver’s case against him, in opposition to this motion for costs.

[9] Mr. Singh also takes the position that the Receiver was legally negligent, mistaken and exercised “excessive caution with respect to evaluation of its case against the present defendant throughout and particularly on setting the trial dates and making decision of discontinuance of its Action against the present defendant just two weeks before the trial dates of March 4, 2013”.

[10] Further, Mr. Singh takes the position that the length of this Action, namely, over a period of five years, and the offer of discontinuing the Action against him just before the trial dates, caused him to incur legal costs in the total of $49,968.96 and legal fees and disbursements in the sum of $7,137.30 for the motion heard by this court on March 21, 2008, which resulted in the discontinuance of the Action against him.

[11] As a preliminary matter, the argument with respect to the whether the Receiver could rely on “untested evidence”, this issue was resolved without the necessity of argument. Counsel for the Receiver advised that she was content not to rely on the transcripts. However, the Receiver’s Reports, as filed, were to be considered.

[12] On January 8, 2008, Grant Thornton Limited was appointed as Receiver of New Style Metal Fixtures Ltd. (“New Style”) by Lederman J. (the “Appointment Order”).

[13] Subparagraph 3 (j) of the Appointment Order authorized the Receiver to, among other things, initiate, prosecute and continue all proceedings with respect to New Style.

[14] On February 15, 2008, the Receiver issued a Notice of Action against the defendant, his daughter Ms. Sarabjit Dhudwarr (“Sarabjit”) and his wife, the defendant, Ms. Baljinder Kaur Dhudwarr (“Baljinder”) in respect of certain relief related to a property at 66 Mapes Avenue, Woodbridge, Ontario (the “Woodbridge Property”) (the “Action”).

[15] The Receiver has since settled the Action with Sarabjit. With respect to the Baljinder, the Receiver did not serve her with the Statement of Claim since she had made an Assignment in Bankruptcy shortly after the Notice of Action was issued, with the result that the Action was stayed.

[16] New Style’s sole officer and director was Baljinder. As noted above, Baljinder is married to Mr. Singh.

[17] Royal Bank of Canada (“RBC”) provided equipment financing to New Style. The financing was for the purchase of a laser cut machine (the “Laser Cut Machine”), from a vendor called S&S Machinery Company (“S&S”).

[18] New Style provided RBC with an invoice from S&S and directed RBC to transfer the sum of $636,000 (“RBC Funds”) to a CIBC bank account maintained by S&S (the “CIBC Account”). New Style then defaulted on its obligations to RBC.

[19] The Receiver subsequently discovered that the equipment lease transaction appeared fraudulent as there was no Laser Cut Machine. Further, RBC contends that S&S was incorporated for the purpose of receiving the RBC Funds and dispersing them to the defendants and/or related persons/entities; the S&S invoice, among other documents, given by the defendants to RBC were false; and RBC contends that the RBC Funds (some or all) were improperly used towards the purchase of the Woodbridge Property.

[20] At the time, the Woodbridge Property was owned by Sarabjit, the niece/adopted daughter of Baljinder and Mr. Singh.

[21] In the Action, the Receiver alleged that the source of the down payment for the Woodbridge Property is traceable to the RBC Funds.

[22] A summary of the allegations and steps taken by the Receiver is contained in the Second Report of the Receiver. The Second Report forms part of the record filed by both sides. It is contained at Tab 13 of Mr. Singh’s motion record and at Tab 2 of the bank’s motion record.

[23] Prior to the appointment of the Receiver, RBC had appointed Grant Thornton Limited as private receiver. Grant Thornton attended the New Style premises to secure the Laser Cut Machine and discovered that the Laser Cut Machine was in fact a pillow filler liner with no capabilities to cut metal. The Receiver also discovered that there was no evidence that S&S, or any business with a similar name, operated a business from the address of S&S, when it purportedly delivered the Laser Cut Machine to New Style.

[24] In enforcing the terms of the Appointment Order, the Receiver obtained account information from CIBC with respect to the CIBC Account maintained by S&S.

[25] The Receiver discovered that on April 4, 2007, the RBC Funds were deposited into the CIBC Account. One day later, two wire transfers were effected. The first in the amount of $120,035 (“Wire Transfer 1”) was made to Dharminder Singh Dhudwarr in the United Kingdom (the “English Party”); and the second in the amount of $135,535 (“Wire Transfer 2”) was made to USA Smoke Shop and Mini Mart (the “Vegas Party”).

[26] The bank alleges that collectively, these transfers together with cash withdrawals ($6,089.34) and a VISA payment ($54,500) resulted in the defendants and/or related persons/entities receiving the RBC Funds.

[27] The Woodbridge Property was purchased by Sarabjit on or about August 30, 2007 for $515,000. The purchase price consisted of a cash payment in the amount of $174,580 and $335,000 mortgage registered in favour of RBC dated August 30, 2007.

[28] A review of the RBC mortgage file for the Woodbridge Property indicates “gift letters” were delivered to RBC from:

(i) the English Party; and indicating that the English Party gifted $80,000 to Sarabjit to purchase the Woodbridge Property (“Gift Letter 1”); and

(ii) Mohinder Singh, listing the same address as in Wire Transfer 2 from S&S to the Vegas Party; and indicating that the Vegas Party gifted $100,000 to Sarabjit, to purchase the Woodbridge Property (“Gift Letter 2”).

[29] The Receiver also discovered that RBC was provided with a letter of employment and pay stubs indicating that New Style employed Sarabjit as plant manager, earning an annual salary of $75,000.

[30] Tracing investigations done by the Receiver indicates that the RBC Funds were not used to purchase the Laser Cut Machine.

[31] Further, based on examinations conducted under the Appointment Order, the Receiver reports that RBC was provided with fictitious employment documents in order to conceal that the RBC Funds were being used (in part) towards the purchase of the Woodbridge Property.

[32] In argument, counsel for Mr. Singh candidly acknowledged that, up to the date of discovery, the actions of the Receiver were justified.

[33] Subsequent to the completion of the discoveries, Mr. Dhudwarr takes the position that the Receiver took no action for about one year until January or February 2012 when it requested compliance of the undertakings, which he contends were complied forthwith.

[34] The Action was set down for trial on June 4, 2012 for two weeks commencing March 4, 2013.

[35] On November 5, 2012, an offer to settle was made by Sarabjit through her counsel to pay the Receiver $100,000 in exchange for a full and final release and a discharge of a Certificate of Pending Litigation registered against the Woodbridge Property.

[36] On February 1, 2013, the Receiver accepted Sarabjit’s offer.

[37] The Receiver then determined that to proceed with a two-week trial against Mr. Singh was not only moot but cost prohibitive. The Receiver contends that it is not aware of what assets, if any, are held by Mr. Singh which it could recover against to satisfy a judgment obtained at trial.

[38] The Receiver also reports that, following the settlement, the Receiver estimated that the costs for a two-week trial, not including preparation time, would be in excess of $100,000. Total receipts held by the Receiver as at March 5, 2013 are $66,312.92 and disbursements are $38,038.16. The amount available for distribution as at March 5, 2013 was $28,274.76.

[39] The Receiver filed the Second Report in connection with a motion brought on March 21, 2013 for leave to discontinue the Action without costs against Mr. Singh.

[40] On March 21, 2013, the Action was discontinued. With respect to the issue of costs, Mr. Singh was permitted to raise the issue by way of a separate motion which is the subject of this endorsement.

[41] At paragraph 4 of Mr. Singh’s affidavit sworn May 9, 2013, he acknowledges that the Woodbridge Property is the “key subject matter” of the Action and further states at paragraph 9 that “the whole case of the plaintiff/receiver essentially was against the Woodbridge Property, which property was purchased by another co-defendant, Sarabjit.

[42] Between August 30, 2008 and April 26, 2013, Sarabjit was the legal registered owner of the Woodbridge Property.

[43] Mr. Wiebe of the Receiver’s office, states in his affidavit sworn May 28, 2013 that there was some evidence to suggest that Mr. Singh may have been the beneficial owner of the Woodbridge Property until April 26, 2013, at which time he became the legal owner.

[44] Under the settlement, Sarabjit was required, as legal owner of the Woodbridge Property to pay to the Receiver $100,000. She failed to honour the terms of the settlement. As a result, the Receiver filed a consent to judgment against Sarabjit on February 26, 2013. On the same day, Campbell J. granted the Receiver judgment against Sarabjit in the amount of $100,000 plus costs and interest (the “Court Judgment”).

[45] On March 14, 2013, the Receiver agreed to forebear from taking any active steps against the Woodbridge Property to allow Sarabjit time to sell and/or refinance the Woodbridge Property and fund such proceeds to satisfy the judgment.

[46] On April 15, 2013, the Receiver was advised that Sarabjit was transferring the Woodbridge Property to Mr. Singh and the judgment would be satisfied from the proceeds of the new mortgage.

[47] On April 26, 2013, Sarabjit transferred title to the Woodbridge Property to Mr. Singh. The transfer indicates the total consideration as $300,171, the amount of the mortgage being assumed. On April 29, 2013, the Receiver received $101,433.57 from the lawyer acting on behalf of Mr. Singh and the new lender, the Equitable Trust Company (“Equitable”), in satisfaction of the judgment.

[48] From the standpoint of the Receiver, Mr. Singh paid the judgment.

[49] On April 30, 2013, the Receiver obtained an order discharging the CPL from title to the Woodbridge Property.

[50] In paragraph 24 of Mr. Wiebe’s affidavit, he states that in paragraph 83 of the Second Report, the Receiver indicates that it was seeking a discontinuance of the Action, namely because of the settlement; economic considerations; and no further realizations in the receivership. Mr. Wiebe goes on to state that the decision to discontinue was not because the Receiver believe it had an unmeritorious case; rather, it was a considered business decision.

[51] At paragraph 31 of his affidavit, Mr. Wiebe responds to Mr. Singh’s complaints that the Receiver failed to discontinue the Action after February 2012 and/or failed to accept the settlement with Sarabjit prior to February 1, 2013. Mr. Wiebe states that the success of the Action against Mr. Singh and Sarabjit depended, in part, on whether the Receiver could recover any monies against the Woodbridge Property (the “Prime Asset”). In this respect, Mr. Wiebe states that the parties were engaged in ongoing settlement discussions and further notes that Mr. Mann acted as the lawyer for both Mr. Singh and Sarabjit for the majority of the Action (October 2009 to February 2012).

[52] Further, at paragraph 39 he states that the Receiver continued to pursue settlement with the defendants and made a considered business decision to accept Sarabjit’s offer to settle on February 1, 2013.

[53] Mr. Singh portrays a very different view of the facts. However, it seems to me that this position has to be considered in light of the concession that Mr. Singh’s counsel considered the Action to be justified up to the date of discovery.

[54] After the date of discovery, Mr. Singh advised the Receiver that dismissal of the present proceedings without cost basis was not acceptable to him. Further, Mr. Singh points out that the discontinuance of the Action against him constituted no recovery from him and that he was completely successful on this Action. Finally, from Mr. Singh’s standpoint, the plaintiff’s case was devoid of merits as against him from the “very ab initio and present defendant owed no liability to the plaintiff”.

[55] The issue on this motion, from the standpoint of Mr. Singh, is whether he is entitled to his costs of this Action and, if so, to what extent.

[56] The Receiver casts the issue somewhat differently stating that it is whether the court should exercise its discretion and make no order as to costs given that the Receiver had a bona fide cause of action and was justified in commencing the proceeding. In short, the Receiver accepts the principles set out in Carriere, supra, as do I.

[57] The former Rule 23.05(1) of the Rules of Civil Procedure used to provide that a defendant was entitled to costs on discontinuance unless the court ordered otherwise. To relieve against the presumption in favour of costs, the party had to satisfy the court on a balance of probabilities that:

(a) the material filed disclosed a bona fide cause of action;

(b) that the action was not frivolous or vexatious; and

(c) the party was justified in commencing the proceeding.

[58] As noted by counsel to Mr. Singh, in view of the revised Rule 23 of the Rules of Civil Procedure, there is no longer a presumption of costs and when a request is made by either party, the general principle set out in 57.01 of the Rules of Civil Procedure are followed.

[59] Counsel to Mr. Singh submits that the three reasons relied upon by the plaintiff to discontinue the Action against Mr. Singh were very much available to the plaintiff after discovery was completed on this matter on October 21, 2010 and, in any event, no later than February 2012 when the undertakings were answered by the defendants. Counsel submits that the plaintiff had no merit in their claim qua the present defendant and any reliance made by the plaintiff on any untested evidence (lacking cross-examination), such as the transcripts of examinations of non-parties and other reports of the Receiver is prohibited and have no significance in the context of adjudicating the motion for costs as those materials are untested evidence.

[60] As noted above, there is agreement by counsel to the Receiver that reference to the transcripts would not be relied upon. However, the same was not the situation with respect to the Receiver’s reports, which were put into evidence.

[61] Counsel for Mr. Singh submits that the plaintiff set the matter down for trial against both defendants on June 4, 2012 and, on that date, knew or ought to have known the merits of the case qua the defendants, which the Receiver offered to discontinue against Mr. Singh just two weeks before trial.

[62] As a result, counsel to Mr. Singh submits that the late action of the plaintiff caused the defendant to incur legal fees for trial preparation and that the expenses of Mr. Singh were incurred as a result of the plaintiff’s failure to evaluate its case in a timely manner in relation to Mr. Singh.

[63] Finally, counsel submits that the facts and circumstances of this case were in favour of exercising discretion of allowing costs to Mr. Singh.

[64] In my view, the positions put forth by Mr. Singh are flawed in many respects.

[65] Firstly, his own counsel acknowledged that the Action was justified up to the date of discovery.

[66] Secondly, the Receiver’s claim seeks relief with respect to the Woodbridge Property which it claims was purchased with (some or all of) the RBC Funds. The claim also seeks damages for deceit, unjust enrichment and conspiracy in the amount of $500,000 against the defendants. I am satisfied that the pleadings and the Receiver’s report disclose a bona fide cause of action; that the Action was not frivolous or vexatious and the Receiver was justified in commencing the proceeding.

[67] In arriving at the conclusion that the Action was not frivolous or vexatious and that the Receiver was justified in commencing the proceeding, I have taken into account: (i) the documentation and information establishes that there was a fraudulent loan transaction and the use of RBC Funds for purposes other than the purchase of a Laser Cut Machine; (ii) RBC Funds were transferred to the CIBC Account; (iii) RBC Funds were primarily dispersed to the English Party and the Vegas Party; (iv) RBC Funds (some or all) were likely used towards the purchase of the Woodbridge Property.

[68] In my view, there was ample justification for the Receiver commencing and proceeding with the claim.

[69] Thirdly, I am also satisfied that the information gathered by the Receiver, set out in the Reports, demonstrates, on a balance of probabilities, that the defendants obtained the RBC Funds through improper means and that, in prosecuting this proceeding, the Receiver exercised its duties honestly and in good faith.

[70] Again, I emphasize that counsel to Mr. Singh acknowledged that, until the date of discovery, the Action was justified.

[71] Fourthly, subsequent to the discovery, I am satisfied that the Receiver continued to act in good faith to negotiate a resolution of this matter.

[72] The Prime Asset in the Action was the Woodbridge Property. It is the Receiver’s position that Mr. Singh was at all material times the beneficial owner of the property and further the Receiver has established, in my view, that the settlement with Sarabjit in respect of the Woodbridge Property involved the active participation of Mr. Singh.

[73] It falls to the court to achieve a fair result as authorized by s. 131 of the CJA and Rules 23 and 57 of the Rules of Civil Procedure. To accept the submissions put forth by counsel to Mr. Singh requires me to ignore non-arm’s length relationship between New Style, Mr. Singh, Baljinder and Sarabjit. It also requires me to ignore the flow of funds to the English Party and the Vegas Party. It also requires me to ignore the relationship as between Mr. Singh and Sarabjit that resulted in Mr. Singh acquiring the Woodbridge Property.

[74] It seems to me that since the Action was justified up to the date of discovery, it was also justified after the date of discovery. To arrive at a conclusion that Mr. Singh was successful on the Action defies gravity. The Action may have been discontinued as against him, but as a result of his direct and indirect participation, I consider him to be part of the settlement and thus he cannot be considered to have been totally successful on this matter.

[75] I accept the Receiver’s reasons for discontinuing the Action. In effect, from an economic standpoint, the receiver reached a conclusion that there was no upside in continuing an Action once they were able to negotiate a settlement involving the key asset, namely, the Woodbridge Property.

[76] In my view, the actions taken by the Receiver from the commencement of this Action to its conclusion were justified. In no way can the actions of the Receiver be considered to be improper, vexatious or unnecessary or taken through negligence, mistake or excessive caution.

[77] In the result, I find that no costs should be awarded to Mr. Singh. I consider this to be a fair result which in the context of s. 131 of the CJA and Rules 23 and 57 of the Rules of Civil Procedure.

[78] There are no costs awarded on this motion.

Morawetz J.

Date: July 10, 2013

[^1]: 2012 ONSC 7306, para. 15.

[^2]: Ontario Superior Court Practice, 2013 (Toronto: LexisNexis, 2012), p. 936.

[^3]: (Toronto: LexisNexis, 2010), p. 401.