SUPERIOR COURT OF JUSTICE - ONTARIO

COMMERCIAL LIST

COURT FILE NO.: CV-11-9283-00CL
DATE: 20130806

IN THE MATTER OF COMPANIES’ CREDITORS ARRANGEMENT ACT,

**R.S.C. 1985, c. C-36** AS AMENDED

AND IN THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT OF UNIQUE BROADBAND SYSTEMS, INC.

BEFORE: MESBUR J.

COUNSEL:
Joseph Groia and Gavin Smyth, for Jolian Investments Limited and Gerald McGoey

Clifford Cole, Benjamin Na and Joe Thorne for Unique Broadband Systems, Inc.

HEARD: in writing

DECISION ON COSTS

[1] After a nine-day trial on the primary issues of whether certain decisions of UBS’ board favouring its Chief Executive Officer, Gerald McGoey were made in the exercise of the board’s “business judgment”, and whether Mr. McGoey was entitled to his severance benefits under his employment arrangemenets with UBS, I determined that Mr. McGoey had breached his fiduciary obligations to the corporation. I set aside certain benefits made in his favour as a result of that breach. I also determined, however, that Mr. McGoey was nevertheless entitlted to the severance benefits set out in his employment arrangements with UBS, but calculated without regard to the enhanced benefits I had set aside as a result of the breach of fiduciary duty.

[2] Both parties now claim success at trial. Both seek costs. Neither submitted any settlement offer, which leads me to conclude neither party made any effort, reasonable or otherwise, to try to resolve any of the issues between them.

[3] Mr. McGoey has submitted a bill of costs, both for the trial and numerous interlocutory proceedings. Some of the bill is on a partial indemnity basis, while part is on a substantial indemnity basis. Mr. McGoey says he is entitled to substantial indemnity costs because of certain allegations UBS had made against him, but withdrew just before trial. He says, however, that they remained live issues until one day before the trial. He says that because some of the allegations involved fraud and misappropriation of funds, he should be entitled to substantial indemnity costs in relation to these abandoned claims.

[4] Mr. McGoey defines his “success” at trial in monetary terms. He says he reduced his claim from $9.8 million to $5.8 million, and suggests he was “substantially successful” in his claim because I found he was entitled to the severance benefits under the Jolian Management Services Agreement. He says that since I dismissed most of UBS’ allegations and defences he should be entitled to costs.

[5] Mr. McGoey has submitted a bill of costs of $749,142.07 for fees, $22,431.48 for disbursements, both plus applicable taxes for a total of $871,833.00 all inclusive.

[6] UBS defines its success as persuading the court Mr. McGoey had breached his fiduciary duties to the corporation, resulting in the court’s setting aside the enhanced benefits the board had awarded Mr. McGoey, as well as declaring he is not entitled to the provisional indemnification ordered in his favour on a prior motion. UBS goes further, and says that these findings alone should be sufficient to deprive Mr. McGoey of his costs. UBS points out that the bulk of the trial focused on the issue of whether the board acted in the best interests of the corporation, and whether Mr. McGoey as a director had breached his fiduciary duties to the corporation.

[7] UBS takes the position that most of the time at trial was taken with evidence relating to the SAR cancellation award and bonus award. UBS says that it was successful on these issues on the basis of my finding of breach of fiduciary duty. UBS goes on to say that it also enjoyed success in requiring Mr. McGoey to “disgorge” the fees received pursuant to the indemnification order of Marrocco J. Finally, it points to the fact that my decision reduced Mr. McGoey’s golden parachute significantly. As a result, UBS says it should be entitled to its costs on a substantial indemnity basis, or alternatively, on a partial indemnity basis. If I find Mr. McGoey entitled to costs, UBS suggests that costs award should be reduced to 10% of the amount claimed, to reflect limited success. Finally, UBS advanced yet another alternative – that is, no order as to costs.

[8] UBS has also submitted a bill of costs. Its bill is for the trial totals $1,053,804 on a substantial indemnity scale, or $702,536.55 on a partial indemnity scale. Both amounts for fees would be subject to HST. Its disbursements come to $199,667.92 including HST.

[9] Both sets of fees are extremely high. Given the range of fees each side submits, it seems to me neither can be particularly surprised by the magnitude of the other’s. Thus, if either is deemed to be “unsuccessful”, each could reasonably expect to pay costs in this range. That said, I am not persuaded either party is entitled to costs.

[10] Both parties are right, to a degree. There were two main issues to be decided: the first was the fiduciary duty issue. The second was whether Mr. McGoey was entitled to the severance entitlements under the Jolian Management Services Agreement. The third issue concerning indemnification took virtually no time at trial. That issue was simply dependent on my findings concerning breach of fiduciary duty. Once I made that finding, it followed the indemnification would not apply.

[11] Each party enjoyed success on one of the two main issues. As a result, I consider success at trial as equally divided. I therefore conclude this is a situation where there should be no order as to costs.

[12] An order will issue accordingly.

MESBUR J

Released: 20130806