SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

DATE: 20130827

COURT FILE NOS.: CV-11-9386-00CL
CV-12-9693-00CL
CV-12-9688-00CL

RE: Michael Cytrynbaum, First Fiscal Management Ltd., Stuart Smith, Scott Colbran, Jason Redman, Applicants

AND:

Look Communications Inc., Respondent

AND BETWEEN:

Jolian Investments Limited and Gerald McGoey, Applicants

AND:

Look Communications Inc., Respondent

AND BETWEEN:

Alex Dolgonos and Dol Technologies, Applicants

AND:

Look Communications Inc., Respondent

BEFORE: L. A. Pattillo J.

COUNSEL:
Matthew P. Sammon and Rory Gillis, for the Applicants, Michael Cytrynbaum and First Fiscal Management Ltd.

Edward Babin and Cynthia Spry, for the Applicant, Stuart Smith

Andrew Lewis, for the Applicant, Jason Redman

David Conklin and Peter Kolla, for the Respondent, Look Communications Inc.

Joseph Groia and Gavin Smyth, for the Applicants, Jolian Investments and Gerald McGoey

Peter L. Roy and Alexandra Carr, for Alex Dolgonos and Dol Technologies Inc.

COSTs ENDORSEMENT

Introduction

[1] On September 4, 2012, I released reasons for decision dismissing the Applicants’ (except Dolgonos) applications/motions for interim advancement of expenses by the Respondent Look Communications Inc. (“Look”) in respect of various legal proceedings brought against them by Look (the “Applications”).

[2] At the conclusion of my reasons, I stated that because I had directed a trial of the issue of the Applicants’ entitlement to indemnity, I was inclined to order the costs of the Applications should be in the cause of the indemnity issue to be determined by the trial judge in Look’s action. However, because the parties had not addressed the issue of costs during the argument, I indicated that, if desired, any party could make cost submissions in writing. In response, Look provided lengthy written submissions and the Applicants have responded.

[3] Look submits that, having been successful on the Applications, it should be awarded its costs of the proceedings on a substantial indemnity basis and in the alternative on a partial indemnity basis. It submits costs should be payable by all Applicants on a joint and several basis save and except that if substantial indemnity costs are awarded, Look submits Dolgonos should only be responsible for a 1/8 share of Look’s costs on a partial indemnity basis. Look has provided a Consolidated Bill of Costs claiming partial indemnity costs totaling $386,223.17 and substantial indemnity costs of $559,583.20.

[4] Look’s cost claim is opposed by all of the Applicants. It is their submission that my initial inclination of costs in the cause should prevail. Further, costs should not be assessed at this stage but should be left to the trial judge at the conclusion of the trial and the indemnity issue. In the alternative, they submit that if Look is entitled to costs, it should be on a partial indemnity basis and the overall quantum of Look’s costs claim is unreasonable.

[5] After reviewing and considering the cost submissions, I have concluded, for the reasons that follow, that my initial inclination with respect to costs must be modified. As is often the case, the issue of costs, particularly when there are multiple parties, is more complicated than first appears. While I am still of the view that the costs of the Applications should be in the cause of the indemnity issue, given that Look was successful in the Applications (except in respect of Dolgonos), Look is entitled to its costs of the Applications but only if it prevails on the indemnity issue. Further, and given the extensive material that has been filed by the parties in respect of costs coupled with my familiarity with the issues, it is incumbent on me as the judge hearing the Applications to assess Look’s costs at this stage. Finally, it necessary to address the extent, if any, to which the Applicants Dolgonos and Colbran are responsible for Look’s costs given Dolgonos’ success in his Application and Colbran’s submission of rights in the Applications.

Timing of the Payment of the Costs

[6] Look was successful on the Applications (except in respect of Dolgonos) and accordingly is entitled to its costs against all of the Applicants except Dolgonos. Given however, the nature of the indemnity issue and the fact that it has not been finally determined, it is neither practical nor fair in my view to require the Applicants to pay Look’s costs of the Applications at this stage. If, at the conclusion of the trial of the indemnity issue, Look is successful, it should receive its costs of the Applications. On the other hand, if at the conclusion of the trial of the indemnity issue, some or all of the Applicants are found to be entitled to indemnity, they will be entitled to indemnification from Look for not only their reasonable costs of the Applications but also any costs they were required to pay Look if it is entitled to receive its costs from them at this stage of the proceedings.

[7] Further, requiring the Applicants to pay Looks costs of the Applications at this stage when the final issue of indemnity has yet to be determined could pose a financial hardship on some or all of the Applicants not unlike the hardship Look asserted in its response to the Applications. In my view, it would be unfair to inflict such hardship on the Applicants in advance of a final determination of the indemnity issue. In the circumstances therefore, Look’s entitlement to payment of its costs of the Applications from the Applicants should be contingent on its overall success on the indemnity issue.

Timing of the Assessment of Costs

[8] The Applicants submit that because Look’s costs for the Applications are inextricably linked to its action and CBCA motion, the assessment of costs should be left to the end of the trial. While I accept that some of the time being claimed by Look is not directly attributable to the Applications, for the most part I am satisfied that the time being claimed in Part C of the Consolidated Bill of Costs relates primarily to the Applications. The disbursements relate directly to the Applications. Look has subtracted from its cost claim the initial affidavits it prepared for its CBCA motion that it also used in the Applications. It has also not claimed the costs of an expert report it received from Mercers or any of the fees charged by Look’s previous counsel for reviewing their files, preparing affidavits and in one case, being cross-examined.

[9] The Applicants further submit, given the multiplicity of proceedings commenced by Look and the failure of its counsel to allocate costs to each proceeding, including each of the Applications, the costs can only be determined by a formal assessment at the end of all proceedings. I disagree. The determination of fair and reasonable costs does not simply involve multiplying hours by hourly rates. It involves a consideration of the factors set out in Rule 57.01. While the determination may be difficult, I don’t see it being any easier for the trial judge at the conclusion of the trial and the indemnity issue. Further, the trial judge finally dealing with the costs of the trial and the indemnity issue will take into account the costs assessed for the Applications as part of his or her determination of the final costs.

Scale of Costs

[10] In my view, Look is entitled to its costs of the Applications on a partial indemnity basis. While my findings of the Applicant’s conduct in causing Look to pay them for the cancelled options and share appreciation rights and to pay $1.55 million to law firms representing themselves prior to their resignations from Look’s board of directors might otherwise give rise to an award of substantial indemnity costs were they made as part of a final determination at trial, they were based on affidavit evidence and transcripts. The issues surrounding the Applicants’ actions and whether they are entitled to indemnity for their legal costs from Look have yet to be finally decided.

[11] Look also relies on various settlement offers it made to the Applicants between September and November 2011, to attempt to resolve the Applications. In particular, Look submits that on November 11, 2011, it made an offer to the Applicants to fund all reasonable defence costs after their counsels’ accounts were assessed by a Superior Court Judge which the Applicants turned down.

[12] The Applicants respond that they too made offers to resolve the Applications in advance of them being heard. They note, given the result, that Rule 49 does not apply. More importantly, they submit Look’s November 11, 2011 offer was illusory in that it would not have resolved the advancement issue. The offer required the Applicants to discontinue the Applications, while Look retained the option, at any time, to move for an order that the Applicants were not entitled to advancement.

[13] In the end, I agree with the Applicant’s submission that the settlement discussions and offers between the parties from September through November 2011 are essentially a neutral factor. They do not entitle Look to substantial indemnity costs.

[14] Nor do I consider that the Applicants’ actions in commencing the Applications and proceeding as they did to amount to the type of egregious conduct necessary to substantiate the higher scale of costs. In all the circumstances, therefore, it is my view that the proper scale of costs to apply to Look’s costs of the Applications is partial indemnity.

Quantum

[15] The Applicants submit that the overall quantum of costs sought by Look is unreasonable, having regard to the issues and the nature of the Applications. There is no question that Look’s counsel was required to do a lot of work to respond to the Applications. The issues were complex both factually and legally. They were also important, not only to the parties but generally in respect of the issue of corporate indemnities. At the same time, however, there must be some proportionality to the costs awarded.

[16] Look has divided its Bill of Costs into four sections: the December 23, 2011 motions; the May 2012 motions, the Applications (including argument) and cost submissions.

[17] Look’s claims partial indemnity fees of $89,504 plus tax and total disbursements of $1,478.48 in respect of two December 23, 2011 motions before Newbould J. One motion was brought by the Applicants Cytrynbaum, First Fiscal Management, Smith, Colbran and Redmond along with Dolgonos and DOL Technologies for an order striking out Look’s responding affidavits in the Applications. The other motion was brought by Look for an order requiring the Applicants to file statements of defence in the Look action. Both motions were dismissed and the costs were reserved in each motion to the judge hearing the Applications.

[18] While the motions were of critical importance to Look’s defence of the Applications, I agree with the Applicants that the amount of costs claimed by it for the motions is excessive given the issues. The motions took no more than 15 minutes of court time. While the brief court appearance was no doubt directly related to the quality of the materials filed on Look’s behalf that still does not account for the significant amount of time spent. Nor should Look receive any costs for time spent in respect of its motion which was dismissed.

[19] In my view, a fair and reasonable fee for the Applicants’ December 23, 2011 motion on a partial indemnity basis is $25,000 inclusive of disbursements and taxes. There will be no order of costs for Look’s motion.

[20] Look also claims $45,390 plus tax for fees for motions commenced by the Applicants in May 2012 which were not proceeded with. The motions attempted to deal with the issue of advancement as a question of law, without regard to the evidence. The motions did not proceed based on a direction of Justice Wilton-Siegel that the parties proceed to the hearing of the Applications. No order of costs was made. The costs relate to reviewing the Applicants material and preparing responding material. Look submits that the costs should be dealt with as part of the Applications. In my view, the costs of the May 2012 motions should be dealt with and included as part of the costs for the Applications. That being said, I consider the amount claimed to again be excessive.

[21] Look claims a total of $163,010 plus tax for fees and $38,051.65 in disbursements (including tax) in respect of the Applications, including argument. It is my understanding the fees are for all time spent on the Applications, including Dolgonos Application for which costs are not recoverable. There is also time for matters relating to Looks action and the CBCA motion as noted by the Applicants. I do not, however, take serious issue with the time spent to prepare Looks factum or to prepare for the argument. The matter was factually complex and was well presented on behalf of Look both in writing and in argument. In the end, having regard to the factors set out in Rule 57.01 and my earlier comments, I am of the view that costs of $165,000 inclusive of taxes and disbursements are fair and reasonable for the Applications. Further, and given Look was responding in essence to two Applications and three motions within one of the Applications all dealing with the issue of advancement, the nature of its response and the many court attendances, I consider that Looks costs of the Applications as I have determined them should have been well within the contemplation of the Applicants.

Allocation of Costs

[22] The Applicant Jason Redmond submits that the costs should be divided among the Applicants in accordance with their relative shares of the impugned funds they received. Given that the propriety of the payment of those amounts remains in issue and all Applicants (except Colbran) took part in the Applications, filed material and argued the matter, in my view, the appropriate order is to require the costs to be paid by the Applicants, save and except for Dolgonos and Colbran, on a joint and several basis.

[23] The Applicants McGoey and Jolian Investments Limited submit, in effect, that because their Application was started late and raised only questions of law, their responsibility for costs should be less. Although their Application was started later than the others, they were actively involved in the issues from the outset and took a significant part in the argument. While they elected to approach the issue on a legal basis only and not file any material responding to Look`s allegations concerning their conduct, that was a strategic decision on their part. In my view, they should be jointly and severally responsible for the costs along with the other Applicants.

Dolgonos

[24] Dolgonos was a moving party on the December 23, 2011 motion and is accordingly responsible for his share of the costs of the motion in the event he is not successful on the final indemnity issue. Accordingly, Look is entitled to its costs of that motion as fixed by me payable by all of the Applicant-moving parties, including Dolgonos, on a joint and several basis, in the cause of the indemnity issue.

[25] Given my decision that Dolgonos is entitled to interim advancement from Look pursuant to his indemnity agreement, in my view there should be no order of costs in respect of Dolgonos. Given the result, Look is not entitled to its costs in the Applications from him. Further, although Dolgonos was successful in his Application against Look, he should not be entitled to costs against Look given he is entitled to indemnity from Look for his costs under the indemnity agreement and accordingly will receive his costs of the Application from Look. If Dolgonos is successful in maintaining the indemnity at trial, his costs of the Applications will have been paid by Look. If he is unsuccessful at trial, in addition to any trial costs, he will have to pay back all the interim costs Look has advanced.

Colbran

[26] By letter dated April 30, 2012, counsel for the Applicant Colbran advised Look that Colbran submitted his rights to the court in respect of the indemnification issue and would take no further steps in the Applications. Colbran filed no material on the Applications and took no part in the argument. Colbran was a moving party in the December 23, 2011 motions and is accordingly jointly and severally responsible to Look for those costs. In respect of the Applications, in the event that Look prevails at trial on the indemnity issue, Colbran should only be responsible for a portion of Look’s costs of Applications but only prior to April 29, 2012. Based on my overall assessment of Look’s overall costs for the Applications and Colbran’s analysis of Look’s costs of the Applications to April 29, 2012, I assess Colbran’s portion of Look’s partial indemnity costs up to April 29, 2012 at $3,500 inclusive of disbursements and taxes.

Conclusion

[27] Look is entitled to its costs of the December 23, 2011 motion on a partial indemnity basis against the Applicants, moving parties including Dolgonos and Colbran jointly and severally, payable only if it is successful in the cause of the indemnity issue. Such costs are fixed at $25,000 inclusive of taxes and disbursements.

[28] Look is further entitled to its costs of the Applications on a partial indemnity basis against the Applicants jointly and severally, except Dolgonos, payable by them only if Look is successful in the cause of the indemnity issue. Such costs are fixed at $165,000 inclusive of taxes and disbursements. Colbran shall only be responsible for $3,500 of such costs and there will be no order of costs in respect of Dolgonos.

L. A. Pattillo J.

Released: August 27, 2013