COURT FILE AND PARTIES

COURT FILE NO.: 13-56663

DATE: 2013/10/16

SUPERIOR COURT OF JUSTICE - ONTARIO

Inspection Proceeding

BETWEEN

COLLEEN MOORE, BARRY DOUCETTE, RONALD X. AYOUB, KIM KRUK, DALE HEIN, PAMELA STONE, CAROLINE LEWANDOWSKY, ANNE LEFIER, GARRY McGINN, DAVID HAMILTON, JAMES MILLER, HELENE LAMADELEINE, MARY LOU FISHER, ALLAN BRETT, DONALD HUTCHINSON, GLORIA HUTCHINSON, RICHARD MELCER, STEPHEN CALDWELL, MICHELLE VEZEAU, DAVID KORNELSEN, KEVIN HARSH, COLLEEN MALTAIS, LUC MALTAIS, BOB MECH, A.A.N.T. SOFTWARE CORPORATION, TERRENCE FINNIGAN and JAMES JOSS

Applicants

AND

THOMAS G. ASSALY, ASSALY INVESTMENT PROGRAM CORPORATION, ASSALY FINANCIAL CORPORATION, ACT 1 CORP., ASSALY CREDIT & TRADE CORP., ASSALY ASSET MANAGEMENT CORPORATION, MILLENNIUM SPRINGS DEVELOPMENT & CONSTRUCTION CORP. (aka MILLENNIUM SPRINGS PROPERTIES LTD.) and MILLENNIUM EDUCATIONAL & RESEARCH CHARITABLE FOUNDATION (formerly the THOMAS C. ASSALY CHARITABLE FOUNDATION)

Respondents

BEFORE: Kane J.

COUNSEL:
Justin R. Fogarty and Pavle Masic, counsel, for the Applicants

John E. Smith, counsel, for the Respondent, Thomas G. Assaly, in the Inspection Proceeding

Christopher Morris, counsel for Doyle Salewski Inc., Inspector

Shael Eisen, counsel for Millennium Educational & Research Charitable Foundation (“the Foundation”)

HEARD: August 7, 2013

ENDORSEMENT re inspection COSTS

and amount of administrative charge

[1] Presented today are:

(a) The Inspector’s motion is: (1) to approve its accounts to date in the Inspection Action in the amount of $365,255.07; (2) to approve the accounts to date of its independent counsel in the amount of $76,308.87; (3) for an order to increase the current monetary limit of $200,000 of the Administrative Charge to $608,078 for these fees and those in paragraph 1(b) below; (4) for an order that the Administrative Charge be expanded to include the assets of the Foundation and Mr. Assaly; and (5) for costs of this motion.

(b) The Applicants motion is: (1) to approve the accounts of their counsel in this Inspection Action in the amount of $156,514.63; (2) for an order to increase the monetary limit of the Administrative Charge to $608,078 for these fees and those in paragraph 1(a) above; (3) for an order that the Administrative Charge be enlarged to charge the assets of the Foundation and Mr. Assaly; (4) for an order for costs of this motion in the amount of $10,000.

[2] Thomas G. Assaly and the Foundation oppose the above motions.

THIS PROCEEDING

[3] This court by ex parte interim order dated February 6, 2013, appointed Doyle Salewski Inc. as Inspector directing an investigation of Millennium Springs Development & Construction Corp. (MSDC), ACT 1 Corp. (ACT), Assaly Financial Corporation (Assaly Financial), Assaly Credit and Trade Corp. (Assaly Credit) pursuant to s. 161 of the Ontario Business Corporation, R.S.O.1990, c. B- 16 (OBCA) and Millennium Educational & Research Charitable Foundation (Foundation) pursuant to s. 229 of the Canada Business Corporations Act, R.S.C., 1985,c. C-44 (CBCA).

[4] The above interim order created an Administrative Charge of $200,000 for the fees of the Inspector, its independent counsel and the applicants to constitute a first charge on the property and assets of the above five respondent corporations to be inspected. The applicants sought an Administrative Charge of some $350,000. This court set the amount of the Administrative Charge at $200,000 in the interim without knowing the scope of work involved and without determining what the final amount of such charge would be.

[5] The above interim order authorized the Inspector to examine under oath any person with relevant information including seven named individuals.

[6] The above interim order directed the Inspector to:

(a) determine the nature and solicitation of investment funds into Nature’s Walk and Villa Montague;

(b) determine who invested in and trace their investment funds amongst the respondent corporations;

(d) determine the propriety of disbursement of funds from investors; and

(e) determine the state of solvency of the respondent corporations including their assets, liabilities, income, expenses and capacity to complete undertakings to investors.

[7] On February 26, 2013, the Inspector filed a three volume interim report. The Interim Order of February 6, 2013 was continued to April 4, 2013. Your Credit Union opposed the priority of the Administrative Charge.

[8] This court on April 18, 2013, confirmed the interim appointment of the Inspector of the Foundation under the Canada Not‑For‑Profit Corporations Act, S.C. 2009, c. 23 and dismissed the motion by the Foundation to remove it from the Administrative Charge. The appointment of the Inspector was expanded to include and investigate Assaly Investment Program Corporation and Assaly Credit and Trade Corp. making a total of seven respondent corporations to be investigated. The Inspector filed a report as to its then findings.

[9] On April 18, 2013, Your Credit Union and Toronto-Dominion Bank were authorized to realize on their security registered against properties of the respondent corporations with the net proceeds thereof to be held in trust pending order of this court as to priorities.

[10] The Inspector presented its Third Report to the court on May 7, 2013. The court terminated its interim non-publication order. The court thereupon concluded the appointment of the Inspector subject to residual issues, including priority issues of registered encumbrances and assessment of professional fees.

YOUR CREDIT UNION AND TORONTO-DOMINION BANK

[11] The orders herein are made without prejudice to the priority position of Your Credit Union and the Toronto-Dominion Bank which priority issues remain to be determined.

GENERAL CONSIDERATIONS UNDER RULE 57

AMOUNT CLAIMED AND RECOVERED

[12] Many of the individual applicants have invested several hundred thousand dollars in Ontario development projects promoted by Mr. Assaly which have never been completed. They allege that some or all of their investment has been diverted by Mr. Assaly to other projects or purposes outside of Canada for which the Foundation, Mr. Assaly and his wife have benefitted. The total money invested and claimed by all of the applicants is in the millions.

[13] The applicants and former Directors of the respondent corporations have much better information as to where monies were expended and where assets were transferred to as a result of this inspection.

COMPLEXITY OF THE ISSUE

[14] The number of respondent corporations, the vague and conflicting wording of the original offering memorandums as to which of the Assaly group of respondent corporations was the intended recipient thereof, the lateness and non-disclosure of records and accounting by the respondent corporations has increased the complexity of this inspection.

IMPORTANCE OF THE ISSUE

[15] The issues are of utmost importance to all parties. The information obtained impacted other proceedings in this court involving some or all of the respondents.

CONDUCT LENGTHENING THE PROCEEDING UNNECESSARILY

[16] The respondents’ transfer of assets after the commencement of this action and their reluctance and delay in reporting has lengthened this investigation, including the cost thereof.

EXPERIENCE OF COUNSEL

[17] See below.

HOURS SPENT AND RATES

[18] The failure of the respondent corporations to reply to much of the allegations and information reported by the Inspector and their lack of cooperation to provide the Inspector with relevant records in a timely manner has increased the workload and hours expended. That added time is reflected in the docketed time below. The absence of timely accounting by the respondents however undermines their criticism of the time expended in the accounts being assessed herein.

INSPECTOR’S FEES

[19] The services provided by the office of the Inspector extended just over five months from November 23, 2012 until May 7, 2013. The tracing of money invested by the applicants through several respondent corporations and determining what portion thereof was expended in the development of the two Ontario projects was complex, labor-intensive and had to be performed within a short timeframe.

[20] The information presented in the reports of the Inspector was relevant, performed pursuant to the powers granted to the Inspector and constituted the informational basis for the subsequent appointment of a Receiver and the insolvency action.

[21] The fee portion of these accounts of the Inspector total $299,255, plus HST. The time docketed is by 13 individuals and totals 1,275 hours, or 159 days using an 8-hour day.

[22] Three individuals docketing time are charted accountants with hourly rates ranging between $400 and $475 per hour. Five other representatives with qualifications including CGA and CFE, docketed time at hourly rates ranging between $190 and $250 per hour. Those hourly rates are considered appropriate considering the qualifications and experience of the individuals.

[23] This court is of the opinion that adjustments are needed however in the following areas.

[24] Notwithstanding the time sensitive nature of this engagement, 13 individuals is a high number of personnel in one office during an inspection conducted during three months. Briefing and communicating with this many people created some duplication which increased the time and cost being charged.

[25] The time dockets refer to several people involved in the drafting of the reports of the Inspector in addition to the drafting and editing docketed by BPD.

[26] The docketing in relation to these reports in addition to BPD includes CPI, AC, MRO, MCC, PB, TRT, and VB. The value of time docketed on report preparation in addition to BPD totals $36,891.

[27] Some of these individuals worked on subsequent as opposed to the earlier reports. Some of these individuals may have done the primary drafting. Each subsequent report builds however on the prior knowledge level as contained in prior reports. There appears therefore to be some duplication in using several co-authors of these reports.

[28] At the higher hourly rates, the following individuals docketed time consistently throughout most of the three month inspection period:

(a) BPD ($450 and $475/hr) $106,000
(b) MRO ($400/hr) $69,000
(c) PB ($250/hr) $29,000 (March 17 – May 2)
(d) TRT ($225/hr) $30,000
(e) CPI ($190/hr) $44,000
(f) NW ($110/hr) $27,000

[29] Other individuals were docketing periodically. Some docketed regularly throughout the period but at lower hourly rates.

[30] The court has deducted the sum of $59,000 to adjust for this duplication, or just under 20% of the total fees claimed.

[31] This court is of the opinion that the above hourly rates of professionals should include an appropriate level of work by support staff, as opposed to such support staff being billed in addition. The work performed by DB and MAS was clerical in nature, totals $5,211 and has been deducted.

[32] It was not inappropriate for the Inspector to attend court appearances. The court is not however prepared to approve the time docketed by MRO and AC to attend court in addition to BPD. There shall be a reduction accordingly of $11,111.

[33] The time docketed by LD for the purchase of a scanner, software installation, with scanning exhibits and photocopying the first report are excluded. I doubt this will be the only engagement utilizing a scanner in the office of the Inspector.

[34] The docketed time by NW to scan documents totals some seven days at $110 per hour. Scanning documents is clerical work and is excluded. The reduction for these two items is $9,124.

[35] The total reduction from the fees claimed is $84,446. The fees of the Inspector are fixed at $214,899, plus HST, for a total of $242,835.

[36] The charge of $8,428 for photocopies, or 33,712 photocopies at $.25 per page, appears high and is reduced to $4,000. That is not unreasonable for an assignment of this short duration.

[37] The unidentified disbursement of $1,082 is not accepted for that reason.

[38] Disbursements are fixed at $7,468, plus HST, for a total of $8,438.

[39] Costs for today are fixed at $2,000, inclusive of HST.

INSPECTOR’S LEGAL COUNSEL

[40] Counsel seeks an assessment of fees on a full indemnity basis, disbursements plus HST totaling $76,308. As counsel to the court appointed Inspector, it is appropriate to assess these legal fees on a full indemnity basis.

[41] The relevant breakdown based on accounts of that firm consists of the following:

(a) Total fees claimed: $65,594 plus HST.
(b) Total disbursements: $1,960 plus HST.
(c) CM (2004) $300/hour, 125.7 hours docketed.
(d) DM (1984) $510/hour, 4.4 hours docketed
(e) KM (1982) $500/hour, 2.0 hours docketed
(f) External counsel MB $400/hour, 5.4 hours docketed
(g) AM $520/hour, .2 hours docketed
(h) TT $470/hour, .6 hours docketed
(i) MB $215/hour, 9.6 hours docketed
(j) Students at law (JM, GP and JM) 35.1 hours docketed
(k) Total hours: 183

[42] CM, DM, KM and MB acted as counsel. There was some duplication to the extent that CM was unavailable for all court appearances and other counsel had to be briefed to replace him. As to that duplication, I have deducted the sum of $2,000.

[43] TT and MB worked as real estate solicitors to register court orders against several real properties.

[44] The students conducted legal research and filed materials. GP docketed 7.3 hours to accompany CM to court. That $1,314 has accordingly been deducted.

[45] Otherwise these accounts appear to demonstrate an appropriate allocation of work among professionals with requisite expertise and experience levels. The fees and disbursements are fixed as follows:

(a) Fees of $62,280, plus HST of $8,096, for a total of $70,374.
(b) Disbursements of $1,960 plus HST on the taxable portion thereof, for a total of $2,181.
(c) Costs of this motion fixed at $3,000, inclusive of HST.

APPLICANTS’ COUNSEL

[46] The applicants seek approval of fees, disbursements and HST in the amount of $156,514.63, plus $10,000 costs for this motion. The breakdown of the $156,514 is as follows:

(a) Docketed fees excluding this motion total $135,125 plus HST.
(b) Total disbursements are $4,529 plus HST.
(c) Docketed time by JF (1986) is 121 hours at $750 per hour.
(d) Docketed time by PM (2012) is 125 hours at $335 per hour.

[47] The court has considered the 2005 information bulletin as to maximum partial indemnity rates based on year of call at R. 57.01. That bulletin at this point is dated.

[48] JF is an experienced senior member of the commercial bar in Toronto. He has performed a lead role in this proceeding. Given his experience and expertise, JF’s hourly rate is appropriate among Toronto counsel but exceeds that of Ottawa counsel with similar experience. Proportionality includes local market rates. I would therefore adjust that rate to $650 per hour.

[49] The hourly rate of $335 for a lawyer in his first year of call to the bar is too high. I reduce that rate to $200.

[50] The accounts of counsel indicate that time was docketed at 30 minute intervals. That amounts to an estimate rather than the actual time expended.

[51] The applicants are individual claimants. Entitlement has yet to be determined. The applicants have recently been sued for alleged non-payment of debt owing to one or more respondents.

[52] The above factors lead this court to conclude that costs to the applicants should be fixed on a partial indemnity basis.

[53] Partial indemnity rates for these accounts are set at $390 and $120 per hour. The applicants’ existing costs are therefore fixed as follows:

(e) Fees of $55,000 plus HST, for a total of 62,000.
(f) Disbursements fixed at $4,500, inclusive of HST.
(g) Costs of today fixed at $4,000, including HST.

[54] The above costs of the Inspector, its counsel and the applicants as fixed, are now payable by the respondents in this proceeding, including Mr. Assaly.

SHOULD ADMINISTRTIVE CHARGE BE INCREASED AND EXPANDED?

[55] The present motion is a request to

(a) fix the amount of costs;

(b) amend by increasing the amount of the Administrative Charge; and

[56] The Administrative Charge since the interim order, already charges the assets of the Foundation.

[57] A motion to amend the amount of the charge is permitted under rule 59.06 which permits “an amendment in a particular on which the court did not adjudicate” and to “obtain relief beyond that originally ordered.” That wording is broad enough to permit an amendment to increase the amount of the charge.

[58] This court also has jurisdiction to fix the amount of the charge pursuant to sections 162 (1) of the Ontario BCA, 230 of the Canada BCA and s. 242(1) of the Canada Not-For-Profit Act. The language of those sections is broad and does not prohibit the court from increasing or decreasing the amount of that charge as circumstances change.

[59] A court after the initial order appointing an inspector has ongoing jurisdiction to expand the scope of work and powers of an inspector as occurred in this case. The court retains jurisdiction to limit and terminate the inspection or replace the Inspector, if appropriate. Based on circumstances, the court could later reduce the amount of the Administrative Charge. The court was not functus after the first interim order or lacking in jurisdiction to amend the terms of the charge, if appropriate.

[60] The original amount of this charge was set by this court in an interim ex parte order without knowing the extent of the work involved. The amount originally set was substantially below the amount requested by the applicants so as to not encourage unreasonable cost expectations. It was also set without input from the respondents. The estimate of the applicants as it turns out was more realistic than the court’s February 6, 2013 estimate.

[61] The work involved in this investigation increased substantially because of the lack of record production, information from the respondents and because assets were transferred by several of the respondents to the Foundation outside of this jurisdiction. This necessitated further investigation, tracing and time. That undermines the opposition of the respondents as to the amount of fees claimed.

[62] It would be unjust to limit the amount of this charge to the original ex parte estimate.

[63] For the above reasons the Administrative Charge in this proceeding is increased from $200,000 plus the costs of the applicants fixed to February 6, 2013, to $399,398.

LIABILITY FOR FEES BY MR. ASSALY

[64] The evidence and reports presented clearly indicate that Mr. Thomas Assaly was the primary directing mind and ultimately controlled the respondent corporations. That allegation was never strongly disputed. He was a Director of Foundation until recently.

[65] The development projects of Nature’s Walk and La Villa Montague in Ontario never approached completion. There is no contradictory affidavit evidence that some of the investment money was directed to the Foundation and used in relation to its activities. There is no dispute that some assets belonging to several of the respondent corporations have been transferred to Florida and were transferred to Mr. Assaly’s lawyer’s trust account. Canada House is a large asset located in Florida and was owned by Foundation for several years. It was transferred after commencement of this proceeding from the Foundation to Mr. and Mrs. Assaly for reasons which are in dispute. These actions and others were considered sufficient for this court to appoint a Receiver of the respondent corporations in another proceeding.

[66] The respondent corporations have ceased operation and have no assets or have transferred most of their remaining assets.

[67] Minority shareholders cannot realistically take advantage of the OBCA provisions permitting an investigation unless the corporations being investigated are required to pay for the costs of the investigation. (See Mexican Light and Power Co. v. Mexican Light & Power Co. (Shareholders of) (1989), 46 B.L.R 14, at para. 3 (SCO)).

[68] In dealing with investigation and oppression remedy applications, the court may make any order it thinks fit, including appointing a receiver to conduct an investigation of the subject corporation. The interim or final remedy of the court is in the discretion of the judge who will be guided by what is appropriate in the circumstances to restore the situation as close as possible to the pre-wrong status. The inclusionary list is illustrative and not exhaustive. When appropriate, these orders may reach out and affect persons beyond the corporation, including directors, officers and others. (See Millard v. North George Capital Management Ltd. (1999), 1 B.L.R. (3d) 106 (SCO)).

[69] The costs of the Inspector must be paid and should not await the outcome of other litigation where the nature of the inspector’s report indicates that it was in the company’s and its creditor’s interests that the report be made. In that case, the company should pay for the report and if the company has no funds to make payment, the directors of the company should be responsible for such costs even though the directors were not parties to the proceeding. (See Teperman Estate v. Teperman & Sons Ltd. (1984), 29 B.L.R. 1, at paras. 2 and 11 (SCO)).

[70] Mr. Assaly is a respondent in this proceeding and as such is liable to pay the costs fixed and awarded, particularly on the information as to his involvement and as a Director of most or all of the respondent corporations.

[71] It is a separate issue however whether the charge should be expanded to cover his assets.

[72] The inspection ordered herein was of the respondent corporations, not Mr. Assaly personally.

[73] Section 162 (1) (l) of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16; s. 230 (1) (l) of the Canada Business Corporation Act, R.S.C., 1985, c. C-44 and s. 242 (1) (k) of the Canada Not-for-profit Corporations Act, S.C. 2009, c. 23, grant the court jurisdiction to require the corporation(s) to pay the cost of the investigation. These powers however are but examples of the court’s jurisdiction to grant any order.

[74] Notwithstanding the above allegations against Mr. Assaly, it would be inappropriate at this late hour to expand the charge to include Mr. Assaly’s personal assets.

[75] The applicants and the Inspector have been before the court on numerous occasions dealing with this charge and whose assets it should cover. Mr. Assaly’s assets were not requested to be included until this motion.

[76] The inspection as ordered was terminated on May 22, 2013, subject to residual issues. It would be inappropriate to grant substantive new relief several months after termination of the investigation against an original respondent.

Kane J.

Released: October 16, 2013

ONTARIO

SUPERIOR COURT OF JUSTICE