NEWMARKET COURT FILE NO.: CV-10-098560-00

DATE: 2013‑10‑21

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Natalia Tsymbalarou and Business Development Bank of Canada, Plaintiffs

AND:

Irina Gordon, 7119321 Canada Inc., Roman Krasnov, Iryna Kutsyna, Oleg Palchyk, and LIS Custom Homes Inc., Defendants

BEFORE: THE HON. MR. JUSTICE P.H. HOWDEN

COUNSEL:
T. Tseitlin and A. Abramian, Counsel for the Plaintiff, Natalia Tsymbalarou

D. Levangie and J. Schwartz, Counsel for the Plaintiff, Business Development Bank of Canada

Irina Gordon, 7119321 Canada Inc., Roman Krasnov, Iryna Kutsyna, Oleg Palchyk, and LIS Custom Homes Inc., Self-represented

HEARD: By written submissions

COSTS ENDORSEMENT

[1] This was an action authorized by s. 38 of the Bankruptcy and Insolvency Act, R.S.C. 1985, ch. B.3 whereby all proceeds of the action go to pay the debt claims of the two participating creditors and the balance is shared by Ms. Gordon’s unsecured creditors in her bankruptcy. The two participating creditors are the plaintiffs, Business Development Bank of Canada and Natalia Tsymbalarou.

[2] Both plaintiffs were entirely successful at trial.

[3] Both plaintiffs seek full indemnity costs. The Business Development Bank of Canada (“BDC”) relies on the loan agreement signed by Ms. Gordon which requires Ms. Gordon to pay all legal costs and disbursements, para. 2). In this action, the defendant Gordon was found to be a party to fraud and to forgery as well as to misleading the court by altering a number of documents put forward in the defendants’ exhibit book. The offer of May 8, 2013 made by the plaintiffs was exceeded by the judgment. These findings, coupled with alleged delaying conduct by the defendants including two adjournments of the trial, the defendants’ failure to admit facts and their bringing of two motions unnecessarily and unsuccessfully, have led to claims for full indemnity costs by the plaintiffs as follows:

(a) by the plaintiff Tsymbalarou’s counsel, the office of Alexandra Abramian, for fees, tax and disbursements the sum of $76,638.06;

(b) by the plaintiff Business Development Bank (“BDC”), the office of Fogler Rubinoff LLP, the all-inclusive sum of $ 157,348.11.

[4] The plaintiffs’ submissions refer to certain legal authorities which have held that a higher scale of costs is justified where the defendants have engaged in fraudulent or other egregiously dishonest conduct. Carrigan v. Peacock, [2001] O.J. No. 223 at para. 29 (S.C.J.); Union Carbide Canada Ltd. v. Vanderkop, [1976] O.J. No.1447 at para. 59 (HCJ). In Penuvchev v. Cocovski, 2012 ONSC 4405 at para.19 (SCJ), Justice Matheson reviewed the law on the seldom imposed full indemnity scale of costs and held that only very egregious conduct, such as fraud or deceiving the court, supported the award of costs on a full indemnity basis.

[5] Ms. Gordon submitted her views in writing to the court in a timely fashion. As usual, she presents a well-organized brief. She basically suggests that the amounts claimed are exhorbitant, the claims for costs exceed by several times the cumulative claim, and are well beyond any reasonable expectation of the losing party. She says that BDC is attempting to double charge because it has already received costs with regard to the partial settlement with her. Ms. Gordon cites the names of lawyers or clerks referred to by Mr. Levangie in the BDC draft bill of costs as assisting with the case who did not appear at the trial. Yet claims of substantial amounts of time and fees are made in their names in this action. Ms. Gordon describes Ms. Tseitlin’s claim for examination for discovery as baseless because the examination contained little that was relevant over 4 days and thereafter Ms. Tseitlin continued her wider allegations of fraudulent transfers of multiple properties and Ms. Gordon’s use of a credit line until trial when on the first day, she conceded that the trial would be limited to only the two properties, 222 Florence Ave. and 198 Golden Forest Rd.

[6] Ms. Gordon submits that the plaintiffs should be limited to costs in the range of $25,000, or $12,500 to each plaintiff.

[7] Ms. Gordon obviously views any evidence concerning properties other than the Florence Avenue and Great Forest Rd. properties as irrelevant even though she used a number of those very properties as assets of hers or her company’s to obtain the BDC loan and on or near default, then transferred them out of her name to various companies or nominees of hers, asserting that she had never owned title to them personally; they were always held as part of her alleged Gordon Family Trust.

[8] In an appeal to what she called the “apportionment of liability”, Ms. Gordon suggests that as there are six defendants in the case, any award of costs should be divided equally between the defendants. This, despite several of these defendants having allowed their name to be used for Ms. Gordon’s purposes and nothing else. While I appreciate Ms. Gordon’s attempts at organizing proper arguments in a civil way and carrying the brunt of the case for the defence following their counsel’s exit, this submission has to be regarded as a rather embarrassing attempt to shift liability away from herself and Mr. Krasnov who were the main movers in the scheme to people with only a marginal involvement, and who did so to aid Ms. Gordon. This proposition is rejected out of hand as unfair and arbitrary. As the other defendants participated in at least one of the fraudulent conveyances, they, together with Ms. Gordon and Mr. Krasnov, are each jointly and severally liable for the Judgment including costs.

[9] The issues raised by Ms. Gordon are:

the effect of the defendant’s offer of June 26 2013;

the scale of costs being requested, full indemnity;

reasonable expectation of the losing party and the costs claimed;

the claims of BDC for costs; and

the conduct of counsel for Ms. Tsymbalarou in unreasonably adding to the length of this proceeding on discovery.

ANALYSIS

[10] The statutory framework for considering costs claims is found in s. 131 of the Courts of Justice Act, R.S.O.1990, c.43 and Rule 57.01 of the Rules of Civil Procedure:

Section 131(1)

Subject to the provisions of an Act or rules of court, the costs of and 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. R.S.O. 1990, c. C.43, s. 131 (1).

Rule 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 costs as well as the rates charged and the hours spent by that lawyer;

(0.b) 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 being fixed;

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

(b) the apportionment of liability;

(c) the complexity of the proceeding;

(d) the importance of the issues;

(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 of or 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 where 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. R.R.O. 1990, Reg. 194, r. 57.01 (1); O. Reg. 627/98, s. 6; O. Reg. 42/05, s. 4 (1); O. Reg. 575/07, s. 1.

Rule 57.01(2) The fact that a party is successful in a proceeding or a step in a proceeding does not prevent the court from awarding costs against the party in a proper case. R.R.O. 1990, Reg. 194, r. 57.01 (2).

Rule 57.02(3) When the court awards costs, it shall fix them in accordance with sub-rule (1) and the Tariffs. O. Reg. 284/01, s. 15(1).

1. The Defendants’ Offer

[11] Rule 49.10 as well as rule 57.01 define the approach to offers to settle. They are to be considered on any claim for costs. However, unless they come within the parameters of rule 49.10, their consequences are totally discretionary. By rule 49.10(2), for an offer from the defendants to attract favourable consequences for the defendants, the offer must be in writing, made at least seven days before commencement of the trial and is neither accepted nor withdrawn.

[12] Plainly, the defendants’ offer was made far too late in the process for it to attract an award of costs in the defendants’ favour. The trial began on May 21, 2013. This offer only occurred after the second adjournment of the trial following the defendants’ counsel succeeding in being removed from the record and one week prior to the scheduled opening of the defendants’ case on July 3. Furthermore, I accept the plaintiffs’ submission that it was not capable of acceptance in any event because it depended on the refinancing of a property held by the Trustee in Bankruptcy for all creditors and could not be used by Ms. Gordon for her own purposes.

2. The Scale of Costs: Full Indemnity

[13] There is no doubt that full indemnity costs is a rare order. Even costs on a substantial indemnity scale are said to be somewhat exceptional. The Court in Standard Life Assurance Co. v. Elliott, 2007 18579 (ON SC), [2007] O.J. No. 2031 articulated the kind of case where substantial indemnity costs would be appropriate in the following terms at para. 9:

Costs on a partial indemnity basis are the norm and are awarded on that scale in the vast majority of cases. The situations in which costs on a substantial indemnity basis are appropriate are rare. However, one of the situations in which such an award is appropriate is where one party to the litigation has behaved in an abusive manner, brought proceedings wholly devoid of merit, and unnecessarily run up the costs of the litigation: Shier v. Fiume (1991), 1991 7188 (ON SC), 6 O.R. (3d) 759 (Ont.Ct.Gen.Div.); Benquesus v. Proskauer, Rose, L.L.P., 2005 21097 (ON SC), [2005] O.J. No. 2418 (S.C.J.); Donmor Industries Ltd. v. Kremlin Canada Inc. (No.2) (1993), 1992 7543 (ON SC), 6 O.R. (3d) 506 (Ont.Ct.Gen.Div.); Aspiotis v. Coffee Time Donuts Inc., [1995] O.J. No. 419 (Ont.Ct.Gen.Div.); Apotex Inc. v. Egis Pharmaceuticals (1991), 1991 2729 (ON SC), 4 O.R. (3d) 321 (Ont.Ct.Gen.Div.).

[14] For cases when full indemnity was ordered, Matheson J. cited a number of cases in Penuvchev. One was Baryluk v. Campbell, 2009 CarswellOnt 3900 where, at paras. 9 and 10, Hackland J. found that a reckless attack on the integrity of judicial officers must be recognized as conduct requiring chastisement and deterrence. He wrote:

10. There is ample authority for an award of full indemnity costs where unsubstantiated allegations of dishonesty, illegality, and conspiracy are advanced without merit. ...allegations made or conduct by a party that is ‘reprehensible, scandalous, or outrageous’ falls within the ambit of an award of full indemnity costs.

[15] In that case, it was found (at para. 9) that the plaintiff characterized conduct of judges of this court as “case-fixing, abuse of public office, dishonesty and deceit in circumstances where there was no basis on the facts pleaded or submissions made to the court to support such outrageous allegations.”

[16] In Pirbhai v. Singh, 2011 ONSC 1366, 2011 CarswellOnt 1285 (SCJ), the court found that one party had engaged in conduct such that: twenty-five days were added to the evidence; there was incomplete documentary disclosure, fraudulent creation of documents, repeated lying under oath, and an attempt to perpetrate a fraud on the court. Quinn J. held that the plaintiff should not have to pay one cent of expense in his pursuit of justice. Full indemnity was ordered. Rule 57.01(4) provides that nothing in this rule or in the other costs rules affects the authority of the court to award all costs on a substantial indemnity scale or in an amount that represents full indemnity.

[17] In this case, I have found that the conduct of Ms. Gordon has twice delayed the trial before and during the trial; not only did she delay and hinder creditors by fraud but she continued her fraudulent behaviour in court by changing the content of registered transfers; altering copies of letters from institutions or companies which were proffered to the court as exhibits; and forging or causing to be forged several of her many declarations of trust. In other words, Ms. Gordon brought into the courtroom and into the judicial process her continuing course of conduct of fraudulent and dishonest behaviour. Finally, having been told that her defence was to commence on July 3 after a five-week adjournment following loss of her counsel, she brought further motions whose only purpose was to delay the court process. All this occurred after a pre-trial conference well before trial where Ms. Gordon assured the court that she and the defendants needed no help in presenting their case and were ready for trial.

[18] In all the circumstances, this case calls for an order of full indemnity costs. That means that the plaintiffs are able to recover all that they have expended on this action. As Wright J. said in Union Carbide,

...when a defendant presents forged documents on discovery and at the trial...and when if valid they would be powerful evidence against the plaintiff and are used to support a defence in a trial which has taken over 50 days, the court is being imposed upon and the administration of justice seriously impaired. I am appalled by such evidence...here, the plaintiff has been put to vast expense and trouble to meet this and other questionable evidence of the defendant. It should not have to bear that burden.

[19] This was a trial of seven days duration. The order of magnitude of expense is different but the principle remains the same, that when fraud and obstruction of justice are conducted before the court, the party doing so should pay the full price of the proceedings. This does not mean that the plaintiffs can charge whatever they like without relation to the time and work actually and reasonably required. I will still review the draft bills of costs on proper cost principles but it does mean that all reasonable time and moneys required by this action shall be paid in full on the defendants’ account.

3. Reasonable Expectations of the Losing Party and the Proper Principles Guiding my Discretion

[20] The overall objective of the costs process is to fix an amount that is fair and reasonable for the unsuccessful party to pay. The objective is not to simply take what the successful parties’ counsel allege as their actual costs. The fixing of costs by a judge is not an item-by-item assessment but rather an attempt to consider the bill as a whole, and the work reasonably required to achieve the result in light of the factors in rule 57.01(1). Boucher v. Public Accountants Council (Ontario) (2004), 2004 14579 (ON CA), 71 O.R. (3d) 291 (C.A.); Noble v. Noble (2003), 17 C.P.C. (6th) 46 (SCJ [Commercial list]).

[21] So, yes, the defendant Ms. Gordon is quite correct in stating that reasonable expectation of the losing party is important as a factor in this process. However, it is not simply a matter of taking the defendant’s opinion after the event that the defendants could not have believed that the costs being claimed would have been the consequence of losing. One way of determining this question is to have all the losing parties’ accounts produced for purposes of comparison. That cannot happen in this case. No counsel saw this case through to the end for the defendants. The court will of course bear in mind this factor of reasonable expectations throughout my course of deliberations.

[22] One issue is why it took two counsel to take this matter through trial. Since the claim of each creditor was not in issue, no particular knowledge of the facts of those claims was required. However, each client had their own relationship with the particular counsel and would be expected to produce everything it had of relevance to counsel and through the discovery process. The parties produced several document books which organized the many documents in question in this proceeding, most by Ms. Tseitlin and two by Mr. Levangie. I thank counsel for their assistance in organizing the case well.

[23] As it turned out, each counsel was able to deal with particular aspects of the case without duplicating. Without the involvement of each counsel, I would not have the full picture that I do now. What, however, will not be allowed, are large duplications of time expended by clerks and lawyers doing work on matters which the other counsel did not require. One example of this is Mr. Levangie’s assertion that the claim of $14,608 or forty-three hours prior and up to the pre-trial is reasonably explained by counsel reviewing the whole history of the litigation which Ms. Tseitlin could always deal with and did. That was time unnecessarily thrown away for which no credit is due. Instead BDC will be allowed $1,000 for its preparation for and attendance at the pre-trial conference. Its own preparation for trial is of course another matter.

[24] While I am sure that Mr. Levangie found assistance from Mr. Venton in the form of advice and trial preparation, I find that as between the two and the law clerks, there is a considerable amount of work that was duplicated. There was no need for counsel of experience to be assisting with documentary issues that came up as the trial proceeded and documents needed to be reviewed for their authenticity. There will be a sizeable reduction in Mr. Venton’s time said to have been spent on this file.

[25] I accept that BDC is not double claiming for matters more relevant to the earlier partial settlement with the defendants and that the costs are claimed only for the pre-trial conference forward, after BDC was made a party plaintiff.

[26] As for the Tsymbalarou claim for costs, the fees for counsel who took the matter from the start are not out of line for a seven-day trial with the added complications brought on by motions made by the defendants themselves, in particular the motion to dismiss on July 3 for reasons I had largely dealt with earlier and the conflict of interest claimed by Ms. Gordon which was simply far-fetched. But they had to be defended.

4. Costs Claimed By BDC

[27] The draft bill of costs of BDC is one of the most skimpy and least helpful that I have ever received. There are no dates for when certain work was undertaken except for the days at trial. There is no detailed breakdown of the work.

[28] For preparation and attendance at pre-trial, there is one four-line paragraph which refers to review of client documents, pleadings and correspondence from counsel, preparation of a settlement conference brief , attend at pre-trial, review what I know to be the very brief endorsement, and review of discovery transcripts and undertakings and reporting to client. For this, the charge for fees is $14,608 covering 43.2 hours. I will allow nothing for the transcript review which Ms. Tseitlin was well in control of. However, in addition to the conference preparation, counsel is entitled to the time reasonably required to review the documents, many of which were already organized by the Abramian office. I will allow five hours at Mr. Levangie’s actual rate of $310 per hour plus $1,000 for preparation and attendance at the conference, making a total of $2,860.

[29] For preparation and attendance at trial, the work is summarized in a generalized description of nine lines. It refers to legal research, correspondence and phone conversations with MAG and the Law Society without explanation of how this related to this file. It refers to preparing a summons to witness, preparation of exhibit books, another summons to witness, review of discovery “notes and transcripts”, despite the earlier assertion that that review had occurred before the pre-trial conference. There is mention of a trial record review, the documents and pleading review, preparing for examination-in-chief, cross-examination, arguments and closing, meetings and conference call with client, staff, associates, and co-counsel, prepare testimony and evidence of witnesses, re bankruptcy issues and fraudulent conveyances, attendance at trial May 21-27 and July 3-5, 2013.

[30] At the end of this short summary come six lines of hours including 201.5 hours for Mr. Levangie ($310/hour), 41.6 for Mr. Venton (actual $470/hour), and 129 hours of law clerks’ time ($60 and $80/hour). The total claimed for preparation and attendance at trial is $63,646.70 partial indemnity and $117,235.50 as the actual amount billed. Therefore, the actual fees claimed by BDC are:

$ 14,608.00

$117,235.50

Total fees $131,843.50

[31] I have considered the two document books hastily put together and filed at trial by BDC. There was one lengthy research memo on bankruptcy law and fraudulent conveyances, much of the useful parts from the text Bankruptcy and Insolvency Law of Canada, 4th Edition by The Honourable Mr. Justice Lloyd W. Houlden, Mr. Justice Geoffrey B. Morawetz, and Dr. Janis P. Sarra, Carswell: 2009. And there were the several document books already compiled for trial by the Abramian office. Much of Mr. Levangie’s time was review catch-up and of course the day-to-day work comprising long hours during the seven days of trial and leading up to it. I cannot see why the time set out by the BDC and their total fees come in at almost double those of Ms. Abramian and Ms. Tseitlin who were on the case from the start. Mr. Levangie had one witness to prepare for his basic case plus the four witnesses, all short, to deal with the changed documents from the defendant’s exhibit book.

[32] For fees, I will allow the plaintiff BDC $55,000 for preparation and attendance at trial. The total fees properly claimed are $57,860.

5. Costs Claimed by Ms. Tsymbalarou and Counsel’s Conduct of Examinations for Discovery.

[33] The draft bill of costs for Ms. Tsymbalarou is in the proper form, breaking all their work down into pleadings work, documentary production, discoveries preparation and attendances, setting down for trial, updating the trial record, preparation of Ms. Breen, meeting Yuri Gavris, and preparation and attendances at trial. I have reviewed the draft bill and taken into account the work actually required and reasonably provided on a seven-day trial of some documentary complexity. I will allow for Ms. Tsymbalarou the sum of $55,000. The disbursements are all properly claimed and total $7,001.81.

[34] Ms. Gordon attacks the overall figures as claimed because they are out of proportion to the amount in issue which she appeared to assume as $174,000. In rule 57.01, there is no requirement that the fees allowed must bear some relation to the amount of the judgment. Parties are left free to bring matters to court even where it is uneconomic to do so because one or both sides believe it is important enough to have a trial. In one reported case, costs of over $100,000 were awarded in a case where the amount claimed was only $20,000 net of deductible; Ontario Civil Practice, by Prof. G.D. Watson and M. McGowan, Carswell: 2013, at p.1214.

[35] As in every case, the task is to fix costs at the reasonable value of the work actually required and provided. In my view, the costs as allowed on a full indemnity basis in this case satisfy those principles and suitably address the relevant factors in rule 57.01 including reasonable expectation of the losing parties, amounts claimed and recovered, conduct of the defendants that served to lengthen the proceedings, their refusal to admit obvious facts rather than trying to change them through fraudulent means, and more than one set of costs.

[36] The costs to be paid by the defendants to BDC are:

For fees $57,860.00

For disbursements $ 7,073.32

Total (HST to be added) $ 64,933.32

[37] The costs to be paid to Ms. Tsymbalarou are:

For fees $55,000.00

For disbursements $ 7,001.81

Total (HST to be added) $62,001.81

[38] The costs as fixed are ordered to be paid forthwith by the defendants jointly and severally.

[39] The court confirms that the partial judgment interest rate of 10.25% annually is applicable from March 16, 2009.

HOWDEN J.

Date: October 21, 2013