SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

COURT FILE NO.: CV-12-9731-00CL
DATE: 20130130

RE: Pinnacle Capital Resources Limited in its capacity as general partner of Red Ash Capital Partners II Limited Partnership, Applicant

AND:

Kraus Inc., Kraus Canada Inc., Strudex Fibres Limited and 538626 B.C. Ltd., Respondents

BEFORE: L. A. Pattillo J.

COUNSEL:
Linc Rogers and Jenna Willis, for the Receiver

Larry Ellis, for the Applicant

Raymond Slattery and David Ullmann, for Equistar Chemicals, LP

Costs ENDORSEMENT

[1] For reasons released November 9, 2012, I dismissed Equistar Chemicals, LP’s (“Equistar”) motion seeking orders requiring PricewaterhouseCoopers Inc. in its capacity as Court-appointed receiver of the Respondents (the “Receiver”) to answer a list of 114 questions and to pay Equistar $35,425.25. I adjourned that portion of Equistar’s motion which sought to vary paragraph 8 of the Sale and Approval and Vesting Order dated June 11, 2012 to unseal the confidential appendices to be brought back on by Equistar on proper notice to the Applicant and the Receiver.

[2] At the conclusion of my reasons, I noted that the Receiver was entitled to costs in respect of Equistar’s motion to be either agreed or assessed by me following receipt of brief costs submissions. In the absence of agreement, I have received and considered written costs submissions from the Receiver and Equistar.

[3] The Receiver submits that costs should be awarded on a substantial indemnity basis in the amount of $23,236.76 inclusive of disbursements and HST. In the alternative, the Receiver seeks costs on a partial indemnity basis in the total amount of $15,491.17.

[4] Equistar responds that there should be no determination of the quantum of the costs until its motion in respect of the unsealing of the confidential documents is heard and determined. In the alternative, Equistar submits that it was partially successful on the motion and both parties should bear their own costs. It further submits that in the event the Court proceeds to determine costs, this is not a proper matter for an award of substantial indemnity costs. Finally, and having regard to the principle of proportionality and the amount an unsuccessful party could reasonably be expected to pay, a reasonable amount for the Receiver’s costs on the motion is $3,500.

[5] It is incorrect to say, as Equistar does, that the success or failure of its motion has not yet been finally determined. Equistar is a claimant pursuant to s. 81.1 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended (the “BIA”). The main thrust of its motion concerned obtaining answers to the questions it had sent to the Receiver and the payment of the money, both of which related directly to its s.81.1 claim. The unsealing of the confidential documents, on the other hand, is separate and unrelated to the other relief requested. The main aspect of Equistar’s motion concerning its s.81.1 claim has been dealt with. Although the Receiver opposed Equistar’s request to unseal the documents, the issue is really between the Applicant and Equistar. The reason I adjourned Equistar’s request to unseal the documents was because the Applicant submitted in argument that the documents remained confidential notwithstanding completion of the sale. In light of the short notice of Equistar’s motion, the Applicant submitted it was not able to file material supporting that position. In my view, the Applicant should be afforded that opportunity.

[6] The onus is on Equistar to bring back on its motion to unseal the confidential documents, if it so chooses. Otherwise, the documents remain sealed by order of the court. To require that the determination of the quantum of costs await the return of Equistar’s motion effectively leaves the determination of the Receiver’s costs in Equistar’s complete control. If it decides to not bring its motion back on, there will be no determination of the Receiver’s costs. It is no answer to say that the Receiver can bring on the motion. The Receiver has no interest in unsealing the documents. The Receiver should not be placed in the position of having to bring Equistar’s motion back on to obtain a determination of its costs. It is entitled to have its costs determined now.

[7] I also do not agree with Equistar’s submission that it was partially successful on the motion. It was totally unsuccessful. Equistar further submits that it is the norm in insolvency matters that each party bears its own costs. While that may be so in circumstances where the insolvent party would otherwise be required to pay costs that is not the case here. In my view, where, as here, the insolvent party is entitled to costs, requiring it to bear its own costs would be unfair to all other stakeholders who would end up bearing those costs. The Receiver is therefore entitled to its costs from Equistar.

[8] In dismissing Equistar’s motion requiring the Receiver to answer the 114 questions, I made a number of findings, including that the vast majority of the questions had nothing to do with Equistar’s s.81.1 claim and were nothing more than a fishing expedition in an attempt to find some form of impropriety in the receivership based solely on suspicion. In respect of the few questions that had any semblance of relevance to its s.81.1 claim, the Receiver had previously done a thorough investigation of Equistar’s claim and had already provided Equistar with all its information. The Receiver had no further information to provide Equistar concerning its claim and, in my view, Equistar knew that before it sent the questions.

[9] An award of substantial indemnity costs is the exception rather than the norm in litigation. Such an award must only be made in circumstances where the conduct of the party required to pay costs was “reprehensible, scandalous or outrageous”: see Young v. Young, 1993 34 (SCC), [1993] 4 S.C.R. 3 (S.C.C.) at para. 66.

[10] In my view, Equistar’s conduct in bringing its motion falls into the above category. The Receiver cooperated with Equistar completely as it was required to do. Rather than dealing with the matter sensibly, Equistar put forward a very lengthy list of mainly irrelevant and unreasonable questions and when the Receiver refused to answer them, it brought a motion which had absolutely no merit. A Court appointed receiver’s obligations to provide information to stakeholders is clear and was more than met by the Receiver in this case. Equistar’s motion was unnecessary and served only to increase costs in the Receivership. I disagree with Equistar’s submission that the Receiver’s actions unnecessarily lengthened the proceedings. In fact, it was Equistar who unnecessarily lengthened the proceedings by taking the position it did and then bringing its motion. In my view, in such circumstances, it is Equistar, not the other stakeholders in the insolvency proceeding, who should bear the brunt of the Receiver’s costs in defending Equistar’s motion.

[11] Equistar takes issue with the quantum of the Receiver’s costs. I am satisfied, however, that the time spent was related to Equistar’s motion and not the Receiver’s motion for discharge for which no costs were ordered. Further, it is clear that the Receiver was required to spend time dealing with the issue prior to Equistar’s motion being scheduled. Notwithstanding the irrelevant nature of the 114 questions, it was still necessary to deal with them. In my view, the time spent as set out by the Receiver’s counsel is not unreasonable given the issues raised by Equistar.

[12] Based on the above reasons and having regard to the factors set out in Rule 57.01(1), I assess the Receiver’s costs of the motion on a substantial indemnity basis in the amount claimed of $23,236.76, inclusive of disbursements and HST. In the circumstances, I consider such costs to be both fair and reasonable and well within Equistar’s contemplation. Payable forthwith.

L. A. Pattillo J.

Released: January 30, 2013