Court File and Parties

Court File No.: 13-40010
Date: 2013-11-25
SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 829194 ONTARIO INC. and WARREN BRAVO - Applicants

AND:

PAUL GARIBOTTI, SANDRA GARIBOTTI and BRAVO CEMENT CONTRACTING (TORONTO) INC. et al - Respondents

BEFORE: The Honourable Mr. Justice D.A. Broad

COUNSEL:
M. Abradjian and R. Kis - Counsel for the Applicants
B. Jaeger and C. Ferrari - Counsel for the Respondents

costs ENDORSEMENT

[1] The parties have delivered their submissions on costs pursuant to the direction in my Endorsement dated September 18, 2013.

[2] The following is my disposition with respect to the costs of the motions.

Positions of the Parties

[3] The plaintiffs seek their costs of their motion and in defending the cross-motion of the defendants on a partial indemnity basis, provided that they are fully indemnified for the fees of their accounting advisors/consultants BDO Canada LLP (“BDO”) which they say were associated with enforcing the Interim Order and obtaining information to which they were entitled pursuant to the Shareholders’ agreement and the Business Corporations Act (“OBCA”). They also say that they should be awarded costs associated with the attendance on April 18, 2013 which were deferred to the final disposition of the motion. The costs of the attendance on May 23, 2013 have already been disposed of.

[4] In their Costs Outline the plaintiffs' full indemnity costs are stated to be $229,548.66. This figure is comprised of legal fees totaling $95,103.50, assessable disbursements in the sum of $9,845.53, fees of BDO in the sum of $98,418, and HST on the fees, taxable disbursements and the BDO invoices. The partial indemnity costs are simply stated to be 60% of the total (including the BDO invoices), being $137,729.20.

[5] The defendants state that there should be no costs awarded in respect of the motions as an order for costs is not in the parties' interests. They say that the probable end result of the proceedings will be either a buy-sell or a winding-up of Bravo Cement (Toronto) Inc. (the Corporation”). In the circumstances, the defendants submit that an order requiring the payment of costs is likely to further entrench the parties in their positions.

[6] The defendants point to their efforts to attempt to settle the issues between the parties by making an offer to purchase the shares in the Corporation owned by the plaintiffs, or to proceed to mediation/arbitration.

[7] The defendants also make reference to the conduct of the plaintiffs which led to the May Variation Order, and submit that the acrimonious relationship between the parties made the issue of appointing a monitor one of the more important issues for the defendants on the hearing of the motions.

[8] Although it is not entirely clear from reading the defendants’ costs submissions, it appears that, in the alternative, they seek partial indemnity costs in the sum of $178,057.62. This figure is not broken out between fees, disbursement and HST. In any event, they do say that the plaintiffs should not be entitled to an award of costs.

Principles

[9] Pursuant to s. 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43 the costs of and incidental to 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.

[10] The Court of Appeal has observed that modern costs rules are designed to foster three fundamental purposes: (1) to indemnify successful litigants for the cost of litigation; (2) to encourage settlements; and (3) to discourage and sanction inappropriate behavior by litigants (see Fong v. Chan (1999) O.J. No. 3707 (C.A.) at para. 24).

[11] The factors to be considered by the Court, in the exercise of its discretion on costs, are set forth in subrule 57.01(1), including the principle of indemnity and the amount of costs that an unsuccessful party could reasonably expect to pay.

[12] Typically costs follow the event on a partial indemnity basis, which is to say that, although there is no absolute entitlement to costs, normally costs are ordered to be paid by the unsuccessful party to the successful party on a partial indemnity scale (see Bell Canada v Olympia & York Developments Ltd. (1994), 1994 239 (ON CA), 17 O.R. (3d) 135 (Ont. C.A.)).

[13] It is well known that the overall objective in dealing with the amount of costs is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular circumstances of the case, rather than an amount fixed by the actual costs incurred by the successful party. The expectation of the parties concerning the quantum of costs is a relevant factor to consider. The Court is required to consider what is "fair and reasonable" having regard to what the losing party could have expected the costs to be (see Boucher v. Public Accountants Council (Ontario) (2004), 2004 14579 (ON CA), O.J. No. 2634 (C.A.) at para. 26 and Coldmatic Refrigerator of Canada Ltd. v. Leveltek Processing LLC (2005), 2005 1042 (ON CA), [2005] O.J. No. 160 (C.A.)).

Analysis

[14] The defendants cited no authority for the proposition that a perceived likelihood of the parties becoming further entrenched in their positions should lead to no costs being awarded in respect of the interlocutory motions. As indicated above, indemnification of successful litigants for the cost of litigation is one of the fundamental purposes of the modern costs rules. Although encouragement of settlement is also an important purpose, it is best achieved by maintaining the risk of an adverse costs award front and centre before the parties in order to encourage them to take realistic and reasonable positions, which would in turn enhance the potential for settlement. It is not ordinarily appropriate for the Court to speculate on whether an interlocutory costs award would serve to entrench the parties in their positions. I have no evidence before me to make such a determination. Contrary to the position taken by the defendants, a costs award may very well serve to soften the parties’ positions by reinforcing the real risks of continuing the litigation.

[15] In my view, the plaintiffs were the more successful parties on the motions. The need for the plaintiffs to bring the motions was vindicated by the outcome. It was found that the plaintiffs had not been provided with access to the financial information and documentation to which they were entitled under the OBCA, and, based upon admission of the defendant Paul Garibotti, it was also found that significant resources of the Corporation had been diverted to his personal use and that of his family. The plaintiff Warren Bravo was found to have been excluded from the participation in the care and management of the Corporation to which he was entitled under the Shareholders' Agreement. It was necessary to craft a remedy on an interlocutory basis to address these legitimate concerns on the part of the plaintiffs.

[16] The two Offers to Settle of the defendants do not qualify for consideration on the question of costs pursuant to Rule 49.10. Moreover, under the circumstances it is not appropriate to apply Rule 49.13. The defendants appropriately did not, in their submissions on costs, make reference to either of these Rules.

[17] It follows that the plaintiffs should be entitled to costs in respect of the motions on a partial indemnity basis, as well as in respect of the interim motion argued on April 18, 2013. As confirmed in Schreiber v. Mulroney, 2007 31754 (ON SC), [2007] O.J. No. 3191 (SCJ) at para. 2, the principle that a successful party is entitled to his or her costs is of long-standing and should not be departed from except for very good reasons.

[18] However, in my view, the amount of costs to be awarded to the plaintiffs in this case should be reduced to reflect the fact that the plaintiffs were unsuccessful in their position that Warren Bravo should be appointed as a full co-manager of the Corporation, including its day-to-day business operations. I found that this was unrealistic, in particular as the plaintiffs had not presented a workable plan for such co-management.

[19] I would not give effect to the submission of the defendants that the conduct of the plaintiffs which led to the May Variation Order should be taken into account. The costs in respect of that Order have already been disposed of and I must presume that, to the extent that the conduct of the plaintiffs leading to the making of that Order was relevant, it was reflected in that disposition. I would also not give effect to the submission of the defendants that that they had proposed the appointment of a Monitor, and that that should be reflected in the costs disposition. As indicated in my Endorsement, the defendants only put forward the proposal that a Monitor be appointed as an alternative should their request for mandatory mediation and arbitration not succeed. Moreover, the Monitor was put in place for the protection and comfort of the plaintiffs, not for the benefit of the defendants.

[20] No authority was provided to me touching on the appropriate provision to make for the fees charged by BDO. The defendants submit that the amount claimed by the plaintiffs in this respect is improper and disproportionate to the legal fees of the plaintiffs, and in addition, they should be treated as costs in the cause and not of the hearing of the motions.

[21] In my view, the retention of BDO by the plaintiffs to review and analyze the financial disclosure provided by the defendants as a result of the April Interim Order was reasonable and justified in reference to the plaintiffs' motion. It was reasonable for the plaintiffs to obtain a professional accounting analysis of the financial records to verify the existence and extent of the diversion of corporate resources to the defendants' personal benefit to support the oppression claim and in a format that could be understood by the Court. I do not agree that the costs associated with that should be considered to be in the cause and not in respect of the plaintiffs' motion.

[22] However, BDO was not qualified as an expert, nor did it provide an expert opinion. It was providing a professional service to the plaintiffs to assist them in prosecuting and presenting their case. From that standpoint, the involvement of BDO can be placed into a similar category as that of plaintiffs' counsel and should be awarded on a partial indemnity basis rather than on a full indemnity basis.

[23] The reasonable expectations of the defendants, in the event that they were unsuccessful, with respect to the costs of the plaintiffs, is demonstrated by the defendants' own Bill of Costs in the sum of $178,057.62 on a partial indemnity basis, compared to the plaintiffs' partial indemnity costs at 60% of their total costs (including the BDO fees) of $137,729.20.

[24] In order to reflect the lack of success in the plaintiffs in having Warren Bravo appointed as a co-manager of the Corporation's day-to-day business activities, I would reduce the plaintiffs’ claim for partial indemnity costs by 25% to a total of $103,296.90 rounded to $105,000, inclusive of fees, disbursements and HST.

[25] I agree with the submissions of the plaintiffs that the award of costs should be paid by the defendants Paul Garibotti and Sandra Garribotti and not by the Corporation. Otherwise, the plaintiffs would be effectively funding 50% the costs award by virtue of their shareholding in the Corporation.

Disposition

[26] For the foregoing reasons, it is therefore ordered that the defendants Paul Garibotti and Sandra Garribotti pay costs of the motions, including the attendance on April 18, 2013, to the plaintiffs, fixed in the sum of $105,000, such payment to be made within 30 days of the date hereof.

D. A. Broad J.

Date: November 25, 2013