SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: Markplan Inc., Applicant

AND:

Magazine Acquisition Corp. and Sam Osman, Respondents

BEFORE: D. M. Brown J.

COUNSEL:
S. Thom, for the Applicant
W. Genereux, for the Respondents

HEARD: Costs motion in writing with submissions dated February 18, 24 and March 3, 2014

REASONS FOR DECISION - costs

I. Costs dispute about the disclosure of financial information under the PPSA and a general security agreement

[1] Markplan Inc. sold its business publishing a magazine called “The Magazine” to Magazine Acquisition Corp., an Ontario corporation, by asset purchase agreement dated May 26, 2011. The respondent, Sam Osman, provided most of the acquisition funding. Part of the purchase price was deferred. MAC executed a General Subordinated Security Agreement dated May 31, 2011 (the “GSSA”) in favour of Markplan to secure the Deferred Payment; the GSSA granted Markplan a security interest under the Ontario Personal Property Security Act. Ontario law governed the GSSA (s. 11(e)). Section 4(e) of the GSSA required MAC to furnish to Markplan “such financial information and statements and such information and statements relating to the Business and Collateral as the Secured Party may from time to time reasonably request in writing…” Markplan registered the security interest granted by MAC under the GSSA under the PPSA on June 7, 2011.

[2] At the closing of the sale Markplan was required to execute a Subordination Agreement with MAC and the respondent, Sam Osman, which recited that MAC had borrowed money from Osman and that Markplan agreed to subordinate the payment of the Deferred Payment to MAC’s obligations to Osman. The Subordination Agreement recited that MAC and Osman were parties to a Credit Agreement dated May 31, 2011. Osman registered a security interest against MAC under the PPSA on June 3, 2011. I could see nothing in the Subordination Agreement which restricted, either substantively or procedurally, Markplan’s rights to obtain information under PPSA s. 18 or s. 4(e) of the GSSA.

[3] MAC did not pay the Deferred Payment. From the costs submissions of counsel it appears that numerous issues arose between the parties in that regard; they are not relevant for this costs motion.

[4] Markplan wrote to MAC, at its Toronto address, to Osman’s attention, on August 15, 2013 requesting specific information pursuant to section 4 of the GSSA, including production of a copy of the Credit Agreement between MAC and Osman. The latter’s counsel became involved. The long and the short of the exchange between counsel was that neither MAC nor Osman provided the requested information, including the Credit Agreement. Markplan gave fair notice that if the requested information was not disclosed, it would commence a proceeding to seek it.

[5] It did so by commencing this application on October 31, 2013. Markplan sought several kinds of relief: (i) disclosure of information by MAC under section 4 of the GSSA and disclosure of information by Osman, as a registered security interest holder, under section 18 of the PPSA; (ii) a determination of Markplan’s entitlement in the collateral under the GSSA; (iii) appointment of a receiver over MAC; and, (iv) judgment against MAC for the Deferred Payment.

[6] By endorsement dated November 13, 2013, Mesbur set a schedule for the return “of application re disclosure issues” – i.e. Markplan’s request for orders requiring the disclosure of information by MAC under section 4 of the GSSA and disclosure of information by Osman, as a registered security interest holder, under section 18 of the PPSA. An exchange of emails later that day amongst counsel made it crystal clear that the scheduled hearing would deal only with the disclosure issues raised by Markplan’s application. Respondents’ counsel wrote:

I agree, we have only scheduled out the disclosure issues, although for clarity I confirm that we reserve the right to respond with materials as we see fit, and that you may reply as you see fit.

[7] In the result MAC and Osman filed a large November 27, 2013 Respondents’ Application Record which, when measured against the issues Mesbur J. had ordered on for hearing, can only be described as a “duck and weave” responding record and a lengthy (and expensive) effort to avoid dealing with the issues in dispute. The theme of Osman’s 38-page affidavit was that Markplan was coming to Court with unclean hands and Osman spent most of his affidavit describing the dirt which he alleged attached to Markplan’s hands. Whether those allegations were accurate or false was neither here nor there for the disclosure issues in respect which Mesbur J. had directed a hearing. Strikingly, Osman did not respond, at all, to Markplan’s request for disclosure by MAC and himself under the GSSA and PPSA.

[8] Markplan filed a brief reply application record pointing out that MAC and Osman had studiously ignored dealing with the disclosure issues. Osman was cross-examined on December 16, 2013 (66 pages), both on his November 27 affidavit, as well as on a further December 16 one; the latter was not filed in the court record. He gave numerous undertakings to provide the requested information.

[9] The parties rolled in before me at a 9:30 on January 10, 2014, at which time I made the following order:

“(i) u/t to be satisfied by Feb 12/14;

(ii) if those responses result in the applicant deciding that there is no need to pursue further the requests in the Notice of Application, and if the parties cannot resolve the issue of costs, written cost submissions shall be filed, to my attention…

(iii) I will deal with them on a “written motion” basis and release a decision.”

[10] Although Osman did not provide answers to all the undertakings, he provided sufficient answers to prompt Markplan to advise that no hearing of its application would be required, and it was prepared to withdraw the balance of the relief sought in the application provided Osman satisfied his remaining undertakings.

II. Costs requested

[11] Markplan sought to recover costs against the respondents on a substantial indemnity basis in the amount of $35,387.63, as detailed in its February 18, 2014 Bill of Costs. The respondents submitted that Markplan was not entitled to any costs and, instead, the court should award them costs of $42,851.51 on a substantial indemnity basis.

[12] The amount of time claimed by both sides was roughly the same – 92.6 hours by Markplan and 103.2 hours by the respondents – so evidently this is not a case where the parties disagree about the reasonableness of the amount of time spent. Neither side took issue with the hourly rates used by the other.

III. Analysis

[13] In August, 2013, Markplan made legitimate requests for information of MAC and Osman pursuant to the GSSA. MAC and Osman ignored those legitimate requests. Markplan then commenced this application and sought information from the respondents under the GSSA and PPSA s. 18. Markplan content that Mesbur J. order a hearing only on the disclosure which it sought. In response, MAC and Osman persisted in refusing to disclose the requested information. Instead, MAC and Osman filed extensive evidence which, for purposes of the limited hearing directed by Mesbur J., can only be described as a complete red herring. Finally, under cross-examination, Osman caved and undertook to cough up the requested, relevant information.

[14] I have no sympathy whatsoever for the position taken by MAC and Osman in their cost submissions. Whatever litigation was taking place between Osman and Markplan in Alberta – which Markplan had disclosed in its application record – Markplan, as a person with an interest in MAC’s collateral, was entitled to obtain from Osman the information specified in PPSA s. 18 within 15 days of the request (PPSA, s. 18(5)). Also, Markplan, as a secured creditor of MAC under the GSSA, which was governed by Ontario law, was entitled, as a matter of contract, to obtain from MAC the information specified in s. 4(e) of the GSSA. Neither MAC nor Osman had any reasonable basis to resist producing the requested information.

[15] Based upon my review of the application record, responding application record and reply record, I conclude that MAC and Osman’s refusal to provide the information requested by Markplan in August, 2013 and in its October notice of application was done as a stall tactic, pure and simple, in an effort to drive up MAC’s legal costs. Not only did both those respondents ignore their legal obligations to disclose the requested information, they then essentially ignored the hearing directions made by Mesbur J. and they sought to increase Markplan’s legal costs by filing large amounts of evidence which were irrelevant to the issues directed by Mesbur J.

[16] Such litigation conduct, I conclude, falls into the category of “reprehensible conduct” as described by the Court of Appeal in Davies v. Clarington (Municipality) (2009), 2009 ONCA 722, 100 O.R. (3d) 66 (C.A.), and it merits an award of elevated costs against the respondents on a substantial indemnity basis.

[17] I have reviewed the Bills of Cost filed by both parties. I have taken into account the factors enumerated under Rule 57, including the time spent, the result achieved, and the complexity of the matter, as well as the application of the principle of proportionality: Rule 1.04(1). In addition, I have considered the principles set forth by the Court of Appeal in Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 14579 (ON CA), 71 O.R. (3rd) 291 (C.A.), specifically that the overall objective of fixing costs is to fix an amount that is fair and reasonable for an unsuccessful party to pay in the particular circumstances, rather than an amount fixed by actual costs incurred by the successful litigant.

[18] I conclude that the substantial indemnity costs claimed by Markplan of $35,387.63 are reasonable substantial indemnity costs in the circumstances, and I order the respondents to pay Markplan that amount within 30 days.

D. M. Brown J.

Date: March 18, 2014