COURT FILE AND PARTIES

COURT FILE NO.: 31-282211
DATE: 2014-03-25
SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Duca Financial Services Credit Union Ltd., Plaintiff

AND:

Albert Bozzo and Maria Louisa Bozzo, Defendants

BEFORE: Regional Senior Justice Morawetz

COUNSEL:
Edwin G. Upenieks, for the Plaintiff
Duncan Boswell and Mark Crane, for the Defendants

HEARD:

ENDORSEMENT on costs

[1] On May 27, 2010, Cumming J. dismissed the plaintiff’s claim.

[2] Cumming J. awarded costs to the defendants in the amount of $100,000 plus disbursements of approximately $23,000.

[3] On June 2, 2011, the Court of Appeal for Ontario, reversed this decision and directed that the issue of costs be remitted back to Cumming J.

[4] The Honourable Peter Cumming retired in 2013 and is no longer in a position to determine the issue of costs.

[5] The parties have requested that I determine the issue of costs.

[6] By way of background, the plaintiff, previously known as Duca Community Credit Union (“Duca”), obtained an order from Registrar Ferron on December 3, 1996 in the bankruptcy proceedings of Albert Bozzo. The order was granted by the Registrar pursuant to section 38 of the Bankruptcy and Insolvency Act. The effect of the order was to assign the trustee’s interest in this action to the plaintiff.

[7] The action proceeded by way of Statement of Claim and was ultimately determined on the basis of the Amended Statement of Claim.

[8] On May 6, 2010, Campbell J. made an order, on consent, that the trial be bifurcated.

[9] The trial was restricted to the issues described in paragraphs 1(d) and 1(e), with regard to the vesting issue only, and 2 – 16 (a) - (g) of the Amended Statement of Claim, paragraphs 1 – 11 and 38 – 40 of the Further Amended Amended Statement of Defence, paragraphs 1 – 10 of the Amended Reply and Defence to Counterclaim and the attached Schedule “A” to the order of Campbell J.

[10] Scheduled “A” states:

The main issue herein is whether a trust declaration executed by the defendant Albert Bozzo (“Albert”) declaring that he holds 51 common shares (or 51%) of the Abbes Group Inc. (“Abbes”) in trust for his wife Maria Bozzo (“Maria”) who holds 49 common shares (or 49%) of Abbes is valid or whether it is void and unenforceable as against the plaintiff Duca Financial Services Credit Union Ltd. (“Duca’).

The secondary issue is what remedy the Court should order if it finds that the trust declaration is void and unenforceable. Duca wishes to have some assurance that whatever assets Abbes might have will not be dissipated while any appeals are heard, while the remaining issues, as set out in the Counterclaim of the defendant are tried, or while the impact of the trust declaration being found void and unenforceable is resolved. The defendants wish to ensure that Duca, if successful, does not take any enforcement proceedings pending any appeals, or trial of the Counterclaim and that Abbes be able to make any payments that may be necessary in the ordinary course of business pending resolution of this secondary issue.

[11] The plaintiffs take the position that, in accordance with the decision of the Court of Appeal, costs should be awarded to the plaintiff, with the issues being scale and quantum.

[12] The plaintiff submits that Cumming J., having found dishonest and fraudulent misrepresentations by the defendant, Albert Bozzo, costs should be awarded on a substantial indemnity basis.

[13] The Bill of Costs of the plaintiff on a substantial indemnity basis amounts to $211,532.08. The plaintiff reduced the amount of the requested award to $200,000. The plaintiff takes the position that this amount is fair and reasonable and within the defendants expectations. By way of comparison, the plaintiff referenced the defendants cost submissions, after trial, in which they sought costs on a substantial indemnity basis of $394,488.73.

[14] The plaintiff requests that the award be payable by both defendants, jointly and severally.

[15] The defendants note that, in cost submissions submitted after the trial, the plaintiff argued that costs in favour of the defendant be denied, or in the alternative, be deferred to the trial judge who hears the counterclaim, or in the further alternative, be limited to $25,000.

[16] The defendants take the position that they are in agreement with the plaintiff’s original submissions to defer awarding of any costs until after the counterclaim has been disposed of as this would allow the offers to settle served by the defendants to be properly evaluated and is consistent with the court’s discretion to postpone the awarding of costs.

[17] Alternatively, the defendants submit that if costs are fixed, the award should not be greater than $100,000 and further, that any enforcement should be stayed pending the disposition of the counterclaim.

[18] The defendants also submit that while the claim named both Maria and Albert, given the nature of the section 38 order, only the assets of Maria were in dispute in the litigation. The plaintiff argues that since Duca abandoned all of their claims except for those relating to the trust declaration involving the Abbes Group, Maria was completely successful in defending the other claims against her assets.

[19] The defendants point out that prior to trial, the defendants made two offers to settle. In 2002, the defendants offered to pay $80,000 inclusive which amount was increased in 2007 to $100,000. They submit that the offers to settle were intended to settle all issues between the parties, including those issues that remain outstanding through the counterclaim.

[20] Counsel to the defendants point out that Duca previously submitted that “until all outstanding issues between the parties, are resolved, including the counterclaim, any award of costs is, respectfully, premature”.

[21] At paragraph 21 of the original plaintiff’s submissions, the following was stated:

Plaintiff’s counsel, having considered the entirety of the course of this lawsuit, submits that roughly 80% to 90% of all costs incurred by all parties prior to the actual trial costs relates to the counterclaim.

[22] The defendants further points out that Duca submitted that the trial did not justify two counsel attending and stated in their original submissions as follows:

Mr. Hood had Mr. Kish with him for a few days but he was there to observe, not to charge any time. This was a one-lawyer aside engagement.

[23] Duca now seeks to recover trial attendance fees on behalf of both Mr. Hood and Mr. Kish.

[24] The defendants submit that Duca should only be entitled to recover trial preparation costs relating to Mr. Hood and further, that his 159 hours of preparation time was too high for an experienced senior counsel within the context of a four day trial.

[25] The defendants also submit that requested fees in respect of document discovery and examinations, which totalled approximately $57,000, relate to issues involving the counterclaim and should be stayed pending the outcome of the counterclaim.

[26] An alternative submission put forth by the defendants was that even if costs were to be fixed, the enforcement of such an award should be stayed, and subject to reconsideration, pending the disposition of the counterclaim.

[27] In its reply submissions, Duca submitted that there are exceptional circumstances that warrant an elevated costs award, namely, Albert Bozzo’s misrepresentations to the plaintiff, which Cumming J. found constituted reprehensible conduct (see paras. 17 – 19 of the Costs Endorsement).

[28] With respect to the issue of the scale of costs, the defendants take the position that, while Cumming J. did find that in “obiter” Albert had intentionally misrepresented his net worth in 1989 and 1990, he cured this misrepresentation by informing Duca of the trust declaration in November 1990.

[29] The plaintiff also addressed the defendants’ submission that Maria Bozzo was successful in defending claims that had been abandoned by the plaintiff. The plaintiff takes the position that there was no suggestion that the abandoned claims generated costs that could be distinct from those arising for other issues that proceeded to trial.

[30] With respect to the position taken by the defendants that the trial did not justify the attendance of two counsel, the plaintiff points out that the total time claimed for trial attendance by Mr. Kish was 7.5 hours for a total of $1,875 and that the total amount of time claimed for trial attendance for both counsel had been reduced by $795. Consequently, an appropriate reduction was already taken into account. The plaintiff also points out that two counsel attended on behalf of the defendants claiming 48 hours and 48.5 hours respectively.

[31] The general principles as to costs are set out in the Cost Endorsement of Cumming J. and need not be repeated.

[32] With respect to the scale of costs, it is important to note that Duca’s action was to declare a trust declaration either as a sham or as a fraudulent conveyance.

[33] The decision of the Court of Appeal is clear. There was no intention to create a valid trust and the trust was therefore void. The decision of Cumming J. was set aside and judgment was granted in the form requested by the appellant.

[34] Having reviewed the reasons of Cumming J., it is clear that Cumming J. made a finding that Albert Bozzo had intentionally misrepresented his net worth to Duca in an effort to obtain a loan for Joco Investments Inc., which was controlled by a company where Maria, or Albert and Maria together, held all of the shares. In my view, it is also clear that Cumming J. found dishonest and fraudulent misrepresentations by the defendant Albert Bozzo to Duca.

[35] In its Endorsement dated June 15, 2011, the Court quoted from the evidence of Mr. Bozzo at trial:

Question: You had voting control of Abbes as of January 26, 1988?

Answer: Yes sir, I had voting control even after that. Even after the trust declaration.

Question: That’s what you believe?

Answer: Yes.

Question: So, again, you’re saying in your mind the control of the company didn’t change either before the trust declaration or after trust declaration?

Answer: No sir.

[36] At paragraph 5 of its Endorsement, the Court of Appeal indicated that “Mr. Bozzo considered himself to have retained control of the assets purportedly held in trust. In his own mind, he had not separated himself from the beneficial interest in the shares.”

[37] In its cost submissions, the plaintiff relies on King v. Gulf Canada Ltd. (1992), CarswellOnt 974 (Ont. C.A.) for the proposition that, where there is a finding of fraudulent misrepresentation, the successful party is entitled to costs on a substantial indemnity basis.

[38] I accept the position put forth by the plaintiff that costs should be awarded on a substantial indemnity basis.

[39] With respect to quantum, it seems to me that the original submissions of the plaintiff to the effect that roughly 80% to 90% of all costs incurred by all parties prior to the actual trial costs related to the counterclaim, has to be taken into account.

[40] In these circumstances, it seems to me that rather than determine an arbitrary figure, the quantum of costs for the items referenced in the Bill of Costs under the headings of “Pleadings, Preparation for Trial, Document Discovery and Examinations, Offers to Settle and Pre-Trial”, for the period prior to actual trial costs should be determined after the disposition of the counterclaim. In addition, the amounts paid for disbursements should also be determined after the disposition of the counterclaim.

[41] At this time, the award of costs is fixed at $20,500 representing $14,000 for trial attendance and $6,500 for preparation of the Bill of Costs and Costs Submissions for a total of $20,500. I consider this award to be fair and reasonable in the circumstances.

[42] The defendants had requested a reduction to take into account the presence of two counsel at trial. In my view, such a reduction is not warranted. Both sides were represented by two counsel at trial and the amount claimed by Mr. Kish was only 7.5 hours which, in the circumstances, is not unreasonable.

[43] The remaining issue to be determined is whether the costs award should be payable by both defendants. In view of the nature of the action, namely to set aside a trust declaration in favour of Maria Bozzo, that both Albert and Maria were involved and it is appropriate that the award be made as against both defendants, payable jointly and severally.

[44] Finally, I see no basis to stay the enforcement of this award. The award has been limited in its scope to the trial and the preparation of cost submissions. The award of $20,500 plus applicable HST is payable within 30 days. The balance of the request for costs is to be determined after the disposition of outstanding issues.

Morawetz, RSJ

Date: March 25, 2014