CITATION: Nouri v. Negravi, 2015 ONSC 5695

NEWMARKET COURT FILE NO.: CV-11-102723-00

DATE: 20150915

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: MORTEZA NOURI and GREEN LEAF REALTY INC., BROKERAGE, Plaintiffs

AND:

ABBAS NEGRAVI, SUSAN OXLEY and SABA SAJJADI-DEZFULI, Defendants

BEFORE: THE HON. MADAM JUSTICE S.E. HEALEY

COUNSEL: A. Speciale, for the Plaintiffs

M. Klaiman, for the Defendant

HEARD: By written submissions

COSTS ENDORSEMENT

[1] This is a decision on costs following the trial decision in this matter (Nouri v. Negravi, 2015 ONSC 2736, 253 A.C.W.S. (3d) 80). The plaintiffs were the successful litigants in this action. As summarized at para. 72 of my Reasons, they were granted the requested relief of being relieved of any obligation to return money to the defendants, and the defendant Negravi was ordered to pay damages to the plaintiffs in the sum of $100,000. The defendants’ counterclaim was dismissed. The balance of the relief requested in the claim was likewise dismissed.

Effect of the Defendant’s Bankruptcy on this Ruling for Costs

[2] As a threshold issue, the defendant Negravi submits that proceedings against him are stayed pursuant to s. 69(1)(a) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 because of his assignment into bankruptcy. He submits that the noted section of the Bankruptcy and Insolvency Act prevents the court from making an order for costs in the action. Negravi made his assignment into bankruptcy after this court had rendered its judgment following trial. The Reasons for Judgment were released on April 27, 2015. Negravi filed an Assignment in Bankruptcy on May 11, 2015 and a Notice of Stay of Proceeding in the Bankruptcy was issued on May 12, 2015.

[3] The effect of bankruptcy is to stay all claims provable in bankruptcy until the trustee’s discharge, unless the Bankruptcy Court grants leave under s. 69.4 of the Bankruptcy and Insolvency Act to proceed by lifting the stay. Section 69(1)(a) of the Bankruptcy and Insolvency Act, provides:

69.(1) Subject to subsections (2) and (3) and sections 69.4, 69.5 and 69.6, on the filing of a notice of intention under section 50.4 by an insolvent person,

(a) no creditor has any remedy against the insolvent person or the insolvent person’s property, or shall commence or continue any action, execution or other proceedings, for the recovery of a claim provable in bankruptcy[.]

[4] Accordingly, the question is raised as to whether the plaintiffs may pursue the granting of an order for costs where judgment was rendered prior to the bankruptcy, and the bankruptcy occurred before all written costs submissions had been provided to the court on the timetable set out in the Reasons.

[5] While the plaintiffs rely on the cases of Re Cohen, 1948 CanLII 282 (ON CA), [1948] 4 D.L.R. 808, [1948] O.W.N. 781 (C.A.) and Hunter Douglas Ltd. v. Kool Vent Awnings Ltd. et al, [1958] C.S. 270, 37 C.B.R. 154 (Q.C.C.S.), the first of these cases does not address whether proceedings to obtain a costs order following judgment are barred by s. 69(1) of the Act, and the second turns on a particular section of the Quebec Civil Code, CQLR c C-1991, which, according to the brief headnote provided, prevents any change in the civil status of a party from affecting the progress of a case once it is ready for judgment.

[6] The plaintiffs also rely upon Fairview Electronics Ltd. v. de Boer International Ltd. (1983), 22 A.C.W.S. (2d) 126, 48 C.B.R. (N.S.) 102 (S.C.O.), a decision of a taxing officer. The facts are similar to the case before this court in that after the plaintiff’s case was dismissed, costs were awarded in favour of the defendant, to be assessed. Following that order, and before the taxation was completed, the plaintiff became a bankrupt. Counsel for the trustee in bankruptcy appeared as amicus curiae and submitted that the taxation should be stayed by virtue of s. 49(1) of the Bankruptcy Act, R.S. 1970, c. 14 (the predecessor to s. 69(1) of the current Act). The taxing officer proceeded with the taxation after rejecting counsel’s submission that the taxation itself was a “proceeding to recover a claim provable in bankruptcy” (at para. 5) on three grounds:

1. The action itself is what is stayed or not stayed, not each step in the action;

2. It was questionable whether an unquantified claim for costs is a “claim provable in bankruptcy”; and,

3. The taxation itself was not a “proceeding for the recovery” of a claim, but merely a step to quantify that claim which had already been established.

Unfortunately, Fairview Electronics adds little to the analysis of whether the step of having costs determined by the court is the continuation of an “action, execution or other proceedings for the recovery of a claim provable in bankruptcy” (Bankruptcy and Insolvency Act at s. 69(1)).

[7] Also relied on by the plaintiffs is the 1899 English Chancery Division case of In British Gold Fields of West Africa, [1899] 2 Ch. 7, which is asserted to stand for the proposition that if an action is brought against the debtor before bankruptcy and the debtor goes into bankruptcy before judgment is given against him or her, the costs are regarded as an addition to the sum recovered and are provable, provided the claim is provable. British Gold Fields considered the application of s. 37 of the Bankruptcy Act, 1883 (46 & 47 Vict. C. 52) to the following factual situation: a number of shareholders in the British Gold Fields of West Africa, Limited, made applications for repayment by the company of the amounts they had paid for their shares. Two such applications were successful, the company being ordered to pay costs of those applications. The applications of other shareholders were held in abeyance until the other two were disposed of; no order as to costs was made in respect of those remaining. After the two applications had succeeded and before anything more was done with the other applications, the company was ordered to be wound up. Shortly afterwards, on consent, the remaining applicants obtained orders for rectification with respect to their shares, but the official receiver refused to allow them to prove for their costs against the company, on the grounds that the company was insolvent.

[8] On initial determination before a court, an order was made in favour of the second group of applicants, which entitled them to add their taxed costs to their respective debts to prove for the same in the winding-up. The official receiver appealed that order, on the ground that only such debts and liabilities as were provable in bankruptcy could be proved against an insolvent company in the course of being wound up, and that the costs in question did not come within s. 37 of the Bankruptcy Act, 1883.

[9] The appeal was dismissed. Writing for the court, Lindley M.R. held that the decisions made pursuant to s. 37 of the Bankruptcy Act, 1883 had established the following rules, at p. 11:

If an action is brought against a person, who afterwards becomes bankrupt, for the recovery of a sum of money, and the action is successful, the costs are regarded as an addition to the sum recovered and to be provable if that is provable, but not otherwise.

If, therefore, what is recovered is unliquidated damages “arising otherwise than by reason of a contract, promise, or breach of trust,” that sum is not recoverable unless judgment, or at least a verdict for it, has been obtained before adjudication, or now the receiving order; and if the sum recovered is not provable, neither are the costs of recovering it: In re Newman; Re Bluck. On the other hand, if what is recovered is provable, so are the costs of recovering it: see Emma Silver Mining Co. v. Grant.

If the action against a person who becomes bankrupt is unsuccessful, no costs become payable by him or out of his estate, and no question as to them can arise. But if an unsuccessful action is brought by a man who becomes bankrupt, then, if he is ordered to pay the costs, or if a verdict is given against him before he becomes bankrupt, they are provable: Ex parte Peacock. On the other hand, if no verdict is given against him and no order is made for payment of costs until after he comes bankrupt, they are not provable. In such a case there is no provable debt to which the costs are incident, and there is no liability to pay them by reason of any obligation incurred by the bankrupt before bankruptcy; nor are they a contingent liability to which he can be said to be subject at the date of his bankruptcy. This was the case of Vint v. Hudspith.

An application under s. 35 of the Companies Act, 1862, to rectify the register and for a return of money paid is not a claim for unliquidated damages. It is a claim for two things, namely, first, for the removal of an impediment which prevents the demand for a return of the money from being successful; and, secondly, it is a demand for the repayment of a liquidated sum, and not for unliquidated damages. The register having been rectified, the sums paid by the applicants are clearly provable debts, and the costs of rectifying the register are costs of obtaining an order without which these debts cannot be recovered or admitted to proof. The costs are therefore properly added to the debts provable. [Footnotes omitted.]

[10] Section 37 of the Bankruptcy Act, 1883 provided as follows:

(1) Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise, or breach of trust, shall not be provable in bankruptcy.

(2) A person having notice of any act of bankruptcy available against the debtor shall not prove under the order for any debt or liability contracted by the debtor subsequently to the date of his so having notice.

(3) Save as aforesaid, all debts and liabilities, present or future, certain or contingent, to which the debtor is subject at the date of the receiving order, or to which he may become subject before his discharge by reason of any obligation incurred before the date of the receiving order, shall be deemed to be debts provable in bankruptcy.

[11] The British statute, while obviously differently worded than s. 69(1) of the statute under consideration, still contains a prohibition against actions to prove a debt or liability incurred by the debtor after the person so seeking to prove such debt or liability has notice of the bankruptcy. For this reason, I conclude that the rules of construction laid down by Lindley M.R. in British Gold Fields are applicable to the present day Bankruptcy and Insolvency Act. As the plaintiffs have a judgment for a liquidated sum prior to Negravi’s assignment, the costs so associated with that judgment should be regarded as an addition to the sum recovered, according to the rules outlined in British Gold Fields.

[12] Certain proceedings are not stayed by bankruptcy: see Robert A. Klotz, Bankruptcy, Insolvency and Family Law, 2d ed. (Toronto: Carswell, 2001), ch. 5 at 5-18ff. In the list of proceedings that are not stayed, the author cites several cases in which bankruptcy has not precluded a trial judge from issuing a reserved decision in matrimonial property litigation where argument has been completed before the date of bankruptcy. I see no reason why similar reasoning should not apply in a commercial context. In the Reasons released on April 27, 2015, the parties were directed to make submissions on costs if they could not agree on such costs, and the ruling specifically reserved the issue of costs for the court’s consideration. The plaintiffs’ original submissions were provided to the court on May 8, 2015, preceding the Notice of Stay. The responding submissions filed on behalf of Negravi were submitted on May 29, 2015, and were replied to on June 4, 2015.

[13] On a practical note, allowing a cost hearing that is being determined by written submissions to occur following bankruptcy does not drive up litigation costs and further erode the bankrupt’s estate. Requiring the plaintiffs to take the steps of seeking leave from the Bankruptcy Court would have such effect. The costs of the action have already been incurred by the plaintiffs and were corollary to obtaining the judgment. As the successful parties, the plaintiffs are presumptively entitled to costs against Negravi, who was clearly the unsuccessful party. In the court’s view, quantum was the only unascertained factor as of the date of the stay. Costs cannot be viewed as a contingent liability in this case.

[14] Accordingly, based on the rules set down in British Gold Fields, and in the interest of a just and fair result for the successful litigants, I will assume jurisdiction to fix costs in this matter despite the stay imposed by s. 69(1) of the Bankruptcy and Insolvency Act.

Costs Against Sajjadi-Dezfuli

[15] Claims were made by the plaintiffs against this defendant related to Negravi’s alleged contractual breaches. At the outset of trial, the court was advised that no relief was being pursued by the plaintiffs against Sajjadi-Dezfuli. Her counsel had been advised in advance of the trial that no relief was being sought against her; she did not attend the trial. Sajjadi-Dezfuli advanced a counterclaim against the plaintiffs seeking the amount of $50,000 for wrongful termination as a receptionist, a claim that was clearly exaggerated for someone occupying a low-level administrative position with approximately nine months’ employment.

[16] Accordingly, throughout the history of this proceeding the plaintiffs have had to defend against that claim. A review of the plaintiffs’ dockets indicate that time was spent related to this defendant not only with respect to the pleadings, but arranging for discoveries, preparing for the same, and preparing an offer to settle. In that regard, an offer to settle was served on Sajjadi-Dezfuli on October 23, 2014 in which the plaintiffs offered to dismiss the action and counterclaim on a without costs basis. Sajjadi-Dezfuli did not accept that offer. Following that date, there appears to be no specific work undertaken by the plaintiffs’ counsel relating to this defendant. Accordingly r. 49 of the Ontario Rules of Civil Procedure, R.R.O. 1990, Reg. 194, which governs offers to settle, would appear to have little effect on the plaintiffs but, had it been accepted, would have afforded certainty to Sajjadi-Dezfuli in respect of the potential of having a costs order made against her. She chose not to accept the offer. While the plaintiffs obtained no relief against her ultimately, as none was sought, costs were incurred by the plaintiffs in respect of both the claim and the counterclaim. While it would be wrong to reimburse the plaintiffs for costs associated with their action, some regard should be had for the fact that the plaintiffs incurred costs in defending a counterclaim that had little merit. Accordingly, the plaintiffs will have nominal costs paid by this defendant fixed in the amount of $1,000.

Costs Against Oxley

[17] No relief was granted against the defendant Oxley. She did not counterclaim. I disagree with the plaintiffs’ submissions that it was reasonable to join Oxley in this action. The plaintiffs had no evidentiary basis for alleging a contract between themselves and Oxley. The evidence bore out that Oxley was nothing more than the financier of this business venture, took a “hands-off” approach to its management, and her interest in the course of conduct undertaken by its two principals was limited only to being interested in the recovery of her investment. On these facts, there is no support in the case law for making either a Bullock order or a Sanderson order as requested by the plaintiffs.

[18] An offer was made by the plaintiffs to settle all of the issues with Oxley on June 2, 2014. The plaintiffs offered to pay the all-inclusive sum of $500, and on acceptance of the offer the action against her would be dismissed without costs.

[19] I agree with the submissions of her counsel that, had she accepted that offer, she would not have recovered the costs incurred by her to that date for her defence of the action, and accordingly, it cannot be said that the offer to settle met the requirements of r. 49.

[20] Oxley was successful in defending against the action. She is entitled to her costs. In his submissions on costs, Oxley’s counsel has broken down the time devoted by him as allocated to the defence of Oxley to be 20 per cent of the total time. On a partial indemnity basis, she incurred costs of $5,661. The plaintiffs’ counsel disputes entitlement but not quantum. The proceeding was reasonably complex and required three days of trial time. In the circumstances, such sum would necessarily be within the reasonable contemplation or expectation of the plaintiffs, and is warranted given Oxley’s success in defending the action. Accordingly, the plaintiffs will pay costs to Oxley in the amount of $5,661.

Costs Against Negravi

[21] A r. 49 offer to settle dated June 2, 2014 made by the plaintiffs offered to the settle all of the issues with Negravi on the basis that the plaintiffs would pay the sum of $24,500 in full satisfaction of all claims advanced by Negravi, such payment to be made to the defendant Oxley. I find that the offer to have Oxley be the recipient of such money does not alter the effect of the offer, given the undisputed evidence at trial that Negravi is indebted to her for sums advanced to him for operation of the business. There is no reason to depart, in the interests of justice, from awarding the plaintiffs their costs against Negravi on a solicitor and client basis from that date forward.

[22] However, this is a case in which consideration should be given to an award of costs on the higher scale prior to the delivery of a r. 49 offer. The first reason for this is that Negravi failed to invoke the arbitration provision in the shareholders’ agreement regarding attempted resolution of any dispute between the shareholders. It is clear that he intended to thwart any efforts made by the plaintiffs for a timely and effective resolution of this matter, and his email of December 21, 2010, referenced at para. 36 of the Reasons, by which he purported to relieve himself of all of the duties and responsibilities as a partner in the corporate plaintiff, displays that unreasonable attitude.

[23] In addition, Negravi’s spurious counterclaim was for an unfounded amount of $1,000,000, which included relief sought under the oppression remedy contained in s. 248 of the Business Corporations Act, R.S.O. 1990, c. B.16. It was not until the trial was commenced that defence counsel informed the plaintiffs’ counsel that he would not be proceeding with such remedies. Nonetheless, as set out in the plaintiffs’ reply submissions, the allegations made against Nouri in the counterclaim, at para. 31, asserted dishonest conduct on the part of Nouri, including refusing to provide full financial disclosure of the business and affairs of Green Leaf, diverting and delaying sales and taking more funds over and above Negravi, without Negravi’s knowledge, consent or permission. The latter allegation in particular points to dishonest conduct which is tantamount to fraud. None of these allegations were proven to be true. Accordingly, the court has no difficulty acceding, given the above two factors, to the plaintiffs’ submissions that they are entitled to costs on a higher scale in this case.

[24] Having regard to all of the factors in r. 57.01(1), and having specific regard to the fact that the counterclaim was for $1,000,000 and was dismissed outright, and having regard to the fact that the hourly rate for Negravi’s lawyer was comparable to that of the plaintiffs’ lawyer, there is nothing unreasonable about the amount being claimed for this action. Some reduction should be made to take into account that fees would have been incurred in connection with the prosecution of the action against Oxley. These fees are difficult to parse out of the dockets but should be comparable to, although slightly higher than, the fees incurred by Oxley. They should be somewhat greater because of the fact that Oxley advanced no counterclaim, whereas the plaintiffs incurred costs for advancing the claims made against Oxley in the pleadings, as well as all pretrial proceedings. Weighing these factors, and applying the discretion awarded to the trial judge in fixing costs, I conclude that a reasonable sum by which to discount the plaintiffs’ costs is $10,000 in this regard.

[25] The plaintiffs seek costs on a substantial indemnity basis in the amount of $175,284.34. Again, the dockets of the plaintiffs do not reveal excessive time given the history and moderate complexity of the action.

[26] Wide discretion in fixing costs is given to the court, bearing in mind the principles enunciated in the leading cases such as Anderson v. St. Jude Medical, Inc. (2006), 2006 CanLII 85158 (ON SCDC), 264 D.L.R. (4th) 557, 208 O.A.C. 10 (Div. Ct.) and Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291, 188 O.A.C. 201 (C.A.). In all of the circumstances, and having regard to all of the factors in r. 57.01(1), the amount of $150,000 is a just and fair determination of the plaintiffs’ costs of this action.

[27] Accordingly, the following order shall issue:

1. Saba Sajjadi-Dezfuli shall pay to the plaintiffs costs fixed in the amount of $1,000;

2. The plaintiffs shall pay to Susan Oxley her costs fixed in the amount of $5,661; and,

3. Abbas Negravi shall pay to the plaintiffs their costs of this action fixed in the amount of $150,000.

[28] Mr. Speciale made a request of the court subsequent to the release of its judgment in this matter, requesting the court to exercise its discretion under s. 130 of the Courts of Justice Act, R.S.O. 1990, c C.43, to fix the prejudgment interest at 3 percent per annum from January 1, 2011 instead of 1.3 percent prescribed by s. 127 of the Courts of Justice Act. As this was not a request made in the original pleading, or in the costs submissions, to do so would deny the defendants procedural fairness and so the court will not accede this request.

HEALEY J.

Date: September 15, 2015