8527504 Canada Inc. v. Liquibrands Inc., 2015 ONSC 891
COURT FILE NO.: CV-14-10543-00CL
DATE: 20150209
ONTARIO
SUPERIOR COURT OF JUSTICE
COMMERCIAL LIST
BETWEEN:
8527504 CANADA INC.
Applicant
- and –
LIQUIBRANDS INC.
Respondent
Court File No. CV-13-10331-00CL
AND BETWEEN:
8527504 CANADA INC.
Applicant
- and -
SUN PAC FOODS LIMITED
Respondent
APPLICATIONS UNDER Section 243 of the Bankruptcy and Insolvency Act, R.S.C 1985, c. B-3, and Section 101 of the Courts of Justice Act, R.S.O. 1990, c. C.43.
BEFORE: Newbould J.
COUNSEL: Harvey Chaiton and Sam Rappos, for the Applicants
David E. Wires and Krista Bulmer, for the Respondents Liquibrands Inc. and Sun Pac Foods Limited
Anthony J. O’Brien, for the BDO Canada Limited, receiver of Sun Pac Foods Limited
ENDORSEMENT
[1] On December 4, 2014, I (i) granted an application by the applicant for the appointment of a receiver of the assets of the respondent Liquibrands Inc., (ii) dismissed a motion by Liquibrands for an order lifting the stay of proceedings in the receivership of Sun Pac Foods Limited to permit an action to proceed that had been commenced by Sun Pac and Liquibrands against the applicant and its affiliate seeking damages for an alleged breach of contract and to appoint another receiver for the purpose of advancing the litigation, and (iii) dismissed a motion by Liquibrands for an order directing BDO Canada Limited as receiver of Sun Pac to pay into Court the balance of funds held by the Receiver from the sale of Sun Pac’s assets pending final determination of the action.
[2] The applicant now seeks its costs of the application and motions on a substantial indemnity basis of $250,815.61, or in the alternative on a partial indemnity basis of $171,115.87. Liquibrands says that the costs should be on a partial indemnity basis and fixed at $111,000.
[3] The claim for costs on a substantial indemnity basis is based on the loan documentation signed by Liquibrands that provides for costs “on a solicitor and own client basis” in one document, “reasonable solicitor’s costs” in another and “reasonable legal fees and disbursements at its solicitors’ normal charges” in another, all for enforcement of the loan obligation.
[4] A large part of the fees on the application and motions was due to the defence raised by Liquibrands that because of a breach by the applicant of an agreement to advance a loan under the Forbearance Agreement and the resulting claim for damages of $100 million made by Liquibrands and Sun Pac, no receiver of Liquibrands should be appointed and the money from the sale of Sun Pac assets by its receiver should be paid into court rather than to the applicant under its first ranking security.
[5] Liquibrands attempted to establish the validity of its claim for breach of contract on the application and motions. It filed three affidavits and summonsed and examined four non-party witnesses under rule 39.03. In response, the applicant filed two responding affidavits and summonsed and examined two non-party witnesses under rule 39.03. A total of 140 hours was spent on the examinations, cross-examinations and undertakings by Liquibrands counsel and 238.8 hours spent by the applicants’ counsel. On top of that many hours were spent on facta.
[6] With respect to the alleged breach of agreement, I stated in my reasons that although invited to do so, I did not intend to get into that issue.
[7] I accept that normally a court will enforce contractual terms for costs. However, an agreement cannot oust the court’s discretion in the matter. See Bosse v. Mastercraft, 1995 CanLII 931 (ON CA), [1995] O.J. No. 884 (C.A.), para. 66. In that case, the Court of Appeal stated:
As a general proposition, where there is a contractual right to costs, the court will exercise its discretion so as to reflect that right. However, the agreement of the parties cannot exclude the court’s discretion; it is open to the court to exercise its discretion contrary to the agreement. The court may refuse to enforce the contractual right where there is good reason for so doing ‑ where, for instance, the successful mortgagee has engaged in inequitable conduct or where the case presents special circumstances which render the imposition of solicitor and client costs unfair or unduly onerous in the particular circumstances.
[8] In this case, I decline to order costs on a substantial indemnity basis. The reason is that there is a live issue as to whether the applicant has breached the Forbearance Agreement. I declined to get into that issue as it was not necessary to decide the issues that were before me. However, while I hold that the costs of the application and motions should be paid now on a partial indemnity basis, the applicant should be entitled in the action when the costs of the action are being dealt with, assuming that the applicant is entitled to its costs, to claim the extra costs above the partial indemnity costs that I set. If the applicant is in the end not entitled to its costs in the action, then this extra would not available to the applicant. The reason for this is that I am not deciding that the applicant is not ultimately entitled to its substantial indemnity costs on the application and motions that were before me, but that only that the issue of the higher cost scale should await the outcome of the litigation.
[9] Liquibrands takes issue with the hourly rates requested by the applicant. It seeks the reduction of the partial indemnity hourly rate for Mr. Chaiton from $405 to $300 per hour and the reduction of the partial indemnity hourly rate of Mr. Rappos from $250 to $210. It bases its argument on the comments of the Costs Subcommittee of the Civil Rules Committee.
[10] I have previously on a number of occasions been critical of the use today of the Subcommittee’s cost guidance. In Stetson Oil & Gas Ltd v. Stifel Nicolaus Canada Inc. 2013 ONSC 5213 I stated:
22 Regarding the use of the rates recommended in the practice direction of the Costs Subcommittee of the Civil Rules Committee, I have considerable difficulty with the rates in that practice direction. They were the rates contained in the cost grid introduced in January, 2002. When the cost grid was abolished on July 1, 2005, they were continued in the practice direction. These rates are completely outdated and unrealistic for an action fought by two major downtown Toronto law firms.
23 The practice direction is not a binding rule enacted as a regulation. It states that it "may provide some guidance to the profession as these changes are implemented". It is apparent that other courts agree that the rates are not realistic. I agree with R.J. Smith in First Capital (Canholdings) Corp. v. North American Property Group 2012 ONSC 1359, [2012] O.J. No. 885 that the rates should be adjusted to account for inflation, but I would go further.
24 In Canadian National Railway v. Royal & Sun Alliance Insurance Co. of Canada, 2007 ONCA 531, the Court of Appeal awarded trial costs on a partial indemnity basis of 65% of the fees charged to the client. In Eastern Power v. Ontario Electricity Financial Corporation, 2012 ONCA 366, the Court of Appeal awarded trial costs on a partial indemnity basis at 60% of actual rates charged the client. The trial judge, 2008 CanLII 48132 (ON SC), [2008] O.J. No. 3722, had included a substantial indemnity cost award as a result of an offer at 90% of actual rates charged, and while this was set aside as the offer was not better than the results of the appeal, the Court of Appeal made no suggestion that the 90% figure would not have been appropriate if the costs were awarded on a substantial indemnity basis.
25 I think it appropriate to award costs at 60% of the time charged for partial indemnity costs and 90% for substantial indemnity costs…
[11] The Court of Appeal has now said the same thing. In Inter-Leasing Inc. v. Ontario (Minister of Revenue) 2014 ONCA 683, Weiler J.A. for the Court stated:
5 I agree with the appellant that the cost rates set out in the Information for the Profession set out in the preamble to Rule 57 of the Rules of Civil Procedure are now out of date, and that amounts calculated at 55%-60% of a reasonable actual rate might more appropriately reflect partial indemnity, particularly in the context of two sophisticated litigants well aware of the stakes.
[12] Mr. Chaiton was called in 1982. He is a leading insolvency lawyer. His actual hourly rate charged in this matter was $675, which for Toronto today is modest. A partial indemnity rate of 60% of that is $405, which is the hourly rate the applicant seeks for him on a partial indemnity basis. Mr. Rappos was called in 2005. His actual hourly rate charged in this matter was $415, which is also modest. A partial indemnity rate of 60% of that is $249, which when rounded to $250 is the hourly rate the applicant seeks for him on a partial indemnity basis. These partial indemnity rates claimed for Mr. Chaiton and Mr. Rappos are reasonable and allowed.
[13] Liquibrands also takes issue with the number of hours spent on drafting the factum (99 hours versus 44 for Liquibrands) and on the examinations, cross-examination and undertakings (238 hours versus 140 hours for Liquibrands). While I do not belittle the matter of hours spent, I noticed a marked difference in the quality of the applicant’s factum.
[14] The amount of time spent by each side reflects the size of the claim for damages for $100 million. In light of the effort of Liquibrands to establish the validity of its case at this stage, it had to expect the applicant to put full effort into denying the claim. That said, I think a little less time may have been appropriate for the applicant’s counsel.
[15] Taking into account the factors in rule 57.1 including what Liquibrands could reasonably expect to pay, I think a reasonable amount of costs on a partial indemnity basis is $160,000 inclusive of fees and disbursement. Liquibrands is ordered to pay this amount to the applicant within 30 days.
[16] The applicant also requests an order that the receiver of Sun Pac be paid its fees and disbursements and that the amount be paid from the assets of Liquibrands. The applicant says that such costs are appropriately payable by Liquibrands, as otherwise they would be paid from the proceeds of Sun Pac’s assets and would diminish the applicant’s recovery as first secured creditor of Sun Pac.
[17] I do not think it appropriate to order Liquibrands to pay any of the receiver’s costs. The receiver applied for orders approving the Third Supplement to its First Report, approving its Third Report, approving its fees and disbursements and those of its counsel, approving its statement of receipts and disbursements, and authorizing and directing the receiver to make a distribution to the applicant and maintain a holdback in accordance with its Third Report. This was all in respect of the actions of the receiver in connection with the receivership of Sun Pac. In the ordinary course, the fees for doing this would be a charge on the assets under the control of the receiver, being the assets of Sun Pac. It is really no different than if the applicant had privately appointed BDO as receiver rather than obtaining a court order appointing BDO. In that case BDO would be entitled to look to the assets under receivership for its fees and disbursement.
[18] It would be only if BDO successfully engaged in litigation with a third party that it could look to the third party for costs. With respect to the litigation between the applicant and Liquibrands and Sun Pac, BDO took no position. Nor does it appear from the material filed that it spent any time on it. I see no basis for ordering costs of BDO against Liquibrands. BDO will be entitled to its costs in the Sun Pac receivership in the normal way.
Newbould J.
Date: February 9, 2015