Court File and Parties

COURT FILE NO.: 54017/12 DATE: April 14, 2016 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Richard Sherk and 2128445 Ontario Inc., Plaintiffs AND: Mark Sherk, Bent Nail Holdings (St. Catharines) Inc., Verge Insurance Brokers Limited, 1729628 Ontario Inc., and Marick Bros. Investments Inc., Defendants

BEFORE: Turnbull, J.

COUNSEL: David Thompson/ Matt Moloci, for the applicants Stephen Gleave/ Richelle Pollard, for the respondents

costs ENDORSEMENT Motion for an Advance Payment, Financial Disclosure, and other relief

Endorsement

[1] By endorsement released November 30th, 2015, I rendered a decision on four orders sought on a motion brought by the applicants. The most important of those was the request for an advanced payment of $5,200,000.00 for the shares owned by Richard Sherk through his holding company, 2128445 Ontario Inc. (212) in the respondent company, Verge Insurance Brokers Limited (Verge) which was a family business. In those reasons I gave an overview of the case and I do not need to repeat them here.

[2] At the conclusion of the hearing of the application and upon releasing the endorsement, I asked counsel to submit written submissions on the issue of costs. In my view the substantial issue on this motion was the amount, if any, which should be paid to the applicants relative to Richard’s shareholdings in Verge. Clearly Richard Sherk and 212 were successful in obtaining substantial relief on this motion. In an offer to settle dated November 5th, 2015, the applicants offered to settle under paragraph 4a by having the respondents make an interim payment to the applicants in the amount of $4,741,100.00 within 30 days of the acceptance of the offer to settle. In addition the respondents were to make further payments to the applicants in the amount of $364,700.00 every April 30th so long as any outstanding issues existed between the applicants and the respondents. In exchange for those payments, the applicants agreed to transfer their shares in Verge to the respondents or as the respondents otherwise directed.

[3] The court gave reasons for estimating the value of Richard’s shares being somewhere between $6,000,000.00 and $9,000,000.00. On a without prejudice basis a “general midpoint” estimation of value was set at $7,500,000.00. The sum of $3,750,000.00 was ordered to be paid to Richard and 212 on the closing of the share transaction. A further sum of $1,125,000.00, representing the sum of $375,000.00 per year for the fiscal years ending April 30th, 2013, April 30th, 2014 and April 30th, 2015, was ordered to be paid to Richard and 212. Interest at the prime rate was to be paid on that $1,125,000.00 to the date of closing. The sum of approximately $2,625,000.00 (the approximate balance of the funds available after the payments ordered above were deducted from the $7,500,000.00) were ordered to be paid into the credit of the action.

[4] This motion was originally brought in 2013. By letter dated July 24th, 2015, Mr. Gleave laid out the respondent’s offer to settle the motion by payment of $2,040,000.00 which represented a portion of the aggregate purchase of 212 shares of Verge Insurance Brokers et al. The offer provided that $1,200,000.00 would be paid on the closing date of the shares to be purchased under that offer and the remaining one half would be paid in 10 annual installment of $102,000.00 each year. The aggregate amount of the payments offered would be deducted from the precise amount ultimately to be determined to be paid for the remainder of 212’s shares in Verge. The offer further linked the damages action to the valuation proceedings in paragraph 12. It required Richard to agree that he was liable for any legal costs on disbursements that a court may order Daniel Sherk to pay Verge in court file number 53982/12. It also contained an unusual provision in paragraph 11 requiring Richard to produce evidence of all the legal fees and related disbursements that he had paid regarding this application and in the related damages actions and all agreements and understandings he entered into regarding payment or compensation of legal counsel in court file number 53982/12 and court file number 54590/13. In my view, those conditions were not particularly reasonable.

[5] Mr. Gleave then further provided an offer to settle in his email of November 3rd, 2015. In that email, the respondents offered to pay $1,500,000.00 to the applicants and a further payment of $1,500,000.00 in the form of 10 equal annual installments of $150,000.00 over the next 10 years. Mr. Gleave stated that the only change from the prior offer was that the advanced payment would be for $3,000,000.00 and not $2,000,000.00 as previously offered.

[6] It is clear to me that on the substantive issue on this motion, the applicants were successful and they received an order requiring payment of a much larger sum of money than previously offered by the respondents.

[7] I have taken into account that Richard was not successful on four of the five orders sought on the motion. However it is clear that the focus and time spent preparing for and arguing the motion was substantially related to the advance payment. I have taken into account Mr. Gleave’s submissions with respect to the advance payment and it appears that it is arguable that the parties had divided success.

[8] In Mark’s favour, the court refused to grant an advanced payment and instead ordered a notional payment of $7,500,000.00 for a commercial closing effective February 26th, 2016. However Mr. Gleave did acknowledge, in Richard’s favour, he was awarded a substantial payment of $3,750,000.00 plus the additional three payments of $375,000.00 for each year in arrears.

[9] Mr. Gleave has urged that the costs of this motion should be left to the trial judge. Mr. Gleave has argued that the winner will not be known until the completion of the trial. I respectfully disagree. In order to force an advanced payment, the applicants were required to bring a motion before the court and fully argue it. While certain of the requests they made with respect to financial disclosure from Verge, and amounts of compensation paid to Mark were denied, a vast majority of the time and effort was spent with respect to an order relating to the advanced payment.

[10] Mr. Gleave has submitted that while his client Mark was always agreeable to providing Richard with an advanced payment and he made an offer on this basis, he always insisted that the sale of shares occur in context of a commercial closing. He noted that Richard refused to participate in a commercial closing until the motion was heard. Mark was also successful in requiring Richard to transfer all his shares in Verge.

[11] Under Rule 57.03(1) of the Rules of Civil Procedure, the court shall fix the costs of a contested motion unless it is satisfied that a different order would be more just. I do not feel that it would be most just to defer the fixing of the costs to the trial judge. I was the judge who presided over this motion and I am in the best position to assess costs of this motion. As the motions judge appointed under Rule 37.15, I have a significant understanding of the numerous interlocutory motions which have been brought and argued in this matter. In this application, the primary issue for the presiding judge will be to determine an appropriate value for Richard’s shares on the date of valuation.

[12] In the related damages action brought by Mark and Verge against Richard and Daniel, the merit of Mark’s allegations of wrong doing will be fully assessed by the trial judge.

[13] I find that the application, in which this motion was brought, is quite discrete from the damages action. I agree that in many cases where there is an overlapping of claims, the courts have observed that the proper approach to take with respect to costs is to reserve them to the trial judge. I do not see any reason to apply that principle and impose that burden on the trial judge who did not have the benefit of hearing submissions of counsel and reviewing the file in preparation for receipt of submissions.

[14] I recognize that in some cases, where there is divided success, the court frequently requires each party to bear its own costs. However I do not feel that is appropriate in this case because in my view the substantial success on this motion was enjoyed by the applicant. In the circumstances, I find the applicants are entitled to their costs on a partial indemnity basis.

[15] In accessing costs, the court of course is obliged to consider Rule 57.01(1) of the Rules of Civil Procedure which lists some of the factors for the court to consider when exercising its jurisdiction under Section 131 of the Court of Justice Act. Rule 57.01(3) of the Rules of Civil Procedure provided that when the court awards costs, it shall fix them in accordance with Subrule 1 and the Tariffs. Rule 57.03 provides the normal course for a contested motion is to have the costs fixed and payable within 30 days.

[16] Under Rule 57, I have considered the amount claimed and the amount recovered in the proceeding. Richard claimed an interim payment form Mark in the amount of $5,219,825.00 for the sale of his shares. The court ordered a substantial payment to Richard for $4,875,000.00 and a further payment into court as security based upon an approximate share value of $7,500,000.00. Hence the amount claimed and recovered in this motion by the applicants is significant.

[17] This was a complex proceeding. That is reflected in the factual and legal issues laid out in the factums filed by counsel and the authorities relied upon by counsel.

[18] By virtue of the personal relationship that exists between Richard and Mark, it is evident that the issues were very important to both of them. I am not prepared to state that Mark’s conduct during the course of the motion tended to necessarily lengthen or delay the duration of the motion proceeding. Similarly, I do not feel that any step taken by Mark was vexatious or unnecessary because of the heated allegations existing between the brothers relative to Richard’s conduct and possible competitive activities after leaving Verge. However, the refusal of Mark to make any advance payment on the shares, and to make a reasonable and significant offer at an early stage, necessitated Richard bringing this motion.

[19] I have reviewed the costs summary provided by counsel for the applicants. The hours spent and the rates sought for costs and the actual rates charged by the parties’ lawyers are very fair and within the reasonable contemplation of the respondent. Mr. Gleave and Ms. Pollard have not vigorously objected to the hourly rates claimed by the Applicants’ counsel.

[20] In accessing costs, I recognize that there are significant steps for which legal proceedings were taken by counsel for the applicants but not claimed on this costs motion. Depending on the ultimate outcome of the application, a claim can be made for those costs in the event the applicants are successful. I do not feel that the time and disbursements incurred to retain and engage the appraisers Nobes & Roher for the purposes of obtaining a third appraisal and for the purposes of obtaining a supplemental appraisal of Eric Walker should be taken into account at this stage of assessing costs.

[21] I note that the disbursements for experts’ fees of $15,142.52 incurred by Richard are not bring claimed on this motion and of course he has the right to claim those depending on the ultimate outcome of the application. In assessing the costs of this motion, I have looked at the Time Summary of Motion Events events provided by applicant’s counsel at tab 4. I have not included any allowance for costs incurred with respect to number 2, 3, and 4 on that cost summary. From my review of the material, it appears that the costs related to those services should be considered by the judge hearing the application. I have however found that the services rendered under items 1, 5, and 6 are properly incurred legal expenses and relate to the motion which ultimately was heard by me.

[22] Therefore in the circumstances, I assess the applicant’s costs of this motion on a partial indemnity basis at $71,713.80. I reduce that sum to $60,000.00 to reflect the somewhat divided success on the motion.

[23] I have reviewed the disbursements claimed which are fair and reasonable and I am ordering them in the amount of $5,948.49.

[24] This order as to costs is payable within 30 day of this judgment.

[25] This judgment on costs is without prejudice to the right of the applicants of course to claim the amounts specified in number 2, 3, and 4 on the time summary of motion events found at tab 4 of the costs brief of Richard Sherk and 212.

[26] I thank counsel for their helpful submissions with respect to this matter.

Turnbull, J Date: April 14, 2016