CITATION: Russo Corp. v. Deborah Essery, 2016 ONSC 321
COURT FILE NO.: CV-15-11035-00CL
DATE: 20160201
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
RUSSO CORP. in its capacity as Trustee in Bankruptcy of the Estate of Robert Essery and in its capacity as the Receiver over 2250093 Ontario Inc., 2250095 Ontario Inc., 2250097 Ontario Inc., 2250099 Ontario Inc. 7004206 Canada Inc. and not in its personal or corporate capacity
Applicant
– and –
DEBORAH ESSERY and THE ESTATE OF ROBERT ESSERY
Respondents
Jeffrey J. Simpson, for the Applicant
Charles E. Beall and Alexander Turner, for the Respondents
HEARD: November 30, 2015
l. a. pattillo j.
Introduction
[1] There are two matters before the court.
[2] The first is a motion by Russo Corp. in its capacity as the Receiver over 2250093 Ontario Inc., 2250095 Ontario Inc., 2250097 Ontario Inc., 2250099 Ontario Inc. and 7004206 Canada Inc. (the “Receiver”) for approval of its Second Receiver’s Report dated February 12, 2015, as well as its Supplementary Second Report dated October 23, 2015.
[3] The second is an application by Russo Corp., in its capacity both as Trustee in Bankruptcy of the Estate of Robert Essery (the “Trustee”) and as the Receiver for a declaration that a 2009 transfer of a half-interest in a residential property by the late Robert Essery (“Robert”) to his wife, the respondent Deborah Essery (“Deborah”), for $2.00 constituted a transfer at undervalue pursuant to s. 96 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “BIA”) and a fraudulent conveyance pursuant to s. 2 of the Fraudulent Conveyances Act, R.S.O. 1990, c. F. 29 (“FCA”) (the “Application”).
Approval of the Receiver’s Reports
[4] On June 18, 2015, the Receiver brought a motion before me to approve its Second Receiver’s Report dated February 12, 2015. In addition to approval of the activities as set out in the Report, the Receiver sought an order authorizing it but not directing it to pursue a fraudulent conveyance application against Deborah. The motion was opposed by Deborah.
[5] In a brief written endorsement on June 18, 2015, I directed that the Receiver revise its Second Report in order to take into account Deborah’s concerns regarding the tax credit issue. I also ordered that the Receiver produce certain information to Deborah. Further, I declined to authorize the bringing of a fraudulent conveyance application on the ground that the Receiver already had that authority in the initial appointment order. Finally, I adjourned the motion to be returned before me on a date to be arranged with the Commercial List office and, at the request of Deborah’s counsel, reserved the costs of the motion to its return.
[6] The Receiver has delivered a Supplementary Second Report dated October 25, 2015, addressing the issues directed by me.
[7] Counsel for Deborah has advised that, in light of the fact that the Supplementary Second Report generally addressed the outstanding issues, Deborah takes no position in respect of the Receiver’s request for approval of the Reports.
[8] Accordingly, subject to the issue of costs which I will deal with at the conclusion of these reasons, having read both the Reports, I am satisfied that the conduct set out in the Second Receiver’s Report as supplemented by the Supplementary Second Report should be approved. Based on the interim statement of receipts and disbursements of the Receiver accrued to June 2015, I also approve the fees of both the Receiver and its counsel as claimed.
Transfer at Undervalue/Fraudulent Conveyance
[9] The Application for orders under the BIA and the FCA was commenced on July 14, 2015.
[10] In addition to the declaration that the 2009 transfer by Robert of his half-interest in the residential property to Deborah constituted a transfer at undervalue and/or a fraudulent conveyance, the Trustee requests that the 2009 transfer be set aside or a monetary judgment be granted against Deborah in favour of the Trustee for the current net value of the half-interest transferred by Robert after reasonable adjustments and any ancillary relief required in relation to those orders.
[11] The parties agree that the Application can be decided by me on the record and no viva voce evidence is required.
The Facts
[12] The following are the facts as found by me from the record.
[13] Robert was in the business of producing, creating, writing and directing various film and television productions. Deborah met Robert in approximately October 1993 when she was working as a model. They were married on January 6, 1994 and have two children, Samuel, age 21, and Theodore, age 20.
[14] On September 30, 1993, Robert acquired a 1.5 acre residential property located at 1 Fallingbrook Road in Toronto (the “Property”) in his own name “in trust”. The Property is located on the Scarborough Bluffs and has a guest house.
[15] On August 28, 1998, Robert transferred the Property to himself and Deborah as joint tenants for the stated consideration of $1,600,000.
[16] At some point, presumably in the late 1990s or early 2000s, Robert got Deborah involved in television and film production. She is a writer and producer of television and film productions and has her own production company. Deborah and Robert worked together on different television and film projects, in a variety of different roles, both prior to and after their separation.
[17] Robert and Deborah’s marriage had numerous difficulties over the years. In December 2008, they agreed to separate. Robert moved into the guest house on the Property. While he would occasionally take care of the children, he did not socialize with Deborah and the children and he and Deborah did not cohabit as a married couple. Deborah did continue to provide some domestic services to Robert after their separation, but did so out of her concern for his health and because he was the father of their children.
[18] As a result of declining health, Robert spent long periods in the hospital. Following his discharge, he lived with his sister in an apartment and in a hotel up the street from the Property.
[19] In or around December 2008, Robert and Deborah agreed, as part of a matrimonial settlement between them, that Robert would transfer his one-half interest in the Property to Deborah. In exchange, Deborah agreed that Robert would retain a cottage property which he owned through a corporation (the “Cottage”) and would retain tax credits worth over a million dollars. Deborah also agreed to refinance the Property and pay off Robert’s debts, including a judgment against him owing to Austin Fuels & Total Cleaning (“Austin Fuels judgment”), and not make any demand on Robert for a formal equalization of their net family properties or for spousal support.
[20] Robert and Deborah made several attempts to effect the transfer of the Property. They first prepared a transfer dated December 16, 2008 and then completed an acknowledgement and direction to a lawyer dated February 20, 2009 to register the transfer electronically. As the acknowledgement and direction was not notarized, they signed a further acknowledgement and direction on March 3, 2009 in a lawyer’s office. Although the lawyer was instructed by Robert and Deborah to register the transfer in accordance with the acknowledgement and direction dated March 3, 2009, he did not do so until March 31, 2009.
[21] On January 20, 2010, Robert and Deborah entered into an agreement which clarified Deborah’s rights with respect to the Property (the “Matrimonial Agreement”). The Matrimonial Agreement provided, among other things, that the Property would not form part of Deborah’s net family property, that she was not holding the Property in trust for Robert, and they each agreed that they would not bind the other for any debt obligations in the future.
[22] Pursuant to a commitment letter dated June 23, 2010 as amended and signed by Robert on July 14, 2010, PACE Savings and Credit Union Limited (“Pace”) agreed to provide to Robert, on behalf of a holding company to be formed, a commercial line of credit in the amount of $540,000 per year for the production of five seasons (each season consisting of a minimum of 12 episodes) of a television show called “Build It”. The commitment letter envisaged that, subject to approval at the time, the line of credit would be provided to a separate holding company for each production year. The line of credit was secured by, among other things, a guarantee by Robert. In addition, Robert agreed, “that he will provide collateral mortgage security over his equity portion of the matrimonial home being 1 Fallingbrook Road, Toronto, Ontario should there be any defalcation on the commercial line of credit.” Pace agreed that it would not require acknowledgement from Robert’s spouse.
[23] The credit facility was subsequently provided to 7004206 Canada Inc. Prior to the first advance under the credit facility in September 2010, Robert provided an undertaking dated August 15, 2010 that, in the event of a default under the credit facility, he would provide a collateral demand mortgage security in the amount of $540,000 over his “Spousal Interest” in the Property. The undertaking noted in one of the preambles that Robert has specifically advised Pace that he had no interest registered in the title to the Property and that “any interest he may have is limited to a spousal interest as that term is presently understood in the Province of Ontario.”
[24] Following completion of the loan transaction, Robert’s health declined severely. While footage for several seasons of Build It was shot, the Pace credit facility fell into arrears. A further advance was made in December 2011.
[25] Robert died by his own hand on May 8, 2013.
[26] On November 15, 2013, Pace obtained an order appointing the Receiver for 2250093 Ontario Inc., 2250095 Ontario Inc., 2250097 Ontario Inc., 2250099 Ontario Inc. and 7004206 Canada Inc.
[27] On July 3, 2014, Pace obtained an order placing Robert’s Estate into bankruptcy and appointing Russo as Trustee.
Discussion
[28] As noted at the outset, the Application is brought by the Trustee pursuant to both s. 96(1) of the BIA and s. 2 of the FCA.
Section 96(1) of the BIA
[29] The relevant portion of s. 96(1) of the BIA provides as follows:
- (1) On application by the trustee, a court may declare that a transfer at undervalue is void as against, or, in Quebec, may not be set up against, the trustee — or order that a party to the transfer or any other person who is privy to the transfer, or all of those persons, pay to the estate the difference between the value of the consideration received by the debtor and the value of the consideration given by the debtor – if
(b) the party was not dealing at arm’s length with the debtor and
(i) the transfer occurred during the period that begins on the day that is one year before the date of the initial bankruptcy event and ends on the date of the bankruptcy, or
(ii) the transfer occurred during the period that begins on the day that is five years before the date of the initial bankruptcy event and ends on the day before the day on which the period referred to in subparagraph (i) begins and
(A) the debtor was insolvent at the time of the transfer or was rendered insolvent by it, or
(B) the debtor intended to defraud, defeat or delay a creditor.
[30] The Trustee submits that all of the essential elements of s. 96(1)(b) have been established. In particular, it submits:
(a) the Transfer of the Property was registered on March 31, 2009, within five years of the date Pace filed an Application for Bankruptcy Order against Robert’s estate (March 27, 2014);
(b) the stated consideration for the Transfer on the face of both the transfer itself and the accompanying Land Transfer Tax Affidavit is $2.00;
(c) Robert and Deborah were married at the time of the Transfer;
(d) the Trustee has filed evidence to the effect that the value of the Property at the time of Transfer was in the $2 million range;
(e) the only mortgage registered against title at the time of the transfer, based on the best evidence available, secured the face amount of approximately $840,000 (being the face amount of the mortgage registered in July 2009, six months after the transfer, less the additional $213,000 Deborah claimed to borrow and add to the mortgage to pay off the Austin Fuels judgment against Robert as part of the marital settlement transaction);
(f) Robert was clearly rendered insolvent by the Transfer; and
(g) the evidence suggests that it is more likely than not that Robert’s intent in transferring the Property was to deceive and hinder his creditors by removing the only significant asset in his personal name at the time from his list of available assets for execution by creditors.
[31] Deborah does not take issue with the Trustee’s statement of facts as set out in subparagraphs (b), (c) and (e) above but otherwise disputes its characterization of the evidence or the inferences to be drawn therefrom.
[32] In particular, Deborah submits that the impugned transfer from Robert to her took place more than five years from the date of the initial bankruptcy event. Specifically, while Deborah agrees that the initial bankruptcy event (Pace’s application for a bankruptcy order against Robert’s Estate) is March 27, 2014, she submits that the transfer took place on March 3, 2009, the date on which the transfer was signed and delivered. Accordingly, there is no basis to set aside the transfer pursuant to s. 96(1)(b).
[33] In support of its position that the transfer took place on March 31, 2009, which is the date of registration of the transfer in Land Titles, the Trustee relies on s. 86(2) of the Land Titles Act, R.S.O. 1990, c. L.5, which provides as follows:
- (1) A registered owner may transfer land or any part thereof in the prescribed manner.
Note: On a day to be named by proclamation of the Lieutenant Governor, subsection (1) is amended by striking out “thereof in the prescribed manner” at the end and substituting “of land in the manner specified by the Director”. See: 2012, c. 8, Sched. 28, ss. 54 (1), 98.
(2) The transfer shall be completed by the land registrar entering on the register the transferee as owner of the land transferred, and the transferor shall be deemed to remain owner of the land until the registration of the transfer has been completed in accordance with this Act.
[34] The issue, as framed by the Trustee, is what is the date of the transfer for the purpose of s. 96(1)(b)?
[35] In interpreting a statute, “the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.” (Rizzo & Rizzo Shoes Ltd. (Re), 1998 CanLII 837 (SCC), [1998] 1 S.C.R. 27 (S.C.C.), at para. 21).
[36] Section 96 of the BIA is concerned with a “transfer at undervalue” which is defined in s. 2 of the BIA as “a disposition of property or provision of services for which no consideration is received by the debtor or for which the consideration received by the debtor is conspicuously less than the fair market value of the consideration given by the debtor”.
[37] The wording of Section 96 speaks of “transfer”. It does not contain the words “register” or “registration”. Black’s Law Dictionary, 10th ed., defines “transfer” as “any mode of disposing of or parting with an asset or an interest in an asset”. By contrast, “registration” is something completely different. It is the act of registering something, in the case of a transfer of land, in the land tiles or registry office. In that regard, s. 20 of the BIA, which deals with the trustee’s divestiture of property, refers to registration of a quit claim or renunciation in land titles or registry.
[38] It is also important to note that s. 96 does not deal just with land. It deals with a disposition of property in general and provision of services.
[39] Based therefore on the plain wording of s. 96 and the BIA as a whole, in my view, the word “transfer” in that section does not mean registration under land titles or the registry system.
[40] The above interpretation is also supported by the authorities. In Hooper v. Hooper, 1953 CanLII 361 (ON CA), [1953] O.R. 753 (C.A.), the Court considered the validity of a transfer of property from the respondent to himself and the appellant in joint tenancy which at the time it was signed was able to be registered in the land titles office but was not. The appellant sought an order that the respondent produce the transfer for registration or, in the alternative, a declaration that the appellant and respondent were owners in fee simple as joint tenants. The appellant’s claims were dismissed by the trial judge.
[41] On appeal, the respondent relied on the provisions of the Land Titles Act, including s. 37 which was the predecessor of s. 86. He submitted, much like the Trustee in this case, that the transfer is mere authority to transfer title and is not effective to pass any title, either in law or equity, until registered.
[42] In allowing the appeal, Pickup C.J.O., on behalf of the Court, after saying that the sections of the Land Titles Act relied on by the respondent did not in his opinion have the effect contented by his counsel, stated at para. 17 of the decision:
- ….. While the system may be said to be a system for registration of title, not of deeds, execution and delivery of the instrument of transfer in the prescribed form, particularly when accompanied by the affidavits requisite for registration, confers title in equity until registration, and I think that such title is good for all purposes except as against some other title which may obtain priority by being recorded in the land titles office. Upon registration and completion of the transfer on the register, the transferee becomes fully protected against some other transfer which might, by prior registration, obtain priority and legal effect: Abigail v. Lapin et al., 1934 CanLII 402 (UK JCPC), [1934] A.C. 491 at 500.
[43] More recently, in Bank of Montreal v. Chu (1994), 1994 CanLII 7246 (ON SC), 17 O.R. (3d) 691 (Ont. Gen. Div.), the court, relying in part on Hooper and after considering s. 86(2) of the Land Titles Act, held in respect of a fraudulent conveyances action that “intention and validity of an instrument as between the parties is determined on the date of execution rather than registration.” (Para. 42).
[44] The Trustee submits that a determination that the “transfer” in s. 96(2) of the BIA means the date the transfer is executed as opposed to registered undermines the certainty of title that the land titles system is meant to protect. I disagree. As Chief Justice Pickup stated in Hooper, the transfer is valid as between the parties to it and good for all purposes except as against some other title which has priority based on registration.
[45] The Trustee also submits that if “transfer” in s. 96 of the BIA is interpreted to mean anything other than the date of registration in the land titles or registry systems a debtor could avoid a s. 96 application by executing a transfer to his or her spouse for no consideration, putting it in a drawer for five years and then registering it. In my view, such a scenario is highly unlikely. Even in such an unlikely event, the intent behind the initial transfer would have to be examined, including the reasons given for the lengthy delay in registration. In this case there is no such concern. The time between execution of the transfer and registration was less than a month and the delay was not the fault of either Robert or Deborah.
[46] In the present case, Robert and Deborah executed the transfer of the Property which included all of the documents required for registration in the land titles office on March 3, 2009. Accordingly, that is the date the transfer occurred within the meaning of s. 96(2) of the BIA. As a result, the Trustee’s s. 96(1) Application is outside the five year time period within which it must be brought.
[47] For the above reasons, therefore, the Trustee’s Application pursuant to s. 96(2) of the BIA is dismissed.
[48] In the event that I am wrong in my interpretation of the meaning of “transfer” in s. 96(2) of the BIA, I would still dismiss the Trustee’s s. 96 Application on the basis it has failed to make out the essential elements required by s. 96.
[49] As noted, the definition of “transfer at undervalue” in the BIA means a disposition of property for which no consideration is received by the debtor or for which the consideration received is conspicuously less than the fair market value of the consideration given.
[50] The Trustee has filed an opinion that the value of the Property at the time of the transfer was $2 million. Deborah takes issue with that opinion as not complying with the Rules of Civil Procedure or the rules of evidence but has not filed any evidence to challenge it. I am prepared to accept for the purposes of the Application that the value of the Property at the time of the transfer on March 3, 2009 was $2 million. Accordingly, Robert’s half-interest was worth approximately $1 million.
[51] The Trustee submits that the consideration for the transfer was only $2 as set out in the transfer document. But the evidence from Deborah, which I accept, is that the transfer of Robert’s half-interest in the Property was in exchange for her foregoing her entitlements under the Family Law Act, R.S.O. 1990, c. F.3, following her separation from Robert.
[52] Deborah submits that a claim by her for equalization of net family property under s. 5(1) of the Family Law Act at the time of the transfer of the Property would have resulted in Robert having to pay her a significant sum of money based on Robert’s assets in comparison to hers.
[53] The evidence establishes that at the time of the separation, in addition to his half-interest in the Property, Robert had significant interests in other property including the Cottage which was held by a corporation which he controlled and which was sold in September of 2009 for $825,000, as well as significant tax credits owed or to be owed to companies controlled by him arising from his television and film business.
[54] In addition to foregoing her rights under the Family Law Act, Deborah also agreed to pay off Robert’s debts and subsequently remortgaged the Property in July 2009 for an additional $250,000 in order to do so.
[55] Based on the evidence, therefore, the Trustee has failed to establish that Robert transferred his interest in the Property to Deborah for no consideration or for consideration that was “conspicuously less” than the fair value of his interest which was approximately $1 million.
[56] Nor do I consider that the Trustee has established on the evidence that Robert was an “insolvent person” at the time of the transfer as that term is defined in the BIA or that the transaction rendered him insolvent. As noted, Robert had significant assets in various corporations which he controlled. Robert had a successful career in television and film production. While the nature of his business did not lend itself to a steady cash flow, he had a number of projects both completed and in production which would have generated income for him. He also owned the Cottage, albeit through a corporation.
[57] The Trustee relies on an execution against Robert registered against the Property in respect of the Austin Fuels judgment. As noted, part of the consideration for the transfer of his interest in the Property involved Deborah paying off that judgment. The Trustee submits that Robert’s financial situation was not good at the time of the transfer based on an Equifax credit rating report dated June 3, 2010 obtained by Pace which showed “numerous deficiencies”. Apart from the fact that such reports are hearsay and in my view unreliable, I do not consider that Pace would have extended the credit it did to Robert in the summer of 2010 if it considered he was insolvent.
[58] Initially the Trustee relied on the allegation that at the time of the Pace loan Robert misrepresented to Pace that he had an ownership interest in the Property. However, documents subsequently obtained from Pace demonstrate that Pace was aware at the time it issued the commitment letter and certainly at the time it advanced the loan that Robert had transferred his one-half interest in the Property to Deborah.
[59] Although Pace knew Robert had no legal interest in the Property, it required Robert to provide an undertaking to provide a mortgage on his “spousal interest” in the Property in the event of default. The Trustee submits that the undertaking constitutes an intentional misrepresentation to Pace given that Robert had signed away all his rights to the Property in the Matrimonial Agreement. Even assuming that Pace was misled, which I don’t accept, the event happened more than a year after Robert transferred his interest in the Property and has no bearing, in my view, on the issues of Robert’s insolvency or his intent at the time of the transaction.
[60] There is also no evidence that Robert intended to defraud, defeat or delay any creditor in transferring his half-interest in the Property. As noted, I accept Deborah’s evidence that the purpose of the transaction was to deal with their matrimonial issues. There is no evidence that any of Robert’s creditors at the time of the transfer were affected by it.
Fraudulent Conveyance
[61] As noted, the Application also seeks an order declaring that Robert’s transfer of his half-interest in the Property to Deborah on March 3, 2009 is a fraudulent conveyance within the meaning of s. 2 of the FCA and that it is null and void.
[62] Sections 1 and 2 of the FCA provide as follows:
- In this Act,
“conveyance” includes gift, grant, alienation, bargain, charge, encumbrance, limitation of use or uses of, in, to or out of real property or personal property by writing or otherwise;
“personal property” includes goods, chattels, effects, bills, bonds, notes and securities, and shares, dividends, premiums and bonuses in a bank, company or corporation, and any interest therein;
“real property” includes lands, tenements, hereditaments and any estate or interest therein.
- Every conveyance of real property or personal property and every bond, suit, judgment and execution heretofore or hereafter made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures are void as against such persons and their assigns.
[63] The elements of a fraudulent conveyance are:
a) a conveyance of property;
b) an intent to defeat; and
c) a creditor or other towards whom that intent is directed.
See: Jonas v. McConnell, 2014 ONSC 6169, 35 B.L.R. (5th) 304 (S.C.), at para. 11.
[64] I have already stated that, based on the evidence, I do not find that Robert had an intent to defeat or delay creditors by entering into the transaction with Deborah on March 3, 2009. The transaction was effected to resolve his matrimonial issues with Deborah and to pay off his debts.
[65] Jonas, at para. 11, refers to what have been called the “badges of fraud” –that is, suspicious circumstances which, if present, may enable a court to make a finding of intent to defraud or delay. They include continued possession or use of the property by the donor; secrecy of the transaction; threatened legal proceedings; grossly inadequate consideration; unusual haste in making the transaction; retention of benefit by the settlor; and a close relationship between the parties to the transaction.
[66] There is no question that some of those factors exist here. Robert and Deborah were spouses and Robert continued to live on the Property, albeit in the guest house. Apart from those, however, there are none of the other “badges”. In respect of those that are present, I am satisfied with Deborah’s explanation of the reasons for the transaction and why Robert continued to reside in the guest house for a period of time after it.
[67] For the above reasons, the Trustee’s fraudulent conveyance claim is also dismissed.
[68] The Application is therefore dismissed in its entirety.
Costs
[69] Following argument, I received written cost submissions/cost outlines from both parties.
[70] Deborah seeks costs against the Trustee in the Application and as Receiver in respect of the motion to approve its Second Report. She claims full or substantial indemnity costs against Russo personally. The total amount of the costs claimed is $257,658.50 made up as follows:
Fees re Second Report Motion $115,701.65
Fees re Application from July 31, 2015 91,714.19
Fees re Application-June 4/14 to Jan 9/15 36,266.22
Fees re Deborah’s R. 39.02(4)(b) exam 9,899.15
Disbursements 4,077.29
$257,658.50
[71] Costs of a proceeding are governed by s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43 (the “CJA”). Rule 57.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, sets out the general principles that are to be applied in awarding costs in litigation.
[72] In receiverships, the general rule is that costs are awarded against a receiver personally only in rare cases. Where a receiver engages in litigation in its capacity as receiver in the course of the receivership, it is subject to the costs in accordance with s. 131 of the CJA and Rule 57.01. To the extent that costs are awarded against a receiver they are normally covered by receivership funds or by an indemnity agreement with a secured creditor. It is only when the receiver embarks on a course of action extraneous to the credit-driven relationship which effectively undermines its neutral position as an officer of the court and turns itself into a “real litigant’ that a receiver exposes itself to costs personally: see Akagi v. Synergy Group (2000) Inc., 2015 ONCA 771 (C.A.), at para. 18.
The Application
[73] There is no question that a lot of work was undertaken by counsel on behalf of both parties in connection with the Application notwithstanding its short duration. In addition to affidavits and cross-examinations, not only of the parties, but of other individuals, the parties relied on earlier examinations in the Receiverships.
[74] Deborah submits that she should receive complete indemnity for her costs of the Application which should be paid personally by the Trustee. Most of the conduct complained of relates to Russo’s handling of the Receiverships although she submits that, in bringing and pursuing the Application, the Receiver turned into a “real litigant” as described in Akagi.
[75] The Application was hard fought by both sides. In my view, however, Russo did not act outside its mandate as Trustee/Receiver. I am not prepared to find therefore that the conduct of the Trustee/Receiver in respect of either the Receiverships or the Application was of such a level that an order for substantial indemnity costs is warranted. Nor does the Trustee/Receiver’s conduct merit personal liability for any costs.
[76] In my view, even if it did not succeed in the Application, the circumstances surrounding the March 3, 2009 transaction were sufficient to justify proceeding with it. By bringing the Application Russo was not acting outside its duties as a receiver/trustee. It did not become a “real litigant” as that term is described in Akagi.
[77] During the course of the litigation, Russo did take some actions, such as late delivery of its factum, which resulted in Deborah’s counsel having to file a supplementary factum and which increased costs. Issues such as those are matters to be taken into account in assessing costs generally and do not give rise to a personal award of costs.
[78] Deborah did make a Rule 49 offer on November 11, 2015 to dismiss the Application, but that offer contained a requirement for the payment of $170,000 in costs as well as a term that the Trustee/Receiver pay Deborah a specific amount in satisfaction of her claim as a creditor of Robert’s Estate. The offer failed to equal or exceed the result herein and accordingly the consequences of Rule 49.10 do not apply.
[79] As a result, Deborah is entitled to her costs of the Application on a partial indemnity basis.
[80] Deborah has submitted a costs outline for the Application claiming partial indemnity fess of $55,028.51 including HST and disbursements of $4,077.29 including HST for total costs of $59,105.80.
[81] The Trustee/Receiver’s Costs Outline claims total partial indemnity costs for the Application of $50,946.54 made up of fees (including taxes) of $46,674.48 and disbursements of $4,272.06.
[82] Deborah also seeks fees incurred prior to the Application in connection with work done in dealing with the Receiver in anticipation of the Application. The work includes dealing with the Receiver in respect of tax credits, preparing and attending at the motion to put the Estate into bankruptcy and working on the Application. The partial indemnity amount claimed including taxes is $20,821.04.
[83] The tax credit issue is separate from the Application; the bankruptcy motion, although initially opposed by Deborah, was eventually settled. I am not advised of any agreement or order concerning costs and the activity concerning the Application appears to be a tolling agreement to enable the tax credit issue to be dealt with. As a result, in my view none of the costs claimed prior to the Application being commenced are recoverable in the Application.
[84] Accordingly, having regard to the principles set out in Rule 57.01, I have concluded that a fair and reasonable amount for Deborah’s partial indemnity costs of the Application is $59,105.80 as set out in her Costs Outline (Chart 2). This amount is payable forthwith.
Approval of the Second Report
[85] At the hearing on June 18, 2015, the Receiver sought approval of its conduct since its First Report dated March 12, 2014, including its fees and those of its counsel. In particular it sought approval of its recommendation to not continue with the Build It productions and not seek tax credits in respect of the productions for which there were no or minimal records. It also sought authorization to pursue the fraudulent conveyance.
[86] Deborah opposed the motion on the ground that the Receiver had left out certain key information concerning the fraudulent conveyance. It was also my understanding that she opposed the Receiver’s request to abandon the tax credits. Further, she complained that the Receiver refused to produce information from Pace concerning its loan to Robert’s companies.
[87] The Receiver’s Second Report as Supplemented clearly sets out the Receiver’s actions in dealing with the tax credits and its relationship with Deborah in that regard. The relationship has been difficult. It also appears that Deborah has had her lawyers present throughout the entire period (as had the Receiver). It is the dealings in respect of the tax credits which account for the bulk if not all of the costs being sought by Deborah in respect of the motion for approval of the Second Report. Those dealings have nothing to do with approval of the Second Report. Absent agreement, Deborah’s costs for her dealings with the Receiver are not recoverable in the motion.
[88] The Receiver’s motion for approval of the Second Report was not well considered. The Second Report was deficient on its face in that it lacked certain information required to support the relief requested. Further, given the position the Receiver was taking in respect of Robert’s dealings with Pace, the Receiver should have produced Pace’s documents concerning the loan. Finally, there was no need for the Receiver to obtain the court’s approval to bring a fraudulent conveyance application. The Receiver already had that authority in the initial appointment order.
[89] The Supplementary Second Report provided both the missing information and additional information concerning the Receiver’s investigation. It was sufficient to support the relief requested, which was approval of the Report. Nevertheless, Deborah had to come to court to oppose the Receiver’s relief sought and her complaints were valid. In the circumstances, therefore, she is entitled to her costs of the June 18, 2015 appearance on a partial indemnity basis.
[90] The actual court time on June 18, 2015 was short. No material was filed by Deborah. In the circumstances, I consider costs of $2,500, inclusive of taxes, to be appropriate. This amount is payable forthwith.
[91] In respect of Deborah’s claim for costs for her examinations pursuant to Rule 39.02(4)(b), I have no information regarding those examinations to determine whether Deborah is entitled to any costs in connection with them. That said, and to the extent that the cross-examination by the Trustee was part of the Application, Deborah’s costs have already been accounted for in the partial indemnity cost award. If the cross-examination occurred as part of the Receiver’s motion to approve its Second Report, I have also accounted for that. As a result, I decline to specifically award any costs to Deborah pursuant to Rule 39.02(4)(b).
Conclusion
[92] For the reasons set forth herein, the Receiver’s motion to approve its Second Report is approved. Costs to Deborah are fixed at $2,500 in total.
[93] Further, the Application is dismissed in its entirety. Costs to Deborah are fixed at $59,105.80 in total.
L. A. Pattillo J.
Released: February 1, 2016
CITATION: Russo Corp. v. Deborah Essery, 2016 ONSC 321
COURT FILE NO.: CV-15-11035-00CL
DATE: 20160201
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
RUSSO CORP. in its capacity as Trustee in Bankruptcy of the Estate of Robert Essery and in its capacity as the Receiver over 2250093 Ontario Inc., 2250095 Ontario Inc., 2250097 Ontario Inc., 2250099 Ontario Inc. 7004206 Canada Inc. and not in its personal or corporate capacity
Applicant
– and –
DEBORAH ESSERY and THE ESTATE OF ROBERT ESSERY
Respondents
REASONS FOR JUDGMENT
PATTILLO J.
Released: February 1, 2016