Court File and Parties

COURT FILE NO.: CV-13-115613 DATE: 20170307 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Tri-Lag Corporation Limited Plaintiff – and – York Region District School Board, Ronald Biderman (The Action was dismissed as against Ronald Biderman by order dated September 12, 2012), The Corporation of the Town of Markham, Berczy Farm Corporation, Kennedy-Sixteenth Development Limited, Kennedy McKenzie Consix Investments Limited, Larkin-Monarch Partnership, E. Manson Investments Limited, B. McGregor Developments Limited, Baystore Developments Incorporated, John Doe, Jane Doe and other persons unknown who have conspired with the named defendants Defendants

Counsel: Jonathan Rosenstein for the Plaintiff (Mr. Rosenstein was not counsel at trial. He was retained by the Plaintiff in order to argue the issue of costs only) Robert J. Richler, for the Defendant, York Region District School Board. David G. Boghosian for the Defendant, The Corporation of the Town of Markham. Ronald Birken and David Fenig for the Defendants, Kennedy-Sixteenth Development Limited, Kennedy McKenzie Consix Investments Limited, Larkin-Monarch Partnership, E. Manson Investments Limited, B. McGregor Developments Limited, Baystore Developments Incorporated.

HEARD: March 3, 2017 in Lindsay

COSTS ENDORSEMENT

D. S. Gunsolus, J.

Background

[1] The plaintiff brought this action claiming against the various defendants, damages of $25,000,000 for negligent or fraudulent misrepresentation, deceit, intentional interference with economic relations, abuse of office, injurious affection affecting an interest in land, de facto expropriation of neighbouring land, unjust enrichment, conspiracy, an accounting, aggravating, exemplary and punitive damages, special damages, interest and, of course, costs.

[2] It was not until the commencement of this trial, that counsel for the plaintiff, who was the fifth counsel for the plaintiff in the many reincarnations of this action, confirmed the plaintiff was going to pursue only the following relief:

(a) Damages in the amount of $10,000,000.00 for negligent misrepresentation and intentional interference with economic relations; (b) Special damages in the amount of $1,323,990.30; (c) Special damages for the value of improvements to the roads that the plaintiffs were unjustly required to complete; (d) Interest; and (e) Costs.

[3] By far, the vast majority of facts upon which the plaintiff's case was based related to events that occurred between 1997 and 2004. The original action in this matter was actually commenced in 1998.

[4] The defendants were all prepared to defend this action based on the full extent of the plaintiff's claim as defined in paragraph 1 above. All defendants succeeded in having the claims against them dismissed in full. There, of course, is no reason why costs should not follow the cause and the defendants should all be entitled to their costs pursuant to Rule 57.01 (1). Counsel for the plaintiff did not dispute that the defendants, as the successful parties, are entitled to their costs on a partial indemnity basis.

[5] All defendants have argued that an award of substantial indemnity costs is appropriate in the circumstances of this case given the actions of Mr. Lagani who is President of the plaintiff corporation. They submit that the costs should be used to sanction the behaviour of Mr. Lagani. (2)

1 Rule of Civil Procedure, R.R.O. 1990, Reg. 194, rule 57.01 2 Walker v. Ritchie, 2005 ONCA 13776, at para. 105 Young v. Young, [1993] 4 S.C.R. 3, 1993 SCC 34

[6] In exercising the court's discretion as to costs, it is appropriate and necessary to take into account the conduct of any party that unnecessarily lengthens the proceeding or was improper, vexatious or unnecessary. (3)

[7] It is to be noted that as sole shareholder and President of the plaintiff corporation, Mr. Lagani, did indeed display such behaviour, including but not limited to the following:

∙ Causing various offers to settle to be served on the various defendants for amounts ranging from $100,000,000.00 to $300,000,000.00 to $600,000,000.00, notwithstanding the fact that the plaintiff's pleadings in no way reflected a basis for such offers. ∙ During the years before the trial and during the trial, threatened criminal sanctions against the parties and their counsel numerous times. ∙ Attempted to intimidate employees of the defendants. ∙ Attempted to intimidate witnesses in the courthouse prior to giving of evidence in the trial. ∙ Changed counsel at least five times. ∙ Made unsubstantiated allegations of fraud, abuse of public office, conspiracy and similar allegations which were not withdrawn until after the actual commencement of the trial. ∙ Advised the court by announcing during the trial that there was more documentation that he had not disclosed but that would be disclosed by the police when "you are all charged". ∙ Caused two, and perhaps three, different sets of financial statements to be prepared for the plaintiff and a related numbered corporation of which one set appeared to have been disclosed to counsel for the defendants and another set disclosed to his business valuation economic damages expert. ∙ Provided what can, at best, be described as misinformation to his business valuation and economic damages expert such that the evidence provided by this individual to the court was acknowledged to be of no probative value and of no assistance to the court. ∙ Mr. Lagani's own presentation of evidence required that the court recess on more than one occasion in order that he could be instructed by his own counsel as to appropriate behaviour in the courtroom, after having been admonished by the court at length. ∙ Continued allegations of fraud and forgery in relation to documentation that Mr. Lagani himself had executed. ∙ Denied receiving cheques from the Town in relation to letters of credit, notwithstanding that he himself had cashed them.

3 Rule of Civil Procedure, supra

[8] Clearly such actions and unsubstantiated allegations permit the court to consider exercising its discretion by ordering substantive indemnity costs. (4)

[9] I am not required to take a line-by-line analysis of the hours claimed, nor should I second guess the quantum claimed by the defendants as to costs unless it is clearly excessive or overreaching. In any event, I must consider what is reasonable in the circumstances of this case. (5)

[10] These Defendants have been defending this action, in its various incarnations since 1998. Examinations occurred over a 9 day period, the trial itself took 12 days and the documentary productions were voluminous. The plaintiff "cycled" through five different counsel and hired a sixth counsel in order to deal with costs submissions. A full review of the provisions set out in Rule 57.1 would indicate that the court's discretion in awarding costs remains intact and it is open for the court to impose partial or substantial indemnity costs in an amount that I deem to be reasonable in all the circumstances.

[11] Counsel for the plaintiff corporation has argued strenuously that only partial indemnity costs are appropriate because:

(1) The plaintiff did not engage in reprehensible, scandalous or outrageous behaviour as described in the Walker and Ritchie (6) and Young and Young (7) cases. (2) The plaintiff's conduct did not have the effect of substantially interfering with the action itself; and (3) The proper sanction in the circumstances where the plaintiff's witnesses are not believed is to dismiss the case but not impose substantial indemnity costs.

[12] Counsel for the plaintiff did acknowledge that it is open to the court to award additional costs for time wasted at trial by the manner in which Mr. Lagani conducted himself during the trial. I would extend this thought to the fact that Mr. Lagani misled his own witnesses as to facts such that their testimony was of no probative value and was of no assistance to the court, and was a waste of the court's and parties time. However, in Ontario, there are only two types of costs:

Partial and substantial indemnity; There is no hybrid scale of "enhanced" partial indemnity costs. (8)

4 Apotex Inc. v. Egis Pharmaceuticals (Gen. Div.), 1990 ONSC 6829, 2 O.R. (3d) 126 Reno-Depot Inc. v. Wonderland Commercial Centre Inc., 2008 ONCA 786 5 Fazio v. Cusumano, 2005 ONSC 33782 6 Walker v. Ritchie, 2004 ONSC 9382 7 Young and Young, 1993 SCC 34 8 Garry D. Watson, Ontario Civil Procedure Toronto: Thomson Reuters Canada Limited, 2017, citing Vanek v. Great Atlantic and Pacific Company of Canada Limited, 1999 ONCA 2863

[13] The Berczy Group of defendants are seeking costs as follows:

Substantial indemnity costs (inclusive of fees, disbursements and HST) $348,484.78 Alternatively partial indemnity costs (inclusive of fees, disbursements and HST) $259,322.81

[14] The Town of Markham is seeking costs as follows:

Full indemnity (inclusive of fees, disbursements and HST) $457,256.08 Alternatively partial indemnity (inclusive of fees, disbursements and HST) $318,597.55

[15] York Board of Education is seeking costs as follows:

Substantial indemnity (inclusive of fees, disbursements and HST) $461,490.00 Alternatively partial indemnity (inclusive of fees, disbursements and HST) $320,464.00

[16] In any event, the fixing of costs is a discretionary decision under s. 131 of the Courts of Justice Act. Such discretion is to be exercised in accordance with the factors listed in Rule 57.01 of the Rules of Civil Procedure. In the end, the court must consider what is fair and reasonable in fixing costs, balancing compensation of the successful party with the ultimate goal of fostering access to our system of justice. In this case, the plaintiff has had a far greater share of access to our justice system than this case warranted.

The Defendant's claim for costs against Mr. Lagani jointly and severally with the Plaintiff corporation

[17] The defendants, York Region School Board and the Town of Markham, are both asking that I impose costs against Mr. Lagani personally. Although initially sought by counsel for the Berczy Group, they withdrew their claim for costs against Mr. Lagani.

[18] The court has no jurisdiction to award costs against a corporate plaintiff's officer or shareholder unless:

(a) That individual could have brought the action themself; (b) That individual was the true plaintiff; and (c) The corporate plaintiff was "a man of straw" put forward to protect the shareholder from liability for costs. (9)

[19] This is so, even in circumstances where a plaintiff corporation makes unfounded allegations that the Defendant's acted in a fraudulent and deceitful manner and even where the plaintiff corporation appears to be a shell with no assets. (10)

[20] It is in circumstances where the principal of a corporation could have brought the action personally instead of the corporation that the court may order costs against the principal. (11)

[21] Finally, I note that counsel for the plaintiff has pointed out that the defendants did not give Mr. Lagani notice before trial nor during trial that they intended to seek costs against him personally should they successfully defend his claims. On this ground, I agree it would also not be equitable to order costs against an individual who was notified of such claim after the completion of the trial and release of the judgment in the matter. (12)

[22] In the matter before me, Mr. Lagani could not have brought this action personally as he was not a party to any dealings, contracts or agreements. The proper and only proper party was his corporation, Tri-Lag.

[23] Counsel for the Defendants have suggested that I have the authority to "pierce the corporate veil" based upon allegations that they have made suggesting that Mr. Lagani may have used his corporation in order to avoid taxes, extract personal loans, pass through personal expenses and so on. That is not the proper test for the court to consider. I further note that I made no factual findings in relation to any of these allegations which are, at best, speculative.

[24] While this court has inherent jurisdiction to order costs against a non-party in order to prevent gross misconduct, vexatious conduct or conduct that undermines the fair administration of justice, costs should not be awarded against corporate officers, directors or shareholders simply because they direct the operation of the corporation. In any event, non-parties must be given notice of the litigant's intention to seek a costs award against them. At the very least, unequivocal notice is required before such a claim can be made. (13) As noted above, Mr. Lagani was never put on notice that the defendants would seek costs against him personally.

9 Television Real Estate Ltd. v. Rogers Cable T.V. Ltd., 1997 ONCA 999 10 Rockwell Developments Ltd. v. Newtonbrook Plaza Ltd., [1972] 3 O.R. 199, 1972 ONCA 531 Atlantic Financial Corp. v. Henderson, 2007 ONSC 15230 11 Scintilore Explorations Ltd. v. Larche, 1999 ONSC 14948 Accord Smith v. Canadian Tire Acceptance Ltd., 1995 ONCA 2281 12 Patterson v. Hamilton Estate, [1997] A.J. No. 443 Rodaro v. Royal Bank of Canada, 2002 ONCA 41834 13 1318847 Ontario Limited v. Laval Tool & Mould Ltd., 2015 ONSC 2664

[25] I have no authority nor do I have discretion by which to order costs against Mr. Lagani in the circumstances of this case.

The Berczy Group of Defendants claim for set-off

[26] The plaintiff corporation Tri-Lag is a member of the Berczy Village Developers Group and as a member of that group is currently owed in excess of $167,162.21. The Berczy Group of defendants take the position that money payable to the plaintiff as a member of the group, is a debt which is properly set-off against the debt owing to the group by the plaintiff for the costs of these proceedings once fixed by the court. Counsel for the plaintiff and all other defendants take the position that both legal and equitable set-off are defences that may be raised as a "shield" in actions by a creditor to recover a sum of money but may not be asserted as a "sword" in order to convert funds otherwise payable to the creditor for use by the debtor on account of another transaction.

[27] Section 111 of the Courts of Justice Act provides the statutory framework for legal set-off. It states that in an action for payment of a debt the defendant may, by way of defence, claim the right to set-off against the plaintiff's claim a debt owed by the plaintiff to the defendant.

[28] The case law requires at least two things:

(1) That both obligations be liquidated debts or money demands which can be ascertained with certainty; and (2) Both debts must constitute mutual cross obligations as between the parties. Set-off at law is not an available response to a claim which sounds in damages.

[29] Not only did the Berczy Group not plead set-off in answer to the plaintiff's claims, but it is to be noted that the plaintiff's claims are based upon damages and therefore legal set-off is not available to the Berczy Group in the circumstances of this case. Counsel for the Berczy Group acknowledged that he was not pursuing set-off on the basis of legal as opposed to equitable set-off.

[30] In Telford v. Holt (14), the Supreme Court adopted the following principles governing the defence of equitable set-off:

(a) The party relying on a set-off must show some equitable ground for being protected against his adversaries' demands; (b) The equitable ground must go to the very root of the plaintiff's claim before a set-off will be allowed; (c) A cross-claim must be so clearly connected with the demand of the plaintiff that it would be manifestly just to allow the Plaintiff to enforce payment without taking into consideration the cross-claim;

14 Telford v. Holt, 1984 ABCA 355

(d) The plaintiff's claim and the cross-claim need not arise out of the same contract; (e) Unliquidated claims are on the same footing as liquidated claims. Telford v. Holt case and the Toronto Kosher v. Windward Drive Holdings (15) case.

[31] What the Berczy defendants are asking the court to do is ignore the well established case law and allow them to use set-off as a "sword" rather than as a "shield" simply because the group owes the plaintiff money under the developers agreement. The use of set-off in this way would be to bestow a damages windfall in circumstances that would be unfair and inequitable. As found by Justice Balboa in that case, this is a remarkable proposition for which there is no case law to support it.

[32] I am not satisfied that the law of set-off applies in the circumstances and facts of this case. The Berczy Group of Defendants, as a judgment creditor, will be on the same footing as the other defendants and will be able to pursue costs against the plaintiff by application of the amounts held as security for costs in their favour and by pursuing garnishment against the funds that are held by the Berczy Group for the benefit of the plaintiff.

[33] As stated in Principal Savings and Trust Company v. Coopers and Associated Investors of Canada Limited (16) some equitable ground must be shown by the party claiming the right of set-off as against an equitable assignee to permit the party claiming the set-off to have priority over all other creditors.

[34] Mr. Birkin, on behalf of the Berczy Group, acknowledges that I must find the six Berczy defendants named in this action to be equivalent to the entire Berczy Group of developers as otherwise the equitable set-off argument would not apply. His argument stretches the law of equitable set-off beyond its limits. I find that it would be inequitable to give non-parties set-off rights just because they have entered into a private agreement to contribute to the costs of the Berczy group named defendants. That would be bestowing a benefit upon the Berczy Group of developers who are not parties to this action.

[35] I further note that counsel for the Berczy defendants is suggesting that in some way I should make the Berczy defendants in this matter preferred creditors and I do not believe that is justified by the law relating to set-off or the facts of this case. (17)

[36] Mr. Birkin further advised the court that the Berczy Group of developers have been withholding funds owing to the plaintiff, Tri-Lag, because of this litigation. I agree with Mr. Richler that it would be a dangerous precedent to set to allow the withholding of a debt owed in such circumstances as it would fall within the damages windfall warned

15 Toronto Kosher v. Windward Drive Holdings, 2011 ONSC 4398 16 Principal Savings and Trust Company v. Coopers & Associated Investors of Canada Ltd., 1993 ABCA 259 17 Toronto Kosher v. Windward, supra

against in the Toronto Kosher Inc. v. Windward Drive Holdings Inc. I agree that this is tantamount to allowing the Berczy Group of defendants to collect before they even have judgment.

Entitlement and scale of costs

[37] Mr. Lagani, as president and directing mind of the plaintiff corporation, caused two or perhaps three sets of financial statements to be prepared for the plaintiff corporation and his related corporation. He disclosed one set of these financial statements to the defendants as part of the plaintiff's disclosure, and another to his expert on business and economic loss. In the result, he misled his own witness and thus the court and caused delay and wasted time by presenting witnesses whose evidence was based on untrue, misleading assumptions. In the end, the plaintiff's accountant suggested that the financial statements he presented were based solely upon information provided to him by Mr. Lagani. Further, the plaintiff's expert witness in relation to business and economic loss acknowledged that his evidence was of no assistance to the court because he had been provided with, at best, misleading or manufactured facts upon which he was to base his assumptions. At its highest, such evidence was a waste of the court's time.

[38] Mr. Lagani's pre-trial attempts to intimidate witnesses and employees of the defendant's and his repeated threats of criminal sanctions throughout these proceedings (including during the actual trial) reflect blameworthy conduct on the part of the plaintiff. To suggest that such conduct did not affect the process of the court is not accurate.

[39] The plaintiff alleged fraud and maleficence against the defendants and did not, through his counsel, withdraw such allegations until after the actual commencement of this trial, thus causing the defendants to prepare to defend against these very serious allegations.

[40] Even though counsel indicated that the plaintiff would not be pursuing such allegations, after the commencement of the actual trial, Mr. Lagani continued his "scurrilous allegations" against the various defendants and their counsel through his own evidence. Despite the valiant attempts of plaintiff's counsel, Mr. Lagani was not to be controlled. As in Fletcher v. Matychuk (18), the court is well justified to impose costs against the plaintiff in the range of substantial indemnity costs. Counsel for the plaintiff, in his submissions, suggested that behaviour that warrants an award of costs on a substantial basis is conduct which has the effect of substantially interfering with the action itself.

[41] He referred to the Envoy Relocation Services Inc. v. Canada (Attorney General) (19) case. In that case, the trial judge imposed substantial indemnity costs where a party deliberately misled the court. Mr. Lagani misled this court by causing two sets of financial statements to be prepared for the plaintiff corporation and the related

18 Fletcher v. Matychuk, 2015 ONSC 5051, at para. 10 19 Envoy Relocation Services Inc. v. Canada (Attorney General), 2013 ONSC 2622

corporation that he owns. He went further by providing one set of financial statements by way of disclosure to the defendants in this case. He provided another set of financial statements to his own expert. He further provided false and unfounded facts upon which he asked his expert to base an opinion and by doing so attempted to mislead the court.

[42] It is to be noted that trial counsel did not attempt to rely upon the plaintiff's business and economic loss expert's report in his trial submissions, as it was shown to be based upon unwarranted facts and assumptions that rendered it of no relevance or probative value.

[43] Mr. Lagani's continued threats of criminal sanctions and attempts to intimidate defence witnesses was indeed reprehensible. Such threats and intimidation, combined with those factors I set out in paragraph 7 above, warrant substantive indemnification costs in this case.

[44] This is an exceptional case wherein the defendants should have their costs of this action on a substantive indemnity basis. To that end, the Plaintiff shall pay to the defendants costs as follows:

1. To the Berczy Group $348,484.78 inclusive of fees, disbursements and HST.
2. To the Town of Markham $457,256.08 inclusive of fees, disbursements and HST.
3. To York Board of Education $461,490.00 inclusive of fees, disbursements and HST.

[45] I note that the costs payable to the Town of Markham and that paid to the Board of Education are greater than to the Berczy Group. I accept as a reasonable explanation for the difference the fact that the Board of Education was, in effect, defending two actions which were consolidated as one in this action. In relation to the Town, it took the lead in relation to countering expert evidence in challenging the financial disclosure presented by the plaintiff. It had a greater case to meet. In both cases, the additional time spent by counsel for the Town and for the Board of Education, I find to be reasonable.

[46] Any funds being held as security for costs shall be released to the individual defendant for whom the cash security is held and applied against the costs owed to the respective defendant. Any fund being held by the Berczy Group of developers should be garnished by all of these defendants in the normal course.

[47] Counsel for the plaintiff had urged me to consider the Berczy Group claim for costs to be the most reasonable. It was suggested that I should then award costs to the defendant board and defendant town to reflect more or less the amount claimed by the Berczy Group of defendants for costs. Counsel for the plaintiff could present no case law to me that would suggest that I was required to do so. I note that each defendant had unique issues and cases to defend against the plaintiff's various claims. I also am reminded of the words of Justice Winkler in Risorto et al. v. State Farm Mutual Automobile Insurance Company (20) as follows:

"The attack on the quantum of costs, insofar as the allegations of excess are concerned, in the present circumstances is no more than an attack in the air. I note that State Farm has not put the dockets of its counsel before the court in support of its submission".

[48] Following this reasoning, I did not attempt to mold the costs claimed by each of the defendants to reflect the lowest (The Berczy Group) quantum of costs as claimed in this matter.

[49] An Order shall issue as follows:

1. To the Berczy Group $348,484.78 inclusive of fees, disbursements and HST. In addition to these costs, the plaintiff shall pay to the defendant the amount of $12,500.00 inclusive of HST in relation to the costs of these submissions.
2. To the Town of Markham $457,256.08 inclusive of fees, disbursements and HST. In addition to these costs, the plaintiff shall pay to the defendant the amount of $12,500.00 inclusive of HST in relation to the costs of these submissions.
3. To York Board of Education $461,490.00 inclusive of fees, disbursements and HST. In addition to these costs, the plaintiff shall pay to the defendant the amount of $12,500.00 inclusive of HST in relation to the costs of these submissions.
4. Any funds being held as security for costs in favour of each of the defendants shall be released to the defendant and applied against the costs owed to the respective defendant.
5. Any funds currently being held by the Berczy Group of developers shall be held and be subject to the normal process of garnishment.
6. In the original judgment released in this matter, it was noted to me that Kennedy McKenzie Consix Investments Limited was not included in the style of cause. An Order shall therefore issue amending the judgment in this matter to include said defendant.

20 Risorto et al. v. State Farm Mutual Automobile Insurance Company, 2003 ONSC 43566

Released: March 07, 2017 D. S. Gunsolus, J.