Court File and Parties
COURT FILE NO.: CV-16-11424-00CL DATE: 20170425 SUPERIOR COURT OF JUSTICE – ONTARIO COMMERCIAL LIST
BETWEEN: EMMANUEL VILLAGE RESIDENCE INC. Applicant
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ATTORNEY GENERAL OF ONTARIO Applicant
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1250 WEBER STREET EAST, KITCHENER, ONTARIO OR THE PROCEEDS OF THE SALE THEREOF (IN REM) Respondent
BEFORE: Newbould J.
COUNSEL: Jennifer A. Whincup and Bruce Darlington, for the applicant Emmanuel Village Residence Inc. Leanne M. Williams, for the BDO Canada Inc., the Receiver Gary Valiquette and Jennifer Malabar, for the Attorney General of Ontario
HEARD: April 19, 2017
Endorsement
[1] The AGO moved for an order discharging BDO as the Receiver of the property of Emmanuel Village Residence Inc. (“EVR”) as the sale has been completed. After discussion, it was determined that BDO would be discharged with the proviso that the proceeds of the sale of the EVR assets held by BDO be paid in an agreed fashion to the Sherriff and to be available for any costs of BDO and its counsel or costs of EVR and its counsel that might be approved and ordered to be paid.
[2] EVR moves to have its counsel’s fees and disbursements approved for the period from April 31 to November 27, 2016. The Receiver moves to have its and its counsel’s fees and disbursements approved for the period from September 10 to December 31, 2016. The AGO objects to the fee requests.
[3] On September 12, 2016 I ordered over the objection of the AGO that the administration charge to cover the fees of the Receiver and its lawyer and the fees of EVR be increased from $350,000 to $700,000. The AGO takes the position that the size of the administration charge should be a cap on the amount of fees to be paid, particularly as any amounts are coming from funds that will otherwise be paid to victims of the fraud of Mr. Hunking, which is the underlying purpose of the Civil Remedies Act, 2001 (“CRA”). As approximately $652,000 has already been paid, the AGO says that amount to be approved now should not be more than what will take the total up to $700,000. The total amount now sought to be approved is a further approximately $270,000.
[4] I have every sympathy for the victims of the fraud of Mr. Hunking. The issue, however, is whether the fees being claimed are reasonable in relation to what the Receiver and EVR did and was authorized by court order to do. That test for the Receiver and its counsel, as discussed in Bank of Nova Scotia v. Dierner, 2014 ONCA 851, would be the case in any event even if the CRA were not involved. EVR previously agreed to have its accounts approved by the Court and the test for it is not materially different from the test for the Receiver. In this case, one cannot lose sight of the fact that it was EVR and the Receiver who together monetized the assets of EVR from which the victims are being paid.
[5] An administration charge is to secure fees in the event that they are not paid from some other source, such as cash flow in a typical Receivership. Often, when an administration charge is requested, the amount requested is an estimate of what the fees will be, but it is only an estimate. In this case, at the time of the request for the administration charge to be doubled, the Receiver reported that the increased amount was to cover fees already incurred and anticipated to be incurred to the closing of the sale. The size of an administration charge, however, is not a cap on the fees to be paid. It is a cap on the amount of assets, in this case EVR assets, that can stand as security for any unpaid fees of the professionals.
[6] The AGO argues again that section 5 of the CRA applies and that anyone requesting fees under that section must establish that there is no other source of funds available. The AGO says that there may be assets of Mrs. Hunking available as her house is on the market.
[7] I have previously held that section 5 does not apply in this case. On the motion to increase the size of the administration charge to $700,000, it was argued by the AGO that section 5 applied and that no request had been made under that section or information provided required by section 5. In my decision of September 12, 2016 I held otherwise and stated:
[22] The next objection raised on behalf of the AGO is that permitted legal expenses are covered in section 5 of the CRA and that there has been no request made by EVR under section 5 and no evidence to support such a request. I think it clear, however, that section 5 has no relevance to the request for an increase in the Administration Charge. It provides:
- (1) Subject to the regulations made under this Act, a person who claims an interest in property that is subject to an interlocutory order made under section 4 may make a motion to the Superior Court of Justice for an order directing that reasonable legal expenses incurred by the person be paid out of the property.
[23] This section applies to a person who claims to have an interest in the property. It is argued on behalf of the AGO that a request for an administration charge is a claim by a person for an interest in the property. I cannot read that section to apply to a request for an administration charge and counsel for the AGO conceded that there is no case saying otherwise. The section in my view clearly applies to someone who claims to already hold an interest in the property against which a preservation order has been made and it does not apply to a Receiver seeking to have an administration charge recognized. Section 5(2) provides:
- (2) The court may make an order under subsection (1) only if it finds that,
(a) the moving party has, in the motion,
(i) disclosed all interests in property held by the moving party, and
(ii) disclosed all other interests in property that, in the opinion of the court, other persons associated with the moving party should reasonably be expected to contribute to the payment of the legal expenses; (Underlining added)
(b) the interests in property referred to in clause (a) that are not subject to the interlocutory order made under section 4 are not sufficient to cover the legal expenses sought in the motion.
[24] Under section 5(2)(a)(i), the moving person must disclose all interests held, not sought to be held, in the property. That would not apply to an administrative charge sought by a Receiver.
[8] No appeal was taken from that decision. It is argued by the AGO that in an email, counsel for EVR said that EVR had an interest in seeing there was a fair claims process to identify creditors and that EVR thereby claimed an interest of the kind referred to in section 5. I do not agree. It is more than a long stretch to say that the email had that effect.
[9] The AGO says that the regulation requires that a party applying for payment of legal fees under section 5 has an onus of establishing that there is no other source from which to pay legal fees. As I have held that section 5 has no application, it is not necessary to deal with this contention. I would note, however, that regulation 5(2)(ii) appears not to say that a party must establish that no one else can pay the fees but that the applicant must provide information as to property that could be used to pay the fees.
[10] Nevertheless, if there were someone legally required to pay the fees of EVR who had the resources to do so, I would take that into account. However, there is no evidence of any such person. The AGO points out that in the 2016 unaudited financial statements of EVR there is recorded as due from a director the amount of $116,000. The same is recorded in the 2015 fiscal year. The notes to the financial statements state that the loan due from the director is unsecured, interest at 0%, has no maturity date and no specified terms of repayment. Who the director is is not stated. How long the money has been outstanding is not known. If the director is Mr. Hunking, he is currently serving a jail sentence and there is no evidence he has any ability to pay.
[11] Counsel for the AGO said in argument that it is known that Mrs. Hunking has her house on the market. Even if it were the case that Mrs. Hunking had an obligation or even a moral responsibility to pay EVR’s legal fees, which is not known or apparent, there is no evidence at all as to what the house is worth and whether there is any equity in the house. In my September 12, 2016 endorsement I held that EVR had no available cash to pay the legal and Receivership expenses relating to the sale of the property. That remains the case today. Its only asset is the proceeds of the sale being held in trust by EVR’s counsel.
[12] In these circumstances, it would not be reasonable to require the Receiver or EVR to look elsewhere than assets under the administration charge for their payment of fees and disbursements.
[13] The AGO says that the hourly rates charged by counsel are too high as they should not be more than the guidance for rates in the 2005 notice to the profession. I do not agree. That guidance was for costs to be paid by a losing party to a winning party. This is not the situation here. This is not a party and party assessment but rather an assessment of the reasonableness of fees to be paid to a court Receiver and its counsel and to counsel for EVR on behalf of EVR.
[14] Moreover, I have previously on a number of occasions in setting party and party costs refused to apply the guidance as the rates are woefully out of date, and the Court of Appeal has done the same. See Stetson Oil & Gas Ltd. v. Stifel Nicolaus Canada Inc., 2013 ONSC 5213 and Inter-Leasing Inc. v. Ontario (Minister of Revenue), 2014 ONCA 706.
[15] The hourly rates being requested for counsel for the Receiver and for EVR were earlier been approved by Hainey J. on the consent of the parties including the AGO and by me in my decision of November 21, 2016. I see no reason to hold otherwise now. The rates being requested are reasonable and well within the range of rates routinely approved for Toronto lawyers in the Commercial List.
[16] The AGO has identified six categories of what it says was work not authorized to be done or not reasonable. I will deal with each of them.
[17] The first is a list of docket entries for work done for EVR which the AGO says was for work other than authorized for the sale of the property which closed on October 3, 2017. These amounts total $13,202.50. The docket entries do not give much guidance as to the work done, and the AGO is relying on an argument that once the sale closed, there was nothing for counsel for EVR to do regarding the sale and so the work must have related to the AGO’s forfeiture application. I do not accept that. First, EVR was not acting under a court order limiting its work to closing the sale. Second, EVR’s responsibilities did not end with the closing of the sale. There were a number of issues raised after that involving the funds that were being held by EVR’s counsel, which had not yet been forfeited to the Crown. EVR rightly had an interest in seeing that there was a proper claims process, and I ordered that steps be taken to determine the creditor claims, including ordering a mediation. EVR took no steps to oppose the forfeiture application. The complexity of this case involving both a receivership and a forfeiture application meant an overlap of work that cannot be laid only at the doorstep of the forfeiture application. I discussed this in earlier decisions.
[18] The second is a list of docket entries for work done for EVR totalling $5,056.50 for work done post-closing relating to a claims process. The fourth are docket entries for work done by the Receiver relating to a post-closing claims process totalling $4,180.50 and by the Receiver’s counsel totalling $14,075. The AGO says that the CRA provides for a claims process and that it was contrary to the CRA for the Receiver to engage in a claims process. This argument ignores the fact that there was a Receivership and there was a motion by the Receiver for advice and directions regarding a claims process in the Receivership. It also ignores the steps that I took with all counsel to come to grips with a claims process in the Receivership, including eventually ordering a one-day mediation of the issue as no agreement could be reached by the Receiver and EVR with the AGO. EVR was reasonable in having some concern that there would be a proper claims process involving its creditors.
[19] Counsel for the AGO candidly acknowledged on this motion that the AGO “went along to get along” with the mediation and the process to find out what creditors there were of EVR and what claims they might have. The work involved many discussions by counsel for the Receiver and for EVR with counsel for the AGO. Eventually a report was prepared by the Receiver for the Court dated November 18, 2016 listing potential unsecured creditors. It then became apparent that the issue was not worth fighting about and it is now agreed that the proceeds of the sale, less any approved professional fees, will be forfeited and distributed in a claims process under the CRA. It was reasonable for the Receiver and EVR to engage in this process which I had directed and I do not accept the position that this work was unreasonably done.
[20] The third is said by the AGO to be “Work conducted on behalf of EVH” relating to docket entries on behalf of EVR of $3,855. This heading is misleading. EVH is a long term care facility adjacent to EVR and EVR facilities are used by residents of EVH. During the sale process it became evident that EVH residents would be affected by the sale of EVR. Mr. D’Agostino was appointed as representative counsel on behalf of those residents by order of August 19, 2016. Counsel for EVR had to deal with issues raised by EVH and Mr. D’Agostino. It did so not on behalf of EVH but rather on behalf of EVR. The work was necessary and the charges for it are reasonable. The few minor docket entries after October 3, 2016 clearly related to this work as well.
[21] The fifth is work done by the Receiver and its counsel for work done post-closing “on the AGO’s preservation motions and forfeiture applications” relating to docket entries of $4,620. While the docket entries refer in some cases to a preservation motion, not all do. However, this complaint by the AGO again purports to draw a bright line between the sale of the property and the forfeiture application brought by the AGO. The work done in the Receivership was greatly complicated by the forfeiture application, but it is unfair to say that some work was done only to attack the forfeiture application. I referred to this in my decision of September 12, 2016 dealing with the doubling of the size of the administration charge:
[37] In this case, the sale has been made more complex by the fact that EVR operates a licensed retirement home that involves numerous stakeholders that are wholly unconnected with the alleged proceeds of unlawful activity. This has increased the complexity of the proceedings above and beyond the sale transaction of a regulated business to include issues surrounding the continued operations of the business and post-closing requirements. The CRA proceedings taken by the AGO has also greatly increased the amount of work involved.
[22] The Receiver was holding funds from the sale and could not sit idly back and do nothing after the sale closed. There was a claim by victims who had a judgment in a class action for some $1.2 million who were demanding payment from the Receiver of the settled amount. That claim was strongly opposed by the AGO and it was only just recently settled when those claimants were paid. There was the issue of a claims process for other creditors. I cannot find that the work done by the Receiver after the sale closed related to things for which the Receiver had no responsibility.
[23] The sixth is a complaint that senior counsel for the Receiver attended at chambers appointments. A difference of $1,610 between the fees charged and what is said a junior’s fees would be is sought to be deducted. I do not accept the complaint. In the Commercial List a great deal gets done in chambers and what often happens, which in this case was the norm, is that discussions and negotiations take place in advance. Sometimes things are worked out before the attendance. In this case, that rarely happened. The AGO was invariably represented by two counsel, one more senior than the other. In those conferences I tried through discussion to see if things could be worked out on some consensual basis, but usually to no avail. On most occasions the AGO took dogmatic positions and other counsel had to be there to respond. I am in no position to say that the Receiver should not have been represented by Ms. Williams on those chamber appointments.
[24] It is unfortunate that the fees in this case were higher than anticipated. The unusual proceedings in this case caused by the joinder of a Receivership and forfeiture proceedings were the basic cause and created a great deal of work not normally expected in a receivership involving a sale of property. The AGO is not unblameworthy.
[25] In the end, the work done by the Receiver, its counsel and counsel for EVR was necessary to monetize the assets of EVR that will be used to pay victims of crime and to see that the monetization was done properly and completely. Unless the accounts are paid from the proceeds of the sale of the EVR property, these professionals will go unpaid. If their accounts were not reasonable, that would be a reason not to have the full accounts approved and paid. However, in this case I find that the accounts as claimed are reasonable.
[26] In the result, the fees and disbursements of the Receiver and its counsel as claimed in its motion record and the fees and disbursements of DLA Piper (Canada LLP) as claimed in its motion record are approved and are to be paid from the funds resulting from the sale of the EVR assets.
Newbould J. Date: April 25, 2017