Court File and Parties

COURT FILE NO.: CV-14-0274 DATE: 2017-06-13 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: 2403177 Ontario Inc. Plaintiff (Applicant) – and – Bending Lake Iron Group Limited Defendant (Respondent)

Counsel: Michael Strickland, for the Plaintiff (Applicant) Robert MacRae, for the Defendant (Respondent) Kenneth Kraft and John Salmas, for A. Farber & Partners in its capacity as Court-appointed Receiver Mark Mikulasik, for the Trustee in Bankruptcy

HEARD: Via written submissions

Justice Patrick Smith

Decision on costs

Introduction

[1] The narrow issue before the Court is who will pay the costs ordered on February 27, 2017 following the dismissal of the motion brought by Bending Lake Iron Group Limited (“BLIG”) and as clarified by email dated February 28, 2017.

[2] My endorsement on February 27, 2017, as clarified by an email to counsel February 28, sets out in detail the history of the proceeding however a brief overview is necessary to provide a contextual framework for this decision.

Overview

[3] By Court order, dated September 11, 2014, A. Farber & Partners Ltd. were appointed the Receiver of all assets, undertakings and properties of BLIG.

[4] On November 27, 2014, the Receiver sought and obtained an SISP Order which authorized it, inter alia, to conduct a sales and investment solicitation process for all or part of the property and assets of BLIG.

[5] On January 8, 2016, an approval and vesting order was issued approving the sale agreement between the Receiver and the Purchaser. That transaction closed on November 18, 2016.

[6] On January 13, 2016, BLIG filed a Notice of Appeal with the Ontario Court of Appeal which was followed by motion for Advice and Directions motion filed by the Receiver.

[7] On January 19, 2016, BLIG filed a motion in the Ontario Superior Court requesting leave to commence an action against the Receiver for damages resulting from the alleged failure of the Receiver to uphold the honour of the Crown and the Crown’s fiduciary duties to the affected Aboriginal Communities. BLIG did not file a confirmation that the motion was proceeding prior to the motion date scheduled for January 28, 2016.

[8] On January 19, 2016, BLIG also filed a Request for Leave to Appeal the decision of Justice D.C. Shaw dated January 8, 2016. In the Request for Leave, BLIG asserted, inter alia, that Justice Shaw erred in failing to consider the alleged failure of the Receiver to uphold the honour of the Crown and the Crown’s fiduciary duties to affected Aboriginal communities.

[9] On March 22, 2016, Brown J.A. released reasons quashing the Notice of Appeal and directing that leave to appeal the January 2016 orders was required.

[10] On March 24, 2016, BLIG filed a motion with the Ontario Court of Appeal seeking leave to appeal the January 2016 orders and the January decision of Shaw J.

[11] On June 16, 2016, the Ontario Court of Appeal released its reasons denying leave to appeal.

[12] On December 1, 2016, BLIG was assigned into bankruptcy. MNP Ltd. was appointed the Trustee.

[13] On January 17, 2017, the Trustee sent notice to the creditors of BLIG indicating that it would not pursue the BLIG Leave Motion and if creditors wished to do so they must comply with section 38 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended. (the “BIA”).

[14] On February 6, 2017, counsel for the Receiver served motion materials requesting a distribution and discharge order. The motion was returnable in Thunder Bay on February 23, 2017.

[15] On February 17, 2017, Mr. MacRae, purporting to act on behalf of BLIG, advised counsel for the Receiver that he would be pursuing a claim against the Receiver and seek other relief on February 23, 2017 – the return date for the Receiver’s motion. Shortly thereafter, motion materials were served and filed.

[16] On February 23, Robert MacRae appeared and advised the Court that he had been instructed by BLIG to bring the motion and that he was representing the Directors and Officers of BLIG. He asked that the Receiver’s motion be adjourned to allow him time to bring a motion to set aside the bankruptcy, time to pursue a constitutional question, to seek intervenor status for the Wabigoon Metis Indigenous Community and to obtain an order prohibiting the Receiver from continuing to act because of an alleged conflict of interest.

[17] The current Directors and Officers of BLIG are J. Chris Bailey, Dawn Elaine Mackay-Daynes, Henry Grant Wetelainen and Henry Clayton Wetelainen.

[18] On February 27, 2017 the BLIG motion was dismissed as an abuse of this Court’s process, as a collateral attack on prior orders of this Court and of the Ontario Court of Appeal and that the issues raised were res judicata.

[19] The court’s endorsement dated February 27, 2017 followed by an email dated the next day awarded costs in favour of a) A. Farber & Associates Inc. in its capacity as the court appointed Receiver (the “Receiver”); b) the Applicant, 2403177 Ontario Inc. and c) MNP Ltd. in its capacity as Trustee in Bankruptcy in the amount of $5,000 each.

Discussion

[20] The Applicant, Receiver and Trustee now seek an order that the Directors and Officers of BLIG and Robert MacRae are jointly and severally liable for the costs award.

[21] The BLIG motion that was returnable February 23, 2017 states that it was brought on behalf of BLIG. The Trustee was appointed Licenced Insolvency Trustee of BLIG’s Estate on December 1, 2016.

[22] The BLIG motion, supported by the affidavit of Henry Wetelainen, sought relief pursuant to section 38 of the BIA to permit BLIG and Henry Wetelainen to pursue remedies as the “s. 38 Creditors.” Henry Wetelainen is the President, CEO and major shareholder of BLIG.

[23] On several occasions prior to the return of the BLIG motion, the Trustee wrote to Mr. MacRae asking him to comply with Rule 15.02 (1) of the Rules of Civil Procedure and to advise whether he or his client authorized the commencement of the proceeding and to explain how he and/or BLIG could have standing before the Court given BLIG’s assignment into bankruptcy. Mr. MacRae failed to reply.

[24] By virtue of the appointment of the Trustee neither BLIG, its officers and directors and/or Robert MacRae had authority to bring the motion since all authority to do so had vested exclusively in the Trustee.

[25] The record shows that the s. 38 creditors of BLIG had not filed Proof of Claim in BLIG’s bankruptcy. It was procedurally incorrect for BLIG to attempt to obtain an order under s. 38 of the BIA since that section requires the motion to be brought by a creditor.

[26] The attendance of the Applicant, Trustee and Receiver at the BLIG motion and the filing of the First Report by the Trustee should not have been required. Given the insolvency of BLIG the costs ordered will rank in pari passu with all the claims of BLIG’s unsecured creditors and hence will only be paid if ordered payable personally by Mr. MacRae and/or the Directors and Officers of BLIG.

[27] In bankruptcy proceedings, the Court has a broad discretion to award costs under s. 197(1) of the BIA:

197(1) Subject to this Act and to the General Rules, the costs of and incidental to any proceedings in court under this Act are in the discretion of the court.

[28] The Ontario Court of Appeal has ruled that, pursuant to section 197(1) of the BIA, the court has the discretion to award costs against a non-party where there has been fraud or an abuse of the court’s process in general and the bankruptcy process in particular. (1730960 Ontario Ltd., Re, 2009 ONCA 720; Dallas/North Group Inc., Re, 2001 CarswellOnt 2344)

The Claim for Costs Against Henry Wetelainen

[29] I find that the motion brought by BLIG based upon the affidavit of Henry Wetelainen is an abuse of the Court’s process and of the bankruptcy process. The issues raised in the motion were rendered res judicata by previous court decisions and constitute a collateral attack on the decision of Shaw J. and the Ontario Court of Appeal.

[30] The BLIG motion was filed when it was clear that BLIG had no standing to do so and when it was incapable of satisfying any costs award.

[31] I agree with the submissions of the Applicant, Trustee and Receiver that Mr. Wetelainen and/or the directors of BLIG should not be allowed to hide behind the insolvency of BLIG to avoid the cost consequences of bringing an improper, frivolous and abusive motion.

The Claim for Costs Against Robert MacRae

[32] Costs should only be awarded personally against a lawyer in exceptional and rare cases. (Young v. Young, [1993] 4 S.C.R.3)

[33] Rule 57.07 (1)(2) of the Rules of Procedure provides:

57.07 (1) Where a lawyer for a party has caused costs to be incurred without reasonable cause or to be wasted by undue delay, negligence or other default, the court may make an order,

(a) disallowing costs between the lawyer and client or directing the lawyer to repay to the client money paid on account of costs;

(b) directing the lawyer to reimburse the client for any costs that the client has been ordered to pay to any other party; and

(c) requiring the lawyer personally to pay the costs of any party. O. Reg. 575/07, s. 26.

(2) An order under subrule (1) may be made by the court on its own initiative or on the motion of any party to the proceeding, but no such order shall be made unless the lawyer is given a reasonable opportunity to make representations to the court. R.R.O. 1990, Reg. 194, r. 57.07 (2); O. Reg. 575/07, s. 1.

[34] A two-part test is required when determining the liability of a lawyer for costs pursuant to Rule 57.07: 1. Inquire whether the lawyer’s conduct falls within Rule 57.07(1) in that it caused costs to be incurred unnecessarily and 2. To consider whether costs against the lawyer personally are warranted.

[35] I find that Mr. MacRae’s conduct falls within Rule 57.07(1). But for the BLIG motion the Applicant, Trustee and Receiver would not have incurred the costs of attending before this court on February 23. The BLIG motion was a complete waste of time and money. BLIG had no authority to bring any motion or to oppose the Receiver’s motion. All powers had vested exclusively in the trustee upon the bankruptcy of BLIG. Only the Trustee had standing to bring the BLIG motion and Mr. MacRae was aware of this.

[36] Mr. MacRae purported to have standing before this Court on February 23, 2017 stating that he was acting on behalf of BLIG, its Directors and shareholders. He had been asked several times before the return of the BLIG motion by counsel for the Trustee to confirm who he was acting for and on what basis he believed BLIG had standing to bring the motion. It was only on the return of the Receiver’s motion on February 23 that Mr. MacRae advised opposing counsel and the Court the nature of his motion, his standing and that he was acting on instructions from BLIG.

[37] Mr. MacRae has been a Director of BLIG and has represented it throughout multiple court appearances relating to the bankruptcy. He knew that BLIG was insolvent, had been assigned into bankruptcy and lacked standing to bring any motion or to instruct him to do so. As a solicitor and officer of the Court he knew that the BLIG motion was improper and that he could not receive instructions to bring any motion on its behalf.

[38] Further, Mr. MacRae knew or ought to have known that the BLIG motion was frivolous and that the issues that he intended to raise had already been adjudicated by the Superior Court and Ontario Court of Appeal and were res judicata.

[39] By acting as he did, Mr. MacRae participated in a collateral attack on the decisions of Shaw J. and the Court of Appeal and in the abuse of this Court’s process. (See: Dallas/North Group Inc. at para. 6, supra)

[40] I am also satisfied that the requirements of Rule 57.07 (2) have been satisfied and that Mr. MacRae has been provided a reasonable opportunity to make representations to this Court. On April 18, 2017 he filed a lengthy brief setting out his position in which he requested that this court dismiss the claims for costs against himself and the Directors and Officers of BLIG. I am satisfied that the record before the Court to decide this issue is adequate and that nothing further would be gained by having this issue determined by way of a formal motion.

[41] The provisions of Rule 15.02 are also applicable:

15.02 (1) A person who is served with an originating process may deliver a request that the lawyer who is named in the originating process as the lawyer for the plaintiff or applicant deliver a notice declaring whether he or she commenced or authorized the commencement of the proceeding or whether his or her client authorized the commencement of the proceeding. O. Reg. 427/01, s. 9; O. Reg. 575/07, s. 1.

15.02 (2) If the lawyer fails to deliver a notice in accordance with the request, the court may:

a) order the lawyer to do so;

b) stay the proceeding; and

c) order the lawyer to pay the costs of the proceeding.

[42] In contravention of Rule 15.02 of the Rules of Civil Procedure, Mr. MacRae neglected or refused to deliver a notice as required by the rule informing the Trustee and opposing counsel as to the capacity in which he had standing and who authorized the bringing of the motion.

[43] Based upon the above facts, I find that this is an exceptional case justifying an award of costs personally against a lawyer.

Decision

[44] For the above reasons, in addition to the broad discretion provided to the court pursuant to section 197(1) of the BIA, it is my order that the costs that have been awarded shall be payable jointly and severally by Robert MacRae and the Director and Officers of BLIG namely, Henry Grant Wetelainen, J. Chris Bailey, Dawn Elaine Mackay-Daynes and Henry Clayton Wetelainen.

______ “original signed by”_ ___ The Honourable Justice P. Smith

Released: June 13, 2017

COURT FILE NO.: CV-14-0274 DATE: 2017-06-13 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: 2403177 Ontario Inc. Plaintiff (Applicant) – and – Bending Lake Iron Group Limited Defendant (Respondent) decision on costs Smith J.

Released: June 13, 2017