CITATION: Ernst & Young Inc. v. Essar Global Fund Ltd et al, 2017 ONSC 4017

COURT FILE NO.: CV-16-11570-00CL

DATE: 20170629

SUPERIOR COURT OF JUSTICE - ONTARIO

B E T W E E N:

ERNST & YOUNG INC. in its capacity as Monitor of all of the following: ESSAR STEEL ALGOMA INC., ESSAR TECH ALGOMA INC., ALGOMA HOLDINGS B.V., ESSAR STEEL ALGOMA (ALBERTA) ULC, CANNELTON IRON ORE COMPANY and ESSAR STEEL ALGOMA INC. USA

Plaintiff

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ESSAR GLOBAL FUND LIMITED, ESSAR POWER CANADA LTD., NEW TRINITY COAL, INC., ESSAR PORTS ALGOMA HOLDINGS INC., ALGOMA PORT HOLDING COMPANY INC., PORT OF ALGOMA INC., ESSAR STEEL LIMITED and ESSAR STEEL ALGOMA INC.

Defendants

BEFORE: Newbould J.

COUNSEL: Eliot Kolers and Patrick Corney, for the Applicants

Nicholas Kluge and Delna Contractor, for the Monitor

Monique J. Jilesen, for GIP Primus, LP and Brightwood Loan Services LLC

Patricia D.S. Jackson, Andrew Gray, Jeremy R. Opolsky and Alexandra Shelley, for Essar Global Fund Limited, Essar Ports Algoma Holdings Inc., Algoma Port Holding Company Inc., Port Of Algoma Inc. [the “Essar Defendants”]

ENDORSEMENT

[1] In the oppression action I ordered that any party seeking costs could make cost submissions in writing along with a proper cost outline. I have now received cost requests from the Monitor, Algoma and GIP. The Essar Defendants have agreed to pay costs of $1.7 million to the Monitor.

Algoma costs against the Essar Defendants

[2] Algoma seeks costs against the Essar Defendants on a partial indemnity basis of approximately $1.7 million, including a disbursement of approximately $1 million to Epic eDiscovery Services Inc. The vast majority of the costs are related to the extensive eDiscovery exercise undertaken in tight time constraints. Approximately $436,000 relates to participation in the trial.

[3] The Essar Defendants say that Algoma is not entitled to any legal fee costs as it was not a plaintiff and was not a successful litigant. They say that Algoma conceded the cross-claim against it regarding the amount allegedly due under the Cargo Handling Agreement.

[4] The action was brought by the Monitor in the CCAA proceedings involving Algoma as the applicant in those proceedings. The Essar Defendants objected to the Monitor and took that position before and during the trial. They argued that it was Algoma that should be the party by way of a derivative action. It is artificial to say Algoma was not successful. The claim by the Monitor was brought on behalf of all stakeholders, and at trial these were identified as trade creditors, pensioners and retirees of Algoma. These persons are of critical importance to Algoma if it is to survive and come out of the CCAA proceedings successfully. Algoma was named as a party and entitled to participate as advised. It was critical to its future that the Monitor succeed. It is also the case that the Monitor could not proceed with the case without the help of Algoma as it was Algoma's documents and witnesses who were critical to the case. The relief granted permitting the Port Agreements to be terminated once the GIP Loan is paid off was a huge benefit to Algoma in the long run.

[5] I do not see the recent case of Green v. Green 2015 ONCA 541 as laying down any principle in general that would mean that because Algoma and the Monitor were aligned in interest, no costs should be made in favour of Algoma. That case involved a daughter who inserted herself into nasty matrimonial litigation to take the side of one parent against the other. Her allegations were found to be wholly unsupported. Unlike that case, Algoma was required to assist the claim of the Monitor and this was clear from the time the first case conference was held to discuss the search for and production of documents.

[6] The fact that Algoma conceded at the trial that if the Cargo Handling Agreement’s payment mechanism was upheld, the unpaid amounts under the Cargo Handling Agreement exceeded the amount due to Algoma under the Portco promissory note, was really of no moment and hardly a reason to deny Algoma its costs. That was a very minor issue and played no part in the trial. It was simply a mathematical exercise known to everyone.

[7] Regarding the legal costs claimed, they should be reasonable and the factors in rule 57.01 should be taken into account, including the amount that a losing party should reasonably expect to pay. The Essar Defendants says that they could not reasonably expect to pay what Algoma claims. Again, I think the Essar Defendants significantly understate the role of Algoma in this case. Everyone knew the role that was required of Algoma to enable the Monitor to pursue the case. The position that was being taken by the Essar Defendants that Portco had a veto over who could be a purchaser of the Algoma business in the CCAA sales process put Algoma and the chance of a successful sale of its assets in the SISP in an extremely difficult position. The Essar Defendants had to know, and did know, that Algoma could not lightly sit by and hope for a successful outcome of the case. The relative legal fees incurred were as follows on a partial indemnity basis excluding HST and disbursement:

(a) Algoma: $522,773.43

(b) the Essar Defendants: $943,942.11; and

(c) the Plaintiff: $1,652,126.50

[8] Algoma submits, and there is no reason to say otherwise, that Algoma’s counsel deliberately staffed the file leanly and participated only as necessary.

[9] Messrs. Ghosh and Marwah, the CEO and COO of Algoma, were critical witnesses for the plaintiff and their credibility was severely attacked by the Essar Defendants. They were fully entitled to be prepared and defended by Algoma’s counsel being the counsel of their choosing. There is no evidence that Algoma counsel’s time in this regard was duplicative of any work done by counsel for the Monitor. The Essar Defendants could have, but did not, ask for the docket entries of counsel for either the Monitor or Algoma and their argument that work was presumably duplicative is only an unsupported assertion. As a party, Algoma was entitled to be in attendance at the cross-examinations of these witnesses. Algoma's counsel was also entitled to be at the other cross-examinations. While at the outset of the case the parties contemplated having affidavits used as evidence in chief at the trial and then cross-examining the witnesses at the trial, the parties later agreed that the cross-examination of the witnesses before the trial would be used as trial evidence and no witnesses were call at the trial to give viva voce evidence.

[10] The fact that counsel for Algoma may not have asked questions of witnesses during their cross-examination is not a reason to deny them their legal costs of attending. That is no different from a trial in which counsel may decide not to cross-examine a witness. In this case, counsel for Algoma was in a position to assist counsel for the Monitor during the cross-examinations, just as would be the case during a trial, particularly in this unique case in which the Monitor was the plaintiff but Algoma was critically involved.

[11] The Essar Defendants have agreed with an overall total of $1.7 million to be paid to the Monitor. I assume that the legal fee portion is in the neighbourhood of $1.3 million taken the size of the disbursements claimed by the Monitor. However, I do not think the size of the fees paid to the Monitor for its counsel necessarily means that the total fees for both the Monitor and Algoma should be the same or some fraction of the fees paid by the Essar Defendants. Each case depends on its own facts. It is often the case that it is much more difficult for a plaintiff to prove a case than for a defendant to mount a defence, and this case is a good example of that. It was the actions of the Essar Defendants, including companies in Europe and India, that ran the show that ended up in litigation and while they knew what had happened, the plaintiffs had to ferret that out. The lack of candour of some Essar Defendant witnesses did not help matters. It also needs to be considered that it the total fees of the Monitor and Algoma are too high, that could be the fault of counsel for the Monitor rather than counsel for Algoma. The fact that the Essar Defendants agreed to pay a high amount to the Monitor is not determinative of what a reasonable amount should be for Algoma.

[12] The Essar Defendants say that all legal fees incurred by Algoma in the document review should be denied. In this case, Algoma retained an experienced eDiscovery vendor, Epiq, to host and perform algorithmic and first level review of almost 2 million documents. Algoma’s legal counsel provided secondary level and quality control review, and ultimately finalized a production set of 12,000 documents that effectively constituted the plaintiff’s productions and were relied upon by all parties in the litigation. It was known from the first case conference in which production of documents was discussed that Algoma's counsel would be involved. It is said that internal document review was conducted by the plaintiff’s counsel and that there is no justification for further internal document review having been undertaken by counsel for Algoma. To this Algoma says that as the Essar Defendants were well aware, there were complicated privilege issues at play in this case. Algoma was fully entitled to internally review its documents to ensure accurate privilege coding before disclosure, including to the plaintiff. I accept that. I cannot say that Algoma should simply have relied on what Epiq or Algoma's counsel did. While the amount sought for this work is high, being approximately $228,000, the number of documents involved was also extremely high.

[13] Algoma claims $1,068,762.48 in disbursements to Epiq, which processed the emails and other documents within Algoma’s control into electronically reviewable format, provided a team to review those documents for relevance and privilege, and facilitated rolling electronic productions of documents to all parties made necessary to meet the expedited timeline.

[14] The Essar Defendants acknowledge that Algoma’s production exercise was carried out on behalf of the plaintiff. However, they disagree with the quantum of costs charged by Epiq and say that they spent $239,697 on a third party document review service, which reviewed both the documents of Algoma provided on behalf of the plaintiff and the Essar Defendants’ documents produced to the plaintiff. A difficulty with this argument is that I have not been provided with the scope or number of documents reviewed by the third party document review service used by the Essar Defendants. A comparison of numbers alone does not permit a conclusion that the expense incurred by Algoma with Epiq was an unreasonable expense.

[15] The Essar Defendants also assert that the speed of the trial was driven by Algoma and the Monitor, who were aligned in interest, and that the Monitor insisted on an expedited schedule, which increased the expense of Algoma’s e-discovery vendor. They say that this conduct caused Algoma to incur costs unnecessarily, which should be disallowed by this Court. I do not agree. The expedited trial was ordered by the Court, and for good reason, as the issues affected the SISP process which at the time had a short time frame. It was necessary to have the trial expedited. Moreover, there is no evidence that the expedited schedule increased Algoma's e-discovery expenses.

[16] The Essar Defendants also contend that some of the e-discovery was commenced by Algoma before the statement of claim was issued and that there should be no claim for that work done by Epiq. There is nothing to this argument. While the statement of claim was issued on October 25, 2016, the Monitor had been empowered to bring the oppression case since September 26, 2016 when on that date an order was made authorizing empowering and directing the Monitor to commence the oppression proceedings in relation to the transactions and matters described in the Monitor's thirteenth and the sixteenth reports. These reports described the facts in issue and the issues raised by the facts. Algoma knew from the date of the order authorizing the Monitor to bring the action what needed to be done to obtain and produce relevant documents. At the first conference with counsel (at the time the Polley Faith firm attended anticipating to be counsel to the Essar Defendants) there was a discussion of the need in light of the expedited proceedings to quickly have e-discovery of millions of documents and Algoma could have been criticized had the document search not begun immediately.

[17] The Essar Defendants contest a disbursement of $28,539.23 claimed by Algoma for travel to London, England for the cross-examination of Mr. Ghosh. They say that Algoma dictated that the cross-examination of Mr. Ghosh occur in London based on Mr. Ghosh’s availability and his own travel to Germany and, as it was Algoma’s conduct that caused it to unnecessarily incur these travel expenses, they should be disallowed. I do not agree. Examinations took place in Toronto, New York, Sault Ste. Marie and London on a tight time-line. In a conference, I was asked to choose where examinations should take place because of the schedules of various lawyers and witnesses, including those from Torys acting for the Essar Defendants. I made the call and the parties were required to live by that call. It is unfair to blame Algoma for what occurred.

[18] In the circumstances, taking into account the factors in rule 57.01 and also what the Essar Defendants could reasonable expect to pay, a reasonable amount for legal fees of Algoma to be paid by the Essar Defendants would be $425,000 inclusive of HST. The disbursement claim of Algoma of $1,138,384.19 is reasonable and allowed in full. Therefore the Essar Defendants are ordered to pay total costs to Algoma of $1,138,809.19.

GIP claim for costs

[19] GIP Primus, LP and Brightwood Loan Services LLC (together “GIP”), claim costs against the Monitor on a partial indemnity scale of $750,156.18.

[20] The basis for this claim for costs is that the relief sought by the Monitor at various times in one form or another would have affected the GIP security. Even the position taken at the trial by the Monitor would have affected the GIP security as setting aside the Port Transaction would result in a structure that critical to GIP from the outset, namely a bankruptcy remote structure. In the result, it is said that the GIP security structure was upheld and therefore GIP was entirely successful as all of the relief sought that would have prejudiced the GIP lenders was denied.

[21] The Monitor acknowledges that if the only position taken by GIP was as to the scope of relief, GIP might be entitled to costs. The Monitor however points out that GIP took a much broader attack on the Monitor's case, including attacking whether the Monitor had standing to bring the action, contending that the veto provision in the Port Transaction was commercially reasonable and that fair value of the Port Transaction was established, none of which was accepted. GIP has appealed the oppression decision and requests an order of the Court of Appeal that it was an error to find that the Monitor was a proper complainant or to find that EGFL oppressed Algoma. Thus it is contended that GIP cannot say it was wholly successful.

[22] I am not privy of course to the strategy of GIP in filing its appeal to the Court of Appeal. It may have been done as the issue of set-off and its effect on the right of Algoma to terminate the Port Agreements was still outstanding, but that is a matter of speculation. Those issues have now been decided at first instance but may well be appealed. The fact remains that GIP filed its appeal and I have not been notified that it has withdrawn its appeal.

[23] In all of the circumstances, I accept that success between the Monitor and GIP was divided and I make no order as to costs.

Newbould J.

Date: June 29, 2017