CITATION: Eastern Ontario District Soccer Association (Re), 2017 ONSC 4932
COURT FILE NO.: BK-16-02200250-0033
MOTION HEARD: 2017/05/19
ONTARIO
SUPERIOR COURT OF JUSTICE –
IN BANKRUPTCY AND INSOLVENCY
IN THE MATTER OF THE PROPOSAL OF
EASTERN ONTARIO DISTRICT SOCCER ASSOCIATION
OF THE CITY OF OTTAWA
IN THE PROVINCE OF ONTARIO
BEFORE: Master Nathalie Champagne, Registrar in Bankruptcy
HEARD: May 19, 2017
APPEARANCES: Bruce Marks, lawyer for Oz Merchandising Inc. Hank Witteveen, lawyer for EODSA
C O S T S E N D O R S E M E N T
Background and Facts
[1] Oz Merchandising Inc. (“Oz”) brought a motion to annul the bankruptcy of Eastern Ontario District Soccer Association (“EODSA”). That relief was consented to by the EODSA and the only issue before me is that of costs.
[2] Oz commenced an action against the EODSA and others some 13 years ago. A number of motions were set in 2017 and the trial is to proceed for eight weeks starting October 16, 2017.
[3] The EODSA served and filed a Notice of Intention to Make a Proposal under s. 50.4(1) of the Bankruptcy and Insolvency Act, RSC 1985, c. B-3 (“BIA”), in December 2016, which resulted in a stay of proceedings in the Oz litigation. The EODSA did so contrary to legal advice and in order to minimize its exposure in the litigation. That is clearly indicated in the Minutes of a Special General Meeting held Tuesday November 29, 2016.
[4] On January 4, 2017 Oz submitted a Proof of Claim for over 10 million dollars, on a potential judgment at the outcome of the aforementioned trial. The Proof of Claim was supported by a 6 paragraph affidavit sworn by Zahide Sezerman and it attached four exhibits to it: the Notice of Action dated January 2, 2004, a “Further, Further Fresh Amended Statement of Claim”, an expert report by Rasim Kara dated May 19, 2016 and an expert report by Dave Clark dated June 23, 2016.
[5] Following the delivery of Oz’s proof of claim, counsel for the trustee, the EODSA and Oz agreed to adjourn the first creditor’s meeting. There is correspondence between various parties showing efforts to resolve both the proposal and the litigation. Those efforts did not prove fruitful and Oz ultimately brought its motion.
[6] The EODSA states that it only became aware that Oz was seeking an annulment of the proposal, or to lift the stay in the alternative, when this motion was served on May 9, 2017. The evidence contained in the correspondence between counsel suggests otherwise. An email by Mr. Witteveen dated April 6, 2017, states that the EODSA would be agreeable to resolving matter as suggested by Mr. Ostroff in an email dated the same day. Mr. Ostroff’s email specifically suggests the settlement of a number of issues, including the motion brought by Oz to annul the proposal. That offer to settle was rejected by Oz. In any event, the evidence shows that on May 9, 2017, right after it was served, the EODSA agreed to lift the stay; Oz rejected that offer as well. On May 16, 2017, the EODSA agreed to the annulment and to argue costs at the motion.
[7] Oz seeks its costs on a solicitor and client basis for this motion and for having to file its proof of claim. It presents the court with a bill of costs which does not break down the work done by date but totals $62,339.99. This amount includes over 50 hours of research by Mr. Marks, 8 hours to draft the notice of motion, 15 hours to draft an affidavit in support that attaches a large volume of exhibits, and 15 hours to draft a factum, in addition to considerable time for the exchange of correspondence and other work.
Analysis
[8] Oz cites rules 38.08(1) and 23.05(1) of the Rules of Civil Procedure, R.R.O. 1990 Reg. 194 (“Rules”), in support of its claim for solicitor and client costs. Rule 23.05(1) provides that a party to an abandoned action may bring a motion for costs and rule 38.08(1) entitles a respondent to the costs of an abandoned application unless the court orders otherwise. Oz relies on a body of case law in this regard and it also relies on rule 57 which sets out the factors to consider when ordering costs.
[9] The EODSA argues that rule 38.08 (1) has no application in this matter as this motion is governed by s. 197 of the BIA which sets out that costs of and incidental to any proceedings under the BIA are in the discretion of the court to fix or award on a party and party basis, or on a solicitor and client basis. It also argues that Oz did not ask for costs of defending against the proposal in its entirety; it only asked for the costs of the motion. While that is true, Oz made it clear on the day of the motion that it sought costs for its defence of the entire bankruptcy.
[10] I reject Oz’s argument that rules 38.08(1) and 23.05(1) apply in this matter. These two rules would only apply if the Notice of Intention to Make a Proposal could be defined as either an action or an application.
[11] An “action” under rule 1.03(1) is defined very specifically as follows:
“action” means a proceeding that is not an application and includes a proceeding commenced by,
(a) statement of claim,
(b) notice of action,
(c) counterclaim,
(d) crossclaim, or
(e) third or subsequent party claim;
[12] A Notice of Intention to Make a Proposal is none of those proceedings; neither is it an “application” which is defined under rule 1.03(1) as a “proceeding commenced by notice of application.” The definition of “application” under the BIA refers to a bankruptcy application and that definition is distinct from the definition of “proposal”. In the present case, the EODSA only served and filed a Notice of Intention to Make a Proposal. It did not actually make a proposal approved by creditors or the court. I conclude therefore that this proceeding does not fall within the definition of “action” or “application” under the Rules or the BIA.
[13] In my view section 197 of the BIA does in fact govern the issue of costs on this motion but it does not do so in a vacuum. There is ample case law in bankruptcy proceedings applying the factors set out in rule 57.01(1) in the determination of costs.
[14] The factors set out in rule 57 are as follows:
57.01(1) In exercising its discretion under section 131 of the Courts of Justice Act to award costs, the court may consider, in addition to the result in the proceeding and any offer to settle or to contribute made in writing,
(0.a) the principle of indemnity, including, where applicable, the experience of the lawyer for the party entitled to the costs as well as the rates charged and the hours spent by that lawyer;
(0.b) the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed;
(a) the amount claimed and the amount recovered in the proceeding;
(b) the apportionment of liability;
(c) the complexity of the proceeding;
(d) the importance of the issues;
(e) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding;
(f) whether any step in the proceeding was,
(i) improper, vexatious or unnecessary, or
(ii) taken through negligence, mistake or excessive caution;
(g) a party’s denial of or refusal to admit anything that should have been admitted;
(h) whether it is appropriate to award any costs or more than one set of costs where a party,
(i) commenced separate proceedings for claims that should have been made in one proceeding, or
(ii) in defending a proceeding separated unnecessarily from another party in the same interest or defended by a different lawyer; and
(i) any other matter relevant to the question of costs.
[15] In considering the appropriate amount of costs in this matter, I deal first with the issue of the EODSA’s conduct. It served and filed its Notice of Intention to Make a Proposal notwithstanding legal advice that to do so was premature. I find that it took these steps to minimize its exposure in the litigation. Although that is an aggravating feature in this proceeding, it does not meet the threshold of vexatiousness that would warrant solicitor and client costs. I rely on the cases of Sally Creek (Re), 2010 ONCA 312, 188 A.C.W.S. (3d) 344, and Young v. Young, 1993 CanLII 34 (SCC), [1993] 4 S.C.R. 3, [1993] 8 W.W.R. 513 (S.C.C.), in so concluding. Young v. Young establishes the principle that solicitor and client costs should be rare and only awarded where conduct is “reprehensible, scandalous or outrageous”. The Ontario Court of Appeal in Sally Creek applied those principles and upheld a registrar’s finding that that a trustee’s misconduct warranted solicitor and client costs. In Sally Creek, the trustee did not provide proper dockets or descriptors of work, failed to fulfill undertakings, misled regulatory bodies, failed to obtain instructions from inspectors, engaged in behaviour that flew in the face of his obligations as a trustee and escalated conflict with one of the creditors, and generally engaged in a “scorched earth approach” to the administration of the estate. I do not find that the EODSA’s conduct in this matter is comparable. While its actions were ill-advised and its motives suspect, when challenged, the EODSA made efforts to resolve the matter and ultimately agreed to the relief sought by Oz without the necessity of argument other than on the issue of costs. Oz itself did not make offers to settle.
[16] I recognize that the outcome of this motion is extremely important to Oz, but I do not find the motion complex. On the face of its financial statements, the EODSA should not have made the proposal as its assets exceeded its liabilities. That is the only evidence that Oz required to obtain an order to annul the proposal. Much of the material submitted by Oz on the motion was excessive, unnecessary, or irrelevant.
[17] While as a general principle, a court should not go behind a bill of costs to scrutinize each entry, a court must make an order that is fair and reasonable (see Boucher v. Public Accountants Council for the Province of Ontario 2004 CanLII 14579 (ON CA), at p. 302). The overall objective of a costs order is "to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding, rather than an amount fixed by the actual costs incurred by the successful litigant" (Boucher paras. 24, 26). The costs outline submitted by Oz, in my view, significantly exceeds what an unsuccessful party might reasonably expect to pay. To order costs on that basis would neither be reasonable or fair. In total, Oz claims that it spent over 120 hours to file its proof of claim, communicate with the trustee and its counsel, and to prepare this motion material. The bill of costs includes 50 hours for research by Mr. Marks, 8 hours to draft the notice of motion, 15 hours to draft an affidavit in support that attaches a large volume of exhibits, and 15 hours to draft a factum. The affidavit in support of the proof of claim was only 6 paragraphs and attached 4 exhibits. The Notice of Motion was, in my estimation, neither complicated nor lengthy and was supported by a 10-page affidavit that essentially outlined the facts relating to the litigation and demonstrating that the EODSA might have acted improperly in filing its Notice of Intention to Make a Proposal. Voluminous exhibits were attached to the affidavit, which were largely either unnecessary or irrelevant.
[18] In all of the circumstances, and taking into account the factors set out in rule 57.01(1), in my view, it is appropriate to order costs payable by the EODSA to Oz in the sum of $8,000.00 including HST, within 60 days of today’s date.
Master Nathalie Champagne, Registrar in Bankruptcy
Released: August 17, 2017
COURT FILE NO.: BK-16-02200250-0033
ONTARIO
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY AND INSOLVENCY
IN THE MATTER OF THE PROPOSAL OF
EASTERN ONTARIO DISTRICT SOCCER ASSOCIATION
OF THE CITY OF OTTAWA
IN THE PROVINCE OF ONTARIO
COSTS ENDORSEMENT
Master Nathalie Champagne
Registrar in Bankruptcy
Released: August 17, 2017