Court File and Parties

COURT FILE NO.: 02-CL-4519 DATE: 20180706

SUPERIOR COURT OF JUSTICE – ONTARIO COMMERCIAL LIST

AND IN THE MATTER OF AN INTERIM RECEIVERSHIP ORDER OF THE HONOURABLE MR. JUSTICE GROUND DATED MAY 7, 2002, AS AMENDED

RE: Nyaz Jethwani, Plaintiff

AND:

Salim Damji and Strategic Trading Systems Instant White (also known as STS Instant White or Strategic Trade Systems or STS Inc.), Jem Holdings a division of 1289629 Ontario Inc., Izmo Investments Inc., Shaffin Damji, Hanif Damji, Olympic Sports Data Services, Limited and Spiros G. Athanas, Defendants

BEFORE: L. A. Pattillo J.

COUNSEL: Michael McQuade, for the Plaintiff Clifton Prophet, for A. Farber & Partners, Interim Receiver Paul J. Martin, for Fasken Martineau Jonathan Cooperman, for the Interim Receiver

HEARD: April 9, 2018

COSTS ENDORSEMENT

Introduction

[1] For reasons released on October 11, 2017, (2017 ONSC 3524), I granted, among other things, an order discharging A. Farber & Partners Inc. (“Farber”), in its capacity as court-appointed Interim Receiver (the “Interim Receiver”) over the assets, property and undertaking of Salim Damji (“Damji”) (the “Damji Receivership”) (the “Discharge Motion”).

[2] The Plaintiff, Nyaz Jethwani (“Jethwani”), on his own behalf and as a representative plaintiff for all other investors who lost money as a result of Damji’s fraud, opposed the Discharge Motion. Although not opposed to the discharge, Jethwani took issue with certain of the Interim Receiver’s actions during the Damji Receivership and the fees of both the Interim Receiver and certain of the professionals engaged in the Damji Receivership.

[3] The Discharge Motion lasted a day. In support of the motion, the Interim Receiver filed its Eighth Report which contained a detailed summary of the events that occurred over the course of the 15-year period of the Damji Receivership. The Eighth Report was 70 pages in length and had 82 appendices. The Interim Receiver and the professionals were successful on the Discharge Motion and obtained the orders they sought.

[4] At the conclusion of my reasons, I encouraged the parties to meet and discuss costs of the motion with the object of reaching an agreement on costs. In the absence of an agreement, the Interim Receiver and Fasken, Martineau DuMoulin LLP (“Faskens”) now seek orders granting them each the costs of the Discharge Motion against Jethwani.

The Position of the Parties

[5] The Interim Receiver seeks costs of the Discharge Motion on a substantial indemnity basis in the total amount of $305,960.92, made up of fees inclusive of HST of $296,650.42 and disbursements of $9,310.50, inclusive of taxes. In support of its request, the Interim Receiver relies on two offers to settle; Jethwani’s conduct in connection with the Discharge Motion; the complexity and difficulty of the Discharge Motion and the ordinary course in receiverships whereby the receiver is entitled to be paid the fees and disbursements of its counsel on motions for discharge and approval of accounts on a full indemnity basis.

[6] Faskens, which was successful on having its fees approved, seeks its costs of the Discharge Motion, also on a substantial indemnity basis in the total amount of $81,186.38, made up of fees of $81,071.0, inclusive of HST and disbursements of $115.37. In support, Faskens also relies on an offer to settle; Jethwani’s conduct in respect of its fee approval request; the complexity of the Discharge Motion; and the successful approval of its fees.

[7] In response, Jethwani submits that there should be no costs awarded against him in respect of the Discharge Motion or in the alternative, only a modest cost award for the following reasons:

• The failure of the Interim Receiver to keep Jethwani and the Investment Recovery Group (“IRG”) informed of developments and to seek timely approval of its accounts and those of its counsel which resulted in the necessity to examine the Interim Receiver and its counsel;
• The uniqueness of the case, the lack of personal benefit to Jethwani as a representative plaintiff, and the clear public interest component to the receivership, militate strongly that there should be no costs awarded against Jethwani;
• If costs are to be awarded against Jethwani, there is no basis for awarding them on a substantial indemnity basis. Neither the Interim Receiver’s or Faskens’ offers qualify as Rule 49 offers. Nor was Jethwani’s conduct in opposing the approval of the accounts of the Interim Receiver and its counsel such that it would give rise to a higher scale of costs;
• The Interim Receiver has a duty to prove its accounts and Jethwani should not be penalized for holding the Interim Receiver to its obligations.

Discussion

[8] The Damji Receivership lasted 15 years between its inception on May 7, 2002 and the Discharge Motion on June 1, 2017. During that period, the Interim Receiver recovered $18,711,462. In the same period, the Interim Receiver incurred fees of $5,772,141.44 of which $1,652,044.15 had been paid. In addition, the professionals (lawyers and the investigators) had incurred fees totaling $4,919,916.42 of which $3,750,988 had been paid. As at June 1, 2017, the Interim Receiver had on hand $4,800,595. My approval of the fees of the Interim Receiver and the professionals over the period resulted in a shortfall in the Damji Receivership in an aggregate amount in excess of $665,000.

[9] In my view, having regard to the issues raised on the Discharge Motion and the success achieved by both the Interim Receiver and Faskens on the motion, they are each entitled to costs of the motion from Jethwani. Jethwani took issue with a number of the Interim Receiver’s actions and its accounts as well as the accounts of its counsel and was not successful.

[10] I do not accept Jethwani’s submission that the Damji Receivership was unique and, as a public litigant, he should not be required to pay costs. In my view, Jethwani fails to meet the criteria set out in House v. Lincoln (Town), 2015 ONSC 6236 (S.C.J.) at para. 9 for a public interest litigant. The Damji Receivership was commenced by Jethwani, on behalf of himself and other investors who all lost money as a result of Damji’s fraud. Their object was to recover some or all of their money. Jethwani, along with the other investors, clearly had an economic interest in the litigation. More importantly, I do not consider that the issues raised in the Damji Receivership, while complex and lengthy, were of such importance that they extended beyond the immediate interests of the parties.

[11] Jethwani also submits that he is merely a nominal plaintiff who stepped forward to lend his name to the litigation which was commenced on behalf of all Damji’s investors. While that may be, in the end he is the sole plaintiff and the person who is responsible for any cost order. It is also not the first time in the Damji Receivership that Jethwani has had costs ordered against him.

[12] Both the Interim Receiver and Faskens seek their costs on a substantial indemnity basis. In support of that scale, they each rely on offers to settle and on Jethwani’s conduct during the Discharge Motion.

[13] The Interim Receiver made two offers to settle. The first one was by letter on January 13, 2017 from its counsel. The Interim Receiver offered to settle Jethwani’s opposition to the Discharge Motion in return for a payment of $75,000 to the Aga Khan Foundation, a charity supported by Jethwani. It was rejected by Jethwani’s counsel on January 27, 2017. The second offer is contained in a letter dated February 28, 2017 from the Interim Receiver to Jethwani personally. The Interim Receiver offered to donate $100,000 to the Aga Kahn Foundation in return for Jethwani’s agreement not to oppose the Discharge Motion. There is no evidence of any response from Jethwani. That offer was withdrawn in writing delivered after the June 1, 2017 hearing began.

[14] The Interim Receiver submits that its offers were genuine and generous and complied “with the spirit of Rule 49”. I infer from that submission that the Interim Receiver concedes that the offers were not strict Rule 49 offers. I agree. Given the way in which they were structured, I do not consider either offer was within the technical requirements of Rule 49 such that they constituted valid Rule 49 offers. Given Jethwani and the other investors’ position that they should receive some return from the Damji Receivership, payment to the Aga Kahn Foundation does not incorporate any element of compromise. Further, because the Interim Receiver was aware he was acting for all investors, the offer was not one Jethwani could accept. Accordingly, the cost implications of Rule 49 do not apply.

[15] Faskens’ offer was sent by email on March 30, 2017 and provided that in exchange for Jethwani consenting to an order approving their accounts, Faskens would not seek any costs against him. The offer remained open for acceptance until the commencement of any cross-examinations between Faskens and Jethwani. As it turned out, no cross-examinations between the parties ever took place.

[16] Jethwani submits that as Faskens’ offer was only open to the commencement of cross-examinations and not until trial, it is not a valid Rule 49 offer. Faskens submits that the offer remained operative at all times. While Rule 49 does not require that an offer remain open until trial, it is important that the expiry of an offer, if any, be clear and unambiguous. In my view, the fact that the Faskens’ offer was open only until the start of an event that did not occur does not provide the clarity required to bring it within Rule 49.

[17] Although I have concluded that both the Interim Receiver’s offers and the Fasken offer do not comply with Rule 49, the fact of the offers remain one of the factors to be considered in exercising my discretion in awarding costs: Elbakhiet v. Palmer, 2014 ONCA 544, 121 O.R. (3d) 616 (C.A.). That said, I am mindful that two of the three offers were made late in the process, after the adjournment of the first hearing date.

[18] Both the Interim Receiver and Faskens also rely on Jethwani’s conduct during the Discharge Motion to support their submission for substantial indemnity costs.

[19] The Interim Receiver’s concerns relate to the nature of Jethwani’s opposition to the Discharge Motion. The Discharge Motion was commenced by the Interim Receiver serving its five-volume Motion Record on Jethwani on November 25, 2016. As a result of the adversarial position of Jethwani and the investors, the Interim Receiver had not provided the investors with any fee accounts since 2007.

[20] At the first scheduling appointment on December 13, 2016, the Discharge Motion was set for February 24, 2017 for one day and counsel for the Interim Receiver undertook to provide redacted invoices for review by Jethwani’s counsel. The redacted copies were provided on January 9, 2017.

[21] On January 17, 2017, counsel attended before Hainey J. and a timetable was agreed to regarding pre-hearing steps. The Interim Receiver agreed to provide unredacted copies of the invoices subject to a confidentiality agreement. Jethwani agreed to provide written interrogatories and notice of objection by January 30, 2017 and the Interim Receiver agreed to provide answers to the written interrogatories and a supplementary report by February 11, 2017. The Interim Receiver submits that Jethwani subsequently delivered one set of 26 objections and one set of 88 interrogatories which were “confusing and iterative”. Nevertheless, the Interim Receiver delivered answers to both the objections and the interrogatories.

[22] At another scheduling appointment on February 14, 2017, Newbould J. directed that Jethwani was required to bring a motion to cross-examine counsel to the Interim Receiver, and set February 21, 2017 for such motion. Jethwani never brought the motion.

[23] On February 24, 2017, at the outset of the hearing of the Discharge Motion, Jethwani sought an adjournment to permit cross-examination of the Interim Receiver, and its counsel Gowlings. Myers J. granted the adjournment. He noted that court officers’ fee issues should be transparent. In light of the fact that no fee affidavits had been filed from any of the firms seeking approval of fees, he set a June 1st hearing date and a timetable leading up to it. Given the production and discovery process which had already taken place, the learned judge noted:

The process being embarked upon is potentially very expensive. If one side or the other is shown to have taken outrageous positions, serious cost consequences should be expected.

[24] The Interim Receiver submits that Jethwani’s decision to switch from extensive objections and written interrogatories to then requiring cross-examinations amounts to the outrageous conduct warned against by Myers J. and, given the Interim Receiver was entirely successful on the Discharge Motion should give rise to substantial indemnity costs.

[25] Conduct that gives rise to substantial indemnity costs must be reprehensible, scandalous or outrageous in nature: Springer v. Aird & Berlis LLP, 2009 ONSC 26608 at para. 4. In the circumstances, I am not satisfied that the conduct relied upon is of a nature that it should give rise to substantial indemnity costs of the Discharge Motion. I do not consider that Jethwani’s attempt to understand what the Interim Receiver had been doing between 2007 and 2016 to justify its fees to be improper. The Discharge Motion was principally about approval of fees incurred (and partially paid) over the 15 years. While I understand the Interim Receiver’s reluctance to provide its accounts to Jethwani and the investors after 2007 given their actions, Jethwani was entitled to full information concerning the fees. I agree with Myers J. that public officers must be transparent in respect of fee issues.

[26] Given the litigious history between the Interim Receiver and Jethwani (and the IRG), the Interim Receiver knew or ought to have known that approval of the fees, particularly given that they would consume all recoveries leaving nothing for the investors, would be contentious. Yet the Motion Record contained no fee affidavits or invoices. The invoices were provided subsequently in redacted form and only unredacted after a court appearance. I have not reviewed the interrogatories or objections but given the Interim Receiver’s initial reluctance to provide the information on its fees, I am unable to conclude that Jethwani’s request for fee affidavits and cross-examination amounted to reprehensible or outrageous conduct.

[27] That is not to say that Jethwani should not be responsible for the costs thrown away on February 24, 2017. Myers J. noted in his endorsement that the costs thrown away were reserved to the motion judge. While Myers J. did not direct who should be responsible for those costs, in my view, they should be borne by Jethwani. Rather than bring his motion to seek cross-examination on February 21, 2017, as directed by Newbould J., Jethwani waited until the motion date to bring the motion giving rise to unnecessary preparation costs. The costs thrown away are due to both the Interim Receiver and Faskens.

[28] Faskens also seeks substantial indemnity costs as a result of what it submits is Jethwani’s “sanction-worthy conduct”. Specifically, it relies on Jethwani’s allegations of negligence against Faskens which it submits were demonstrably false. Faskens responded to the allegations with detailed, factual evidence which completely discredited Jethwani’s position and led eventually to Jethwani abandoning the allegation.

[29] While I agree the allegation of negligence is serious for a law firm, it does not rise to the level of conduct, such as fraud or dishonesty, which gives rise to substantial indemnity costs.

[30] Faskens had two retainers. First, between May 16, 2003 and June 15, 2007 as counsel to Jethwani in respect of an action commenced against the Bank of Montreal relating to Damji and second as counsel to the Interim Receiver from May 16, 2003 to February 2008. On the Discharge Motion, it sought approval of accounts totaling $1,085,622.92 ($107,527.15 for the BMO Action and $978,095.77 for the Damji Receivership work). Once the negligence allegation was abandoned, Jethwani continued his opposition to Faskens’ fees necessitating the continued presence of counsel on Faskens behalf. On the Discharge Motion, I was satisfied Jethwani’s objections to Faskens’ fees had no substance and I approved them as requested on the basis they were fair and reasonable.

[31] I turn then to the determination of the costs of both the Interim Receiver and Faskens.

1) The Interim Receiver

[32] As noted, the Interim Receiver has submitted a Bill of Costs setting out substantial indemnity costs totaling $305,960.92. The Bill of Costs also set out partial indemnity costs totaling $203,744.11.

[33] Apart from any opposition by Jethwani, the Interim Receiver is required, by the terms of its appointment, to have its fees approved by the court. While in the ordinary course, the costs of such approval would come out of the Estate or the party who sponsored the receivership based on an agreement at the outset, the Damji Receivership is in a deficit and there is no agreement with Jethwani or the IRG. As a result, Jethwani should not be required to pay the costs of the Discharge Motion apart from those costs which were incurred as a result of his opposition.

[34] Further, the Discharge Motion sought approval of fees over the entire course of the Damji Receivership. While the usual course is to obtain approval of the fees from time to time during the course of a receivership, given the unique circumstances of the Damji Receivership, I accepted the Interim Receiver’s approach. The downside to such an approach, however, is that the approval motion necessarily involves substantial resources and is costly.

[35] Accordingly, Jethwani should not have to pay any costs relating to counsel’s involvement in the preparation of the substantial Motion Record. Nor should he be responsible for the costs incurred in respect of the production of the invoices and the interrogatories. I have already commented on my view of the Interim Receiver’s responsibility to provide that information. In my view, cost consequences for Jethwani arise at the point of his request to cross-examine and subsequent opposition to the Discharge Motion.

[36] As discussed, the Interim Receiver is entitled to its costs thrown away in respect of the February 24, 2017 adjournment, recognizing that some of those costs will benefit the return of the motion. I also consider that the Interim Receiver should receive its costs in respect of the cross-examinations which took place over two days. Finally, the Interim Receiver is entitled the majority its costs of the June 1, 2017 hearing given that court time would have been required in the absence of Jethwani’s opposition. The Interim Receiver is also entitled to its costs for the subsequent preparation of the Bill of Costs and submissions.

[37] Taking into account all of the above, including the offers, I assess the Interim Receiver’s costs of the Discharge Motion against Jethwani on a partial indemnity basis fixed at $75,000 in total. Given the issues, the adjournment and Jethwani’s opposition, I consider that award to be both fair and reasonable in all the circumstances.

2) Faskens

[38] Faskens Bill of Costs claims substantial indemnity costs totaling $81,186.38 and partial indemnity costs of $54,162.71.

[39] In my view, Faskens is entitled to its full partial indemnity costs as claimed. I consider those costs to be fair and reasonable given the issues raised by Jethwani against Faskens, its detailed response and that, after Jethwani abandoned the negligence claim, it was required to remain in the proceedings because of Jethwani’s continued opposition to Faskens’ accounts notwithstanding there was no substance to that opposition. I have also considered Faskens offer to settle.

[40] Based on the above, therefore, I assess Faskens’ costs on a partial indemnity basis at $54,000 in total.

Conclusion

[41] Based on the above, the costs of the Discharge Motion payable by Jethwani are assessed as follows:

a) To the Interim Receiver, $75,000 in total; and b) To Faskens, $54,000 in total.

[42] At the conclusion of the costs hearing, both the Interim Receiver and Faskens submitted that costs of $2,500 each for the costs motion would be appropriate. Jethwani’s counsel indicated he had no argument with that amount. In my view, given the issues, I consider that amount for each of the Interim Receiver and Faskens to be fair and reasonable.

[43] Accordingly, costs of the cost motion fixed at $2,500 for each of the Interim Receiver and Faskens, payable by Jethwani.

L. A. Pattillo J. Released: July 6, 2018