Court File and Parties
COURT FILE NO.: CV17-11812-OOCL DATE: 20181025 SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)
RE: Anthony Zanardo in his capacity as the estate trustee for the ESTATE of Luigi Gambin, Applicant AND: DiBattista Gambin Developments Limited, Ray DiBattista, Anthony DiBattista, Julia Babensky, Whitwood Developments Ltd., and Greystar Developments Inc. Respondents
BEFORE: S.F. Dunphy J.
COUNSEL: Matthew P. Sammon and Chris Trevisonno, for the Applicant Robert D. Malen, for the Respondents
HEARD at Toronto: In Writing
REASONS FOR DECISION - COSTS
1On August 16, 2018, I released my decision allowing this application, finding oppression and breach of fiduciary duty. I ordered a wind-up of the corporation subject to granting the respondents the opportunity to elect to purchase the shares of the applicant estate. I also awarded the applicant its costs, reserving the amount to be determined following written submissions failing agreement: Gambin Estate v. Di Battista Gambin Developments, 2018 ONSC 4905 . The parties have been unable to come to an agreement on costs and I have accordingly reviewed their written submissions and am now delivering my decision on costs.
2I shall not review the application and my reasons for decision in detail here. For present purposes it is sufficient to note those aspects I consider most relevant to the question of costs which I set forth below:
a. I found that the Greystar transaction was a grave breach of the most fundamental of fiduciary duties, that of a trustee to avoid conflicts of interest and self-dealing; b. I found that in entering into the Greystar transaction, the individual respondents had placed their family’s self-interest ahead of their fiduciary and statutory duties owed to DiBattista Gambin Developments Limited; c. I found that the respondent directors of DBG had abdicated their responsibilities as directors under the 2010 Memorandum of Agreement and under the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 and effectively delegated all of their responsibilities to the respondent Mr. Ray DiBattista; d. I found that the actions of the respondents amounted to oppressive conduct within the meaning of s. 248(2) of the OBCA; e. I found that the conduct of the respondents resulting in these findings was in significant measure aimed at the applicant and was fuelled by resentment of the applicant and antipathy towards the interests he represents; f. I also found that Mr. Ray DiBattista played the role he played in part due to the estate plan of Mr. Luigi Gambin, an estate plan that fate frustrated in a significant way almost from the start when Sergina Gambin unexpectedly passed away so soon after her husband; g. I found that some of the conduct of the respondents in the course of the litigation was blameworthy – in particular improper refusals to answer questions or provide information regarding the Greystar matter and the highly improper and disruptive interference in the cross-examinations of the respondents (primarily that of Mr. Ray DiBattista; h. I also found that some of the conduct of the respondents in the course of the litigation was praiseworthy: the final stages in particular of the preparation of this matter for an efficient hearing were characterized by a high degree of co-operation between counsel to the credit of both.
3The position of the parties in their written submissions boils down to some fairly narrow issues.
4The applicant submits that it should receive its costs on a substantial indemnity basis and asks that the winding-up process be conducted such that litigation costs be allocated to the individual respondents rather than the corporations. The amount claimed on a substantial indemnity basis is $194,368.01 inclusive of HST whereas the amount claimed on a partial indemnity basis is $133,779.72 inclusive of HST.
5The respondents submit that partial indemnity costs is the correct scale to be applied and take issue with only some of the partial indemnity costs claim advanced. They also submit that the directors’ rights to indemnity ought not to be interfered with.
6There is also a dispute concerning the costs of a motion brought prior to the hearing to strike portions of the affidavits relied upon by the applicant. McEwen J. heard that motion and adjourned it to be heard by me at the hearing of the application, reserving to me the question of costs of the motion.
7The general principles applicable to the fixing of costs are not complex and need no in-depth repetition here. The application was brought under s. 207 and s. 248 of the OBCA which provisions grant the judge hearing the application broad discretion in the matter of costs. That discretion is informed by but not confined to the criteria enumerated in rule 57.01 of the Rules of Civil Procedure, the discretion as to costs arising independently of s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43 but being similarly broad.
8The issues to be addressed in my decision are thus:
a. What is the appropriate scale of costs? b. How are the costs of the corporate respondents and the indemnity rights if any of the individual respondents to be treated in the winding-up process? c. What disposition ought to be made regarding the costs of the motion to strike? d. What amounts ought to be allowed for the applicant’s costs in consequence of the above issues?
(a) Appropriate scale of costs
9The applicant took the position that, while substantial indemnity costs are not awarded except in special circumstances, “a finding of oppression, by definition, almost always provides some foundation for an award of costs” on a scale beyond partial indemnity: Ford Motor Company of Canada, Ltd. v. Ontario Municipal Employees at para. 9.
10The respondents for their part cite the decision of Pepall J. (as she then was) in Gargarella v. Gargarella Capobianco, where, while acknowledging the principle that an oppression finding lays a foundation for costs above the partial indemnity scale, Pepall J. found that the principle is “not axiomatic: (at para. 9). In that case, she concluded in a case where the successful applicant bore some blame, a higher award was not warranted.
11I find no contradiction between the principles applied in Ford and in Gargarella. If the Legislature had intended to prescribe substantial indemnity costs in every case where oppression is made out, it would have said so. Discretion was granted to be exercised and to be exercised judicially. An oppression case does lay a foundation to consider a higher scale of costs, but there is a considerable distance between laying a foundation and completing the building. Substantial indemnity costs remain the exception and not the rule when it comes to awarding costs. A finding of oppression is a factor – even a significant factor – but it is not always and everywhere a decisive one.
12The applicant points to four factors that may justify such an award in this case: the seriousness of the misconduct, the proximity in time to the prior application, the failure to take steps to remedy the problems with the respondents’ application of the MOA following the prior application and behavior during the litigation itself.
13I do not propose to address the second or third points. Both parties appear to me to have had trouble being consistent on how they expected me to treat the settled 2014 application. As I found in my reasons for judgment, the settlement was a settlement and not a surrender. I find no need to treat the respondents as having been reprimanded once and having gone out and sinned anew. It is the conduct post-settlement that was before me for assessment and it was that conduct that formed the basis of my decision.
14Oppression is a remedy that is available to address a very broad range of behavior in the corporate context that operates alone or in combination to frustrate the reasonable expectations of complainants. The facts found by me in this case place the matter quite firmly towards the extreme end of the misconduct spectrum. There were findings of serious and unmistakable breaches of mandatory statutory provisions governing conflict of interest, abdication of duty as directors, self-dealing and breach of fiduciary duty. The fiduciary and statutory duties imposed upon the individual respondents are strict for a reason and the consequences of failure are intentionally severe. Flashing red lights and alarm bells ought to have been plain and obvious from the start of the Greystar matter but were either ignored or not noticed. Either conclusion is troublesome from the perspective of a fiduciary who has undertaken to place his or her own interest behind and not ahead of that of the corporation. The applicant as complainant was in a peculiarly vulnerable position having few rights remaining to protect a 50% economic interest apart from seeing to the adherence by the respondents to the statutory and fiduciary duties by which they are bound. The individual respondents utterly confused their family’s interests with those of the corporation whose separate and distinct interest they were duty-bound to preserve and protect as a first priority.
15The conduct of the respondents has also been an aggravating factor. The respondents’ position that Greystar was a permitted transaction under the MOA should never have been resorted to as an excuse to stonewall production of information needed to assess that transaction in this litigation. The obstructions in the form of interruptions and refusals during cross-examinations were quite improper.
16The seriousness of the breaches of duty found, the obstructive early conduct of the litigation, the failure of the respondents to take any steps to own up to the existence of a problem when it was clearly raised and the evident statutory breaches (and their consequences) were plain and apparent – all of these further reinforce my conclusion that substantial indemnity costs are appropriate in this case.
17I find that this is an appropriate case to award costs on a substantive indemnity basis.
(b) How are the costs of the corporate respondents and the indemnity rights if any of the individual respondents to be treated in the winding-up process?
18The applicant urges me to require the personal respondents alone to pay the costs award sought, to provide that the applicant should be paid through the wind-up process if not already paid the costs awarded and to require the personal respondents to account for any costs already paid or to be paid by the corporate respondents in respect of litigation costs.
19In simple terms, the applicants ask that they not be held indirectly responsible for the costs of the respondents given their 50% economic interest in DBG and the winding-up process that I ordered be commenced. The request is a simple one and is one that has frequently been granted in oppression cases.
20The respondents for their part ask me not to interfere with the indemnity rights of the directors and officers.
21In my view, the applicant’s request is eminently fair and reasonable. The corporate respondent is to be wound up. DBG has been the object of this litigation more than an active player in it. It would make no sense to award the applicant its costs on a substantial indemnity basis as I have done and then to order 50% of such costs to be borne by the applicant indirectly and then to further provide that the winner should also indirectly pay 50% of the losing parties’ costs as well. While I have no evidence before me as to what costs, if any, have been paid by the corporations to date, the individual respondents control them absolutely. The costs playing field should be levelled and the true economic interests at stake should be recognized when making my costs disposition.
22I am directing that in calculating and distributing proceeds of the winding-up of the corporate respondents, all amounts paid or to be paid by any of the corporate respondents in respect of this litigation shall be treated as loans made to Ms. Babensky as shareholder of Greystar or DBG, that such deemed shareholder loans shall be repaid by way of offset from any distributions to be made pursuant to the winding-up and that the costs award that I am making shall similarly be paid out of Ms. Babensky’s share of any distributions to be made during the winding-up process to the extent not already paid.
(c) What disposition ought to be made regarding the costs of the motion to strike?
23McEwen J. referred the matter of costs of the motion to strike to the judge hearing the application. I can see no basis to treat the outcome of that motion (the respondents’ motion to strike was not allowed) any differently than the costs of the overall application (where the respondents were similarly not successful).
24The respondents appear to be under the misapprehension that they had a measure of success on the motion to strike. They appeared to be fear that the applicant was seeking to re-open the 2015 settlement and the motion effectively sought to strike all evidence dealing with the 2014 application leading up to that settlement. That motion was always overkill and a misapprehension of the nature of the application. The facts and circumstances of the 2014 application formed a part – and only a part - of the context of this application and the motion to strike evidence of that context from the record was misguided and unnecessary.
25The applicant is entitled to his costs of the motion and of the application as a whole, all of which shall be calculated on a substantial indemnity basis.
(d) What amounts ought to be allowed for the applicant’s costs in consequence of the above issues?
26The respondents have taken limited objections to aspects of the outline of costs submitted by the applicant. No objection was taken to claimed disbursements or the lead counsel’s time charges. Objections were raised to the various time charges for two junior lawyers, a law clerk and a student.
27By way of overview, the applicant’s full indemnity cost outline amounts to $214,564.10 compared to a substantial indemnity amount claimed of $194,368.01 and a partial indemnity amount claimed of $133,779.72, in each case including fees, disbursements and HST. The claimed amounts for fees on a partial indemnity basis are 60% of full indemnity fees while the substantial indemnity fee claim amounts to 90% of the full indemnity fees outlined.
28When all is said and done, the respondents have asked me to assess the reasonableness of the time claimed for two associates, a student and a law clerk. The total time charges of these amount to almost exactly one-third of the time charge of the senior counsel on the file, Mr. Sammon.
29The problem with this sort of objection is that it can always be turned on its head. Where senior counsel has run the whole file from soup to nuts, it will be objected that lower cost associates and clerks ought to have been used more liberally. Where more use is made of these, then the objection is that they were used too liberally and simply duplicated effort.
30This was a hard-fought piece of litigation and the applicant was required to slug through obstinate resistance to production of information or co-operation on cross-examinations. The motion to strike was wide-ranging and over-reaching. While the matter did eventually settle down to a fairly efficiently-run hearing, I cannot find fault with the time allocations made.
31I am going to take a total of $10,000 from the claimed substantial indemnity amount to reflect an overestimate of the hearing fee (the hearing did not last eight hours and preparation time was separately claimed) and to reflect some account for the number of timekeepers (two different associates worked at different times). I do not fault applicant’s counsel for changing staffing on a file over time, but the learning curve ought not to be charged to the losing party twice. The reduction I have effected takes some account of that factor as well.
32Substantial indemnity costs of $184,368.01 are allowed to the applicant. As indicated, this amount shall be the joint and several responsibility of the respondents, but the obligation shall be paid to the applicant out of Ms. Babensky’s share of the proceeds of liquidation in the winding-up process if not already paid and the proceeds of liquidation shall be adjusted such that the costs of this litigation are borne solely by the individual respondents and not charged directly or indirectly to the proceeds of liquidation to be distributed to the applicant. For greater certainly, by “costs of this litigation” I do not include the costs of the actual liquidation as overseen by the liquidator – those costs are borne by the corporation and thus indirectly by the shareholders pro rata.
33Order accordingly.
S.F. Dunphy J.
Date: October 25, 2018