Court File and Parties

COURT FILE NO.: CV-13-1432, CV-15-0103, and CV-15-2933-00 DATE: 2019-04-04 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

ALEKSANDRA MIELCZAREK Applicant – and – HANNA EID, ISSA EID, LE ROYAL LUX INC., LE ROYAL RESTO & LOUNGE INC., OKO BLUE MEDITERRANEAN RESTAURANT AND LOUNGE INC., BARWA RASHID, AMEER SULAIMAN and DALIA SULAIMAN Respondents Application pursuant to section 248 of the Business Corporations Act

AND BETWEEN:

DARIA SULAIMAN Plaintiff

• and - RENATA MIELCZAREK, ALEKSANDRA MIELCZAREK, and JAMES WILLIAM SINCLAIR Defendants

HEARD: May 24 and 25 and August 9, 2017, at Brampton, Ontario

Costs Endorsement

Price J.

OVERVIEW

[1] This endorsement addresses the costs of Renata Mielczarek in her motion for a further inspection by Farber & Partners, the Court-appointed Supervisor in her application for remedies as an oppressed 50% shareholder of Oko Blu Mediterranean Restaurant and Lounge Inc., (“Oko Blu”) which operated a restaurant and banquet facility in the City of Mississauga. The Application was brought under section 248 of the Business Corporations Act and the Applicant later amended the Application to extend the inspection she sought to the successors of Oko Blu.

BACKGROUND FACTS

[2] The Court set out the background facts of the proceeding in its costs endorsement dated December 13, 2018, in Renata Mielczarek’s motion to consolidate, and in its reasons dated December 14, 2018, for its Order directing a further inspection of the corporations’ operations. The background of the present motion can be summarized as follows:

a) The First Farber Report was completed on July 25, 2016. In it, Farber highlighted discrepancies in the companies’ financial reporting due to inadequate records regarding cash sales and recommended that cash flow forecasts be created. Farber stated that it relied on unaudited financial information, the companies’ books and records, financial information prepared by the companies and its advisors, and discussions between Farber and Ms. Sulaiman to complete the report. Farber confirmed that it did not audit or attempt to verify the accuracy of any of the information provided.

b) The parties were permitted to deliver written questions to Farber, and a supplementary report was completed on August 30, 2016. Following the Second Farber Report, the Applicant submitted “Questions from the Applicant to be answered by an on-site inspection of the business”. This document outlined the Applicant’s ongoing concerns regarding the valuation of the business, including:

(i) Concerns regarding the accuracy or reasonableness of the financial information provided to Farber, and therefore the reliability of the accounting statements as to the true nature of the operations of the Business;

(ii) Concerns that cash revenue was not being accounted for properly;

(iii) Concerns over discrepancies regarding rental deposits and lease requirements for the units rented by the companies, the value of assets sold and reported revenues; and

[3] The Applicant proposed that an on-site monitor be hired to examine the cash and credit card receipts of the companies to verify that the sales were properly accounted for in the valuation of the companies.

[4] In response to the concerns listed above, Farber completed a Third Report dated September 22, 2016. In this Report, Farber explained that many of the concerns expressed by the Applicant would require a reconstruction of the information using only original source documents. This reconstruction could only be accomplished through a forensic review and analysis of source documents, which Farber estimated would cost an additional $62,312.50.

[5] Farber provided a separate estimate of $1,400.00 plus HST per week for an onsite supervisor to monitor the sales and expense purchases, based on a 56-hour work week. The estimate did not outline the costs required for the completion of a report following the onsite supervision.

[6] Following two postponements, including a non-attendance when a Certificate of Non-Attendance was issued, the Respondent, Dahlia Sulaiman was cross-examined on September 27, 2016. She was asked questions of a financial nature regarding the operation of Le Royal Resto & Lounge Inc. and Le Royal Lux Inc. The Applicant then submitted a written response to the Third Farber Report on October 13, 2016, and the Respondents also filed a written response to the Report.

[7] The Court conducted a final hearing of the motion on April 6, 2018. In its Order dated December 14, 2018, the Court directed the respondents to retain Farber for a further four-week period, to be determined by the Applicant, to monitor all sales and transactions of Le Royal Lux Inc. and Royal Resto & Lounge Inc. during that period and to report to the Court, and to pay the costs associated with that further investigation and report.

[8] The Court ordered that if the parties were unable to agree on the costs of the motion, they could submit written arguments and a Costs Outline, by January 15, 2019. The Court extended that deadline to March 8, 2019, at the request of counsel for the Respondent, Birwa Rashid.

[9] The Court has reviewed the parties’ written arguments. This endorsement will address the costs of the motion for the further on-site inspection and report.

PARTIES’ POSITIONS

Ms. Mielczarek’s position

[10] The Applicant seeks her costs in the amount of $26,745.55, inclusive of disbursements and H.S.T. She relies on her presumptive entitlement to costs based on her success in the motion, and on what she characterizes as the Respondents’ unreasonable conduct, calculated to obstruct the Applicant and lengthen the proceedings. She points, in this regard, to the following:

(a) The fact that the Applicant could not elicit any co-operation from the Respondents to arrange for the return of her motion for directions after the Divisional Court’s decision dismissing the Respondents’ appeal and directing the parties to seek further directions from this Court in order that the Supervisor’s mandate and funding be clarified;

(b) The postponement twice of the examination of Dahlia Sulaiman, including once when Ms. Sulaiman failed to attend in response to a Notice of Examination, necessitating a Court Order directing her attendance;

(c) The failure of the Respondents’ counsel, Mr. Irving, prior to the February 11, 2016, motion, to respond to correspondence asking him whom he represented. This resulted in an adjournment of the motion to enable the Applicant to serve Barwa Rashid with copies of documents previously served on the other Respondents;

(d) Mr. Irving’s failure to respond to the Applicant’s correspondence from December 15 and 18, 2018, before finally responding on January 22, 2019.

[11] The Applicant submits that the Respondents’ actions, including their time-consuming appeal, reflects their “desire to be deceptive and to delay and prolong this matter”, at great cost to the Applicant, and an effort to block the Mielczareks’ efforts to enforce Miller J.’s finding of oppression and her Order directing the steps necessary to remedy it.

The position of the Respondents other than Birwa Rashid

[12] The Respondents other than Birwa Rashid submit that costs should be awarded to the Applicant on a partial indemnity scale, fixed in the amount of $3,000.00, inclusive of HST, plus reasonable disbursements. They ask the Court to consider, in addition to the principle of indemnification, the fact that the Applicant is self-represented and her failure to demonstrate not only that she devoted time and effort to do the work ordinarily done by a lawyer, but that she incurred an opportunity cost by doing so. They additionally ask the Court to consider the Applicant’s reliance on Mr. Sinclair, a disbarred lawyer, to assist her in preparing document in the proceeding, which they say both Mr. Sinclair and the Applicant acknowledged. The Applicant disputes this assertion.

[13] The respondents submit that Ms. Mielczarek was only partially successful in obtaining the relief she requested in the proceeding, which initially included appointment of a Receiver to take over management of the restaurant and banquet hall. They submit that the Court’s Order to appoint an on-site monitor to produce a further report evaluating the financial activity of Le Royal Lux Inc. and Royal Resto & Lounge Inc., and requiring the respondents to pay for that monitoring and a further report, do not justify the wide-ranging efforts detailed in the Applicant’s Costs Outline.

The position of Birwa Rashid

[14] Mr. Rashid notes that this Court, in its endorsement of May 25, 2016, found that Mr. Rashid’s involvement did not justify an Order requiring him to pay the costs of the investigation or report of the Monitor-Supervisor, with the result that Mr. Rashid took no position at the ensuring hearing regarding a further on-site inspection. He also did not participate in the steps, including the appeal and motion for recusal, which the Applicant characterizes as unreasonable conduct by the other Respondents. Mr. Rashid therefore submits that there is no basis for an Order for costs against him arising from the Applicant’s motion for a further on-site inspection by Farber as Court-appointed Supervisor.

ANALYSIS AND EVIDENCE

a) General principles

[15] This Court set out the general principles that guide the court in exercising its discretion on costs in its costs endorsement dated December 13, 2018. I adopt that analysis for the purposes of the present motion.

[16] The motion was of importance to the parties because its outcome is likely to affect the findings that the court ultimately makes regarding the amount of compensation to be paid to Renata Mielczarek for her share of the corporation whose conduct gave rise to her application, or of the related corporations that were later formed, if it is found that they were created to effect and continue the oppression that had occurred.

[17] The motion was moderately complex, owing to the proliferation of corporate entities and the need to trace their revenues to that of Oko Blu, the corporation in which Renata Mielczarek initially held a 50% interest. The motion required a balancing of Renata Mielczarek’s rights as an oppressed shareholder and the economic viability of the multiple corporations which collectively continue Oko Blu’s operations.

b) Reasonableness and offers to settle

[18] The general rule when determining entitlement to costs is that costs follow the event and are awarded on a partial indemnity scale. [1] In special circumstances, costs may be awarded on a higher scale, but those cases are exceptional and generally involve circumstances where one party to the litigation has behaved in an unreasonable manner, and/or unnecessarily run up the costs of the litigation. [2]

[19] In the present case, I find that the Applicant achieved substantial success in her motion and is entitled to her costs. I find that the Respondents other than Barwa Rashid are responsible for her costs, Mr. Rashid having taken no position on the motion and was not responsible for the steps that contributed to the delay and added to the costs.

[20] While there have been significant delays in taking the steps necessary to enable the Court to fashion an appropriate remedy for the oppression in the present case, I do not find, based solely on the delay caused by the Respondents’ appeal and the multiple attendances and reports by the Supervisor, that the Respondents, other than Birwa Rashid, conducted themselves so unreasonably as to attract an Order for costs on a higher scale. There are, however, factors that, taken together, justify an award of costs on a solicitor and client scale.

[21] The Court has made a finding of oppression against these Respondents. The Applicant’s motion was simply the means of enabling the Court to fashion an appropriate remedy. The very nature of an oppression proceeding is a factor that the court can properly consider in determining to what extent the successful Applicant should be indemnified for her reasonable costs in quantifying the appropriate compensation.

[22] Blair J., in Naneff v. Con-Crete Holdings Ltd. (1993), stated:

Austin J. (as he then was) considered the scale of costs to be awarded in an oppression remedy case, where the applicant had been successful, in Arthur v. Signum Communications Ltd. (unreported), and client costs are not awarded except in special circumstances, he went on to conclude (at p. 125 of the Quicklaw Report) that "a finding of oppression, by definition, almost always provides some foundation for an award of costs above and beyond the party and party scale." His decision, and the appropriateness of a finding of oppression providing a foundation for such an award of costs, were upheld by the Divisional Court (Oral Reasons, released August 25, 1993, not yet reported). See also the unreported decision of Jenkin J. in Fedoriw v. Fazio , [1991] O.J. No. 1143 (Ont. Gen. Div.) .

I have found that the plaintiff was treated in a manner which was oppressive and which unfairly disregarded and was unfairly prejudicial to his interests as a shareholder, director and officer of the Rainbow Group of companies. The discrepancy between party-and-party costs and solicitor and client costs, in today's litigation, is quite significant. To confine the plaintiff to the lower scale of costs would simply be to compound the effect of that "oppressive" conduct . As Austin J. noted in the Arthur case (p. 124 of the Quicklaw Report) respecting the applicant in that case, so too with Alex Naneff:

He had two alternatives: to go forward at whatever cost, or to surrender and to accept what he was offered. To give him party and party costs in such circumstances would be to penalize him for his persistence, for being right. It would be to concede that might is right .

I agree, and for these reasons the plaintiff will have his costs on a solicitor and client scale . [3]

[Emphasis added]

[23] The Court of Appeal for Ontario, in Ford Motor Company of Canada, Ltd. v. Ontario Municipal Employees , stated, “a finding of oppression, by definition, almost always provides some foundation for an award of costs” on a scale beyond partial indemnity.” [4]

[24] An award of costs on a higher scale is not automatic in an oppression proceeding. Dunphy J. correctly observed in Zanardo v. DiBattista Gambin Developments Limited , (2018):

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 . [5]

[Emphasis added]

[25] As Dunphy J. noted in Zanardo , an oppression remedy is available to address a broad range of behavior in the corporate context that operates alone or in combination to frustrate the reasonable expectations of complainants. In the present case, I find that the facts that gave rise to the finding of oppression place the matter toward the high end of the misconduct spectrum. The seriousness of the breaches of duty to Renata Mielczarek, the failure of the Respondents to take steps to own up to the problem when it was raised, the consequences of which were evident, the obstructive conduct of the Respondents, including the action by Dalia Suleiman which led to the Court’s awarding of substantial indemnity costs in its December 13, 2018, endorsement, and the Respondents’ contribution to the delays in the proceeding, together support a conclusion that substantial indemnity costs are appropriate for this motion.

[26] None of the parties tendered any offers to settle that would affect the determination of costs.

c) Indemnity - The hourly rates charged

[27] For the reasons set out in the costs endorsement of December 13, 2018, I find that the hourly rate of $200.00 that is claimed by the Applicant is reasonable.

d) Indemnity - The time spent on the motion

[28] The Applicant spent a total of 130.62 hours on the motion. The time included time spent drafting the Notice of Motion, affidavit, and factum assembling the Motion Record, reviewing the responding materials, amending the Notice of Motion, preparing and attending at multiple appointments for the cross-examinations of Dalia and Ameer Sulaiman, and eventually attending and conducting the cross-examination, preparing a Supplementary Motion Record, new Factum and Book of Authorities, multiple attendances at court to speak to adjournments requested by the Respondents, including related correspondence, reviewing the Respondents’ written argument, and attending to argue the motion.

[29] The time spent on the motion, unlike the motion to consolidate, did not include time the Applicant would have to have spent attending as a witness herself. Accordingly, no deduction is required on that account. The Applicant would not have been required to attend at the motion itself had she been represented.

[30] Having reviewed the time described in the summary, I find that substantially all of it was time that a lawyer would have to have spent had the Applicant been represented and that it was proportional to the task being performed. The Applicant argued the motion in a competent manner, which reflected careful preparation.

[31] The Respondents did not submit a Costs Outline of their own setting out the time that their lawyer, Mr. Irving, spent on the motion, which would permit me to compare the time spent by each of the parties. As noted in its endorsement of December 13, 2018, this Court has previously held that when one party attacks another’s costs as excessive but declines to put its own dockets before the court, the attack “is no more than an attack in the air.” [6]

[32] As noted in its December 2018 endorsement, the fact that the Applicant was self-represented should not disentitle her to costs, for the reasons this Court set out in Bergen v Sharpe , 2013 ONSC 74188 , at para. 36 to 85 . The Applicant makes no claim for time spent by Mr. Sinclair and I do not find that either the Applicant or Mr. Sinclair acknowledged that he performed the services for which a claim is made.

[33] The total costs allowed to self-represented litigants must reflect the objectives of a costs order. They must be proportional to the interests at stake in the motion and within the range of what the respondents should have expected to pay if unsuccessful. However, to discount the costs claimed by the successful party based solely on the fact that they are self-represented would allow the unsuccessful litigants to litigate with relative impunity. This would encourage unreasonable conduct of litigation and would serve as a disincentive to settle.

[34] Based on my observations of the oral argument and written material filed, I find the time the Applicant spent was reasonable.

e) Other matters relevant to the determination of costs: Disbursements

[35] In fixing costs, the court need not undertake a line by line analysis of the hours or expenses claimed, nor should it second guess the amounts claimed unless they are clearly excessive or overreaching. [7] The Applicant claims disbursements of $773.55 inclusive of HST. They consist of filing charges of $160.00, process server’s fees of $91.59 plus HST, Examiners’ fees of $372.90 plus HST for certificates of non-attendance and $296.06 plus HST for the examination of Dalia Sulaiman. The Examiners’ fees are supported by invoices, and no claims are made for mileage or parking.

[36] The Respondents make no objections to the disbursements claimed, either generally or with regard to specific disbursements. I find the disbursements to be reasonable and allow them in the amounts claimed.

f) Proportionality and the reasonable expectation of the unsuccessful parties

[37] I find that the total costs claimed of $26,745.55, inclusive of disbursements and HST, are proportional to the interests at stake in the motion, having regard to the shares the Applicant held in Oko Blu and the revenues of the businesses that Oko Blu spawned. I find that the costs reasonably reflect the multiple hearings and attendances at court and at the Examiner’s Office for cross-examinations on affidavits. I find that the total amount is within the range that the Respondents should have expected to pay if unsuccessful on the motion.

CONCLUSION AND ORDER

[38] For the foregoing reasons, it is ordered that:

1. The Respondents, other than Birwa Rashid, shall forthwith pay to the Applicant her costs of the motion, fixed in the amount of $26,745.55 , consisting of the following: a) Fees: $25,972.00 b) Disbursements: $ 686.05 c) HST: $ 87.50

   TOTAL: $26,745.55

2. The Respondents, other than Birwa Rashid, shall pay post-judgment interest at 3% on the costs amount payable, from the date of this Order.

Price J.

Released: April 4, 2019