Court File and Parties

COURT FILE NOS: CV-18-00611373-00CL, CV-19-623145-00CL, CV-19-620574-00CL DATE: 2019-11-06

SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)

RE: HZC CAPITAL INC., LALU CANADA INC., BIRCHMOUNT LAWRENCE LIMITED PARTNERSHIP, MSR LALU JACKSON POINT INC., LALU 26 BENSON HOLDINGS INC., LALU 10366 YONGE STREET HOLDINGS INC., 1053 16TH AVENUE DEVELOPMENT INC., MCMURRAY MUSKOKA DEVELOPMENTS INC., and 2603774 ONTARIO INC., Plaintiffs

AND:

GERARD LEE, TONGFANG (CATHY) JIANG, 1435501 ONTARIO INC., 2505805 ONTARIO INC., MASONIC EAST INC., MICHAEL BOWERING, 1483008 ONTARIO INC., MUTUAL GAIN PROJECT MANAGEMENT INC., DOMENIC DI GIRONIMO, ULTIMATE GOLF CENTERS INC. (c.o.b. ULTIMATE DEVELOPMENTS), ALDO PICHETTI, URBAN VISTA DEVELOPMENTS INC., ANTONIO PIAZZA, 2532298 ONTARIO INC., PHILIP LEFKO and LEFKO LAW PROFESSIONAL CORPORATION, Defendants

BEFORE: L. A. Pattillo J.

COUNSEL: Kris Borg-Olivier and Hailey Bruckner for the Plaintiffs Ian Matthew, for the Defendants Gerard Lee and 2505805 Ontario Inc. M. Donsky and S. Green for the Defendants Dominic Di Gironimo, Ultimate Golf Centres Inc. (c.o.b. Ultimate Developments), Aldo Picchetti and Urban Vista Developments Inc. Justin Necpal for the Defendants Tongfang (Cathy) Jiang, 1435501 Ontario Inc. and Masonic East Inc. (in writing)

HEARD: October 23, 2019

Costs ENDORSEMENT

[1] At the conclusion of the argument of the Plaintiffs’ Mareva motion on July 24, 2019, I dismissed the motion against the Defendants, Tongfang (Cathy) Jiang, 1435501 Ontario Inc., and Masonic East Inc for reasons to follow.

[2] On August 2, 2019, I released reasons dismissing the Plaintiffs’ motion for a Mareva injunction not only against the Jiang Defendants but also against the Defendants Gerard Lee and his company 2505805 Ontario Inc., and Dominic Di Gironimo and his companies Ultimate Golf Centres Inc. (c.o.b. Ultimate Developments), Aldo Picchetti and Urban Vista Developments Inc. (2019 ONSC 4622). At the end of my reasons, I directed that the parties file brief written cost submissions together with a cost outline.

[3] At the conclusion of the argument on the Mareva motion, I also heard applications commenced by each of Lee and Di Gironimo for advance funding of the costs of the action based on s.142 of the Canadian Business Corporations Act. On September 10, 2019, I released reasons in respect of those applications (2019 ONSC 4664) dismissing Lee’s application and allowing Di Gironimo’s and directed that the parties address the costs of the funding applications in their cost submissions on the Mareva motion.

[4] I subsequently received those submissions which were supplemented by brief oral submissions from counsel on October 23, 2019 (except for the Jiang Defendants, who were directed not to attend given the Plaintiffs take no position in respect of both the scale and the quantum of costs claimed by them).

[5] Briefly, the Plaintiffs’ motion, supported by a 4-volume motion record was initially brought on short notice. It alleged that the Responding Defendants engaged in a complex commercial fraud in respect of six real estate development projects in Ontario in which the Plaintiffs have an interest.

[6] In order to respond to the motion, the Responding Defendants consented to an interim order prohibiting them from dealing with their assets in any way except as the order provided until further order of the court or return of the motion.

[7] What followed was extensive production of documents concerning the projects, a total of 10 affidavits from the Responding Defendants and non-parties and seven cross-examinations. In the end, the Lee Defendants filed a 10-volume motion record in response; the Di Gironimo Defendants filed a two-volume record and the Jiang Defendants a one-volume record. There was a preliminary motion before me concerning the admissibility of certain evidence of the Plaintiffs. The motion was argued over two full days on July 23 and 24, 2019.

[8] In dismissing the motion, I found that the Plaintiffs had not established the test for a Mareva injunction. In respect of the Lee Defendants, I found that while the Plaintiffs had established a strong prima facie case of fraud against them, there was no evidence of dissipation of assets or removal from the jurisdiction and despite the evidence of fraud, the evidence as a whole did not support an inference to be drawn in that regard. I also found that the balance of convenience favoured not granting the injunction.

[9] With respect to both the Di Gironimo Defendants and the Jiang Defendants, I found that the Plaintiffs had not established any of the three tests required to be met for a Mareva injunction, including a strong prima facie case of fraud.

The Lee Defendants

[10] The Lee Defendants seek their costs of the motion on a partial indemnity basis. Their Cost Outline indicates that those costs total $470,315.29 (fees and taxes of $444,302.89 and disbursements of $26,012.40). Their actual costs total $766,517.22. They submit that none of the costs incurred will be of benefit in the action going forward and accordingly there should be no deduction from their costs.

[11] The Plaintiffs take no issue with either the scale or the quantum of the Lee Defendants’ costs given their partial indemnity fees are almost identical. They submit, however, as they were successful establishing a strong prima facie case of fraud against Lee, it would be fair and reasonable if they received their costs on a partial indemnity basis, less 25% (given they failed to establish the other requirements of a Mareva), which totals $328,948.74.

[12] In the alternative and if the Lee Defendants are entitled to costs, the Plaintiffs submit that given they were successful in establishing a strong prima facie case of fraud against them, the issue of their costs should be reserved to the trial judge or at the very least be payable in the cause.

[13] Finally, the Plaintiffs submit that the Lee costs should be significantly reduced (by 75%) having regard to the fact that much of the work incurred in relation to the action will significantly reduce the costs of the action going forward.

[14] Notwithstanding that I found that the Plaintiffs had established a strong prima facie case against the Lee Defendants, they still lost the motion as they were not able to establish an inference of dissipation of assets or balance of convenience. Generally, costs follow the result. Distributive cost orders are not permitted: Onex Corp. v. American Home Assurance Co., 2012 ONSC 259 (S.C.J.) at para. 22. The Lee Defendants are entitled to their costs.

[15] I also do not consider it is appropriate to punt costs of the motion to the trial judge. Having heard the motion, I am most familiar with the issues relevant to costs. Further, in the circumstances, I do not consider it is appropriate that all of the Lee Defendants’ costs should be in the cause. To deny them all their costs until trial puts a significant cost burden upon them which, in the circumstances, they should not have to bare.

[16] The Responding Defendants, of whom Lee took the lead, had to incur significant costs in respect of the motion. In particular, the Lee Defendants had to respond to allegations of impropriety in respect of six complex development projects spanning four years. At the hearing, the Plaintiffs relied on only four projects and scaled back the moneys claimed

[17] I disagree with the Lee Defendants’ submission that none of the costs incurred will be of benefit in the action. In my view, some of the costs incurred will be of benefit in the action going forward. The issues raised by the Plaintiffs in the motion resulted in significant production of documents and lengthy cross-examinations in respect of the six projects. As a result, the parties have gained an in-depth understanding of the facts in the action which will necessarily be of benefit going forward. Although it is difficult to assess, I consider the appropriate reduction to be between 40 and 50% of the total partial indemnity costs claimed.

[18] Accordingly, I assess the Lee Defendants’ costs on a partial indemnity basis in the amount of $250,000 in total, payable forthwith. The balance of the partial indemnity costs claimed of $220,315.29 shall be payable to the Lee Defendants in the cause.

[19] The Lee Defendants have disclosed that they are currently assessing some of the fees of their counsel. Partial indemnity costs are generally calculated at 60% of actual costs incurred. To the extent therefore that the Lee Defendants are successful in reducing total fees on the assessments, the above amount of partial indemnity costs awarded to them in the cause shall be reduced by 40% of the fee reduction to reflect their actual partial indemnity fees on the motion.

[20] Lee was not successful on his advance funding application. The Plaintiffs are entitled to partial indemnity costs, which based on their Cost Outline, is $4,129.36. Lee accepts those costs.

[21] Lee’s application was not successful as a result of my finding on the Mareva motion that the Plaintiffs had established a strong prima facie case of fraud against him. The Plaintiffs submit that they should be awarded more in costs recognizing they would have been required to establish a strong prima facie case of fraud in defence of the application in the absence of their Mareva motion. Given that the issue of fraud was dealt with in the Mareva motion, which was initiated by the Plaintiffs, I am not prepared to award them costs in respect of it in the application.

[22] As a result, given the brief written and oral submissions on the application, together with the established law on advance funding, I consider the Plaintiffs’ costs of $4,129.36 to be both fair and reasonable. Those costs shall be deducted from the $250,000 awarded to the Lee Defendants, resulting in net costs payable to the Lee Defendants of $245,870.64.

[23] The Lee Defendants were successful on an earlier evidence motion in which I awarded them costs against the Plaintiffs. That cost award is separate from and in addition to the above amount.

The Di Gironimo Defendants

[24] The Di Gironimo Defendants seek their costs of the motion on substantial indemnity basis. Their Cost Outline sets out actual costs of $293,835.44, substantial indemnity costs of $253,985.67 (fees and taxes of $247,924.78 and disbursements of $6,060.89) and total partial indemnity costs of $172,511.74.

[25] The Plaintiffs take no issue with the above amounts. They submit that the evidence against Di Gironimo was strong and he was not simply included based on association with Lee.

[26] In support of their claim for substantial indemnity costs, the Di Gironimo Defendants rely on Royal Bank of Canada v. Boussoulas, 2010 ONSC 5744 (SCJ) citing Bargman v. Rooney (1998), 8 C.B.R. (4th) 190 (Ont. Gen. Div.) for the proposition that where unsupported and unproven allegations of fraud are put forward, substantial indemnity costs are appropriate.

[27] The Plaintiffs failed to establish a strong prima facie case of fraud against the Di Gironimo Defendants. While I stated that at best it was a prima facie case of fraud, I made no such finding nor was it required. In my view, the Plaintiffs evidence fell well short of a strong prima facie case against the Di Gironimo Defendants. Further, the allegations against Di Gironimo involved only two projects and amounted to a claim of $210,000. In the circumstances, the Di Gironimo Defendants are entitled to their substantial indemnity costs of $253,985.67 on the Mareva motion.

[28] The Di Gironimo Defendants were successful on their funding application. Their substantial indemnity costs for the funding application are included in their overall costs claimed. The Cost Outline indicates their substantial indemnity costs for the application are $1,572.60. They submit that considering the results of the funding application, the court should award them the full amount of their costs which is an additional $39,849.77.

[29] Given my comments above on the briefing and argument on the advance funding application, together with the amount claimed in their Cost Outline, I do not consider $39,849.77 to be a fair and reasonable reflection of partial indemnity costs in respect of it. As the Di Gironimo Defendants’ costs for the funding application are encompassed in their costs of the Mareva motion claimed, I am not prepared to award them any costs on their advance funding application.

[30] Given their success on the advance funding application, the Di Gironimo Defendants cost award on the Mareva motion is only of relevance if they are found to have acted fraudulently at the trial of the action and are required to pay back all monies received in advance funding. In such circumstances, they would not be required to pay back the $253,985.67.

The Jiang Defendants

[31] The Jiang Defendants claim substantial indemnity costs of $71,246.59, made up of fees and taxes of $70,386.57 and disbursements of $860.02. The actual fees total $79,067.32.

[32] As noted, the Plaintiffs take no position in respect of the Jiang Defendants’ request for costs.

[33] There was no evidence before me on the motion that established the Jiang Defendants were involved in the conduct that the Plaintiffs complained of. The Plaintiffs did not come close to establishing any case of fraud against the Jiang Defendants, let alone a strong prima facie case.

[34] The Jiang Defendants defence to the Mareva motion was proportionate. Given the issues in the motion, I consider the costs claimed to be fair and reasonable.

[35] The Jiang Defendants are therefore entitled to their substantial indemnity costs of the Mareva motion, fixed at $71,246.59.

[36] Orders to go accordingly.

L. A. PATTILLO J.

Released: November 6, 2019