Court File and Parties

COURT FILE NO.: CV 29/18

DATE: 20200204

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Redtail Inc. and Redtail Food and Beverage Services Inc., Plaintiffs

AND:

Christopher J. K. Goodwin and Privit Inc., Defendants

BEFORE: Justice A. K. Mitchell

COUNSEL: E. Grigg, for the Defendants (Moving Parties) J. Brennan, for the Plaintiffs (Responding Parties)

HEARD: February 3, 2020 (in St. Thomas)

ENDORSEMENT

[1] On this motion, the defendants seek an order:

(a) directing John Drake (“Drake”) to repay to the plaintiff, Redtail Food and Beverage Services Inc. (“Redtail Food”), the sum of $52,131.08;

(b) declaring that the sum of $52,131.08 paid by Drake to the plaintiffs’ lawyers, Lerners LLP, from the chequing account of Redtail Food is impressed with a trust pending further court order; and

(c) establishing a protocol or procedure for the assessment of all legal accounts to be paid by the plaintiffs in respect of this action as authorized by the Order of Gorman J. dated February 27, 2018 (the Leave Order”).

[2] Pursuant to the terms of the Leave Order, Drake was granted leave to prosecute this derivative action in the names of the plaintiffs pursuant to s. 246 of the Ontario Business Corporations Act (“OBCA”). In addition, the Leave Order provided that Drake was authorized to take any and all steps relating to the control and conduct of this derivative action pursuant to section s. 247(a) of the OBCA.

[3] Of particular relevance to the issues on this motion, the Leave Order further provided that the plaintiff, Redtail Inc. (“Redtail”), is to pay such legal fees and other costs as are reasonably incurred in connection with the prosecution of this action.

[4] The defendants appealed the Leave Order. On May 16, 2019, the appeal was dismissed. In dismissing the appeal, Wilton-Siegel J. wrote[^1]:

…[W]hile there is reason to suspect that [Drake] wishes to use the proposed derivative action to support his claim in the oppression action, among other things, to obtain his preferred remedy, the application judge found that Drake was acting in good faith. Given that this finding has not been appealed, I do not think that this Court can proceed on the basis that Drake is intending to abuse the proposed derivative action. In any event, as mentioned above, there are significant legal restrictions and limitations on his conduct of this action that are inherent in the Order that would prevent him from doing so.

[5] With respect to Redtail’s payment of legal fees in connection with the prosecution of these claims, the Divisional Court commented:

Lastly, the Order provided that Redtail would bear the reasonable costs of the action. This is not, however, a carte blanche in favour of Drake. The authorization is subject to a reasonability limitation. Moreover, in my view, Drake is subject to a fiduciary obligation in favour of Redtail in the conduct of the litigation. These considerations are particularly significant in the context of the two smaller claims asserted by Drake. In assuming carriage of the action, Drake assumes the responsibility for ensuring that any monies expended asserting Redtail Inc.’s claims can be justified in terms of the likely recovery.[^2]

[6] On August 21, 2019, Drake, signing on behalf of Redtail Food, paid the sum of $52,131.08 by way of cheque to Lerners LLP, the plaintiffs’ lawyers. This amount represents payment, in full, of three invoices rendered by Lerners LLP during the period May 31, 2018 through August 21, 2019 (the “disputed invoices”) for services rendered on behalf of the plaintiffs in connection with this action.

[7] In an effort to satisfy themselves that the amount paid for legal services was reasonably incurred, the defendants requested copies of the disputed invoices and supporting time dockets from Drake. Drake, on behalf of the plaintiffs, refused to produce the requested documents and information to the defendants claiming solicitor-client privilege. However, in an email exchange with the defendant, Goodwin, Drake confirmed that the disputed invoices are reasonable.

[8] Despite the finding of good faith by Gorman J. and the comments of the Divisional Court (cited above), the defendants do not trust Drake to conduct himself in a manner which protects the interests of the plaintiffs. The defendants are not prepared to “take Drake’s word” that legal fees and other costs incurred in connection with the prosecution of this action are reasonable.

[9] This litigation has been hard-fought to this point and the litigation is still in its infancy. Without establishing a payment protocol, this litigation will continue to stall and be sidetracked at an enormous expense to all parties. The constant barrage of interim motions and other cost prohibitive steps to date has managed to a erode whatever semblance of trust remains between these parties. There has been a complete breakdown in the relationship between Drake, on the one hand, and the defendant, Chris Goodwin, on the other. Third party/court intervention is required.

[10] It is anticipated that a judge will be appointed pursuant to rule 37.15 of the Rules of Civil Procedure, to manage the interim steps in this proceeding through to trial. I anticipate that I will be that judge if such an order is made.

[11] I find that a payment protocol for assessing the reasonableness of the invoices rendered by the lawyers for the plaintiffs is necessary in the circumstances. All parties are in reluctant agreement. Accordingly, all invoices rendered by the plaintiffs’ lawyers to Redtail for payment (including the disputed invoices) shall be subject to the terms of the following payment protocol (the “Invoice Payment Protocol”):

(i) Prior to payment by the plaintiffs, or either of them, of any invoice(s) rendered by the plaintiffs’ lawyers for legal fees and other costs incurred in connection with the prosecution of this action, the plaintiffs shall serve on the defendants and file with the trial coordinator in St. Thomas to the attention of Justice A. K. Mitchell a motion for approval of such invoice(s).

(ii) The plaintiffs’ motion materials shall include: (i) a statement of account for the invoice(s) for which approval is requested; (ii) a Bill of Costs detailing the nature of the work completed on the plaintiffs’ behalf, time spent and hourly rates charged; (iii) an affidavit of a lawyer with the law firm representing the plaintiffs certifying the reasonableness of the invoiced amounts and services rendered; and (iv) an affidavit of Drake certifying the reasonableness of the invoiced amounts and services rendered.

(iii) The plaintiffs, in addition to the motion materials served on the defendants, shall file with the trial coordinator in St. Thomas to the attention of Justice A. K. Mitchell in a sealed envelope a copy of the (unredacted) invoices for which approval is requested together with supporting (unredacted) time dockets.

(iv) Should the defendants object to the reasonableness of the invoice(s) for which approval is requested:

(a) the defendants shall serve and file their responding materials within 20 days of service of the plaintiffs’ motion materials;

(b) the plaintiffs shall serve any reply materials within 15 days thereafter; and

(c) a hearing of the motion before Justice A. K. Mitchell shall be arranged for a date to be set with the trial coordinator in London. Such motion shall be no longer than 30 minutes and shall be heard at 9:00 a.m.

(v) If no objection is taken by the defendants to the reasonableness of the invoice(s), the court will rule on the reasonableness of the invoice(s) on the written record as a basket motion without hearing oral submissions from counsel.

(vi) If no objection is taken, costs of the motion shall be paid by Redtail on behalf of the plaintiffs. If the motion is opposed, costs of the motion are in the discretion of the court.

(vii) Upon receipt of the court’s endorsement, the plaintiffs may pay the invoice(s) so approved but only to the extent approved.

[12] The plaintiffs shall forthwith comply with the Invoice Payment Protocol with respect to the disputed invoices. Any amount already paid to the plaintiffs’ lawyers on account of the disputed invoices found to be not reasonably incurred (and therefore not approved) shall be offset against further invoiced amounts approved by this court.

[13] The balance of the relief sought in paragraphs (b) and (c) of the defendants’ Notice of Motion dated September 10, 2019 is hereby dismissed.

[14] For reasons provided orally, my preliminary assessment with respect to the issue of costs of the motion is that there should be no costs of the motion. Part of the relief on this motion sought to hold Drake personally liable for repayment of amounts paid on account of the disputed invoices. Drake was not represented by counsel at the hearing of this motion and did not appear in person. I am unaware whether Drake was served with the motion in his personal capacity. I suspect not. Drake has a right to respond and to be represented by legal counsel. Therefore, this relief was denied.

[15] The imposition of a trust on monies paid to satisfy the disputed invoices is unnecessary having regard to the Invoice Payment Protocol established by the court in consultation with counsel for the parties. With respect to the terms of the Invoice Payment Protocol, there was divided success among the parties.

[16] If the parties do not agree with my assessment of the costs issue, they may file written cost submissions in accordance with the following timetable:

(a) The defendants shall file their written submissions not exceeding 5 pages in length within 7 days;

(b) The plaintiffs shall file their written submissions not exceeding 5 pages in length within 7 days thereafter; and

(c) Any reply submissions of the defendants not exceeding 3 pages shall be filed within 5 days thereafter.

“Justice A.K. Mitchell”

Justice A. K. Mitchell

Date: February 4, 2020

[^1]: Drake v. Goodwin, 2019 ONSC 2865 (Div. Ct.) at para. 47. [^2]: Ibid., at para. 41.