Court File and Parties

COURT FILE NO.: CV-14-10638-00CL

DATE: 20210120

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: ALBERT GELMAN INC., in its capacity as Trustee in Bankruptcy of SPIROS PANTZIRIS, Plaintiff/Moving Party

AND:

1529439 ONTARIO LIMITED, AGLAIA PANTZIRIS, ASPE CONSULTING SERVICES LTD., JULIE PANTZIRIS also known as JULIE TAYLOR also known as JULIE TAYLOR PANTZIRIS and ELLEN BOWLIN, Defendants/Responding Parties

BEFORE: Dietrich J.

COUNSEL: Lou Brzezinski and Alex Fernet Brochu, for the Plaintiff/Moving Party

Steven Bellissimo, for the Defendants/Responding Parties

HEARD: In writing

ENDORSEMENT ON COSTS

DIETRICH J.

[1] The plaintiff Albert Gelman Inc., in its capacity as Trustee in Bankruptcy (the “Trustee”) was successful in its summary judgment motion in respect of which I issued reasons for decision on September 28, 2020.

[2] The Trustee sought an order setting aside two transfers of property by Spiros Pantziris (the “Bankrupt”) and declaring those transfers void as against the Trustee. The defendants (other than Ellen Bowlin) brought a cross motion.

[3] In my reasons for decision, I granted summary judgment and declared that the transfer of the Bankrupt’s interest in a residential property known as 9 Berkindale Crescent in the City of Toronto to his spouse, and the transfer of his preferred shares in the family business to a corporation controlled by his mother, were transfers at under value for the purposes of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “BIA”). I set aside both transfers and found them to be void as against the Trustee.

[4] The parties were encouraged to agree on the matter of costs but were unable to. They also could not agree on the form of the judgment in this case. Each of the parties has made oral and written submissions on the costs and the form of the Judgment.

[5] The Trustee asserts that substantial indemnity costs are appropriate in this case and that pre-litigation costs incurred by it prior to the summary judgment motion should be included in the award. The Trustee also asserts that the Judgment should include a vesting order.

[6] The defendants assert that costs on a substantial indemnity scale are not appropriate in this case and that the costs awarded should not include any pre-litigation costs and, in any event, should be reduced because the time spent by the Trustee’s counsel was grossly excessive. They also assert that the Judgment cannot include a vesting order because the Trustee did not include this specific relief in its pleadings.

[7] For the reasons that follow, I find that the Trustee is entitled to its fair and reasonable costs, not including pre-litigation costs, on a partial indemnity basis. The Judgment shall include an order that the Bankrupt’s interest in the residence vests in the Trustee and an order that the Trustee be the registered owner of the shares, as proposed by the Trustee in its draft Judgment sent to the defendants on November 5, 2020.

Costs

[8] The Trustee was the successful party. The defendants (other than Ellen Bowlin who did not participate in the summary judgment motion or the cross motion) were unsuccessful on the Trustee’s motion and on their cross motion. As the successful party, the Trustee is entitled to its costs.

[9] The Trustee submits a Bill of Costs in which it seeks costs (including disbursements and HST), on a substantial indemnity scale, of $583,849.59. Its costs (including disbursements and HST) on a partial indemnity scale would be $426,305.66. The fees attributed to “pre-litigation matters” amount to $71,960.50 on a substantial indemnity scale and $47,637.00 on a partial indemnity scale. The Trustee also submits a Supplementary Bill of Costs in which it claims additional costs of $9,268.71 on a substantial indemnity basis, or $6,171.38, on a partial indemnity basis, for reviewing my reasons, preparing the Bill of Costs, and preparing costs submissions.

[10] The defendants assert that the Trustee is not entitled to pre-litigation costs, costs that have already been awarded, costs that have been settled between the parties, costs for trial preparation (when the Trustee chose to proceed by way of summary judgment), and for a second Mareva injunction motion that was dismissed without costs, all of which must be deducted from the costs award. With those reductions, the defendants calculate the substantial indemnity costs to be $444,457.29, and partial indemnity costs to be $333,915.27, not including costs shown on the Supplementary Bill of Costs. The defendants further assert that the costs award must be further reduced because the time billed was grossly excessive and the Trustee did not provide any receipts or invoices to substantiate the claim for disbursements of $116,184.63.

The scale of the costs

[11] The Trustee asserts that costs follow the cause and that it should be indemnified for its legal costs on a substantial indemnity basis. All of its legal costs, including fees and disbursements, prior to 2020 were reviewed and approved by the Registrar before they were paid to the Trustee. The Trustee acknowledges that all time and disbursements after January 31, 2020 have yet to be assessed.

[12] Applying the factors set out in r. 57.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, the Trustee submits that in terms of proportionality, the estate will benefit from the return of the Bankrupt’s interest in the residential property and the shares, which are the principal assets of the estate. It also submits that the action was complex, involving many motions, voluminous productions, numerous examinations for discovery and cross-examinations on affidavits, resulting in the tremendous amount of work reflected in its Bill of Costs. The Trustee asserts that the action has been fraught with delays and it points to a number of instances where the conduct of the defendants unnecessarily lengthened the proceeding and drove up the Trustee’s costs. For example, the defendant Aglaia Pantziris gave 120 refusals to answer questions in her examination on behalf of the family companies, which questions she never answered. In response to the Trustee’s motion to compel her to answer the questions refused, the defendants brought an unsuccessful motion to remove the Trustee’s lawyers of record. Justice Newbould found the removal motion “completely miscast” and “tactical … for the reason of delaying the action.” Also, the defendants refused to produce further documents and only did so when the Trustee set out to bring a motion to strike the defendants’ pleadings. The defendants also refused to consent to a consolidation of this action and an action commenced by a creditor. When Justice Myers ordered the consolidation, he stated that it was an “obvious outcome that ought to have been negotiated.” Further, on the day before the defendant Julie Pantziris was scheduled to be examined, she served a Further Affidavit of Documents, most of which had never been produced before and necessitated a cancellation of the examination so the Trustee could review the documents. Prior to the summary judgment motion, the Trustee was advised that Aglaia Pantziris had suffered a stroke and would not be able to testify in connection with that motion, and that the Bankrupt had authority to manage the family companies using a power of attorney granted by Aglaia Pantziris. This information, provided without any evidence of Aglaia Pantziris’ incapacity to manage property, caused the Trustee to bring a motion for an interim injunction against the family company to restrict the sale, transfer or encumbrance of their shares and assets. Later, Aglaia Pantziris claimed to have revoked the power of attorney, having regained her capacity to manage her property.

[13] Also, the Trustee alleges that substantial indemnity costs are appropriate because the defendants made unfounded allegations of improper conduct by the Trustee, and attacked its integrity as a court-officer occupying a position of public trust. Specifically, the defendants alleged that the Trustee’s initiation of the process was an abuse of process and unfair. They alleged that the Trustee was being influenced by and taking instruction from the creditor Cobalt Capital and that Cobalt Capital was drawing on the court’s resources to advance a claim that amounted to a vexatious abuse of process.

[14] The defendants rely on Boucher v. Public Accountant’s Counsel of The Province of Ontario, (2004) 2004 CanLII 14579 (ON CA), 71 O.R. (3rd) 291 (C.A.) in support of their position that in fixing the costs, the court must consider: a) what is fair and reasonable for the unsuccessful party to pay in the circumstances; and b) the reasonable expectations of the unsuccessful party.

[15] The defendants submit that substantial indemnity costs are reserved for those cases involving an offer to settle (which is not this case) and where the losing party’s conduct is deserving of the court’s disapproval. They submit that the discretion of the court to award costs on that scale ought to be exercised in “only special and rare cases”: Sienna v. State Farm, 2015 ONSC 786, at para. 20. They argue that the defendants’ conduct does not rise to the level of “reprehensible, scandalous or outrageous”, being the guiding principle to be applied in awarding substantial indemnity costs as set out by the Supreme Court of Canada in Young v. Young, 1993 CanLII 34 (SCC), [1993] 4 SCR 3.

[16] I agree that the defendants’ conduct, while at times uncooperative and obstructive, does not rise to the level of reprehensible, scandalous or outrageous. I accept that the defendants took steps that led to real delay in the prosecution of this case. However, in the main, that conduct was addressed by the motion judges, who awarded costs against the defendants when appropriate (i.e. Justices Newbould and Myers). While any unfounded allegation that attacks the integrity of a court officer is inappropriate and uncalled for, I find that the allegations made against the Trustee in this case do not rise to the level of reprehensible, scandalous or outrageous conduct. The defendants’ conduct was more in the nature of an aggressive defence of the claim. Accordingly, substantial indemnity costs are not an appropriate sanction in this case. The appropriate scale is partial indemnity costs.

Pre-litigation costs

[17] Regarding the pre-litigation costs, the defendants submit that such costs are rarely, if ever, awarded in a legal proceeding, and that they should not be awarded in this case.

[18] Section 131 of the of the Courts of Justice Act, R.S.O. 1990, c. C.43 provides that the costs of and incidental to a proceeding or a step in a proceeding are in the discretion of the court.

[19] In support of its claim for pre-litigation costs, the Trustee relies on the case of B & D Construction Inc. v. Buset, [2005] O.J. No. 2308, in which the court adopted the reasoning in Gioberti v. Gioberti, 1972 CanLII 676 (ON SC), [1972] 2 O.R. 263 (Ont. H.C.). In Gioberti, which deals with an assessment, the Master noted, at para. 7, that costs, on an effectively full indemnity basis, are costs “for only those services that are reasonably necessary in order to effectively prosecute the action and bring it to trial and they do not include anything before the action is commenced or after judgment is given.” B & D also makes reference to Singer v. Singer (1975), 1975 CanLII 662 (ON SC), 11 O.R. (2d) 234, a case decided by a taxing officer in which the respondent complained about the time expended on pleadings, preparation and proceedings. The respondent argued that some of that time was unnecessary to the prosecution of the proceeding. In that case, the Master also found that full indemnity costs are limited to the cost of services reasonably necessary for the prosecution or defence of the action. The case of Unified Technologies Inc. (Trustee of) v. Bell Canada, 1992 CanLII 7689 (ON SC), [1992] O.J. No. 2026 is also referred to in B & D, and it deals with a determination of full indemnity costs, described in that case as “full indemnity to the beneficiary ‘excluding costs which are not reasonably necessary to fully and fairly prosecute or defend the action.’” This case, too, concerns the limits of indemnity on costs awarded on a full indemnity basis. The court states that “any limits on the indemnity are not related to discretion but to the exclusion of services that are not reasonably necessary for the proper presentation of the client’s case.”

[20] I do not find this line of cases regarding the limits of indemnity to be helpful to the Trustee in support of its claim that all of the pre-litigation costs set out in its Bill of Costs should be borne by the defendants. The Trustee has not provided any authority in support for its broad claim that all such costs are incidental to its claim that the subject transfers were made at undervalue.

[21] I find that the Trustee has not shown that any of the costs included in the “Pre-litigation Matters” section of its Bill of Costs, which it classifies generally as: a) information gathering; and b) review and analysis of relevant related proceedings, are costs that would be properly included in the award of costs payable by the defendants. I am not persuaded that all of the time described as pre-litigation costs was incidental to the Trustee’s claim against the defendants. Much of the time spent appears to relate to the principal creditor’s decision to petition the Bankrupt into bankruptcy. The defendants were not parties to the bankruptcy application and took no position on it. I also note that the Trustee did not seek recovery of these pre-litigation costs in its statement of claim or motion for summary judgment.

[22] I agree with the defendants’ submission that, as a general principle, pre-litigation costs may not be included in a costs award. They point to Greenlight Capital Inc. v. Stronach (2008), 2008 CanLII 34359 (ON SCDC), 240 O.A.C. 86, at para. 76, where the Ontario Divisional Court held that an award of costs prior to the Notice of Application was an error in principle.

[23] In DeFelice v. 1095195 Ontario Limited, 2013 ONSC 1561, Brown, J., as he then was, denied pre-litigation costs that were incurred in respect of the management of a building that was the subject of the litigation. Brown J. held that the applicants were only entitled to recover the costs related to the litigation, which they incurred in preparing the application and proceeding with it through the hybrid trial.

[24] I accept that there may be circumstances in which pre-litigation costs could be included in an award of costs made against an unsuccessful party. For example, in 90 George Street Ltd. v. Ottawa-Carleton Standard Condominium Corp. No. 815, 2015 ONSC 336, Smith J. found that because the Condominium Act required the parties to mediate budget disagreements before undertaking arbitration, the mediation process did not represent an exercise of discretion by the parties prior to commencing arbitration; and, for that reason, costs encompassing the mediation relating to the arbitration process were properly included in the award of costs.

[25] Nothing in the Trustee’s submissions persuades me that their pre-litigation costs for information gathering and review of related proceedings to determine their strategy for advancing their claims merit inclusion in the costs award. Accordingly, I decline to exercise my discretion to award those pre-litigation costs.

Quantum of costs

[26] The defendants argue that the Trustee’s Bill of Costs includes costs that have already been considered by motion judges who awarded costs against the defendants on those motions, and which costs the defendants have already paid. I agree that any duplication of costs should be eliminated from the Bill of Costs as should any costs incurred by the Trustee for motions in respect of which motion judges have ruled on costs. I accept the defendants’ calculations on the amounts to be deducted, which leaves a balance of $333,915.27, on a partial indemnity basis, plus $6,171.38, on a partial indemnity basis, for legal services reflected in the Supplementary Bill of Costs.

[27] I accept the submission of the defendants that even with the above-noted deductions the Bill of Costs includes time for work for which the defendants should not be liable; for example, fees related to the bankruptcy hearing and the Bankrupt’s discharge hearing. I also accept the defendants’ submission that some of the time spent is excessive; for example, 63.8 hours for a very limited discovery, 122.3 hours for the undertakings and refusal motions; and 513.8 hours for the summary judgment motion.

[28] Taking into account these factors as well as other relevant factors set out in r. 57.01 of the Rules of Civil Procedure, R.R.O., Reg. 194, I fix the Trustee’s costs at $170,000, inclusive of disbursements and HST. I find this award to be fair, reasonable and proportional. It is also an award that the defendants could reasonably expect to pay. These costs shall be paid within thirty days of this endorsement.

The Judgment

[29] The Trustee has prepared a draft Judgment including a vesting order in respect of the residential property and the shares that are the subject of the transfers at under value in this matter.

[30] The defendants submit that because relief in the form of a vesting order was not specifically sought, the Trustee is not entitled to it. In its pleadings, the Trustee sought an order “setting aside and declaring void” the transfers of the residential property and the shares. This is the relief that I granted on the summary judgment motion.

[31] In my reasons, I set aside the Bankrupt’s transfer of his interest in the residential property to his spouse, and the transfer of his shares in the family business to a corporation controlled by his mother. I also found each of these transfers to be void as against the Trustee. In my view, an order that the residential property and the shares vest in the Trustee is corollary to the finding that the transactions are set aside and void as against the Trustee. It is the natural and logical result of the relief sought and granted and in respect of which the defendants were on notice. A vesting of the assets in the Trustee for the benefit of the creditors was the very essence of the Trustee’s motion. A generous reading of the pleadings, which include a request for an order for “such further and other relief as to this Honourable Court seems just” can lead to no other conclusion.

[32] The consequence of setting aside those transactions and finding that they are void as against the Trustee is that the property is restored to the estate of the transferor, being the Bankrupt’s estate. However, the Bankrupt is an undischarged bankrupt with no authority to dispose of or otherwise deal with the property per s. 71 of the BIA. Once the property is restored to the Bankrupt’s estate, it shall pass to and vest in the Trustee in accordance with s. 71 of the BIA. The effect of my findings is an order in respect of the Bankrupt’s property. Accordingly, I disagree with the defendants’ submission that s. 71 does not apply in the context of a proceeding involving transferees of the Bankrupt’s property but not the Bankrupt himself. A purposive reading of s. 71 also leads to the conclusion that the result of setting aside the transfers is that the transferred property would vest in the Trustee for the benefit of the Bankrupt’s creditors.

[33] The Trustee included in the draft Judgment a provision that authorizes the land registrar to implement the relief granted in my reasons and to vest title to the Bankrupt’s interest in the residential property in the Trustee. This authority does not, in my view, alter the nature or substance of that relief.

[34] I do not accept the defendants’ objection to the proposed form of the Judgment. The very purpose of ss. 95 and 96 of the BIA, which cover transfers at under value, is to create a mechanism to permit a trustee in bankruptcy to void transfers at under value and to return assets illegitimately removed from the bankrupt’s estate to the bankrupt’s estate for the benefit of the bankrupt’s creditors. The vesting order is the means to implement the order granted in the summary judgment motion and to restore the property to the Trustee for the benefit of the bankrupt’s creditors.

[35] The Judgment shall issue in the form of the draft proposed by the Trustee. The Judgment does not need to be entered.

Dietrich J.

Date: January 20, 2021