COURT FILE NO.: CV-12-0238-00, CV-12-0438-00
DATE: 2021-01-22
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N: CV-12-0238-00
Gina Gustafson and Juanita Curle
Applicants
Mr. Holervich, for Gina Gustafson and Juanita Curle
-and-
Bruce Johnson, Allan Curle, Norall Group Inc., and Norall Group Contracting Inc.
Mr. Cupello, for Bruce Johnson and Jeanette Johnson
Respondents
No one appearing for Allan Curle, Norall Group Inc. or Norall Group Contracting Inc.
CV-12-0438-00
Allan Curle, Bruce Johnson, Jeanette Johnson, Norall Group Inc., and Norall Group Contracting Inc.
Plaintiffs and-
Gina Gustafson, Juanita Curle, Holly LeBrun,
Carl Gustafson, and D.J. Gustafson
Engineering Ltd., c.o.b. as Aegus Contracting
Defendants
Mr. Gustafson, personally and as agent for D.J. Gustafson Engineering and Holly LeBrun
HEARD: by Written Submissions
Madam Justice H.M. Pierce
Reasons on Motion That the Corporations Indemnify the Applicants
Introduction
[1] The applicants, Gina Gustafson and Juanita Curle, are directors and majority shareholders in Norall Group Inc. and Norall Group Contracting Inc. ("the corporations"). They are applicants in this proceeding and defendants in the related action, CV-12-0438. For simplicity, I will refer to Ms. Gustafson and Ms. Curle as "the applicants" in these reasons, even though they are also defendants in the related action, for which they also claim indemnity.
[2] Reasons for granting their application to wind-up the corporations can be found at Gustafson v. Johnson, 2016 ONSC 2804. Litigation in the application and the related action has continued since 2012 and has been highly contentious.
[3] The applicants move for an order that the corporations indemnify them against all costs, charges and expenses reasonably incurred by them as applicants in the application and as defendants in the related action that are not recovered from the other parties in these proceedings. The applicants also claim costs of this motion.
[4] Mr. Johnson asks that the motion be dismissed with costs payable to him. Despite being a 16% shareholder, Ms. Johnson did not make any submissions with respect to indemnification.
Quantum of Indemnification Claimed
[5] Because of the confused state of the applicants' filing, it is difficult to understand the quantum of legal fees for which indemnity is claimed. Mr. Johnson claims the amount is $487,471.50.
[6] Mr. Holervich could have made his submissions much clearer. A document titled "Main Bill of Costs in CV-12-0238 and CV-12-0438" comprises 201 pages of undifferentiated dockets claiming costs in the two proceedings of $455,810.93.
[7] Mr. Holervich also filed a two-volume document titled "Applicants' Costs for Indemnification" comprising 270 pages of accounts rendered to his clients and accounting office billing statements.
[8] In Volume 1, Tab A of the "Applicants' Costs for Indemnification," the applicants show billings of $807,023 for the period April 5, 2012, to December 27, 2018, and a further account of $8,121.28 for December 31, 2018. This latter account is also shown in Volume 2, at Tab B. At Tab C of Volume 2, the applicants show unbilled time for the period January 1 – December 4, 2019. The revised statement shows unbilled time worth $54,545.00. The corrected HST on that amount equals $7,090.85 for a total unbilled time of $61,635.85.
[9] If I read these submissions correctly, the applicants claim indemnification of $876,780.13.
[10] However, in the applicants' Reply to the written submissions on costs, Mr. Holervich has, for the first time, summarized the costs for which indemnity is sought as follows:
Accounts 1 – 17 paid $798,9901.72
Account 18 not yet paid 8,121.28
Costs not billed as of yet 54,545.00
HST on costs not yet billed as of yet 7,090.85
Subtotal $868,658.85
Plus net costs paid to other parties (Tab 2) 12,750.00
Total amount to be indemnified $881,408.85
Positions of the Parties
[11] I will deal with the objections to indemnification first, followed by the applicants' response.
Position of Mr. Johnson
[12] Mr. Johnson does not reference any case law in his written argument, although he filed a costs brief; I therefore conclude that there are no applicable cases referable to this motion.
[13] Mr. Johnson submits that the motion for indemnity should be dismissed with costs payable to him because the applicants have not conducted themselves with honesty and in good faith in the litigation. Specifically, he objects that the applicants:
a) did not claim indemnification in the application, then failed to proceed with this motion for indemnification for nearly three years;
b) misled the court on the interim distribution motion about the liabilities left for the corporations to pay;
c) brought unnecessary motions in both proceedings, including the motion to dismiss the claims of the corporations after the claims were already stayed, the motion to pay Ms. Johnson's surplus into court on notice to the Canada Revenue Agency, and the motion to add Ms. Johnson as a party after failing to name her as a party when initiating the application;
d) unreasonably opposed the motions of the other parties, such as the motion for an interim order and the motion to appoint a case management judge;
e) failed to meet multiple deadlines for submission of materials on costs in September 2019, February 2020 and March 2020;
f) failed to permit the argument of this motion and costs to proceed on the peremptory dates commencing July 7, 2020, without explanation;
g) unduly wasted court resources;
h) filed inadequate materials on costs, with unspecified costs between two related but distinct proceedings with separate parties; and
i) claimed costs for duplicative billings between counsel and support staff.
Position of the Applicants
[14] The applicants submit that they are entitled to be indemnified by virtue of the corporate bylaws and pursuant to s. 136 of the Business Corporations Act, R.S.O. 1990, c. B.16. They contend that they have, throughout, conducted themselves honestly, in good faith, with a view to the best interests of the corporations.
[15] They also submit that because Ms. Johnson's shares are not subject to a trust in favour of Mr. Johnson, he is not a shareholder nor beneficially entitled to the shares; therefore, he has no standing to oppose the indemnification motion. In addition, the applicants point to the failure of Mr. Johnson to pay the applicants' $26,000 in costs ordered by the appellate courts.
[16] In the alternative, the applicants argue that:
a) the Johnsons were served with the motion for indemnification in 2017, and later with supporting materials, and have suffered no prejudice by the delay;
b) the motion for interim distribution dealt with liabilities payable to third parties, not surplus to shareholders; accordingly, the court was not misled;
c) the combined bill of costs for the application and the action do not include costs of the motions in both proceedings, separately argued, or costs already awarded by the court, or in the appeal proceedings. However, the applicants do seek indemnification for appeal proceedings and any costs not recovered from other parties;
d) the respondents vigorously opposed a voluntary winding up of the corporation, so the applicants were left with no option but to litigate;
e) Ms. Johnson took positions that were inimical to being added as a party or resisted being added; in any event, the Divisional Court found that she was not a necessary party;
f) they incurred tremendous personal expense and effort to recover and protect the shareholder value in the corporations without compensation. By contrast, the respondents and Ms. Johnson resisted winding-up; and
g) but for the vexatious conduct of the respondents and Ms. Johnson, costs in excess of $800,000.00 would not have been incurred.
Legal Framework
[17] The bylaws dealing with indemnification are the same for each corporation. Bylaw No. 1, para. 4.03 for Norall Group Inc. and Bylaw No. 1, para. 3.03 for Norall Group Contracting Inc. state:
Indemnity of Officers and Directors - Subject to the provisions of the Act, the Corporation shall indemnify a director or officer of the Corporation, a former director or officer of the Corporation, or a person who acts or acted at the Corporation's request as a director or officer of a body corporate of which the Corporation is or was a shareholder or creditor, and his heirs or legal representatives, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been a director or officer of such Corporation or body corporate if;
(a) he acted honestly and in good faith with a view to the best interests of the Corporation; and
(b) In the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful.
[18] The relevant provisions of s. 136 of the Business Corporations Act state:
136(1) Indemnification
A corporation may indemnify a director or officer of the corporation, a former director or officer of the corporation or another individual who acts or acted at the corporation's request as a director or officer, or an individual acting in a similar capacity, of another entity, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by the individual in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved because of that association with the corporation or other entity.
136(3) Limitation
A corporation shall not indemnify an individual under subsection (1) unless the individual acted honestly and in good faith with a view to the best interests of the corporation or, as the case may be, to the best interests of the other entity for which the individual acted as a director or officer or in a similar capacity at the corporation's request.
136(4) Same
In addition to the conditions set out in subsection (3), if the matter is a criminal or administrative action or proceeding that is enforced by a monetary penalty, the corporation shall not indemnify an individual under subsection (1) unless the individual had reasonable grounds for believing that the individual's conduct was lawful.
136(4.2) Right to Indemnity
Despite subsection (1), an individual referred to in that subsection is entitled to indemnity from the corporation in respect of all costs, charges and expenses reasonably incurred by the individual in connection with the defence of any civil, criminal, administrative, investigative or other proceeding to which the individual is subject because of the individual's association with the corporation or other entity as described in subsection (1), if the individual seeking an indemnity,
(a) was not judged by a court or other competent authority to have committed any fault or omitted to do anything that the individual ought to have done; and
(b) fulfils the conditions set out in subsections (3) and (4).
136(5) Application to the Court
A corporation or a person referred to in subsection (1) may apply to the court for an order approving an indemnity under this section and the court may so order and make any further order it thinks fit.
Discussion
[19] I agree with the applicants' submission that Mr. Johnson has no standing to object to the indemnification motion. He is not an officer or director of either corporation, nor a shareholder. The court has determined that Ms. Johnson is a shareholder.
[20] Mr. Johnson does not claim an entitlement to indemnity as a former officer or director and he has no claim, whether actual or beneficial, to the assets of the corporations. Therefore, he is not prejudiced by any indemnity order.
[21] Even if I am wrong in this conclusion, I do not agree that the applicants are required to plead indemnity as part of their application. The bylaws of the corporations and the Business Corporations Act itself clearly provide that an eligible person may apply to the court for an order of indemnification.
[22] Mr. Johnson was one of the original directors of Norall Group Contracting Inc.; his signature appears on By-Law No. 1, which provides for indemnification of directors and officers. Consequently, he was on notice from the time of incorporation that an officer or director could apply to the court for indemnity. Furthermore, he has been represented by counsel throughout this litigation.
[23] Mr. Johnson's argument that the applicants delayed in bringing their motion is not persuasive. The issue of indemnity could not have been considered until the costs of litigation were known and costs recovery made. These include the costs of appeals launched by Mr. Johnson and Mr. Curle, in which Ms. Johnson was added as a party. The court made an order requiring that the indemnification motion be heard when final costs were determined. It would have been premature to hear indemnification arguments earlier.
[24] I disagree with Mr. Johnson's submission that the applicants misled the court on the interim distribution motion. It is obvious that the applicants' statement estimating the liabilities of the corporations at $7,500.00 was intended to relate to third party payments, and not to indemnification.
[25] Mr. Johnson's position that the applicants did not act honestly and in good faith is also disingenuous. At para. 82 of the reasons for judgment in the application, the court described multiple reasons why the corporations had become so dysfunctional under the direction of Mr. Johnson and Mr. Curle that they ceased to operate. It is obvious that the applicants devoted many hours, despite the active opposition of Mr. Johnson, Ms. Johnson and Mr. Curle, to gathering in the assets of the corporations, ensuring the completion of outstanding contracts, disposing of chattels, defending against a prosecution for tax evasion, dealing with accounting issues, answering the respondents' questions, and winding up.
[26] Mr. Johnson also takes the position that costs of the winding up shall be assessed by an assessment officer, pursuant to s. 247 of the Corporations Act, R.S.O. 1990, c. C.38. Mr. Johnson cited no authority interpreting this section of the Act.
[27] In my view, this section co-exists with the jurisdiction of the court to order costs pursuant to s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43, which, in conjunction with the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, gives the court jurisdiction to determine costs of and incidental to a proceeding. The courts have done so in other winding-up proceedings. See, for example, the costs determination of Dunphy J. in the winding up of Zanardo v. DiBattista Gambin Developments Limited, 2018 ONSC 6379. Though the case was decided under the Business Corporations Act, s. 212 of that Act and s. 247 of the Corporations Act are virtually identical.
[28] In this case, I preside as the case management judge. In the course of the winding up process, I have heard and determined costs for 20 motions. To refer the matter now to an assessment officer who is unfamiliar with the litigation would significantly increase the costs to the parties and delay the resolution of the remaining issues. It would also further deplete the assets of the corporations. There are no efficiencies to be gained by engaging yet another judicial official in these proceedings.
[29] The respondents' and Ms. Johnson's active opposition to winding-up squandered the corporations' assets, as can be seen by the extent of costs incurred over many years, even to the end. This approach was self-defeating for Ms. Johnson as it reduced the value of the corporations in which she is a shareholder.
[30] Ultimately, the shareholders will be left with little to show for their efforts. This sad circumstance could have been avoided had the respondents accepted early offers to wind-up the corporations on consent and litigated any marital dispute over shareholdings in divorce proceedings.
[31] When the applicants served motions that were ill-advised or abandoned as moot, delayed arguments, or failed to concede to the respondents, costs orders addressed these complaints. For the most part, it is the respondents who have been ordered to pay costs, an indication of the extent to which their opposition was unreasonable and fuelled by bitterness.
Indemnification
[32] The Canadian Oxford Dictionary, (Don Mills: Oxford University Press, 2001), defines "indemnify" as follows:
protect or secure (a person) against harm, loss, etc.; secure (a person) against legal responsibility for actions; compensate (a person) for a loss, expenses, etc.
[33] I am satisfied that the applicants acted honestly and in good faith with a view to the best interests of the corporation and are therefore eligible for indemnity in accordance with the corporations' bylaws and the Act.
[34] Even though the motion is brought in the application, I do not agree that indemnity is limited to the application, as Mr. Johnson suggests. The corporate bylaws do not limit the extent to which indemnity may be sought.
[35] In this case, the applicants must first collect costs orders in their favour made against opposing parties in order to gauge the extent of their loss. After their net loss is determined, they may seek indemnification from the corporations for the balance in accordance with these reasons.
[36] The onus is on the applicants, as parties seeking indemnification, to prove the loss incurred. The losses claimed must be reasonable.
[37] The applicants also claim indemnity for costs and HST for services which Mr. Holervich has not yet billed. These total $61,635.85. The unbilled accounts cover January 3 – December 4, 2019. The accounting document at Tab C, Volume 2 of the Applicants' Costs for Indemnification shows an accounting office statement dated June 26, 2020.
[38] There is no explanation why an account reflecting this work was not sent to the applicants, when the services were rendered many months before the issue of indemnity was argued.
[39] If I have overlooked a copy of the account in the existing motion record showing that these services were billed to the applicants, I will review the matter. To be clear, I do not grant leave to the applicants to file new material. Unless I have overlooked a document in the mass of paper filed on this motion, the applicants cannot establish a loss suffered on account of legal fees never billed to them.
[40] The sum of $61,635.85 is therefore disallowed.
Summary
[41] The applicants claim indemnity of $881,408.85. This amount is reduced by $61,635.85. It is further reduced by the sum of $2,000.00 for costs thrown away ordered payable to the Johnsons. The applicants are therefore entitled to be indemnified by the corporations in the amount of $817,773.00.
[42] The applicants shall have 60 days from the date of the issuance of the reasons for costs to collect costs owed to them by opposing parties. Thereafter, the applicants may require the corporations to indemnify them for any shortfall.
[43] The applicants are ordered, within 90 days, to serve Ms. Johnson and file with the court an amended passing of accounts, together with a draft order, showing the particulars of any costs recovery and the net indemnity paid to them by the corporations. If the applicants or Ms. Johnson do not agree on the final passing of accounts, either party may contact the trial coordinator to arrange an appointment to make submissions with respect to the accounts or remaining issues in the winding up.
Costs of This Motion
[44] The applicants claim costs of the indemnification motion in the amount of $2,530.28. They have been wholly successful. Having adjusted the claim for clerk's fees to a more reasonable level, Mr. Johnson, Ms. Johnson and Mr. Curle shall pay the applicants their costs of the indemnification motion fixed at $2,403.72.
"original signed by"
The Hon. Madam Justice H.M. Pierce
Released: January 22, 2021
COURT FILE NO.: CV-12-0238-00, CV-12-0438-00
DATE: 2021-01-22
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N: CV-12-0238-00
Gina Gustafson and Juanita Curle
Applicants
-and-
Bruce Johnson, Allan Curle, Norall Group Inc., and Norall Group Contracting Inc.
Respondents
CV-12-0438-00
Allan Curle, Bruce Johnson, Jeanette Johnson, Norall Group Inc., and Norall Group Contracting Inc.
Plaintiffs and-
Gina Gustafson, Juanita Curle, Holly LeBrun,
Carl Gustafson, and D.J. Gustafson
Engineering
Ltd., c.o.b. as Aegus Contracting
Defendants
REASONS ON MOTION
Pierce J.
Released: January 22, 2021
/cjj