DATE: 20210910

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Elma Pezo, Applicant

and:

Kabir Pezo, Hadis Kozo and Sarajevo Grill & Meat Inc., the Respondents on the Motion

BEFORE: M. Kraft, J.

COUNSEL: David A. Seed, for the Applicant

Kabir Pezo, in person

Ruzbeh Hosseini and Salma Kabeich, for the Respondent, Hadis Kozo

Shaun Singh, for the Respondent, Sarajevo Grill & Meat Inc.

HEARD: In writing

COSTS ENDORSEMENT

[1] This is the costs endorsement arising from two separate motions brought by the applicant and the respondent, Hadis Kozo (“Kozo”), respectively.

[2] By way of brief history, there are two related disputes in this proceeding: the family law claims between the applicant (“Elma”) and the respondent, Kabir Pezo (“Kabir”) and an oppression remedy claim against Kozo in which Elma claims that Kozo’s conduct as a majority shareholder in relation to the purchase of her shares in the respondent, Sarajevo Grill & Meat Inc. (“Sarajevo), the alleged wrongful termination and removal of her as a director of Sarajevo and his actions and omissions were oppressive toward her, as a minority shareholder of Sarajevo.

[3] Specifically, Kozo brought a motion, seeking an order that all claims against him proceed by arbitration in accordance with a Shareholder’s Agreement between him, Kabir, and Elma. Alternatively, he sought an order that the claims related to him be temporarily stayed until a final arbitration award is rendered in accordance with the Shareholder’s Agreement (“Stay Motion”).

[4] Elma brought a separate motion, seeking production of financial, business and corporate records from Sarajevo for the period 2017 to 2020, inclusive; and an order requiring Sarajevo to pay her legal fees and investigative accounting costs, pursuant to ss.237 and 238 of the Business Corporations Act, Ontario (“OBCA”); an order that Kabir pay her interim disbursements, pursuant to the Family Law Rules (“FLRs”); and an order permitting the applicant’s forensic accountants to have access to the records of Sarajevo, including its electronic devices, pursuant to the OBCA (“Disclosure Motion”).

[5] I heard both parties’ motions as a “long motion” on June 24, 2021.

[6] On August 6, 2021, I made an order, among other things,

a) staying Elma’s claims against Kozo and Sarajevo in favour of arbitration in accordance with the Shareholder’s Agreement between the Elma, Kabir and Kozo;

b) staying the family law claims between Elma and Kabir until the completion of the corporate arbitration and the arbitrator rendering a written arbitration award, without prejudice to either the applicant or Kabir bringing interim motions as may be needed;

c) requiring Kozo to produce financial, business and corporate records from Sarajevo, for the period 2017 to 2020, inclusive, and cause all electronic devices owned by Sarajevo to be available to the applicant’s forensic accountants for review and/or duplicative digital imaging; and

d) an order that Kozo cause Sarajevo to pay the applicant interim costs in the sum of $53,995 pursuant to s.249(4) of the OBCA, by paying $26,000, the amount to be credited against the total value of the applicant’s shareholdings; and $27,995 to be advanced once Elma’s counsel renders invoices for the legal work associated with the review of the forensic accounting report.

[7] Kozo seeks costs of the Stay Motion on a substantial indemnity basis, in the sum of $9,189.32.

[8] Elma seeks costs of the Disclosure Motion on either a substantial indemnity basis in the sum of $25,032 or on a partial indemnity basis, in the sum of $22,551.

[9] Kabir did not seek costs of either motions. Neither Kozo nor Elma sought costs of either motions against Kabir.

[10] Kozo submits that he was fully successful on the primary issue in this matter, being the stay of the proceedings in favour of arbitration. Alternatively, Kozo submits that this Court ought to find that success was divided, and costs should not be awarded at all to either party. In the further alternative, if the court is inclined to award costs to Elma, Kozo submits that such an award ought not to exceed $6,000, given that the quantum of costs sought by Elma are excessive and ought to be significantly reduced.

[11] Elma submits that the motion for disclosure was necessary; she was fully successful on the motion and she is presumptively entitled to costs. She maintains that the disclosure motion required substantial preparation at significant expense; Kozo did not make an offer to settle this motion; and Kozo did not respond to her offer to settle, dated July 23, 2021. She acknowledges that Kozo produced some financial documentation on June 9, 2021 but submits that this production was delivered to her two weeks after her affidavit and motion material were due.

Who was Successful on the Motions?

[12] Kozo was successful on the Stay Motion. Elma was successful on the Disclosure Motion. Given that Elma is a Serbian-speaking party who requires an interpreter, she recognizes that her costs were increased, but submits that they were necessary and reasonable.

[13] Rule 24(1) of the Family Law Rules, O. Reg. 114/99 (“FLRs”) creates a presumption of costs in favour of the successful party, subject to the factors set out in r. 24: Beaver v. Hill, 2018 ONCA 840, at para. 10.

[14] Accordingly, Kozo is presumptively entitled to costs of the Stay Motion and Elma is presumptively entitled to costs of the Disclosure Motion. Both Kozo and Elma dealt with the cost of the motions separately. Thus, is makes sense to me to deal with the costs separately, as they did.

Relevant Legislative Framework

[15] Subject to the provisions of an Act or the rules of court, costs are in the discretion of the court: Courts of Justice Act, R.S.O. 1990, c. C.43., s.131. Rule 24(10)(a) of the FLRs requires that the court make a decision on the costs of a step in the case promptly after dealing with the step, in a summary manner.

[16] Modern costs rules are designed to foster four fundamental purposes: (1) to partially indemnify successful litigants; (2) to encourage settlement, (3) to discourage and sanction inappropriate behaviour by litigants; and (4) to ensure that cases are dealt with justly under Rule 2 (2) of the Family Law Rules: Mattina v. Mattina, 2018 ONCA 867.

[17] As set out above, a successful party in a family law case is presumptively entitled to costs. An award of costs, however, is subject to the factors listed in r. 24(11), the directions set out under r. 24(4) (unreasonable conduct), r. 24(8) (bad faith); r. 18(14) (offers to settle), and the reasonableness of the costs sought by the successful party:M.(A.C.) v. M.(D.) (2003), 2003 CanLII 18880 (ON CA), at paras. 40–43; Berta v. Berta, 2015 ONCA 918, at para. 94.

[18] The factors to consider in setting the amount of costs are listed in r. 24(12). The court must consider the reasonableness and proportionality of a number of factors as they relate to the importance and complexity of the issues. These factors include each party’s behaviour; the time spent by each party; any written offers to settle, including those that do not meet the requirements of r. 18; any legal fees and any other expenses; and any other relevant matter.

[19] The touchstone considerations of costs awards are proportionality and reasonableness: Beaver v. Hill, at para. 12. In Boucher v. Public Accountants Council (Ontario), 2004 CanLII 14579, at paras. 28-29, 37, the court held that costs must be fair and reasonable, and consistent with the reasonable expectations of the parties.

Comments on the Motions, the Material for which and hearing were Combined

[20] The Stay Motion was more intricate and complex than the Disclosure Motion. The claims in the oppression remedy case overlapped with clauses in the Shareholder’s Agreement and required not only an analysis of the oppression remedy claims in the OBCA but also an analysis of the Arbitration Act and the various terms of the parties’ Shareholder’s Agreement. In my view, the Stay Motion also raised issues that were more important and complex than the Disclosure motion did. More time was expended on the Stay Motion. While each party was successful on the motion he or she brought, Elma’s pleadings and motion material raised a number of issues that were irrelevant, inapplicable and incorrect in terms of the Stay Motion, which required unnecessary legal costs to be incurred by Kozo.

[21] Specifically, Elma relied on Ontario Regulation 134/07, enacted pursuant to the Arbitration Act in her pleadings. The regulation does not apply to the relationship between Elma and Kozo or to the Shareholder’s Agreement between them. Further, Elma raised unconscionability issues regarding the Shareholder’s Agreement, yet did not seek to set the Agreement aside. Finally, Elma raised issues about Kozo’s involvement in the business and made allegations of sexual assault as between him and employees of Sarajevo, which issues have no relevance to the application of the Shareholder’s Agreement or the interrelationship between the Arbitration Act and the Shareholder’s Agreement. All of these issues raised by Elma resulted in Kozo responding to same. It is understandable why he believed it necessary to do so.

[22] On his part, Kozo did not make an offer to settle the Disclosure Motion. He delivered financial disclosure to Elma but did so after her motion material had been served and filed, thereby not reducing Elma’s costs. Further, Kozo ignored several requests for disclosure before he made any financial production. As a result of the manner in which he dealt with the disclosure issues, Elma’s legal fees were increased.

[23] Both motions were very important and necessary for different reasons. I do not find that one motion was primary in relation to the other.

The Impact of Offers to Settle on Entitlement to Costs

Offers to Settle the Stay Motion

[24] On April 15, 2021, counsel for Kozo wrote to Elma’s counsel, advising that it was his position that all claims against him were subject to arbitration, pursuant to the Shareholder’s Agreement, and Elma was asked to agree to him proceeding with a 14B motion to stay all issues against Kozo in favour of arbitration, on consent. Elma would not consent to refer the matter to arbitration. On April 21, 2021, counsel for Kozo wrote a detailed letter, explaining why the claims against Kozo and Sarajevo ought to be referred to arbitration. Elma did not respond. Although these two letters were not formal offers to settle, they were, in my view, a clear attempt to avoid a Stay Motion. Although these letters are in writing, they do not meet the formal requirements of r.18. However, they did not have to meet the formal requirements of r.18 to be considered in the exercise of the court’s discretion over costs in this case: r.18(16).

[25] Elma served her Factum on the Stay Motion on June 22, 2021, two days prior to the long motion. When Kozo reviewed the Factum, he made a further offer to settle the Stay Motion, albeit on the morning of the hearing. On June 24, 2021, the morning of the hearing, Kozo made an offer to settle, proposing that all claims related to him be stayed until a final arbitral award is rendered in accordance with the Shareholder’s Agreement; all issues and claims against Kozo proceed by way of arbitration in accordance with the Shareholder’s Agreement and that there be no costs payable by Elma. Elma did not respond to the offer.

[26] As his offers were not accepted by Elma, the Stay Motion proceeded, Kozo received a result which was as favourable as the offer he made in April 2021, and more formally on June 24, 2021.

Offers to Settle the Disclosure Motion

[27] Elma served an offer to settle the Disclosure Motion on June 23, 2021 (the day prior to the hearing of the motion). Kozo submits that Elma’s offer to settle was served on him at 6:11 p.m. and did not provide him with sufficient time to consider or respond to the offer, since the motion was heard by the court on June 24, 2021. Given that Kozo served his offer to settle the Stay Motion on the morning of the hearing, I do not consider this argument to impact the costs connected with her offer to settle.

[28] Elma did not make any other offers to resolve the Stay Motion. Kozo did not make any offers to settle the Disclosure Motion.

[29] Elma received a disclosure order from the court that was at least as favourable as the offer she served and, perhaps more favourable than the offer she made. Not only did I order the financial disclosure sought by Elma but, I also ordered Kozo to cause Sarajevo to pay interim costs to her, to contribute to her accounting costs and disbursements in relation to her claims under the OBCA.

[30] As my reasons for Order, dated August 6, 2021 set out, I found that the financial disclosure Elma sought was reasonable and proportional to the issues as between Elma and Kozo/Sarajevo, and that it could impact the family law claims as between Elma and Kabir.

Unreasonable Conduct

[31] Rule 24(4) of the FLRs explicitly authorizes the use of costs orders to express the court’s disapproval of a litigant’s unreasonable conduct. It provides as follows:

24(4) Despite sub-rule (1) [which provides that a successful party is presumed to be entitled to the costs of a motion among other steps in a case], a successful party who has behaved unreasonably during a case may be deprived of all or part of the party’s own costs or ordered to pay all or part of the unsuccessful party’s costs.

The Stay Motion

[32] Kozo submits that the applicant behaved unreasonably with respect to the issue of the Stay Motion. In Elma’s Application, dated November 3, 2020, she acknowledged the enforceability of the arbitration agreement embedded in the Shareholder’s Agreement and requested that the court refer the claims affecting Kozo to arbitration. Again, in Elma’s responding material on Kozo’s Stay Motion, she made a number of allegations of a power imbalance between her and Kozo and also made sexual harassment claims, all of which were irrelevant to the issue of whether the terms of the Shareholder’s Agreement ought to be adhered to. Elma also relied on the Ontario regulation, enacted pursuant to the Arbitration Act, which does not apply to the commercial contractual relationship between the applicant and Kozo. I agree that the applicant’s conduct with respect to the Stay Motion was unreasonable.

The Disclosure Motion

[33] In terms of the Disclosure motion, Elma submits that Kozo and Sarajevo resisted making financial disclosure; ignored six written requests for financial disclosure from her counsel; failed to comply with disclosure requirements contained in Rule 19 of the FLRs; and only produced some disclosure after her motion material was served: the Disclosure Motion was the culmination of five months of work; it was initially scheduled for January 2021. She submits that the costs incurred by her are reasonable and proportional to the issue of Disclosure at hand.

[34] By contrast, Kozo submits that the first request he received for disclosure from Elma was received on February 17, 2021. According to him, a proper list of documents he/Sarajevo ought to produce was not contained in this letter. Rather, the letter referred to a request for production of documents which Elma had sent to Kabir’s lawyer. At the case conference, before Kimmel, J. on April 28, 2021, Elma had been directed to provide Kozo with an itemized list of disclosure she required from him and Sarajevo, to narrow the issues on the Disclosure Motion. A timetable for delivery of the itemized list of disclosure, response and motion material was agreed to. The timeline did not set out a date on which Kozo’s or Sarajevo’s disclosure was to be produced. In any event, Kozo provided Elma with a list of documents he was agreeable to produce in accordance with the agreed-upon timetable and within one month on providing the list to Elma, he provided the productions. Furthermore, Kozo provided Elma with a detailed explanation for his objection to produce certain documents and advised her of which documents of those she requested were not in his possession. Elma had two weeks to review Kozo’s/Sarajevo’s productions before the hearing of the motion.

[35] I agree with Elma that Kozo’s refusal to make an offer to settle the Disclosure Motion and his decision not to respond to her offer to settle the Disclosure Motion was unreasonable. Further I agree with Elma that Kozo’s resistance to provide financial disclosure required court intervention.

Analysis on Unreasonable Conduct

[36] I find that both parties were oppositional in terms of the other’s motion; the circumstances were such that they were both unreasonable at times. The disposition that I have made below respecting the costs sought by Elma and Kozo respectively for the period preceding each of their respective offers to settle addresses each party’s submission that the other acted unreasonably in terms of the motions that were brought. When one considers the circumstances overall, I am not satisfied that the costs to be ordered should be adjusted upward or downward based on the unreasonableness of either party.

Any legal fees, including the number of lawyers and their rates; Any expert witness fess, including the number of experts and their raters; and Any other Expenses property paid or payable:

Stay Motion Costs

[37] Kozo’s actual costs associated with the Stay motion were $9,955. He was represented by Ruzbeh Hosseini, a 2009 call, and Salma Kebeich, a 2021 call. Ms. Hosseini’s hourly rate is $400.00 and Ms. Kebeich’s hourly rate is $275.00. Ms. Hosseini spent a total of 3.3 hours preparing for this motion, whereas Ms. Kebeich, who charges a lower hourly rate, spent a total of 31.4 hours preparing for this motion. I find that Kozo’s costs are reasonable in the circumstances of the motion. They were also proportional to what was at stake and to what Elma’s reasonable expectation ought to be as to the amount of costs she might face, if she was unsuccessful on the Stay motion. I accept the record of time set out in the Costs Outline, dated August 20, 2021, submitted by Cambridge LLP, as well as the disbursements claimed of $190.00.

Disclosure Motion Costs

[38] Elma’s actual costs for the Disclosure Motion as set out in her Costs Outline, dated August 19, 2021, were $20,825. She was represented by two lawyers, David Seed, a 1993 call, and Bradford Christakos, also a 1993 call. Both counsel charged the same hourly rate of $425. A total of 49 hours was spent on the motion, with 45 hours having been spent by Mr. Seed. The description of the work performed, in Elma’s Costs Outline, confirms that some of the time spent by Mr. Seed on the Disclosure motion actually related to the Stay Motion.

[39] Kozo submits that costs sought by Elma in relation to the Disclosure motion is excessive in that: (a) there were no cross-examinations; (b) disclosure motions are relatively straightforward and uncomplicated; (c) there is no evidence to substantiate her claim that the Disclosure motion was originally scheduled for January 2021; (d) her counsel, Mr. Seed, spent 17.5 hours preparing on a 22-page affidavit; (e) there is no evidence that an interpreter was required in order for Mr. Seed to prepare Elma’s affidavit; (f) Mr. Seed spent 2.25 hours to prepare a 2-page notice of motion and list of documents; and (g) Mr. Seed spent 19 hours on the preparation of a 15-page factum, research and Authorities that Elma was seeking to have produced, which is equivalent to about 4 days of work.

[40] My review of Elma’s Costs Outline confirms that some of the costs incurred were not related to the Disclosure motion or may be excessive for particular tasks as follows:

a) 5 hours of time was spent by Mr. Seed to research caselaw on financial disclosure, interim costs, wrongful appropriation of corporate opportunity by a controlling shareholder, and conduct toward a minority shareholder under the OBCA amounting to oppression. I have discounted this time to 2 hours, since only the research relating to financial disclosure and interim costs was relevant to the Disclosure motion;

b) 17.5 hours of time was spent by Mr. Seed to prepare Elma’s 22-page affidavit with 169 pages of exhibits attached to it. The details outline that Mr. Seed reviewed 4 drafts of the affidavit. In my view, a reduction of 4 hours should be made on account of the review of drafts, taking the 17 hours down to 13.5 hours; and

c) 12.5 hours of time was spent by Mr. Seed to prepare the 15-page factum and to review 5 drafts of the factum. An addition 4 hours of time was spent by Ms. Christakos to prepare the factum, taking the total time of 16.5 hours to complete the factum. Again, in my view, a reduction of 3.5 hours should be made on account of the review of drafts, taking the 12.5 hours down to 9 hours.

[41] Taking these discounts into account, the total hours spent by Mr. Seed of 49 hours has been reduced by me to 38 hours, which reduces the actual fees reasonable incurred from $20,825 to $16,150, not including HST.

[42] I find that Mr. Seed’s and Ms. Christakos’ fees for the Disclosure motion costs, as adjusted by me in paragraphs [40] to [4q] above, are reasonable in the circumstances of this case. They are also proportional to what was at stake. Further, these costs surely equate to what Kozo reasonably ought to have expected to be the amount of costs he might face, if he was unsuccessful on the Disclosure Motion, especially since his costs associated with the Disclosure motion were not all that dissimilar (his costs for the Disclosure Motion were $16,583.72). I accept the record of time set out in Elma’s Costs Outline as adjusted by me.

Scale of Costs

[43] Both parties relied on “partial indemnity” and “substantial indemnity” scales of costs. The FLRs do not provide for a determination of costs according to such scales in a case to which the FLRs apply

[44] In Sims-Howarth v Bilcliffe, 2000 CanLII 22584 (ON SC), [2000] O.J. No. 330 (S.C.J.), Aston J. held that the two traditional scales of costs are no longer an appropriate way to quantify costs under the FLRs. He stated that, having determined that one party is liable to pay costs, the court must fix the amount at some figure between a nominal sum and full recovery, having regard to the factors set out in Rule 24, without any assumptions about categories of costs. This characterization of costs under the FLRs was approved of by the Court of Appeal in C.A.M. v D.M., 2003 CanLII 18880 (ON CA), [2003] O.J. No. 3707 (C.A.), at para. 42.

[45] Rule 24(8) mandates “costs on a full recovery basis,” where a party has acted in bad faith. I did not find that either party acted in bad faith on either motion.

[46] Costs must always be proportional to what is at stake in the case, and to the unsuccessful party’s reasonable expectation as to what costs he/she may face, if he/she is unsuccessful. In appropriate circumstances, unreasonable behavior will result in a higher award of costs. As I have stated above, each party acted unreasonably during the court of each motion. I add that in relation to the Disclosure Motion in particular, sensible offers to settle were not made by Elma in a timely way or by Kozo at all. I appreciate that the Stay Motion was not one in which a party could propose a compromise on the issue but could have made offers to resolve the costs issue on a confirmed basis, which Kozo did, albeit late in the day.

CONCLUSION AND ORDER

Stay Motion

[47] In light of (a) Kozo’s success on the Stay Motion; (b) the reasonableness and proportionality of the work performed by Kozo’s counsel; (c) the fact that the Stay Motion was complicated and intricate; (d) the refusal by Elma to make an offer to settle the Stay Motion at any time; (e) the additional costs that Kozo incurred as a result of irrelevant but damaging allegations that Elma made on the motion; and (f) the fact that Elma should have expected to pay costs, if Kozo succeeded in obtaining an order staying the OBCA claims against him; an order shall go that Elma pay 80% of Kozo’s costs represents a reasonable and fair contribution by Elma to those costs. I order that Elma pay costs of the Stay Motion to Kozo in the sum of $9,151.32 ($11,439.15 x 80%).

Disclosure Motion

[48] In light of (a) Elma’s success on the Disclosure Motion; (b) the reasonableness and proportionality of the fees referrable to the work performed by Elma’s counsel, as adjusted by me; (c) the fact that the Disclosure Motion was necessary; (d) the fact that Kozo should have provided much of the disclosure without Elma having to bring a motion and then proceed with the motion; (e) the fact that Kozo should have expected to pay costs, if Elma succeeded in obtaining an order compelling the disclosure from him and Sarajevo and ordering Sarajevo to pay her interim costs; (e) the refusal by Kozo to make an offer to settle either of the issues to be determined on the motion or respond to Elma’s offer to settle, an order that Kozo cause Sarajevo to pay 70% of Elma’s costs, as adjusted by me, is a reasonable and fair contribution by Kozo/Sarajevo toward her costs. I order that Kozo pay costs of the Disclosure Motion to Elma in the sum of $12,774.65 ($18,249.50 ($16,150 + HST) x 70%).

[49] In order to effect the payment of costs that each party owes to the other under costs order contained in the paragraph above, Elma Pezo shall pay the costs she owes to Hadis Kozo ($9,151.32) by the deduction of that amount from the amount of costs that Hadis Kozo owes to her ($12,774.65). Each party having thus effectively paid $9,151.32 to the other on account of the costs order, Hadis Kozo shall immediately pay the balance of costs he owes to Elma Pezo under this Order, in the sum of $3,623.33 ($12,774.65 - $9,151.32), to Elma Pezo.

M. Kraft, J.

Date: Released: September 10, 2021