Court File and Parties

COURT FILE NO.: BK-14-01585400-0031 DATE: 20211229

SUPERIOR COURT OF JUSTICE – ONTARIO (IN BANKRUPTCY AND INSOLVENCY) COMMERCIAL LIST

IN THE MATTER OF the bankruptcy of CORNELL DAVID MARIA JOHANNS, of the City of Toronto, in the Province of Ontario

RE: CORNELL DAVID MARIA JOHANNS AND: SUSAN FULFORD

BEFORE: VERMETTE J.

COUNSEL: Adam J. Wygodny, for the Bankrupt, Cornell David Maria Johanns Robert A. Klotz, for the Estate Trustee of the Estate of Susan Fulford, deceased Justin Heimpel, for Martin Johanns and Delcour Martin Ltd. Mark Morgan, Trustee in Bankruptcy for Cornell David Maria Johanns (for David Sklar & Associates Inc.)

HEARD: August 6, 2021, with supplementary written submissions delivered on September 15 and 30, and October 7, 2021

ENDORSEMENT

[1] There are three related and overlapping motions before me: one by the bankrupt, Cornell David Maria Johanns (“D. Johanns”); one by Martin Johanns (D. Johanns’ father) (“M. Johanns”) and Delcour Martin Ltd. (“Delcour”); and one originally brought by Susan Fulford (“Ms. Fulford”), who passed away on April 22, 2021. Susan Fulford’s counsel now represents Dava Fulford, the Estate Trustee of the Estate of Susan Fulford (“Estate Trustee”). Except when specific reference to the Estate is required to deal with a particular issue, these reasons refer to Ms. Fulford or her Estate as “Ms. Fulford”.

[2] Most of the relief sought in the motions relates to a number of costs awards made against D. Johanns and Ms. Fulford, the set-off of these costs awards against each other and the consequences of the set-off.

Factual background

a. The Family Proceeding

[3] In 2004 and 2005, D. Johanns was in an intimate relationship with Ms. Fulford. However, they neither cohabited nor married. In November 2005, shortly after their relationship ended, Ms. Fulford advised D. Johanns that she was pregnant. On July 22, 2006, Ms. Fulford gave birth to Harrison, who is D. Johanns’ son. While she was alive, Ms. Fulford had sole custody of Harrison and was his primary caregiver. D. Johanns had access rights.

[4] D. Johanns and Ms. Fulford were in litigation in relation to Harrison for many years (“Family Proceeding”). Over the course of the Family Proceeding, numerous costs awards were made against D. Johanns (together, the “Fulford Family Costs Awards”):

Costs Order	Date	Amount	Interest
Order of E.B. Murray J.	November 2, 2010	$32,500.00	2.0 percent per annum calculated from December 14, 2009
Order of Aston J.	October 26, 2011	$ 4,000.00	3.0 percent per annum
Order of Mesbur J.	February 2, 2012	$ 1,500.00	3.0 percent per annum
Order of Jones J.	February 29, 2012	$ 4,000.00	3.0 percent per annum
Order of Allen J.	May 3, 2013	$12,919.00	3.0 percent per annum
Order of Cohen J.	June 13, 2016	$25,000.00	2.0 percent per annum

[5] The affidavits filed by the parties stated that the Fulford Family Costs Awards remained unpaid. However, at the hearing of the motions, the Trustee advised that some of the costs awards above, or a portion thereof, may have already been paid to the Family Responsibility Office (“FRO”) if they related to support orders. The Trustee also raised the issue of interest stopping to accrue as of the date of bankruptcy with respect to pre-bankruptcy debts (i.e. the Costs Orders of E.B. Murray and Aston JJ.). After discussion, counsel agreed that, working with the Trustee, they would figure out the correct amount owing with respect to the Fulford Family Costs Awards after my decision is released.

[6] Starting in 2016, D. Johanns was represented by Lawrence Liquornik in the Family Proceeding. Because D. Johanns did not have sufficient resources at the time, M. Johanns acted as a guarantor of the retainer and was required to advance funds to Mr. Liquornik from time to time in order to continue the retainer and ensure the representation of D. Johanns. M. Johanns’ evidence is that, through Delcour, a corporation of which he is the principal, he advanced $84,000 to Mr. Liquornik to pay for legal fees incurred in his representation of D. Johanns in the Family Proceeding. The following payments were made: (1) $70,000 paid by certified cheque dated May 11, 2016; (2) $6,500 paid by cheque dated June 13, 2016; and (3) $7,500 paid by cheque dated September 1, 2016.

[7] On December 22, 2017, Justice S. O’Connell released her judgment with respect to a motion brought by Ms. Fulford to change the custody and access provisions of a final order made in December 2009. Ms. Fulford’s motion was heard over a 15-day trial in 2016 and 2017. On September 28, 2018, Justice O’Connell ordered Ms. Fulford to pay to D. Johanns his costs of the trial in the amount of $150,000.00, with interest accruing at the rate of 3.0 percent per annum (“Johanns Costs Award”).

b. D. Johanns’ assignment in bankruptcy

[8] On January 30, 2012, D. Johanns made an assignment in bankruptcy, and David Sklar & Associates Inc, was appointed as Trustee. The Statement of Affairs dated January 27, 2012 identified Ms. Fulford as a creditor of D. Johanns’ estate with unsecured liabilities totaling $69,000.00. This amount represented approximately one third of D. Johanns’ total unsecured liabilities identified in the Statement of Affairs.

[9] On July 17, 2014, D. Johanns’ application for a discharge was heard by Master Wiebe. Ms. Fulford was the only creditor who opposed granting D. Johanns a discharge. Master Wiebe adjourned the hearing of the discharge application sine die “to allow the full administration of the estate to unfold with proper, full and thorough disclosure of all assets”. Master Wiebe expressed concerns regarding the ownership of the Property (defined below) and stated that it should be investigated by the Trustee. He ordered that D. Johanns pay costs to Ms. Fulford in the amount of $10,000.00 within 30 days and, in any event, before the return of the discharge application, with interest accruing at the rate of 3.0 percent per annum (“Fulford Bankruptcy Costs Award” and, together with the Fulford Family Costs Awards, the “Fulford Costs Awards”).

c. The Civil Action

[10] On November 2, 2012, Ms. Fulford commenced an action against D. Johanns, M. Johanns, Maddy Johanns (D. Johanns’ mother and M. Johanns’ wife) and Simpson Screen Print & Lithograph Ltd. (“Simpson”), a company controlled by M. Johanns (“Civil Action”). The evidence before me is that Maddy Johanns suffers from dementia and other cognitive issues.

[11] Ms. Fulford seeks the following relief in the Civil Action:

a. A declaration that M. Johanns and Maddy Johanns hold a certain property in Toronto (“Property”) in trust for their son, D. Johanns;

b. A declaration that Ms. Fulford is entitled to effect a Sheriff’s sale of the Property pursuant to her writ of seizure and sale issued against D. Johanns;

c. Judgment against the Defendants in the amount of $65,000, plus post-judgment interest thereon and all enforcement costs on a full indemnity basis, for fraudulent misrepresentation concerning D. Johanns’ income from Simpson, in connection with garnishment proceedings to date against Simpson as garnishee;

d. Damages of $500,000 against all the Defendants for conspiracy to defeat Ms. Fulford’s right to enforce her money claims against D. Johanns, including her claims arising out of present and future judgments and orders in her favour in her matrimonial litigation against D. Johanns;

e. Punitive damages in the amount of $50,000;

f. An interlocutory and permanent Order securing D. Johanns’ interest in the Property in the amount of $300,000, as security for Ms. Fulford’s existing and future rights as D. Johanns’ judgment creditor;

g. A Certificate of Pending Litigation against the Property;

h. Pre-judgment interest; and

i. Her costs on a full indemnity basis.

[12] Ms. Fulford alleges in her Statement of Claim that D. Johanns is the beneficial owner of the Property, and that title to the Property is nominally in the name of D. Johanns’ parents who hold it in trust for him. She states that the purpose of the trust arrangement is to protect the Property from D. Johanns’ creditors, and more particularly from Ms. Fulford. Ms. Fulford further alleges that D. Johanns works for Simpson pursuant to an arrangement that he be paid a nominal salary so as to divert or hide most of D. Johanns’ real income that might otherwise be subject to enforcement by garnishment. The Statement of Claim also includes allegations regarding a family trust of which D. Johanns is a beneficiary and his parents are the trustees.

[13] The Statement of Claim includes the following allegations regarding conspiracy and damages:

15. The Defendants have together conspired to foil Susan’s ability, as David’s judgment creditor, to enforce her entitlement to child support, both past and future. The object of their conduct is to protect David’s real assets and income from judgment enforcement, to preserve his present and future standard of living from the burden of his court-ordered support obligations for his child, and to impoverish Susan so that she will be unable to enforce her and Harrison’s right to child support. The acts done in furtherance of this conspiracy are those set out in paragraphs 8 through 15 hereof.

16. As a result of the Defendants’ actions, Susan has been put to substantial additional expense to enforce her rights. In addition, her collection of child support has been flouted. Her damages are equivalent to her current support arrears, her costs, the present value of her future child support, and the reduction, over the next 12 years, of the quantum of child support to which she would otherwise have been entitled had David’s income not been concealed and diverted.

[14] In their Statement of Defence, the Defendants deny that D. Johanns is the beneficial owner of the Property. They also deny that he works for Simpson. They plead that Ms. Fulford is attempting to enforce family law orders outside the scope of the family courts and that she does not have the authority to enforce them as they have been assigned to the FRO.

[15] On August 18, 2015, Ms. Fulford obtained an order from Master Mills under section 38 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”) authorizing her to prosecute the Civil Action in her own name and at her own expense (“Section 38 Order”). The Section 38 Order provides that all benefits to be derived from the Civil Action, together with the costs thereof, shall belong exclusively to Ms. Fulford and such other creditor who may agree to contribute pro rata to the expense and risk of the proceeding. However, no other creditor agreed to contribute. The Section 38 Order also provides the following:

5. THIS COURT ORDERS that any recovery shall be applied first to pay the legal costs of Susan Fulford and such other contributing creditors, and the balance shall be divided between the moving creditor and any other contributing creditors pro rata according to the respective non-preferred amounts of their claims.

6. THIS COURT ORDERS that any surplus after payment of such costs, claims and interest thereon, be paid to the Trustee in Bankruptcy.

7. THIS COURT ORDERS that the full indemnity cots [sic] of this motion be added to the provable claim of Susan Fulford for the purposes of this Order.

[16] The Civil Action was dismissed for delay on December 6, 2017. The dismissal was set aside by Order dated April 18, 2018. The Defendants consented to Ms. Fulford’s motion to reinstate the Civil Action. The April 18, 2018 Order required that the Civil Action be set down for trial by April 22, 2019. This did not happen. Ms. Fulford subsequently brought a motion for an order amending the timetable. The Defendants agreed not to oppose the motion provided that the order be made without prejudice to any motions that they may bring. On August 30, 2019, Master McAfee granted the requested order, which provides, among other things, that the examinations for discovery be completed by November 30, 2019 and that the action be set down for trial by September 30, 2020. This did not happen.

[17] As stated above, Ms. Fulford passed away in May 2021. Her lawyer has advised the other counsel that he has instructions from the Estate Trustee, who is Ms. Fulford’s sister, to obtain an order to continue and to continue to prosecute the Civil Action. However, the necessary motion had not been brought at the time of the hearing of the motions before me. While I was advised that Ms. Fulford’s sister had assumed Ms. Fulford’s parental role with respect to Harrison, there is no evidence before me of any custody order or of anything that happened after Ms. Fulford’s death. All the affidavits filed on the motions precede Ms. Fulford’s death.

[18] As at March 10, 2020 (i.e. when this motion was originally brought), the net difference between the Johanns Costs Award and the Fulford Costs Awards was $51,410.34 in favour of D. Johanns.[^1]

Discussion

[19] I discuss the following issues below:

a. the set-off of the costs awards, including the effective date of the set-off;

b. M. Johanns’ claim over the balance of the Johanns Costs Award;

c. Ms. Fulford’s request for a stay of enforcement of the balance owing under the Johanns Costs Award; and

d. D. Johanns’ and M. Johanns’ request that the Civil Action be dismissed or stayed.

a. Set-off of costs awards

[20] Section 97(3) of the BIA provides that the law of set-off applies to all claims made against the estate of the bankrupt and also to all actions instituted by the trustee for the recovery of debts due to the bankrupt in the same manner and to the same extent as if the bankrupt were plaintiff or defendant, as the case may be.

[21] There are two kinds of set-off: legal set-off and equitable set-off. Legal set-off requires the fulfilment of two conditions: (1) both obligations must be debts; and (2) both debts must be mutual cross obligations: see Holt v. Telford, 1987 CanLII 18 (SCC), [1987] 2 S.C.R. 193 at para. 25 (“Holt”). Section 111 of the Courts of Justice Act, R.S.O. 1990, c. C.43 provides that mutual debts may be set off against each other even if they are of a different nature.

[22] In order for legal set-off to operate in the bankruptcy context, the relevant debts must exist before the date of bankruptcy: see King Insurance Finance (Wines) Inc. v. 1557359 Ontario Inc. (Willowdale Autobody Inc.), 2012 ONSC 4263 at paras. 11-12 (“King Insurance”). Given that most of the costs awards in issue in this case were made after the date of bankruptcy, legal set-off does not apply.

[23] Equitable set-off, in contrast, does not require a liquidated claim or mutual debts: Holt at para. 27. It is available, among other things, where the defendant claims a money sum arising out of the same contract or series of events that gave rise to the plaintiff’s claim, or is closely connected with that contract or series of events: Canaccord Genuity Corp. v. Pilot, 2015 ONCA 716 at para. 57. Equitable set-off arises where there is such a relationship between the claims of the parties that it would be unconscionable or inequitable not to permit a set-off: see King Insurance at para. 15. The following general principles are relevant to equitable set-off (see Holt at para. 34):

a. The party relying on a set‑off must show some equitable ground for being protected against his adversary’s demands.

b. The equitable ground must go to the very root of the plaintiff’s claim before a set‑off will be allowed.

c. A cross‑claim must be so clearly connected with the demand of the plaintiff that it would be manifestly unjust to allow the plaintiff to enforce payment without taking into consideration the cross‑claim.

d. The plaintiff’s claim and the cross‑claim need not arise out of the same contract.

e. Unliquidated claims are on the same footing as liquidated claims.

[24] Here, all parties agree that this is an appropriate case for set-off. I agree as well. The Fulford Costs Awards and the Johanns Cost Award, with one exception, were made in the same legal proceeding, i.e. the Family Proceeding. The exception is the Fulford Bankruptcy Costs Award, but this costs award is also related to the Family Proceeding in that Ms. Fulford’s status as a creditor and her claim in the bankruptcy proceeding are derived from the Family Proceeding. Further, it is my view that it would be manifestly unjust to allow either party to enforce payment of the costs awards without taking into consideration the costs awards made in favour of the other party.

[25] In the bankruptcy context, the issue of whether the requested set-off would amount to an unfair preference is often considered: see King Insurance at paras. 15, 20-21. In this case, given the close connections between the costs awards and the fact that the set-off operates in favour of D. Johanns, I find no unfairness. The net difference, which arises out of the Johanns Costs Award, constitutes property acquired by the bankrupt after the date of the bankruptcy but before his discharge and, consequently, is part of the bankrupt’s property that is divisible among his remaining creditors: see subsection 67(1)(c) of the BIA and King Insurance at para. 21.

[26] The parties disagree as to the effective date of set-off. D. Johanns argues that the date of set-off should be the date of the decision allowing set-off, while Ms. Fulford submits that the date of set-off should be the date of the Johanns Costs Award, i.e. September 28, 2018, since equitable set-off was available as of that date. The date of set-off is important for calculating the parties’ respective entitlements to interest on their costs awards.

[27] No case directly on point was brought to my attention on this issue. D. Johanns relied on two cases decided by assessment officers. One of them, Ontex Resources Ltd. v. Metalore Resources Ltd., [1997] O.J. No. 770 (Gen. Div.), expressly states that Holt and the principles of legal or equitable set-off do not apply to set-off in an assessment under Rule 58 of the Rules of Civil Procedure: see para. 26. In my view, the cases referred to by D. Johanns do not have general application outside of the assessment context, especially in the circumstances of this case where more than three years have elapsed since the last costs award was ordered.

[28] I also note that Holt does not support the proposition that interest should run until the date on which set-off is ordered by the court. In Holt, the Telfords tendered payment to discharge a mortgage and took the position that the payment tendered was sufficient as a result of an alleged set-off. The Telfords were unsuccessful at trial and before the Alberta Court of Appeal, but they were successful in establishing equitable set-off before the Supreme Court of Canada. The Supreme Court held that the balance due on the mortgage was the amount that was first tendered, and did not impose any additional interest, even though the equitable set-off was not declared or ordered until many years after payment was tendered.

[29] In some cases, it may be appropriate to find that the effective date of set-off is the date of the decision allowing set-off because equitable set-off is not “automatic”. However, in the particular circumstances of this case, I am of the view that the appropriate date of set-off is September 28, 2018. The right to set-off was never really disputed by D. Johanns and Ms. Fulford, but each attempted to tie it to other factors or desired outcomes. Given this, I do not think that it would be fair or appropriate to allow interest to continue to accrue on the Fulford Costs Awards until the date of this decision. See Re Essar Steel Algoma Inc., 2017 ONSC 3930 at footnote 3. This is especially the case since Ms. Fulford cannot be blamed for the delay in having this motion heard.

[30] While the date of set-off is September 28, 2018, Ms. Fulford is still liable to pay interest from that date on the balance owing under the Johanns Costs Award.

[31] As a result of the set-off, Ms. Fulford is no longer a creditor of D. Johanns’ estate in bankruptcy and, therefore, has no standing to oppose D. Johanns’ discharge: see Bankruptcy of Thomas Pirner, 2014 ONSC 172 at para. 28. This is conceded by Ms. Fulford.

[32] I note that the Section 38 Order provides that the full indemnity costs of the motion to obtain the Section 38 Order are to “be added to the provable claim of Susan Fulford for the purposes of this Order”. In my view, the words “for the purposes of this Order” mean that the costs of the motion will be added to the provable claim of Ms. Fulford for the purpose of the distribution of any proceeds of the litigation under the Section 38 Order. The Section 38 Order does not have the effect of adding these costs to the actual claim of Ms. Fulford in the bankruptcy. If that were the intention, the words “for the purposes of this Order” would not have been added. Thus, as stated above, Ms. Fulford is no longer a creditor of D. Johanns’ estate in bankruptcy.

b. M. Johanns’ claim over the balance of the Johanns Costs Award

[33] M. Johanns and Delcour argue that they are entitled to a charge upon the balance of the Johanns Costs Award based on the $84,000 that was paid to Mr. Liquornik on account of D. Johanns’ legal fees. They rely on the case law regarding solicitors’ liens and charging orders with respect to the proceeds of litigation, and submit that they stand in the place of Mr. Liquornik by virtue of the payments made on account of the retainer.

[34] The issue of whether M. Johanns/Delcour is a creditor of D. Johanns’ estate in bankruptcy with respect to the $84,000 paid to Mr. Liquornik for the legal fees incurred by D. Johanns in the Family Proceeding is in dispute. Ms. Fulford relies on the objective factors considered by the courts when deciding whether an advancement by a parent is a gift or a loan (see Locke v. Locke, 2000 BCSC 1300 at para. 23) to support her position that the funds paid to Mr. Liquornik were paid by M. Johanns on D. Johanns’ behalf as a gift. It does not appear that M. Johanns or Delcour has filed a proof of claim in the bankruptcy with respect to the $84,000 payment to Mr. Liquornik.

[35] Ultimately, I do not need to determine whether M. Johanns or Delcour is a creditor on this motion because I reject the submission that M. Johanns or Delcour has a charge over the Johanns Costs Award. M. Johanns/Delcour did not cite any authority supporting the proposition that a solicitor’s lien or charging order could extend to a non-lawyer funding the litigation. In my view, the test applicable to obtain a charging order or a solicitor’s lien[^2] shows that it only applies to lawyers. In order to obtain a charging order, a lawyer must demonstrate that:

a. the fund, or property, is in existence at the time the order is granted;

b. the property was “recovered or preserved” through the instrumentality of the solicitor;

c. there must be some evidence that the client cannot or will not pay the lawyer’s fees.

See Weig v. Weig, 2014 ONSC 643 at para. 26.

[36] The test is clearly focused on the lawyer. Further, if someone other than the client funds the litigation, then the third prong of the test cannot be met. Here, Mr. Liquornik would not have been able to establish a right to a charging order or a solicitor’s lien as his fees were paid and, consequently, the third prong of the test was not met. Therefore, M. Johanns/Delcour cannot “stand in his place” and claim a charge.

[37] The third prong of the test reflects the fact that part of the rationale supporting solicitors’ liens and charging orders is to encourage lawyers to represent clients who are unable to pay as their cases progress, despite the risks involved: see Taylor v. Taylor (2002), 60 O.R. (3d) 138, 2002 CanLII 4498 at para. 29 (C.A.). In this case, Mr. Liquornik took no such risks as his fees were being paid. There is no valid policy reason to apply the principles underlying the solicitor’s lien/charging order to this case.

[38] At most, M. Johanns or Delcour is an unsecured creditor of D. Johanns with respect to the $84,000. They have no priority right over the balance of the Johanns Costs Award.

[39] Therefore, the net difference between the Johanns Costs Award and the Fulford Costs Awards should be paid to the Trustee. As stated above, it constitutes property acquired by the bankrupt after the date of the bankruptcy but before his discharge and, consequently, is part of the bankrupt’s property that is divisible among his remaining creditors: see subsection 67(1)(c) of the BIA.

[40] As discussed at the hearing, if M. Johanns or Delcour wants to make a claim for the $84,000, they should follow the normal bankruptcy process and the claim will be considered by the Trustee in due course.

c. Ms. Fulford’s request for stay of enforcement of the balance owing under the Johanns Costs Award

[41] Ms. Fulford requests a stay of enforcement of the balance owing under the Johanns Costs Award following set-off pending the disposition of a motion in Family Court for security against D. Johanns in respect of future child support. There is no evidence before me that any motion for security has been brought in Family Court.

[42] While the evidence shows that there have been issues over the years with respect to payment of child support by D. Johanns, the Trustee advised at the hearing of this motion that there has been no balance due to the FRO as of February 4, 2019.

[43] There are many reasons to decline to grant the relief sought by Ms. Fulford, but the most basic one is that Ms. Fulford’s Estate has no standing to seek child support or security for future child support. As stated above, while I was advised that Ms. Fulford’s sister had assumed Ms. Fulford’s parental role with respect to Harrison, there is no evidence before me of any custody or child support order made following Ms. Fulford’s death.

[44] The same reasoning applies to Ms. Fulford’s request for a stay with respect to the payment of any surplus funds that may otherwise be payable to D. Johanns under section 144 of the BIA following disposition of the Civil Action. Further, given the status of the Civil Action, there is ample time for a motion to be brought in Family Court for security, if necessary. There is no need for a stay.

d. D. Johanns’ and M. Johanns’ request that the Civil Action be dismissed or stayed

[45] D. Johanns and M. Johanns ask that the Civil Action be dismissed or stayed for delay. In their respective Notices of Motion, they also sought an order rescinding the Section 38 Order, but this was not pursued in any detail in their Facta. They also each refer to mootness in one paragraph of their respective Facta.

[46] I note that since no order to continue has been obtained, the Civil Action has been stayed since the death of Ms. Fulford pursuant to Rule 11.01 of the Rules of Civil Procedure.

[47] Less than a week after the hearing of these motions, the Court of Appeal released its reasons in McEwen (Re), 2021 ONCA 566 (“McEwen”). In that case, the appellant appealed from an order dismissing its motion to set aside an order made under section 38 of the BIA. The Court of Appeal found that the appellant had no standing to challenge the order made under section 38 and dismissed the appeal.

[48] As a result of the decision in McEwen, I received additional written submissions from the parties regarding its applicability to this case.

[49] In my view, D. Johanns and M. Johanns, as Defendants to the Civil Action, have no standing to challenge the Section 38 Order and no right to review or appeal it: see McEwen at para. 28. None of the exceptions identified by the Court of Appeal in McEwen at paragraphs 29 and 33-35 apply to this case.

[50] While D. Johanns and M. Johanns may not be able to rescind the Section 38 Order at this stage, they can raise delay and other issues (including mootness) within the Civil Action and seek its dismissal on substantive and/or procedural grounds: see McEwen at para. 35. However, the present motion was brought within the bankruptcy proceeding, not the Civil Action.

[51] At this time, I decline to dismiss the Civil Action, but this is without prejudice to the Defendants’ right to bring another motion within the Civil Action for the same relief at a later time.

[52] In my view, the record and argument before me with respect to the issues of delay and mootness were insufficiently detailed. While it appears that Ms. Fulford has failed to pursue the Civil Action with diligence and to comply with court-ordered timetables, it also appears that the failure to comply with the most recent timetable (and the obligation to set down the action for trial by September 30, 2020) was due, at least in part, to D. Johanns’ motion – which was originally brought in March 2020 – and the delay in having it heard.

[53] More importantly, it is my view that the Estate Trustee should be given an opportunity to seek an order to continue – if the Estate wishes to pursue the Civil Action – and file evidence in response to any motion to dismiss or stay the Civil Action for delay or mootness.[^3] In making its decision, the Estate Trustee should consider the standing issues discussed above with respect to child support and the fact that Ms. Fulford is no longer a creditor of D. Johanns’ estate in bankruptcy. The fact that Ms. Fulford may have a claim for costs is not a sufficient reason to continue the Civil Action. Costs issues are resolved at the end of a proceeding; they do not keep a proceeding alive forever.

[54] With respect to the issue of mootness, the Defendants argue that the Civil Action has been rendered moot as a result of the set-off. While I express no views on the merits of the claims asserted in the Civil Action, I note that Ms. Fulford has pleaded that she has suffered damages that go beyond the “debts” owed to her by D. Johanns, and these damages are based on allegations of torts against the Defendants (including conspiracy and fraudulent misrepresentation). The satisfaction of the Fulford Costs Award through set-off do not address the tort allegations and the allegations of additional damages. However, I also note that the Section 38 Order provides that any surplus after paying Ms. Fulford’s legal costs would be payable to the Trustee (since Ms. Fulford no longer has a claim in the bankruptcy), not to Ms. Fulford. These points and issues need to be addressed in any motion to dismiss based on mootness, and one paragraph in the Defendants’ Facta does not do so in a satisfactory fashion.

Conclusion

[55] In light of the foregoing, I order that the Fulford Costs Awards and the Johanns Costs Award be set-off as of September 28, 2018. Counsel and the Trustee should work together to determine the exact amount of the net difference arising out of the Johanns Costs Award as of that date. If agreement cannot be reached, counsel should write to my assistant to schedule a case conference with me.

[56] The balance of the Johanns Costs Award is payable to the Trustee. M. Johanns/Delcour’s claim for a charge or lien over the balance is dismissed. Ms. Fulford’s request for a stay of enforcement of the balance is also dismissed, as is her request for a stay with respect to the payment of any surplus funds.

[57] Finally, I dismiss D. Johanns’ and M. Johanns’ motion to dismiss the Civil Action without prejudice to their right to bring another motion within the Civil Action for the same relief at a later time.

[58] With respect to costs, my initial view is not to order costs as between Ms. Fulford and D. Johanns in light of the overall conduct of the parties (including delay on the part of both sides and the various positions taken by the parties over the relevant period) and the fact that success was divided. While M. Johanns and Delcour were unsuccessful with respect to their claim for a charge or lien, I am not satisfied that they should be ordered to pay costs to Ms. Fulford since I have found that the balance of the Johanns Costs Award was payable to the Trustee, which does not benefit Ms. Fulford. If, despite the foregoing, the parties wish to seek costs, they shall deliver submissions of not more than three pages (double-spaced), excluding the costs outline, within 14 days of the date of this endorsement. The submissions should be sent to my assistant by e-mail and uploaded onto CaseLines.

Vermette J.

Date: December 29, 2021

[^1]: This is subject to adjustments after review of the outstanding Fulford Family Costs Awards by counsel with the Trustee, as stated above. [^2]: The test is the same for both: see Weenen v. Biadi, 2018 ONCA 288 at paras. 16-17. [^3]: These comments are without prejudice to any positions that the Defendants may wish to take in the Civil Action, and any relief that they may want to seek in the event an order to continue is not sought in a timely manner.