COURT FILE NO.: CV-20-00649470-00CL DATE: 20220114

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: HER MAJESTY THE QUEEN IN RIGHT OF ONTARIO, Plaintiff

AND:

SANJAY MADAN (a.k.a. SADANAND MADAN), SHALINI MADAN, CHINMAYA MADAN, UJJAWAL MADAN, INTELLISOURCES INC., NEWGEN SOLUTIONS INC., 10583570 CANADA LTD., 1846932 ONTARIO INC., VIDHAN SINGH, and WANG & ASSOCIATES PROFESSIONAL CORPORATION, AVPS HOLDINGS INC., AVPS RECRUITING INC., AVPS INVESTMENTS INC., AVPS PROPERTIES INC., 2305509 ONTARIO INC., 1784357 ONTARIO INC., 6875459 CANADA INC., Defendants

BEFORE: Justice Cavanagh

COUNSEL: Christopher A. Wayland, and Amy C. Then, for the Plaintiff

Christopher Du Vernet and Carlin McGoogan, for Sanjay Madan, Chinmaya Madan, Shalini Madan, and Ujjawal Madan

HEARD: In writing

COSTS ENDORSEMENT

Introduction

[1] The Plaintiff Her Majesty the Queen in Right of Ontario brought a motion for certain relief as set out in its Amended Notice of Motion. The Defendants Sanjay Madan, Shalini Madan, Chinmaya Madan, and Ujjawal Madan (the “Madan Defendants”) opposed the Crown’s motion. They brought a motion for the relief set out their Amended Notice of Motion. The Crown opposed the Madan Defendants’ motion.

[2] There were two endorsements released with reasons for disposition of the relief sought on the motions. The parties approved an order which was issued on October 12, 2021.

[3] This is my decision with respect to costs.

Background

[4] In the Crown’s Amended Notice of Motion, the following relief was sought:

a. A declaration that Chinmaya Madan, Ujjawal Madan, and Shalini Madan have breached this Court’s order of January 29, 2021 by using funds released to Du Vernet, Stewart in trust to fund their respective counterclaims;

b. A declaration that funds released to Du Vernet, Stewart in trust pursuant to this Court’s Order of January 29, 2021 to be used solely for the payment of legal fees and disbursements incurred to defend the within Action and the Application in the companion matter cannot be used to fund counterclaims, third party claims, or cross-claims.

c. An Order requiring Du Vernet, Stewart to produce a full accounting of the money used to fund the counterclaims to date and to make full restitution of those funds to its trust account;

d. An order amending this Court’s Order of January 29, 2021 such that all funds held in trust for the Madan defendants by Du Vernet, Stewart be re-frozen;

e. In the alternative, if the legal funds are not re-frozen, an Order that counsel for the Madan defendants provided an accounting going forward and that its accounts, to be rendered monthly, shall first be sent to the Madan defendants for approval and, once approved by them, shall be forwarded to counsel for the plaintiff. Upon written confirmation by counsel for the plaintiff that an account is reasonable, the account may be paid out of the Du Vernet, Stewart trust account. Failing such consent, either party may move before the Court in the Court shall determine whether the account is reasonable.

f. A declaration that Sanjay Madan, Chinmaya Madan, and Shalini Madan have breached this Court’s Orders of October 19, 2020, October 28, 2020, November 13, 2020, November 16, 2020 and January 29, 2021 by failing to disclose assets and by dissipating assets;

g. An Order amending this Court’s Order of January 29, 2021 such that the funds held in trust by KS Legal be re-frozen and no further funds be released to the Special Purpose Accounts of Sanjay Madan, Chinmaya Madan, or Shalini Madan for the purpose of paying living expenses.

[5] HMQ brought a separate motion to strike an affidavit delivered by Shalini Madan sworn April 28, 2021. This motion was adjourned.

[6] In the Madan Defendants’ Amended Notice of Motion, they sought the following relief:

a. Varying the Mareva injunction order dated January 29, 2021 to permit Shalini Madan access to an additional $20,000 from funds held in trust by KS Legal to pay for tuition fees and expenses for a Masters of Education program in which she has enrolled.

b. In the event the Crown’s motion is granted, an order varying the Mareva order dated January 29, 2021 to permit the Defendants access to an additional $45,000 for each of Chinmaya Madan, Ujjawal Madan, and Shalini Madan from funds held in trust by KS Legal to pay for steps pertaining to their respective counterclaims up to and including discovery;

c. Varying the Mareva order dated January 29, 2021 to permit the Madan Defendants to access additional funds in order to pursue third party claims for contribution and indemnity against specified entities or persons, with such funding to be calculated on the basis of $45,000 per additional party to cover steps up to and including discovery.

[7] I released two Endorsements with my reasons for the disposition of the motions. The first Endorsement was released on August 30, 2021. I released my second Endorsement, after receiving additional written submissions, on September 15, 2021.

[8] The parties provided me with an approved from of Order to be issued in respect of the motions. This Order was issued on October 12, 2021. This Order provides:

a. KS Legal shall release funds to Du Vernet Stewart in trust to be held and used only for payment of legal fees and disbursements incurred to bring one crossclaim and four third party claims on behalf of Sanjay Madan;

b. KS Legal shall release to Du Vernet Stewart funds from the KS Legal trust account to be used solely for the payment of legal fees and disbursements incurred to respond to the plaintiff’s anticipated motion to strike.

c. On the consent of the parties, an Order that Du Vernet Stewart provide an accounting in respect of all funds released to it pursuant to this Order as set out in the approved Order.

d. The hearing of HMQ’s motion for an order striking out Shalini Madan’s affidavit dated April 28, 2021 is adjourned sine die and may be brought back for hearing only if necessary.

e. The motions brought by the parties are otherwise dismissed.

Submissions by the Parties

[9] The Madan Defendants seek costs of HMQ’s motions on a substantial indemnity scale to be calculated based on fees and disbursements actually charged to the Madan Defendants in the amount of $279,454.04 comprised of fees of $245,310.80, disbursements of $2,252.84, and HST of $31,890.40.

[10] The Madan Defendants submit that they were substantially successful on the motions are entitled to costs.

[11] The Madan Defendants make the following submissions in support of their claim to costs on a substantial indemnity scale:

a. The order sought by the Crown against the Madan Defendants’ lawyers was calculated to cast a chill upon the solicitor-client relationship between the Madan Defendants and their legal counsel because the Crown sought disclosure of accounts to be rendered to the Madan Defendants which would contain detailed dockets, without provision for redaction of information subject to solicitor and client privilege. The Madan Defendants submit that this was done because if the Madan Defendants knew that all their communications with their solicitors risked being disclosed to the Crown, the Madan Defendants would not likely be as forthcoming with their lawyers.

b. The relief sought against the Madan Defendants’ lawyers personally is properly characterized as an alleged breach of trust and was calculated to discredit and emasculate the Madan Defendants’ counsel and create doubt in the minds of the Madan Defendants about the competence of their legal counsel. The Madan Defendants submit that the relief sought went beyond the bounds of vigorous advocacy and was an attempt to undermine the solicitor-client relationship and the damage the reputations of counsel for the Madan Defendants.

c. The examinations of the Madan Defendants consumed two full days and dramatically escalated the costs of the proceeding.

d. At the hearing, the Crown abandoned much of the relief sought and obtained none of the “extreme” relief it was seeking. If the relief sought by the Crown had been granted, the result would have been catastrophic to the Madan Defendants who would have been deprived of access to funds for living and legal expenses, with the practical result that they would no longer have been able to defend the case.

e. The Crown changed its position and raised new issues not raised in its amended Notice of Motion, particularly in relation to the form of accounting of legal charges, which caused the Madan Defendants to incur additional fees by responding to evolving relief.

[12] The Crown asks that there be no costs of the motions because (1) the Crown’s motions were necessary, regardless of the outcome; (2) the Madan Defendants’ claim that they were successful on the motions is wrong; success was divided; (3) the amount claimed by the Madan Defendants for costs is excessive; and (4) the tone and content of the costs submissions of the Madan Defendants are inappropriate.

[13] The Crown submits that when the Court was advised on March 12, 2021 that the Crown intended to bring a motion for a ruling as to whether the Madan Defendants were permitted to fund legal expenses for pursuing counterclaims out of funds released to defend the action, there remained $206,709.35 in the trust account of Du Vernet, Stewart and, therefore, whether those funds could be spent in furtherance of the counterclaims was not an academic or moot issue. The Crown submits that it was appropriate for it to bring a motion to determine this issue.

[14] At the hearing, I was told that the funds in the Du Vernet, Stewart trust account had been expended. The Crown also abandoned its claim that the funds paid to Du Vernet, Stewart in satisfaction of accounts for legal services in relation to the counterclaims be returned to the firm’s trust account.

[15] The Crown submits that before the motion was brought, there appeared to be irregularities in statements from various financial institutions and Crown counsel asked the Madan Defendants for an explanation of the apparent anomalies. No explanation was forthcoming so the Crown included this issue in its motion record. The Crown submits that it acted properly by bringing its motion.

[16] The Crown submits that success was divided. The Crown submits that it was seeking in substance, three things: (1) a declaration that funds held by Du Vernet, Stewart in trust cannot be used for payment of charges for legal services in respect of counterclaims; (2) a declaration that the defendants had breached the Mareva order in several respects; and (3) an order that the release of any further funds for legal expenses be accompanied by an accounting.

[17] With respect to the first declaration, the Crown submits that the issue was not moot at the time the motion was brought, even though when it was argued all of the funds in the Du Vernet, Stewart trust account had been used up. The Crown submits that when it brought its motion, more than $200,000 remained in the Du Vernet, Stewart trust account and the Crown could not have foreseen that this money would be consumed, making the motion moot.

[18] With respect to the second declaration, the Crown submits that there were no findings that the Madan Defendants did not breach the Mareva order and, ultimately, the parties worked to negotiate consent orders to regularize the situation with the rent and Ujjawal Madan’s employment income.

[19] The Crown submits that it was successful in obtaining important relief: an accounting to accompany the release of further legal expenses.

[20] With respect to the motion by the Madan Defendants, the Crown submits that the Madan Defendants were successful in obtaining funding for the third party claims and a crossclaim, but the Crown was successful in having a form of accounting imposed. The Crown was successful in opposing funding for tuition expenses.

Analysis

[21] With respect to the relief sought in respect of the counterclaims by the Madan Defendants, this issue had become moot by the hearing of the motion (subject to this issue being addressed on a future motion for release of funds to be used to fund legal expenses for the counterclaims), except for the relief claimed in the Amended Notice of Motion that the lawyers for the Madan Defendants reimburse their trust account for amounts received in their general account for legal charges in respect of the counterclaims. This relief was not abandoned until the hearing of the motion. This exposed the Madan Defendants and their counsel to the possibility that this relief would be granted. The Madan Defendants were successful on this part of the Crown’s motion.

[22] With respect to the declaratory relief sought that the Madan Defendants had breached the Mareva Order, the explanation that the Madan Defendants said would be forthcoming for apparent anomalies had not been given when the motion was brought. Once the explanations were given, it was open to the Crown to address the issues by a consent variation to the Mareva order, which was ultimately done, without seeking declaratory relief. The Crown proceeded with its motion for declaratory relief and was unsuccessful on this part of its motion.

[23] With respect to the accounting of legal charges, although the parties agreed to a form of consent order providing for an accounting, I do not regard this negotiated resolution to amount to success by the Crown on the motion. The Madan Defendants are correct that the precise form of accounting sought by the Crown was somewhat of a moving target, and, although in my endorsement I made a proposal for a form of accounting, subject to input from the parties, no adjudication was made in favour of the Crown in respect of this relief. The Order that was made was negotiated and agreed upon before an adjudication on this issue. The Crown was not successful in obtaining the form of accounting that was sought on the motion and that the Madan Defendants opposed.

[24] The rule that costs follow the event should apply. The Madan Defendants are entitled to costs of the Crown’s motion.

[25] I do not accept the submission by the Madan Defendants that elevated costs are justified.

[26] The Crown did not act improperly by seeking determination of whether legal costs of the counterclaim are covered by the Mareva order. The fact that the Crown sought an order against the lawyers for the Madan Defendants (to reimburse their trust account from their general account for charges in respect of counterclaims) that was not abandoned until the hearing of the motion does not qualify as reprehensible conduct that would justify an award of costs on an elevated scale.

[27] I do not find that by seeking provision of accounts to be rendered to the Madan Defendants for approval, the Crown was seeking disclosure of information that was subject to solicitor and client privilege. The Crown was clear in its submissions that it was not seeking disclosure of such information. In my view, it was implicit on the Crown’s motion that any privileged information in the draft accounts that the Crown was seeking would have to be redacted. I do not find that by seeking this relief, the Crown should be subject to an award of elevated costs.

[28] I do not accept the submission by the Madan Defendants that the Crown, by seeking the relief it did, intended to “starve” the Madan Defendants into submission or that the relief sought was “calculated to cast a chill upon the solicitor-client relationship” between the Madan Defendants and their lawyers. Although the Crown sought an order in its Amended Notice of Motion re-freezing all funds, in its factum the Crown proposed unfreezing “reasonable but modest funds to be used for living and legal expenses”. As I have noted, the Crown was clear in its factum that no information subject to solicitor and client privilege was sought.

[29] I do not accept the submissions made on behalf of the Madan Defendants that Crown counsel acted intentionally to either (i) render it impossible for the Madan Defendants to defend the litigation, and (ii) obtain solicitor and client privileged information to undermine the solicitor and client relationship between the Madan Defendants and their counsel and damage the reputations of the Defendants’ counsel.

[30] Costs of the Crown’s motion should be awarded to the Madan Defendants as successful parties on a partial indemnity scale.

[31] With respect to the motion by the Madan Defendants, they were successful in obtaining approval for funding of legal expenses for third party claims and a crossclaim. They were not successful in having $20,000 approved for tuition fees. Overall, the Madan Defendants had significant success on their motion. They should receive costs of their motion on the basis of the usual rule that costs follow the event, on a partial indemnity scale. I take into account the failure of the Madan Defendants to succeed in obtaining approval to use of $20,000 for tuition expenses as part of my consideration of the overall circumstances.

[32] The Crown submits that the amount claimed for costs exceeds what is reasonable for a one-day motion. The Crown does not suggest that the hours spent are excessive or disproportionate with the hours Crown counsel themselves worked. The Crown submits that the cross-examination of a law clerk about the merits of the action was unnecessary and that this should be taken into account in the costs award.

[33] The issues raised by these motions were important to the parties. Some of the issues had significant complexity, such that I asked for additional written submissions to address them. In addition to the full day hearing, there were other shorter hearings to address issues in relation to these motions. As I have noted, the Crown does not submit that the time expended was excessive or disproportionate with the hours that Crown counsel worked.

[34] When I consider the factors in Rule 57.01 and the principle in Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291, at para. 26, that the objective of a costs award is to fix an amount that is fair and reasonable for the unsuccessful party to pay, rather than an amount fixed by the actual costs incurred by the successful litigant, I conclude that costs of these motions on a partial indemnity scale should be fixed in the amount of $150,000.

Disposition

[35] Costs of the Crown’s motion and the Madan Defendants’ motion are fixed in the amount of $150,000 payable by the Crown to the Madan Defendants.

Cavanagh J.

Date: January 14, 2022