Court File Nos.: CV-18-600077 & CV-18-610596

Date: 2022-06-21

SUPERIOR COURT OF JUSTICE - ONTARIO

IN THE MATTER OF the Construction Act, RSO 1990, c C.30, as amended

RE: McCOWAN & ASSOCIATES LTD., Plaintiff

• and -

ROYAL ONE 2225 MARKHAM ROAD MED CENTRE LTD. and MORRISON FINANCIAL MORTGAGE CORPORATION, Defendants

AND RE: McCOWAN & ASSOCIATES LTD., Plaintiff

• and -

ROYAL ONE 2225 MARKHAM ROAD MED CENTRE LTD., MORRISON FINANCIAL MORTGAGE CORPORATION, FOREMOST MORTGAGE HOLDING CORPORATION and ONTARIO WEALTH MANAGEMENT CORPORATION, Defendants

BEFORE: Associate Justice Todd Robinson

COUNSEL: A. Dhillon and R. Gandotra, for the plaintiff F. Soccol, for the defendant, Royal One 2225 Markham Road Med Centre Ltd.

HEARD: In writing

REASONS FOR COSTS DECISION

[1] Each of McCowan & Associates Ltd. (“McCowan”) and Royal One 2225 Markham Road Med Centre Ltd. (“Royal One”) seek their costs of prior motions argued before me in this ongoing construction lien reference. Royal One seeks its costs of its prior successful motion in which I ordered a stay of these lien actions and security for costs. Royal One also seeks its costs thrown away from a subsequent motion to re-open Royal One’s motion and admit fresh evidence, which ultimately did not proceed. McCowan seeks its own costs of its motions to lift my stay of these proceedings, which ultimately proceeded on consent.

[2] Determining costs of these motions would typically be fairly straightforward, but there is a wrinkle in this case: McCowan was not the plaintiff when Royal One’s motion was brought and argued. At that point, the plaintiff in both actions was Eagle Construction Services, Inc. (“Eagle”), the lien claimant who commenced these lien actions. Eagle was ultimately ordered into bankruptcy and McCowan subsequently took over this litigation with approval of Eagle’s trustee in bankruptcy. McCowan obtained orders to continue each of the actions in its own name and posted the ordered security for costs in accordance with my prior order. McCowan then brought motions to lift my stay order.

[3] With respect to McCowan’s costs, McCowan argues that Royal One failed to consent to the lift-stay orders when the preconditions set out in my prior order for lifting the stay had clearly been met. That, McCowan argues, led to unnecessary legal costs for which Royal One ought to be liable. Royal One’s position is that it was under no obligation to consent to the lift-stay motions and only did so as a courtesy. The motions had to be brought in any event.

[4] With respect to Royal One’s costs, although the parties’ legal arguments have complexities, their positions are straightforward. Royal One argues that McCowan should be liable for costs of its motion because McCowan has stepped into Eagle’s shoes in this litigation and, in any event, was the real litigant behind Eagle when Royal One’s motion was brought and argued. McCowan’s position is that Royal One’s costs cannot be recovered against McCowan since it was not a party at the time and, in taking over the litigation, has not assumed Eagle’s liabilities to Royal One. McCowan does not dispute that it was financing Eagle as a secured creditor, but argues that it was not involved in the motions.

[5] Royal One told McCowan that it would consent to the lift-stay motions, then delayed in providing consent until served with McCowan’s motion materials. Delayed consent did result in unnecessary legal expenses for which McCowan should be compensated in costs. On the other side, in my view, the record supports that McCowan had become the real litigant by the time of Royal One’s motion and remained so through the subsequent period leading up to Eagle’s bankruptcy. It is thereby properly liable for costs of both Royal One’s motion and costs thrown away from the subsequent motion to re-open it.

Analysis

[6] In this case, there are three primary issues that I must decide in assessing costs entitlement from the prior motions, namely:

(a) Did delayed consent to McCowan’s lift-stay motions expose Royal One to costs of those motions?

(b) Are costs of Royal One’s motion and costs thrown away from the subsequent motion to re-open it properly claimed against McCowan, or are they costs only claimable against the estate of Eagle?

(c) If costs are payable by either party to the other, what is the appropriate scale and quantum of costs?

[7] I deal first with the legal framework in which costs are to be assessed in these lien actions. I then deal with each of the three issues in turn.

Legal framework for costs

[8] By operation of s. 87.3 of the Construction Act, RSO 1990, c C.30, the provisions of the now-former Construction Lien Act (the “CLA”) remain applicable to these lien actions.

[9] Costs in a lien action are governed by s. 86 of the CLA, which provides the court with broad discretion to award costs against a party or, in particular circumstances, a person who represented that party, including on a substantial indemnity basis. Pursuant to s. 86(2), where the least expensive course is not taken by a party, the costs awarded to that party shall not exceed what would have been incurred had the least expensive course been taken. Also relevant to assessing costs is the requirement that procedure in lien action be as far as possible of a summary character, having regard to the amount and nature of the liens in question: CLA, s. 67(1).

[10] By operation of s. 67(3) of the CLA, the Rules of Civil Procedure, RRO 1990, Reg 194 (the “Rules”) apply except to the extent of any inconsistency with the CLA. Rule 57.01 of the Rules outlines non-mandatory and non-exhaustive considerations for the court in assessing costs. The court has repeatedly held Rule 57.01 is not inconsistent with the CLA and may be considered in exercising the court’s discretion under s. 86.

[11] In deciding costs, the overall objective is to fix an amount that is fair and reasonable in this proceeding, having regard to the expectations of the parties concerning the quantum of costs: Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 14579 (ON CA), 71 OR (3d) 291 (CA) at paras. 26 and 38. Costs awards are to reflect what the court views as a fair and reasonable amount that should be paid by the unsuccessful party rather than any exact measure of the actual costs to the successful litigant: Zesta Engineering Ltd. v. Cloutier, 2002 25577 (ON CA), [2002] OJ No. 4495 (CA) at para. 4; Davies v. Clarington (Municipality), 2009 ONCA 722 at para. 52.

Issue 1: Did delayed consent to McCowan’s lift-stay motions expose Royal One to costs?

[12] At a high level, McCowan’s position on its costs entitlement is simple: Royal One failed to provide promised consent to the orders lifting my stay of these proceedings until served with motion materials, which ought not to have been needed. Royal One should thereby be liable for McCowan’s costs of those motions.

[13] McCowan submits that the two preconditions for lifting my stay of these actions had clearly been satisfied, namely that (i) Eagle had a proper and controlling mind with legal ability to direct continuation of these actions; and (ii) security for costs in the amount of $150,000 was paid into court. McCowan accordingly argues that the motions could have and should have proceeded on consent. In fact, Royal One indicated it would consent, and was asked to provide a formal consent several times before the motions were brought, but ultimately failed to provide consent until after McCowan had prepared and served its motion materials.

[14] I agree with McCowan that the preconditions in my prior order had been met or rendered moot. The first precondition was rendered moot by McCowan obtaining ex parte orders to continue. That placed an entity legally capable of directing the litigation at its helm. Those orders to continue were obtained relying on evidence that supported a transmission of Eagle’s interest in these actions to its trustee in bankruptcy and, subsequently, a transmission of interest from the trustee to McCowan. As set out in my endorsement dated April 27, 2021, McCowan’s evidence supported that the trustee had determined that McCowan had security over this litigation and provided authority to McCowan to “now take over the ongoing litigation.”

[15] The second precondition was satisfied when McCowan, through its lawyers, posted the $150,000 in security for costs.

[16] Despite Royal One previously raising challenges to both the validity of McCowan’s security interest in Eagle’s assets and the trustee authorizing McCowan to take over the litigation, Royal One has not moved to set aside the orders to continue or otherwise challenge McCowan’s right to continue these actions. Instead, Royal One (ultimately) consented to the lift-stay orders. However, Royal One argues that it was under no obligation to consent. Since it did not oppose the motions, it submits that the timing of consent is irrelevant and there is no basis for an adverse costs award. Consent was merely a courtesy, not a requirement.

[17] I recently addressed a similar argument in Symmban Stroud Inc. v. 2384359 Ontario Inc., 2022 ONSC 2118, albeit in a non-lien action. In that case, the plaintiff would not consent to an order setting aside a noting in default. The defendants brought a formal motion for set aside, which the plaintiff did not oppose. When the defendants sought their costs of the motion, the plaintiff argued that it had no obligation to consent, had not opposed, and thereby should not be liable to the defendants for costs of a motion that they inevitably had to bring. I did not accept that argument in the circumstances of the case.

[18] In Symmban, I agreed with the plaintiff that, generally, a plaintiff is under no strict obligation to consent to setting aside a noting in default. However, I held that a plaintiff is not insulated from an adverse costs award where its consent is unreasonably withheld (para. 25). On the facts of that case, I found that the plaintiff had not genuinely or reasonably felt that the defendants should have to satisfy the court on the circumstances of default before being entitled to defend and had not reasonably required evidence explaining the default before it could consider its position (para. 24). The plaintiff had offered to consent, but only upon payment of unreasonably high costs thrown away from a prior substituted service motion. Although not opposing set aside, the plaintiff argued that payment of those costs should be a condition of set aside, in pursuit of which the defendant’s affiant was cross-examined. In the end, I held that the plaintiff had wasted both judicial resources and court time by forcing an unnecessary motion to be brought (para. 34), warranting a costs award against the plaintiff.

[19] Royal One’s delay in providing formal consent is certainly not as egregious as the circumstances in Symmban, but this case nevertheless has some similarities.

[20] Nothing before me supports that Royal One was disputing that the preconditions to a lift-stay in my prior order had been satisfied or that Royal One needed time to consider its position. As noted, Royal One’s own costs submissions highlight that Royal One told McCowan that it intended to consent on July 29, 2022. Royal One was then given the draft consent orders and asked to consent on at least two occasions before McCowan obtained motion dates from the court, at which point consent was still not provided. Instead, Royal One’s counsel advised that instructions were still pending. A motion date was coordinated between counsel and the motion then scheduled. Still no consent was provided, despite Royal One having advised a month earlier that it would consent and that a motion date would be unnecessary.

[21] I acknowledge Royal One’s submissions that the parties were in settlement discussions in the period after McCowan posted the ordered security for costs. Although it is not before me (nor should it be given the ongoing reference), I accept Royal One’s submission that an offer to settle from McCowan had only just expired three days prior to the motion materials being served. Nevertheless, I am not satisfied that ongoing settlement discussions explains Royal One’s failure to provide the promised consent despite multiple requests from McCowan’s counsel. Receiving the motion materials may have prompted Royal One to provide its consent, but Royal One’s submissions do not adequately explain the nearly two-month delay from when McCowan’s counsel initially sent the consents and draft orders to when consent was provided.

[22] Since the pandemic started, a backlog has formed on the civil list in Toronto. Judicial resources have become strained by both impacts of the pandemic on the courts and resource limitations. While my colleague and I have managed to maintain fairly reasonable timeouts for construction lien motions in our references and for motions in non-referred actions within the jurisdiction of an associate judge, unnecessary motions on our lists have a cascading effect on the timeouts for hearing other motions that genuinely require court time and judicial determinations.

[23] Nothing before me supports that Royal One needed to see McCowan’s evidence to assess its position on the motion. Nothing before me supports that there was some nuance or issue with McCowan’s position that reasonably should be left for me to assess and decide if the conditions of my prior order had, in fact, been satisfied. Having expressed an intention to consent, Royal One ought not to have delayed in providing that consent when it was requested.

[24] In my view, a costs award is appropriate in the circumstances of this case. Settlement discussions may have been ongoing, but Royal One did not accept McCowan’s offer to settle. There is no indication of any further counter-offer. In such circumstances, it was not unreasonable for McCowan to finalize and serve its materials for lift-stay motions, which were necessary to advance these actions. In my view, Royal One should not have been surprised that McCowan proceeded as it did. Royal One had indicated it would consent, had been asked to formally consent more than once, had failed to provide that consent without reasonable explanation for the delay, and settlement discussions seem to have stalled.

Issue 2: Are costs of Royal One’s motion and the subsequent motion to re-open properly claimed against McCowan?

[25] Royal One argues that, by obtaining the orders to continue, McCowan chose to take over the actions as it found them, subject to all past, present, and future contingencies, including costs consequences. Royal One further argues that McCowan was the real litigant behind Eagle’s claims at the time of its prior motions. Royal One submits that it would be absurd if liability for costs of an action could be avoided by simply transmitting the interest in that action to another entity who obtains an order to continue. It would, Royal One argues, “open the floodgates to opportunistic parties who seek to avoid liability for costs by transmitting their interest.”

[26] I need not delve too far into Royal One’s “floodgates” argument. I am dealing with costs of Royal One’s motion and the subsequent motion to re-open, not costs of the action. In my view, the parties’ costs submissions do not adequately address how Eagle’s bankruptcy bears on costs liability of McCowan in its current capacity as plaintiff for costs incurred before it formally took that role. Relevant provisions of the Bankruptcy and Insolvency Act, RSC, 1985, c B-3 have not been cited and no case law is before me on the more discrete issue of retroactive costs liability for a subsequent plaintiff.

[27] However, I need not decide whether McCowan is liable to Royal One for costs of the action to the same extent as Eagle would have been had it not been ordered into bankruptcy. Costs of a motion are in the discretion of the court, including by whom and to what extent costs are paid: CLA, s. 86; Courts of Justice Act, RSO 1990, c C.43 (“CJA”), s. 131(1). I am able thereby able to assess McCowan’s costs liability for the prior motions irrespective of whether it was the plaintiff at the time.

[28] McCowan argues that its role as a non-party at the time that the motions were booked, brought, and heard is significant. It relies on the decisions in Quest Management Services Inc. v. Quest Management Systems, 2017 ONCA 999 and Marcos Limited Building Design Consultants v. Lad (2018), 143 OR (3d) 665 (SCJ), 2018 153617 (ON SC) to argue that an award of costs against a non-party requires evidence of serious or egregious misconduct by the non-party, such as engaging in fraud or perpetrating an abuse of process.

[29] Both cases cited by McCowan rely on the decision in 1318847 Ontario Limited v. Laval Tool & Mould Ltd., 2017 ONCA 184. In that case, the Court of Appeal confirmed that s. 131(1) of the CJA limits the court’s discretion to ordering costs against the named parties unless the “person of straw” test is satisfied. It requires that three criteria be demonstrated, namely that (i) the non-party has status to bring the action, (ii) the named party is not the true litigant, and (iii) the named party is a person of straw put forward to protect the true litigant from liability for costs (paras. 59-60). The proper inquiry, as set out by the Court of Appeal, is whether the intention, purpose or motive of the non-party in putting the named party forward is to avoid liability for costs (para. 61). The “person of straw” test does not ask whether the non-party engaged in any misconduct. Rather, its aim is to determine whether the non-party, as a matter of fact, functions as if it were a “party” who is subject to an order for costs under s. 131(1) of the CJA, but instead put someone else forward to avoid costs consequences (para. 64).

[30] The Court of Appeal also confirmed that the language in s. 131(1) of the CJA does not exclude a courts inherent jurisdiction to control its own processes and protect them from abuse (paras. 65-66), although courts or tribunals lacking inherent jurisdiction may only order non-party costs if they have statutory jurisdiction to do so (para. 67).

[31] Marcos is the only case before me applying these principles in the context of a construction lien action, but it is distinguishable. It dealt with the appropriateness of costs against the unsuccessful lien claimant’s principals following trial. Personal liability for costs was found against one of those principals, but a close review of the decision indicates that liability flowed from a finding of deliberate misconduct to deceive the court “in attempt to justify and falsely support an inflated claim outside the scope of the agreement between the parties” (para. 34). Non-party costs liability on that basis is expressly contemplated in s. 86(1)(b) of the CLA. Ordering that the lien claimant’s principal was jointly and severally liable for costs of the action thereby did not require application of the “person of straw” test or use of the court’s inherent jurisdiction. That is not the case here.

[32] I disagree with Royal One that the test for costs against a non-party ought to have no application here, and that I should simply view McCowan as a “party” given the orders to continue. In my view, absent any case law on retroactive costs liability of a subsequent plaintiff, the “person of straw” test is the correct approach to deciding whether McCowan has any liability for Royal One’s costs.

[33] Although there is no evidence that Eagle was a “person of straw” from the outset of this litigation, I am satisfied that the test is met as of the time the stay motion was brought and argued. The evidence before me on Royal One’s motion, McCowan’s motions for orders to continue, and its subsequent lift-stay motions, as well as the circumstances surrounding the motion to re-open Royal One’s motion, support that McCowan had become the real litigant behind Eagle.

[34] By a general security agreement dated May 6, 2019, Eagle assigned all of its accounts receivable, contract rights, and choses in actions “of every kind or nature now due or hereafter to become due”, including Eagle’s lien action in Court File No. CV-18-600077, as collateral security for its debt to McCowan. A subsequent, updated general security agreement added express reference to Eagle’s related lien action in Court File No. CV-18-610596, but otherwise uses the same assignment language.

[35] I am satisfied that, by the time Royal One’s motion was initially brought, McCowan was in a position to take over the action itself. Paragraph 10 of both general security agreements entitled McCowan to enforce its rights against its collateral security (including this litigation) upon any default by Eagle. Subparagraph 9(e) provides that Eagle is in default of the general security agreement if it ceases to carry on business. As noted in para. 11 of my reasons for decision for Royal One’s motion, Eagle’s evidence on that motion was that it had ceased all active business operations during the summer of 2018. That is sufficient to satisfy me that McCowan had the right and status to take over this litigation before Royal One’s motion was brought.

[36] There is also a separate provision for default under subparagraph 9(d) in the event Eagle became insolvent or committed an act of bankruptcy. However, I need not address it given my determination above.

[37] I am also satisfied that McCowan had become the real litigant in place of Eagle, despite Eagle formally remaining the plaintiff. McCowan’s principal, Ron McCowan, swore an affidavit in support of Eagle’s opposition to Royal One’s motion. In that affidavit, Mr. McCowan provided unequivocal evidence that McCowan was financially supporting Eagle in these proceedings. He also tendered a copy of Eagle’s irrevocable direction to its lawyers, by which McCowan was given priority to payment from any settlement, judgment, or award in these proceedings after payment of legal fees and disbursements. Mr. McCowan’s affidavit confirms that, in December 2020, McCowan sought to exercise its rights under the share pledge agreement between Eagle’s principal, Kevin Reptke, and McCowan to directly instruct Eagle’s counsel on conduct of this litigation.

[38] Put simply, McCowan’s own evidence on the motion supports that it was financing and involved in directing the continuation of this litigation. Its goal was a settlement or judgment from which it had first priority to payment. This litigation was no longer being pursued for Eagle’s benefit. It was being pursued at McCowan’s instance for its own benefit and, ultimately, was even being advanced directly on McCowan’s instructions.

[39] I am also satisfied that it is reasonable to infer that, in leaving Eagle at the helm of this litigation, McCowan was motivated by avoiding liability for costs. McCowan had taken over litigation financing and I am satisfied that it had taken effective control of advancing these two lien actions. McCowan’s evidence on Royal One’s motion was that it had obtained promissory notes and a share pledge agreement from Kevin Reptke, obtained the general security agreements discussed above, and taken possession of Kevin Reptke’s shares in Eagle. As noted, it ultimately exercised a right to directly instruct Eagle’s counsel on conduct of the litigation. McCowan’s rights under the general security agreement to formally appoint a receiver or otherwise take steps to assume direct control of this litigation had crystallized, but it instead of exercising those rights, it chose to finance and direct the litigation from behind the scenes.

[40] In my view, it is a significant factor in my decision that McCowan chose to proceed in the manner that it did with full knowledge of Eagle’s financial circumstances, specifically that Eagle was not carrying on business and was insolvent. That is supported by McCowan choosing to commence a bankruptcy application while my decision on Royal One’s motion was still under reserve, after specific challenges to McCowan’s authority had been fleshed out in argument. There had been no apparent change in Eagle’s financial circumstances between argument of the motion and commencing the bankruptcy application. McCowan then, together with Eagle, requested that I re-open the stay motion to consider that application for bankruptcy. When that was opposed by Royal One, the motion to re-open was formally brought by Eagle.

[41] Although evidence supports that McCowan’s role in financing Eagle was known to Royal One, had Royal One not brought its motion, McCowan’s true role in directing the litigation and being the primary beneficiary of it may not have come to light. It was a matter that only became necessary for McCowan to disclose in order to oppose Royal One’s position on Eagle’s authority to continue the actions.

[42] For these reasons, I find that the record before me supports that McCowan was a non-party litigant having substantial control (and ultimately full control) of these proceedings. The circumstances also support a reasonable inference that Eagle was left as plaintiff in these actions to deflect McCowan’s own liability for costs that were being incurred in response to steps being taken at McCowan’s instance as the functional plaintiff.

[43] In my view, McCowan is thereby subject to my statutory jurisdiction for costs under s. 86 of the CLA and s. 131(1) of the CJA. It is appropriate that Royal One’s costs of the prior motions be assessed against McCowan apart from any entitlement that Royal One may have to pursue its costs as a claim in Eagle’s bankruptcy.

Issue 3: What is the appropriate scale and quantum of costs?

[44] McCowan seeks substantial indemnity costs for its lift-stay motions in the amount of $5,486.52, including HST and disbursements. Alternatively, McCowan seeks its partial indemnity costs of $4,236.17, including HST and disbursements.

[45] Royal One seeks substantial indemnity costs for its motion and for costs thrown away from the subsequent motion to re-open in the aggregate amount of $75,853.79, including HST and disbursements. Alternatively, Royal One seeks its partial indemnity cost of $54,078.71, including HST and disbursements.

(a) Substantial indemnity costs

[46] Neither party has put any case law before me supporting entitlement to substantial indemnity costs. In a lien action, s. 86(1) of the CLA expressly affords me with discretion to award costs on a substantial indemnity scale. In non-lien actions, an award of costs on an elevated scale is justified in only very narrow circumstances, namely where an offer to settle is engaged or where the unsuccessful party has acted improperly and their conduct warrants sanction: Net Connect Installation Inc. v. Mobile Zone Inc., 2017 ONCA 766 at para. 8. In my view, those principles apply equally to this case. Applying them, though, I find nothing to support an award of substantial indemnity costs in favour of either McCowan or Royal One.

[47] With respect to McCowan’s claim for substantial indemnity costs, McCowan asserts in its submissions that it offered to settle costs of its motions for payment of $2,000 for both actions. Since, as discussed below, I am fixing McCowan’s costs entitlement in an amount less than that offer, I give the offer no weight in my decision on costs. I also do not agree with McCowan that there was any conduct by Royal One warranting elevated costs.

[48] With respect to Royal One’s claim for substantial indemnity costs, Royal One supports it with two main arguments. First, Royal One submits that conduct in response to its motion was improper and vexatious, thereby warranting substantial indemnity costs. Second, Royal One submits that it achieved a more successful result than its offer to settle the motion. I do not accept either argument. I find nothing in Eagle’s or McCowan’s conduct in response to the motion or in Royal One’s offer to settle supporting substantial indemnity costs.

[49] Royal One correctly points out that Kevin Reptke’s initial affidavit sworn November 27, 2019 made misleading statements suggesting that Eagle was impecunious and could not obtain financing, but did not disclose McCowan’s active role in financing Eagle’s operations and this litigation. Mr. Reptke also swore to his personal lack of assets and poor credit score, but failed to disclose that he had made an assignment into personal bankruptcy more than two months before that affidavit was sworn. His bankruptcy was not disclosed until over a month later in his supplementary affidavit sworn December 30, 2019. However, the relationship with McCowan was still not put into evidence and questions about McCowan were refused on cross-examination.

[50] I am mindful, though, that there is nothing before me supporting that McCowan directed Eagle or its counsel not to disclose McCowan’s involvement with Eagle or this litigation. Moreover, I do not accept Royal One’s implied inference that non-disclosure of McCowan’s role was intentional and should be sanctioned by heightened costs. Royal One had the evidentiary onus to demonstrate good reason to believe that Eagle lacked sufficient assets in Ontario to satisfy an adverse costs award. As I have previously held, a plaintiff has no evidentiary onus at the first stage of the security for costs analysis and is not required to tender any financial evidence in response to the motion: 2232117 Ontario Inc. v. Somasundaram, 2020 ONSC 1434 at para. 16. I am not convinced that refusing questions during Kevin Reptke’s cross-examination that dealt with Eagle’s assets, including those about McCowan, was improper. Once Eagle’s lack of a guiding mind was specifically raised as an issue on this motion, McCowan’s involvement was fully disclosed through Ron McCowan’s affidavit.

[51] Royal One’s purported offer to settle the motion also does not assist it. That offer was made two calendar days before the motion hearing (i.e., on a Sunday). It offered to settle the motion by consent to $150,000 in security for costs payable by January 15, 2021, withdrawal of the motion without prejudice to bringing the motion again in the future, costs of the motion to be assessed by me, and a litigation timetable. Read in its totality, the offer was not offer to settle the motion. Rather, it offered consent to security for costs and for an adjournment of the balance of the motion sine die. Deferring a motion is not settling it. It also included requirement to agree to a timetable that was beyond the scope of the motion.

(b) Costs of McCowan’s lift-stay motions

[52] McCowan’s costs outline includes costs that would inevitably have been incurred. Even if on consent, McCowan still needed to put forward some evidence on how the conditions in my prior order had been satisfied. Consent alone would have been insufficient. However, having Royal One’s consent (or even clear confirmation that it did not oppose) was the difference between a simpler consent or unopposed in-writing motion and an appearance motion booked on my list with materials prepared on the basis that it may be opposed.

[53] While the rates claimed are reasonable, I find the hours spent to be somewhat high considering that the 24-paragraph affidavit (substantively duplicated for both motions) provides little more than a procedural chronology. There are two main paragraphs on attempts to obtain Royal One’s consent, which are supported by one email chain exhibit. It is also unclear why motions of this nature required the involvement of three lawyers.

[54] I see no issue with the claimed disbursements, with one exception. I presume that the claimed disbursement for a motion fee is an error. There is no fee for motions in lien actions: O Reg 293/92, s. 3.

[55] Taking these considerations into account, as well as my discretion under s. 86 of the CLA and the factors in subrule 57.01(1) of the Rules, I fix partial indemnity costs of McCowan’s lift-stay motions, payable by Royal One, in the amount of $1,850, including HST and disbursements.

(c) Costs of Royal One’s motion

[56] I am dealing with costs of Royal One’s motion separately from Royal One’s claim for costs thrown away from the subsequent motion to re-open. Different considerations apply to them.

[57] Royal One has submitted two costs outlines for its motion: one dealing specifically with costs for the lack of authority issue added in Royal One’s second amended notice of motion and another dealing with the balance of motion costs. The reason for separating the costs is not entirely clear. They were not separate motions.

[58] I agree with Royal One that it was successful on its motion, but McCowan is correct that there was divided success. In addition to seeking both a stay of proceedings based on Eagle’s lack of authority to continue the actions and security for costs, Royal One also pursued relief dismissing the actions, discharging Eagle’s liens (or at least reducing their quantum), and paying out security. I did not grant any of that relief.

[59] Security for costs was also alternative relief and did not ultimately require substantive argument. Although security for costs was opposed and was addressed in affidavit evidence and cross-examination on the motion, it was ultimately resolved on consent. Only the narrow issue of when the security was to be paid into court was argued.

[60] The motion was necessary. Eagle’s legal capacity to continue its action was a matter that, in my view, had to be addressed. Royal One was completely successful in its arguments on that issue. I did not accept that either Kevin Reptke or McCowan had any legal authority to direct Eagle in continuing these actions.

[61] Also, when Royal One’s motion was originally brought, Eagle remained in breach of a court order to answer refused questions from the cross-examination on Eagle’s liens, to produce various documents, and to pay costs. Compliance with that order did not occur until after Royal One had served its motion materials, prior to Eagle serving its first responding motion materials. Moreover, it was through Royal One’s motion that Kevin Reptke’s personal bankruptcy and the nature of the relationship between Eagle, Mr. Reptke, and McCowan came to light.

[62] I do not agree with McCowan’s characterization of my stay being granted based on “a technicality pertaining to the bankruptcy process.” Royal One successfully argued that, since neither Kevin Reptke nor McCowan had any legal authority to direct Eagle in this litigation, Eagle had become “a boat without a rudder and no sail.” It was not merely a technicality in a bankruptcy process. It was a seriously contested and legitimate issue of corporate governance. At its core, the dispute triggered an inquiry into the justness of allowing a corporate entity demonstrated to be incapable of legal decision-making to continue its litigation until that incapacity had been addressed.

[63] Royal One’s motion was important not only to Royal One and Eagle, but also to McCowan. Its outcome bore directly on whether these proceedings continued, under what circumstances, and the course they would take.

[64] The issues on the motion were complex. Royal One correctly points out that legal analysis on the motion was complicated by intersecting law of bankruptcy, corporate governance, and rights of secured parties. However, that complexity arose from the late addition of Royal One’s position that Eagle lacked any directing mind. Adding that issue after cross-examinations created a clear need to analyze the interrelationship between Eagle, Kevin Reptke, and McCowan. It also resulted in McCowan tendering the affidavit of its own principal, Ron McCowan, prior to the motion hearing.

[65] I give no effect to McCowan’s submission that costs should not exceed $15,000. That figure is well below reasonable expectations for the motion. Eagle’s own costs outline from the motion claimed partial indemnity costs of $28,768.41, disclosing actual costs of $52,813.12. Based on Ron McCowan’s evidence, those costs were funded by McCowan. It ought reasonably to have anticipated at least equivalent costs on the part of Royal One.

[66] I agree with McCowan, though, that Royal One increased its own costs on the motion by filing additional affidavit evidence to buttress its position and twice amending its notice of motion to add new legal positions. For example, some of the new evidence contained in Royal One’s supplementary affidavit, which was sworn one day after Eagle’s initial responding affidavit, pre-dates Royal One’s motion record and initial supporting affidavit or could reasonably have been obtained before the motion record was served. As set out in s. 86(2) of the CLA, where the least expensive course of action is not taken by a party, the costs allowed to that party shall not exceed what would have been incurred had the least expensive course been taken.

[67] I also agree with McCowan that Royal One’s unsuccessful opposition to admission of Ron McCowan’s affidavit should be considered. Subrule 39.02(2) of the Rules does operate to prevent a party from tendering further affidavit evidence after cross-examinations absent consent or leave of the court. However, Ron McCowan’s affidavit was sworn in direct response to the new position added in the second amended notice of motion on Eagle’s lack of authority. I found that the additional evidence was necessary to respond to Royal One’s amended position.

[68] Put simply, it is a factor for costs that Royal One changed its position on the motion after cross-examinations and then steadfastly opposed admission of further evidence from McCowan (in support of Eagle’s motion) responding directly to that new position. Royal One’s position was overly-technical and resulted in additional costs being incurred at the motion hearing to deal with the admissibility dispute.

[69] McCowan further points to subrule 39.02(4) of the Rules, which I agree is applicable here. That subrule provides that a party cross-examining on a motion (other than a motion for summary judgment) is required to purchase and serve a copy of the transcript on every adverse party free of charge and, further, is liable for the partial indemnity costs of every adverse party on the motion in respect of the cross-examination. Royal One has not disputed McCowan’s submission that it failed to provide Eagle with a copy of Kevin Reptke’s cross-examination transcript and failed to reimburse Eagle for it. Since I have found that McCowan was the real litigant at the material times and is directly liable for costs, it follows that McCowan should be entitled to the same costs set-offs to which Eagle would have been entitled, particularly since the legal fees and disbursements appear to have been paid by McCowan.

[70] McCowan is thereby entitled to its costs of Mr. Reptke’s motion cross-examination transcript (as distinct from the lien cross-examination transcript, which I am not satisfied that Royal One was required to provide to Eagle under s. 40 of the CLA) and Eagle’s partial indemnity costs of Mr. Reptke’s cross-examination. Per Eagle’s costs outline, those total an aggregate of just over $3,600, including HST.

[71] Although not specifically raised in either party’s submissions, I question whether certain time entries are properly claimed by Royal One as motion costs, rather than costs of the action. Notably, Royal One’s costs outline includes:

(a) Entries reflecting work that is more properly claimed as costs of the action, such as reviewing Eagle’s court-ordered productions; receiving payment of the costs award; preparing for and attending at trial management conferences where I do not agree there was sufficient motion-related content to consider those attendance to be costs of the motion; and significant time preparing for cross-examination that, given the length of the motion cross-examination, must include time for the s. 40 lien cross-examination; and

(b) Entries for purely administrative time that, in my view, is not properly claimable as costs of the motion or action, such as time spent on copying documents, inserting tabs, and binding records; preparing memoranda to process servers; preparing motion confirmation forms; and serving and filing materials. These types of expenses are, in my view, “overhead” costs that are reasonably expected to be built into the rates charged for legal work.

[72] Like McCowan, Royal One also claims a motion fee that, in my view, is not recoverable for the same reasons discussed above. There are no fees for motions in lien actions.

[73] For these reasons, exercising my discretion under s. 86 of the CLA and having regard to the factors in subrule 57.01(1) of the Rules, I fix partial indemnity costs of Royal One’s motion, payable by McCowan, in the amount of $32,500, including HST and disbursements.

(d) Costs of Eagle’s motion to re-open

[74] Royal One claims for legal costs thrown away after the hearing of its motion, incurred in relation to the various case conferences around the motion to re-open Royal One’s motion, which did not ultimately proceed due to Eagle’s bankruptcy. A motion record was prepared and served, but as I understand was never filed with the court.

[75] The motion was, in my view, brought as an adjunct to McCowan’s strategic decision to commence bankruptcy proceedings against Eagle. I accept Royal One’s submission that, in all the circumstances, the timing of the application for bankruptcy after the motion hearing suggests an effort by McCowan to seek to buttress its arguments on the motion about standing by triggering an after-the-fact change in Eagle’s circumstances. Eagle and McCowan came before me seeking to re-open Royal One’s motion based on McCowan’s decision to push the bankruptcy forward. In my view, Royal One is entitled to costs thrown away.

[76] Nevertheless, Royal One’s claim for partial indemnity costs of $3,700 is not supported. Most of the time entries in Royal One’s costs outline have to do with considering and advising on the impact of the application for bankruptcy, not the motion to re-open. Nothing in the costs outline supports that Royal One did anything in respect of the motion other than review Eagle’s motion record and begin planning its response, at which point the order for bankruptcy was issued. The only motion-related cost incurred after that time was attendance at the scheduled motion hearing to speak to next steps.

[77] Taking these factors into account, I fix Royal One’s partial indemnity costs thrown away from the motion to re-open, payable by McCowan, in the amount of $850, including HST.

Disposition

[78] McCowan submits that, if costs are found payable by it, then they should be payable in the cause. Costs typically follow the event. I find no basis on the facts of this case to vary from that standard.

[79] Having fixed costs for all three motions and setting them off against one another, Royal One is accordingly entitled to a net payment of costs from McCowan in the amount of $31,500, including HST and disbursements, payable forthwith. Order accordingly.

ASSOCIATE JUSTICE TODD ROBINSON

DATE: June 21, 2022