COURT FILE NOS.: CV-21-00666106-0000 CV-21-00662878-0000
DATE: 2022-07-12
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: DS&D PERSONNEL INC. and DOMENIC NUOSCI, Applicants AND: MAPLE EQUIPMENT & LEASING INC. and GIUSEPPE (JOSEPH) NUOSCI, Respondents
AND RE: MAPLE EQUIPMENT & LEASING INC., GIUSEPPE (JOE) NUOSCI and CARMELA NUOSCI, Applicants AND: DS&D PERSONNEL INC., DOMENIC NUOSCI and SILVANA NUOSCI
BEFORE: VERMETTE J.
COUNSEL: Gavin Finlayson and Kaleigh Sonshine, for DS&D Personnel Inc., Domenic Nuosci and Silvana Nuosci Neil Wilson, for Maple Equipment & Leasing Inc., Giuseppe Nuosci and Carmela Nuosci
HEARD: June 10, 2022
ENDORSEMENT
[1] DS&D Personnel Inc. (“DS&D”) and Domenic Nuosci (“DN”) move for the following relief in their Application:
a. an order enforcing a settlement and/or providing directions to the parties on the finalization of the settlement;
b. an order directing Maple Equipment & Leasing Inc. (“Maple”) and Giuseppe (Joe) Nuosci (“GN”) to pay or cause to be paid from the revenues of the parties’ business an invoice rendered by Miller Thomson LLP (“Miller Thomson”) dated April 30, 2022 (“MT April Account”); and
c. in the alternative, an order that GN be required to personally reimburse the parties’ business for all costs awards made in this proceeding against Maple, GN and Carmela Nuosci (“CN”).
[2] Maple, GN and CN move for the following relief in their Application:
a. an order enforcing the settlement between the parties and directing DS&D and DN to proceed with the buy-sell agreement agreed by the parties;
b. an order that DN be responsible for addressing the MT April Account and that the parties cease paying legal fees from the parties’ business;
c. an order that GN be permitted to pay legal fees from the parties’ business in an amount equal to the legal fees paid by DN; and
d. in the alternative, an order referring the accounts rendered by Miller Thomson to an assessment.
[3] As reflected by the relief sought by both sides, all parties wish to proceed with the settlement that they previously reached. The payment of the MT April Account is the only stumbling block to the finalization of the settlement. Based on the evidence before me and taking into account all of the circumstances of this case, I have concluded that Maple and GN should be ordered to take the necessary steps to transfer funds to DS&D from the revenues of the parties’ business for the payment of the MT April Account. The resolution of this issue will hopefully allow the parties to finalize the settlement quickly and put an end to this litigation.
A. FACTUAL BACKGROUND
1. The parties
[4] DN and GN are brothers (together, “Brothers”). They jointly own and run a “just-in-time” cement delivery business which operates under the name of Maple Ready-Mix & Aggregates (“Business”).
[5] The Business is run by two separate corporations on an integrated basis: DS&D and Maple. The Business itself is not a separate corporation or legal entity.
[6] DN is the principal, sole officer, sole director and sole shareholder of DS&D. Silvana Nuosci (“SN”) is DN’s spouse and a former shareholder and director of DS&D.
[7] GN is the principal and the directing and controlling mind of Maple. CN, who is GN’s spouse, is the sole officer, sole director and sole shareholder of Maple.
[8] Maple and DS&D play separate but complementary roles in the operations of the Business. Part of Maple’s role is to handle all of the accounts payable and receivable. Since the money that comes into the Business flows through Maple, Maple/GN have effective control over the funds of the Business even though they belong to both Brothers.
[9] DS&D owns or leases most of the equipment and trucks which produce and deliver the concrete. It also owns the batch plant where the concrete is mixed. In addition, DS&D employs and handles the payroll for all employees of the Business, and pays for all insurance, fuel, wages and benefits.
[10] There is no written agreement between the Brothers or between DS&D and Maple governing the business relationship between the two companies. DS&D and Maple have depended upon one another to operate the Business and have developed an ordinary course of conduct. Among other things, the practice has been for Maple to flow funds into DS&D in order for DS&D to pay its expenses.
[11] It is agreed among the parties that notwithstanding the existence of the two corporations, each brother is effectively a 50% owner of each of Maple and DS&D.
2. The litigation
[12] A dispute arose between the Brothers in 2020 and, ultimately, each of them brought an oppression application. Maple, GN and CN commenced their Application on May 26, 2021, and DS&D and DN commenced their Application on July 23, 2021. The Applications were scheduled to be heard on their merits on December 8, 2021.
[13] On December 7, 2021, the parties attended a case conference before Justice Sharma for settlement purposes. The Applications settled (“December Settlement”) on the basis that one of the Brothers would buy the other out of the Business through a shotgun buy-sell agreement (“Buy/Sell”). No finding of oppression or wrongdoing was made against either side.
[14] Justice Sharma made the following Order (“December 7, 2021 Order”):
THIS COURT ORDERS that the parties will proceed with a shotgun buy/sell process for the sale of the Maple Ready Mix and Aggregate business (comprising both Maple Equipment & Leasing Co. and DS&D Personnel Inc., together the “Business”) whereby one party will name the price and the other party will choose whether to buy or sell their share of the Business at that price.
THIS COURT FURTHER ORDERS that to the extent the parties are unable to agree on the buy-sell process (including without limitation the issues of who will name the buy/sell price, tax indemnities including for Carmela Nuosci, and restrictive covenant provisions), the parties will return for a hearing on January 12, 2022, to argue any outstanding issues and the Court will rule upon the issues in dispute.
THIS COURT FURTHER ORDERS that the costs of these proceedings are to be agreed upon by the parties or failing agreement decided by the Court.
[15] DN’s evidence is that the Brothers agreed and undertook at the December 7, 2021 case conference to preserve the status quo of the Business and to negotiate the terms of the Buy/Sell in good faith. GN did not give evidence one way or the other with respect to the alleged agreement/undertaking to preserve the status quo.
[16] On December 10, 2021, Chief Justice Morawetz conducted a judicial mediation to assist the parties in reaching a resolution on the Buy/Sell process. The Brothers were unable to reach an agreement on that day.
[17] Given the parties’ inability to agree on the Buy/Sell process, they returned before the Court for a hearing on January 12, 2022, as set out in the December 7, 2021 Order. However, due to a technical issue with CaseLines, the hearing could not proceed on that day. Since the hearing could not proceed, Justice Sanfilippo convened a case conference during which certain issues between the parties were resolved. Justice Sanfilippo made an endorsement in which he set out the four issues that remained to be determined by the Court. His endorsement reads, in part:
The DS&D Parties submitted, in their factum, that the issues remaining to be determined on the Applications were as follows: (a) which party will name the buy/sell price; (b) should the buy-out include restrictive covenants, and if so, what terms; (c) should the buy-out include tax indemnities; (d) claim by the Maple Equipment Parties for business losses; (e) indemnity for cash shortfalls; (f) adjustments for expenses and shareholder loans; (g) costs. At the hearing, the parties agreed that only issues (a) - (d) and (g) remained for determination in the Applications.
By the conclusion of the Case Conference, the parties agreed that the following four issues remain for determination on the hearing of the Applications (“Remaining Issues”):
(a) Which party must name the price for the buy/sell arrangement?
(b) Should the buy-out include restrictive covenants?
(c) Should the buy-out include indemnities for tax liabilities?
(d) Costs of the Applications.
The parties submitted that these Remaining Issues can be argued on the return of the Applications in two hours or less, one hour of oral submissions to each of the DS&D Parties and the Maple Equipment Parties, particularly if costs are addressed by written submissions post-hearing. I agree.
[18] Justice Sanfilippo ordered that the Applications be heard on January 26, 2022.
[19] DN’s evidence is that one of the issues settled during the case conference with Justice Sanfilippo was an issue raised by GN regarding the appropriateness of various payments of expenses claimed by DN through DS&D, including litigation disbursements for advice from a proposed receiver, A. Farber & Partners (“Farber”). GN did not challenge DN’s legal fees at that time.
[20] On January 26, 2022, the parties appeared before Justice Hood. Justice Hood released his decision on February 2, 2022. He ordered as follows:
a. The tax indemnity in the Buy/Sell shall only extend to Maple and to CN as a director of Maple.
b. There is to be no restrictive covenant placed upon the seller in the Buy/Sell.
c. GN is to make the offer to DN and to name the price for the buy-out.
[21] Justice Hood stated in his endorsement that these three issues were the only issues that the Court was asked to determine, except for the issue of costs. He set out a timetable for the delivery of written costs submissions.
[22] On February 8, 2022, Maple, GN and CN served a Notice of Appeal asking that Justice Hood’s judgment be set aside with respect to the tax indemnity issue, and asking that the tax indemnity in the Buy/Sell extend to GN, CN, DN and SN personally.
[23] Despite the fact that Justice Hood had ruled on all the issues that were supposed to be remaining, the Brothers were not able to negotiate the Buy/Sell and, as a result, they attended a case conference before Justice Glustein on March 21, 2022. Justice Glustein scheduled a hearing for May 18, 2022 to address any issues relating to the Buy/Sell and any outstanding claims between the parties. Justice Glustein wrote in his endorsement that the purpose of the hearing was to resolve any outstanding issues in one hearing. One of the issues in dispute was the fees paid to Farber, which GN had raised again.
[24] The Divisional Court heard Maple, GN and CN’s appeal on April 4, 2022. The appeal was dismissed from the bench and oral reasons were given that day by Justice Swinton on behalf of the panel. The panel found that there was no merit to the appeal. A written endorsement was released on April 6, 2022.
[25] On April 19, 2022, Justice Hood released his costs endorsement with respect to the January 26, 2022 motion. He noted that the amount of fees incurred by DS&D and DN seemed higher than the fees incurred by Maple, GN and CN, but he found that what each side was seeking in costs was within the reasonable expectation of the other. Justice Hood ultimately concluded that there should be no order as to costs for the motion nor the Applications as success was divided. However, based on an offer to settle costs that had been served by DN, Justice Hood ordered GN to pay costs to DN in the amount of $2,500.00 for the costs associated with the preparation of costs submissions.
[26] On May 4, 2022, approximately two weeks before the upcoming motion scheduled for May 18, 2022, DN served an offer to settle. GN accepted the offer on May 6, 2022 (“May Settlement”). The May Settlement included specific terms that became incorporated into the Buy/Sell, as well as an agreement that the Buy/Sell would be executed by May 18, 2022. Among other things, the May Settlement included a term pursuant to which DN was to reimburse $20,530.73 to DS&D, representing the second payment made to Farber.
[27] I was advised by counsel at the hearing that except for wordsmithing issues in relation to one clause, the language of the Buy/Sell has now been agreed upon. However, it has yet to be signed by the parties as a result of a dispute that has arisen regarding the payment of the MT April Account which relates to legal fees incurred by DS&D and DN.
3. Dispute regarding legal fees
[28] Since the beginning of the litigation, the parties have been paying their legal fees from the revenues of the Business. Maple, GN and CN have been paying their lawyers through Maple, and DS&D, DN and SN have been paying their lawyers through DS&D.[^1]
[29] Prior to the MT April Account, Miller Thomson’s invoices were all paid with the knowledge of GN and without objection from him. Given that the funds of the Business are controlled by Maple, DN had to ask for the transfer of funds from the Business (i.e. from Maple to DS&D) each time he received an invoice from Miller Thomson for legal fees. DN’s uncontradicted evidence is that his usual practice was to provide GN with the last page of the invoice from Miller Thomson and to request that GN transfer the necessary funds to DS&D to pay the invoice.
[30] On May 5, 2022, in accordance with past practice, DN sent an e-mail to GN asking him to transfer $365,000 as soon as possible to cover part of his legal fees. DN’s e-mail attached the last page of the MT April Account. The evidence shows that GN forwarded DN’s e-mail to his litigation counsel on the same day.
[31] On May 11, 2022, five days after the parties entered into the May Settlement, counsel for GN sent the following letter to counsel for DN:
We have been made aware of a demand by your client that my client transfer $365,000 to DS&D to pay Miller Thomson LLP’s legal fees with respect to this proceeding. This is apparently in addition to the at least $294,000 already received by Miller Thomson.
My client does not agree to pay legal fees in this amount. As of February 1, 2022, Miller Thomson had been paid at least $294,000 in fees for the entire proceeding, which already included preparation of all materials, cross-examinations and the judicial mediations. The further $365,000 requested by Domenic is extremely excessive given that the only recent steps on this matter have been an appeal on a narrow issue, two short case conferences and the preparation of brief supplementary materials for the hearing on May 18, 2022.
By way of comparison, I can advise that our legal fees for the period following February 1, 2022 amount to approximately $97,000 including HST and disbursements.
In addition, our client has already paid $20,000 towards DS&D’s legal fees by way of payment of the costs award of $20,000.
Given the above our client does not agree to pay the legal fees in the amount requested. We hereby request particularization of the claimed legal fees and the total legal fees paid to date so that our client can consider this issue with all relevant information.
In the meantime, I request that you please confirm that your client will not use funds transferred for ongoing business expenses to pay these claimed fees, which are in dispute. I would appreciate it if you would confirm this immediately to avoid any disputes about the use of funds.
[32] Counsel for DN responded on the same day as follows:
We disagree with the characterizations in your letter.
Your client’s ostensible control over shared revenues does not entitle him to unilaterally determine what expenses of DS&D should or should not be paid. Particularly, as he is a self-interested litigant. Particularly, when your client has caused or contributed to those expenses through his actions and positions. Particularly, when your client funds his own legal expenses from Maple and does not ask our client for permission to do so or provide them for review.
Further, you are laboring under false apprehensions. First, you have assumed our account relates to work done from February 1, 2022, onwards. It does not. The account goes back to December 2021.
Second, the account includes time not only for litigation but also corporate transactional work. As you are aware, our client’s transactional lawyer is also with Miller Thomson. Your client’s transactional lawyer is with Brattys who no doubt has rendered a bill to him for work done on the buy/sell, which he is paying or intends to have paid from shared revenues. Your comparison of your own firm’s fees to ours is therefore misleading (in addition to being irrelevant).
Third, your client is the one driving up legal fees by taking meritless positions including seeking an indemnity for Carmela’s personal decision to not pay her income taxes, bringing an appeal of the decision denying that relief which the Divisional Court determined was “without merit”, and attempting to re-litigate on more than one occasion issues the parties have already settled. Your description of the appeal as “a narrow issue” and of the materials for next week’s hearing as “brief” is also a mischaracterization.
The practice to date has been for the parties’ legal fees to be paid from shared revenues. There is no requirement for parity between the parties with respect to the payment of legal fees. If your client is not prepared to transfer funds to satisfy DS&D’s expenses, including legal fees, then we will have to engage in further litigation driven by a position taken by your client that upsets the status quo.
The parties are close to being able to consummate the buy/sell and move on with their lives. We ask your client to please reconsider his position so that we may avoid further pointless litigation and further legal fees. If he is not prepared to do so, our client reserves the right to do whatever is necessary to ensure DS&D’s accounts are paid.
[33] Counsel continued to exchange correspondence on this issue but did not come to an agreement. GN’s position was that: (a) the practice had been to pay for reasonable legal fees, (b) the request for payment was not reasonable, and (c) the fees and disbursements should be in the same range for both sides. DN’s position was that GN was upsetting the status quo and did not have an entitlement to review Miller Thomson’s accounts and unilaterally decide what expenses should be paid. It was also DN’s position that the Buy/Sell could not close until the issue of the legal fees was resolved. GN alleged that the failure to execute the Buy/Sell was in breach of the May Settlement which required all parties to sign the Buy/Sell by May 18, 2022.
[34] On May 27, 2022, counsel for GN provided to counsel for DN copies of their accounts for the period May 28, 2021 to May 3, 2022, with redacted docket entries. Copies of the accounts of GN’s corporate counsel were not provided. On May 31, 2022, counsel for DN provided to counsel for GN a redacted copy of the MT April Account, as well as the invoice numbers, dates and amounts of the prior invoices already paid to Miller Thomson. A redacted version of these other invoices was attached as an exhibit to the affidavit of DN sworn June 1, 2022. These invoices cover the period May 24 to December 31, 2021. The MT April Account is 24 pages long and includes docket entries from December 8, 2021 to April 30, 2022.
[35] It appears from the invoices included in the record that the hourly rate of GN’s main litigation counsel is $450. There is no available information regarding the hourly rate of GN’s corporate counsel. The hourly rates of DN’s litigation counsel are $800 and $425, and the hourly rate of his main corporate counsel is $700.
[36] GN’s evidence is that the total amount that he has paid to his lawyers is $350,932.34, i.e. $328,716.65 to his litigation counsel and $22,215.80 to his corporate counsel. DN’s evidence is that the total amount of Miller Thomson’s fees is $770,353.42, which includes the MT April Account in the amount of $364,346.96.[^2] As stated above, DN’s litigation counsel and corporate counsel are both at Miller Thomson.
[37] In his affidavit, GN gives the following evidence regarding the alleged understanding between the Brothers as to the payment of legal fees:
My brother and I have proceeded on the informal understanding through our conduct that reasonable legal fees for both sides would be paid by the company.[^3] Both Domenic and I have paid fees for this litigation from the company from time to time. This understanding was implied by our conduct and was not specifically agreed to orally or in writing.
Throughout this litigation I have facilitated the payment of legal fees to Miller Thomson. When Domenic asked that I transfer money from Maple Equipment to DS&D to cover payment of legal fees, I did so. However, this was always on the understanding that we would receive reimbursement of reasonable legal fees and that we would receive reimbursements from the company in roughly comparable amounts. [Emphasis in the original.]
[38] In his first affidavit, which preceded GN’s affidavit, DN stated the following:
There has never been an agreement that there would be an equalization of the legal fees spent by Joe and myself. I don’t agree and do not consent to Joe determining what he thinks are “reasonable” legal fees.
[39] DN swore a second affidavit in response to GN’s affidavit. He stated the following with respect to the alleged understanding between the Brothers regarding the payment of legal fees:
Contrary to Joe’s assertion at paragraph 7 of his Affidavit, there has never been an “understanding” that either of us would receive a reimbursement for legal fees connected to this litigation, or any other amount for that matter. What I believe Joe means when he says there is an “understanding” is that it is subjectively the terms he would like to impose on our historical status quo practice after the fact. Joe and I have not spoken civilly throughout the course of the litigation, and have mostly communicated with each other over email or through lawyers.
The historical, objective status quo practice Joe and I have established of paying for legal fees for ourselves, our wives and our companies through the Business is a course of conduct that we have followed throughout this litigation. The legal fees we have separately incurred because of this litigation have been recognized as obligations of Maple and DS&D respectively and have been paid without exception, regardless of quantum and with no cap.
Joe’s suggestion that legal fees have been paid by the Business “from time to time” is not accurate. Our legal fees for this litigation have been paid by the Business every time a request has been made. Joe’s arbitrary refusal to allow the Business to pay my lawyer’s recent account […] is the first deviation from this course of conduct. [Emphasis in the original.]
[40] Aside from the issue of legal fees, there is evidence that in the last months, GN has used his control over the funds of the Business to improperly withhold funds from DS&D or impose conditions on DS&D for the transfer of funds with respect to funds that were required for the operations of the Business and would have ordinarily been transferred from Maple to DS&D to pay expenses.
B. POSITIONS OF THE PARTIES
1. Position of DN
[41] DN states that there is no contractual or legal basis for GN to seek an adjustment to DN’s legal fees, particularly historical legal fees that have already been paid. He also states that there is no evidentiary basis for the Court to wade into the appropriateness of the legal fees of either party. According to DN, GN’s request for relief is based on an unparticularized and general complaint by one litigant who thinks that the opposing litigant’s fees are excessive. He points out that the Court has no meaningful benchmark against which to measure the legal fees of one party versus another, other than simply comparing raw numbers.
[42] DN submits that GN’s views on the reasonableness of the rates of DN’s lawyers or the fees that they have charged is irrelevant, and that GN, as a self-interested litigant, cannot unilaterally determine that DN’s legal fees are unreasonable based merely on a differential in quantum. DN states that there is no requirement for parity between the parties with respect to the payment of legal fees. He notes that it is not surprising that the legal fees and disbursements that GN and DN have incurred are not symmetrical given that they have hired different lawyers, who charge different rates, and have approached the issues differently. He also notes that GN has paid his own lawyers without seeking any input from DN.
[43] DN argues that GN has made up an alleged “understanding” between the Brothers that is not grounded in the parties’ prior conduct and is simply an attempt by GN to impose his subjective, after-the-fact wishes. He states that what GN is really arguing is that a term should be implied that there would be some after-the-fact “equalization” of legal fees. DN submits that there is no basis to imply a term contrary to the clear and objective historical course of conduct of the parties. He further submits that it was entirely within GN’s reasonable expectation that DN’s lawyers would submit another account and that the account would be substantial given the legal work that was undertaken.
[44] According to DN, GN has been driving up the parties’ legal fees by taking meritless positions throughout the litigation. DN points out that GN did not challenge DN’s legal fees at the hearing before Justice Hood, even though he had the opportunity to do so and the purpose of that hearing was to resolve all outstanding issues in one hearing, as stated in the December 7, 2021 Order. DN further points out that GN had raised the appropriateness of certain litigation expenses prior to the January 26, 2022 hearing (i.e., Farber-related expenses), but that he did not raise any issues with respect to DN’s legal fees until May 11, 2022. DN’s position is that GN is raising issues about his legal fees now so as to adjust the buy-out or sell-out price of the Business.
[45] DN argues that GN’s actions have created another impediment to the consummation of the Buy/Sell as a result of GN’s capricious decision to deviate from the status quo that he undertook to preserve as part of the December Settlement. DN points out that GN knew about the amount of the MT April Account when he agreed to the May Settlement, and he was aware that DN had requested payment in accordance with the status quo and the expectations of the parties. DN submits that GN entered into the May Settlement under false pretenses, and that he inappropriately availed himself of self-help remedies by refusing to release funds from the Business to satisfy the MT April Account, in breach of the settlement between the parties and in anticipatory breach of the Buy/Sell.
[46] DN asks that GN be compelled to execute the Buy/Sell, but also to maintain the status quo until the transaction closes given his bad faith conduct to date. He asks that the December Settlement and the May Settlement be enforced and that such enforcement be peremptory on GN.
[47] Finally, DN argues that this Court should not refer Miller Thomson’s invoices for assessment. He submits that section 9 of the Solicitors Act, R.S.O. 1990, c. S.15 only applies to a third party who is a beneficiary of the legal services and does not apply to an adverse litigant. He further submits that this issue is not properly before the court as the appropriate motion has not been brought, and that special circumstances must be established before paid invoices are referred for assessment.
2. Position of GN
[48] GN argues that the parties’ practice to pay their legal fees from the Business was not a “blank cheque”, but, rather, an informal understanding that reimbursement of reasonable legal fees in approximately the same range would be paid to each brother. He states that the legal fees sought by Miller Thomson are, on their face, excessive and well in excess of double the amount paid to GN’s own lawyers for the same work. He submits that having access to roughly equal amounts from the Business for use towards legal fees is equal treatment and consistent with the Brothers’ position as equal shareholders and their reasonable expectations. In GN’s view, it would set a problematic precedent to condone the expenditure of unreasonable and disproportionate amounts of legal fees using company money, and would create an incentive against litigating economically.
[49] Even though GN acknowledges that section 249(4) of the Business Corporations Act, R.S.O. 1990, c. B.16 regarding the payment of interim costs to a complainant does not apply to the circumstances of this case, he points out that this provision authorizes the payment of reasonable legal fees and disbursements and that the factors that a court applies in determining how much the interim costs ought to be include the principle of proportionality and the amount the corporation has paid for the legal fees of other parties.
[50] GN’s position is that the Buy/Sell should proceed immediately, and that DN’s attempt to secure payment of the exorbitant MT April Account by refusing to proceed with the Buy/Sell is improper and in breach of the settlement because payment of the MT April Account is not a term of the settlement. GN submits that DN’s claim for additional legal fees should not cause further delay to the execution of the Buy/Sell. He further submits that refusing to pay for these legal fees is not an adjustment to the purchase price of the Business.
[51] GN states that DN should pay the MT April Account himself and the parties should stop paying the legal expenses of this litigation from the Business. However, GN submits that he should be permitted to pay upcoming invoices as long as he does not receive more from the Business for legal fees than DN has. In GN’s view, this outcome is fair to both parties. Alternatively, GN asks that the MT April Account be referred for an assessment together with the other invoices from Miller Thomson. GN relies on section 9 of the Solicitors Act to argue that the person who pays an account, not just the client, may seek an assessment of the account.
C. DISCUSSION
[52] In my view, GN’s refusal to take the necessary steps to transfer funds from Maple to DS&D for the payment of the MT April Account is in breach of the status quo, the parties’ tacit understanding, their course of conduct throughout the litigation and their reasonable expectations.
[53] I find that, as part of the December Settlement, the parties agreed to preserve the status quo of the Business while they were negotiating the terms of the Buy/Sell. As stated above, DN gave evidence on this point in his affidavit, and GN failed to respond. In my view, the failure to address this point cannot be an oversight. In addition to being raised in the affidavit of DN, the issue of maintaining/upsetting the status quo was raised a number of times by DN’s lawyers in the correspondence exchanged prior to this motion. Further, DN’s evidence that the parties agreed to preserve the status quo is consistent with common sense: it makes eminent sense for settling parties to agree to maintain the status quo pending the implementation of the settlement. Therefore, I accept DN’s evidence on this point.
[54] Finding that the parties agreed to preserve the status quo is not a complete answer. While it is undisputed that the status quo included the payment of the parties’ respective legal fees from the revenues of the Business, GN has alleged that there were implied limits or conditions on such payment, that is, only reasonable legal fees would be paid and the fees and disbursements had to be in the same range for both sides.
[55] I reject the conditions or “implied terms”[^4] alleged by GN. In my view, they are after-the-fact creations. It is acknowledged by all parties that there was no express discussion between the Brothers with respect to the payment of legal fees and any conditions/limits in this regard. The parties’ tacit understanding and course of conduct with respect to the payment of legal fees go back to the beginning of the litigation. I find that the surrounding circumstances that existed at that time do not support the conditions alleged by GN. At that time, and for some time before that, there had been a breakdown in the Brothers’ relationship. They were not able to interact civilly with each other and they did not trust each other. In these circumstances, neither brother would have agreed to have the other brother have oversight over his legal fees to assess their reasonableness or the need for equalization.
[56] Further, the parties’ subsequent conduct does no support GN’s position:
a. By December 31, 2021, Miller Thomson had issued four invoices totaling $406,006.46. All of these invoices were paid. Pursuant to the practice described by DN, after receiving each invoice, DN sent the last page of the invoice to GN to request funds, and GN transferred the necessary funds to DS&D so that it could pay Miller Thomson. Thus, GN was aware of the legal fees incurred by DN.
In contrast, by mid-January 2022, GN had paid approximately $215,000 to his litigation firm. Despite the significant difference at that time between the amounts paid to each firm, GN did not raise any issue with respect to DN’s legal fees until May 2022. This is the case even though: (i) he took issue with other litigation-related expenses in January 2022 (i.e. fees paid to Farber); (ii) he knew that all outstanding issues were to be argued at the January 2022 hearing pursuant to the December 7, 2021 Order; and (iii) he knew that DN was continuing to incur significant legal fees after December 2021 as the litigation was continuing.
b. The fact that DN’s legal fees were higher than GN’s legal fees was noted by Justice Hood in his costs endorsement, but he found that the costs sought by each side were within the reasonable expectations of the other side. It is clear from Justice Hood’s costs endorsement that the lawyers’ actual rates were disclosed in the parties’ respective costs submissions. It should have been obvious to GN at that time, if he did not know already, that the hourly rate of DN’s lead litigation counsel was almost double the hourly rate of his litigation counsel. Again, no issue was raised by GN.
c. There is no evidence that DN made any inquiries about the legal fees incurred by GN before GN refused to transfer the necessary funds to pay the MT April Invoice. There is also no evidence that DN knew that the legal fees he had incurred were substantially higher than the fees incurred by GN before this dispute arose. If there was, in fact, a condition that the parties would only be reimbursed for legal fees and disbursements if they were in the same range for both sides, one would have expected an exchange of information about the rates charged by the lawyers retained by the parties and the legal fees incurred by each side at various points.
[57] While it was open to the Brothers to discuss changing the practice that they had adopted with respect to the payment of legal fees going forward, no such discussion took place. In my view, one of the Brothers cannot unilaterally impose a change retroactively and in breach of the parties’ reasonable expectations. The MT April Invoice represents legal fees incurred by DN over a number of months, while he reasonably expected that the fees that he was incurring would be paid by the Business, and at a time where no objection had been raised regarding legal fees. It would be unfair to change the rules of the game without notice and after the fact. Moreover, as stated above, the parties have agreed to maintain the status quo.
[58] Further, and in any event, I find that there is no basis to find that the fees incurred by DN are unreasonable. I agree with DN that the reasonableness of fees cannot be determined based on quantum only, without more information. While there is a significant difference between the total fees incurred by each side, the difference is not that significant when one takes into account the fact that the hourly rate of DN’s lead litigation counsel is almost double the hourly rate of GN’s litigation counsel. The hourly rate of DN’s lead litigation counsel is not unreasonable for a large Toronto law firm and in light of the fact that he is approximately ten years more senior than GN’s litigation counsel. In addition, it is clear from the evidence of both sides that the Brothers have considerable resources and that the hourly rates of a large Toronto firm are not disproportionate to the dispute and the resources of the parties.
[59] As acknowledged by GN, section 249(4) of the Business Corporations Act does not apply in the circumstances of this case. While the discussion of this provision in the case law is not entirely irrelevant, it is my view that the parties’ conduct and reasonable expectations are the most important considerations in this case.
[60] I reject GN’s argument that the payment of the MT April Account is not a term of the settlement and that, therefore, the Buy/Sell should have been executed without dealing with this issue. Preserving the status quo was a term of the settlement, and it was breached by GN. Further, the parties argued about a number of expenses while they were negotiating the terms of the Buy/Sell. GN failed to raise the issue of DN’s legal fees at the appropriate time, i.e. in advance of the two hearings that were scheduled by the Court to deal with all outstanding issues (first, the January 2022 hearing and, subsequently, the May 18, 2022 hearing). GN also failed to raise the issue of DN’s legal fees before entering into the May Settlement, which set May 18, 2022 as the deadline to execute the Buy/Sell. At the time of entering into the May Settlement, GN had received DN’s request for funds to pay the MT April Invoice and had complained to his litigation lawyer that DN’s request was “insane”. However, he waited five days after his acceptance of the offer to settle to raise the issue of the legal fees and to advise DN that he did not agree to transfer funds to pay the legal fees. In light of the foregoing, I agree with DN that the issue of the payment of the MT April Account needed to be determined before the execution of the Buy/Sell, and that it does not lie in GN’s mouth to complain that the Buy/Sell was not signed by May 18, 2022 as the delay was caused by his conduct.
[61] I also reject GN’s request that Miller Thomson’s account be referred to an assessment. Subsection 9(1) of the Solicitors Act provides as follows:
Where a person, not being chargeable as the principal party, is liable to pay or has paid a bill either to the solicitor, his or her assignee, or personal representative, or to the principal party entitled thereto, the person so liable to pay or paying, the person’s assignee or personal representative, may apply to the court for an order referring to assessment as the party chargeable therewith might have done, and the same proceedings shall be had thereupon as if the application had been made by the party so chargeable.
[62] In my view, GN and/or Maple do not have standing under section 9. Neither of them is liable to pay Miller Thomson’s invoices and neither of them has paid the invoices. Miller Thomson’s invoices are made to DS&D and have been paid by DS&D. The source of the funds used to pay the invoices is irrelevant, in my view. For instance, if a litigant borrows funds from a friend to pay his lawyer, it does not mean that the friend, as the source of the funds, has standing to apply for an assessment of the lawyer’s accounts. In this case, funds that came from Maple were used by DS&D to pay Miller Thomson’s invoices, just like other funds that came from Maple were used by DS&D to pay its other expenses.
[63] I also find that GN’s interest in DS&D is insufficient to give him standing to apply for an assessment in the circumstances of this case. While the Brothers agree that they each own 50% of the Business and, given the manner in which the Business is structured, 50% of each of Maple and DS&D, this is not how this litigation was structured. Rather, the litigation reflects the registered corporate structure of each company. Thus, GN, CN and their company, Maple, sued DN, SN and their company, DS&D. In turn, DN and his company, DS&D, sued GN and his company, Maple. The reality of the litigation is that Maple sued DS&D and vice versa, and both incurred fees to respond to the other’s Application. DS&D’s legal fees and Maple’s legal fees were not incurred jointly or as part of a “joint business”.
[64] Based on the circumstances of this case and the nature of the litigation, I conclude that GN and Maple do not have standing under section 9 of the Solicitors Act and I reject their request for an order referring the accounts rendered by Miller Thomson to an assessment.
[65] Finally, in light of my finding that the parties have agreed to maintain the status quo until the execution of the Buy/Sell and the fact that GN has taken the position that he should be able to continue to use the funds of the Business to pay his legal fees, I decline at this time to order that the parties cease paying legal fees from the Business.[^5] However, this conclusion is based on the assumption that this matter will be concluded very shortly by the execution of the Buy/Sell.
D. CONCLUSION
[66] Accordingly, I order Maple and GN to take the necessary steps to transfer $364,346.96 to DS&D from the revenues of the Business for the payment of the MT April Account.
[67] Since both sides ask for an order enforcing the settlement between the parties, I am prepared to issue such an order. However, the parties have to finalize the language of the Buy/Sell and agree on a new date for the execution of the Buy/Sell as the date that was initially agreed upon has passed and gone. Given the history of this matter and the fact that a Buy/Sell has yet to be executed more than 6 months after the December Settlement, it is important to avoid further delay and to ensure that the Buy/Sell process is not derailed yet again. Consequently, I am seizing myself of this matter with respect to any issue that may arise before the execution of the Buy/Sell. If the parties cannot reach an agreement, counsel are to contact my assistant to schedule a case conference. At the case conference, the Court may resolve summarily any issue raised or may make any order deemed appropriate under Rule 50.13(6) of the Rules of Civil Procedure.
[68] If costs cannot be agreed upon, DS&D, DN and SN shall deliver submissions of not more than three pages (double-spaced), excluding the costs outline, within 14 days of the date of this decision. Maple, GN and CN shall deliver their responding submissions (with the same page limit) within 14 days of their receipt of the submissions of DS&D, DN and SN. The submissions of all parties shall also be sent to my assistant by e-mail and uploaded onto CaseLines.
Vermette J.
Date: July 12, 2022
[^1]: There is a dispute between the parties as to whether GN has paid two costs awards that he was ordered to pay to DN through Maple. [^2]: While GN suggests in his affidavit that a higher amount was paid, he has failed to establish this allegation. [^3]: In his affidavit, GN refers to “the company” without specifying what he is referring to. It appears from the context that he is referring to the Business, which is not a separate corporation. [^4]: This case is not, strictly speaking, about implied terms as there is no written contract between the parties into which terms could be implied. Rather, the Court is engaged in determining what the parties tacitly agreed to. [^5]: While GN asks for an order that the parties cease paying legal fees from the Business, he also seeks an order that he be permitted to pay his legal fees from the Business in an amount equal to the legal fees paid by DN. Thus, in reality, the orders sought by GN amount to an order that only DN cease paying legal fees from the Business.