COURT FILE NO.: CV-22-676929

DATE: 20221003

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Jalil Dornajafi and Annie Varbedian

AND:

Michael Decauni, Callian Capital Private Equity Inc., Callian Capital Group, Osiris Group Inc. and 102618 P.E.I. Inc.

BEFORE: J.T. Akbarali J.

COUNSEL: Marc Kestenberg and Hunter Norwick, for the Plaintiffs

Aaron Rousseau, for the Defendants, on the adjournment only

Michael Decauni, in person, on the motion to strike

HEARD: September 29, 2022

ENDORSEMENT

Overview

[1] The plaintiffs bring a motion to strike the defendants’ statement of defence due to the defendants’ failure to pay outstanding costs orders. They also ask me to set a date for a default judgment motion as soon as possible and seize myself of it. The defendants ask to have this matter tried on the merits.

[2] At the outset of the motion, defendants’ counsel sought an adjournment which I denied, for reasons to follow. These reasons thus address both the adjournment request, and the motion to strike the statement of defence, which I grant.

Procedural Background to the Proceeding

[3] In this action, the plaintiffs allege that the defendants defrauded them by inducing them to enter into a fictitious investment, and then appropriated the plaintiffs’ funds for themselves.

[4] The claim was served on the defendants between February 23, 2022, and March 7, 2022.

[5] In February and March 2022, counsel for the plaintiffs emailed the defendants multiple times to advise that the plaintiffs were moving for a Mareva injunction or, alternatively, a Certificate of Pending Litigation, over a property the plaintiffs claim is owned by the personal defendant through a shell corporation. The defendants did not respond to the emails.

[6] On March 24, 2022, the plaintiffs attended before Myers J. to seek a Mareva injunction. The defendant, Michael Decauni, appeared in person and requested a 30-day indulgence to seek counsel. Justice Myers granted an adjournment of at least thirty days to allow the defendants to retain counsel. He also granted the Mareva injunction on an interim basis, noting that, based on the evidence before the court, he would likely draw an inference of fraud, and that there is a real risk of dissipation in this case.

[7] During March and April 2022, plaintiffs’ counsel emailed the defendants (using an email provided by Decauni at the hearing before Myers J.) to advise that, if the defendants did not deliver their statement of defence by April 24, 2022, the plaintiffs would note them in default and move for default judgment. The defendants did not respond to those emails.

[8] The defendants were noted in default on April 26, 2022, and April 29, 2022.

[9] In April and May 2022, plaintiffs’ counsel advised the defendants multiple times of their intention to proceed with a motion for default judgment on May 31, 2022. The defendants did not respond to those emails.

[10] The motion for default judgment came before me on May 31, 2022. Decauni appeared, late, from what appeared to be a hospital room. He stated he was overseas and unable to return to Canada due to medical issues. He sought another indulgence to retain counsel, asking for 60 days. I granted a brief indulgence, and adjourned the motion to June 13, 2022. In my endorsement, I cautioned Decauni that he should not expect further adjournments to be granted. I wrote that “he is not entitled to hold the proceeding in abeyance until he finds it convenient to get around to dealing with it.” I directed him to either attend the motion with counsel, or to come prepared to address the matter himself. I awarded costs thrown away of $800 to the plaintiffs, to be paid within thirty days.

[11] On June 13, 2022, the parties returned before me. Decauni was represented by counsel, who advised they would be moving to set aside the noting in default. On consent of the parties, I set aside the noting in default and ordered the statement of defence to be delivered by June 30, 2022. I also made a costs award of $35,000 in respect of the default judgment motion, which I stated was to “discourage Mr. Decauni from frustrating the progression of this action in the future.” I found that the defendants were aware of the proceedings, but chose to do nothing, causing the plaintiffs to incur significant wasted costs.

[12] I also directed the parties to attend before me on July 22, 2022 to allow the plaintiffs an opportunity to seek further relief if my orders were not complied with.

[13] The statement of defence was delivered as ordered. In the defence, the defendants deny the allegations of fraud, and allege that the money advanced by the plaintiffs was a loan, which is not yet payable under its terms.

[14] The $800 in costs was also due on June 30, 2022, but it was not paid. The $35,000 costs order became payable on July 13, 2022. Before that date, counsel for the plaintiffs advised that if both costs orders were unpaid by July 13, 2022, the plaintiffs would move to strike the statement of defence. Defendants’ counsel acknowledged receipt of the correspondence but provided no substantive response to the communication.

[15] After a phone call between counsel, plaintiffs’ counsel was left with the impression that the costs orders would not be paid, and thus he began preparing the materials for a motion to strike and for default judgment.

[16] The day before the $35,000 costs payment became due, the defendants served a Notice of Appeal, appealing the costs award to the Court of Appeal for Ontario, and also a Notice of Motion for Leave to Appeal the costs order to the Divisional Court, ostensibly out of an abundance of caution, in case the Court of Appeal declined jurisdiction on the basis that the costs order was interlocutory.

[17] Interlocutory orders are appealed to the Divisional Court. Final orders for payments of less than $50,000 are also appealed to the Divisional Court. Costs orders are appealed with leave of the court. It is plain that there was no reason for the defendants to serve a Notice of Appeal to the Court of Appeal, except for one thing: even an obviously frivolous Notice of Appeal automatically stays the payment of a costs order.

[18] The plaintiffs asked the defendants to withdraw the Notice of Appeal, and voiced their intention to move to quash it if it was not withdrawn. The defendants again acknowledged receipt of the correspondence, without any substantive response.

[19] The plaintiffs then reworked their materials on the motion to strike for the attendance on July 22, 2022, so that they focused on the unpaid $800 costs award. However, without any indication that they would do so, and in fact having insinuated the opposite, the defendants paid the $800 costs award on July 21, 2022, leaving the plaintiffs without a viable motion to strike the defence, due to the outstanding frivolous appeal of the $35,000 costs award.

[20] In my endorsement arising out of that attendance, I noted that “a cynic might think that the Notice of Appeal was filed solely to stay payment of the costs award, and put the plaintiffs to additional expense and aggravation”. In ordering costs against the defendants of $17,500, I found that “the defendants have continued to make choices to impede the proper and orderly progression of this action, which at the same time unnecessarily cause the plaintiffs to incur costs that will be wasted.” I also noted the failure of the defendants to place any evidence before me about why they did not respect the $800 costs award I made until hours the day before the hearing.

[21] On August 8, 2022, the defendants sought leave to appeal the $17,500 costs order, but did not file a Notice of Appeal with the Court of Appeal, presumably because the Court of Appeal had no jurisdiction to review the costs order.

[22] On August 11, 2022, plaintiffs’ counsel advised defendants’ counsel that unless the appeal to the Court of Appeal was withdrawn by the next day, the plaintiffs would begin preparing their motion to quash. The defendants’ counsel did not respond, and counsel for the plaintiffs confirmed they would begin to prepare motion materials.

[23] The following day, defendants’ counsel advised that the defendants would abandon both their appeal and their motions for leave to appeal. Notices of Abandonment were delivered on August 19, 2022.

[24] On August 26, 2022, an issue arose between defendants’ counsel and the defendants which caused defendants’ counsel, on August 29, 2022, to seek dates from the court for a motion for removal as solicitor of record. On August 30, 2022, defendants’ counsel advised plaintiffs’ counsel that he was moving for an order removing him from the record, that he did not know what position his clients would take on the motion, and asking for an adjournment. Plaintiffs’ counsel did not consent.

[25] The matter returned before me on September 29, 2022. At the outset, both counsel were present, but Decauni was not present. Defendants’ counsel argued that I should grant an adjournment in the circumstances. I inquired about the motion to remove counsel as solicitor of record. Defendants’ counsel was rightly reluctant to provide any information, even at a high level, so as to preserve the defendants’ privilege. Plaintiffs’ counsel suggested that I speak with defendants’ counsel in caucus, which I did, very briefly, after cautioning counsel defendant’s counsel not to share anything with me that I ought not to know. Counsel satisfied me that the motion to get off the record is legitimate. However, other than confirming that the motion is legitimate, I did not and do not rely on anything counsel said to me in caucus in reaching my decision to deny the adjournment. Moreover, I do not rely on anything counsel said in caucus in reaching my decision on the motion to strike the statement of defence.

[26] I denied the adjournment request with reasons to follow. I then stood the matter down so defendants’ counsel could attempt to reach his clients in case they wanted to attend. Decauni did attend. I also arranged for a reporter to attend the motion. Defendants’ counsel asked to be excused. Decauni indicated he would make submissions himself. As a result, I excused defendants’ counsel, who was not present for the argument on the motion to strike.

The Adjournment Request

[27] I denied the defendants’ adjournment request for several reasons. First, although defendants’ counsel has made known his intention to move to be removed as solicitor of record for about a month, there was no evidence before me as to the defendants’ position on the motion. If they are intending to consent, or not oppose, the motion, they had a month to find new counsel before the hearing of this motion. If they are intending to oppose the removal motion, they should have given evidence of their position. Their silence on the matter leads me to infer that they will not oppose the motion, and they have offered no evidence to explain why they have been unable to retain new counsel.

[28] Second, this motion is not a surprise. The defendants had plenty of notice that it was scheduled. Moreover, on learning that defendants’ counsel was intending to move to be removed from the record, plaintiffs’ counsel finalized and served their motion materials within a day to ensure that the defendants would have enough time to respond to the motion.

[29] Third, I have repeatedly raised my concern that the defendants are weaponizing the justice system to delay the progression of this litigation and cause the plaintiffs frustration and to waste costs. I find that the defendants have been participating in this litigation just enough to derail its advancement, and for that very purpose. The defendants have not complied with their basic obligations under the Rules of Civil Procedure, including obeying court orders, and have foregone their opportunities to place evidence before me that might provide a reasonable explanation for their behaviour. There comes a point when a party who declines to take advantage of the procedural indulgences offered to them has to live with the consequences of that decision.

[30] For these reasons, I refused the request to adjourn the proceedings.

Motion to Strike

[31] It is apparent that the costs orders I made on June 13, 2022 and July 22, 2022 in the amounts of $35,000 and $17,500 respectively, are outstanding, no payment having been made towards them at all.

[32] Under r. 57.03(2) of the Rules of Civil Procedure, a court may strike out a party’s defence where a party fails to pay the costs of a motion as required. Under r. 60.12(b), where a party fails to comply with an interlocutory order (such as an order for the payment of costs), the court may strike out the party’s defence.

[33] In Atlas Copco Canada Inc. v. Dirk Johannes Plate, 2020 ONSC 17, at para. 57, Dietrich J. summarized the principles to be applied when the court is asked to strike a defence based on an unpaid costs award, as follows:

a) where there has been non-compliance with an order of the court, the court should be alive to the possibility that its process is being abused and failing to act may deprive the moving party of justice;

b) the right of access to the courts must be accompanied by the responsibility to abide by the rules of civil procedure and to comply with orders of the court;

c) the court ought not to sit in appeal of the prior costs awards;

d) the court may have regard to a pattern of unnecessary and unreasonable steps taken in the proceeding, including appealing numerous orders without chance of success;

e) if the orders of the court are “cavalierly ignored” and if a litigant “continuously fails to comply with her obligations as a litigant and then fails to abide by the costs consequences attendant upon that behaviour” the court is justified in bringing some finality to the action;

f) impecuniosity is not a shield for unreasonable conduct of litigation and a dismissal order may be made even if it resolves the matter on procedural rather than substantive grounds; and

g) costs themselves become an inadequate form of compensation for prejudice, especially where the party on whom they are imposed refuses to pay them.

[34] In my view, each of the above-noted principles applies to this case. The defendants have not complied with the court’s orders. They have engaged in behaviour designed to abuse the process of the court and to deprive the plaintiffs of justice. The defendants have taken unnecessary and unreasonable steps in this proceeding, including the appeal of the costs orders, later withdrawn, and particularly the appeal of the costs order to the Court of Appeal. Given the defendants’ behaviour to date, I accept that further costs orders will not compensate the plaintiffs for the prejudice that would arise from further delay of the proceeding. The property over which a Mareva injunction was obtained has been mortgaged such that there are already concerns that there is little to no equity left in it. Prejudice in this case may amount to more than just delayed resolution of the issues, but to an inability for the plaintiffs to recoup their losses if they are successful.

[35] The costs awards themselves are not open to attack on this motion. I do not sit in appeal of my own decisions. There is no evidence of impecuniosity before me in any event.

[36] I conclude that it is appropriate to move this case towards some finality. A litigant who abuses the court’s process can expect procedural rulings, even if they may lead to substantive results. I thus grant the plaintiffs’ motion and strike the defendants’ statement of defence.

[37] The motion for default judgment shall be returned before me on a date to be set by counsel for the plaintiffs, who may do so by contacting my assistant by email.

Costs

[38] I have already identified the relevant principles with respect to costs in this case. I repeat them here, taken from my June 13, 2022 endorsement, at paras. 7-8:

7. The three main purposes of modern costs rules are to indemnify successful litigants for the costs of litigation, to encourage settlement, and to discourage and sanction inappropriate behaviour by litigants: Fong v. Chan (1999), 1999 2052 (ON CA), 46 O.R. (3d) 330, at para. 22.

8. Subject to the provisions of an Act or the rules of court, costs are in the discretion of the court, pursuant to s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43. The court exercises its discretion taking into account the factors enumerated in r. 57.01 of the Rules of Civil Procedure, including the principle of indemnity, the reasonable expectations of the unsuccessful party, and the complexity and importance of the issues. Overall, costs must be fair and reasonable: Boucher v. Public Accountants’ Council for the Province of Ontario, 2004 14579 (Ont. C.A.), 71 O.R. (3d) 291, at paras. 4 and 38. A costs award should reflect what the court views as a fair and reasonable contribution by the unsuccessful party to the successful party rather than any exact measure of the actual costs to the successful litigant: Zesta Engineering Ltd. v. Cloutier, 2002 25577 (ON CA), 2002 CarswellOnt 4020, 118 A.C.W.S. (3d) 341 (C.A.), at para. 4.

[39] The plaintiffs are the successful parties on this motion and are presumptively entitled to their costs. They seek costs on a full indemnity scale, arguing that the defendants’ abuse of the court’s process justifies the sanction of an elevated costs award.

[40] The plaintiffs’ bill of costs reveals costs of $16,445.46 on a partial indemnity scale, $21,012,68 on a substantial indemnity scale, and $23,286.41 on a full indemnity scale (all amounts all inclusive). However, at the hearing, counsel candidly drew my attention to an error in the bill of costs, through which approximately $2,500 of Mr. Norwick’s time on the motion to quash was inadvertently included on the bill of costs relating to this motion.

[41] In my view, substantial indemnity costs are appropriate due to the conduct of the defendants, who sought to delay and frustrate this court’s process and the progress of this action.

[42] Moreover, this motion was avoidable if the defendants simply paid the costs ordered. There is no evidence before me to indicate that they are unable to do so. In my endorsement of July 22, 2022, I specifically noted the failure of the defendants to adduce evidence as to why the $800 costs award had gone unpaid until the last minute. Despite drawing attention specifically to the absence of evidence on that occasion, there is still no evidence before me to explain the non-payment of the outstanding costs orders.

[43] Decauni argues that he does not have the funds to pay the outstanding costs order or any order I make on this motion, but that the equity in the property over which there is a Mareva injunction is sufficient security. I do not accept this submission. No evidence supports it.

[44] Taking into account the factors in r. 57.01, including the time spent, the hourly rates of counsel, the nature of the motion, the materials prepared, the positions taken by the parties, and the conduct of the defendants, I find that costs in the amount of $18,500 are fair and reasonable. The defendants shall pay this amount to the plaintiffs within thirty days.

Conclusion

[45] In summary, I make the following orders:

a. The motion to strike the defendants’ statement of defence is granted;

b. I am seized of the motion for default judgment, which plaintiffs’ counsel may schedule by way of email to my assistant;

c. The defendants shall pay $18,500 in costs, all-inclusive, to the plaintiffs within thirty days.

d. The order arising out of these reasons may be taken out by the plaintiffs without the defendants’ approval as to form and content.

J.T. Akbarali J.

Date: October 3, 2022