COURT FILE NO.: 03-CL-0005217

DATE: 20221102

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: GHAREEB AWAD and TRANSPACIFIC PETROLEUM CORP., Applicants

AND:

DOVER INVESTMENTS LIMITED, DOVER PETROLEUM CORP and ROBERT SALNA, Respondents

BEFORE: Justice Cavanagh

COUNSEL: Howard J. Wolch, for the Respondents (Moving Parties) Ghareeb Awad, Self-Represented Applicant (Responding Party)

HEARD: June 29, 2022

ENDORSEMENT

Introduction

[1] The respondents in this application, Dover Investments Limited, Dover Petroleum Corp., and Robert Salna, are the moving parties on this motion. The respondents move for an order:

a. Confirming the Report of Associate Justice Josefo dated August 10, 2021 (the “Report”) made in a reference ordered pursuant to the Order of Spence J. dated November 24, 2006; and

b. Varying or setting aside the portion of the Order of Spence J. dated November 24, 2006 by which he ordered that “[s]ubject to any further direction of the Court, the costs of the references shall be payable by the Respondents and shall be in the discretion of the Master in all other respects”, and ordering that costs of the reference be awarded to the respondents.

[2] The applicants and responding parties on this motion, Ghareeb Awad and Transpacific Petroleum Corp., oppose the relief sought.

[3] For the following reasons, I confirm the Report and I dismiss the respondents’ motion to vary the Order of Spence J.

Procedural Background

[4] The parties have been involved in lengthy litigation that has spanned over 20 years, in three provinces: Ontario, British Columbia and Alberta. These actions have included allegations related to the parties’ relationship as co-venturers under two oil well joint venture agreements: the EWA Joint Venture Agreement and the REU Joint Venture Agreement.

[5] Under an Order granted by Justice Spence dated November 24, 2006, an accounting and valuation was to be conducted by a Master. Two post-judgment directions were made by Justice Spence which postponed the reference until litigation between the parties in British Columbia was concluded.

[6] Both parties appealed Justice Spence’s Order to the Divisional Court and, for reasons released on February 4, 2008, the appeal and cross-appeal were dismissed.

[7] In the British Columbia proceeding, Justice Loo ordered, among other things, that Dr. Awad’s and Transpacific’s interest in the REU Joint Venture Agreement was to be reduced from 18% to 17.64% and that an oil well, known as REU # 12, was to be excluded from the valuation that had been ordered by Justice Spence.

[8] Justice Loo dismissed all of Dr. Awad’s claims. An appeal from Justice Loo’s decision was dismissed and an application for leave to appeal to the Supreme Court of Canada was also dismissed.

[9] In addition, the dispute between the parties in Alberta proceeded to trial in 2010. The trial in Alberta dealt with Dr. Awad’s refusal to pay a cash call for the EWA joint venture. Judgment in the amount of $949,594.98 was granted against Dr. Awad. The Alberta Court of Appeal dismissed an appeal from this decision in 2011.

[10] Subsequently, Justice Spence modified his original 2006 order which provided directions in connection with the trial of issues in this matter and the reference. Justice Spence issued two further orders dated May 26, 2011 and September 13, 2011. The May 26, 2011 Order provided that the reference should be conducted in accordance with the orders of Justice Loo.

[11] In his September 13, 2011 Order, Spence J. directed that the reference determine the net amounts which remain owing pursuant to judgments and orders, including costs awards, made in what is described as “Pan-Canadian litigation”, in reference to legal proceedings taken in Ontario, British Columbia and Alberta over many years in relation to the REU joint venture and a second joint venture, the EWA joint venture.

The trial and reference

[12] In July 2013, Justice Morawetz ordered that the trial of issues that had been ordered by Spence J. proceed to a hearing. The trial proceeded before McEwen J.

[13] Justice McEwan’s Reasons for Decisions were released on January 6, 2015. Supplementary Reasons for Decision were released on March 6, 2015.

[14] The matters that were ordered to proceed by way of reference before a Master were assigned to Master Haberman. Following Justice McEwan’s trial decision, Master Haberman made six orders and endorsements from February through September 2015 relating to the reference. In her last order dated September 25, 2015, Master Haberman noted that there were additional issues that had to be dealt with by a judge for the reference.

[15] On May 10, 2016, a single judge of the Divisional Court dismissed a motion to extend the time to deliver a Notice of Appeal from Justice McEwan’s January 6, 2015 decision. On March 15, 2017, a full panel of the Divisional Court dismissed Dr. Awad’s motion, Dr. Awad unsuccessfully appealed to the Court of Appeal for Ontario. He sought leave to appeal to the Supreme Court of Canada and his application was dismissed.

[16] In September 2015, Dr. Awad issued a notice of application claiming entitlement to the benefit of certain other oil concessions. In March 2016, Justice Conway dismissed this application as an abuse of process and an attempt to relitigate the orders and findings of Justice Loo. Dr. Awad sought to appeal Justice Conway’s decision to the Court of Appeal. His motion for an extension of time to appeal was dismissed by a single judge of the Court of Appeal. On a further appeal to the full panel of the Court of Appeal, the Court of Appeal dismissed Dr. Awad’s motion. Leave to appeal to the Supreme Court of Canada was denied in June 2017.

[17] In 2016, the Applicants commenced an action in British Columbia against the respondents and their lawyers in British Columbia and Ontario. In 2017, the British Columbia action was dismissed on the ground that there was no reasonable cause of action, it was an abuse of the process of the court, and it represented a collateral attack on the processes and decisions of the courts in Alberta and Ontario.

[18] Master Haberman retired before conducting the reference. Justice Penny ordered that a new Master be appointed to hear the reference.

Reference before Associate Justice Josefo

[19] Associate Justice Josefo was directed to conduct the reference and it commenced on August 28, 2019.

[20] The terms of the reference are stated in the Report, at paras. 2-4. In summary, the reference was for an accounting of what Dr. Awad (or his company, Transpacific Petroleum Corp.) is owed by the respondents or what Dr. Awad (or Transpacific) owes to the respondents for the sharing of the profits or losses from the “REU Oil Field Joint Venture”.

[21] For the purpose of the reference, Justice Perell ordered on June 27, 2012 that the respondents deliver an affidavit setting out the revenues received, assets acquired, expenses and liabilities incurred and payments made under the REU Oil Field Joint Venture Agreement in the calculation setting out the net amount owed to Dr. Awad or Transpacific with respect to the accounting and valuation of the REU Oil Field Joint Venture and to deliver an expert’s appraisal report valuing Dr. Awad’s or Transpacific’s interest under the REU Joint Venture as of December 1, 2015.

[22] The required affidavit was sworn by Robert Salna on January 24, 2013 and was delivered. Eight binders of material and a series of detailed spreadsheets with calculations were provided.

[23] A description of the complex procedural history of the litigation in Ontario, British Columbia, and Alberta is found in the Report, at paras. 7-8. Much of this background is taken from a decision of Perell J. dated June 27, 2012.

[24] The reference before the Associate Justice Josefo was heard in nine days over the period from August 28, 2019 to April 1, 2021.

[25] The Associate Justice describes in the Report, at paras. 12-16, the process that led to the appointment of Albert Gress as a joint neutral expert mutually chosen by the parties for the benefit of the Court:

[12] Prior to our re-commencing in February 2021, in the interval caused by the Covid pandemic, during several case-conferences I again exhorted the parties to try to find some common ground to resolve their disputes. Mediation was attempted, yet it failed. It was my further suggestion that the parties needed a particular type of mediator, one who understood the oil and gas (petroleum) industry in Egypt, and who was also financially literate so to understand the accounting for such enterprises, as well as who could discuss the accounting involved in the JV projects in which these parties were engaged.

[13] As discussed in my November 18, 2020 Endorsement, the parties were initially amenable to the idea of that kind of knowledgeable individual assisting them. Given the legal issues involved (which will be discussed below), as documented in my December 7, 2020 Endorsement, it was however concluded by the parties and by me that even such a knowledgeable person, selected by the parties as mediator, would be unable to take the matter to its conclusion. A jurist would still be required.

[14] Yet, as was also recorded in my December 7, 2020 Endorsement, the parties agreed (probably the first time they had agreed on anything in many years) that such a knowledgeable person could be a joint neutral expert mutually chosen by them, for the benefit of the court, upon whom the court could rely. They agreed that they would each further discuss with that expert their respective views of the accounting, providing written materials to and oral explanations for the expert. The expert would prepare a report for the parties and for me, and he or she would testify, with each of the parties able to question him before me.

[15] The expert whom the parties chose and agreed upon was Mr. Albert Gress. The summary of his resume lists his experience. Succinctly, Mr. Gress, an American CPA, has 35 years of work experience, including many years in the petroleum industry, encompassing years as an executive, both financial and operational, and also as a country manager for energy companies operating in Egypt. His experience includes publicly traded companies. He is currently based in Turkey, where he is engaged in ventures involving start-up oil production in the entire region, not dissimilar to the projects in which Mr. Salna and Dr. Awad were engaged many years earlier.

[16] In my view, Mr. Gress was well-qualified to be a neutral expert. He completed the Form 53 as of January 28, 2021. Mr. Gress provided five reports in total, which included those following his initial testimony where he was asked to re-calculate or verify calculations based on different assumptions or new information. His reports are dated January 5, 15, 28, February 16 and 20, 2021.

[26] Mr. Gress concluded that, after accounting for the revenue stream, all of the costs awards, and judgments to date, there were two alternative results, which differed depending on the legal effect to be given to clause six of the joint venture agreement for the EWA project dated May 28, 2001. Clause six of this agreement provides:

For cash calls, the partners will be subject to a penalty of 500% of the costs for exploratory wells, if funds are not provided in a timely fashion.

[27] Mr. Gress calculated that if clause six is enforceable, Dr. Awad owes Dover the sum of $331,087.33 (excluding any award of costs of the reference) whereas if this clause is not enforceable, then Dover owes Dr. Awad the sum of $1.65 million (excluding any awards of costs).

[28] The Associate Justice referred in his reasons to the reports of Mr. Gress, including his final report dated February 20, 2021, and his testimony. The Associate Justice confirmed that he had reviewed the various spreadsheets provided at the reference hearing, not only during the reference hearing but subsequently, as he prepared the reasons for his report. The Associate Justice found that the information provided by Mr. Gress – the spreadsheets and his testimony – are persuasive, accurate and reliable. The Associate Justice confirmed that nothing that Dr. Awad provided or said at the reference hearing had persuaded him otherwise.

[29] The Associate Justice, at paras. 46-56, addressed the legal question of whether clause six is enforceable and he concluded that it is an enforceable contractual term.

[30] The Associate Justice concluded that the applicants must pay the respondents the sum of $331,087.33.

Analysis

[31] Rule 54.07 of the Rules of Civil Procedure provides that a report has no effect until it has been confirmed. Rule 54.08(1) provides that on a motion to a judge for an order confirming the report, the judge may confirm the report in whole or in part or make such other order as is just.

[32] In support of their motion, the respondents delivered the affidavit of Stephen Thiele, a lawyer at the law firm that represents the respondents.

Standard of Review

[33] In Kaymic Developments (Ontario) Ltd. v. Ontario Housing Corp., 1990 6805 (ON SC), [1990] O.J. No. 989, Osborne J. (as he then was) heard a motion to confirm the report of a Master. Osborne J. addressed the standard of review on such a motion and he accepted the standard of review set forth by Anderson J. in Jordan v. McKenzie (1987), 26 C.P.C. (2d) 193 (Ont. H.C.), at p. 201:

I ought not to re-try the matter which was tried by the Master. ... I think I ought not to interfere with the result unless there has been some error in principle demonstrated by the Master’s reasons, some absence or excess of jurisdiction, or some patent misapprehension of the evidence. I am further of the view that the award should not be disturbed unless it appears to be unsatisfactory on all of the evidence.

[34] In Kaymic, Osborne J. noted that the test in Jordan was accepted by Henry J. in Capsule Investments Ltd. v. Heck, 1990 6982 (On SC) where, at p. 8, he held:

The review of the Master’s decision is in the nature of an appeal, and his decision should stand unless some palpable or overriding error of fact is demonstrated or it is clearly wrong. The onus is on the party opposing confirmation to demonstrate that the decision is wrong.

[35] In Reservoir Group Partnership v. 1304613 Ontario Ltd., 1008 31423 (ON SC), D.M. Brown J., as he then was, referred to his prior endorsement in which he cited Jordan and held that the following key principles emerge from the decision in relation to the standard of review on a motion to oppose confirmation of a report or a motion to confirm a report:

a. a motion to oppose the confirmation of a report [or opposition to a motion to confirm a report] should be dealt with substantially as an appeal from the report;

b. the court should not re-try the matter that was heard by the referee;

c. a court ought not to interfere with the result “unless there has been some error in principle demonstrated by the [referee’s] reasons, some absence or excess of jurisdiction, some patent misapprehension of the evidence”; and

d. the referee’s award should not be disturbed “unless it appears to be unsatisfactory on all of the evidence.”

[36] In Reservoir Group, Justice Brown added, referring to the decision of Ground J. in Conrad v. Feldbar Construction Company Ltd. (2004), 34354, at paras. 15 and 16, that where the referee engaged in the determination of the legal claims of the parties, rather than a simple calculation or determination of value, any alleged error in law by the referee should be reviewed by the appellate standard of correctness.

Grounds for the applicants’ opposition to confirmation of the Report

Opposition to confirmation of the Report in relation to the trial of issues decided by McEwen J.

[37] The respondents submit that they were unjustly denied a right to appeal the decision of Justice McEwen dated January 6, 2015 and that they are entitled to judicial review of the entire reference including the valuation before Justice McEwen and the accounting before Associate Justice Josefo.

[38] The applicants exercised their rights of appeal of the decisions of Justice McEwen dated January 6, 2015 and they were unsuccessful. They later moved to set aside the decision of Justice McEwen on a motion that was heard by Justice Penny. By a written endorsement dated January 14, 2019, Justice Penny dismissed the applicant’s motion.

[39] There is no basis for the applicants to oppose confirmation of the Report on this ground.

Grounds upon which the applicants rely to oppose confirmation of the Report in relation to the Reference

(a) Improper reliance on evidence of Mr. Gress

[40] The applicants submit that the Associate Justice erred by blindly relying on the evidence of Mr. Gress without properly subjecting his evidence to scrutiny. The applicants submit that through his treatment of the evidence tendered by the applicants, Mr. Gress showed that he was not impartial.

[41] The Associate Justice, in his reasons, directed himself to the qualifications of Mr. Gress and found him to be experienced and a qualified, neutral expert. The Associate Justice assessed the evidence given by Mr. Gress and found that he patiently explained why he preferred to rely on the financial chart and calculations prepared by Dover rather than what Dr. Awad had prepared. The Associate Justice found that when Dover’s calculations were questionable, Mr. Gress was not hesitant to say so and to explain why he reached this conclusion. The Associate Justice found that Mr. Gress’s explanations of his written reports and charts were cogent and clear, and well explained his various calculations. The Associate Justice found that Mr. Gress addressed (in the main) the concerns of Dr. Awad, and that he explained well why the numbers presented by Dr. Awad were not reliable.

[42] The Associate Justice noted in his reasons that both Dr. Awad and Mr. Salna (the respondents’ representative) agreed that Mr. Gress would be the joint neutral expert in this matter and, given the various opportunities to speak with him and review with him their position and financial figures, they would accept his financial calculations and opinion. The Associate Justice held the parties to their agreement is this regard. Nevertheless, the Associate Justice did not, as the applicants submit, “blindly” accept Mr. Gress evidence and reports. The Associate Justice assessed Mr. Gress’ evidence and found him to be reliable and found that he provided a helpful understanding of the financial issues and how the calculations worked. The Associate Justice relied on Mr. Gress’ reports and conclusions, as he was entitled to do.

[43] The Associate Justice, in his reasons, quoted extensively from the Mr. Gress’ report dated January 28, 2021. The Associate Justice was satisfied with Mr. Gress’ evidence explaining why Dover’s spreadsheet was preferred as a basis for his calculations. The Associate Justice confirmed in his reasons that he had reviewed the various spreadsheets which the parties presented, not only during the hearing when Mr. Gress, the parties, and the Associate Justice went through them “almost line by line”, but also subsequently as he prepared his reasons. The Associate Justice found that he was persuaded by all of this evidence – the spreadsheets and testimony of Mr. Gress - and found it to be accurate and, thus, reliable.

[44] There is no basis in the material before me for me to conclude that the Associate Justice blindly accepted the reports and evidence of Mr. Gress without proper judicial scrutiny and did not assess the evidence independently. Indeed, the Associate Justice is clear that he did carefully considered Mr. Gress evidence and he explained why he accepted it. The applicants have failed to show that Mr. Gress was not impartial.

[45] The applicants have failed to show that the Report should not be confirmed for this reason.

(b) Findings of credibility by Associate Justice

[46] The applicants contend that the Associate Justice misused his authority to make findings of credibility and, by doing so, made findings of credibility against Dr. Awad that were unjustified. The applicants submit that this unjustified finding that Dr. Awad’s evidence was not credible led the Associate Justice to improperly reject the spreadsheet submitted by the applicants. This spreadsheet shows a total amount of principal and interest owed to the applicants of $33,314,415.

[47] The applicants submit that the Associate Justice’s findings in paragraphs 22, 23 and 33 of his reasons with respect to the Dr. Awad’s credibility and reliability as a witness were false and were intended to unfairly bolster (“spice”) his decision in circumstances where the Associate Justice was aware that the respondents, through Mr. Salna, had inflated expenses and invented false expenses. The applicants submit that the evidence shows that Dr. Awad did not repeat a single claim and that every item in his accounts was supported by documents provided by the respondents. The applicants submit that Mr. Salna included expenses allegedly incurred after the valuation date and that the Associate Justice was motivated to approve them.

[48] The Associate Justice found that Dr. Awad was an unreliable and self-serving historian whose exclusive goal was to further his own interests. The Associate Justice found the evidence of Mr. Gress to be far more reliable than the evidence of Dr. Awad.

[49] The Associate Justice heard the evidence given by Dr. Awad, Mr. Gress and other witnesses. The Associate Justice made findings of credibility, and he explained in his reasons why he made these findings. The Associate Justice’s findings with respect to the credibility of witnesses are entitled to deference.

[50] The applicants have not shown that the Associate Justice erred in principle in making such findings or that he did so based on a patent misapprehension of the evidence. The applicants have failed to show that the Associate Justice was motivated to make findings of credibility for improper purposes.

[51] The applicants have failed to show that the report should not be confirmed because of unsupported findings of credibility made by the Associate Justice.

(c) Associate Justice relied on evidence in the respondents’ spreadsheet

[52] The applicants submit that the Associate Justice erred by refusing to expunge from the record the respondents’ Schedule 2 and by relying on this schedule as a starting point for the accounting (rather than Dr. Awad’s spreadsheet). They submit that the Associate Justice untruthfully claimed that Dr. Awad’s spreadsheet was not formulated properly, was presented in numerous versions, and repeated claims made by the applicants.

[53] The applicants rely on a document that shows different amounts of the claims by the respondents that, they claim, is evidence of fraud on the part of the respondents. They submit that this document shows that the Associate Justice did not fairly review the financial documents.

[54] In his reasons, the Associate Justice accepted Mr. Gress’s evidence and, at para. 37, he quoted extensively from Mr. Gress’s January 28, 2021 report which explained how Mr. Gress approached his task as well as his conclusions. Mr. Gress refers in his report to the Excel spreadsheets provided by each of Dr. Awad and the respondents. Mr. Gress explains why he regarded the spreadsheet provided by the respondents as the one that made the most sense to use. Mr. Gress explained that the spreadsheet presented by Dr. Awad appeared to be continually modified as it was sent to him several times. Mr. Gress explained why he did not use Dr. Awad’s spreadsheet as the starting point for his analysis.

[55] The Associate Justice accepted Mr. Gress’s evidence and found him to be a reliable witness who provided a helpful understanding of the financial issues involved and how the calculations worked. The Associate Justice relied on Mr. Gress’s reports and conclusions.

[56] The applicants have failed to show that the Associate Justice made an error in principle or misapprehended the evidence when he accepted Mr. Gress’s evidence explaining why he chose to use the respondents spreadsheet as the starting point for him to use to make comments, observations and proposed changes. The applicants have failed to establish that the Associate Justice did not fairly review the evidence.

(d) Payment of $2 million to Quest

[57] The applicants submit that the Associate Justice erred by accepting an expense through a payment of $2 million in connection with financing obtained for the joint venture through a company called Quest, a public company based in Vancouver. They submit that Quest Capital first turned down Mr. Salna’s request for capital and the fee paid to Quest was made without consultation with the applicants. The applicants submit that this $2 million payment to Quest was not a proper expense and that the Associate Justice erred in treating it as an expense.

[58] The applicants disagree with how the $2 million payment should be characterized. The applicants contend that the payment should have been construed as am improper inducement (Dr. Awad called it a bribe) to Quest to provide financing.

[59] The $2 million payment was addressed in the evidence given by Mr. Gress in his report that is reproduced in the Report. Mr. Gress noted that Dr. Awad contested the payment as “some type of payoff”. Mr. Gress considered the payment to be an expected cost of doing business when attracting financing on behalf of individuals or private companies with no significant credit lines. The Associate Justice accepted this evidence and treated the payment as a proper expenses.

[60] The applicants have not shown that by accepting this expense, the Associate Justice made an error in principle or patently misapprehended the evidence. This is not a proper ground to oppose confirmation of the Report.

(e) Failure to order Dover to produce additional financial documents

[61] The applicants submit that the Associate Justice erred by failing to order Dover to produce additional financial documents to verify their claims. The applicants submit that had such documents been produced, they could have proved massive fraud and forgery.

[62] As directed by Perell J. on June 27, 2012, Mr. Salna provided an affidavit sworn January 24, 2013 in which he appended extensive records for the accounting to be conducted.

[63] The applicants have not shown that the Associate Justice erred in principle or exceeded his jurisdiction in deciding whether to require the respondents to produce additional financial documents. This is not a proper ground to decline to confirm the Report.

(f) Treatment of respondents’ offer to settle

[64] The applicants submit that the Associate Justice erred by failing to find that Mr. Salna, who testified for the respondents, was untruthful because, they assert, he denied in his evidence making an offer to settle dated August 19, 2019 without an objection from counsel for the respondents. The applicants submit that it is clear that such an offer was made because the Associate Justice took the offer to settle into account when he made his award of costs.

[65] Counsel for the respondents says that he objected at the hearing to questions about the offer to settle because it was not properly admissible, but that Mr. Salna did not testify that there was no offer to settle. Counsel submits that Dr. Awad is misinterpreting what was said at the hearing.

[66] There is no transcript of the proceedings before me on this motion. Nevertheless, the Associate Justice heard the evidence of Mr. Salna and was able to make findings in relation to evidence about the offer to settle.

[67] The applicants have not shown that the Associate Justice misapprehended the evidence or made a patently misapprehended the evidence in relation to his assessment of Mr. Salna’s credibility with respect to the offer to settle.

The EWA penalty issue

[68] As I have noted the joint venture agreement between the parties for the EWA project dated May 28, 2001, in clause six, contains a provision in relation to cash calls that reads:

For cash calls, the parties will be subject to a penalty of 500% of the costs for exploratory wells, if the funds are not provided in a timely fashion.

[69] In his reasons, the Associate Justice accepted that, depending on whether this provision is enforceable, there were two alternative results that could be reached. If the provision is enforceable, the applicants would owe the respondents $331,087.33 plus, potentially, costs for the reference. If the provision was not enforceable, then the respondents would owe the applicants $1.65 million plus, potentially, costs of the reference.

[70] The Associate Justice considered the evidence of surrounding circumstances in relation to this provision including evidence from Mr. Salna and Dr. Awad about who requested inclusion of this provision in the Joint Venture Agreement and the purpose for this provision. The Associate Justice considered this evidence having regard to the jurisprudence in respect of penalty clauses.

[71] The Associate Justice, at paragraph 56 of his reasons, concluded that the provision is not a penalty clause and that it is not unconscionable. The Associate Justice concluded that the provision is an enforceable contractual term.

[72] The applicants contend that in the Alberta action, the respondents falsely claimed a penalty of US$4,849,043 and that this claim was not awarded by the court in the Alberta action. The applicants rely on the respondents’ Amended Statement of Claim in the Alberta action. The applicants submit that the Associate Justice erred by adjudicating the issue of the penalty charged to the applicants when this issue had already been adjudicated in the Alberta action and cannot be relitigated. The applicants submit that the Associate Justice was motivated by Mr. Salna to approve a claim for the penalty when the claim was not awarded by the Alberta court and the court in Ontario is barred from adjudicating this issue.

[73] The respondents’ submit that there was no adjudication by the Alberta Court of Queen’s Bench of the issue involving the claim against the applicants for payment of 500 % of the costs of exploratory wells under clause six of the Joint Venture Agreement because this amount had been withheld before the trial and, as a result, they did not pursue this claim at the trial.

[74] The decision of Justice Horner in the Court of Queen’s Bench of Alberta is cited as Salna v. Awad, 2010 ABQB 419. In this decision, Justice Horner does not refer to a claim in respect of the penalty provision of the Joint Venture Agreement and no adjudication was made in respect of this claim. This decision was appealed to the Alberta Court of Appeal and the appeal was dismissed: Salna v. Awad, 2011 ABCA 20.

[75] In the reasons of the Associate Justice, at paragraph 39, he refers to Mr. Gress’s final follow-up report dated February 20, 2021 and he excerpts it in its entirety. In this report, Mr. Gress, at item 6, refers to the penalty of $2,047,513.96 (adjusted from the incorrect amount of $3,541,575) that, he wrote, appears to have been withheld from payments to Dr. Awad and applied to the EWA 500% penalty.

[76] I do not agree that it was not open to the Associate Justice to take the withholding of $2,047,513,96 under clause six of the Joint Venture Agreement into account on the reference. This amount had been withheld before the trial of the Alberta action and, although the applicants defended the respondents claim on a number of grounds, they did not seek to have the withholding of this amount reversed. In this regard, I note that in the decision of the Alberta Court of Appeal, at para. 21, the Court states that Dr. Awad defended Dover’s claim on a number of grounds and that “he had elected to go penalty with respect to the 3X well so that he was not responsible for its costs; ...”.

[77] There is no decision of any court that has held that the withholding was unjustified. The Associate Justice did not err by taking the $2,047,513.96 amount into account.

[78] The Associate Justice, at paragraph 52, concluded on the evidence that the consequence of not making the capital call on the EWA joint venture project could have led to over $4 million in losses, plus essentially the forfeiture of the entire project. The Associate Justice concluded that the 500% penalty cannot be stated to be excessive, extravagant, or unconscionable in these circumstances. The Associate Justice concluded that “the clause was intended as a genuine pre-estimate of damages which was, in the context and the circumstances, reasonable and appropriate given the potentially devasting consequences of a breach”.

[79] The applicants have not shown that the Associate Justice erred in principle in reaching this conclusion.

Costs of the reference

[80] The Costs Endorsement of the Associate Justice was released on February 15, 2022. The Associate Justice addressed only the costs of the reference and the costs of two motions before Justice Perell which were ordered to be costs in the cause.

[81] The respondents claimed costs in the amount of $506,392.70 representing partial indemnity costs until August 19, 2019 (when the respondents delivered an offer to settle) and substantial indemnity costs thereafter. The Associate Justice considered the respondents’ Bill of Costs and the costs submissions of the parties and concluded that if he had authority to do so, he would fix costs in favour of the respondents, the successful parties, at $380,000.

[82] In his reasons, the Associate Justice referred to the Reasons for Decision of Spence J. dated November 24, 2006 in which, at para. 5, Justice Spence directed that “the costs of the accounting and the valuation shall be borne by the Respondents”. Justice Spence gave this direction on the basis that the applicant had been successful on the application in obtaining an order for remedies in the form of the accounting and the valuation and that these judicial procedures are ancillary and consequential for the purpose of giving effect to the judicial determination that he made.

[83] Justice Spence added the following:

However, the discretion of the Master in respect of the other aspects of the costs (such as the scale and quantum) should be preserved, subject to any further direction from this court, and the direction that the Respondents are to bear the costs should itself be subject to any further direction from this Court to guard against conduct on the part of the Applicant in the course of the accounting or the valuation that would warrant a variation from the basic direction. The paragraph in the Judgment on the conduct of the accounting and the valuation is designed on this basis.

[84] The formal Order of Spence J. dated November 24, 2006 provides in paragraph 10 that “the costs of the references shall be payable by the Respondents and shall be in the discretion of the Master in all other respects”.

[85] The Order of Spence J. was appealed by both sides to the Divisional Court and the appeals were dismissed.

[86] The Associate Justice concluded that the reference in Justice Spence’s reasons to “this Court” meant a Justice of the Superior Court of Justice, not a Master (as Associate Justices were formerly titled). The Associate Justice concluded that if the respondents seek to vary the Order of Spence J. “pursuant to rule 37.14(4)”, they must make such a request to a Justice of this Court.

[87] In their Notice of Motion, the respondents seek an order to vary or set aside the Order of Spence J. dated November 24, 2006 by which he directed that subject to any further direction of the Court, the costs of the reference were to be payable by the respondents.

[88] The respondents submit that the years of litigation subsequent to Justice Spence’s 2006 order demonstrate a substantial change in circumstances such that His Honour’s direction regarding costs is no longer valid and this Court should alter this direction. They rely on their submission that Dr. Awad was found to be a vexatious litigant who abused the justice system. They rely on the finding of the Associate Justice that Dr. Awad was not a credible witness. They rely on the fact that a number of costs awards have been made against Dr. Awad which are unpaid. The respondents say that Dr. Awad has taken steps to make himself judgment proof.

[89] Justice Spence did not provide for a freestanding right of another judge to vary, on any basis, his order as to costs. No such freestanding right is available under rules 37.14 or 59.06 of the Rules of Civil Procedure. The Order of Justice Spence does not confer discretion to another judge to substitute that judge’s assessment of who should pay costs of the reference for the order made by Justice Spence. In his Order, Justice Spence conferred discretion to the Associate Justice with respect to the costs payable by the respondents.

[90] I am not satisfied that the respondents have shown that the conduct of the applicants in the course of the accounting reference before the Associate Justice justifies varying Justice Spence’s order and ordering that costs be paid by the applicants to the respondents. The fact that the applicants commenced other proceedings that were found to be vexatious, that the Associate Justice made findings of credibility against Dr. Awad, or that there are unpaid costs orders against the applicants does not constitute conduct of the applicants “in the course of the accounting” reference that would justify changing Justice Spence’s order made more than fifteen years ago and upheld on appeal.

[91] I decline to make an order varying Justice Spence’s Order and awarding costs of the reference to the respondents.

[92] Given the outcome of the reference, and in all the circumstances, the Associate Justice had discretion under Justice Spence’s Order to deny costs of the accounting reference to the applicants, the unsuccessful parties. The reasons of the Associate Justice are clear that he would not order any amount of costs to be paid by the respondents, the successful parties, to the applicants, the unsuccessful parties. I agree that, in the circumstances, the applicants should not be awarded costs of the accounting reference.

Disposition

[93] For these reasons, I make the following orders:

a. The Report of Associate Justice Josefo dated August 10, 2021 is confirmed.

b. The respondents’ motion to vary Justice Spence’s Order dated November 24, 2006 to award costs of the accounting reference, including costs of this motion to confirm the report of Associate Justice Josefo, to the respondents is dismissed.

c. The applicants are not entitled to costs of the accounting reference including this motion.

Cavanagh J.

Date: November 2, 2022