Court File and Parties

Court File No.: 31-2675583 Date: 2022-11-03 Superior Court of Justice - Ontario

Re: In the Matter of the Proposal to Creditors of Conforti Holdings Limited, a corporation incorporated under the Ontario Business Corporations Act, R.S.O. 1990, c. B.16

Before: Justice Cavanagh

Counsel: Clifton P. Prophet and Thomas Gertner, for the Moroccanoil Inc. Bobby Sachdeva and Erin Craddock, for Conforti Holdings Limited and Beauty Experts Inc.

Heard: In Writing

Costs Endorsement

[1] Conforti Holdings Limited (“CHL”) filed a Notice of Intention to make a Proposal pursuant to section 50.4(1) of the Bankruptcy and Insolvency Act on September 28, 2020. A company related to CHL, Beauty Experts Inc. (“BEI”), made a claim as a secured creditor of CHL.

[2] In this proceeding, Morrocanoil, Inc. (“Morrocanoil”) brought a motion for an order declaring that no secured indebtedness is owing by CHL to BEI. Morrocanoil was successful on its motion.

[3] Morrocanoil seeks costs of the motion on a substantial indemnity scale in the amount of $132,331.95 from CHL and BEI on a joint and several basis.

[4] In the alternative, Morrocanoil seeks costs on a partial indemnity scale in the amount of $89,339.63 comprised of $76,074.60 for fees, HST on fees of $9,889.69, and disbursements (including HST) of $3,375.34.

Should costs be awarded on a substantial indemnity scale?

[5] Pursuant to section 131 of the Courts of Justice Act and rule 57.01 of the Rules of Civil Procedure, the Court has discretion to fix the fair and reasonable costs of a litigant. Section 197 (1) of the BIA provides that the costs of and incidental to any proceedings in court under the BIA are in the discretion of the court.

[6] Morrocanoil submits that in the ordinary course, the review of a related party’s security would be undertaken by a proposal trustee whose fees are indemnified in full. Morrocanoil submits that through this motion, it was effectively forced to undertake actions that would have otherwise been paid for in full from the assets of the debtor. Morrocanoil submits that given that the motion has benefited all of CHL’s creditors equally, it would be inequitable for the cost of this motion to be borne solely by Morrocanoil. Morrocanoil submits that in such circumstances, a costs award on a substantial indemnity scale is appropriate.

[7] I do not agree that costs should be awarded on a substantial indemnity scale. In the absence of conduct on the part of CHL and BEI that qualifies as reprehensible conduct that would justify an award of costs on a substantial indemnity scale, costs should be awarded to Morrocanoil on a partial indemnity scale.

Quantum of Morrocanoil’s claim for costs

[8] Morrocanoil claims fees on a personal indemnity scale in the amount of $76,074.60 exclusive of HST. This amount is calculated based on the hours expended by lawyers representing Morrocanoil at partial indemnity rates calculated as 60% of the usual hourly rates charged by counsel for Morrocanoil.

[9] Morrocanoil relies on the factors set out in rule 57.01 of the Rules of Civil Procedure including, in particular (a) the amount claimed and the amount recovered; (b) the complexity of the proceeding; and (c) the reasonable expectations of the parties.

[10] With respect to the amount claimed in the amount recovered, Morrocanoil submits that as a result of the success of its motion, BEI was required to tender an additional $1,500,000 in cash to complete the purchase of a warehouse facility owned by CHL and the payment available for unsecured creditors under CHL’s Proposal increased by approximately 25%. Morrocanoil submits that CHL’s creditors will also benefit in any post-proposal dealings with CHL by way of a reduction of go-forward secured debt that would otherwise have been required to fund the Proposal.

[11] Morrocanoil submits that the motion required extensive review and analysis of evidence to determine that no consideration was granted in support of the BEI debt.

[12] Morrocanoil submits that the amount of costs sought by it on this motion are appropriate and consistent with what CHL/BEI should reasonably have expected.

[13] In response, CHL and BEI submit that the amount of costs claimed by Morrocanoil is excessive. In their Costs Outline, these parties claim fees on a partial indemnity scale (exclusive of HST) in the amount of $45,225.60.

[14] BEI and CHL submit that the partial indemnity fees claimed by Morrocanoil are excessive for a half-day motion where the cross examinations of two witnesses were completed in one day.

[15] Although the fees claimed by Moroccanoil exceed those that would have been claimed by BEI if it had been successful, I am not satisfied that the time spent for which a claim for costs is made was excessive or unreasonable. In my view, given the amount in dispute and the issues raised on the motion, the fees claimed by Morrocanoil do not fall outside of the range of fees, on a partial indemnity scale, that BEI (and CHL) would reasonably expect to pay if the motion succeeded.

Should costs be awarded against BEI and CHL jointly and severally?

[16] Moroccanoil seeks an order as to costs against CHL and BEI jointly and severally. Moroccanoil submits that such an award is justified because CHL filed responding materials in opposition to the motion and BEI was the party that stood to benefit from successful opposition to the motion.

[17] CHL and BEI submit that the Morrocanoil motion was to set aside BEI’s security for the secured debt it asserted and that costs should not be awarded against CHL.

[18] In response to Morrocanoil’s motion, CHL delivered a Responding Motion Record including the affidavit of Antonio Conti sworn November 11, 2021. CHL filed a factum in opposition to Moroccanoil’s motion and requested that the motion be dismissed. In this factum, submissions were made that both CHL and BEI acted in good faith in the proposal proceedings and that BEI provided adequate consideration for the management fees.

[19] Given that CHL filed evidence in opposition to the motion and was unsuccessful in opposing it, costs should be awarded against both CHL and BEI, jointly and severally.

[20] I fix costs of this motion on a partial indemnity scale in the amount of $89,339.63 to be paid by CHL and BEI, jointly and severally, to Moroccanoil within 30 days.

Cavanagh J.

Date: November 3, 2022