1100 Walkers Line Inc. v. The Elliott Sports Medicine Clinic Inc., 2022 ONSC 6545

COURT FILE NO.: CV-21-670799

DATE: 2022-11-22

ONTARIO SUPERIOR COURT OF JUSTICE

RE: 1100 WALKERS LINE INC., Applicant

-and-

THE ELLIOTT SPORTS MEDICINE CLINIC INC., 5034130 ONTARIO INC. OPERATING AS ENERGY SPORTS MEDICINE AND WELLNESS CENTRE, JESSICA PRICE also known as JESSICA LAZENBY and ERIN MACLEAN, also known as ERIN MACDONALD, Respondents

BEFORE: FL Myers J

COUNSEL: Stephen Schwartz and Darren Marr, for the applicant Howard F. Manis, for the respondents

READ: November 22, 2022

ENDORSEMENT

[1] By decision dated November 7, 2022, reported at 2022 ONSC 6291, I dismissed this proceeding for an oppression remedy or a remedy for a fraudulent conveyance/unjust preference/transfer at undervalue.

[2] The applicant was the landlord of the bankrupt first-named respondent. The applicant claimed that the other respondents effectively usurped the business of the bankrupt without paying for it. I found that while there may be some questions as to the existence and ownership of assets to be considered in the bankruptcy proceeding, the applicant had failed to adduce evidence to establish the causes of action that it alleged.

[3] I do not know if the bankrupt had any valuable goodwill or intangible assets and, if so, how they came to be used by the new entities. The new entities bought only used tables and chairs and a telephone line from the trustee in bankruptcy for about $5,000. But they seem to have walked into a turnkey operation. How convenient.

[4] The respondents seek their costs on a substantial indemnity basis. They rely on an offer to settle and the fact that the applicant failed to prove its allegations of "fraud".

[5] The applicant accepts that it should pay costs. But it asks for costs to be fixed on a partial indemnity basis only. In addition, it submits that it should be entitled to setoff any costs ordered against the judgment that it already has against the bankrupt.

[6] In their offer to settle, the respondents offered to accept a dismissal without costs if the offer was accepted within about two weeks and thereafter with costs on a substantial indemnity basis. This misapplies Rule 49.10.

[7] Under Rule 49.10 (2) where an applicant obtains a judgment as or less favourable to it than an offer to settle previously made by the respondent, the applicant is entitled to costs on a partial indemnity basis to the date of the offer and the respondent is entitled to costs on a partial indemnity basis from and after the date of the offer.

[8] The bonus to the defendant or respondent for making a good offer is that it receives some costs despite the fact that judgment has been rendered against it. Normally it would pay costs throughout in that scenario.

[9] Unlike a plaintiff or applicant under Rule 49.10 (1), a defendant or respondent does not become entitled to costs on a substantial indemnity basis where its offer is not accepted even if it was more favourable to the plaintiff or applicant than the judgment it ultimately obtained.

[10] Here, the offer is not more favourable than the outcome because I am not awarding costs on a substantial indemnity basis in any event. Accordingly, even the less severe cost consequences of Rule 40.10 (2) do not apply.

[11] I note as well that the respondents' offer to settle contains no real compromise. There were no material costs outstanding when the respondents offered to go out without costs. Once the short date for acceptance of that offer passed, the offer to settle was a worst-case scenario for the applicant. The respondents offered no compromise and sought to better their position as compared to the rule under which they purportedly acted.

[12] If Rule 49.10 (2) applied, I would exercise the discretion to depart from it for the foregoing reasons.

[13] In addition, I do not accept that this is a case in which allegations of wrongdoing ought to lead to an elevated costs award. The concept of a fraudulent conveyance being a "fraud on creditors" does not necessarily carry nearly the same moral opprobrium as allegations of fraud associated with intentional torts like the tort of deceit. A "fraudulent intent" under s. 2 Fraudulent Conveyances Act, RSO 1990, c F.29, is the "intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures". It is often presumed. While it can carry connotations of deliberately deceitful conduct, it does not necessarily do so.

[14] Here, the applicant alleged that the bankrupt, its owners, and the newco engaged in a scheme to usurp the bankrupt's going concern without paying for it. The allegation is essentially true. What was missing however was proof that the going concern or any intangible assets obtained by the respondents, if any, had any realizable value. Moreover, I still do not know if or how the newco got to use the bankrupt's computers, customer list, employee information, etc. I made the point that there are questions to be asked and answered in the bankruptcy. While this battle was unsuccessful, the war is not necessarily over.

[15] This is not a case for equitable set-off. I cannot find that a costs award in favour of newco and the owners is so related to the judgment for rent owing to the applicant by the bankrupt that it would be inequitable for one to be paid without the other. The whole point of this proceeding was for the applicant to try to expand its sources of recovery beyond the bankrupt. The applicant chose its form of proceeding and it chose the amount to spend on investigating and presenting evidence. It bears the responsibility for those choices.

[16] The applicant does not contest the reasonableness of the hours and rates claimed by the respondents on a partial indemnity basis. I agree. The applicant will therefore pay the respondents costs of this application on a partial indemnity basis fixed at $18,550.

FL Myers J

Date: November 22, 2022