Court File and Parties
COURT FILE NO.: CV-22-00679459-0000 DATE: 20230704
ONTARIO SUPERIOR COURT OF JUSTICE
Application under s. 248 of the Business Corporations Act, R.S.O. 1990, c. B.16 as amended.
BETWEEN:
MICHELLE GOJKOVICH Applicant
- and -
BUHBLI ORGANICS INC., ORGANIC PRODUCTS CONSULTING INC. and JOHN RODY Respondents
Counsel: Stephen Schwartz and Darren Marr for the Applicant Shayan Kamalie for the Respondents
HEARD: In writing
REASONS FOR DECISION - Costs
PERELL, J.
[1] This is an oppression remedy application pursuant to Ontario’s Business Corporations Act.[^1] The Applicant, Michelle Gojkovich, and the Respondent, John Rody, are the co-owners of the Respondent, Buhbli Organics Inc. Mr. Rody is the owner of the Respondent Organic Products Consulting Inc., which provides consulting services solely for Buhbli Organics.
[2] By a proceeding by application, Ms. Gojkovich sues the Respondents for an oppression remedy pursuant to s. 248 of the Ontario Business Corporations Act or, in the alternative, for the winding up of Buhbli Organics pursuant to s. 207 of the Act.
[3] By reasons for decision released on May 9, 2023,[^2] I granted Ms. Gojkovich’s application as follows:
a. It is declared that Ms. Gojkovich has been treated by the Respondents in a manner that is oppressive, unfairly prejudicial to and which unfairly disregards her rights as a shareholder in Buhbli Organics.
b. It is declared that it is just and equitable for reasons, other than the bankruptcy or insolvency of the corporation, that it should be wound up.
c. It is ordered that Buhbli Organics shall forthwith be wound up in accordance with the provisions of the Ontario Business Corporations Act.
d. I shall remain seized of this Application until the completion of the winding up or further Order of this court.
e. It is ordered that Ms. Gojkovich shall within twenty days nominate a liquidator to wind up Buhbli Organics and the motion for the appointment of the liquidator and to settle the terms of the winding up shall be heard on June 20, 2023.
f. It is ordered that pending the appointment of the liquidator that Mr. Rody shall have control of the business and assets of Buhbli Organics and shall carry on business acting in the best interest of the Buhbli Organics and in accordance with his obligations under the Ontario Business Corporations Act.
g. The Respondents shall: (a) within twenty days disclose by sworn affidavit the amount of remuneration, compensation, and/or revenue paid to or received by Mr. Rody from Buhbli Organics and Organic Products Consulting by any means, including salaries, dividends, consulting contracts, loan advances, repayment of shareholder’s loans, sale of shares, sale of assets, etc. for the period from January 2022 to date; and (b) pay the equivalent sum to Ms. Gojkovich within thirty days.
h. If the Respondents fail to make the aforesaid disclosure or pay the aforesaid equivalent remuneration, compensation, and/or revenue paid to Mr. Rody, then the Respondents are jointly and severally liable to pay Ms. Gojkovich $170,000 within forty days and judgement shall issue accordingly.
i. The Respondents shall pay the costs of this application on a substantial indemnity basis.
j. If the parties cannot agree about the matter of costs payable to Ms. Gojkovich for this application, they may make submissions in writing beginning with Ms. Gojkovich’s submissions within twenty days of the release of these Reasons for Decision followed by the Respondents’ submissions within a further twenty days.
[4] Ms. Gojkovich delivered costs submissions. The Respondents did not deliver written costs submissions, but they did make submissions at the hearing on July 4, 2023 for the appointment of a liquidator.
[5] For the purpose of determining the costs of the application, the pertinent parts of Ms. Gojkovich’s costs submissions are set out below:
- The Applicant requests that the Court make the following orders concerning costs:
(a) An order that the Respondent, John Rody (“Rody”) pay the Applicant’s costs on a substantial indemnity scale in the amount of $158,297.43[^3] comprised of $129,610.54 in fees and $28,686.89 in disbursements. […] The Applicant submits that the costs be paid by Rody and not by the Respondent, Buhbli Organics Inc. (“Buhbli” or the “Company”) as this would mean that the Applicant would in effect be paying one half of the costs award.
(b) An order that the Respondents disclose all amounts paid from the assets of the Buhbli towards legal fees and disbursements associated with this Application and an order that the other Respondents (Rody and Organic Products Consulting Inc. (“OPC”)) immediately reimburse the Company for all identified expenditures.
- The Applicant’s costs have been calculated in its Bill of Costs on a substantive indemnity scale and in a manner consistent with the jurisprudence:
(a) The fees are first calculated on a partial indemnity scale as 60% of the actual rates charged by the Applicant’s lawyers to her;[^4]
(b) A factor of 1.5 is then applied to these fees to calculate the substantial indemnity costs in accordance with Rule 1.03 of the Rules of Civil Procedure;[^5] and
(c) The disbursements are claimed on the basis they are reasonable.[^6]
Given the issues in the Application, the Applicant’s costs are within the reasonable expectations of the Respondents.
The Application was of substantial importance to the Applicant as she was the founder of the Company’s business, and it was her sole source of income. Courts have awarded significant cost awards in similar oppression cases.[^7]
It is not uncommon that the winning party in a proceeding will incur greater legal costs than the unsuccessful party. The mere existence of a costs disparity does not on its own establish that the winner’s costs were not within the losing party’s reasonable expectation.[^8]
In this case, the Applicant incurred significant legal fees associated with the following steps in this proceeding:
(a) The Applicant prepared a fulsome application record to detail the evidence of the oppressive conduct of the Respondents. In their defence, the Respondents relied on many of the exhibits and evidence already assembled by the Applicant and this likely reduced their own expenditures. The Applicant also prepared a reply record as a necessary response to certain allegations made by the Respondents;
(b) Rody refused to accept service of the Application Record by email and forced the Applicant to incur approximately $2,500 in fees and disbursements in arranging for him to be served personally in the Bahamas;
(c) The Respondents unsuccessfully attempted to derail the Application through a late arriving motion to convert the proceeding to an action. The Applicant incurred costs in responding to this effort;
(d) The parties attended for two full days of cross-examinations. This included cross-examinations by the Applicant of three witnesses tendered by the Respondents;
(e) The Applicant prepared an undertakings brief to respond to certain questions asked during her cross-examination. By contrast, the Respondents did not prepare an undertakings brief and failed to answer several undertakings and refusals;
(f) The Applicant prepared a factum and compendium (with applicable hyperlinks) for this hearing as required by the Rules of Civil Procedure and Notice to the Profession. The Respondents did not prepare a compendium;[^9]
(g) A full day hearing was required for the Application; and
(h) The Applicant participated in settlement negotiations to attempt to resolve this matter before a hearing. Such costs are properly recoverable as part of a cost award.[^10]
Counsel for the Applicant effectively divided responsibility and work product between senior and junior counsel to reduce costs. Mr. Marr conducted legal research and prepared initial drafts of the application record, reply affidavit, undertakings brief, factum, and compendium. He also conducted cross-examination of the Company’s employees and presented the Applicant’s argument concerning legal issues. The jurisprudence has confirmed that delegation to junior counsel is an effective way of reducing costs and is to be encouraged by the Courts.[^11]
The Applicant reduced legal costs by proceeding by way of Application. In assessing the Respondents’ reasonable expectations, the Court should note that the Respondents’ position was that a trial was required to resolve this dispute. If successful, this would have significantly increased the parties’ legal costs.
The Applicant’s primary disbursement is the valuation report from Fuller Landau (the “Report”). As noted in the Reasons, the Report forms part of the factual and procedural history of this case. The Report was obtained by Gojkovich as to facilitate a settlement of the dispute prior to the commencement of litigation. Mr. Rody refused to participate in this valuation process and instead chose to engage in further oppressive conduct against Gojkovich. Given that the Report was part of Gojkovich’s good faith efforts at settling this matter, it is properly recoverable as part of her legal costs.[^12]
The other disbursements are fees for government searches, filings, service in the Bahamas and transcripts. These disbursements are reasonable and recoverable.
The Court found that Rody and Gojkovich had an equal ownership interest in Buhbli. The Respondents have not disclosed if Buhbli assets were used to fund their defence and if so in what quantum. Gojkovich was required to fund her own litigation costs without any assistance from the Company.
It would be inequitable to allow the Company to fund the Respondents’ litigation defence, given that the Court has found that Rody behaved in an oppressive manner. To permit Buhbli to pay for the Respondents’ costs is to effectively cause Gojkovich to subsidize half of Rody’s unsuccessful defence and would pervert Ontario’s “loser pays” costs regime.
Where a corporation has incurred legal costs in defending the conduct of oppressive shareholders, the individual defendants have been ordered to reimburse the corporation for all legal fees resulting from defending the oppression action.[^13]
Given that the extent of Buhbli’s payment of legal fees is unknown, the Applicant submits that the Court should order the Respondents to disclose all amounts of legal expenditures paid for by Buhbli in connection with this Application and order that Rody and OPC forthwith reimburse the Company for all of these costs.
[6] Save for the matter of the disbursements that I will address next, Ms. Gojkovich’s costs submissions were unopposed. In any event, I agree with them, and, therefore, with one caveat, I order that the costs should be awarded as requested and in the manner requested.
[7] The caveat is with respect to the disbursements. The Respondents submit that the appraisal report was paid by Ms. Gojkovich’s use of the Buhbli Organics credit card. Ms. Gojkovich, however, submits that she paid for the appraisal report personally.
[8] In light of this dispute, I therefore order the payment of this disbursement is conditional upon Ms. Gojkovich providing the Respondents with proof of personal payment.
[9] If there is a dispute about the proof of payment, I may be spoken to.
[10] Order accordingly.
Perell, J.
Released: July 4, 2023
COURT FILE NO.: CV-22-00679459-0000 DATE: 20230704
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
MICHELLE GOJKOVICH Applicant
- and -
BUHBLI ORGANICS INC., ORGANIC PRODUCTS CONSULTING INC. and JOHN RODY Respondents
REASONS FOR DECISION
PERELL J.
Released: July 4, 2023.
[^1]: R.S.O. 1990, c. B.16. [^2]: Gojkovich v. Buhbli Organics Inc., 2023 ONSC 2738. [^3]: All numbers are inclusive of HST which is payable on both legal fees and disbursements. [^4]: Eastern Power Limited v. Ontario Electricity Financial Corporation, 2012 ONCA 366 at para 26. [^5]: See Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 1.03 and Akagi v. Synergy Group (2000) Inc., 2015 ONCA 771 at para 57. [^6]: 4 Noori v. Liu, 2021 ONSC 3445 at para 79. [^7]: See inter alia, Castillo v. Xela Enterprises Ltd., 2016 ONSC 6088 at para 71; Palumbo v. Boothworks Inc., 2019 ONSC 73 at para 94. [^8]: See inter alia, Singh v. RBC Insurance Agency Ltd., 2020 ONSC 6745 at para 37; Nour v. Youssef, 2021 ONSC 5539 at para 15. [^9]: 2719939 Ontario Inc. v. Thayananathan, 2023 ONSC 2669 at para 52. [^10]: See inter alia, Santos v. Sangwan, 2015 ONSC 5368 at para 30; Nby Enterprises Inc. v. Duffin, 2006 26969 at para. 1 (Ont. S.C.J.). [^11]: See inter alia, Sanghvi v. Norvic Shipping North America, 2021 ONSC 1211 at para 12.; Carr v. Ottawa Police Services Board, 2018 ONSC 3094 at paras 32-34. [^12]: Santos v. Sangwan, 2015 ONSC 5368 at para 30. [^13]: See inter alia, Zanardo v. Di Battista Gambin Developments Limited, 2019 ONSC 1632 at paras 29-30; Gargarella v. Gargarella Capobianco, 2009 39777 at para 12 (Ont. S.C.J.); Naneff v. Con-Crete Holdings Ltd., [1993] O.J. No. 1756 at para 170-172, aff’d 1995 959 (ON CA), [1995] O.J. No. 1377 (C.A.).