Court File and Parties

COURT FILE NO.: FS-22-00029253 DATE: 2024-06-07 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Hugh Kuang, Applicant AND: Diana Young, Shawn Yeung, Theodore Wang, Gracie Wall, 2174112 Ontario Inc., 2394049 Ontario Inc., 26907112 Ontario Inc., 2435982 Ontario Inc., 2691181 Ontario Inc., Diana Young Professional Corporation, 2305969 Ontario Inc., Respondents

BEFORE: Madam Justice Kristjanson

COUNSEL: Ken Dekker, Harold Niman, Christopher Mamo, Karen S.K.Law, for the Applicant Robert B. Macdonald, Teodora Obradovic, Eric Sadvari, Nicole Hirtenfeld, Ovais A. Khan, for the Respondents

HEARD: In writing

Endorsement

[1] This is the decision on costs of a motion brought by the applicant to appoint an investigative receiver-monitor and for interim disbursements. It arises in a bitterly contested corporate/family dispute which has been the subject of several of my decisions. As such, I have the benefit of understanding the background to this complex litigation which is set out in decisions reported at Kuang v. Young, 2023 ONSC 2429, 2023 ONSC 4857, 2023 ONSC 5235, and 2024 ONSC 719, and is not repeated here.

[2] The motion was scheduled as a long motion to be heard December 18 and 19th. Most issues were resolved at the end of the day on Friday, December 15, after the exchange of affidavits, factums, and cross-examination of the affiant for the respondents. The court circulated a list of questions on Sunday, December 17. The only issue argued on December 18 was the identity of the professional to be appointed as the receiver-monitor, and responses to questions raised by the court.

[3] The applicant seeks substantial recovery cost of the motion in the amount of $189,611.47. The applicant’s full recovery cost are $252,815, and on a partial recovery basis $151,689. The respondents’ total costs on a full recovery basis are $70,800 dollars, on a substantial recovery basis or $53,200, and on a partial recovery basis are $42,600.

[4] The applicant further seeks that the respondent Diana Young and her family members be jointly and severally liable for 50% of those costs, with Ms. Young being solely responsible for the other 50% of the costs. The applicant seeks that the individual respondents should not be able to use corporate assets to pay cost orders, given that the applicant claims that he has legal or beneficial ownership in the respondent corporations (the “Subject Corporations”) except for 2305969 Ontario Inc. and Diana Young Professional Corporation (which are both owned by Ms. Young) I have found that the applicant has a strong prima facie case that he is the legal or beneficial owner of at least some of the Subject Corporations. The applicant also seeks a condition that individual respondents cannot borrow from the Subject Corporations to pay the costs since Ms. Young has used 230, a company owned by her, to take money from 982, one of the Subject Corporations, to pay a previous cost order.

Litigation Timeline

[5] Most of the applicant’s cost were incurred well before the settlement and the hearing. The motion was scheduled at the September 26, 2023 case conference. Timelines for the delivery of materials were timetabled at the October 16, 2023 case conference. The applicant served his notice of motion and supporting affidavits on November 3, 2023.

[6] There is a dispute on the evidence: the respondents state that there was a phone call between Ms. Young’s lawyer and the applicant’s counsel on November 17 indicating that the respondents would not oppose the appointment of a receiver-monitor. The applicant indicates that the first time he was advised that the respondents would not oppose the appointment of a receiver-monitor was November 28.

[7] In any event, there were clearly issues in dispute after November 17. On November 27, counsel for the Subject Corporations filed a lengthy affidavit of the respondent Diana Young. The next day, counsel for the Subject Corporations indicated for the first time in writing that his clients would not be opposing the appointment of an interim receiver. This was two months after the motion was scheduled, and three weeks after delivery of the applicant’s motion materials. The email from the respondents’ counsel stated that the respondents continued to oppose the motion both with respect to the identity of the receiver-monitor and the terms of the appointment order. This was not a simple consent to a simple motion, but left significant room for opposition and argument.

[8] The applicant served a reply affidavit on November 27, and the respondent Young was crossed-examined on December 7.

[9] The initial draft order proposed by the respondents on December 3, 2023 significantly limited the powers and authority of the receiver. It proposed that the applicant fully fund the receivership (subject to reallocation at trial). These terms were not accepted by the applicant. It was not until Sunday, December 10, 2023, that the respondents dropped many of what the applicant refers to as "objectionable and unworkable proposed changes", including their demand that the applicant pay the receiver’s fees and disbursements notwithstanding that the respondents unilaterally control all corporate funds.

[10] The applicant delivered his factum December 12. The respondents delivered their factum on December 14.

[11] The applicant cross-examined Ms. Young. The respondents did not cross-examine the applicant. The applicant prepared three affidavits, including an expert affidavit from a chartered business valuator to support the request for interim disbursements. The respondents filed one affidavit.

General Framework re Costs

[12] Costs orders are in the discretion of the court under section 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43. The Court of Appeal in Mattina v. Mattina, 2018 ONCA 867 at para. 10 held that family cost rules are designed for the fundamental purposes of: (1) partially indemnifying successful litigants; (2) encouraging settlement, (3) discouraging and sanctioning inappropriate behaviour by litigants, and (4) ensuring, in accordance with Rule 2(2), that cases are dealt with justly.

[13] Rule 24(1) creates a presumption of costs in favour of the successful party on a motion. An award of costs is subject to the factors listed in Rule 24(12). Factors include the importance and complexity of the issues, the reasonableness of each party’s behaviour in the case, the lawyer’s rates, the time properly spent on the case, the expenses, and any other relevant matter. Other factors include Rule 24(8) (bad faith), Rule 18(14) (offers to settle) and the reasonableness of the costs sought by the successful party: Mattina para. 12-13 ; Berta v. Berta, 2015 ONCA 918 at para. 94. The Family Law Rules only expressly contemplate full recovery costs where a party has behaved in bad faith, or has bested an offer to settle under r. 18(14).

Ultimately, reasonableness and proportionality are the touchstone considerations in setting costs, not the fees charged to the client. Setting costs is a matter of discretion, not a mechanical exercise. The overall goal is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the circumstances of the case: Boucher v. Public Accountants Council for the Province of Ontario, (2004), 71 O.R. (3d) 291.

Success on a Settled Motion and Arguments About Costs

[14] I find that the applicant was the successful party on both issues. I appointed his proposed receiver, and ordered terms which most closely mirrored the terms he proposed. He obtained interim disbursements of $1 million, when he had sought disbursements of 1.7 million dollars in his notice of motion. I find that the terms sought by the respondents would have inappropriately restricted the mandate, powers, and scope of the receiver-monitor’s investigation given the concerns of the court with the failure of the respondents to comply with court orders.

[15] The applicant submits the cost of a settled motion should be awarded where the consent terms amount to a clear capitulation one in favour of another, and the successful party is obvious: 2023 ONCJ 186 at para. 24. Settlement does not preclude the ordering of cost. Justice Pazaratz sets out important and compelling reasons why there is no rule against awarding costs in settled cases. As he states in Casey v Casey, 2023 ONSC 2512 at para. 8:

[8] While caution is required, a blanket refusal to award costs in settled matters may have unintended – and undesirable – consequences for both the parties and the administration of justice.

a. Our family court system consistently encourages parties to settle their cases, to avoid costs. So we must be careful not to undermine our messaging in case management, by imposing post-settlement costs orders which may inadvertently eliminate an incentive to settle. Moreno v. Tuey, 2019 ONCJ 418 (OCJ). If litigants do what we urge them to do – reach their own negotiated settlement – the court should carefully assess whether compelling reasons remain to award costs. Shute v. Shute, 2017 ONCJ 533 (OCJ).

b. But equally, costs should not be a barrier to settlement. Sometimes after protracted litigation the parties can agree on everything except costs. It is in neither the parties’ nor the court’s interest to waste an opportunity to resolve substantive issues. Litigants should not be forced to go to trial and achieve success in order to recover disputed costs. Parties should have confidence that if they settle all other issues, any residual costs claim will be given fair consideration by the court, on the merits. Wunsch v. Wunsch, 2013 ONSC 5208 (SCJ); Hassan v. Hassan, 2019 ONSC 1199.

c. A successful party who has behaved reasonably should not be precluded from pursuing their costs, simply because their opponent waited until the last moment to abandon a meritless or unreasonable position. Atkinson v. Houpt, 2017 ONCJ 316; Moreno v. Tuey, 2019 ONCJ 418 (OCJ).

d. If a party eventually makes a good litigation choice by signing Minutes, that epiphany doesn't automatically wipe out any history of bad litigation choices which would otherwise justify costs. Settling in the face of the inevitable may be little more than damage control. Scipione v. Del Sordo, 2015 ONSC 5982 (SCJ).

e. While there may be public policy reasons against costs orders in the face of negotiated resolutions, there are also public policy reasons to hold parties liable for needless expense they created during whatever period they maintained an unreasonable position. Horowitz v. Duthie 2021 ONSC 7902 (SCJ).

[16] The respondents argue that while a court may make a costs award after a settlement, the court should do so only in truly extraordinary circumstances, where there are compelling reasons, citing S.B. Sherr, J. in Ali Hassan v. Abdullah, 2023 ONCJ 186 at para. 23:

The determinations of success, reasonableness and proportionality presuppose the existence of objective benchmarks against which they can be measured. Those objective benchmarks are present when a court makes findings of fact and law and issues an order. It is for this reason that costs are generally regarded as “incident to a determination of the rights of the parties, and ought not to be made themselves the subject matter of the litigation.” These benchmarks are absent when parties consent. It therefore follows that, where parties compromise their claims and settle litigation, the award of costs is very much the exception rather than the rule. Another way of expressing this principle is that “when parties reach a settlement as between themselves, the court should be very slow to make an award of costs against one of them. See: Goetschel v. Goetschel, 2022 ONSC 5860.

[17] I find there to be compelling circumstances here, and also apply the principles set out in Casey v. Casey. The decision by the applicant to pursue the appointment of a receiver-monitor was grounded in large part on the failure of the Subject Corporations to provide proper financial disclosure and to deliver proper financial statements. The litigation conduct of the respondents created the informational asymmetry which necessitated the receiver-monitor motion.

[18] The parties settled most of the terms of the receivership motion and the interim disbursements motion after hours on Friday, December 15, 2023, when practically all the work had been done on the file. The court circulated questions on Sunday, December 17. The parties attended in court on December 10, 2023, solely to argue about the identity of the receiver-monitor, and to answer questions about the terms of the receivership order.

[19] It was not an option for any party to not deliver materials required to be filed by the court-ordered dates in the hopes that a settlement would be reached. The case is closely case-managed. The court set aside two days for argument of the long motion. The parties attended for almost a full day to argue the issue of the identity of the receiver and respond to the court’s questions.

[20] Late capitulation does not warrant the denial of costs.

[21] The need to sort out legal and beneficial ownership while preserving corporate assets estimated to be nearly $165 million, coupled with flawed corporation and financial disclosure, makes this an enormously challenging case. The two major issues on the long motion were both important and complex. It was the actions of the respondents which led the applicant to seek the extraordinary relief of the appointment of an interim receiver-monitor. The complexities regarding ownership and control of the Subject Corporations, leading the applicant to be frozen out of the corporations despite his what I have found to be prima facie claims to legal and/or beneficial ownership, led to the applicant’s motion for interim disbursements.

[22] On the interim costs issue, the respondents state that the resolution of the motion, a $1 million advance with the respondents’ ability to characterize this advance as a repayable loan, represents a negotiated compromise, with no winner. Given the lack of attribution within the bill of cost, the respondents proposed 50% of those cost be allocated to each motion, and nothing should be awarded on the interim disbursements motion. I do not agree. As late as their factum of December 14, the respondents were contesting any interim disbursements order. While ultimately settled, the applicants incurred costs (including a chartered business valuator) to support the interim disbursements argument.

Reasonableness and Proportionality

[23] The respondents state that no there is no basis for full recovery or substantial indemnity costs, and reasonableness and proportionality must guide the court. The respondents also state that the costs are disproportionate and go well beyond what a reasonable party could expect to pay. The respondents asked the costs be awarded in the cause or, alternatively, set at $20,000.

[24] Yet this case illustrates the additional costs incurred by a moving party when there is informational asymmetry, cogently expressed by Newbould, J. in Degroote v. DC Entertainment Corp et al, 2014 ONSC 63 at para. 17:

There is another factor here that looms large. In many commercial cases, it is more difficult for a plaintiff to construct a case than to defend it. The plaintiff is outside looking in whereas the defendant knows what he or she has been about. In this case the problem has been exacerbated by the complete lack of accounting that should have been provided to the plaintiff and by the steps taken to thwart the plaintiff and his advisors from reviewing relevant records both before and after this action was commenced. These were referred to in some detail by me in my endorsement of November 18, 2013 in which I held that the plaintiff had established a strong case in fraud and very serious breaches of agreement.

[25] I accept that it was the conduct of the Subject Corporations, and the individual respondents who presently exercise control and management of those corporations, which both led to the need for the motion and the greater costs incurred by the applicant. I also accept that the applicant’s counsel were required to continue working until the final settlement was reached on December 15. I further accept that both corporate and family counsel were justified, given the commercial nature of the receiver-monitor claim and the family nature of the interim disbursements claim.

[26] Yet I also agree with the respondents that the time spent by the applicant’s counsel was disproportionate. The sheer number of timekeepers is excessive. The lack of detail in dockets also means the Court cannot determine what the timekeepers were doing. The applicant’s timekeepers docketed 384.6 hours, while the respondents’ docketed 152 hours. The applicant’s main lawyer, Mr. Decker, spent a total of 158.5 hours, while three other lawyers, two students and two law clerks docketed other docketing parties spent 226.1 hours. Significant time was spent between all eight docketing parties for internal calls, meetings, and instructions, with apparent duplication of internal work. Certainly there was no explanation offered to the court for the internal communication time.

[27] There were no offers to settle, a significant factor in family law cases.

[28] In setting costs, I must determine an amount that is fair and reasonable for the unsuccessful party to pay. It is not measured by the fees of the successful litigant.

[29] Applying all these factors, I award costs of $120,000. This is an amount I find to be fair, reasonable and proportionate in context.

Joint and Several Liability vs. Apportionment

[30] The applicant seeks that the respondent Diana Young and her family members be jointly and severally liable for 50% of the costs, with Ms. Young being solely responsible for the other 50% of the costs. The individual respondents solely control the Subject Corporations. The applicant seeks that the individual respondents should not be able to use corporate assets of the Subject Corporations to pay cost orders, given that the applicant claims legal or beneficial ownership. No authority was provided by the applicant.

[31] The respondents oppose restrictions on how costs should be paid, and by which respondents. The motions were primarily against the Subject Corporations, and reallocation could be addressed at trial.

[32] The general rule is that unsuccessful respondents are jointly and severally liable for costs unless the court, in its discretion, orders otherwise. Relevant factors include: (1) where the respondents did not act jointly in respect of the issues on the motion; (2) one respondent had “minimal involvement” in the motion and “there is an underlying public policy reason to avoid joint and several liability”; and (3) an order of joint and several liability “would result in gross unfairness” to a particular losing respondent in the circumstances of the case: see Plantana J. in Meady v. Greyhound Canada Transportation Corp., 2013 ONSC 5568 at para. 86. Fairness to both sides must be considered.

[33] Here, the respondents banded together, relied on the same evidence, and while retaining separate counsel, filed one factum and acted in concert.

[34] I cannot ignore the separate corporate form, and have not been provided with evidence or argument on piercing the corporate veil. I do not have the evidence to support 50% payable by Ms. Young, and 50% by the other individual respondents. It may be at trial that the applicant will seek to pierce the corporate veil, or if he is successful, will seek restitution of costs paid by the Subject Corporations. On the record before me I decline to exercise my discretion as requested by the applicant, although I explicitly preserve the ability of the applicant to seek reallocation or restitution of costs paid by the Subject Corporations.

ORDER

[35] The respondents shall pay costs to the applicant of $125,000.00 within 30 days, which is subject to the applicant’s ability to argue for reallocation at trial, or restitution to the Subject Corporations if the applicant so pleads.

Justice Kristjanson Date: June 7, 2024