Court File and Parties
2024 ONSC 3543
Court File No.: CV-21-00663825-00CL Date: 2024-06-19
Superior Court of Justice – Ontario (Commercial List)
Re: TRIDELTA INVESTMENT COUNSEL INC., TRIDELTA FIXED INCOME FUND, TRIDELTA HIGH INCOME BALANCED FUND, 2830063 ONTARIO INC., 2830064 ONTARIO INC., 2830068 ONTARIO INC., GTA MIXED-USE DEVELOPMENTS L.P., MIXED-USE DEVELOPMENTS (ONTARIO) L.P. and WASAGA DEVELOPMENTS AND INFRASTRUCTURE 2021 L.P.
Plaintiffs
And:
GTA MIXED-USE DEVELOPMENTS GP INC., MIXED-USE DEVELOPMENTS (ONTARIO) GP INC., WASAGA DEVELOPMENTS AND INFRASTRUCTURE GP INC. and U DEVELOPMENTS INC.
Defendants/Plaintiffs by Counterclaim
And:
TRIDELTA INVESTMENT COUNSEL INC., TRIDELTA FIXED INCOME FUND, TRIDELTA HIGH INCOME BALANCE FUND, 2830063 ONTARIO INC., 2830064 ONTARIO INC. and 2830068 ONTARIO INC. Defendants by Counterclaim
Before: Kimmel J.
Counsel: Chris Naudie/Lauren Tomasich/Jayne Cooke, for the Plaintiffs/Defendants by Counterclaim Simon Bieber/Emma Parry, for the Defendants/Plaintiffs by Counterclaim
Heard: March 28, 2024
Trial Costs Endorsement
[1] The eight day trial of this matter was concluded on July 13, 2023. The trial decision was released on September 18, 2023 (see Tridelta Investment Counsel Inc. v. GTA Mixed-Use Developments GP Inc., 2023 ONSC 5099, the “Trial Decision”). Capitalized terms not otherwise defined in this endorsement are defined in the Trial Decision.
[2] The plaintiffs were successful in all aspects of the relief they sought and in having the counterclaim dismissed.
[3] The parties initially exchanged written costs submissions in November 2023 (plaintiffs on November 1 and 27, 2023 and defendants on November 17, 2023) in accordance with a timetable set at an October 11, 2023 case conference, after the parties tried but failed to reach an agreement on costs.
[4] After the initial exchange of costs submissions, the court raised questions and asked for further written and oral submissions, primarily regarding Tridelta’s request for costs to be awarded against Mr. Tajbakhsh and/or an unidentified third party funder(s). This led to a further exchange of supplementary cost submissions (March 8, 19 and 26, 2024) and oral submissions that were heard on March 28, 2024.
The Positions of the Parties
The Plaintiffs Request
[5] The plaintiffs (collectively, “Tridelta”) were entirely successful at trial. In their November 1, 2023 Costs Submissions they asked for costs to be awarded to them on a substantial indemnity basis in the total amount of $1,328,689.08, or alternatively, costs on a partial indemnity basis in the total amount of $892,286.31. Their Bill of Costs provides the details of how these amounts were calculated, based on their total actual costs of $1,474,156.67.
[6] The plaintiffs seek an award jointly and severally against the defendants and their principal Mr. Tajbakhsh personally, or alternatively against an unidentified third party funder of the defendants litigation costs. The plaintiffs also seek an order preventing the defendants from using any of the funds of the Limited Partnerships to pay the costs award.
The Defendants’ Response
[7] The defendants acknowledge that the plaintiffs are entitled to some costs of the trial as the successful party. However, they submit that a more appropriate amount would be $200,000. This suggested amount is less than half of the defendants’ own costs of the trial on a partial indemnity basis. According to their Bill of Costs, they certify their all-inclusive costs of the trial to be:
a. $497,150.41 on a partial indemnity scale; b. $731,247.70 on a substantial indemnity scale; and c. $809,280.14 on a full indemnity scale.
[8] The defendants say there was nothing remarkable about this case that would warrant costs on a higher scale than partial indemnity. They downplay their own allegations of fraud and their counterclaims (that were wholly unsuccessful), pointing to the Trial Decision in which it was observed that they did not seriously maintain or pursue (in evidence or submissions) their allegations of fraud and their counterclaims.
[9] The defendants go on to suggest that the plaintiffs were only partially successful because the court only found the Former General Partners to have defaulted on five of the total ten alleged breaches of the Limited Partnership Agreements (no findings having been made in respect of the remaining five alleged defaults that were pursued at trial). The defendants also emphasize that, despite two pre-trial motions (each side winning one), the case moved expeditiously to trial. The trial started just over two years after the statement of claim was issued and was conducted with a high degree of co-operation between counsel.
[10] Accordingly, the defendants suggest that the successful plaintiffs should be awarded only $200,000 in costs for the trial, which is 40% of the defendants’ partial indemnity costs and only approximately 22% of the plaintiffs’ partial indemnity costs as claimed.
[11] In their initial responding costs submissions, the defendants challenged the court’s jurisdiction and authority to make a costs award against non-parties. They objected to any costs ordered payable by Mr. Tajbakhsh or any unidentified third party funder on the basis that proper notice had not been given for such a demand and the requirements for an award of costs against non-parties or for piercing the corporate veil had not been satisfied. These issues were elaborated upon in the supplementary written and oral cost submissions of both parties.
The Issues
[12] The parties do not agree on the scale, quantum or who should pay the plaintiffs’ costs of the trial. The only thing that is not disputed is that the plaintiffs are entitled to some costs from the defendants/plaintiffs by counterclaim.
[13] The following issues must be decided:
a. Are the plaintiffs entitled to the higher scale of substantial indemnity costs? b. Should the costs awarded to the plaintiffs be discounted i. to reflect what the defendants expected they would have to pay in costs if they lost, or ii. because of the plaintiffs’ conduct of, or during, the trial and their measure of success? c. Should Mr. Tajbakhsh personally be ordered to pay any of the plaintiffs’ costs, or alternatively should there be an order for an unidentified third party to pay some or all of the plaintiffs’ costs? d. Should the court make an order expressly prohibiting the defendants from using any funds of the Limited Partnerships to pay the costs award?
Analysis
[14] Some relevant findings from the Trial Decision are extracted and reproduced at Schedule A to this endorsement for ease of reference.
a) The Appropriate Scale of Costs
[15] This court has broad discretion and authority under s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43 and Rule 57.01(4)(c) to award costs on a substantial indemnity basis. Rule 57.01(1) enumerates factors to guide the court’s exercise of discretion in awarding costs. The following factors under Rule 57.01(1) are relevant to the determination that an award of substantial indemnity costs is appropriate:
a. The principle of indemnity under Rule 57.01(0.a), having regard to the extensive experience of the plaintiffs’ lawyers and their Bay Street hourly rates, which the defendants would have been aware of from earlier motions in which costs outlines had been exchanged. b. Rule 57.01(0.b): The amount of costs that the defendants could have reasonably expected to pay in respect of this action, having regard to the baseline of the time spent and hourly rates of their own lawyers as disclosed in the defendants’ Bill of Costs. c. Rule 57.01(a): This trial was about corporate governance of the Limited Partnerships in which Tridelta made a $25 million investment that was entrusted to the Former General Partners over five years ago to invest in real estate Projects that have made little development progress. d. Rule 57.01(b): There was no apportionment of liability. The Former General Partners are all equally responsible for the defaults and other grounds found to have justified the resolutions passed for their replacement. The Former General Partners were found to have been in default of at least five of their obligations under the Limited Partnership Agreements (at least one of which, the failure to safekeep the assets of the Limited Partnerships, would also be a breach of their fiduciary duties to Tridelta). UDEV was the primary plaintiff in the counterclaim that was wholly unsuccessful. UDEV was the manager who the Former General Partners claim to have engaged to carry out the functions that they defaulted on, although that management agreement was found not to have been duly approved. The defendants/plaintiffs by counterclaim are all jointly and severally liable to the plaintiffs for the costs of the trial. e. Rule 57.01(c): The issues were numerous and complex, and for reasons discussed below and detailed in the Trial Decision (see, for example, some of the extracts in Schedule “A” to this endorsement), became more complex because of the disclosure challenges that the plaintiffs faced with the defendants. The fact that the plaintiffs narrowed down the alleged defaults and the court did not ultimately need to decide all of them does not work to the advantage of the defendants. The court did not determine that any of the issues raised by the plaintiffs were unwarranted, just that they did not all need to be decided for the plaintiffs to be granted the relief they sought. f. Rule 57.01(d): The issues were important for both sides — they determined the future management and control of the Limited Partnerships. g. Rule 57.01(e), (f) and (g): The conduct of the defendants, in terms of positions taken regarding disclosure and also arguments advanced that could not be substantiated and were inflammatory, tended to lengthen unnecessarily the trial and the amount of work the plaintiffs were put to (discussed in more detail below).
[16] In support of the request for an award of substantial indemnity costs, Tridelta points to the defendants’ conduct throughout this litigation, manifested by their patent and persistent disregard for the court’s processes. Tridelta says such conduct deserves reproof or rebuke and is to be sanctioned by an award of substantial indemnity costs. Tridelta also points to the unsubstantiated allegations of fraud or willful misconduct that the defendants made during the litigation (against both the plaintiffs and their counsel).
[17] The counterclaim raised various allegations of wrongful misconduct against the plaintiffs. The defendants/plaintiffs by counterclaim alleged that Tridelta made fraudulent and deceptive statements about the defendants to RBC and other counterparties of the Partnerships, and Tridelta made fraudulent filings with the Ontario Ministry of Government and Consumer Services. These unsubstantiated allegations portrayed Tridelta as having made malicious and deliberately false statements to subvert these proceedings. Despite having no evidence supporting any of these allegations, the counterclaim was never withdrawn or abandoned. None of the allegations were proven at trial.
[18] Mr. Tajbakhsh accused counsel for the plaintiffs of forging (or, as he later explained, altering) financial records that he had instructed be redacted — when confronted on discovery with the unredacted documents he questioned their authenticity and refused to answer questions about them, accusing the plaintiffs’ counsel of having tampered with the documents that had been produced in redacted form. That accusation persisted through to the trial. The unredacted information in these financial statements was relevant and relied upon at trial in some of the findings of default by the Former General Partners.
[19] It is settled law that unfounded and unproven allegations of fraud can justify an enhanced costs award. See Murano v. Bank of Montreal (1998), 41 O.R. (3d) 222 (C.A.), at para. 82; A-C-H International Inc. v. Royal Bank of Canada (2005), 197 O.A.C. 227 (C.A.), at para. 31; Homelife Realty Services Inc. v. Homelife Performance Realty Inc., 2005 ONSC 34806, at para. 12.
[20] The control and management of the ultimate investments in the subject real estate Projects is held through a multi-layered corporate structure with Mr. Tajbakhsh at the helm, wearing multiple hats. His attempts to distinguish the roles and capacities in which he claims to have conducted the business of managing the Limited Partnerships and their investments (through the companies that he controls: the Former General Partners, the manager they purported to hire to fulfil their duties, UDEV, and the Project Companies themselves) unduly complicated, but did not help him avoid, many of the disclosure obligations that were at heart of this dispute. This resulted in staged disclosure, including some delayed disclosure of relevant documents during the trial, and even after the trial (particularly in relation to the trip wire defence, discussed below). This narrow approach to disclosure unnecessarily complicated and lengthened the pre-trial and trial stages of this case and increased the costs.
[21] The discovery process was arduous for the plaintiffs because Mr. Tajbakhsh took into his own hands decisions about whether certain questions should be answered by him on behalf of the defendants. Some were answered later (after a motion that was eventually settled and some guidance had been provided from the court) and some that had not been answered gave rise to objections and the need for rulings at trial about attempts to lead evidence that was the subject of refusals on discovery.
[22] Some disclosure was never made before the conclusion of the trial. For example, none of the bank statements or other banking records of the Former General Partners were produced, ostensibly because the RBC accounts were closed and Mr. Tajbakhsh could not recall the branch or name of the branch manager and had not retained copies. This banking information was subsequently requested from RBC and disclosed by the defendants after the trial in the context of ongoing contempt proceedings. The defendants object to the court relying on the contents of these later produced documents in its determination of the costs of the trial. Even if I do not consider what these banking records disclose, the very fact that they were obtained and produced indicates that they could have been obtained and produced by the defendants for consideration at the trial, but they were not.
[23] The most egregious example of the delayed disclosure and its effects on the trial is exemplified by what was described at the trial as the “trip wire defence”. Mr. Tajbakhsh testified that the Former General Partners had provided guarantees in respect of mortgages that would result in some “trip wire” cross-defaults if there was a governance change at the Limited Partnership level. This defence was introduced in an attempt to convince the court that it should exercise its discretion not to affirm the replacement of the Former General Partners.
[24] Despite being directly relevant to their own defence, the defendants refused to provide information about these guarantees or to produce the related mortgage documents until ordered to do so by the court during the trial. Mr. Tajbakhsh then delivered only some of the loan documents, producing the rest after the trial had finished, necessitating additional appearances. These documents directly contradicted Mr. Tajbakhsh’s evidence as they showed that there were no guarantees from the Former General Partners. Mr. Tajbakhsh subsequently recanted his trial testimony and attempted to rationalize all of this by relying on the remarks towards the end of his trial testimony, after having been pressed for details of the trip-wire defence, that he could not remember all of the details and would need to check the documents.
[25] This was not just a matter of checking the details. The whole premise of the trip wire defence turned out to be wrong. The defendants should have looked at (and produced) the documents before raising the trip wire defence and before Mr. Tajbakhsh gave what turned out to be false testimony in support of it, not afterwards. All of the trial time or additional appearances that were required to deal with this issue could have been avoided if the defendants had simply complied with their obligation to produce relevant documents from the outset.
[26] In summary, the defendants persisted in allegations of intentional misconduct against the plaintiffs and their counsel, took indefensible positions about the production of relevant documents, back-tracked when the documents eventually ordered produced that did not accord with Mr. Tajbakhsh’s testimony and, in so doing, unnecessarily prolonged the trial. This was a pattern of conduct that persisted before, during and after the trial. This conduct is not in line with the expected conduct of litigants in civil proceedings and is worthy of sanction through an award of substantial indemnity costs.
[27] Conduct reflecting a patent and persistent disregard for the court’s processes is “deserving of reproof or rebuke” through a sanction of a substantial indemnity costs award. See Young v. Young, [1993] 4 S.C.R. 3, at para. 260; Leung v. Leung (1993), 77 B.C.L.R. (2d) 314 (S.C.), at para. 7; Somers v. Fournier (2002), 60 O.R. (3d) 225 (C.A.), at para 17.
[28] Elevated costs have also been awarded in situations where defendants are evasive and misleading, and in circumstances where they not only engage in blameworthy conduct prior to the litigation, but their failure to be forthcoming makes the process of getting at the truth more difficult and time consuming. See 1505986 Ontario Inc. v. Surma, 2010 ONSC 6956, at para. 20. That is what occurred in this case.
[29] The above considerations are sufficient for me to conclude that the elevated scale of substantial indemnity costs is justified in this case.
[30] The findings in the Trial Decision that the Former General Partners failed to safekeep the funds of the Limited Partnerships and did not ensure they were used for the exclusive benefit of the Limited Partnerships (in part, due to the co-mingling of these funds with Former General Partner funds) may not amount to a finding of reprehensible conduct on the part of the defendants, but a breach of a fiduciary duty such as this is an added consideration in the determination that an award of substantial indemnity costs in favour of the plaintiffs is warranted in this case. See 1162740 Ontario Limited, et al v Pingue, et al., 2015 ONSC 587, at para. 14, aff’d 2017 ONCA 583, leave to appeal refused [2017] S.C.C.A. No. 368. The follow-up question in this case of whether funds were misappropriated, or just mismanaged, by the defendants and/or Mr. Tajbakhsh is an issue for another day. That has not been determined as of yet.
b) Should the Plaintiffs’ Costs be Discounted?
[31] The defendants ask the court to reduce the amount of the costs award to the plaintiffs, from what they have claimed:
a. to reflect what the defendants reasonably expected they would have to pay in costs if they lost; and b. because of the plaintiffs’ conduct of, or during, the trial and their measure of success.
Reasonable Expectations Regarding Quantum of Costs
[32] This is a situation in which the principles in sub-Rules 57.01 (0.a) and (0.b) are at odds with each other. The defendants say that their reasonable expectations of what they might have to pay if they lost were much lower than what it would take to come close to indemnifying the plaintiffs for the costs they actually incurred.
[33] The defendants’ full indemnity costs (of $809,280.14) were less than the plaintiffs’ partial indemnity costs (of $892,286.31). The defendants’ bill of costs is one, but not the only, benchmark of what they might reasonably have expected to pay in costs if they lost. They suggest that the $1.3 million in substantial indemnity costs claimed by the plaintiffs is so much more than their costs that it is well outside of the realm of their objectively reasonable expectations.
[34] It would be naïve (and therefore not objectively reasonable) of the defendants to think that the lawyers opposite were not spending more time at higher hourly rates than their own lawyers — they would have seen bills of costs on earlier motions that disclosed the rates. The plaintiffs bore the onus of proof at the trial and there were lots of interlocutory wranglings between the parties about disclosure that continued throughout the trial. It is not unusual for plaintiffs’ costs to be higher than defendants’ costs. As well, the plaintiffs’ work (and the time of their counsel) was increased because of the defendants’ conduct (described above).
[35] The mere fact that the plaintiffs had more lawyers who spent more time at higher hourly rates than the defendants’ lawyers is not a reason to disregard what the plaintiffs have claimed in substantial indemnity costs, already discounted from (and therefore not a full indemnification of) the actual costs they incurred.
[36] Having reviewed the bills of costs of both parties and having an appreciation for the frustration and enormous effort that the plaintiffs’ lawyers were put to in order to prosecute this action to a successful outcome, there would be little utility in undertaking a line by line review of their bill of costs and evaluate the time spent or number of lawyers involved for every task and comparing that to the time spent by counsel for the defendants. That said, having listened to the submissions of counsel for the defendants, there are some areas in which there was overlapping work being done by more than one counsel in a manner that might not have been as efficient as it could have been, with the benefit of hindsight.
[37] To address the prospect of some excess time having been spent by plaintiffs’ counsel as tasks were divided between them, in general rather than specific terms, I have settled on an amount of substantial indemnity costs that is at slightly less than mid-way point between the plaintiffs’ claimed partial and substantial indemnity costs. The mid-point is approximately $1.1 million. I will further round it down to $1 million. This is more than $300,000 less than the claimed substantial indemnity costs of the plaintiffs.
[38] For all of the reasons outlined, I find this amount of substantial indemnity costs to be a fair and reasonable amount for the unsuccessful defendants/plaintiffs by counterclaim to pay to the plaintiffs in the circumstances, even though it is higher than their own actual costs incurred. This is my overall assessment having first examined the factors and submissions of the parties on costs and then stepping back to consider what is fair and reasonable and proportionate in all of the circumstances. See Restoule v. Canada (AG), 2021 ONCA 779, at paras. 356–57, citing Murano v. Bank of Montreal (1998), 41 O.R. (3d) 222 (C.A.), at para. 100.
[39] In the exercise of my discretion under s. 131 of the Courts of Justice Act and having regard to the relevant factors under Rule 57, I am fixing the plaintiffs’ substantial indemnity trial costs in the all-inclusive amount of $1 million.
The Plaintiffs’ Conduct and Measure of Success at Trial
[40] As a general rule, “[c]osts are not to be determined by considering success on an issue by issue basis”. See Fram Elgin Mills 90 Inc. v. Romandale Farms Limited, 2021 ONCA 381, at para. 10. See also, Wesbell Networks Inc. v. Bell Canada, 2015 ONCA 33, at para. 21. Distributive cost awards (which involve issue by issue assessments of success) are approached with caution. See Armak Chemicals Ltd. v. Canadian National Railway Co. (1991), 5 O.R. (3d) 1 (C.A.), at paras. 17–19.
[41] In exceptional cases, the court may undertake an assessment of the relative success of a party to reduce the overall quantum of costs, once determined, but this is not one of those cases. In Murray v. Pier 21 Asset Management Inc., 2020 ONSC 5606, the court did so in the exceptional circumstance of a freestanding, factually and temporally distinct claim advanced by the plaintiff that was not successful, which also resulted in the plaintiff being awarded less than half the damages it sought.
[42] In contrast to what the defendants suggest in both their initial and supplementary costs submissions, there was no mixed success in this proceeding. They argue that the plaintiffs had mixed success on the issue of which defaults could be relied upon to prove that the Special Resolutions were valid. The plaintiffs in this case raised a multitude of defaults in support of a single cause of action, selected a sub-set of those to focus on at trial and solidly established five of them. The other five were not dismissed. They were simply not relied upon because it was not necessary to do so and they involved more complicated factual assessments (some of which were compounded by the defendants’ reluctance to make production of requested documents).
[43] The plaintiffs did not unnecessarily prolong the trial by having pointed out the many alleged defaults, even if some of them proved to be more complicated to establish than others. I reject the suggestion of the defendants that now, with the benefit of hindsight, the plaintiffs might have been better advised to put their eggs in fewer (or even just one of the) alleged default baskets.
[44] Tridelta sought six specific orders all of which were granted. There was no partial success on divisible issues. The Former General Partners were removed as a result of the five defaults established by Tridelta. The defendants also lost their counterclaim in its entirety. UDEV’s management agreement (which formed the basis of the counterclaim) was found not to have been duly approved. The plaintiffs/defendants by counterclaim were wholly successful.
[45] I find no exceptional justification upon which to reduce the quantum of the substantial indemnity costs of the plaintiffs (as it has been determined in the previous section of this endorsement) because of any conduct or measure of success of the plaintiffs at trial.
c) Should Costs be Awarded Against Mr. Tajbakhsh or any Unidentified Third Party Funder?
[46] Tridelta asks that the defendants, together with their principal Mr. Tajbakhsh and an unidentified third party funder, be held jointly and severally liable for any costs awarded in favour of the plaintiffs.
Costs Against Mr. Tajbakhsh
[47] The plaintiffs rely on the same foundational facts supporting their claim for substantial indemnity costs to support their claim for costs against Mr. Tajbakhsh personally.
[48] However, unless there has been an abuse of the court’s process, costs are not awarded against non-parties, including a director or principal of a corporate party: see 1318847 Ontario Limited v. Laval Tool & Mould Ltd., 2017 ONCA 184, 134 O.R. (3d) 641, at paras. 59, 66. The plaintiffs have also not suggested that Mr. Tajbakhsh is a “person of straw” within the meaning of the term in Laval. This is the other exceptional circumstance in which a non-party might be held responsible for costs of litigation. It does not arise in this case.
[49] In Laval, the Court of Appeal held that the court has inherent jurisdiction to order non-party costs on a discretionary basis. It stated the following, at paras. 66, 76, and 77:
a. where the non-party has “conducted litigation in such a manner as to amount to an abuse of process.”; b. in situations of “gross misconduct, vexatious conduct or conduct by a non-party that undermines the fair administration of justice; and c. in circumstances that include fraud or gross misconduct in the conduct of the litigation by non-parties who are directors, shareholders or principals of corporations.
[50] To satisfy the test for abuse of process, the non-party must be shown to have engaged in serious misconduct, such as by “bringing … proceedings that are unfair to the point that they are contrary to the interest of justice” or “oppressive” or “vexatious” treatment that undermines “the public interest in a fair and just trial process and the proper administration of justice”: Laval, at para. 73, citing Behn v. Moulton Contracting Ltd., [2013] 2 S.C.R. 227, at para. 39. The categories of misconduct are not closed.
[51] Historically, it has been plaintiffs that have been found to have abused the court’s process in a manner that justifies a costs award against a non-party associated with the plaintiff’s conduct of the litigation. I see no principled basis on which to distinguish plaintiffs from defendants (who in this case are also plaintiffs by counterclaim) – the relevant question is the manner in which the litigation was conducted and whether that amounts to an abuse of process. However, the conduct must be sufficient to establish an abuse of the court’s process that is tantamount to a fraud being committed on the court, such as in other cases where the individual who was directing and controlling the litigation:
a. intentionally used the civil justice system as a vehicle through which to advance unfounded allegations of fraud for ulterior purposes: Sunsource Grids Inc v. University of Windsor, 2023 ONSC 5621, at para. 95; b. fabricated evidence and misled the court about it: 1890077 Ontario Inc. v. 2076748 Ontario Inc., 2021 ONSC 6168; c. created false documents, including altered invoices and a contract, which were central to the dispute. Marcos Limited Building Design Consultants v. Lad, 2018 ONSC 7812, aff’d in Marcos v. Lad, 2021 ONSC 4900, 75 C.P.C. (8th) 383.
[52] Like the director held responsible for costs in Sunsource, Mr. Tajbakhsh personally was in full control of the litigation. He personally controlled and directed the conduct of the defendants and plaintiffs by counterclaim throughout the litigation, before, during, and after the trial. He was their discovery witness and testified for them all at trial. He was responsible for the documents that they did, and did not, produce. Mr. Tajbakhsh was behind the unsubstantiated allegations of fraudulent and other egregious misconduct that were advanced against Tridelta and its counsel. The issue that the court must determine is whether that conduct amounted to an abuse of process that warrants an award of costs against the principal of the corporate defendants, such as was found to be the case in Sunsource: at paras. 83 and 96.
[53] As was summarized earlier in this endorsement (and repeated here for ease of reference), the defendants persisted in allegations of intentional misconduct against the plaintiffs and their counsel, took indefensible positions about the production of relevant documents, back tracked when the documents eventually ordered to be produced did not accord with Mr. Tajbakhsh’s testimony and, in so doing, unnecessarily prolonged the trial. This was a pattern of conduct that persisted before, during, and after the trial. It was all directed by Mr. Tajbakhsh. The plaintiffs contend that this conduct is of a nature and extent that it also justifies piercing the corporate veil to require Mr. Tajbakhsh to personally be responsible for the costs award against the corporate defendants that he controls.
[54] Although I have found this conduct not to be in line with the expected conduct of litigants in civil proceedings and to be worthy of sanction through an award of substantial indemnity costs, I do not consider it to rise to the level of an abuse of process to justify an award of costs against Mr. Tajbakhsh personally. The example of the trip wire defence and Mr. Tajbakhsh’s changing evidence about that defence is the closest that Mr. Tajbakhsh came to an abuse of process; however, that evidence was ultimately qualified by Mr. Tajbakhsh’s remark that he would need to look at the documents. The documents turned out not to accord with his testimony, and he recanted. As noted earlier, Mr. Tajbakhsh should have looked at the documents before making the allegations and giving his testimony, but that failure does not amount a fraud on the court.
[55] The plaintiffs also ask the court to consider additional evidence that has come to light since the trial in the context of ongoing contempt proceedings, to supplement what was established in the trial record. I have some difficulty with the defendants’ suggestion that the court cannot consider these documents on the question of costs. If they demonstrate an abuse of process at trial, they could be relevant to the question of costs even if the evidentiary record for the trial is closed. It is logical that an abuse of process might only be recognized and demonstrated after the fact. However, the specific records the plaintiffs seek to rely on do not move the needle over the line to establish the type of abuse of process/fraud on the court that is necessary to pierce the corporate veil.
[56] First, the plaintiffs point to documents that were produced by RBC that they argue undermine Mr. Tajbakhsh’s explanation in his testimony for why the RBC bank accounts were closed. The plaintiffs point out that these new documents do not refer to any involvement of Tridelta in RBC’s decision to close its accounts for the Former General Partners. These new documents also do not exclude the possibility of Tridelta’s involvement. They simply provide a high-level explanation for why the accounts were closed. They could have and should have been produced earlier, and the defendants’ failure to produce them has been taken into account in the determination of the appropriate scale of costs. However, their late production, and what they actually disclose, does not amount to an abuse of process tantamount to a fraud on the court.
[57] Second, the plaintiffs point to the Former General Partners’ general ledgers, produced after the trial, which appear to indicate legal fees paid by the Former General Partners (that only had one co-mingled bank account with the Limited Partners and no other purpose of business). These expenses are consistent with the plaintiffs’ assertion that the Former General Partners had been using partnership funds for this purpose in breach of the Limited Partnership Agreements and their fiduciary duties. However, the general ledgers do not show movement of cash/funds. Instead, the ledgers show accounting entries recognizing an expense for legal fees. This does not shed any direct light on the question of where the funds came from to pay the legal fees; it does not establish that they came from the Limited Partnerships.
[58] Mr. Tajbakhsh caused the defendants to take unjustified positions. His evidence was not found to be reliable or credible on some matters. The decisions he made about the production of documents and directions he provided on behalf of the corporations prolonged and unnecessarily complicated these proceedings. However, it has not been established that Mr. Tajbakhsh committed a fraud on the court or intentionally misled the court so as to amount to an abuse of process. I am not granting an order against Mr. Tajbakhsh personally that he be jointly and severally liable to pay the costs awarded to the plaintiffs.
Costs Against Unidentified Third-Party Funder
[59] In the trial decision, the court noted that there was an allegation that the Former General Partners had used the Limited Partnership’s funds to fund their legal fight against Tridelta. If proven, this would have been a breach of Article 6.2 of the Limited Partnership Agreements. The court stated the following, at para. 188, addressing the broader concern raised by the plaintiffs that funds had been diverted by the Former General Partners to third parties who may have been funding the litigation:
[188] It was suggested in closing that these concerns may be raised again when it comes time to deal with the costs of this action since there has been some indication from the defendants and plaintiffs by counterclaim that there is an outside source of funding for the litigation costs. However, this is no longer relied upon as one of the defaults in support of the Special Resolutions given the absence of evidentiary support.
[60] At an October 11, 2023 case conference, when the initial exchange of cost submissions was timetabled, the court further noted the plaintiffs’ stated intention to seek costs from an (as of yet unidentified) third-party funder(s). The court invited the third-party funders to seek independent representation and request more time/an opportunity to make their own submissions on costs. This did not occur. No third-party funder of costs has been identified by the defendants or appeared to make submissions on costs.
[61] Mr. Tajbakhsh testified that the Former General Partners have no assets. He also testified (and caused the defendants’ counsel to represent) that funds of the Limited Partnerships were not being used to fund this litigation. However, someone must have funded their defence of the action and prosecution of the counterclaim. When asked to disclose this information, the defendants asserted that it is privileged.
[62] It may be an abuse of process for a non-party to engage in conduct that amounts to the tort of “maintenance” or that “resembles a maintainer”: Davies v. Clarington (Municipality), 2023 ONCA 376, at para. 57. However, merely funding the litigation is not enough, they need to be intermeddling in it: Davies, at paras. 61-63.
[63] There is no evidence of an unidentified third party injecting itself into this litigation. The tort of champerty and maintenance is directed against those who, for an improper motive, become involved with disputes of others in which the maintainer has no interest and where the assistance rendered is without justification or excuse: McIntyre Estate v. Ontario (Attorney General) (2002), 61 O.R. (3d) 257 (C.A.), at paras. 26-27. The tort of champerty and maintenance was not pleaded or made out on the evidence before the court.
[64] I do not, by reaching this decision, condone the defendants’ steadfast refusal to identify who has been funding their litigation costs or accept their assertion that their identity is necessarily privileged. However, the facts are such that, regardless of the identity of this third party (whether it is Mr. Tajbakhsh, some affiliate of his, or otherwise), there is no procedural or evidentiary basis for ordering “John or Jane Doe” to pay the plaintiffs’ costs.
d) Direction Regarding Funds to be Used to Pay Costs
[65] Article 8.5 of the Limited Partnership Agreements provides that the Former General Partners cannot use or access Partnership funds except for the exclusive benefit of the Partnerships. Article 6.2 expressly precludes the use of Partnership funds to pay for any expense incurred in defending this action by the Former General Partners.
[66] Tridelta asks that the costs order ensure that compliance with it does not lead to a further breach of the Limited Partnership Agreements. They suggest that this can be achieved by prohibiting the defendants from using any of the assets or funds of the Limited Partnerships to satisfy the trial costs that the defendants have been ordered to pay. To ensure compliance, the plaintiffs ask that Mr. Tajbakhsh be directed to sign an attestation that the Former General Partners have not accessed or used Partnership funds to pay their liability for costs.
[67] The requested order is, from a future-oriented perspective, not unreasonable. It may be moot if the defendants’ evidence that all the funds invested in the Limited Partnerships have been spent is true. However, since only $20.7 million of the total $25.5 million invested in the Limited Partnerships has been accounted for thus far, if the remaining Limited Partnership funds are still available, they clearly should not be used by the defendants/plaintiffs by counterclaim to pay the plaintiffs’ costs. The limited evidence that the defendants provided at trial (based on rulings made at the trial which limited the scope of relevance of this issue) indicated that, whatever may have happened to these funds, their disbursement left the Limited Partnerships with no liquid capital. That said, given the history of these proceedings and the high level of distrust between the parties, a direction that the Limited Partnerships assets and funds are not to be used to pay any order regarding the plaintiffs’ trial costs is warranted. It may be moot if they have no assets but that remains to be determined. An order like this was made in another case that Tridelta is familiar with, Tridelta Financial Partners Inc. v. Zephyr Abl Ser-A 4.875% Jan 25, 2021 GP INC., 2020 ONSC 5211, at para. 49(g).
[68] The court will not go so far as to direct Mr. Tajbakhsh to provide an attestation that the Former General Partners have not accessed or used Partnership funds to pay for any costs. That goes beyond the scope of the matter of costs as between the parties. No authority has been provided for the jurisdiction or procedural basis for the court to make such an order at this stage of the proceedings, after the trial has concluded.
Summary of Outcome
[69] The defendants/plaintiffs by counterclaim shall forthwith pay to the plaintiffs their substantial indemnity costs of this trial, fixed in the all-inclusive amount of $1 million. The court directs that the Limited Partnerships assets and funds shall not be used to pay the plaintiffs’ trial costs awarded herein.
Kimmel J. Date: June 19, 2024
Schedule “A” to Trial Costs Endorsement
For ease of reference, the following findings have been extracted and reproduced from the Trial Decision: Tridelta Investment Counsel Inc. v. GTA Mixed-Use Developments GP Inc., 2023 ONSC 5099:
[14] There are many uncontested facts that are detailed in the Agreed Statement of Facts marked as trial Exhibit 1 and the Joint Chronology of Key Events and Cast of Characters marked as trial Exhibit 2.
[24] Mr. Tajbakhsh directly or indirectly controls each of the Original General Partners, UDEV, U Real Estate Group, and each of the Project Companies.
[41] (f) According to Mr. Tajbakhsh, he was first advised by RBC that it was terminating its banking relationship with the Original General Partners in the first half of March 2021 as a result of an anonymous package received by RBC accusing the Original General Partners of stealing money from the investors in the Limited Partnerships and indicating that there were outstanding criminal proceedings against Mr. Tajbakhsh (the “Anonymous Package”). Mr. Tajbakhsh says he called to speak to the bank manager about this on March 16, 2021 after receiving three identical letters from RBC terminating the banking relationship with each Original General Partner. He no longer has a copy of these letters from RBC and has no notes of the conversation he had with the RBC bank manager, nor does he recall the name of the RBC bank manager or which RBC branch he worked.
[42] Much of the other events that transpired after the February 11, 2021 inspection and February 22, 2021 deficiency letter are in dispute. The defendants have consistently maintained that they will not voluntarily disclose information about the Project Companies, which has been an ongoing point of contention.
[47] Both before and after this proceeding was commenced on June 10, 2021, the parties continued to disagree about production and disclosure issues. Beyond the production issues, there were other interlocutory disputes. An interlocutory motion by the defendants seeking to consolidate this action with an action in Brampton relating to one of the Project Companies and an interlocutory motion by the plaintiffs seeking an injunction and certificate of pending litigation (in respect of the non-party Project Companies and their properties) were both dismissed with costs.
[51] Although reference has been made to the endorsement of Dietrich J. following a case conference held on September 21, 2020 to schedule the plaintiffs’ contempt motion regarding the alleged non-compliance with the May 27, 2019 Penny Order upheld by the Court of Appeal on May 11, 2020, there is disagreement about whether there was a complete enough record before the court for any findings to have been made. It is not necessary for purposes of this decision to rely upon this particular endorsement or findings, nor to determine whether they can or should be construed as prior findings of contempt. As noted previously, the contempt motion was eventually adjourned on consent.
[83] The Original General Partners have steadfastly refused to provide any accounting for work said to have been undertaken by them or by UDEV or other affiliates in connection with the Limited Partnerships or the Projects, through invoices or accounting or banking records to demonstrate flow of funds, and have refused to provide any detailed description of work and corresponding fees, except in the most high-level and general terms. That leads to an inference that this production and disclosure would not support what Mr. Tajbakhsh has said. When one does not disclose relevant documents, one may be taken to be hiding relevant information that could harm that party’s case. See Belovich v. Steiner, 2013 ONSC 4401, at para. 4.
[85] This lack of clarity around what UDEV was doing is compounded by the unaccounted for $4.8 million in cash originally invested in the Limited Partnerships by the Tridelta Funds. According to the financial statements, some of these funds were transferred to an unidentified affiliate of the General Partners for an unspecified purpose. Mr. Tajbakhsh says these transferred funds were used (or are being held) for partnership purposes, but has provided no particulars about which entity they were provided to (UDEV or another affiliate) or what these funds were used for.
[94] ... Mr. Tajbakhsh says that there was no point in attempting to borrow funds from a reputable financial institution because, just prior to making the Capital Calls, he had been advised by RBC, the bank that he had intended to use for financing, that they were terminating their relationship with the General Partners (in whose names the accounts had been opened) as a result of the Anonymous Package. The defendants had, but no longer have, copies of the correspondence from RBC about this Anonymous Package, and were unable to identify the bank employee or branch to which it was sent. There is thus nothing to corroborate Mr. Tajbakhsh’s testimony about this Anonymous Package.
[95] Mr. Tajbakhsh believes Tridelta sent the Anonymous Package, or caused someone else to do so, but he admits he has no proof of this. Tridelta denies sending any such letter.
[96] Without any corroborating evidence that the letter even existed, and without the identity of the bank manager or the bank branch from which some corroboration might be provided of the reason for RBC having terminated its banking relationship with the General Partners, the court cannot place any reliance upon the alleged Anonymous Package or Mr. Tajbakhsh’s theory about who sent it. It is entirely speculative. If the General Partners wanted to rely on this Anonymous Package to justify their failure to seek bank financing they had the onus of proving it. They have not done so.
[118] Mr. Tajbakhsh’s increasing unwillingness to co-operate with Tridelta’s many demands for documents and information from any of the companies that he controlled, whether it be the Original General Partners or the Project Companies or UDEV, after Mr. Jong was terminated was, at least in part, a reaction to Tridelta’s aggressive stance and stated desire to exit the investments in the Limited Partnerships. This is not an excuse for what was a failure by the Original General Partners to meet their production and disclosure obligations to the Limited Partners concerning all matters affecting the Limited Partnerships (discussed above), but it does provide some context for Mr. Tajbakhsh’ reluctance to do so. He did eventually provide documents, but often late and as time passed only when the court ordered production. That said, by April 8, 2021 that which had been ordered to be produced had been produced, to the extent it existed.
[131] Mr. Tajbakhsh testified that the only funds deposited in these RBC accounts were Limited Partnership funds, and regardless of the intervening transactions involving the Original General Partners and their affiliates, those funds were ultimately used for the benefit of the Limited Partnerships. However, Mr. Tajbakhsh refused to provide copies of the bank statements for these accounts, so his assertions could not be verified. The court cannot simply accept his word for this, without some corroboration. His evidence was evasive and inconsistent with the financial statements that were only reluctantly produced, and is not reliable on this point.
[143] None of the banking or accounting records, nor any agreements, have been produced to substantiate what is essentially a “trust me” defence to the allegation that funds were deployed for uses and benefits other than the Limited Partnerships. As noted previously, when one does not disclose relevant documents, one may be taken to be hiding relevant information that could harm that party’s case. See Belovich, at para. 4. Also as noted previously, the court is not prepared to accept Mr. Tajbakhsh’s evidence on this point without some corroboration.
[144] Even at the trial, the defendants were not prepared to disclose who the affiliates were that were paid funds from these bank accounts or what the funds were used for. If the defendants wanted to rely on the assertion that the payments out of the RBC bank accounts to affiliates of the General Partners were for the benefit of the Limited Partnerships it was made clear to them by the court during the trial (cross examination of Mr. Tajbakhsh and objections raised to certain questions regarding these particulars) that they would need to provide further particulars and support for this contention. They did not do so to the court’s satisfaction.
[172] Another identified concern relates back to an issue raised earlier in these reasons about the defendants’ refusal to identify the ultimate recipient(s) of the approximately $4.8 million in funding provided by the Tridelta Funds that was not used to invest in the Project Companies. Nor have any banking records or other financial documents been produced that might disclose what was done with these funds, although Mr. Tajbakhsh maintains that they were used and/or are being kept for the Projects. Whatever may have happened to these funds, their disbursement left the Limited Partnerships with no liquid capital to cover the anticipated expenses and liabilities of the Limited Partnerships (e.g., for any existing contracts that required the payment of annual fees, such as the alleged Management Agreements, or for the cost of financial and other reporting specifically required under the Limited Partnership Agreements).
[174] The lack of transparency and accountability for what has (or has not) been done to advance the Projects and/or to manage the cash flow, while valid concerns, do not come within Article 2.1 of the Limited Partnership Agreements. Article 2.1 is directed to the Business of the Limited Partnerships in the broader sense, and there has been no suggestion that the Original General Partners were carrying on any business other than “the development, marketing, sales and management of real estate projects in the Province of Ontario”.
[209] The second argument is tied to what has been referred to by both parties as the “trip wire” defence. Mr. Tajbakhsh raised a concern that the removal and replacement of the Original General Partners was going to cause defaults under existing mortgages on the remaining Project properties which could lead to the loan repayment being accelerated. The court was asked to consider this prejudice and potential for detrimental financial consequences for the Project Companies and certain guarantors (at various times indicated to be the Original General Partners themselves and/or other affiliated companies) as a reason not to uphold the Special Resolutions and Appointing Resolutions. The defendants were unable to substantiate any of their allegations in respect of this “trip wire” defence, despite having been given the opportunity to do so during and even after the trial evidence had concluded on May 2, 2023.
[210] Two weeks after the trial concluded, Mr. Tajbakhsh recanted his evidence after having obtained the relevant mortgage documents and admitted that there was no guarantee from the Original General Partners. In fact, subsequently produced documents did not disclose the existence of any guarantees for the vendor take-back mortgage on 253 Queen Street East.
[217] In the absence of any accounting of the funds out of the RBC bank accounts of the Original General Partners, including the $4.8 million, and because of the refusal to provide any accounting or disclosure from UDEV or to disclose which affiliate of the Original General Partners the funds were transferred to, the court has no way of ascertaining whether UDEV received any of those funds and, if so, in what capacity and for what purpose. UDEV has not provided sufficient particulars of what it claims to have done for the Limited Partnerships under the Management Agreements (as distinct from what it may have done for the Project Companies under the Project Development Agreements, for example). There is not enough evidence to make out a claim that the Limited Partners have been unjustly enriched. Even if there were evidence of unjust enrichment, it would then have to be shown to have benefited the plaintiffs as well for this counterclaim to succeed. None of the elements of the unjust enrichment claims against the plaintiffs have been proven on a balance of probabilities. See Kerr v. Baranow, [2011] 1 S.C.R. 269, at paras. 36–45.