Court File and Parties

COURT FILE NO.: CV-20-00645223-00CL DATE: 2024-09-20 SUPERIOR COURT OF JUSTICE – ONTARIO COMMERCIAL LIST

RE: CHU de Québec-Université Laval, Plaintiff AND: Tree of Knowledge International Corp., Tree of Knowledge Inc., Michael Caridi, Blu Stella Consulting Group Inc., and Fabio Gesufatto, Defendants

BEFORE: Wilton-Siegel J.

COUNSEL: John J. Pirie, Ahmed Shafey and Ajanthana Amandarajah, for the Plaintiff Michael Caridi, Self-Represented

HEARD: In Writing

COSTS Endorsement

[1] The plaintiff in this action was successful at trial. It was awarded U.S. $11,193,522.50 against the defendant Michael Caridi for civil fraud or deceit based on recklessness in the making of certain representations to the effect that TOKI could deliver NIOSH certified N95 masks. It seeks costs on a partial indemnity basis of $1,620,155 plus taxes and disbursements of $261,161 inclusive of taxes. In this Endorsement, defined terms have the meanings ascribed thereto in the Reasons dated July 9, 2024.

The Plaintiff’s Submissions

[2] The plaintiff was awarded the full amount that it sought in the action. It argues that the costs sought are fair and reasonable given the following factors.

[3] First, the plaintiff says that, as a publicly funded hospital network, it was imperative that it exhaust all available legal remedies to recover the public funds paid to Caridi. Regardless of the plaintiff’s motivation, however, this consideration does not remove the Court’s obligation to fix costs that it considers to be fair and reasonable in the circumstances.

[4] Second, the plaintiff says that the need for a Mareva injunction and the receivership proceedings in this action increased costs. There is an issue however of the extent to which such proceedings were necessary or yielded evidence of probative value. This is addressed below.

[5] Third, CHU says that the action was factually complex. While this was true to the extent it was necessary to understand questions relating to N95 masks and the NIOSH certification process, the main factual complexity arose out of the fact that there were two relationships involved – the Caridi/TOKI relationship with CHU and the Caridi/TOKI relationship with Lee/Roncati. While there was documentation pertaining to the first relationship, much of the communication between Caridi/TOKI and Lee/Roncati was conducted orally without evidence of the content of such communications. While I cannot establish whether Caridi intentionally withheld documentation or was unable to furnish documentation as a result of actions of Lee/Roncati, ultimately the responsibility for the increased costs resulting from the lack of documentation falls with Caridi as he selected Lee/Roncati as his supplier for the CHU transaction.

[6] Fourth, the plaintiff says that Caridi’s counterclaim asserted in mid-2022 increased costs in the form of discoveries as well as a security for costs motion. The counterclaim was subsequently withdrawn. I accept the plaintiff’s submission on this matter.

[7] Fifth, the plaintiff alleges that Caridi took steps to frustrate and obstruct the action leading to additional and unnecessary costs. The plaintiff points to Caridi’s actions in refusing to post security for costs to avoid the motion that was eventually brought, his failure to provide financial information required by the order in the Mareva Injunction Proceeding and his failure to provide documentation and information requested by the Receiver. It is unclear whether he was unwilling or unable to take these actions but they did increase the costs of the action.

[8] Sixth, the plaintiff says that it engaged in complex negotiations with certain defendants to obtain settlements of the claims against them and to narrow the primary claim in the action to its allegation of fraud against Caridi. There are several issues relating to these settlements that are addressed below.

[9] Lastly, the plaintiff points to Caridi’s change of position on a central issue on the last day of the evidentiary portion of the trial. CHU suggests that the trial could have been resolved or streamlined if Caridi had adopted this position much earlier. I am not persuaded that this is the case given the contradictory evidence at trial even after this change of position.

Caridi’s Submissions

[10] For his part, Caridi suggests that the plaintiff used an unreasonable amount of resources in pursuing its claim. He contrasts this with the more limited amount of approximately $500,000 that he paid before self-representing for lack of funds. However, his own expenditures indicate that Caridi would reasonably have expected that the plaintiff’s costs would be considerably more than this amount.

[11] He also raises certain issues regarding the purchase order description of the product ordered, his view of the significance to TOKI of the plaintiff’s testing of the masks that were delivered to it rather than immediate rejection, and the blocking of the bank accounts of TOKI and other parties. These matters were addressed in the Reasons and found to have no relevance to the issues in the action. They cannot be revisited for the purposes of this costs award.

[12] Caridi also argues that costs should be attributable to the other defendants in this action who settled with the plaintiff. As mentioned, I address this issue below.

[13] Lastly, Caridi advised the Court of certain events of a personal and financial nature that have affected his ability to pay any costs award. I have sympathy for his personal situation. However, while such circumstances could be relevant in future proceedings, they are not considerations of which a court can have regard in respect of a costs award.

Overview of the History of this Action

[14] The evolution of this action, as I understand it, is important background to this costs award. Initially, the principal defendants in this action were TOKI and its parent TOK Corp. as well as Caridi. The order of Koehnen J. in the Mareva Injunction Proceeding applied to the assets of each of these parties. It also provided for a receivership order over the assets of all three defendants.

[15] The premise of the Mareva Injunction Proceeding was an imminent risk of dissipation of assets. The receivership was therefore principally directed toward tracing funds that could be available to satisfy a judgment, that is effectively pre-judgment enforcement.

[16] For their part, the defendants denied any such imminent risk and alleged that “the decrease in cash was due to ordinary course expenditures”: see the Endorsement dated December 20, 2020 of Koehnen J. reported as 2020 ONSC 8188 at para. 31. The exhaustive investigation of the Receiver, as reflected in three reports of the Receiver, failed to identify any funds that had been intentionally misappropriated or hidden. The circumstances resulting in TOKI’s inability to repay the monies paid to it by CHU were instead demonstrated to be much more banal – TOKI had conducted an unsuccessful business venture purchasing and reselling PPE using the monies paid by CHU as operating capital.

[17] CHU settled with TOKI and TOK Corp. as well as with Blu Stella/Gesufatto and certain other third parties for payments reflecting their demonstrated receipt of funds out of the monies paid by CHU or ability to pay. Thereafter the action was essentially directed toward obtaining a judgment against Caridi personally as the only remaining possible “deep pocket”.

Analysis and Conclusion

[18] Given its success at trial, CHU is entitled to its reasonable costs on a partial indemnity basis. In fixing fair and reasonable costs, I have had regard to the considerations addressed above and the following additional considerations.

[19] First, while Caridi suggests that the plaintiff’s counsel used unreasonable resources, the level of seniority and involvement of counsel in the various stages of this proceeding are not unreasonable given the nature and complexity of the issues involved, subject to the matters addressed below.

[20] Second, this action was complicated by the actions of both parties.

[21] I accept CHU’s submissions that Caridi’s actions unnecessarily increased costs in four principal ways. He failed to provide relevant documentation in a timely manner necessitating court attendances and was unwilling or unable to provide some documentation that could have reduced costs and narrowed the issues. He also initiated and subsequently withdrew a significant counterclaim that required the considerable expenditure of resources by the plaintiff in response. As Chu also notes, Caridi’s position lacked clarity even after he sought to change or clarify his position at the end of the trial. Lastly, while I understand that Caridi removed his counsel shortly before trial for financial reasons, his self-representation at trial had the result of increasing the plaintiffs’ costs.

[22] On the other hand, CHU unnecessarily and unsuccessfully expanded the list of alleged misrepresentations, pursued a claim based on actual knowledge and misappropriation of funds rather than recklessness and an absence of any intentional misappropriation of funds upon which the Court ultimately based its decision, and, through one of its witnesses, alleged representations which were found to be lacking in credibility, all of which also complicated the trial.

[23] Third, the amount claimed and awarded was considerable. As the plaintiffs suggest, costs of just over 12% of the total judgment amount are within the range of certain recent trial costs decisions in the Commercial List. However, while CHU considered that it was necessary to make every effort to recover taxpayer funds, Caridi should only be responsible for the costs of such proceedings to the extent that they produced evidence that was of significance for the issues in this action rather than produced information of relevance for possible enforcement proceedings or the settlement discussions referred to below.

[24] In this regard, approximately $364,000 was incurred in legal fees in respect of the Mareva Injunction Proceeding, including the receivership proceedings, and an additional $200,000, is included in the disbursements representing the Receiver’s fees. The Receiver’s reports had some value for the settlement discussions refereed to below and may have some value for CHU in its consideration of enforcement proceedings in the future. However, the Receiver’s reports provided evidence that was of limited probative value in the trial of this action, principally some background to the operations of TOKI in the period of March to June 2019 and copies of the Athletix Agreement and the agreement between TOKI and Blu Stella. Accordingly, I have discounted the total of fees and disbursements incurred in connection with the Mareva Injunction Proceeding and the receivership proceedings to reflect the relative value of that evidence. In addition, the relief sought against Blu Stella and Gesufatto in the Mareva Injunction Proceeding was denied, warranting some adjustment to the fees sought in respect of that Proceeding.

[25] Lastly, as mentioned above, the plaintiff says that it engaged in complex negotiations with certain defendants to obtain settlements of the claims against them and to narrow the primary claim in the action to its allegation of fraud against Caridi.

[26] In its costs submissions, the plaintiff identified fees of approximately $41,600 which it attributes to “settlement negotiations, documentation and approval”. These settlements did not involve Caridi. I do not think that it is appropriate to require him to bear such costs. The plaintiff says that CHU’s settlement with TOKI and TOK Corp. resulted in a “protracted battle” to stay the action on Caridi’s part, which is understood to refer to his challenge to the Pierringer Agreement entered into with these defendants as an abuse of process. The plaintiff is entitled to his costs of Caridi’s unsuccessful challenge which, however, appear to have been included in another category of costs which includes the costs of motions and attendances.

[27] This category of costs also includes the costs associated with a third-party claim. I have assumed that this refers to a claim against an individual named Onis Belleus against whom TOK Corp. asserted a claim that was assigned to the plaintiff. I also do not think that Caridi should be required to bear such costs and, accordingly, an adjustment has been made in respect of the total costs identified in respect of this category.

[28] More significantly, as mentioned, the plaintiff entered into a Pierringer Agreement with each of TOK Corp. and TOKI. Such settlements should have taken into consideration the costs attributable to these defendants to the date of settlement with them. To the extent that they did not, I think that it is unfair to seek payment of such costs from Caridi. Accordingly, I have adjusted for an estimate of such costs. I note however that these settlements were reached in May 2021 after the Mareva Injunction Proceeding and during the receivership proceedings but before the principal examinations and productions of the parties.

[29] Based on the considerations set out above, I find fair and reasonable costs to be $1.05 million plus taxes in respect of legal fees and $162,000 inclusive of taxes, in respect of disbursements.

Wilton-Siegel J.

Date: September 20, 2024