Costs Endorsement

Overview

[1] Ukraine Airlines Flight PS752 was shot down by the Islamic Republic of Iran in January 2020. All of the passengers were killed, including many Canadian citizens and others with ties to Canada. It was the largest loss of Canadian lives in aviation since the 1985 Air India bombing.

[2] The Applicant, Mehrzad Zarei (“Mehrzad”), had a son on the flight.

[3] Mehrzad and other surviving family members established the Respondent, the Association of Families of Flight PS752 Victims (the “Association”).

[4] Mehrzad was also the lead plaintiff in Zarei v. Iran et al where the court found that the defendants intentionally destroyed the aircraft by firing two missiles into it. The court awarded damages of $107 million to the five named plaintiffs.

[5] Mehrzad has had an ongoing dispute with the Association regarding whether it has conducted itself in accordance with its constating documents.

[6] He asserted that the Association should be providing direct financial support to the members and that it should also fund his efforts to enforce the judgment he received against the Islamic Republic of Iran.

[7] I dismissed his Application. I found that there was no basis for Mehrzad’s position that it violated his reasonable expectation. Further, Mehrzad had failed to avail himself of the remedies and options that he has to pursue his goals under the Canada Not-For-Profit Corporations Act ("the Act") using the Association’s democratic processes.

[8] The Association seeks costs in the amount of $93,354.27 on a substantial indemnity basis for the period after it served a Rule 49 offer and $23,147.60 on a partial indemnity basis for the period beforehand as well as $4,862.62 in disbursements.

[9] Although he lost, Mehrzad seeks costs in the amount of $48,944.

Decision

[10] For the reasons that follow, I award the Association $50,000 in substantial indemnity costs reflecting the period after the Offer to Settle and $5,000 on a partial indemnity basis reflecting the period before the offer to settle as well as disbursements in the amount of $4,862.62.

Analysis

The Law

[11] Pursuant to s. 131(1) of the Courts of Justice Act, RSO 1990, c C.43, costs are in the discretion of the court. Rule 57 of the Rules of Civil Procedure, RRO 1990, Reg 194 sets out the factors which courts should have regard to when awarding costs. The overall objective is “to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding, rather than an amount fixed by the actual costs incurred by the successful litigant”: Zesta Engineering Ltd. v. Cloutier, para 4; Boucher v. Public Accountants Council for the Province of Ontario, para 26; Clarington (Municipality) v. Blue Circle Canada Inc., 2009 ONCA 722, para 52; and G.C. v. Ontario (Attorney General), 2014 ONSC 1191, para 5.

The Principle of Indemnity

[12] As the successful party, the Association is presumptively entitled to costs.

The Complexity

[13] The matter was not legally complex as it involved the court’s discretion. The factual issues had a medium complexity as they involved exploration of alleged misconduct of the Association over a number of years, related to whether it was operating within its objects. There were several witnesses.

The Importance of the Issues

[14] The main relief sought was that the Association be compelled to provide documentary production including the members register that would show the members’ addresses, and that the Association call a meeting of all members to consider Mehrzad’s position on whether the Association should provide financial support to members.

[15] There was other relief sought in the Notice of Application that was not pursued at the hearing including an order setting aside the Exemption Decision of the Director, a mandatory order or interim injunction regarding an alternative communication platform for the members, an order for passing of accounts of the Association (despite there being no estate or trustee with accounts to be approved), a representation order, the appointment of a receiver over the Association, an interim injunction freezing all expenditures by the Association, and the appointment of a public accountant to conduct an accounting.

[16] Mehrzad abandoned all of this alternative relief at the hearing but the Association would have had to prepare its materials and argument based upon the issues set out in the Amended Notice of Application.

[17] All of these alternative claims were significant and the Association had to prepare to address them with a thorough and serious response, and it did.

[18] As well, the Application was an attack on the Association’s integrity, governance and its treatment of its members.

[19] The proceeding was also very important to Mehrzad. He is devastated by the death of his son on that air flight and suffers from post-traumatic stress disorder. Prior to the application he indicated that he could no longer work and has no assets.

[20] He still has no assets but has resumed his job as a truck driver.

Offer to Settle

[21] The Association served a Rule 49 Offer to Settle on June 13, 2024, whereby it offered to settle this proceeding by way of a dismissal without costs.

[22] Mehrzad did not accept this offer and by operation of r. 49, the Association is entitled to partial indemnity costs to the date of the offer and substantial indemnity costs afterwards.

Other Considerations

[23] The Association is a non-profit organization. It was required to expend significant funds on this Application. At the same time, it currently has raised significant funds (in the millions) in respect of the downing of the flight in support of its objects, which in part is based upon the hardship that Mehrzad experienced as a result of this tragic occurrence.

[24] I did not find that the Association had acted in an oppressive manner, because its interpretation of its objects was reasonable and it was entitled to deference pursuant to the business judgment rule.

[25] As well, because of his trauma, Mehrzad was unable to work for a long time. He does not have any assets apart from his judgment against the government of Iran. It is unknown what the prospects of recovery are, but I suspect they are nil.

[26] Mehrzad is just now putting his life together; he has just begun working again as a truck driver and rents accommodation. He says he has no exigible assets. He says that if there is a costs award, he will have to visit a trustee in bankruptcy.

[27] He relies upon Cohen v. Kealey, [1985] O.J. No. 160, where the court took into account the client’s ability to pay. This case is not applicable as this is a case where a solicitor was seeking to appeal an order of an assessment officer and not costs sought by the winning party.

[28] However, I do take into account the impact that the downing of the flight has had on Mehrzad. This was a devastating occurrence. I have great empathy for Mehrzad. While I did not find that the Association had behaved oppressively, his wish to have the Association provide financial support is understandable. There was certainly evidence before me that other members also believed that the objects should be applied in this manner. In my view, it would have been equally unassailable if the Board had concluded that it would provide the kind of support to family members that Mehrzad requests.

[29] I also take into account the Association’s cost request to Mehrzad when he sought to abandon his Application.

[30] As set out in my endorsement dated June 4, 2024, Mehrzad tried to dialogue with the Association about these issues in January 2023. He sought mediation/arbitration but the Association refused to mediate the issues and so he indicated he wanted to hold a meeting of members. He asked for the members’ contact information which the Association refused.

[31] He began his Application on March 2, 2023, there was an exchange of correspondence and he was provided with some documentation. He did not pursue his Application and abandoned it on March 15, 2024. The Association then presented him with a Bill of Costs in the amount of $45,000 on a substantial indemnity basis and $26,000 on a partial indemnity basis but said it would reduce it to $7,500 if he apologized.

[32] It was at that point that Mehrzad then sought to successfully revive his Application. He felt that the costs request was an attempt at extortion. I agree that the request for costs was excessive. Very little had occurred as of the date that Mehrzad had abandoned the application. I view the Association’s cost request at that time as pressure on him to provide the Apology that the Association sought rather than being a proper reflection of the costs of the Application as at that date. Had it not taken this unreasonable position, it may not have had to incur these costs. This was in fact the view of one of the former Directors on the motion who felt that the Association had not dealt with Mehrzad’s claim appropriately.

[33] I do note that following the revival of the Application, the Association sought to mediation/arbitrate. But at that point, Mehrzad indicated he wanted to wait until the exchange of materials and also to the completion of the cross examinations.

[34] In some ways both have been unreasonable. The Association should have simply agreed to have these discussions with Mehrzad when he wanted to, and he should have agreed once the Association relented.

Hours Spent and Rates

[35] The Association primarily seeks the costs for its lead lawyer, Eric Sherkin, and its advisor on non-profit corporate governance, Natasha Smith, as well as law clerks. It does not seek cost for associates or students.

[36] I have reviewed the dockets and time spent and, in my view, the amounts spent, although not improper in terms of their bill to their clients, is not within the reasonable contemplation of Mehrzad. He spent much less time preparing his materials.

Conclusion

[37] In view of all of the issues including the Association’s excessive cost request when Mehrzad first wanted to abandon his Application, I award the Association $50,000 in substantial indemnity costs reflecting the period after the Offer to Settle and $5,000 on a partial indemnity basis reflecting the period before the offer to settle as well as disbursements in the amount of $4,862.62.

[38] Given Mehrzad’s current financial circumstances, and the impact that any costs order may have on his fragile emotional state and ability to continue to put his life together, with the exception of the Association’s ability to conduct a judgment debtor examination, I stay enforcement of this order until such time as Mehrzad collects any money from the government of Iran.

[39] I order that when and if Mehrzad collects any money from the government of Iran to satisfy his judgment, he shall set aside and hold in trust the amount of this costs award in favour of the Association. Then, he shall write to the Association advising of this collection, whereupon the Association may bring a short-written motion to me to lift the stay.

[40] As well, the Association can seek to lift the stay at any time on any other proper basis, or change in circumstance of which it becomes aware, for example, if Mehrzad were to bring a similar application in the future or if the judgment debtor examination reveals that Mehrzad does have assets, notwithstanding his submission.

[41] I will be seized of any of these motions relating to the stay.

[42] In my view this is fair. It balances the right that the Association has to a costs award which will have consequences for Mehrzad, with the improbability that it will be able to collect it, as well as the impact of the award on Mehrzad who is now trying to rebuild his life.

Papageorgiou

Released: February 14, 2025