COURT OF APPEAL FOR ONTARIO
CITATION: Friendly v. 1671379 Ontario Inc., 2023 ONCA 535
DATE: 20230809
DOCKET: C70645
Brown, Sossin and Copeland JJ.A.
BETWEEN
Lynda Friendly and Lynda Friendly & Associates by their
assignee, Assignment Credit Corp.
Applicants (Appellants)
and
1671379 Ontario Inc., Manuel Elkind, MCAP Financial
Corporation, Dorr Capital Corporation c.o.b. as Dorr and
Associates, Cherniak Law Professional Corporation,
Sullivan Mahoney LLP, Starkman Barristers and Hentob
Construction Limited
Respondents (Respondents)
Elliot Birnboim and Michael Crampton, for the appellant
Samuel Robinson, for the respondent MCAP Financial Corporation
Jason Cherniak for the respondent Cherniak Law Professional Corporation
Varoujan Arman, for the respondent Dorr Capital Corporation
David Seed, for the respondent 1671379 Ontario Inc.
Heard: February 14, 2023
On appeal from the order of Justice Andrew Pinto of the Superior Court of Justice, dated April 22, 2022, with reasons reported at 2022 ONSC 2409.
COSTS ENDORSEMENT
[1] On the release of this court’s reasons in this appeal on June 15, 2023, we invited written submissions on costs of the appeal.
[2] The respondent MCAP Financial Corporation (“MCAP”) seeks costs of the appeal of $40,951.20 on a substantial indemnity basis, or in the alternative, of $29,348.36 on a partial indemnity basis.
[3] The respondent Dorr Capital Corporation c.o.b. Dorr and Associates (“Dorr”) seeks costs of the appeal of $11,565.55 on a substantial indemnity basis.
[4] The respondent Cherniak Law Professional Corporation (“Cherniak”) seeks costs of the appeal of $18,773.46 on a substantial indemnity basis. However, its bill of costs includes both costs before the motion judge and costs of the appeal. This endorsement only addresses costs of the appeal. As a portion of the motion has been remitted to the motion judge, it is appropriate that he decide costs of the motion. Cherniak’s costs of the appeal on a substantial indemnity basis are just over half of the total amount in the bill of costs, approximately $9,500.
[5] The respondent Manuel Elkind and 1671379 Ontario Inc. (“the 167 respondents”) seek costs of the appeal of $29,964.70 on a substantial indemnity basis, or in the alternative, of $20,314.60 on a partial indemnity basis.
[6] The appellant, Assignment Credit Corp., acknowledges that MCAP was successful on appeal on the issue of priority for its Shortfall Judgment under its general security agreement. On this basis, the appellant accepts that MCAP is entitled to a portion of its costs on a partial indemnity basis, but argues that the quantum should be a portion of the amount MCAP agreed to at the end of the oral hearing of the appeal. With respect to the respondents Dorr and Cherniak, the appellant argues that they should be held to agreements on costs reached at the end of the oral hearing of the appeal. The appellant argues that the 167 respondents should not be entitled to any costs of the appeal.
[7] We first address entitlement to costs of the appeal, then scale and quantum.
[8] We reject at the outset the appellant’s position that MCAP, Dorr, and Cherniak should be held to the agreements on costs reached at the end of the appeal hearing. Those agreements were reached before the appellant’s non-disclosure of the fact that the Mesbur Judgment was obtained on consent was revealed. In the judgment disposing of the appeal, we requested submissions on costs of the appeal because we were of the view that it was not appropriate to hold the respondents to the agreements about costs of the appeal in light of the significant change in the footing of the litigation when the non-disclosure was revealed.
[9] It is helpful to consider entitlement to costs through the lens of the two issues on the appeal. The first issue was MCAP’s priority for its Shortfall Judgement over all of the claims based on its general security agreement. MCAP was entirely successful on this issue. On this basis, in our view, MCAP is entitled to costs of the appeal from the appellant as it relates to this ground of appeal. The other respondents made no substantive submissions on the first ground, as they either agreed that MCAP had priority for its Shortfall Judgment, or took no position. Thus, it is a factor that has no impact on costs entitlement for the other respondents.
[10] The second issue was the appellant’s claim to priority based on the security created by the Mesbur Judgment, which was subsequently assigned to the appellant. I reject the appellant’s claim that it is entitled to costs as it relates to the issue because the appeal was allowed on this issue. The appeal was not allowed because the appellant’s substantive arguments prevailed. Rather the appeal was allowed on this issue because of the non-disclosure before the motions judge – and this court until this court requested further documentation – of the fact that the Mesbur Judgment was obtained on consent, rather than following an uncontested trial. The respondents MCAP (as it relates to its Costs Judgment), Dorr, and Cherniak are entitled to their costs as it relates to the second issue as it could not be decided on the merits by this court because of the appellant’s non-disclosure. As discuss below, the non-disclosure also has an impact on the appropriate scale of costs, which we now turn to.
[11] MCAP, Dorr, and Cherniak seek costs on a solicitor-client basis based on the appellant’s non-disclosure of the fact that the Mesbur Judgment was obtained on consent. They argue that the fact that the Mesbur Judgment was obtained on consent was clearly relevant to the assessment of priorities of the unsecured claims. The failure to disclose this relevant fact, which was known to the appellant and its counsel, warrants a costs award on an elevated scale, both as a deterrent and due to the wasted time and effort it caused. The appellant resists an elevated costs award on the basis that the endorsement of Mesbur J. was included in a motion record filed in 2015 before a different judge than the motion judge, in a different (but related) proceeding, to which MCAP and Dorr were parties.
[12] We do not accept the appellant’s argument. The fact that the documents were disclosed eight years prior in a different (but related) proceeding does not excuse the appellant’s failure to disclose the fact that the Mesbur Judgment was obtained on consent to the motion judge and to this court. Further, the respondent Cherniak was not a party to the other proceeding, and the respondent MCAP had different counsel at the time of the other proceeding. In our view, as it relates to the second issue on appeal, costs of the appeal on a solicitor-client basis are justified by the conduct of the appellant in failing to disclose a relevant fact – that the Mesbur Judgment was obtained on consent – both before the motion judge and in this court. The failure to disclose a fact relevant to the issue of priorities, known to the appellant and its counsel, is sufficient, standing alone, to warrant an elevated costs award. Further, the non-disclosure created the need for additional submissions in this court after the oral hearing was completed, which also increased cost.
[13] We pause to note that the non-disclosure of the fact that the Mesbur Judgment was obtained on consent was only relevant to the second issue on appeal. It had no impact on the issue of MCAP’s priority for its Shortfall Judgment based on its general security agreement. This has an impact on the quantum of costs sought by MCAP.
[14] MCAP’s substantial indemnity costs set out in its bill of costs are $40,951.20. Its partial indemnity costs are $29,348.36. Taking into account that the non-disclosure of the fact that the Mesbur Judgement was obtained on consent had no impact on the first issue in the appeal, and also that we find the amounts in MCAP’s bill of costs somewhat high, we award MCAP $30,000 for costs of the appeal.
[15] Dorr and Cherniak only made submissions on the second issue in the appeal, which was impacted by the appellant’s non-disclosure that the Mesbur Judgement was obtained on consent. The amount of appeal costs sought by Dorr and Cherniak on a substantial indemnity basis ($11,565.55 and $9,500, respectively) are reasonable and we award costs in these amounts.
[16] Finally, we make no award of costs of the appeal to the 167 respondents. First, these proceedings have their genesis in the failure of the 167 respondents to satisfy numerous financial obligations. Second, the 167 respondents were parties to the Mesbur Judgment, and must have been aware that it had been obtained on consent, but did not provide this information either to the motion judge or to this court. As a result, their claim to rely on the non-disclosure as the source of their entitlement to costs of the appeal is misplaced.
Disposition
[17] Accordingly, the appellant shall pay costs of the appeal as follows, inclusive of disbursements and applicable taxes:
1. $30,000 to MCAP;
2. $11,565.55 to Dorr; and,
3. $9,500 to Cherniak.
“David Brown J.A.”
“L. Sossin J.A.”
“J. Copeland J.A.”