1891868 Alberta Ltd. Applicant - v. -, 2017 ABQB 40

Court of Queen’s Bench of Alberta Citation: 1891868 Alberta Ltd v Central Fund of Canada Ltd, 2017 ABQB 40 Date: 20170126 Docket: 1501 07012 Registry: Calgary Between: 1891868 Alberta Ltd. Applicant - and - Central Fund of Canada Ltd., Glenn C. Fox, Bruce D. Heagle, Ian M.T. McAvity, Michael A. Parente, Jason A. Schwandt, Dale R. Spackman, Q.C. and J.C. Stefan Spicer Respondents _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice J.

Strekaf _______________________________________________________ Introduction [ 1 ] This decision address costs of a chambers application which I heard on September 23, 2015 and dismissed orally on September 24, 2015.

Background [ 2 ] By way of background, the Applicant 1891868 Alberta Ltd. (189) is a wholly-owned subsidiary of Sprott Asset Management LP, which is a competitor of Central Fund of Canada Limited (CFCL), one of the Respondents. 189 acquired Class A shares in CFCL between April 29, 2015 and June 12, 2015. CFCL is a specialized investment holding company that invests in gold and silver bullion, with assets in 2015 of approximately $4 billion. It has a dual class share structure with common voting shares and Class A shares.

The Class A shares are publicly traded and have a preferential noncumulative dividend, limited voting rights and a preference on liquidation. Administrative services are provided to CFCL by Central Group of Alberta Ltd. (CGAL) pursuant to an Amended and Restated Administrative and Consulting Agreement dated November 2, 2005 (the Administrative Agreement) for which CGAL was paid $6.7 million in 2014. [ 3 ] On June 16, 2015, 189 and five other Class A shareholders holding approximately 14 million shares sent CFCL a requisition for a meeting.

CFCL took the position that the Class A shareholders are not entitled to requisition a meeting. [ 4 ] 189 commenced these proceedings on June 23, 2015 seeking an order pursuant to sections 143 and 242 of the Business Corporations Act , RSA 2000, c B-9, as amended ( ABCA ) providing direction for the holding of a meeting of the Class A shareholders of CFCL to vote on five resolutions outlined in the requisition for meeting sent to CFCL and seeking related relief.

The resolutions included amending the articles to change the dual share structure of the company, terminating CGAL – who had been the long-term administrator of the assets – investigating the desirability of implementing redemption features for the Class A shares, and replacing the current directors of CFCL. [ 5 ] On July 2, 2015, the parties appeared before me with a consent order which set out a process to deal with the application that contemplated the following: deadlines for affidavits and questioning, an initial hearing on August 11, 2015, a meeting of Class A shareholders on September 18, 2015 (if called by the parties or directed by the Court), and a final hearing on September 23, 2015. [ 6 ] On July 6, 2015, CFCL issued a press release indicating that it was calling a meeting of the Class A shareholders for September 18, 2015 but that it would be asking the Court at the August 11, 2015 hearing to declare the requisition invalid and that the meeting may be cancelled if that occurred. [ 7 ] On August 11, 2015, the initial hearing proceeded before Horner, J In the course of the hearing, 189 advised that it was not proceeding with its application to compel a meeting as it considered it moot. [ 8 ] On August 13, 2015, Horner, J granted CFCL’s cross-application for a declaration that the Class A shareholders were not entitled to requisition a meeting to vote on the resolutions outlined in the requisition. 189 appealed that decision, which appeal was dismissed by the Court of Appeal of Alberta on November 5, 2015 ( 2015 ABCA 331 ). [ 9 ] On August 17, 2015, CFCL cancelled the meeting. [ 10 ] On September 10, 2015, 189 set down an additional application to be heard on September 23, 2015 seeking to amend its original application to seek additional relief including adding CGAL and two former directors, Phillip Spicer and Douglas Heagle, as Respondents, an interim order amending the Administrative Agreement, and leave to bring a derivative action. [ 11 ] At the outset of the application before me on September 23, 2015, all parties agreed that the applications to add additional parties and seek leave to bring a derivative action should be adjourned to a later date. [ 12 ] The applications that proceeded on September 23, 2015 addressed whether the interim relief to vary the Administrative Agreement should be granted and whether the oppression application should be granted. [ 13 ] I dismissed the application for interim relief as I concluded that 189 failed to establish that any irreparable harm would be suffered if the interim order to amend the Administrative Agreement was not granted, that 189 had failed to provide any undertaking as to damages or any evidence in support of its application for interim relief beyond a legal assistant’s affidavit, and that the interim relief sought went well beyond providing an ability to deal with remedies arising out of the court proceedings. [ 14 ] I also dismissed the oppression application.

Counsel for 189 advised that the only issue on that application was whether a meeting of the Class A shareholders should be held and whether CFCL should abide by the results of a vote from that meeting. Horner, J had already determined that the holders of the Class A shares had no legal right to require CFCL to call a meeting and I concluded that 189 had failed to demonstrate that it had any reasonable expectation that it was otherwise entitled to such a meeting. [ 15 ] The costs dealt with in this decision relate only to costs of the September 23, 2015 application heard by me.

Positions of the Parties [ 16 ] The costs proposed by the parties vary quite dramatically. [ 17 ] 189 acknowledges that it was largely unsuccessful and proposes that taxable costs be awarded to each of CFCL and the CFCL Special Committee (Special Committee), who were separately represented, in the amount of $3,000 plus reasonable disbursements (item 8(1) of

Schedule C, column 5 - an application which requires a brief). It submits that there is no reason to depart from the usual practice that successful parties generally recover their costs from an unsuccessful party on a party-party basis calculated in accordance with

Schedule C of the Alberta Rules of Court , Alta Reg 124/2010. [ 18 ] Bruce Heagle, Glenn Fox and Jason Schwandt, the independent directors appointed to CFCL’s Special Committee (“Special

Committee”), seek costs of $72,462.67, which represents four times the taxable costs for the application under column 5 ($12,000), plus an additional lump sum of $50,000 (pursuant to rule 10.31(1)(b)(ii) to reflect the degree of success, importance of the issues and complexity), plus disbursements and GST ($10,462.67).

It submits that the Court has discretion to award enhanced costs in an appropriate case and that a multiplier of four times column 5 is appropriate given the economic significance of the application and 189’s conduct in proceeding with the second application on short notice where there was no urgency to seek additional serious and extreme relief beyond that originally contemplated in the July scheduling order. [ 19 ] CFCL seeks costs in the amount of $475,000.

It submits that it spent $2.4 million on the applications before me and before Horner, J and that $1.2 million should be attributed to each application as it would be impossible to apportion the costs between the two hearings.

CFCL submits that an award of party-party costs should approximate 40 - 50% of the reasonable solicitor-client costs and that 189’s conduct – which involved unwarranted serious allegations against the CFCL directors, improper use of the Court process to achieve a business purpose, its late abandonment/deferral at the hearing, and the expedited nature of the proceedings – justify the enhanced costs sought. [ 20 ] In the alternative, CFCL seeks costs of $82,071.98 which represents taxable costs of four times column 5 for a complex chambers application with briefs (item 8(1)) and an additional half-day application, with a second counsel fee, an additional lump sum of $50,000 pursuant to rule 10.31(1)(b)(ii), plus disbursements of $1,363.80 and GST.

Analysis [ 21 ] All parties acknowledge that costs are within the discretion of the Court, to be determined in accordance with the considerations outlined in rules 10.29 - 10.33. [ 22 ] While party-party costs are generally awarded, the Court has broad discretion to make a different award based upon the particular circumstances. An enhanced costs award is justified here since this was costly commercial litigation involving high stakes that was conducted in an intense fashion on an expedited basis.

However, the costs claimed by CFCL of $475,000, based upon having expended $2.4 million for two one-day chambers applications and a consent order, appear excessive. Moreover, CFCL has not provided a sufficient evidentiary record for the Court to meaningfully assess their claim. If a claim for such costs was to be seriously advanced then one would have expected some affidavit evidence put forward regarding those costs, rather than simply relying upon the representations of counsel in a brief.

Further, CFCL’s statement in its brief that “(f)urther details of the legal services and fees are subject to solicitor- client privilege, which is expressly not waived; if requested, CFCL will make its invoices available for the Court’s review” is not helpful. It is unclear if this is a suggestion that the invoices could be provided to the Court for its review, without waiving privilege, and without them being shared with 189 or its counsel, in the context of a claim to recover $475,000 from 189. [ 23 ] Application of a multiplier to the tariff costs in

Schedule C can be awarded in appropriate circumstances, as was recognized in Stewart Estate v TAQA North Ltd , 2016 ABCA 144 at para 25 : […] To summarize, Alberta courts have typically awarded a multiplier of the tariffs in Column 5 in three circumstances: when the complexity of the action warrants it, when the amount in dispute significantly exceeds the $1.5 million threshold for Column 5 or when the conduct of one of the parties warranted a multiplier. However, generally, courts also rely upon the other considerations set out in rule 10.33 in determining whether a multiplier should be applied.

There is nothing in the cases surveyed to suggest that the analysis for applying a multiplier differs in an oil and gas context. [ 24 ] In determining the costs for the application heard by me, I have taken the following factors into account: 1. CFCL and the Special Committee were entirely successful in opposing 189’s applications; 2. While the proceeding before me was a one-day chambers application, the amount at stake and the importance of the issues to the parties was substantial.

The application was brought by one of CFCL’s competitors to modify its dual share structure and its long standing administrative agreements to operate the fund, to terminate CGAL and to replace CFCL’s directors. CFCL and the Special Committee faced serious ramifications if 189’s application had succeeded; 3. The application was an unsuccessful attempt to use the court process to advance a business strategy; 4. The application was conducted on an expedited time

schedule and involved issues of moderate complexity; 5. 189’s approach to this litigation resulted in increased costs for all concerned, for example, its application filed on September 10, 2015 to increase the scope of the application beyond that contemplated in the July 2, 2015 consent order to add additional parties and seek leave to bring a derivative action that was pursued up to the September 23, 2015 hearing when it was deferred to be dealt with at a later date, required the other parties to prepare on short notice to address those issues at the hearing; 6. 189’s application for an interim order to amend the Administrative Agreement that was dealt with at the hearing provided the other parties with relatively short notice to address matters that had potentially serious consequences; 7. 189 complained in its Brief that CFCL had failed to modify an undertaking they had provided yet failed to provide its own undertaking as to damages in support of its application for an interim order; and 8.

While there is no evidence before me as to the actual costs incurred by CFCL and the Special Committee, I accept that they were substantial. The circumstances in this case justify an award of enhanced costs. CFCL and the Special Committee are each awarded four times the tariff amount under column 5 for an application requiring briefs for two half-days (item 8(1) - $12,000), a further lump sum of $50,000 pursuant to rule 10.31(1)(b)(ii), and their disbursements and other charges as claimed. The tariff does not contemplate a second counsel

fee for a chambers application and I decline to award same to CFCL. Delays [ 25 ] The formal order arising out of the decision delivered orally on September 24, 2015 was not finalized until October 14, 2016 and the issue of costs was not raised with the Court until more than a year after delivery of the oral decision. Such lengthy delays in finalizing an order and addressing costs are to be discouraged. There are reasons why a fiat is required for orders not filed within three months.

As well, if parties are not able to agree on costs and require a court application to have them determined, they should do so on a more timely basis. Conclusion [ 26 ] CFCL and the Special Committee are each awarded costs of $62,000, plus disbursements and other charges as claimed and applicable GST. Application heard on the 23 rd day of September, 2015, with written submissions on costs delivered on December 16th, 2016. Dated at the City of Calgary, Alberta this 26 th day of January, 2017. J. Strekaf J.C.Q.B.A. Appearances P. Howard, G. Holub and A. Kreaden for the Applicant G. Matthews and P.

Linder, Q.C. for the Respondent, Central Fund of Canada Ltd., Ian M.T. McAvity, Michael A. Parente, Dale R. Spackman, Q.C., and J.C. Spicer R. Staley, A. Gardner and M.D. Mysak for the Respondents, Glenn C. Fox, Bruce D. Heagle and Jason A. Schwandt