Court of Queen’s Bench of Alberta Citation: Mudrick Capital Management LP v Wright, 2021 ABQB 242 Date: 20210329 Docket: 1701-03999 Registry: Calgary Between: Mudrick Capital Management, LP, Frontfour Capital Corp and Frontfour Capital Group LLC Plaintiffs - and - John D. Wright, Peter D. Scott, Ian Brown, Martin Hislop, Kenneth R. McKinnon, Corey C. Ruttan, Craig Lothian and W. Brett Wilson Defendants _______________________________________________________ Reasons for Decision on Costs of the Honourable Madam Justice M.H.

Hollins _______________________________________________________ [ 1 ] The Plaintiffs were unsecured creditors of Lightstream Resources Inc. who claimed that Lightstream’s decision to exclude them from a debt refinancing it offered to other unsecured creditors was statutorily oppressive or alternatively, a breach of duty or tortious misrepresentation. [ 2 ] The Defendants are represented by two different sets of counsel; one for the Defendant Directors and another for the Defendant Officers. Both groups of Defendants applied for

summary dismissal of the Plaintiffs’ claims. [ 3 ] I granted the application of the Defendant Directors and dismissed the Plaintiffs’ claims against them. In respect of the Defendant Officers, I granted the

summary dismissal application of the Defendant Officer Peter Scott, but did not grant

summary

dismissal to the Defendant Officer John Wright, Lightstream’s President and Chief Executive Officer. In my view, there remained triable issues regarding his liability on the basis of representations which he conceded having made, although those concessions were made only for the purposes of the

summary dismissal motion. [ 4 ] In short, the Defendant Directors and one of the two Defendant Officers were entirely successful against the Plaintiffs. [ 5 ] The parties cannot agree on costs. Their positions are as follows: 1. The Defendant Directors seek

Schedule C costs against the Plaintiffs of approximately $231,476.36 (3x Column 5). The Plaintiffs say that 1.5x Column 5 costs are appropriate. They also contest the Defendant Directors’ expert’s fee; a disbursement of $80,526.42. 2. The Defendant Officer Scott seeks costs of $79,586.93 from the Plaintiffs, which he says represents 1.5x of his Column 5 costs, with all fees and disbursements divided in half to account for the fact that his costs were shared with the Defendant Officer Wright. 3. The Plaintiffs seek 1.5x Column 5 costs against Wright, totalling $126,082.47.

The Defendant Officer Wright concedes that he must pay some costs to the Plaintiffs of his unsuccessful motion but he submits that the costs must be restricted to those associated with this motion, not the action proper which may proceed to trial. As the Plaintiffs concede they owe some costs to Mr. Scott, they suggest in the alternative that they waive costs from Mr. Wright and pay no costs to Mr. Scott. Costs Generally [ 6 ] Subject to the Court’s discretion, an unsuccessful party must pay the costs of the successful party to an application; Rule 10.29(1) of the Alberta Rules of Court .

I may assess those costs as what is reasonable and proper or in any amount I feel is appropriate; Rule 10.31(1). In either case, I must have consideration for the factors enumerated in Rule 10.33(1) as follows: (

a) the result of the action and the degree of success of each party; (

b) the amount claimed and the amount recovered; (

c) the importance of the issues; (

d) the complexity of the action; (

e) the apportionment of liability; (

f) the conduct of a party that tended to shorten the action; (

g) any other matter related to the question of reasonable and proper costs that the Court considers appropriate. [ 7 ] It is important to remember that determining costs is an exercise of discretion. In this case, all parties agreed that costs should be referable to

Schedule C of the Alberta Rules of Court . While not automatic; McAllister v Calgary (City of) , 2021 ABCA 25 at paras 28-30 , I agree that here, the application of that

Schedule results in a costs award that is both foreseeable and reasonable in the circumstances of this case and which adequately considers the applicable factors above. Multipliers [ 8 ] It is agreed that fees should be assessed under Column 5 of

Schedule C and all parties have identified the same line items for recoverable fees. All parties have also used line items 19-21 for a “complex chambers application” to replace the fees under item 8(1) as expressly allowed. The real difference is that the Defendant Directors and the Defendant Scott, all of whom were successful in their

summary dismissal applications, ask for a multiplier of 3x to be applied to Column 5. The Plaintiffs argue for a multiplier of 1.5x. [ 9 ] Awarding enhanced costs is part of the discretion of this Court in determining costs generally. One important factor in that analysis is where the claim falls within the columns of

Schedule C; Stewart Estate v 1088294 Alberta Ltd , 2016 ABCA 144 at para 26 . Here, the highest column is for claims $2M and more. In this case, the value of the claim is said to be $150M. Although that number is not apparent on the face of the claim, it was not contested that the Plaintiffs’ claim was exponentially higher than the lowest eligible claims on Column 5. To treat this as equivalent to a $2M claim would be unfair.

In fact, both parties seem to recognize this – they just disagree on what is fair. [ 10 ] Beginning with an assessment of who was successful in what measure (Rule 10.33(1)(a)), I do not accept the Plaintiffs’ argument that their successful defence of Wright’s motion should decrease their liability for costs of the Defendant Directors. The Defendant Officers were separately represented throughout and in my view, properly so. It was the officers and particularly Mr. Wright who had the potentially problematic interactions with the unsecured creditor Plaintiffs, as opposed to the directors.

Thus, the liability of Lightstream’s directors versus its officers was based on entirely different facts and the focus of their respective defences were different. It was entirely appropriate that these two groups of different defendants were separately represented and that their costs, vis-a-viz the Plaintiffs, are dealt with separately. [ 11 ] Next, I consider the nature and the scope of the proceeding itself. It is quite correct that there was no litigation misconduct alleged or apparent.

The proceedings went smoothly, largely as a result of the intensive preparation of counsel and helpful advocacy from all counsel. However, that does not change the fact that, for an application, this was a very complex one. [ 12 ] These

summary dismissal motions required the Defendants to address all the various causes of action raised in the Plaintiffs’

claim, including oppressive corporate conduct and misrepresentation. In turn, consideration of those issues involved statutory

interpretation, contractual

interpretation of a foreign contract and application of numerous common law principles. Further, the parties had to address the separate legal issue of the suitability of

summary proceedings for this matter. [ 13 ] The intricacies of the legal issues were predictably manifested in the scope of the materials for these applications, with a record of approximately 1700 pages of material. The Affidavits, cross-examination transcripts and Briefs were all extensive. The hearings took place over three days. There were many lawyers attending and the courtroom work was generally shared between counsel for each group of litigants. [ 14 ] I take the Plaintiffs’ point that this was not a trial.

However, where parties make a strategic decision to obviate the time and cost of a trial with a successful chambers motion, their recoverable costs should fairly reflect the factors in Rule 10.33(1), including the complexity of the matter. Frankly, it is sobering to consider the potential costs of a full trial on these issues but doing so should put these costs claims in some perspective. [ 15 ] The Plaintiffs quite rightly point out that one prominent factor in the use of multipliers has historically been the outdated tariff amounts under

Schedule C, which were not adjusted for inflation for over 20 years until the “new”

Schedule C tariff was released last year. The fees recoverable under the “new”

Schedule were increased by 35% to address this inflationary gap. According to some case law, this was not enough; Geophysical Services Incorporated v Falkland Oil and Gas Limited , 2020 ABCA 106 . [ 16 ] While the increase in the tariff amounts must be taken into account, cases like Geophysical Services make it clear that courts can and do use multipliers in addition to inflationary adjustments.

Accordingly, in my opinion, the new tariff does not make a multiplier obsolete in the proper case. [ 17 ] I think the proper multiplier is 2.5x for all items except #19-21, which are already increased to approximate the complexity of an appeal. I realize the difference may seem small but, in my opinion, half the historically-accepted maximum of 5x Column 5 takes into account the fact that the tariff amounts have now been increased while balancing the fact that this was a lengthy hearing without viva voce evidence but with complicated factual and legal matters to be presented and determined.

Expert Fees [ 18 ] The Rules provide that reasonable and proper costs do not include the fees and charges of an expert unless ordered by the court; Rule 10.31(2)(d). In my view, it is reasonable and proper that the Defendant Directors should recover Mr. Gadsen’s fees. [ 19 ] The Defendant Directors point out that Justice Yamauchi, who rendered a decision on security for costs in this matter, looked specifically at the amount budgeted for expert fees and accepted those, even though they were higher than the expert fees ultimately incurred.

I completely agree with the Plaintiffs that the presiding judge is not bound by the estimates accepted by a judge on a past security for costs application. However, it does highlight the fact that everyone, including the Plaintiffs, understood that this case involved the application of the laws of the State of New York to the subject Indenture, a contract to which the Plaintiffs were party. [ 20 ] I disagree with the Plaintiffs’ statement that Mr. Gadsen’s opinion was unhelpful or that his fees were extravagant. I do not know if conversations were had about stipulating to any of the content of Mr.

Gadsen’s report but in the absence of any such agreement, this Court legally required someone to advise on New York law. Mr. Gadsen’s opinion did so. While the expert report was not inexpensive, in my opinion, one could not reasonably expect otherwise from a very experienced and qualified New York securities lawyer. [ 21 ] Lastly, the Plaintiffs say the treatment of Mr. Gadsen’s fees should await the trial as they anticipate that Mr. Wright will rely on Mr. Gadsen’s opinion at trial. I have no basis on which to suppose this.

I also have to keep in mind that the matter may never proceed to trial; hence the “pay as you go” rule that the Plaintiffs rely on so heavily in their costs claims against Mr. Wright. [ 22 ] I believe it is reasonable and proper that the Defendant Directors recover the full costs of Mr. Gadsen’s fees at this stage. If his report reappears at trial or evidence which could have been adduced through this existing report is led, the Plaintiffs retain their ability to argue against further costs to lead the same evidence. The Costs re Messrs.

Scott and Wright [ 23 ] The Defendant Scott, the former CFO of Lightstream, was successful in his motion to dismiss the Plaintiffs claims against him. His defence was presented together with that of Mr. Wright. Following the spirit of Rule 10.31, Mr. Scott should have his costs against the Plaintiffs and the Plaintiffs should have their costs against Mr. Wright. I have rejected the suggestion of equalizing the Plaintiffs’ costs against Mr. Wright set off against Mr.

Scott’s costs against the Plaintiffs because, among other things, the disbursements on these respective Bills of Costs are quite different. [ 24 ] Mr. Scott asks for 3x his Column 5 costs, divided in half to account for the fact that his costs were shared with Mr. Wright. He is awarded costs from the Plaintiffs on a multiplier of 2.5x Column 5, except items #19-21 as in paragraph 17 above. His fees and disbursements will be divided in half, as suggested. [ 25 ] Mr. Wright argues that there should be no costs assessed against him in favour of the Plaintiffs because there was mixed success.

He points out that some bases of liability alleged against him would not have raised triable issues. However, success on a

summary dismissal motion requires that there be no triable issues on the evidence, not just that there are fewer. “Mixed success” means in the result, not in the various findings made along the way to that result. [ 26 ] Mr. Wright also argues that, since he remains a defendant, the only costs assessable against him at this point are those respecting his unsuccessful application to dismiss the claims. For example, the Plaintiffs should not be able, at this stage, to recover their

costs of filing pleadings and other steps that would be required to prosecute an action in any event. [ 27 ] However, in a case like this, it is extremely difficult to parse the legal fees related to the underlying action from those related to the

summary dismissal motion. For example, there is no question that the evidence amassed in the form of Affidavits and cross- examination thereon will shorten any Questioning that remains for trial. Similarly, while the documents produced to this point may need to be reorganized for trial, it is not as though the Plaintiffs or Mr.

Wright are going to start their document production from scratch. [ 28 ] In fact, the filing of pleadings is the only item on the Bill of Costs that would not require some arbitrary findings at to what portion of the work to date was useable for trial as opposed to being obsolete by that time. Even if I embarked on that exercise, it would be similarly difficult for the trial judge to then determine where those lines were drawn in order to avoid double-compensation for the same work. [ 29 ] While Mr.

Wright argues that this conundrum means that costs should only be assessed or largely assessed after trial, I agree with the Plaintiffs that it is not realistic or fair to defer costs to a trial that may or may not happen. Whatever happens at trial, it was Mr. Wright who chose to bring this motion and did not succeed. [ 30 ] While not without its own failings, I think the best approach is to award the Plaintiffs their costs of all items to this point, again with a multiplier of 2.5x Column 5 except for items #19-21.

If the matter proceeds to trial and the Plaintiffs are successful, it will be their job to show the trial judge what additional fees for these items, if any, should be compensable. In default of this, they may be restricted to recovery of their trial fees. If Mr. Wright is successful, he may argue for a reallocation of the costs of some of the work represented by this award. I say this not to purport to fetter the discretion of the trial judge in any way, only to explain why I believe that full costs at this stage are appropriate.

Conclusion [ 31 ] The Defendant Directors will have their costs against the Plaintiffs at 2.5x Column 5 and their claimed disbursements, including Mr. Gadsen’s fees. The Defendant Mr. Scott will have his costs against the Plaintiffs at 2.5x Column 5, those fees and his disbursements to be divided in half. The Plaintiffs will have their costs against Mr. Wright at 2.5x Column 5 plus their disbursements. [ 32 ] It is my fervent hope that the parties can agree on the costs of this costs application but they have leave to write to me if they cannot.

Submissions received on December 18 th , 2020 and January 8 th , 2021 Dated at the City of Calgary, Alberta this 29 th day of March, 2021. M.H. Hollins J.C.Q.B.A. Appearances: Michael Barrack, Richard D. Bell and Brittiny Rabinovitch for the Defendant Officers/Applicants Daniel J. McDonald, QC, Julia A. Lisztwan and Mark D. MacAulay for the Defendant Directors/Applicants Timothy Pinos, Ted Frankel and Stephanie Voudouris for the Plaintiffs/Respondents