bradley smith APPLICANT AND: R. wayne hillier RESPONDENT, 2018 NLSC 192

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : Smith v. Hillier , 2018 NLSC 192 Date : September 28, 2018 Docket : 201401G6611 BETWEEN: bradley smith APPLICANT AND: R. wayne hillier RESPONDENT Before: Justice Deborah J. Paquette Place of Hearing: St. John's, Newfoundland and Labrador Date of Hearing: May 29, 2018 Appearances: Justin G. J. Caines Appearing on behalf of the Applicant Brian D. Wentzell Appearing on behalf of the Respondent

Authorities Cited: CASES CONSIDERED: Smith v. Hillier, 2016 NLTD(G) 80; Holloway v. Holloway, 2001 NFCA 17; Dorset Seafoods Ltd. v. DorsetFisheries Ltd., (1988), (NL CA), 69 Nfld. & P.E.I.R. 105, 211 A.P.R. 105 (Nfld. C.A.); Pelley v. Pelley, 2003 NLCA6; Petten v. E.Y.E. Marine Consultants (1998), (NL SC), 179 Nfld. & P.E.I.R. 94, 546 A.P.R. 94 (Nfld. & S.C.(T.D.)); Portugal Cove - St. Philip's (Town) v. Squires, 2017 NLTD(G) 28; Steele v. Rendell, 2017 NLCA 36, aff’g 2016 NLTD(G) 24 STATUTES CONSIDERED: Corporations Act, R.S.N.L. 1990 c. C-36; Judicature Act, R.S.N.L. 1990, c.

J-4 RULES CONSIDERED: Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42, Sch. D REASONS FOR JUDGMENT PAQUETTE, J.: INTRODUCTION [1] The Applicant and Respondent were the sole shareholders of SMART! Industrial Solutions Inc. (“SMART!”). By Orderdated 21 June 2016 SMART! was dissolved under authority of the Corporations Act, RSNL 1990 c. C-36 (“Act”) and the parties weregiven leave to apply for costs. The Respondent has requested a determination of costs, seeking an award of solicitor and client costs oralternatively costs higher than column 3 of the Scale of Costs.

The Applicant advances that he be awarded costs or in the alternative,each party should bear their own costs. BACKGROUND Procedural History [2] The Applicant commenced an application to wind up the company in September 2014.

In October 2014 the Respondentsuccessfully applied for an Order dispensing with the Applicant’s signature on company cheques because he refused to comply withrequests. [3] Shortly thereafter, the Applicant initiated another legal proceeding against the Respondent and SMART! in which he soughtan order for specific performance of an agreement that the Respondent purchase his shares in the company and that he be reimbursed forunpaid bonuses. In February 2015 an Interlocutory Application by the Applicant for consolidation of the Supreme Court proceedingswas denied.

On 15 June 2015 Orsborn, J. ordered the stay of the action to enforce the sale of the company’s shares and set the withinmatter down for a three day trial commencing on 18 January 2016. [4] Notwithstanding the court-scheduled hearing date, the Applicant filed a Notice of Discontinuance on 1 September 2015.

TheRespondent’s Interlocutory Application to have the Notice of Discontinuance set aside, ultimately unopposed by the Applicant, wasgranted on 3 November 2015. [5] The above-referenced interlocutory proceedings are captured by this application for costs pursuant to Order dated 21 June2016 in which leave was given to apply for costs following the trial. [6] For reasons set out in Smith v. Hillier, 2016 NLTD(G) 80 it was ordered pursuant to subsection 343(1)(b)(ii) of the Act that itwas “just and equitable” that the company be dissolved and liquidated by a court-appointed liquidator.

The parties disagreed at trialrespecting the manner in which the company was to be wound up. The Applicant requested an order that SMART! be sold as a goingconcern by a qualified receiver-manager. The Respondent opposed sale as a going concern and sought liquidation. He also requestedthat he be appointed the liquidator. The Applicant’s request was denied. In brief, the evidence did not support the rationale, time delayand costs associated with sale as a going concern by a receiver-manager.

The Respondent was disqualified from acting as liquidatorgiven the potential for conflict of interest as he had a stated intention to establish his own storage solutions business, the primarybusiness of SMART!. THE LAW [7] Subsections (1) and (2) of

section 53 of the Judicature Act, R.S.N.L. 1990, c. J-4 authorize the award of costs: 53.

(1) Subject to the rules and the express provisions of another Act, the costs of and incident to all proceedings in the courtincluding the administration of estates and trusts are in the discretion of the court.

(2) The court may determine by whom and to what extent costs awarded under subsection (1) shall be paid. [8] Rule 55 of the Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42,

Schedule D also addresses costs, pertinent provisionsbeing: 55.02. (1)…(T)he costs of any party, the amount thereof, the party by whom, … they are to be paid, are in the discretion of the Court….; 55.03.

(1) Unless the Court otherwise orders, the costs of a proceeding or of any issue of fact or law therein shall follow the event. 55.04.

(3) The Court may award costs to be taxed in accordance with any column or combination of columns under the Scale of Costs inthe Appendix to this Rule.

(4) In exercising its discretion under this Rule, the Court may consider (

a) the amounts claimed and the amounts recovered; (

b) the importance of the issues; (

c) the complexity, difficulty or novelty of the issues; (

d) the manner in which the proceeding was conducted, including any conduct that tended to shorten or unnecessarily lengthen theduration of the proceeding; (

e) the failure by a party to admit anything that should have been admitted; (

f) the proportion of the services rendered prior to the date the amendment to this paragraph introducing a Scale of Costs wherecosts are taxed according to a column or combination of columns came into force; (

g) seniority at the bar of counsel; and (

h) any other relevant matter. 55.05.

(1) Unless the Court otherwise orders, the costs of any interlocutory application, whether ex parte or otherwise, are costs in thecause and shall be taxed upon the same scale as the general costs of the proceedings. 55.14.

(1) Where any thing is done or an omission is made, improperly or unnecessarily, by or on behalf of a party, the Court mayorder (

a) that any cost arising from the act or omission not be allowed to the party; (

b) the party to pay the costs of any other party occasioned by the act or omission; or (

c) a taxing officer to inquire into the act or omission with power to order or disallow any costs as provided in rule 55.14(1)(

a) and rule55.14(1)(b). [9] Case law reflects that costs usually follow the event, with the successful party awarded costs. Circumstances can alter thispresumption as explained by Wells, C.J.N. in Holloway v. Holloway, 2001 NFCA 17 at paragraph 59: 59. Here, the appellant has been successful, in that this appeal has been allowed and the decision of the applications judge to proceedwith a Rule 38 hearing has been set aside. Entitlement to costs usually follows success on an appeal.

However, in all of the circumstancesof this case, such an award would offend one's sense of fairness and be inconsistent with factors that courts normally take into account indetermining entitlement to costs… [10] Such a decision will be based on the facts of a particular case and the exercise of discretion in accordance with the applicableprinciples. (Holloway at paragraphs 63 and 65 citing Marshall, J.A. in Dorset Seafoods Ltd. v. Dorset Fisheries Ltd., (1988), (NL CA), 69 Nfld. & P.E.I.R. 105, 211 A.P.R. 105 (Nfld. C.A.) at paragraph 27). [11] In Pelley v.

Pelley, 2003 NLCA 6 the Newfoundland and Labrador Court of Appeal awarded solicitor and client costs in a

shareholder oppression action. Subsection 371(2) of the Act addresses the oppression remedy: “the court may make an order to rectifythe matters complained of.” While oppression was not advanced in this proceeding and subsection 371(2) inapplicable, Pelley alsodiscusses solicitor and client costs at common law. [12] Both Wells, C.J.N. and Cameron, J.A. referred to Green, J.(as he then was) in Petten v. E.Y.E. Marine Consultants, (NL SC), 179 Nfld. & P.E.I.R. 94., (NB KB), 546 A.P.R. 94 (Nfld. S.C. (T.D.)), Cameron J.A. writesat paragraph 83: 83. I agree with the

summary in Petten v. E.Y.E. Marine Consultants (1998), (NL SC), 179 Nfld. & P.E.I.R. 94(Nfld. T.D.), which was accepted by the Chief Justice, of the basic principles applied in awarding solicitor client costs in this Province: 1. Solicitor and client cost are generally awarded only where there has been reprehensible, scandalous or outrageous conduct on the partof one of the parties (Young v. Young, (SCC), [1993] 4 S.C.R. 3 (S.C.C.) at p. 134); 2. The conduct giving rise to the award may be "either in the circumstances giving rise to the cause of action1, or in the proceedings, ... ."(Stiles v.

British Columbia (Workers' Compensation Board) (1989), (BC CA), 39 C.P.C. (2d) 74 (B.C. C.A.) at p. 79;and Petten ); 3. Such costs are awarded only in exceptional circumstances. [13] It is also established law that solicitor and client costs can be limited to particular events in the course of litigation. This isexplained at paragraph 80 of Petten: 80.

Thus, while the effect of an award of solicitor-client costs is to provide a greater degree of indemnification than that provided byparty and party costs (thereby serving a compensatory function), the justification for affording that greater degree of cost protection isthe misconduct of the other party which is deserving of reproof or rebuke. The awarding of solicitor-client costs may therefore bejustified where there is a causal relationship between the misconduct deserving reproof or rebuke and the special costs incurred for whichadditional indemnification is sought.

For example, in Young the actions of the litigant against whom costs were awarded only attractedsolicitor-client costs related to the four-day period by which the litigant's obstructive behaviour extended the proceedings and therebyexposed the other party to increased cost. There will also be cases, however, where solicitor-client costs may be awarded, based onconduct deserving reproof or rebuke, which nevertheless cannot be linked directly to any increase in cost or other harm suffered byanother party.

The court always retains an inherent jurisdiction to express its disapproval of the conduct of a party in litigation by theawarding or withholding of costs. The awarding of solicitor-client costs thus serves both a compensatory and a punitive function. [14] In Portugal Cove - St. Philip's (Town) v. Squires, 2017 NLTD(G) 28 this court took into consideration conduct which, whilenot falling within the ambit of solicitor and client costs, nonetheless supported a cost award at the higher rate set out in column 4 of theScale of Costs in reliance on Rule 55.04(3).

As here, it was advanced that the other party had engaged in misconduct in thecircumstances giving rise to the cause of action. It was also submitted that such conduct continued in the course of the proceedings. While not satisfied that the conduct was such as to attract solicitor and client costs, McGrath, J. took into consideration that the party haddemonstrated an unwillingness to comply with the Town’s Removal Order, engaged in conduct which unnecessarily lengthened the courtproceedings and failed to appear and abide by court orders causing delay. [15] Likewise in Rendell v.

Steele, 2016 NLTD(G)24 conduct which, while close to that necessary to justify solicitor and clientcosts nonetheless justified an award of costs pursuant to column 5. In so deciding, this court took into consideration that most of thedefences failed to raise a genuine issue for trial and the plaintiff had engaged senior counsel. In affirming the award of costs on appeal,Steele v. Rendell, 2017 NLCA 36, White, J. A. wrote at paragraphs 23 and 24: 23. …the trial judge was entitled to consider that Ms. Rendell was put to significant expense refuting claims that had no reasonablebasis. In particular, much of Mr.

Steele's evidence focused on his theory that the Land was conveyed to him by his mother. That theorywas dramatically contradicted by the evidence. It brought Mr. Steele within a hair's breadth of a solicitor-and-client costs order; only the"benefit of the doubt" saved him (see paragraph 90) 24. Conduct that comes close to justifying solicitor-and-client costs can justify costs on a higher column. (See Hynes v. Snook, 2016NLCA 4 (N.L. C.A.).) The trial judge did not err in considering that factor.

In the result, I am satisfied that the trial judge did not err inexercising his discretion to order costs under column 5 of the Scale of Costs. ANALYSIS [16] The Court heard viva voce evidence of both parties over the course of a three day hearing. The procedural history recited abovealso reveals that the Applicant was simultaneously seeking to advance, not the wind-up of the company, but the enforcement of anagreement whereby the Respondent would purchase his shares in SMART!.

Indeed the Applicant had unilaterally discontinued thisapplication to wind-up the company as late as 1 September 2015, despite the prior Order of Orsborn, J. setting it down for a three day

hearing.

These factors dispel the notion as advanced by his counsel that the Applicant, as initiator of the application to wind-up the company, should be awarded costs as the successful litigant. [ 17 ] The Respondent also relies upon circumstances giving rise to the cause of action, as justifying an award of costs to him, referring to conduct which was contrary to the sustainability of SMART!: the Applicant took the position that he wanted out of the company or it be closed; the Applicant stopped signing company cheques and communicated that he would notify suppliers that SMART! was closed for business and that he would advise the insurer to discontinue its coverage forthwith; the Applicant removed SMART!’s only 2 forklifts, returning them one day before a court appearance regarding their removal, causing SMART! to incur expenses in the rental of forklifts; SMART!’s rental space was raised beyond market price by one of the Applicant’s affiliated companies; another forklift was taken by the Applicant from the new location and the Applicant viewed blind copies of the Respondent’s corporate emails and on occasion competed with SMART! through one of his affiliated companies. [ 18 ] The Applicant for his part, asks the Court to take into consideration the conduct of the Respondent in stopping payment of his salary refusing to pay his corporate bonus. [ 19 ] The liquidation of the company was court-ordered and not a voluntary dissolution under the Act .

The deterioration of the relationship of the parties and the steps taken by the Applicant, intended to precipitate SMART!’s closure ignored available options in the Act to seek the dissolution or sale of the company. These actions stood in marked contrast to his request that SMART! be sold as a going concern through the court’s appointment of a receiver-manager. Notwithstanding the animosity between the shareholders, the company was a separate entity enjoying the protection of the legislative regime set out in the Act.

In the result, the evidence supported a finding that it was just and equitable to dissolve the company with this task entrusted to a professionally qualified liquidator. [ 20 ] On balance, I find that the Respondent’s measure of success was greater than that of the Applicant, given that liquidation was ordered by the court and not the appointment of a receiver-manager to sell SMART! as a going concern.

Even if the Respondent can not be considered the successful party, the circumstances of this proceeding, taking into consideration the conduct of the parties which gave rise to the cause of action and the nature of and outcome of the interlocutory proceedings persuade me that it is an appropriate case in which to exercise my discretion to award costs to the Respondent (see Holloway at paragraph 59). [ 21 ] Upon consideration of the factors relating to the award of solicitor and client costs I am not satisfied that such an award is appropriate here, taking into consideration the remedy which was ultimately granted and the position of both the parties at trial where the legal issues were properly advanced.

I do find however that this is an appropriate case to exercise my discretion pursuant to Rule 55.04(3)(

d) and (

h) to order costs throughout on the basis of column 4 of the Scale of Costs. _____________________________ Deborah J. Paquette Justice