North v Davison, 2024 ABKB 52

Court of King’s Bench of Alberta Citation: North v Davison, 2024 ABKB 52 Date: 20240129 Docket: 2303 04003 Registry: Edmonton Between: Frederick North, Fred North Trust, Temor Holdings Limited Partnership by Its General Partner Temor Holdings Ltd, and Temor Holdings Ltd Plaintiffs - and - Aaron Davison, Scott Cable, Christopher Keown, Coralynne Keown, Jamie Cable, Ventures North Financial Group Limited Partnership by Its General Partner Ventures North Financial Group Inc., Ventures North Financial Group Inc., Osoyoos Mountain Estates Inc., T “N” T Tank & Trailer Repair Limited Partnership by Its General Partner T “N” T Tank & Trailer Repair Ltd., T “N” T Tank & Trailer Repair Ltd., T “N” T Tank & Trailer Repair Grande Prairie Limited Partnership by Its General Partner T “N” T Tank & Trailer Repair Grande Prairie GP Ltd., T “N” T Tank & Trailer Repair Grande Prairie GP Ltd., Moonlight Systems Inc., LightVue Inc., Digital Edge Media Inc., Hill 7 Lloyd Development Inc., Chris L.

Keown Professional Corporation, 1417691 Alberta Ltd., Optimum Concrete & Foundations Ltd., 2135974 Alberta Ltd., Trellis Steel Construction Ltd., 2202474 Alberta Ltd., Blue Lobster Holdings Ltd., Silent Bear Holdings Ltd., Angry Elephant Holdings Ltd., 1981670 Alberta Ltd., 2092013 Alberta Ltd., ABC Corporation, Def Corporation, GHI Corporation, John Doe, and Jane Doe Defendants _______________________________________________________ Endorsement as to Costs of the Honourable Justice Douglas R. Mah _______________________________________________________ A. Background

[ 1 ] This costs ruling results from four applications that I heard on October 30, 2023 for which I gave an oral decision on November 8, 2023. The applications arose in the course of an Interim Receivership of various related entities, the primary ones being the Ventures North Financial Group companies (VNFG) and two businesses both known as T “N” T Tank & Trailer Repair (T “N” T), which are operated through limited partnerships.

The Interim Receivership Order was first granted by this Court on March 3, 2023, and extended to November 30, 2023. [ 2 ] VNFG is a venture capital firm with real estate and business holdings. Among the businesses in which VNFG has holdings are the two T “N” T enterprises. The lead Plaintiff is Mr. North who is an equity holder and largest unsecured creditor of VNFG. Among the individual Defendants are persons said to have been entrusted by Mr. North to manage and operate VNFG and T “N” T. Instead, he alleges, they have misappropriated huge sums of money. They have, in turn, counterclaimed against Mr.

North, alleging that he has engaged in financial misappropriation to their detriment. They also make allegations of wrongdoing against the Interim Receiver. Some of the individual Defendants have a financial stake in these companies. [ 3 ] The four applications, and their outcomes, are as follows: • An application was made on behalf of the Plaintiffs to place the VNFG entities into full receivership. This application was granted. • An application was brought by the Plaintiffs to unseal the Interim Receiver’s Second and Third Reports which had been sealed by court Order.

This application was also granted. • An application was made by the Interim Receiver for relief which would in effect remove control of the T “N” T businesses from one of the Defendants, and his company and vest it in the main Plaintiff, Mr. North, and one of his companies. I ordered on November 8, 2023, that the Interim Receivership continue for a period of 90 days in respect of T “N” T to enable the Interim Receiver to recruit an independent third-party to manage the two T “N” T locations.

When it became apparent that this solution was impractical for cost reasons, I asked the two camps of adversaries to reconsider whether they could agree that an existing employee of T “N” T might fill the role of independent, court-appointed manager as a matter of expediency and cost-effectiveness. The Defendants agreed (somewhat reluctantly) that the employee proposed by Mr. North could take on the role. • The last application made was by the Interim Receiver for its discharge, which was granted. [ 4 ] The Plaintiffs supported the Interim Receiver’s applications.

The Defendant group consisting of Aaron Davison, Scott Cable, Christopher Keown, Coralynne Keown, Jamie Cable, Hill 7 Lloyd Development Inc, Chris L Keown Professional Corporation, 1417691Alberta Ltd, Optimum Concrete & Foundations Ltd, 2135974 Alberta Ltd, Trellis Steel Construction Ltd, 2202474 Alberta Ltd, Blue Lobster Holdings Ltd, Silent Bear Holdings Ltd, Angry Elephant Holdings Ltd, 1981670 Alberta Ltd, and 2092013 Alberta Ltd either resisted each application or took vigorous positions contrary to that advanced by the Plaintiffs. B.

Plaintiffs’ Position [ 5 ] In light of the outcomes, the Plaintiffs seek enhanced costs against these Defendants equivalent to 75% of solicitor-and-own- client costs plus full indemnity for third-party professional fees, or alternatively a multiple of 5 of Column 5 costs with full indemnity for third-party professional fees. [ 6 ] The third-party professional fees arise in two ways. First, the Plaintiffs sought and obtained an Anton Piller Order which necessitated the appointment of an Independent Supervising Solicitor (ISS). Second, Mr.

North himself was (and is) required to pay the professional fees of both the Interim Receiver and its legal counsel as the receivership estate could not do so due to the position of the secured creditors. [ 7 ] The Plaintiffs say their costs of these applications are as follows: • Plaintiffs’ counsel legal fees $305,787.86 • ISS fees $ 18,695.25 • Interim Receiver Fees (including counsel fees) $170,242.01 TOTAL $494,725.12 [ 8 ] I interpret Plaintiffs’ counsel’s submission to be that the amounts listed above relate to professional services rendered in respect of only the four applications that were before me. [ 9 ] No back-up documentation or detail was provided in the Plaintiffs’ costs brief to support these amounts.

I am aware that through reports filed by the Interim Receiver in this Action, information about the Interim Receiver’s fees and its counsel fees has been made available or offered to the Judge being asked to approve the Interim Receiver’s accounts for payment. [ 10 ] Counsel for the Plaintiffs asserts: • The Court of Appeal in McAllister v Calgary (City) , 2021 ABCA 25 established that a reasonable and proper costs award should indemnify a successful litigant to the extent of 40-50% of actual costs incurred, in the absence of misconduct.

By way of example, Anderson v Westmount Projects Inc , 2023 ABKB 619 is an insolvency case where a successful applicant was awarded 45% of actual costs for a contested bankruptcy, without misconduct by the other side.

• Enhanced costs may be awarded in the event of litigation misconduct by the losing side: Lotoski v Lotoski , 2019 ABCA 262 at para 7 .

Here, the Plaintiffs contend, there has been conduct on the part of the other side that falls short of what one would expect from a reasonable litigant: filing of affidavits at the last minute with no explanation; putting inadmissible evidence before the Court consisting of hearsay, speculation and argument; obfuscation and introduction of collateral matters; vigorously opposing an inevitable result (the Receivership Order) given that the two main secured creditors had signalled their intention to apply for the same Order, if this one had not been granted, among other things. • The complexity of the matter, multiplicity of issues raised, and amount of effort required by the parties and counsel to fully address the matter in court all indicate enhanced costs.

C. Defendants’ Position [ 11 ] These Defendants say that no costs are payable by them at this time, for these reasons: • The Receivership Order granted by me, at para 37, says that costs of the receivership application will be paid as per the Plaintiffs’ security or by the Receiver out of VNFG’s estate. • McAllister does not create a new default position of 50-40% indemnity. Costs assessment remains a discretionary exercise. There is no presumption that McAllister has presumptively displaced

Schedule C: Grimes v Governors of the University of Lethbridge , 2023 ABKB 432 at paras 47 , 63-64 & 71. • The Plaintiffs cannot claim costs for applications brought by the Interim Receiver.

The Interim Receiver did not seek costs. • There is no documentary justification (i.e., bill of costs, statements of account) for the amounts requested and therefore, no meaningful way for the Court to assess reasonableness. • With respect to the ISS fees, the Anton Piller Order of March 3, 2023 directs the Plaintiffs to pay those costs with a right to seek recovery from the Defendants. • The Interim Receiver’s fees are subject to a charge under para 18 of the Interim Receivership Order of March 3, 2023. • At most, the Defendants are currently liable for costs under

Schedule C for their unsuccessful opposition to the unsealing application or $1,350. D. Ruling [ 12 ] I’ll first deal with the claim for the ISS fees and Interim Receiver’s costs (including its legal counsel costs). I appreciate that only that portion of both attributable to these applications are currently being claimed as part of this costs Order. [ 13 ] I agree with counsel for the Defendants that the Plaintiffs’ right to recover the ISS fees is covered by the Anton Piller Order.

The appropriate time to determine that entitlement is at the end of the Action. [ 14 ] I further understand that the Interim Receiver’s charge was purposely limited so as not to affect the rights of the two secured creditors and that Mr. North chose to fund the Interim Receivership himself. At this stage, I do not consider any of the Interim Receivership costs to be recoverable legal costs or disbursements under the Rules of Court in regard to these applications. Mr.

North or the Plaintiffs may well have a right to claim all of the Interim Receivership costs in this Action against these Defendants on a legal basis such as damages or some other indemnity theory, but that again is for decision at another time. [ 15 ] With respect to the costs of the Receivership Application, there appear to be conflicting provisions in the Order. The first is para 37, relied on by the Defendants, and the other is para 39, relied on by the Plaintiffs.

Paragraph 39 appears under the heading “Costs” in the Order and reads: “Costs of this application shall be dealt with by way of a separate Order.” Also, I specifically directed at the end of the hearing that counsel should make written costs submissions and indicated I would make a separate costs decision. The wording of para 37 comes from the Court’s template Order which is a Court form that provides suggested wording. I assume it was included in error and overlooked in proof-reading (including by myself).

In any event, I conclude that the wording of para 39 and the directions I gave in court override para 37. [ 16 ] The Plaintiffs asked for a full Receivership Order. This relief was vigorously opposed by these Defendants. As noted, I granted the Order. The Plaintiffs/Mr.

North, who are bearing the brunt of the financial risk, are entitled to recoup some of their costs of taking legal steps to preserve the assets of VNFG for the benefit of all financial stakeholders, including those Defendants who are equity holders, in the face of opposition. [ 17 ] The successful party is presumptively entitled to costs: Rule 10.29(1). The determination of costs is inherently discretionary, and the exercise of that discretion must be based on judicial principles of reasonableness, fairness, balance and equity: JBRO Holdings Inc v Dynasty Power Inc , 2022 ABCA 258 at para 26 , Rule 10.31.

The relevant considerations for a costs award are found in Rule 10.33 and include, among a list of factors, result, complexity, and whether an application was unnecessary or improper. [ 18 ] I have regard to the extensive and scholarly review of the caselaw conducted by Graesser J in Grimes and agree that McAllister does not necessarily create a “new normal” or presumption of 40-50% indemnity for successful litigants. The costs assessment exercise remains inherently discretionary and contextual.

[ 19 ] Further, as a matter of reasonableness and fairness, I cannot simply accept the Plaintiffs’ number of $305,787.86 without some kind of backup. In the receivership context, a fee affidavit often eases the way to approval of professional fees. Here, I have nothing more than the number. [ 20 ] In this case, I have regard to the following: • In relation to costs, Rule 10.38 provides that a “party” includes a person filing or participating in an application or proceeding who is or may be entitled to or subject to a costs award.

From this, I conclude that a person who does not initiate a court application by filing the Notice of Application can nonetheless be a party so long as the position taken by that party in the application was contested by another party. So long as one has standing before the Court and rights at stake, it is the expense of effort and money to advance or defend a position upon which the Court is required to adjudicate that makes one a party for the purposes of the costs rules.

Thus, the Plaintiffs may claim costs for the applications brought by the Interim Receiver. • While a defendant or respondent is entitled to defend against an application, it should be done in a reasonable manner. In my Oral Reasons, I tried not to comment too much on the merits of allegations made by these Defendants against Mr. North and the Receiver in recognition of the limited opportunity I had to examine the merits. Nonetheless, I was compelled to comment extensively on the credibility and reliability of a particular Deponent who was the main witness on behalf of these Defendants.

Aside from the Affidavit containing inadmissible hearsay from unknown persons, speculation and legal argument, the witness’s evidence was so defective that it could not be relied upon at all. Further, and more importantly, these Defendants were unable to advance any alternative to an outcome (full receivership) that I found was inevitable.

So, on this point, I agree with the Plaintiffs that the opposition to the Receivership Order was not reasonable or not done in a reasonable manner. • The matter was complex, not only because of the sheer volume of material, but because of the nature of the defences raised to the application, which included examining historical transactions in order to determine the validity of allegations of overvaluation of debt. • For the reasons stated in the previous two bullets, I conclude some degree of enhancement is indicated. • I note there were two main applications, the Receivership application brought by the Plaintiffs and the application to replace the management of the T “N” T companies brought by the Interim Receiver.

The two remaining applications I consider to be secondary, and I would not consider them to be separately compensable in terms of costs. • The application regarding T “N” T was argued by the Plaintiffs who proposed one resolution (and whose position aligned with that of Interim Receiver) and the Defendants who proposed another.

In the end, it seems to me that the Defendants capitulated to the outcome proposed by the Plaintiffs so in that sense the Plaintiffs were successful. • Costs should not be assessed on an issue-by-issue basis but rather based on substantial success in the overall application: AE v TE , 2017 ABQB 674 at paras 6-8 . The Plaintiffs were substantially successful in both aspects of their own application and in advancing their position over that of the Defendants in the Interim Receiver’s application regarding T “N” T. • In terms of the amount at stake in the litigation, Mr.

North claims to be owed somewhere between $40-$50 million by VNFG, most of which is unsecured. The two main secured creditors are owed about $22 million and $16 million each. Column 5 of

Schedule C applies to matters involving amounts over $2 million. Although the amount in question is high, the applications themselves took just one day. [ 21 ] Having regard to the factors listed in Rules 10.33(1) & (2), I award costs to the Plaintiffs against these Defendants for two contested applications on Column 5 with a multiplier of 3, payable on a joint and several basis. Heard by way of written submissions on November 22, December 6 and December 13, 2023. Dated at the City of Edmonton, Alberta this 29 th day of January, 2024. Douglas R. Mah J.C.K.B.A. Appearances:

Gary Zimmermann McLennan Ross LLP for the Applicants Kevin P. Chapotelle Bryan & Company LLP for the Respondents