Giffin v. Soontiens, 2012 NSSC 354

SUPREME COURT OF NOVA SCOTIA Citation: Giffin v. Soontiens, 2012 NSSC 354 Date: 20121012 Docket: Hfx No. 292594 Registry: Halifax Between: Gordon Giffin Plaintiff and Nicole Soontiens, Ilona MacAlpine, XL Electric Limited, a body corporate, Huntec Limited, a body corporate, and CNCA Holdings Limited, a body corporate Defendants DECISION ON COSTS AND INTEREST Judge: The Honourable Justice Gerald R. P. Moir Date of Hearing: June 7, 2012 Last Written Submission: June 27, 2012 Counsel: John A. Keith, for plaintiff George W. MacDonald, Q.C., for defendants Moir, J.:

Introduction [ 1 ] Mr. Giffin was successful in his primary claim, which was based on shareholder oppression. I now have to determine issues about costs and prejudgment interest. [ 2 ] The plaintiff seeks solicitor-and-client costs. The defendants seek costs, or reductions in a party and party award against them, because of various alleged "misconduct" of the plaintiff in connection with the litigation. The issue on prejudgment interest concerns an allegation that the plaintiff caused unnecessary delay. Costs Factors [ 3 ] Significance of Finding of Oppression . It is submitted for Mr.

Giffin that the finding of oppression is "sufficient justification in and of itself for an award of solicitor-and-client costs". The justification grows stronger because of the other parties' "procedural misconduct" and their rejection of "numerous settlement offers". They are accused of having tried … to litigate Giffin into submission, using delay and non-disclosure tactics to increase the financial burden placed upon Giffin as a result of this claim. [ 4 ] "Costs on a solicitor-and-client scale are indeed often awarded in oppression cases.": Justice Oland at para. 45 of Minas Basin Holdings Ltd. v.

Paul Bryant Enterprises Ltd. , 2010 NSCA 17 . She referred to the following passage from Markus Koehnen's Oppression and Related Remedies : The rule of thumb in oppression cases appears to be that solicitor client costs are appropriate unless there is a compelling reason to order otherwise. To restrict the applicant to party and party costs merely compounds the oppression. At times, however, courts have awarded less than party and party costs to the successful party where circumstances were thought to merit it. ... Justice Oland went on to say "However, this matter is not an oppression case … ".

Thus, her remarks are persuasive obiter , rather than a determination of law binding upon me. [ 5 ] Mr. Keith referred me to numerous authorities outside Nova Scotia that are consistent with Justice Oland's general observation and with the passage she quoted from Mr. Koehnen's text. [ 6 ] Mr. MacDonald refers me to Gargarella v. Capobianco , [2009] O.J. 3202 (S.C.) where Justice Pepall said, at para. 3, "oppression by definition almost always provides some foundation for an award of costs above a partial indemnity scale" and "It is not, however, axiomatic that such an award is granted." [ 7 ] Mr.

MacDonald goes so far as to submit "the well-established law regarding solicitor client costs has not undergone some fundamental shift in the context of an oppression proceeding". There must be "rare and exceptional circumstances of outrageous reprehensible conduct". Respectfully, I disagree. [ 8 ] In my assessment of the authorities, oppression of a minority shareholder is a factor in favour of an award of solicitor-and- client costs.

[ 9 ] The invitation to consider a full indemnity is grounded in the fundamental legislative purposes underlying the shareholder oppression cause. An extraordinary remedy was legislated in order to protect minority shareholders from unfair conduct. The legislation calls for an application, not an action and a trial. It intends a quick proceeding. When the trial route becomes necessary, the delay and expense could undermine the legislative purposes. [ 10 ] In my opinion, to consider solicitor-and-client costs in an oppression proceeding is consistent with Rule 77.03(2).

To take such a proceeding and to obtain a finding of oppression is within "exceptional circumstances recognized by law". [ 11 ] Mr. Giffin's signing of the shareholder agreement when he believed it did not treat him equally would, when taken out of context, count against full indemnity. However, the context diminishes Mr. Giffin's responsibility for the unequal terms for voting and dividends and the ambiguous terms on division of equity. [ 12 ] I refer to Ms. Soontiens' exclusion of Mr.

Giffin from the development of the agreement, the self-serving terms she instructed for, her failure to pass on counsel's suggestion of independent legal advice for Mr. Giffin, her dropping the draft agreement into her co- adventurer's hands moments before it was to be signed, and her failure to draw to his attention any of the terms she had introduced toward unequal administration and unequal entitlement to income. [ 13 ] In this case, the finding of oppression is a significant factor in favour of full indemnity. [ 14 ] Significance of Breaches of the Duty to Disclose .

The defendants put great emphasis on the plaintiff's theory of a phantom loan and on his failure to prove it. They go so far as to characterize the plaintiff's thirst for documentary disclosure, and his leading evidence on this point, as an "obsession". They claim the disclosure and evidence "turned out to contribute nothing to the determination of the main issue." In particular, the documents they were forced to disclose "totally failed to prove the Plaintiff's allegations about a loan." This, the defendants call "misconduct". [ 15 ] The plaintiff's efforts were not an obsession.

They were genuine and necessary because, as I found, "Mr. Giffin understood at the material times that there was a loan of $85,000 from Mr. Berta and that there was to be some connection between repayment of the loan and redemption of shares", because of financial transactions that were "odd … unless one wishes to make it difficult to see the purpose [of the transaction]", because of the resistence to disclosure, because of the confusing and contradictory explanations of the $56,000 note and what was done on account of it, and because of the concealment of the huge profits paid to Mr.

Soontiens for used tools and leftover inventory. [ 16 ] I did not find that the plaintiff "totally failed to prove" the allegation of a phantom loan. Here is what I found: I cannot say, on the evidence before me, how much of the cash went to Mr. Berta as possible repayment of a loan. There are arguments for doing so, but the evidence does not prove any to a likelihood. Nor can I say how much of the payments for the leftover inventory and tools may have gone to Mr. Berta. The evidence does not support findings that a loan, rather than a gift, was made by Mr. Berta or that a loan was repaid, even partially.

In my assessment, the majority shareholders gave the plaintiff plenty of reasons to pursue the finding he sought. [ 17 ] The defendants also criticize Mr. Giffin for using the trial as an effort at forensic accounting. Especially in light of the defendants' attitude toward their disclosure obligations, the cost of forensic accounting by an expert would likely have been great. I do not criticize Mr. Giffin for choosing to take another approach.

[ 18 ] Finally, the defendants' submission on this point forgets that the unrelenting effort to get them to disclose relevant documents led, very lately, to disclosure of much of the documentary evidence on the astounding profits paid by XL to Ms. Soontiens' husband for used tools and leftover inventory. As a director, Mr. Giffin was entitled to that information when the transactions occurred. He was entitled to disclosure of it, as a plaintiff in an oppression suit, when he sued.

When he finally got the information, it formed an important part of the oppression claim, on which he was entirely successful. [ 19 ] The failure to prove the phantom loan should not count against Mr. Giffin on the issue of costs. [ 20 ] "Making full disclosure of relevant documents, electronic information, and to other things is presumed to be necessary in a proceeding.": Rule 14.08(1). I discussed the defendants' dereliction of the duties imposed by Rule 15 - Disclosure of Documents when I made the main decision. Mr.

Giffin submits that this is just the tip of the iceberg, and he provided affidavit evidence on the subject. [ 21 ] I do not need to delve below what I saw at trial. The dereliction was serious. The consequences are serious. The breaches should be sanctioned to compensate the party not in breach and to deter others who may consider adopting a similar course. [ 22 ] Huntec Limited and CNCA Holdings Limited . The defendants also criticize Mr. Giffin for including Huntec and CNCA as parties. In my assessment, the criticism is deserved. [ 23 ] Huntec would have been wound up long ago had Mr. Giffin acted reasonably.

The claims about CNCA were groundless. On these subjects, Mr. Giffin contributed unnecessarily to the complexity and expense of the case. There is evidence that these companies may have shouldered two-fifths of the defendants' expense. [ 24 ] Other Failed Claims. The defendants submit "... the Plaintiff unnecessarily added to the complexity of the proceeding by pleading and advancing numerous complex legal claims in addition to [his] claim of oppression, all of which failed." This, they call "misconduct". [ 25 ] I found that there were only two "substantial issues of liability".

They were "whether the plaintiff had established an entitlement to oppression remedies" and "whether certain defendants owed, and breached, fiduciary duties." The plaintiff succeeded on the first. On the alternative cause I said, "I am not satisfied that a fiduciary duty was owed." [ 26 ] The oppression by the majority shareholders was severe. The majority shareholders were found to have concealed their intent to take a grossly disproportionate share of profits whenever XL became really profitable, all the while letting the minority shareholder work very hard to help XL achieve real profitability.

My findings went further than oppression. I found bad faith. Those findings were not based on a few scraps of evidence. The information underlying them was extensive. [ 27 ] The second substantial issue of liability was narrowly framed. It concerned the way Ms. Soontiens went about getting the shareholders' agreement drafted and executed. I found that she behaved unfairly, but that she owed no fiduciary obligation. The claim was not unreasonable, although it failed.

The evidence in support of it was also relevant to oppression. [ 28 ] Two other causes were alleged alternatively: misrepresentation and promissory estoppel. They were not unreasonably presented and the evidence in support was also relevant to the oppression claim. [ 29 ] There was no misconduct in advancing the alternative claims. [ 30 ] Threat to Provide Successorship Evidence to Union. At an early stage after the relationship underlying XL broke down, Mr. Giffin threatened to go to Western Electrics' union with information showing that XL was a successor employer to Western Electrics.

The defendants submit that "The Plaintiff acted in an untruthful, deceitful and threatening manner."

[ 31 ] Central to this submission is a transcript of testimony by Mr. Giffin before the Labour Board. The defendants submit, "Your Lordship ruled that these 'tactics' (giving completely contradictory sworn testimony in two separate proceedings) were aimed at bolstering the Plaintiff's theory of the loan, and also as justifying his conduct before the Labour Board (para. 209)." That is not what I said. [ 32 ] Paragraph 209 of the main decision reads: In my assessment, Mr. Giffin overstated Mr. Berta's role in XL. After he left, Mr.

Giffin threatened to go to the union with information supporting the proposition that XL was a successor employer to Western Electrics. I think his position on Mr. Berta's role attempts to justify that tactic and to bolster his theory of the $85,000 loan. Note the singular "tactic". Note the absence of any reference to the Labour Board testimony. The "tactic" had nothing to do with giving contradictory testimony. [ 33 ] I found, as recorded in para. 209, that Mr. Giffin overstated Mr.

Berta's role, just as I found, as recorded in 210, that the majority shareholders and other members of the Berta family understated the role. One is no more, or less, aggravating than the other. [ 34 ] The defendants attempt to make the finding against Mr. Giffin more serious than the finding against the majority shareholders by referring to the "completely contrary sworn evidence" given by Mr. Giffin to the Labour Board and in court. They say "such actions must be discouraged and negative cost consequences is one of the best ways to deal with such actions".

The submission invites a violation of Rule 94.09, a subject I discussed in the main decision. [ 35 ] The Rules create an exception to the principle of full disclosure, but they attach a heavy price for a party who chooses the exception. The defendants made that choice, but they are trying to avoid the price. [ 36 ] The defendants had a transcript of Mr. Giffin's Labour Board testimony. It was not disclosed to him. Rule 94.09(1) permits a party to withhold a relevant document as a tactic "for the sole purpose of impeaching a witness".

The tactic is rarely used because of the price implied by Rule 94.09(1) and made clear by Rule 94.09(2)(c): The party may only offer the withheld document … to impeach credibility, and it cannot be used by the withholding party to prove any fact in issue other than credibility. Even the judge pays a price on the rare occasion when this tactic is engaged. I had to carefully consider the Labour Board testimony when assessing Mr.

Giffin's credibility, but dismiss it from my mind for all other purposes. [ 37 ] This was one of those oppression cases involving the breakdown of a personal relationship on which a small, closely-held business was founded. These cases usually present difficulties for assessment of credibility. The problem is worse when the protagonists are also family. Emotions and other psychological factors often affect judgment, memory, and motives.

In this case, there were findings against the testimony of the majority shareholders and the minority shareholder. [ 38 ] I reject the defendants' submission on this subject. [ 39 ] Plaintiff's Changing Theories . This takes us back to the phantom loan. The defendants' complain: During the course of attempting to mathematically "fit a square peg in a round hole" and prove the phantom loan, the Plaintiff

continually changed its theory of the "loan" each time the Defendants, having sifted through the ashes of their family history, explained away the Plaintiff's theory for the moment. [ 40 ] This complaint is hollow because it is made by those whose dereliction of duty was the cause of relevant evidence being disclosed only long after trial began. How can we have confidence, even now, that the plaintiff has seen all information relevant to the phantom loan? Or, all information relevant to the astounding purchases from Ms.

Soontiens' husband? [ 41 ] Further, it is an exaggeration to suggest that the theory changed each time the defendants explained away the latest ones. Few of the hypotheses offered by the plaintiff were fully answered. All but one was supported to some extent by the evidence. It is just that none were proved to a balance of probabilities. [ 42 ] Furthermore, the complaint ignores the findings that Mr. Giffin was led to believe there was a loan by Mr. Berta and to believe that repayment was somehow connected to redemption of the Class A shares.

As I said, the defendants gave the plaintiff many reasons to pursue this issue and to offer hypotheses to explain the numerous financial transactions, some of which were convoluted. [ 43 ] Plaintiff's Approach to Settlement . The defendants claim that the plaintiff acted unreasonably in making his demands and in rejecting offers of settlement. [ 44 ] Offers made by the defendants before the beginning of the trial were for amounts, or on a formula, that would have paid the plaintiff less than he has been awarded.

During the long adjournment in which further documents on the phantom loan and the used tools and leftover inventory were finally produced, the parties engaged the services of a settlement conference judge. The defendants' submissions about that are problematic. [ 45 ] The Rules recognize that a judge who determines costs may consider settlement offers not made formally under Rule 10 - Settlement: Rules 10.03 and 77.07(2)(b).

However, Rule 77.07(3) provides: Despite 77.07(2)(b), an offer for settlement made at a conference under Rule 10 - Settlement or during mediation must not be referred to in evidence or submissions about costs. Rule 10.03, which permits reference to settlement offers, contains exceptions including "unless the offer was made at a settlement conference". Rule 10.16(1) specifically provides, "The privilege attached to settlement discussions applies to all communications for or at a settlement conference." [ 46 ] The defendants' submissions on this point divulge communications for or at a settlement conference.

I must disregard those. [ 47 ] Plaintiff's Settlement Offers. Mr. Giffin also claims that his offers should count in his favour on costs. There were several. The first was unreasonably high. Others are difficult to value. One seems to have been for less than the plaintiff was awarded after trial, but it did not last long. [ 48 ] I do not think either side's approach to settlement in this case provides much material for the issue of costs. Tariff Costs

[ 49 ] Mr. Giffin submits that the "amount involved" for calculating tariff costs should be the full value of the equity in XL, $1.6 million. I do not agree. Ms. Soontiens' and Ms. MacAlpine's share of XL was not at issue. At issue was Mr. Giffin's share, which has been valued at $518,400. The debt he owes to XL is to be set off. I take the amount involved to be $511,800. [ 50 ] The basic scale results in $49,750. Scale 3 would result in $63,188. To this is added $2,000 for each day of trial, $44,000.

So unadjusted tariff costs would be $93,750 to $107,188. [ 51 ] In the circumstances of this case, and in view of the evidence about actual expense, an award in the range produced by the tariff fails to serve the principle of a substantial but partial indemnity. Lump Sum Costs [ 52 ] The discretion is retained by Rule 77.08: "A judge may award lump sum costs instead of tariff costs." [ 53 ] Over the years this court and the Court of Appeal have frequently, and with consistency, commented on the principle of a substantial but partial contribution and on how one goes about assessing a lump sum award.

No one has attempted to reduce the discretionary nature of a costs award by imposing limits or rules, but there is broad agreement on basic principles. [ 54 ] I refer to some of the more recent decisions: MacIntyre v. Cape Breton District Health Authority , 2011 NSCA 3 (Oland, J.A. with Saunders and Beverage, JJ.A. concurring) at para. 140 to 153; Driscoll v. Crombie Developments Ltd. , 2006 NSSC 262 (Wright J.) at para. 29 to 31 ; Sydney Cooperative Society Ltd. v. Coopers & Lybrand , 2006 NSSC 276 (LeBlanc J.) at para. 29 to 35 ; Morash v. Burke , 2007 NSSC 68 (Wright J.) para. 19 to 24 ; Knox v.

Maple Leaf Homes , 2008 NSSC 114 (LeBlanc J.) para. 27 to 32 ; Willis v. Bernard L. Mailman Projects Ltd. , 2008 NSSC 94 (Hood J.) at para. 72 to 76 ; Burns v. Sobeys Group Inc. , 2008 NSSC 102 (Warner J.) at para. 9 to 18 ; Boutcher v. Clearwater Seafoods Ltd. Partnership , 2010 NSSC 64 (MacLellan J.) at a para. 19 to 34; Salman v. Al-Sheikh Ali , 2011 NSSC 30 (Hood J.) at para. 26 to 40 ; Bent v. Atlantic Shopping Centres Ltd. , 2011 NSSC 180 (Kennedy C.J.) at para. 16 to 19 ; Creighton v. Nova Scotia (Attorney General) , 2011 NSSC 437 (Pickup J.) ; Cherubini Metal Works Ltd. v.

Nova Scotia (Attorney General) , 2011 NSSC 429 (Duncan J.) at para. 18 - 22 , and; Gammell v. Sobeys Group Inc. , 2011 NSSC 190 (Stewart J.) para. 33 to 48. [ 55 ] Having reviewed these recent decisions, and seeing the adoption of some remarks I have made about lump sum costs over the years, I will boldly repeat what I said in Bevis v. CTV Inc. , 2004 NSSC 209 at para. 13 :

(1) Costs are normally set in accordance with the Tariff.

(2) However, the Tariff system serves the principle of a substantial but incomplete indemnity. The Courts do not choose artificial means, such as selection of an artificial "amount involved", in order to make the Tariff serve the principle. Therefore, when reasonable approaches to amount involved or scale under the Tariff fail to produce a substantial but partial indemnity, the Court may resort to its discretion under rule 63.02(a) [now Rule 77.08] and order a lump sum.

(3) To settle an appropriate lump sum the Court will have regard to the actual costs facing the successful party or the labour expended by counsel, but the Court will seek to settle the amount objectively in conformity with one of the policies of the Tariff, to provide an indemnity that has nothing to do with the particularities of counsel's retention. The Court will attempt to provide a substantial but partial indemnity against what would ordinarily be charged by any competent lawyer for like services.

(4) Finally, the Courts have usually avoided percentages. Substantial but partial indemnity is a principle, not a formula. [ 56 ] I have evidence about counsel's actual work and accounts on behalf of Mr. Giffin. I have reflected on what I think "would ordinarily be charged by any competent lawyer for like services" in order to bring some objectivity to the exercise. And, I have considered what would be a substantial contribution to an objectively assessed amount.

[ 57 ] Were this exercise unhampered by other considerations, by the plaintiff's unnecessary inclusion of Huntec and CNCA, by the defendants' failures in their disclosure obligations, and by the findings of serious oppression, I would set lump sum costs in the amount of $250,000. However, there are those other considerations. [ 58 ] The findings of oppression so serious as to constitute bad faith, and of dereliction in disclosure, incline one, if not to award solicitor-and-client costs, then to make an award at the high end of substantial contribution.

That inclination meets with an opposite force, though not an equal one, because two parties, who bore two-fifths of the defendants' expense, were unnecessarily joined. [ 59 ] I am mindful that the overall expense of the action would not have been greatly reduced without Huntec and CNCA. And, I do not think joining them was as serious a failure as the inadequate disclosure or as serious a matter as the mistreatment of Mr. Giffin. But, it was a failure and it should have an adverse effect on the plaintiff's costs award. [ 60 ] All things taken into account, a heightened lump sum award of $375,000 is just.

The defendants may offset the interim costs of $175,000. These figures include disbursements. Prejudgment Interest [ 61 ] The adjournment was necessary to obtain disclosure of relevant documents, even though they did not prove the main fact-in- issue for which they were introduced. It was also necessary to detect, and to prove, the oppressive conduct involving used tools and leftover inventory. [ 62 ] I see no delay by the plaintiff as would move my discretion to limit prejudgment interest. It is payable from February 26, 2007 to the date of the order at 4% a year, calculated simply. J.