) ) TODOR BATKOV, PETER PRYTULA, AIVOR KHOURKINE, 6646042 CANADA INC., STARWOOD MANUFACTURING INC., 6414192 CANADA INC. v. NORTH, 2010 ONSC 6724

CITATION : Todor Batkov et al. v.

Starwood Industries Global Corporation et al., 2010 ONSC 6724 DIVISIONAL COURT FILE NO.: 172-10 COURT FILE NO.: 09-CV-38519 DATE: 20101208 ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT BETWEEN: ) ) TODOR BATKOV, PETER PRYTULA, AIVOR KHOURKINE, 6646042 CANADA INC., STARWOOD MANUFACTURING INC., 6414192 CANADA INC. and NORTH AMERICAN WOOD SUPPLY Plaintiffs (Appellants/Moving Parties) – and – STARWOOD INDUSTRIES GLOBAL CORPORATION, NORSTONE FINANCIAL CORPORATION, EKOFUEL TECHNOLOGIES INC., EKOSTAR FUEL CORPORATION, NORSTONE FINANCIAL INC. and STEVEN CHEPA Defendants (Respondents) AND BETWEEN: STARWOOD INDUSTRIES GLOBAL CORPORATION, NORSTONE FINANCIAL CORPORATION, EKOFUEL TECHNOLOGIES INC., EKOSTAR FUEL CORPORATION, NORSTONE FINANCIAL INC. and STEVEN CHEPA Plaintiffs by Counterclaim – and – )) )) )) )) )) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Gleb Bazov and Andrea Sanché , for the Plaintiffs (Appellants/Moving Parties)

TODOR BATKOV, PETER PRYTULA, AIVOR KHOURKINE, 6646042 CANADA INC., STARWOOD MANUFACTURING INC., 6414192 CANADA INC., NORTH AMERICAN WOOD SUPPLY, UMT CONSULTING LTD. and LG WOOD SUPPLY INC. Defendants by Counterclaim ) ) ) ) ) ) ) ) ) ) ) Benjamin Bathgate , for the Defendants (Responding Party in Appeal) ) ) ) HEARD at Toronto: December 2, 2010 ENDORSEMENT: Ferrier J. : [ 1 ] The Appellants’ motion by way of appeal from the order of Master Hawkins dated March 5, 2010 came on for hearing on December 2, 2010.

The appellants sought an adjournment of their motion taking the position that the solicitors for the respondents, Lang Michener, are in a conflict and should be removed from the record. The earliest date for a motion to remove the solicitors is January 7, 2011, before the master. This date has been reserved by the appellants. [ 2 ] The adjournment was denied for reasons to be delivered. I then heard the appeal on its merits and dismissed the appeal for reasons to be delivered.

[ 3 ] These are the reasons. [ 4 ] This action arises out of a 2008 purchase and sale transaction [the "Starwood Transaction"] between certain of the appellants and respondents. The action was commenced in March 2009. [ 5 ] On November 23, 2009 the respondents brought a motion to compel the appellants to post security for costs, and for related relief. Appellants’ counsel attended at the hearing of the motion, and advised the court that his clients consented to the granting of the order sought for security.

Master Muir made the consent order dated November 23, 2009, requiring the appellants to pay $200,000 in security for costs into court on or before December 24, 2009. [ 6 ] Master Muir also provided in his endorsement that if the plaintiffs encountered difficulty in complying with the security order, counsel could contact him in writing before December 24, 2009 to arrange for a telephone case conference for the purpose of determining whether a variation of the term of the order might be just. [ 7 ] No such telephone case conference was requested.

The appellants did not appeal or seek to vary the order of November 23, 2009. [ 8 ] The appellants did not pay the security for costs into court by December 24, 2009. Despite the appellants’ breach, the parties agreed to a further consent order, dated January 22, 2010, which provides that if the appellants failed to pay $200,000 in security for costs by February 8, 2010, "this action shall be dismissed pursuant to rule 56.06, on an unopposed basis." The appellants did not appeal or seek to vary this order.

They did not pay $200,000 in security for costs into court by that February 8, 2010 deadline. [ 9 ] In the meantime, on December 22, 2009 counsel for the appellants had advised opposing counsel that he expected that security for costs would be posted on time, that it would probably be initially paid in cash, with the view that the cash would later be replaced by a bond.

Counsel for the respondents apparently did not object to this concept. [ 10 ] On December 23, 2009 it became apparent that the appellants would not be able to post the security by December 24 allegedly because of health problems with the plaintiff Batkov and allegedly because of a misunderstanding between financial institutions. [ 11 ] In January 2010, the appellants advised that they expected to be able to deliver a standby letter of credit from the Alpha Bank of Cyprus.

Such a letter of credit was issued by the Alpha Bank on February 5, 2010, and received by Scotia Bank in Toronto on February 8, 2010 (Scotia Bank being the corresponding bank for the Alpha Bank in Canada), but was not able to be filed by plaintiffs’ counsel until February 9, 2010. [ 12 ] The respondents brought a motion before Master Hawkins on March 23, 2010 to dismiss the action for failure to comply with the order for security for costs. [ 13 ] Master Hawkins released his decision on March 5, 2010, dismissing the action.

The Adjournment Request [ 14 ] In ordinary circumstances, when a motion is made to remove opposing counsel from the record, a pending motion about to be heard would be adjourned until the issue of the conflict is resolved. [ 15 ] In this case, the claim was issued in March 2009. No complaint was made about the involvement of Lang Michener for the defendants until late September 2010 when new solicitors took over on behalf of the plaintiff appellants. New counsel made it plain to Lang Michener that they saw Lang Michener as being in a conflict.

Lang Michener strongly disagreed, and made it plain to appellants’ counsel that they would not tolerate delay. It was in view of that position concerning delay, that appellant's counsel scheduled the

hearing of the appeal for December 2, 2010. [ 16 ] Subsequent to the scheduling of the appeal, in late November 2010, the appellants issued a separate statement of claim which names Lang Michener and several of its lawyers as parties responsible in negligence and breach of their duties to the appellants, their former clients. The claim was served on the Lang Michener defendants on November 25 and 29, 2010.

The appellants also issued a statement of defence Cross-claim and counterclaim in another action adding Lang Michener and individual lawyers of the firm. [ 17 ] In these circumstances, Lang Michener takes the position that these new lawsuits and the conflict challenge are tactics designed to force their clients through lengthy legal proceedings without the benefit of the security for costs which the court has ordered. [ 18 ] It is not necessary to determine this latter question nor is it necessary in my view, to determine the conflict issue before the appeal is heard for the following reasons. [ 19 ] The action proceeded for some 18 months before Lang Michener's position was challenged. [ 20 ] The statement of claim in this action refers in several instances to the solicitors for the defendants.

Nowhere is it alleged that the solicitors, Lang Michener, were acting for any of the plaintiff appellants. There are numerous references to "his lawyers" (being Lang Michener) throughout the statement of claim. [ 21 ] The motion for the adjournment seeks to adjourn the appeal hearing until sometime in April 2011 to allow sufficient time for the final determination of the issue. In view of the complexity of this action and the various actions commenced in November of this year, I would expect that it will take much longer to finally determine the conflict issue.

All the while, the defendants would be without security for costs. [ 22 ] Even if it is ultimately determined that Lang Michener is in a conflict, I note that the two orders made for security were made on consent. Appellant's counsel agreed that it was appropriate that a security for costs order should be made. It is also significant that in this court, the appellants concede that it remains appropriate for there to be a security order. The only issue is the form of the security. [ 23 ] Furthermore, the issue before the court on this appeal is a discrete question of law.

The facts concerning the issuing of the orders for security are not in dispute. [ 24 ] The issue on the appeal is whether Master Hawkins was correct in law in his determination of the effect of the order for security. If indeed it were to be determined that Lang Michener is in a conflict, any knowledge or advantage gained by them by virtue of their having acted for or advised the appellants is of no moment in the determination of the issue on the appeal. [ 25 ] In all of these circumstances, justice requires that the appeal motion not be adjourned.

The Appeal [ 26 ] The order of November 23, 2009 required all seven of the plaintiffs to post $200,000 in security for costs by December 24, 2009. [ 27 ] Master Hawkins held that: The wording of Form 56 A makes it clear that if the security ordered is to take the form of something other than cash, the order must describe the form of the security required to comply with the order. Master Muir's order contains no such description. This means that the security required to comply with Master Muir’s order of November 23, 2009 must take the form of cash.

Both orders provided that security for costs be paid "in the sum of $200,000."

[ 28 ] The relevant words in Form 56 A are as follows: ...shall pay into court the sum of $...... as security for the costs of this proceeding. [ 29 ] There is no reference to letters of credit, bonds or other kinds of security in Form 56 A. [ 30 ] Rule 1.06 [1] provides that the forms prescribed by the rules "shall be used where applicable and with such variations as the circumstances require." Clearly then, the rules contemplate that security shall be paid in cash but that the form of the order may be varied to provide for other kinds of security. [ 31 ] The learned Master’s

interpretation is correct in law. [ 32 ] There was nothing in either order that provided for security other than by way of cash. The plaintiffs purported to comply with the security order by filing a letter of credit from a Cypriot bank for $200,000. They were late in doing so and as noted by Master Hawkins, the letter of credit covered only one plaintiff out of seven. I also note that the letter of credit expressly states that it expires on December 31, 2010. There was no reasonable likelihood in March 2010 that the action would be completed by the end of the year.

I appreciate that the letter of credit might have been extended beyond that date, but the respondents had no assurance of that. Furthermore the letter of the Bank of Nova Scotia which enclosed the foreign letter of credit expressly states that the Bank of Nova Scotia has not been asked to confirm the letter of credit and that, as a result, it cannot convey any undertaking with respect to the letter of credit. It would appear that the respondents would be left to enforce the security order against the Alpha bank in Cyprus. [ 33 ] Accordingly, the appeal is dismissed.

Costs [ 34 ] Costs to the respondents fixed at $7,000 including disbursements and HST. Ferrier J. Released: CITATION : Todor Batkov et al. v. Starwood Industries Global Corporation et al., 2010 ONSC 6724 DIVISIONAL COURT FILE NO.: 172-10 COURT FILE NO.: 09-CV-38519 DATE: 20101208 ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT BETWEEN:

TODOR BATKOV, PETER PRYTULA, AIVOR KHOURKINE, 6646042 CANADA INC., STARWOOD MANUFACTURING INC., 6414192 CANADA INC. and NORTH AMERICAN WOOD SUPPLY Plaintiffs (Appellants/Moving Parties) – and – STARWOOD INDUSTRIES GLOBAL CORPORATION, NORSTONE FINANCIAL CORPORATION, EKOFUEL TECHNOLOGIES INC., EKOSTAR FUEL CORPORATION, NORSTONE FINANCIAL INC. and STEVEN CHEPA Defendants (Respondents) AND BETWEEN: STARWOOD INDUSTRIES GLOBAL CORPORATION, NORSTONE FINANCIAL CORPORATION, EKOFUEL TECHNOLOGIES INC., EKOSTAR FUEL CORPORATION, NORSTONE FINANCIAL INC. and STEVEN CHEPA Plaintiffs by Counterclaim – and – TODOR BATKOV, PETER PRYTULA, AIVOR KHOURKINE, 6646042 CANADA INC., STARWOOD MANUFACTURING INC., 6414192 CANADA INC., NORTH AMERICAN WOOD SUPPLY, UMT CONSULTING LTD. and LG WOOD SUPPLY INC.

Defendants by Counterclaim ENDORSEMENT Ferrier J. Released: December 8, 2010