2013 ONSC 4404, 2013 ONSC 4404

CITATION : Conrade Thomas v. The Thomas Health Care Corporation, 2013 ONSC 4404 COURT FILE NO.: 10-18257 DATE: 2013-06-28 ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: ) ) CONRADE THOMAS and DAVID THOMAS ) ) ) Sean M.

Sullivan, for the Plaintiffs ) Plaintiffs ) ) - and - ) ) ) THE THOMAS HEALTH CARE CORPORATION, AUGUSTUS THOMAS, RITA THOMAS, SHIRLEY THOMAS-WEIR, NATALIE THOMAS also known as NATALIE THOMAS-MORGAN and 1426622 ONTARIO INC. ) ) ) Hendrick Keesmaat, for the Defendants ) Defendants ) ) ) ) HEARD: June 17, 2012 REASONS FOR JUDGMENT LOFCHIK, J. [ 1 ] The defendants seek an order granting leave to appeal the decision of Whitten, J. dated November 28, 2012, wherein he ordered that pursuant to s. 249(4) of the Ontario Business Corporations Act , RSO 1990 c.B 16 (the “OBCA”), the corporate defendant THCC pay all the fees and disbursement incurred to date by the plaintiffs and to be incurred by the plaintiffs in further prosecution of the action as they come due.

If the requested order is granted the defendants seek a stay of the order of Whitten, J. pending the outcome of the appeal. Facts

[ 2 ] This action is an oppression remedy claim by the plaintiffs Conrade Thomas (“Conrade”) and David Thomas (“David”) relating to a closely held family corporation, The Thomas Health Care Corporation (“THCC”). Conrade and David are the sons of the defendants Augustus Thomas (“Gus”) and Rita Thomas (“Rita”) and the brothers of two defendants Shirley Thomas-Weir (“Shirley”) and Natalie Thomas-Morgan (“Natalie”). Conrade, David, Shirley and Natalie are the only children of Gus and Rita.

The plaintiffs’ claims relate to a corporate reorganization in 2007 after the plaintiffs left the employ and involvement with THCC. Their claim is to set aside a share restructuring of THCC in 2007 and a claim for damages for conspiracy and punitive damages against the defendants. [ 3 ] Gus and Rita are directors and shareholders of THCC. [ 4 ] In 1993, the defendant THCC was formed from an amalgamation of a nursing home and retirement home owned by the Thomas family. [ 5 ] 1426622 Ontario Inc. (“NumCo”) is a corporation incorporated pursuant to the laws of Ontario.

Both Gus and Rita are directors of NumCo. [ 6 ] In January, 2000, the shared capital of THCC was reorganized to facilitate succession to the Thomas children. Each child received 20 common shares; the parents retained their own special shares and would not participate in any appreciation of THCC. [ 7 ] Over time the relationship between the plaintiffs and the individual defendants deteriorated. Both brothers allege they were wrongfully dismissed from their positions in the corporation in 2003 and 2004. [ 8 ] In the statement of claim the plaintiffs have sought to have two share dividends declared null and void.

The two share dividends were declared without the plaintiffs’ prior knowledge and it is alleged that they were part of a scheme by their parents and sisters (individual defendants in this case) that had the primary objective of “eradicating” their common shareholdings in THCC (“the share restructuring scheme”). Alternatively, the plaintiffs seek damages in the amount of $5 million. [ 9 ] The share restructuring scheme in late 2007 and 2008 meant that Augustus, Rita and NumCo held a substantial majority of THCC common shares.

Shirley and Natalie’s share interest in THCC was preserved through their shares in NumCo and Conrade and David’s common share holdings were significantly diluted. [ 10 ] Justice Whitten noted in his endorsement that the brothers have established “clearly that there has been a share reorganization unknown to them, that threatens the value of their shares in the ongoing enterprise.” Further, Justice Whitten found that “the correspondence of Mr.

Dixon, the solicitor for the corporation reporting out to the sisters is suggestive of an intentional plan by the majority, in the sense of the controlling shareholders, to contain if not eradicate the interests of the brothers. [ 11 ] THCC has paid all of the defendants’ legal fees to date. [ 12 ] In his endorsement, Whitten, J. found that it was “quite obvious that the corporation and the individual defendants have prospered.” Conversely he held that the plaintiffs had “not fared as well”. [ 13 ] The claim was commenced in 2010.

The plaintiffs have incurred substantial legal and other professional fees well in excess of $100,000. The trial in this matter is expected to take eight days with both parties expecting to call expert witnesses. [ 14 ] At the time of the motion for security for costs, David had been employed for only 11 of the previous 21 months. David had to sell assets to pay legal and professional fees and his house was recently sold under power of sale.

David has confirmed that he is no longer able to continue paying legal bills to pursue the oppression claim. [ 15 ] Conrade and his wife’s finances have been significantly depleted by the case. They have had to drain RRSP’s and other investments to pay legal and other professional fees. Conrade and his wife have two young children ages 10 and 8 to support and they own a house with a significant mortgage.

In October, 2012 Conrade was terminated from his employment. [ 16 ] The legal fees and disbursements relating to the litigation of the defendants up to September 12, 2012 were in the amount of $47,630.47. [ 17 ] Affidavit material filed on behalf of the plaintiffs indicates that plaintiffs’ counsel estimates a further amount in excess of $100,000 for legal and professional fees will need to be incurred by the plaintiffs. Law [ 18 ] Rule 62.02(4) of the Rules of Civil Procedures provides that “leave to appeal shall not be granted unless,

a) there is a conflicting decision by another judge or court in Ontario or elsewhere on the matter involved in the proposed appeal and it is, in the opinion of the judge hearing the motion, desirable that leave to appeal be granted; or

b) there appears to the judge hearing the motion good reason to doubt the correctness of the order in question and the proposed appeal involves matters of such importance that, in his or her opinion, leave to appeal should be granted.” [ 19 ] Ontario’s Business Corporations Act provides the courts with the discretion to award interim costs to the complainant in oppression remedy cases.

Section 249(4) states: “In an application made or an action brought or intervened in under this Part, the court may at any time order the corporation or its affiliate to pay to the complainant interim costs including reasonable legal fees and disbursements, for which interim costs the complainant may be held accountable to the corporation or its affiliate upon final disposition of the application or action.” [ 20 ] The leading case on the test for interim costs under s. 249(4) is Alles v. Maurice , [1992] O.J. No. 297 (Gen. Div.) .

[ 21 ] In Alles, Blair, J. found that for relief under s. 248(4), (now s. 249(4)), an applicant need establish:

a) that there is a case of sufficient merit to warrant pursuit; and

b) that the applicant is genuinely in financial difficult circumstances which but for an order under what is now 249(4) would preclude the claim from being pursued. Alles v. Maurice supra at p. 6. [ 22 ] The Alles approach was adopted by the Court of Appeal for Ontario in Waxman v. Waxman [2002] O.J. No. 3805 (C.A.) at para. 20 . [ 23 ] For leave to appeal to be granted because there is reason to doubt the correctness of the decision, the court must be satisfied:

a) that there is good reason to doubt the correctness of the order;

b) that it is a matter of general importance. 2186080 Ontario Inc. v. 1009558 Ontario Ltd ., 2012 ONSC 2593 at para. 17 . [ 24 ] To show that a matter is of general importance, “the moving party must show that the matter is of importance to the public or the development of the law or the administration of justice and that the importance of the order transcends the importance of the matter to the particular parties.” Ibid at para. 18. [ 25 ] To doubt the correctness of an order, the soundness of the order must be open to very serious debate. Ibid para 17.

Analysis [ 26 ] The defendants argue that “there is also a conflict as to quantum and consideration as to the financial circumstances of the corporation should be taken into account.” However, once the two-part test in Alles, which is the governing test, is met the presiding judge may exercise his or her discretion in fixing awarding interim costs.

Exercising his discretion Whitten, J. considered the quantum of costs and noted that since THCC had been paying the costs of the other defendants at face value, it followed that the plaintiffs’ costs should be paid in the same manner. (Reasons for decision of Whitten, J. at para. 14.) [ 27 ] In his decision Whitten, J. noted that: “Finally, this is a picture, pardon, the same name, of David and Goliath. The impact of s. 249(4) and the judgment of Justice Blair in Alles v. Maurice is that the oppressors not use the remaining resources of the corporation to attack the minority.

To do otherwise would allow the more economically powerful to win by attrition. That would undermine the efficacy of the oppression remedy. The remedy would in effect [be] hollow, toothless.” Reasons of Whitten, J. para. 19. [ 28 ] I find that Whitten, J. correctly applied the relevant legal principles in exercising his discretion to grant interim costs to the plaintiff and this is clearly evidenced in his written reasons.

He began by considering the “legal underpinnings of an oppression remedy” which he accurately summed up as focusing “on harm to legal and equitable interests of shareholders affected by the oppressive acts of a corporation or its directors”. Against the backdrop of the equitable oppression remedy Whitten, J. summarized and applied the Alles test. Those principles are unquestionably the correct ones to be applied to any analysis of s. 249(4) of the OBCA . [ 29 ] In exercising his discretion, consideration was also given by Whitten, J. to the consequences of not granting an order.

In effect, as the plaintiffs had an interest in the corporation paying the legal fees of the individual defendants, the plaintiffs were “in a way underwriting the legal effort against their oppression remedy”. Instead and as stated above, a “level playing field” has been created.

The defendants argue that the motion judge erred in awarding interim costs in fact on a full indemnity basis, without regard for the financial viability of the corporation itself and the ability to pay having regard to the evidence before him as to the financial position of THCC, that the motion judge erred in failing to address the principle that costs to be ordered do not begin or end with a simple calculation of hours times rate and that he failed to address quantum of costs claimed by the plaintiff incurred up to the date of the motion before him.

They argue that the proposed appeal is a matter of public importance and it is desirable that leave to appeal be granted. They argue that established practice and procedure is to weigh all the factors and not only apparent impecuniosity of the moving party requesting interim costs.

They argue that the motion judge erred in ordering costs already incurred by the plaintiffs. [ 30 ] With respect to the defendants’ argument that THCC has problems with cash flow and cannot pay the plaintiffs’ costs, Whitten J. has made factual findings to the contrary and the application for leave for appeal does not meet the Rule 62.04(4) test with respect to this proposed ground of appeal. [ 31 ] In

summary, I am satisfied that Whitten, J. applied the correct tests in deciding that the plaintiffs’ case was of sufficient merit to warrant pursuit and that the plaintiffs were genuinely in financially difficult circumstances which but for an order under what is now s. 249(4) of the OBCA would preclude the case from being pursued.

There is no basis for granting leave to appeal from these findings of fact and with respect to making an award of interim costs under s. 249(4), nor is there a basis for granting leave to appeal from his decision that THCC is financially able to pay interim costs upon which his exercise of discretion was based. [ 32 ] However, some difficulty arises with respect to the nature of the award of interim costs.

In this case the motion judge has awarded 100% of legal fees already incurred and paid as well as 100% of legal fees to be incurred in the future for the purpose of establishing “ a level playing field” between the parties. If one aspect of the test for awarding interim costs under s. 249(4) of the OBCA is to avoid a situation where the plaintiff is precluded from pursuing an oppression remedy because of a lack of finances there would

appear to be little justification for the reimbursing a plaintiff for fees already paid particularly where the order provides for payment of all future legal fees “at face value”. [ 33 ] In addition, one questions whether the appropriate way of dealing with future costs is to give the plaintiffs “carte blanche” to go ahead and incur whatever legal fees they see fit without any controls. The evidence before me is that the plaintiffs have incurred legal fees in excess of $100,000 whereas the defendant fees are to the order of about $47,000.

If the purpose of an interim cost order is to “level the playing field” it would seem that having the corporation fund plaintiffs’ legal expenses on a two-for-one basis when compared to the defendants’ fees paid tips the scale the other way. The defendants are in fact funding an unfettered and uncontrolled attack by the plaintiffs against their position. [ 34 ] The cases to which I have been referred in connection with granting of interim costs in oppression remedy cases seem to conflict with the unfettered, carte blanche, award of costs granted by the motion judge in this instance.

It would appear that the usual practice is to award costs for a specific purpose or for a limited duration with an opportunity to review if necessary. For instance in Alles, supra, Blair, J. only awarded costs to the completion of discoveries and stated that “there is merit in approaching orders of this nature under s. 248(4) (now 249(4)) of the OBCA in a similar step-by-step fashion to that which is common in motions for security for costs. If at the conclusion of discoveries, the applicant finds it necessary to apply for a further order such a motion may be considered at that time.

He also failed to award interim costs for fees to the date of the motion. [ 35 ] In Morden v. Morden Construction [2010] O.J. No. 2179 interim costs were awarded for the limited purpose of allowing the plaintiff to retain experts. See also Moyer v. Michael Von Zuben Ltd . [1995] O.J. No. 4982 per Howden J. [ 36 ] Based on the foregoing I find that there is a reasonable doubt as to the correctness of the order in question and I also find that there are conflicting decisions of other judges as to the manner in which an award of interim costs should be dealt with.

I find that the issues of principle upon which interim costs in oppression remedy cases could be awarded is important enough for leave to appeal to be granted and that is desirable to do so for the purpose of obtaining appellate direction on this issue. [ 37 ] And the result, an order is to issue granting the defendants leave to appeal from the order of Whitten, J. dated November 28 th , 2012 and staying the said order pending the disposition of the appeal. [ 38 ] Costs of this leave to appeal application are reserved to the panel hearing the appeal. ___________________________ Lofchik, J.

Released: June 28, 2013 CITATION : Conrade Thomas v. The Thomas Health Care Corporation, 2013 ONSC 4404 COURT FILE NO.: 10-18257 DATE: 2013-06-28

ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: CONRADE THOMAS and DAVID THOMAS Plaintiffs - and – THE THOMAS HEALTH CARE CORPORATION, AUGUSTUS THOMAS, RITA THOMAS, SHIRLEY THOMAS-WEIR, NATALIE THOMAS also known as NATALIE THOMAS-MORGAN and 1426622 ONTARIO INC. Defendants REASONS FOR JUDGMENT Lofchik, J. TRL:mw Released: June 28, 2013