Jun 9, 2020

How are cost awards determined for insolvency matters?

Canada North Group Inc (Companies' Creditors Arrangement Act), 2020 ABQB 12 (CanLII)

1. Ernst & Young LLP (the “Monitor”) and Canadian Western Bank (“CWB”) applied to settle costs arising out of proceedings in which I dismissed claims of property ownership and priority (the “Impugned Assets”) by the respondent corporations (jointly identified as “726”).

2. The starting point on CCAA insolvency matters is that, as a matter of practice, each party will often bear its own costs. The Court does, however, consider cost awards where appropriate. Circumstances justifying a costs award may arise in a variety of ways, including unusual applications, unreasonable positions, unnecessary steps, or misconduct that impacts the timing or costs associated with winding up the estate.

3. Where costs are warranted, the courts tend to look at three types or categories of costs awards:

a. Solicitor and own client where the successful party receives full indemnity for their legal fees and proper disbursements;

b. Solicitor-client costs where the successful party receives reasonable legal fees and disbursements which amounts to less than full indemnification; and

c. Party-party costs, with potential enhancements including one or more of the following:

i. A multiplier against the applicable column;

ii. An inflationary adjustment;

iii. An extra lump sum amount;

iv. A modifier based on a percentage of actual legal costs.

4. The individual circumstances of each case best inform the exercise of judicial discretion. Here, some of the positions taken during the proceedings were relevant to both entitlement and quantum of costs arising from this ownership and priority dispute regarding the Impugned Assets.

5. The Monitor sought just over 62% of the Monitor’s solicitor and own client bill of costs, including other charges, disbursements and GST. It argued that 726’s strategy to litigate by installment amounted in misconduct, which ought to be deterred. CWB’s claimed costs totaling $123,755.24, including fees, disbursements, other charges and GST. 726 argued that no costs should be awarded to the Monitor or CWB because the application regarding the Impugned Assets was within the scope of CCAA proceedings.

6. The circumstances here did not support any claim for solicitor and own client costs. Despite the court’s critique of the positions taken on behalf of 726, the conduct by and on behalf of 726, taken alone, was not reprehensible, scandalous or outrageous. However, both the Monitor and CWB were entitled to a fair recovery of legal costs incurred. The conduct was blameworthy enough to merit some deterrence. The significant increase in costs incurred by both claimants were entirely predictable.

7. Factors that justify enhanced costs included:

a. The significant volume of materials to be gathered, sorted out and reviewed;

b. The poor and sometimes unreliable records as to identity, location and status of various equipment;

c. The steps taken by 726 to relocate equipment without notice to the Monitor under the CCAA proceedings, which incurred professional fees to track, locate and assess;

d. The preparation of further affidavits, questioning, undertakings, and interrogatories after initial deadlines;

e. The lack of merit in the various grounds advanced for the late adjournment request; and

f. The significance of the dispute to the estate and stakeholders as affecting the limited value of overall assets available.

8. Schedule C of the Rules provides an important measure of consistency that may not always derive from a percentage of current market rates for legal services. Multipliers are a common and transparent adjustment tool which aid the court’s exercise of its discretionary power. Schedule C anticipates compensation for additional expenses which could and should have been avoided.

9. 726 incurred an unwarranted and unreasonable delay when it failed to consider CWB’s security on a timely basis and sought to assemble evidence to argue that the sale was in the ordinary course of business. Although the conduct and delay were not of such a degree of fault to warrant full recovery of costs associated with adjournment, a further adjustment was warranted.

10. In addition to recovery of costs as specified, the Monitor and CWB were entitled to costs on this application, which the Court set at $4,100.00 to each claimant, including all disbursements, other charges and GST.