



COURT OF APPEAL FOR ONTARIO

CITATION:
Conforti (Re), 2015 ONCA 708

DATE: 20151022

DOCKET: C57476

Laskin, Blair and Pepall JJ.A.

In the Matter of the Bankruptcy of
    Vincenzo Francesco Conforti

Robert A. Klotz, for the appellant, Vincenzo Francesco
    Conforti

Howard F. Manis and Debora Miller-Lichtenstein, for the
    respondent Trustee in Bankruptcy, Pat Robinson Inc.

On appeal from the order of Justice James M. Spence of
    the Superior Court of Justice, dated May 3, 2012, with reasons reported at 2012
    ONSC 2656, and the supplemental order dated March 6, 2013.

COSTS ENDORSEMENT

Pepall J.A.:

[1]

The appellant seeks an order of costs on a full indemnity scale. He asks
    this court to award $20,345 for the costs of his appeal, $18,655 for the costs
    of the motion in issue in the appeal, and $27,235 for the costs of a related
    motion. For the reasons that follow, I would award $5,000 for the costs of the
    proceedings under appeal and $10,000 for the costs of the appeal, both on a
    partial indemnity scale.

[2]

A brief chronology of material events assists in understanding the
    proceedings.

[3]

In September 2009, the appellant filed an assignment in bankruptcy. He
    did not disclose or advise the Trustee of a personal injury action he had
    commenced in 2007 or of a claim he had made in 2008 for additional statutory
    accident benefits, both of which arose from a serious motor vehicle accident.
    He subsequently settled the action and the claim for $275,000 and $21,000,
    respectively.

[4]

When the appellant applied for a discharge from bankruptcy, it was
    opposed by both the Trustee and the appellants principal creditor, Central Mortgage
    and Housing Corporation. At the same time, the Trustee sought directions from
    the court on the issues of property and income inclusions so as to ascertain
    amounts, if any, payable to the bankrupts estate.

[5]

The Trustees motion for directions proceeded in two stages.

[6]

In an endorsement released in 2012, Wilton-Siegel J. determined that the
    settlement payment allocation of $100,000 for future loss of competitive
    advantage was not property under s. 67 of the
Bankruptcy and Insolvency Act
,
    but rather income under s. 68. The parties were given 30 days to provide
    written submissions on costs.  Neither did and no costs order was ever made.
    Neither party appealed the order of Wilton-Siegel J.

[7]

The Trustee then sought directions on proposed inclusions in the appellants
    income calculations and whether conditions should be imposed on his proposed
    bankruptcy discharge.

[8]

Spence J. heard the second motion. He made numerous determinations, only
    some of which were appealed. In his reasons, he established a schedule for
    costs submissions.

[9]

A flurry of correspondence between counsel for the appellant and counsel
    for the Trustee ensued.  Spence J. granted leave to make further submissions in
    writing on the calculations reflected in the order he had granted. He
    subsequently concluded that counsels submissions did not show any mathematical
    errors and there was no reason to change the order. On the issue of costs, he
    observed that this was a case of mixed success. Unless a Rule 49 offer had been
    made, there was no reason for submissions on costs.

[10]

Based
    on the record before this court, it would appear that Spence J. was not advised
    of any Rule 49 offer and no costs order was made.

[11]

The
    appellants appeal from portions of Spence J.s order was allowed in part.  The
    order was varied the order to remove the requirement to pay surplus income and
    by reducing the payment of $42,986.28 payable by the appellant to $15,000.

Parties Positions

[12]

As
    mentioned, the appellant claims full indemnity costs for three proceedings. In
    support, he argues that:

·

His position that the $100,000 damages allocation for future loss
    of competitive advantage constituted income was vindicated by Wilton-Siegel J.
    Even through the Trustee had not appealed Wilton-Siegel J.s order, the Trustee
    maintained his position before Spence J.

·

His position that no surplus income was owed was vindicated on
    appeal.

·

The Trustee persisted in maintaining that the appellant was a
    malingerer and not disabled, notwithstanding the findings to the contrary of
    both Wilton-Siegel and Spence JJ.

·

The Trustee sought 100 per cent of the appellants damages
    allocation for loss of future income and pain and suffering, which would have
    resulted in the appellant receiving nothing from his tort recovery.

·

The appellant conceded the fact and quantum of the $15,000
    penalty.

·

The appellant made numerous settlement offers, all of which
    benefited the Trustee more than the outcome of either the motion or the appeal.

·

Pending Wilton-Siegel J.s decision, the Trustee refused to
    consent to the release of some funds for Christmas.

·

The Trustee received less than what the appellant had conceded at
    the inception of the dispute.

·

Without at least an award of partial indemnity costs, the
    appellant will lose almost all of his compensation for future lost income and
    pain and suffering.

·

An element of misconduct increased the costs and rancour of the
    proceeding. Mr. Manis, counsel for the Trustee, had advised Mr. Klotz, counsel
    for the appellant, that he intended to correspond with the application judge
    but did not copy the appellants counsel in advance, nor did he advise the
    application judge that Mr. Klotz would be responding. Shortly thereafter, Mr.
    Klotz received a copy of the judgment, not having had an opportunity to respond
    to Mr. Manis letter.

·

The appeal involved $179,000, was important and complex,
    incorporated a
Charter
challenge, clarified several issues of national
    importance in personal bankruptcy law, and the proceedings consumed 101.9
    billable hours.

[13]

Furthermore,
    the appellant asks that if the costs order exceeds $15,000, such costs should
    be made payable by the Trustee personally as there is nothing in the estate to
    pay such costs and no party should litigate with impunity.

[14]

The
    Trustee resists the appellants request. It submits that if costs are awarded,
    they should be on a partial indemnity scale and limited to the appeal. In
    support, it submits that:

·

The appellant is not entitled to recover costs of previous court
    appearances. The motion before Wilton-Siegel J. was separate and distinct and
    no costs were requested or awarded and the order was not appealed.

·

The appeal stems from a discharge hearing where the Trustee
    opposed the discharge for valid reasons. The appellant had been deceitful. It
    is a general principle that costs are not awarded at a discharge hearing as
    parties, especially the Trustee, must be encouraged to administer the estate
    for the benefit of creditors. A costs award for the discharge hearing would
    serve to discourage trustees from opposing discharges in spite of the existence
    of valid grounds to do so.

·

No costs award was made by Spence J.

·

Substantial indemnity costs should only be awarded in rare and
    exceptional circumstances. They are warranted only where there is a Rule 49
    offer or where a party has engaged in behaviour worthy of sanction.

·

Moreover, no Rule 49 offers were exchanged prior to the discharge
    hearing or the appeal. In spite of Spence J.s invitation, Mr. Klotz did not
    take the position before him that there was a Rule 49 offer. In any event, a
    defendant is not entitled to substantial indemnity costs based on Rule 49.

·

The costs claimed by the appellant are excessive, exaggerated and
    unreasonable.

·

The Trustee should not be required to pay a bankrupts costs
    personally, especially given the bankrupts reprehensible behaviour.

·

Both parties should bear their own costs. If costs are awarded, a
    reasonable amount for the appeal is $5,500, inclusive of disbursements and HST.

Analysis

(a)

Scale of Costs

[15]

Neither
    Rule 49.10 nor the conduct of the Trustee justifies an award of costs on a full
    or substantial indemnity scale.

[16]

The
    appellants offer addressed the matters currently pending and returnable
    before Wilton-Siegel J. and was stated to expire upon the commencement of the
    hearing. Ambiguously, it also stated that if the offer was accepted after the
    commencement of the hearing, the settlement amount was to be reduced by the
    appellants partial indemnity costs.

[17]

Additionally,
    the offer did not address all of the issues before Spence J. Furthermore, the
    Trustee was requesting directions of the court. Given the state of the law, it
    was fair and reasonable for it to do so. Additionally, for purposes of those
    directions, the appellant stood in the shoes of a defendant under Rule 49.10. A
    defendant is not entitled to a substantial indemnity award under Rule 49.10
    where it makes an offer to settle that is greater than the amount awarded:
St.
    Elizabeth Home Society v. Hamilton (City)
, 2010 ONCA 280, 319 D.L.R. (4th)
    74, at para. 90. Accordingly, full or substantial indemnity costs are not merited
    based on Rule 49.10.

[18]

An
    award of substantial or full indemnity costs may be based on conduct including
    circumstances where there has been reprehensible, scandalous, or outrageous
    conduct on the part of one of the parties:
Young v. Young
, [1993] 4 S.C.R.
    3, at p. 134. As stated by Robins J.A. in
Mortimer v. Cameron
(1994), 17
    O.R. (3rd) 1 (C.A.) at p. 23, such an award is ordered only in rare and
    exceptional cases to mark the courts disapproval of the conduct of the party
    in the litigation.

[19]

The
    conduct in this case does not rise to that level. Recall the context of the
    Trustees conduct  it was responding to circumstances where the appellant had
    misrepresented his assets and where the Trustee was justifiably wary of acting
    in the absence of court direction, particularly given the uncertain state of
    the law relating to personal injury settlements. While the Trustees skepticism
    surrounding the appellants disability was misplaced and his Christmas response
    may have been churlish, these factors alone or taken together with those
    enumerated by the appellant do not demand an award of full or substantial
    indemnity. Furthermore, there was delay caused by the appellant and Spence J.
    was aware of the conduct of both parties when he did not award costs absent a
    Rule 49.10 offer.

[20]

For
    these reasons, I would decline to order full or substantial indemnity costs as
    requested by the appellant.

(b)

Proceedings in Issue

[21]

The
    costs of the motion before Wilton-Siegel J. are not properly before this court.
    He made no order for costs and his order was not appealed. In these
    circumstances, I would decline to impose a costs order for that proceeding.

[22]

In
    contrast, Spence J.s order was under appeal and the appeal was allowed in
    part.

[23]

In
    considering the appellants request, I note that:

·

the appellant only appealed some aspects of the order, although
    he was successful on most of what he appealed.

·

Although he made mention of costs and the parties mixed success,
    Spence J. was not asked to make a further costs disposition.

·

The hearing before him addressed in part the discharge of the
    appellant from bankruptcy. In the face of the appellants admitted deceit, the
    Trustee cannot be faulted for opposing his discharge nor can his primary
    creditor, CMHC. Although available, generally costs are not awarded on
    discharge hearings. See: Frank Bennett,
Bennett on Bankruptcy
, 17th ed.
    (Markham, ON: LexisNexis Canada Inc., 2014) at p. 640; and Lloyd Houlden,
    Geoffrey Morawetz, & Janis Sarra,
The 2015 Annotated Bankruptcy and
    Insolvency Act
(Toronto: Carswell, 2015) at p. 992, and
Vattese (Re)
(2006), 26 C.B.R. (5th) 124 (S.C.).

[24]

That
    said, given the appellants significant success on appeal, he should be
    entitled to some costs of the motion before Spence J.

(c)

Quantum

[25]

The
    appellant requests partial indemnity costs before Spence J. of $12,915. Given
    the aforementioned reasons, I would grant $5,000 as a fair and reasonable award
    of costs.

[26]

The
    appellant also seeks partial indemnity costs of $14,085 for the appeal. The
    appeal was allowed in part and for the most part. I would grant the appellant costs
    of the appeal fixed in the amount of $10,000 inclusive of disbursements and
    HST.

Released:    OCT 22 2015                          S.E.
    Pepall J.A.

JL                                                             I
    agree John Laskin J.A.

I
    agree R.A. Blair J.A.


