Chemical Vapour et al v. Terekhof
Master Haberman: My Reasons in this matter were released on October 20, 2016. Despite my having gone to great pains to make it clear to the responding patty in 17 typed pages why I was ordering that they pay security for costs, it appears fi·mn their costs submissions that they either did not read, did not understand or having chosen to simply ignore my Reasons. For greater certainty:
Contrary to what Chemical Vapour (CV) alleges on page 4 of their submissions the plaintiffs did not “bring a motion” before me to address the fact that the proceedings were duplicative. They did bring a motion before me, seeking security for costs from another party – that is what I booked directly with them, after having seen their draft notice of motion. They then filed a motion that was quite different from the one that they scheduled. That motion was not booked;
It was CV’s approach to this litigation that led to it becoming litigation in tlu·ee-parts. Instead of simply counterclaiming in Terekhof s action, they hived off pmt of it to arbitration, then started their own action three weeks later. Surely they had to have appreciated that this approach was an inefficient and more costly way to deal with these matters. Yet this was their choice, one they only decided to deviate from after this security for costs motion has been booked as it was now in their interests to do so;
Contrary to what CV alleges on page 3, I did find the action their approach to the motion was appalling, in view of:
a. Khozan having given an undertaking on behalf of one patty to pay costs on behalf of the other two if required. This turned out to be a complete sham, as he had no corporate resolution allowing him to give such an undettaking and he made it clear when cross-examined that he would take the advice from his board of directors seriously if they instructed him not to pay such costs as and when the issue arose. He would not seek their authority until that time;
b. There was no direct evidence to indicate that the only party that was apparently operating had any assets. Their financial statements showed they had been in a serious loss position since 2012. Their losses would have been even steeper but for the fact that they were buoyed up year after year by loans from Khozan, to the tune of about $3 million;
c. The only asset relied on in CV’s direct evidence was their patents. Even then, they were less than candid with the comt, speaking of 70 patents when only 9 were located in Canada. Though they had the onus of showing that this was an exigible asset of sufficient value to cover off any cost order, they elected not to get the patents evaluated and were unable to explain how Terekhov could go about seizing them in the event that he wanted to satisfy a cost order. While the question of whether a patent, per se, could be put forward as an asset had not been specifically dealt with before as far as I was made aware by counsel, this was not a novel matter, as the court had dealt with trademarks and found they were not suitable on the same basis as my findings. Further, whether the point was novel or not was irrelevant, in the context of CV having not obtained a valuation- it is not a novel point that the responding party must show the asset they rely on has sufficient value to meet a cost order;
d. CV then spent considerable time cross-examining Terekhov with a view to making their case. They asked about to the state of their holding as at the time he left their employ in 2014- about 2 years earlier. All he was able to say what he saw at that time. He would have no way of knowing at this time if the buildings were owned by CV and if so, what their equity was. He would have no way of saying if they still owned the equipment he had seen and whether it was still useful. They then had a series of questions about various contracts that the companies had entered into to lease out their patents and to do associated work- but whatever they were able to charge for these transactions appears to have been eaten up by costs as the companies did not end up with profit in hand. This was, in my view, a complete waste of time. It was also an attempt to get in new evidence without providing Terekhov with an oppottunity to respond, something I did comment on in my Reasons;
e. CV provided no evidence as to the merits of the case. This was simply ignored. Instead, they allege that I cannot rely on the arbitrator’s findings of credibility. This ignores the fact that I had also made my own findings, based on Khozan’s lack of candour on this motion and CV’s approach to this motion and to this litigation;
f. The complete lack of evidence as to the merits means CV did not establish that they have a good chance of success. This leads me to wonder why they even resisted this motion. In situation like that, where a responding party has not got the evidence necessary to establish sufficiency of assets and puts nothing before the court to address the merits of the case, they have to be aware they cannot hope to succeed. Those cases are generally resolved between counsel and if they seek the court’s guidance at all, it is only with respect to quantum. Instead, there was a lengthy motion before the comt, preceded by the filing of copious materials and an intense cross-examination.
On the basis of the forgoing, I conclude that costs should be paid on substantial indemnity basis. In my view, $60,000 is both fair and reasonable in the context of how this motion was approached and argued by CV. That amount shall therefore be paid by the plaintiffs jointly and sevemlly within 30 days.
Master Joan Haberman
November 29, 2016