A & M Enterprise Ltd, Freshslice Holdings Ltd, and RF Franchising Inc (collectively, Freshslice) failed to pay invoices for products delivered by Wallace & Carey Inc (WC) and engaged one of WC’s competitors to supply products to its franchisees, in violation of a Court Order under the Companies’ Creditors Arrangement Act, RSC 1985, c C-36 (the CCAA). The Court held that WC was entitled to Costs and directed the Parties to refer the matter back if they were unable to agree on Costs.

WC sought solicitor-client costs, asserting that Freshslice repeatedly failed to comply with Court Orders, engaged in litigation misconduct, and rejected a settlement offer that would have resolved the Costs dispute by paying 40% of WC’s actual Costs. WC also emphasized that Freshslice’s failure to pay previous costs awards necessitated enforcement actions. In response, Freshslice argued that solicitor-client Costs are rare absent contractual provisions, criticized WC for not providing a Schedule C assessment, and claimed that some of the expenses arose due to WC’s own procedural errors.

Justice Neufeld explained that the determination of costs awarded to a successful party falls within the Court’s discretion, which must be guided by precedent and the Rules. Neufeld J. noted that Rule 10.33 provides a non-exhaustive list of factors for consideration, including the outcome, amounts claimed, complexity, conduct of the parties, non-compliance with the Rules or an order, misconduct, and settlement offers. Additionally, Neufeld J. noted that Rule 10.2 specifies the factors relevant to the evaluation of the reasonableness of legal fees.

Justice Neufeld addressed the issue of solicitor-client Costs, emphasizing that such awards are rare unless explicitly provided for by contract or warranted by egregious misconduct. While acknowledging that Freshslice’s conduct was disrespectful and undermined the CCAA process, Neufeld J. stated that Freshslice was already facing financial consequences through joint-and-several liability debts owed by its franchisees. Consequently, Neufeld J. declined to award solicitor-client Costs. Additionally, Neufeld J. found that Schedule C Costs were inappropriate due to the distinctive nature of CCAA proceedings, which have compressed timelines and higher immediate legal expenses compared to commercial litigation. Neufeld J. concluded that the significant legal and judicial resources involved, along with the importance of the liability issues raised, justified a substantial Costs award for WC.

To expedite the process and avoid delays associated with detailed assessments, WC requested a lump sum award instead of full indemnity costs. Neufeld J. applied two discounts to WC’s claimed costs, a 50% discount for time spent on an abandoned hearing and WC’s request for a lump sum award, and a further discount of 45% representing the midpoint between the 40-50% range for recovery of legal costs.

As a result, WC was awarded Costs of $36,000, inclusive of fees and disbursements.