Jan 11, 2021 -
Court cost decision (KRN vs World) KRN LOST
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BETTER READ THIS AGAIN.
WERE IS MY ANSWER
WWW.KRNSHAREHOLDERS.COM
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Date: January 11, 2021 at 3:32 PM
Subject: Court case krn
Court of Queen's Bench of Alberta Citation: Karnalyte Resources Inc
v Phinney, 2021 ABQB 26
FILED JAN 11 2021
Date: Docket: 1801 07487 Registry: Calgary
Plaintiff / Applicant
Between:
KARNALYTE RESOURCES INC
- and -
ROBIN PHINNEY, DAVE VAN DAN and DAN BROWN
Defendant / Respondents
_______________________________________________________
Costs Decision
of the
Honorable Madam Justice BE Romaine
_______________________________________________________
I. Introduction
[1] This decision addresses the issue of costs sought by two of the
Respondents in the within action. My reasons for judgment are dated
February 14, 2020 and can be found at 2020 ABQB 119.
[2] The Respondent Robin Phinney seeks costs on a “solicitor-client”
basis, or alternatively on a scale that is a multiple of Schedule C
costs as set out in the Rules of Court. Mr. Phinney was entirely
successful in defending against the application brought by the
applicant Karnalyte Resources Inc. He seeks solicitor-client costs
on the basis that the conduct of Karnalyte,
Page: 2
including as described in my reasons, brings the fundamental issue of
fairness and efficiency that
underlie the Rules squarely into play and justifies an award of
solicitor client costs.
[3] Karnalyte opposes such an award of costs, submitting that the
appropriate quantum of costs should be calculated on the basis of
column 3, with appeal costs awarded for item 20(1) in accordance
with item 8(1) of Schedule C.
[4] For the reasons that follow, I award Mr. Phinney solicitor-client
costs inclusive of disbursements of $213, 513.19.
[5] The Respondent Dan Brown also seeks costs on a solicitor-client
basis for many of the same reasons. Mr. Brown submits that
Karnalyte’s motivation has been to weaponize this and other
litigation against the Respondents in order to cause the Respondents
as much expense and hardship as possible, both professionally and
financially.
[6] Mr. Brown was substantially successful in the litigation, other
than my finding that one posting he made on an internet chatroom on
the day the application was filed constituted an unlawful
solicitation of proxies. I found that Karnalyte had suffered no
damages from this solicitation, and given Mr. Brown’s subsequent
conduct, no remedy need be imposed against him.
[7] Karnalyte submits that Mr. Brown is not entitled to costs as he
is an unsuccessful party, that each party should bear their own
costs, or in the alternate, that Mr. Brown is only entitled to costs
in accordance with Schedule C, column 1. Karnalyte also seeks costs
for its written submissions on costs.
[8] For the reasons that follow, I award Mr. Brown solicitor-client
costs of $49,649.50 inclusive of disbursements and other charges and
dismiss Karnalyte’s application for costs of the costs
submissions.
II. Mr. Phinney’s Application
[9] As Mr. Phinney was entirely successful, he is entitled to costs.
The only issues are whether he is entitled to solicitor-client
costs, and if so, in what amount.
[10] Mr. Phinney agrees with Mr. Brown that the litigation was
conducted as a “weapon” in order to ensure that Mr. Phinney (and the
other Respondents) were put to as much expense and hardship as
possible, in a situation where the allegations against them were
serious, as well as personally and professionally damaging.
[11] Karnalyte makes much of the fact that the application was not
complex and was heard in a half day. However, this fails to indicate
the history of the application and the voluminous briefs and
materials that were filed by the parties in advance of oral
argument.
[12] As noted by Mr. Phinney, the steps taken to move this matter
from filing to hearing involved the following:
(a) Two Originating Applications (the second being an Amended
Originating Application).
Each application was about 20 pages in length and included
significant allegations of wrongdoing, including allegations that
Mr. Phinney attempted to obtain a personal gain because of his prior
position as CEO
Page: 3
of Karnalyte. I agree with Mr. Phinney that Karnalyte essentially
alleged fraud against Mr. Phinney without using that term. The
Amended Originating Application asserted that, during his tenure as
Karnalyte’s President and Director, Mr. Phinney attempted to extract
significant personal benefits as part of a proposed financing
transaction between Karnalyte and its strategic partner and largest
shareholder. Karnalyte states in the application that this attempt
was ultimately rejected by the shareholder, and partially formed one
of the grounds for Karnalyte’s just cause to terminate Mr. Phinney’s
employment as President.
The application also asserts that Mr. Phinney’s shareholder proposal
of March 27, 2018 was a clear attempt to redress past grievances,
specifically Mr. Phinney’s termination as Karnalyte’s President, his
failure to be re- elected as a Director, and his failure to obtain
significant personal benefits as part of the proposed transactions
between Karnalyte and its strategic partner and shareholder.
These allegations of significant wrongdoing by Mr. Phinney were
unnecessary in terms of the issues in the application. They did not
need to be addressed in the reasons for decision, and were not
proved by the evidence before me.
(b) Four affidavits sworn by representatives of Karnalyte which were
many hundreds of pages in length.
(c) Two affidavits filed by Mr. Phinney. Mr. Brown filed one
affidavit and the Respondent Dave Van Dam filed two affidavits.
(d) Two full days of questioning on Mr. Phinney’s affidavits (and
several more days as the other Respondents were questioned on their
affidavits).
(e) Questioning of three non-parties by Karnalyte without prior
notice to Mr. Phinney. Karnalyte did not provide Mr. Phinney with
the transcripts of two of the questionings, nor did Karnalyte
include these or the questioning transcript of Stan Phinney in the
record it put before the Court although the transcript was later
produced and referred to in the decision.
(f) An application filed by Karnalyte to gain access to unredacted
versions of Mr. Brown’s telephone records, which was dismissed with
costs to Mr. Brown.
(g) A contested adjournment application wherein Mr. Phinney and the
other Respondents were successful in obtaining an adjournment and
costs in the cause.
(h) A Norwich application brought by Karnalyte in British Columbia
without notice to Mr. Phinney and without disclosure of any
materials contained therein to him despite requests that this
information be provided.
(i) A special application scheduled for a full day with lengthy
briefs. In support of the application, a four-volume record was
filed with the Court
Page: 4
totalling 4100 pages. Despite this, additional material was filed
before and during the hearing.
[13] In addition to the complexity of the application as a reason for
enhanced costs, Mr. Phinney submits that Karnalyte engaged in
misconduct in the litigation, including the following:
(a) failure to advise Mr. Phinney that non-parties had been
questioned, and delay in providing information about the
questioning;
(b) obtaining an order without notice from the Supreme Court of
British Columbia against the internet website that hosts the
chatroom in order to learn the identity of “theend6543”, which
Karnalyte had asserted in its application was Mr. Phinney’s alias.
No party to the application received information with respect to the
result of the Norwich order, which did not yield evidence that
“theend6543” was Mr. Phinney or any of the other Respondents.
Karnalyte refused a “with prejudice” request to disclose the
material accompanying the application against the internet website
and any resulting production;
(c) filing a late affidavit with the brief for the application, thus
depriving Mr. Phinney of the right to cross-examine or respond;
(d) mischaracterizing the questioning evidence in its brief, as noted
in the reasons for decision, not less than five times;
(e) misstating the number of telephone conversations between Mr.
Phinney and Mr. Brown in its brief; and
(f) advising the Alberta Securities Commission that it would not be
challenging the exemption order that had been granted to Mr. Phinney
after the ASC objected on the basis of jurisdiction, and then, in
its submissions, doing in effect exactly that, as I noted in the
reasons for decision.
[14] The parties agree that the law in Alberta relating to the
awarding of solicitor-client fees is aptly set out in Secure 2013
Group Inc. v Tiger Calcium, 2018 ABCA 110 at para 15:
Solicitor-client costs are generally awarded only when there has been
reprehensible, scandalous or outrageous conduct by a party ... They
are only awarded in rare and exceptional circumstances and may be
available if misconduct occurs in the course of litigation ... A
careful analysis of the facts is required...
[15] The Court in Tiger Calcium set out factors to be considered by a
court at para 15, including the following relevant to this
case:
a. blameworthiness in the conduct of the litigation;
Page: 5
b. when justice can only be done by a complete indemnification for
costs;
c. where there was evidence that the appellant hindered, delayed or
confused the litigation;
d. where there has been an attempt to conceal material documents and
failure to produce material documents in a timely fashion;
e. positive misconduct, where others should be deterred from like
conduct and the party should be penalized beyond the ordinary order
for costs; or
f. untrue or scandalous charges.
[16] The Rules of Court also recognize as factors to be considered in
determining an award of costs conduct that unnecessarily lengthens
or delays the action or any of its steps, whether a party has
engaged in misconduct, and any offer of settlement made, regardless
of whether or not the offer for settlement complies with Part 4,
Division 5: Rule 10.33(1) and (2).
[17] Relevant to the latter, counsel for Mr. Phinney, in a “with
prejudice as to costs” letter dated March 29, 2019, correctly
pointed out that Karnalyte’s pending 2019 Annual General Meeting
rendered the outcome of the application moot. Karnalyte disregarded
this letter.
[18] Given all these circumstances and factors, I find that this is
one of the cases where justice can only be done by a complete
indemnification of costs. Mr. Phinney’s claim for solicitor-client
costs totals $213,513.19 inclusive of fees, disbursements and
GST.
[19] Karnalyte submits that this amount is too high, and proposes a
lower amount. It is noteworthy that Karnalyte’s 2018 “Management
Discussion and Analysis” published on the SEDAR website discloses
the following under the heading “Accounting and Legal”:
... expenses for the year ended December 31, 2018, ... [saw] an
increase of $841,000 ... the legal expenses were principally
incurred ... with respect to the filing by the Company of an
originating application with the Alberta Court of Queen’s Bench
seeking declarations from the court that the Respondents acted
jointly and in concert to conduct various activities, including an
illegal proxy solicitation, in connection with the 2018 AGM in
contravention of the provisions of the Canadian corporate and
securities laws, and that those proxies should therefore be
disallowed. (emphasis added)
[20] Karnalyte’s submission that Mr. Phinney’s fees are unreasonable
is untenable in the circumstances, particularly given that its own
fees and disbursements appear to be considerably higher. Its
complaint about the size of Mr. Phinney’s legal team is also not
justified. I accept Mr. Phinney’s evidence that, between June 7,
2008 and May 5, 2020, he was represented first by Southern Alberta
Law Offices, then Enernext Counsel and finally Borden Ladner Gervais
LLP. Mr. Phinney was defending himself against serious allegations
relating to his personal and professional ethics and entitled to
counsel appropriate to the escalating litigation. I therefore award
Mr. Phinney costs in the amount of $213,513.19.
[21] Given my decision, it is not necessary to consider the
alternatives suggested by either Mr. Phinney or Karnalyte.
Page: 6
III. Mr. Brown’s Application
[22] Mr. Brown relies on many of the same factors that I have found
justify an award of indemnification costs to Mr. Phinney. He also
notes the following relevant factors:
(a) It is apparent from the evidence that Mr. Brown made repeated
attempts to resolve issues with Karnalyte without resort to
litigation. Months prior to the application, his counsel provided
Karnalyte with redacted copies of Mr. Brown’s cell phone and home
phone records for the material time period between May 1, 2018 and
June 7, 2018, and a thorough explanation of any communications
between Mr. Brown and Mr. Phinney on a without prejudice basis.
Karnalyte applied for unredacted copies of the records, and was
unsuccessful in that application, with costs levied against it
payable “forthwith”. Despite repeated requests, Karnalyte has not
paid the cost award.
(b) The single posting that I found to be an unlawful solicitation of
proxies was never mentioned in Karnalyte’s Amended Originating
Notice. It was followed by Mr. Brown’s fulsome public apology.
(c) On June 29, 2018, Karnalyte filed a statement of claim against
Mr. Brown claiming damages of approximately $1.4 million on the
basis of defamation. As was the case with Mr. Phinney, Karnalyte
alleged many of the same allegations in the application that it
pleads against Mr. Brown in the defamation action. As in Mr.
Phinney’s case, many of these allegations were unnecessary to the
application, and unproven by the evidence before me.
(d) As Karnalyte failed to provide an affidavit of records in a
timely manner in the defamation action, Mr. Brown brought an
application to compel it to produce its affidavit of records and was
successful, including with an award of costs payable “forthwith”.
Again, Karnalyte has not paid the costs. Karnalyte submits that
events connected with a separate application are not relevant to
this application, but it is clear from the fact that the allegations
set out in the defamation action were repeated in this application
that the actions are related. Karnalyte alleged in the application
that Mr. Brown posted defamatory messages “in furtherance of his
strategy to support his improper solicitation of proxies”.
(e) Mr. Brown made a formal offer to Karnalyte for a consent
dismissal order in regards to the remedies sought against Mr. Brown
on January 25, 2019, on the basis that Karnalyte would pay Mr.
Brown’s costs pursuant to Schedule C, column 2. Karnalyte did not
accept the offer.
Karnalyte submits that this offer is irrelevant as it was partially
successful against Mr. Brown. Although the offer does not support an
award of double costs, when combined with Mr. Brown’s other conduct
in the litigation, it illustrates his attempts to shorten or avoid
the action.
Page: 7
[23] I note that Karnalyte claimed the following relief against Mr.
Brown in its Amended Originating Notice:
(a) a declaration that Mr. Brown had engaged in improper proxy
solicitation;
(b) a declaration that Mr. Brown was acting in concert with Mr.
Phinney and Mr. Van Dam;
(c) a declaration that Mr. Brown failed to discharge his obligation
to comply with the early warning system set out in securities
regulation;
(d) a declaration that Mr. Brown failed to comply with the
requirements of corporate and securities regulations with respect to
solicitation of proxies, disposition of shares, filing of early
warning disclosure, dissident proxy circulars, continuous disclosure
obligations, proxy forms and collective and joint
communications;
(e) a declaration that any votes cast that were obtained by improper
proxy solicitation were invalid and a nullity and to be disregarded
with respect to the counting of votes at the 2018 AGM; and
(f) a declaration that Karnalyte shall be entitled to recount all
votes and adjust the recording and publication of voting results for
the 2018 AGM.
[24] As noted, the only relief sought by Karnalyte with respect to
Mr. Brown’s conduct that was successful was my finding that Mr.
Brown had published an improper proxy solicitation on May 28, 2018.
I found that the posting was the only evidence against Mr. Brown
relating to proxy solicitation, that it was not evidence that Mr.
Brown was acting in concert with Mr. Phinney before the posting and
that Karnalyte suffered no damages from this solicitation.
[25] With respect to the other relief sought, I concluded that there
was no evidence of Mr. Brown and Mr. Van Dam acting jointly or in
concert in any way and that the uncontradicted and credible evidence
of both was that they had never met, and had never communicated with
each other. I found that there was no persuasive evidence that Mr.
Brown and Mr. Phinney were acting jointly or in concert with each
other.
[26] I further noted that, given that Mr. Brown had issued a full
public apology prior to the AGM, had refrained from posting any
further negative comments about Karnalyte’s management nominees and
in fact had posted a message to the chatroom requesting that other
parties not display the names of any Karnalyte directors, management
or any other party involved in the forum in a negative light, no
further remedy was necessary against Mr. Brown. I commented that Mr.
Brown was caught up in a vicious battle among old enemies.
[27] Therefore, despite Karnalyte’s marginal success in the
application, I find that, given Karnalyte’s conduct during the
litigation and Mr. Brown’s attempts to shorten or avoid the
litigation against him, it is in the interest of justice that Mr.
Brown be awarded solicitor-client costs in the amount of $49,649.50
inclusive of disbursements and other charges.
[28] Again, it is not necessary to address the alternative relief
sought.
Page: 8
IV. Other Relief
[29] Mr. Phinney applies for an order that the Karnalyte action
1801-09478 against him filed on July 4, 2018, which sets out many of
the same allegations against Mr. Phinney that were made in the
application and claims damages of $5 million plus punitive,
exemplary and aggravated damages, be stayed until such time as any
cost award made with respect to this action is paid in full.
[30] Mr. Brown seeks the same relief with respect to the collateral
defamation action that Karnalyte filed against him on June 29,
2018.
[31] Given that Karnalyte has failed to pay costs awards made against
it in favor of Mr. Brown with respect to two applications in which
Mr. Brown was successful, despite directions to do so “forthwith”, I
find this relief to be appropriate , and I grant it.
[32] Mr. Phinney and Mr. Brown have been entirely successful in this
application for costs. In order to avoid further litigation on the
point, I direct that they are each are entitled to their costs of
the application in the amount of $ 3,000.00.
Dated at Calgary, Alberta this 11th day of January, 2021.
Justice BE Romaine JCQBA
Appearances:
Ariel breitman
for the Plaintiff / Applicant Karnalyte Resources Inc.
William Katz and Geoffrey Boddy
for the Defendant / Respondent Dan Brown
Matthew J. Epp / Matthew Schneider
for the Defendant / Respondent Robin Phinney
Oliver hanson
for the Defendant / Respondent David Van Dam
Robin phinney
3
