Novel legal claims don’t come cheap, an Ontario court said, in ordering costs against a junior resource company that tried to claim $25 million in damages against a failed hedge fund firm — advancing a claim that certain shareholders owe legal duties to issuers.
On June 1, the Ontario Superior Court of Justice dismissed a claim from Trillion Energy International Inc. in the receivership of Traynor Ridge Capital Inc., a hedge fund firm that was cease traded by the Ontario Securities Commission (OSC) in 2023 after its founder suddenly died, leaving the firm without any leadership.
In that hearing, the company argued, among other things, that Traynor’s trading activity caused it $25 million in damages — $6 million in shareholder dilution, and $19 million from a lost capital raising opportunity — when the firm’s funds acquired vast quantities of Trillion shares that they couldn’t pay for, leading to a drop in its share price after the brokers that were left holding the shares liquidated those positions.
At the same time, the court also approved claims from those same brokerage firms that sought to recover losses they suffered as a result of the firm’s collapse.
Now, the court has ruled that Trillion must pay more than $80,000 in legal costs to the receiver, Ernst & Young Inc., and to the various brokers that also weighed in on the dispute (Jones Trading Canada Inc., National Bank Financial Inc., Ventum Financial Corp. and Virtu Canada Corp.).
According to the court, the company argued that the costs sought against it were excessive.
“Trillion submits that the brokers were last-minute participants claiming costs that were not reasonably expected. It also submits that it is not reasonable for it to face a second factum duplicating opposition of the receiver,” it noted.
However, the court said the company should have expected legal opposition from other creditors in the receivership, given that its $25-million claim represented the bulk of the funds available for recovery.
Additionally, it noted that the company’s claims “were novel and complex.”
Had those claims succeeded, “they would have represented a significant development in corporate law by creating duties owed by shareholders to an issuer concerning the acquisition and sales of shares by its shareholders on secondary markets,” the court said — a development that “would be of significant interest” to the brokerage industry too, it noted.
“… when one advances a claim of $25 million on a new and complex basis in law, that is not a minor matter in which immaterial costs can be expected,” the court said, adding that the cost requests from both the receiver and the brokers were “reasonable.”
“I am not sure if Trillion failed to realize the scope of the endeavour it undertook in advancing a huge claim on such a complicated basis,” the judge presiding over the case said. “In my view Trillion ought to have expected a full-throated response from the stockbroker creditors whom it effectively attacked economically both in their recovery in this proceeding but also in terms of the risk of future liabilities for their businesses if Trillion succeeded.”
As a result, the court ordered costs in favour of the receiver and the brokers.