Chesterman Farm Equipment Inc. (CFEI) v. CNH Canada Ltd. Cost Decision (RE), 2014 CanLII 149266

Agriculture, Food and Rural Affairs Appeal Tribunal

1Stone Road West

Tribunal d’appel de l’agriculture, de l’alimentation et des affaires rurales

1 Stone Road West

Guelph, Ontario, N1G 4Y2

Tel: (519) 826-3433, Fax: (519) 826-4232

Email: AFRAAT@ontario.ca

Guelph (Ontario) N1G 4Y2

Tél.: (519) 826-3433, Téléc.: (519) 826-4232

Courriel: AFRAAT@ontario.ca

AGRICULTURE, FOOD AND RURAL AFFAIRS APPEAL TRIBUNAL

APPEAL:

Chesterman Farm Equipment Inc. (CFEI) v CNH Canada Ltd. Cost Decision (RE)

Chesterman Farm Equipment Inc. (CFEI) v CNH Canada Ltd.

2014 ONAFRAAT 36

STATUTE:

Farm Implements Act

HEARING:

February 4, 2013

DATE OF DECISION:

June 9, 2014

001CFEI08

NEUTRAL CITATION:

2014 ONAFRAAT 36

IN THE MATTER OF THE FARM IMPLEMENTS ACT.

AND IN THE MATTER OF: An Application to the Agriculture, Food and Rural Affairs Appeal Tribunal (Tribunal) by Chesterman Farm Equipment Inc. (CFEI), of Tillsonburg, Ontario, under Section 5 of the Farm Implements Act from a dispute with CNH Canada Ltd. (CNH).

Before:

John O’Kane, Vice Chair; Rob Scouller, member

COSTS DECISION

At the conclusion of the Tribunal’s March 24^th, 2014 reasons for decision, it directed that failing an agreement on costs, the parties were to exchange and file written submissions on costs that the Tribunal has now received and considered.

CFEI seeks costs, on a substantial indemnity basis, of $639,340.

CNH opposes any cost award but, if the Tribunal is so inclined, suggests the Tribunal adopt an approach akin to an assessment of costs performed by an Assessment Officer under the Rules of Civil Procedure to determine the amount, including the examination of the lawyers and the expert witnesses to verify their accounts.

This proceeding has spanned several years before the Tribunal[1] involving several interlocutory procedural hearings, seventeen hearing days and the appeal of an interim decision to the Divisional Court.

The total legal expenditure by the parties to litigate this matter at the Tribunal approaches $1 million according to the costs submissions filed by the parties. We have no reason to doubt the accuracy of the time and disbursements recorded by both parties.

Those two points about the length of the proceeding and the costs associated with the proceeding herald that this was sophisticated commercial litigation between parties well financed and prepared to litigate the issues to a conclusion.

Those two points reflect that for CFEI and CNH, the cost was no barrier to access to justice.

Despite the apparent depth of the litigation pocketbooks, the Tribunal will not engage in further hearing steps for an assessment of costs as suggested by CNH.

The Rules of Civil Procedure regarding costs of court proceedings reflect that an assessment of costs is reserved for exceptional cases[2] and the typical approach is to fix costs[3] at the conclusion of a proceeding. The Tribunal’s Rules allow us to adopt as necessary the Rules of Civil Procedure to address procedural gaps, such as how to determine a cost award.

Finality, at least for now and at least at this level, is in the interests of justice and in the interest of the parties.

Tribunal Jurisdiction to Award Costs

The Tribunal is a creature of statute and its jurisdiction flows from legislation.

In this proceeding the Tribunal’s jurisdiction flows from the Farm Implements Act (FIA), the Ministry of Agriculture, Food and Rural Affairs Act (MAFRAA) and the Statutory Powers Procedure Act (SPPA).

The FIA and the MAFRAA give the Tribunal jurisdiction to hear and resolve any dispute between CFEI and CNH arising from applying the FIA or its regulations[4].

The SPPA gives the Tribunal jurisdiction to make its own rules of procedure and where it makes rules regarding costs, the SPPA grants the Tribunal power to award costs of a proceeding.[5]

The Tribunal has created its own Rules of Procedure that incorporate the SPPA provisions respecting the costs of a proceeding[6] and those Rules also give the Tribunal access to the Rules of Civil Procedure by analogy for any procedural matters not provided in the Tribunal’s Rules[7].

Therefore, in this proceeding, the Tribunal has discretionary jurisdiction to award costs of the proceeding. Exercising that discretionary jurisdiction will be animated by the facts, guided and informed by the Tribunal’s Rules of Procedure, along with Rule 57 of the Rules of Civil Procedure and the common law.

Statutory Preconditions to Awarding Costs

Section 17.1 of the SPPA contains two prerequisites to the Tribunal making a cost award.

One prerequisite has been satisfied since the Tribunal has made rules about ordering costs. The other statutory prerequisite is that “the conduct or course of conduct of a party has been unreasonable, frivolous or vexatious or a party has acted in bad faith”.

In its March 24^th, 2014 reasons for Decision, the Tribunal previously determined that CNH’s conduct in ending the Distributor Agreement with CFEI was unreasonable and why. That unreasonable conduct alone, in this case, would satisfy the second statutory prerequisite.

However, as developed in these reasons, the Tribunal is satisfied that other conduct of CNH has been sufficiently unreasonable to warrant a cost award.

Entitlement to Costs

Even in the courts, the power to award costs is discretionary.[8]

However, the jurisprudence from the courts has developed a general principle that the successful party in litigation is entitled to an award of costs. That common law principle of “costs following the event” has been preserved in the FIA by section 33.

The rights, duties and remedies provided by this Act are in addition to the rights, duties and remedies under any Act and the common law.

While it may be open to debate whether the common law principle of “costs following the event” has been elevated to a common law “right, duty or remedy”, in this case, that principle guided the Tribunal.

Both parties are sophisticated business corporations and both have been advised and represented throughout by senior experienced litigation counsel. The parties either were advised by their counsel of the principle of “costs following the event” or they should have been. In such circumstances, it is unreasonable for CNH to expect that CFEI would not recover costs.

Besides that principle, the Tribunal also considered that the reasonable expectations of both these parties were that costs would be a feature of this proceeding. In CFEI’s original application dated February 26^th, 2008 it sought recovery of money under several heads and in each instance it also sought “plus taxes, interest and costs”. Therefore, it cannot surprise CNH that CFEI, having succeeded on parts of its claims for damages, now seeks costs. In such circumstances, it is unreasonable for CNH to expect that CFEI would not recover costs as the successful party.

During an interlocutory production motion in 2009 involving these parties, the intervenors and a non-party from whom documentary production was sought, the Tribunal awarded significant costs. In such circumstances, it is unreasonable for CNH to expect that the Tribunal would not award costs of the substantive proceeding.

Finally, common sense suggests to the Tribunal that had the parties litigated this in the courts, rather than at the Tribunal, the successful party would have expected to recover costs and the unsuccessful party would have expected to pay costs. In such circumstances, it is unreasonable for CNH to engage in multi-year high stakes litigation of this nature before the Tribunal and not expect that costs would be awarded.

CNH altered its position about the effect of the auto-renewal provision of the Dealer Agreement. In argument at the conclusion of the original liability phase of the proceeding, in response to a question from the Tribunal, CNH confirmed that a provision of the Dealer Agreement satisfied a requirement of the Regulation. In addition, retroactive versus retrospective application of the Regulation had not been pleaded or argued during the original liability phase. However, both the CNH concession made in argument and applying the Regulation emerged as issues during CNH’s Divisional Court appeal. Changing the theory of part of its case mid-way through the process, as CNH did here, complicated and prolonged the proceeding. In these circumstances, that conduct by CNH was unreasonable.

The Tribunal only rarely makes cost awards. The rarity of cost awards is reflected from the SPPA and reflected in the commentary associated with the Tribunal’s Rule 28.

However, the commentary and Rule 28 are not absolutes. The commentary and Rule 28 inform and guide the Tribunal exercising its jurisdiction.

The circumstances here take this case into the realm of “rarity” that in the Tribunal’s view warrant a cost award.

• Issues brought to the Tribunal usually do not include $1 million damage claims. Here, CFEI sought damages from CNH of nearly $1 million.

• Not all the parties before the Tribunal are usually represented by legal counsel. Here, all parties were represented by multiple legal counsel.

• Cases before the Tribunal involve a relatively modest number of documents. Here, there were hundreds of documents comprising thousands of pages of material.

• Issues before the Tribunal do not usually engage the need for expert evidence. Here, the parties called several expert witnesses.

• Hearings before the Tribunal are usually not more than a few days long. This case involved seventeen hearing days spread over three years.

These factors all assist informing the Tribunal that this case was a rarity before the Tribunal.

In all these circumstances, the Tribunal concluded that CFEI, as the successful party in this proceeding, may recover costs of the proceeding.

Quantum

CFEI seeks its costs of $639,340 on a “substantial indemnity” recovery basis. The Tribunal’s Rules make no distinction in respect of the scale of cost recovery so, in these circumstances, the Tribunal will consider the Rules of Civil Procedure and the court jurisprudence to inform and guide its cost determination.

Costs in the courts are awarded typically on a “partial indemnity” basis and only rarely on the higher “substantial indemnity” basis.

Substantial indemnity costs are awarded when a successful party betters an offer to settle under Rule 49 of the Rules of Civil Procedure or when a party makes unfounded allegations akin to fraud or where a party’s conduct has been egregiously bad.

As informed by decisions of both the Supreme Court of Canada and the Court of Appeal for Ontario, substantial indemnity cost awards are awarded where there has been “reprehensible, scandalous or outrageous conduct”[9] or a “clear finding of reprehensible conduct”[10]. Conduct can be unreasonable without reaching the depths of reprehensible, scandalous or outrageous. The Tribunal has not made a finding that CNH’s conduct is reprehensible, scandalous or outrageous. The Tribunal has made findings that CNH’s conduct has been unreasonable. Therefore, in these circumstances, an award of “substantial indemnity” costs is not warranted, but an award of “partial indemnity” costs is warranted.

In determining the amount of costs on a partial indemnity basis, the following are the most relevant considerations drawn from Rule 57.01of the Rules of Civil Procedure:

• The principle of indemnity

Courts rarely award costs on a full and complete indemnity basis as sought by CFEI. We see no basis for doing so here.

• The experience of the lawyers involved including the rates charged and the hours spent

The lawyers involved were all experienced and subject to our comments about the hourly rates claimed by CFEI the rates appear appropriate for counsel with that experience. However, the hours spent by CFEI’s lawyers are excessive in the circumstances. We will address the hours spent by CFEI’s lawyers further.

• The reasonable cost expectations of the unsuccessful party

CNH submits its lawyer’s Bill of Costs to support what it asserts is its reasonable expectations. The fees associated with that Bill of Costs approaches $200,000 on a partial indemnity basis. However, that amount does not reflect the reality that a plaintiff will typically incur greater fee costs than a defendant. CNH’s asserted reasonable expectation must be increased to reflect that practical reality.

• The amount claimed and the amount recovered

The amount claimed by CFEI was approximately $1 million while the amount recovered was approximately $200,000. Proportionality is something to be considered. An unfortunate reality of modern litigation is that frequently the cost of litigating can exceed the amount claimed or the amount recovered. However, the Tribunal is not bound to any proportionality formula. It would be unfair to use the proportionality principle to deny a successful party of a cost award.

• The apportionment of liability

CFEI was unsuccessful in part of its claim. For example, the liability finding on the warranty issue went against CFEI.

• The complexity of the proceedings

The facts were complex and the matter involved contract interpretation, statutory interpretation, and legal issues such as retroactive versus retrospective application of legislation.

• The importance of the issues

Given the time and money spent by the parties, the issues were important to the parties and the Tribunal was advised the issues may have importance beyond the parties.

• The conduct of any party that affected the length of the proceeding

There was conduct by both CFEI and CNH that affected the length of the proceeding. CFEI occasioned a late adjournment prior to the first scheduled start. Another example is CNH’s conduct related to a concession it made about the Dealer Agreement that precipitated a longer hearing to address that and other issues.

Our approach to fixing CFEI’s costs on a partial indemnity basis will focus on three areas: hourly rates; hours; disbursements.

Hourly Rates:

CFEI’s Costs Outline filed as part of its written Costs Submissions reflects both partial and substantial indemnity rates but no actual hourly rate for the various lawyers.

As a general rule of thumb, a partial indemnity rate, according to Tariff A of the Rules of Civil Procedure is 66.7% of the hourly rate.

The Tribunal concludes there is no reason to depart from that general rule of thumb.

Since we have evidence of the substantial indemnity rates of all CFEI’s lawyers, we accept those substantial indemnity rates as reflecting the lawyer’s hourly rates.

Therefore, applying that general rule of thumb that a partial indemnity rate is about two-thirds of an actual rate, the appropriate partial indemnity rates are:

Lawyer

Year of Call

Rate

John W. May

1977 (37 years)

$267

Eric K. Gillespie

1996 (18 years)

$233

Julia Croome

2009 (5 years)

$150

Ian Flett

2010 (4 years)

$150

Karen Dawson

2007 (7 years)

$150

Hours:

The five lawyers representing CFEI spent 1,467 hours on this case. In comparison, the four lawyers representing CNH spent 752 hours. The totals of those hours again reinforces that both parties were prepared to spend almost unlimited time and money to litigate their issues.

The CFEI hour totals, by lawyer are:

Lawyer

Hours Spent

John W. May

1,004

Eric K. Gillespie

266

Julia Croome

48

Ian Flett

138

Karen Dawson

11

As we reflect on the hours spent, the Tribunal notes that CFEI:

• had five lawyers working on the file;

• had two senior and experienced counsel as co-counsel through much of the proceeding;

• had three lawyers attending for most of the hearing days;

• while successful in recovering damages related to the termination of the Dealer Agreement, was unsuccessful in its warranty claims against CNH;

• was unsuccessful regarding some of the interlocutory proceedings;

• was responsible for some delay.

It is apparent from the invoices filed by CFEI’s legal team that the Canada East Equipment Dealers Association (“CEEDA”) was financing this case for CFEI. The Tribunal heard evidence from Beverly Leavitt, the President and CEO of CEEDA, explaining CEEDA’s financing CFEI’s litigation because the outcome was of interest to all their membership.

It was CFEI’s choice, no doubt also influenced by CEEDA’s involvement, to employ five lawyers on this case. However, that does not translate to a direct line correlation between CFEI’s expenditure on fees and CNH’s partial indemnity cost responsibility. It would be unreasonable to allow CFEI complete recovery for all of the time of five lawyers.

Inevitably, with five lawyers working on a file there will be duplication of effort. As reflected in the time docketing and billing information included in CFEI’s Costs Submissions, there were multiple instances where each of the five lawyers was conducting a “review” of the “matter materials”. In these circumstances, it would be unreasonable to allow CFEI recovery on its claimed partial indemnity basis for unnecessary duplication.

CFEI’s lead advocate throughout almost all the hearing days was Eric Gillespie. Mr. Gillespie was not in attendance due to a scheduling conflict on just one hearing day. Except for that one day, Mr. May, while present for all the hearing days, did not make submissions, did not examine witnesses, and did not cross-examine witnesses. In comparison, throughout the hearing days, CNH had just one lawyer in attendance. In these circumstances, it would be unreasonable to allow CFEI recovery on its claimed partial indemnity basis for two lead advocates.

For all the hearing days, CFEI had three lawyers in total present, Mr. Gillespie, Mr. May and usually Mr. Flett. In comparison, throughout the hearing days, CNH had just one lawyer in attendance. In these circumstances, it would be unreasonable to allow CFEI recovery on its claimed partial indemnity basis for three lawyers for every hearing day.

CFEI was unsuccessful in its warranty claims against CNH. Some part of the pleading, discovery, preparation and hearing time was associated with that aspect of CFEI’s claim. Since CFEI was unsuccessful regarding that part of its claim, it would be unreasonable to allow it recovery on its claimed partial indemnity basis for the time associated with that part of its claim.

As part of the discovery process, CFEI moved for leave to examine a representative of the Association of Equipment Manufacturers (“AEM”), a non-party. Rule 39.02(4)(b) of the Rules of Civil Procedure provides that where a party to a motion cross-examines on an affidavit, they are liable for the cross-examination costs, regardless of the outcome . Using that Rule by analogy, but adapted to these circumstances, it would be unreasonable to allow CFEI recovery on its claimed partial indemnity basis for the time associated with that examination of a non-party.

CFEI also moved to gain access to records housed in the United States of America of the AEM. CFEI was unsuccessful on that motion and was ordered to pay the AEM’s costs. Having been unsuccessful at that interlocutory stage, it would be unreasonable now to allow CFEI recovery related to that unsuccessful motion.

The hearing was originally scheduled for seven days in May 2009. Those hearing dates were re-scheduled during a pre-hearing conference on April 21^st, 2009 because of CFEI’s motion to examine a representative of AEM.

The hearing of the damages issue was scheduled for May 27^th and 28^th, 2013. Just a few days before the start, CFEI sought an adjournment to address several factual errors and omissions from their 2008 expert’s report on damages. That adjournment request was argued on May 27^th, 2013. Because of a voir dire hearing on May 27^th, 2013, the May 28^th hearing day was cancelled and additional discoveries ordered to allow CNH to explore the newly disclosed evidence.

These instances of delay in the proceedings resulted from CFEI. In the circumstances, it would be unreasonable to allow CFEI recovery of all its claimed partial indemnity costs where in these instances it was the reason for delay and the associated additional time.

Our approach to address all these factors is to reduce the time of each lawyer by 18%.

Lawyer

Hours Spent

Rate

Fees

John W. May

823

$267

$219,741

Eric K. Gillespie

218

$233

$50,794

Julia Croome

39

$150

$5,850

Ian Flett

113

$150

$16,950

Karen Dawson

9

$150

$1,350

The total of those hours at those rates is $294,685.00 for fees which would attract H.S.T. of $38,309.05. In comparison, CNH’s partial indemnity Bill of Costs reflected fees of $190,978.89.

The variance between those partial indemnity amounts is not unreasonable in the circumstances. A plaintiff has a more onerous and therefore more time consuming task to advance a case than a defendant has defending a case. The resulting variance between the fees we have allowed for CFEI and the fee expectation of CNH reflects that CFEI had a more expensive task advancing its claims.

Disbursements:

CFEI seeks disbursements of $100,315, inclusive of H.S.T. In comparison, CNH’s Bill of Costs reflected disbursements of $32,265.16.

The single most significant disbursement sought by CFEI related to its damages expert witness who invoiced $52,067.

However, the Tribunal found the evidence of that expert witness to be of little, if any use to the damages issue. As noted in our March 24^th, 2014 reasons for decision that expert made a fundamental error in his damages methodology. That fundamental error was fueled by inaccurate or incomplete information that CFEI gave its expert. The Tribunal gave that expert’s opinion no weight in the damages assessment. In the circumstances, it would be unreasonable to require that CNH pay the disbursement associated with that expert’s work.

Another disbursement that is problematic is the $4,904 fee associated with CFEI’s expert witness Harry Cumming. As noted in the Tribunal’s March 24^th, 2014 reasons for decision, at its highest, Professor Cumming’s expert evidence about provincial market share was that he had questions about the reliability of AEM’s market data. That evidence, while uncontradicted by CNH, did not advance the Tribunal’s understanding or decision making about CFEI’s claims related to market share.

While it is open to CFEI to make its case as it deems appropriate, it is unreasonable to expect that CNH will pay for all disbursements, including disbursements spent to develop expert evidence either unreliable or unhelpful to the Tribunal.

Therefore, it is reasonable in these circumstances to reduce CFEI’s disbursement claim by $56,971.00, inclusive of H.S.T.

The balance of the disbursements CFEI claimed are reasonable in the circumstances. The cost of reporting services and transcripts are supported by invoices. Travel and accommodation costs are to be expected when counsel are travelling from out of town and working away from their office and living away from home during a hearing.

Therefore, CFEI is allowed its disbursements, as reduced to $43,344.00, inclusive of H.S.T.

Conclusion

In this case, the Tribunal is satisfied that CFEI is entitled to its partial indemnity costs, fixed and allowed at fees of $294,685.00, applicable H.S.T. of $38,309.05 and disbursements of $43,344.00, inclusive of H.S.T., for a total cost award of $376,338.05.

ORDER OF THE TRIBUNAL

1. CNH shall pay to CFEI its partial indemnity costs of $376,338.05.

Any party to this hearing may appeal the decision of the Tribunal on a question of law to the Divisional Court of the Superior Court of Justice under its rules of practice within 15 days from the day on which this decision was served.

Dated at Brampton, Ontario this 9^th day of June, 2014

MAFRAA subsection 14(1) continuing the Tribunal

Footnotes

1. 1The applicant’s request for a hearing was filed January 18^th, 2008
2. 2Rule 57.01(3.1), Rules of Civil Procedure
3. 3Rule 57.01(3) & (7), Rules of Civil Procedure
4. 4FIA, section 1 defining the Tribunal and subsections 5(5)(6) granting the Tribunal power to hear and resolve the dispute
5. 5SPPA subsection 17.1 and 25.1
6. 6Rule 28, Tribunal Rules of Procedure
7. 7Rule 1.09, Tribunal Rules of Procedure
8. 8Courts of Justice Act, section 131
9. 9Young v. Young 1993 CanLII 34 (SCC), [1993] 4 S.C.R. 3
10. 10Davies v. Clarington (Municipality) 2009 ONCA 722, [2009] O.J. No. 4236