Delrina Corp. v. Triolet Systems Inc., 2002 CanLII 45083 (ON CA)

DATE: 2002-10-02
DOCKET: C30375

COURT OF APPEAL FOR ONTARIO

BEFORE: MORDEN, CARTHY and MACPHERSON JJ.A.

BETWEEN:

DELRINA CORPORATION carrying on business as CAROLIAN SYSTEMS

Plaintiff (Appellant)

• and -

TRIOLET SYSTEMS INC. and BRIAN DUNCOMBE

Defendants (Respondents)

COUNSEL:
Nigel Campbell and Anthony Prenol for the appellant
F. Paul Morrison, Barry B. Sookman and Aleks Mladenovic for the respondents

HEARD: Submissions in writing

BY THE COURT:

1On March 1, 2002 this court dismissed the plaintiff’s appeal from two judgments of O’Leary J. In the first judgment, O’Leary J. dismissed the plaintiff’s action against the defendants based on the allegation that they had infringed the plaintiff’s copyright in a computer software program. In the second judgment, O’Leary J. assessed the defendants’ damages under the plaintiff’s undertaking to pay damages which had been given to obtain an interlocutory injunction restraining the defendants from selling, giving away, or marketing the program.

2At the conclusion of our reasons, this court awarded the costs of the appeal to the respondents on a “substantial indemnity basis” and said that “[c]ounsel may file written submissions on the amount of the costs.”

3Counsel have filed submissions and the respondents have also filed affidavits supporting their bill of costs.

4The respondents’ bill of costs totals $846,591.62, which comprises $767,163.50 for fees, $24,043.62 for disbursements, and G.S.T. at 7% on each of these amounts.

5The facts and the issues in the appeal are set forth in this court’s reasons, reported at 2002 ONCA 11389, 58 O.R. (3d) 339, 17 C.P.R. (4th) 289, and 156 O.A.C. 166 and they need not be repeated. The hearing of the appeal took three days.

6In making its order that the appellant pay the respondents’ costs on a “substantial indemnity basis”, the court was, of course, referring to the wording in the amendments to the costs provisions in the Rules of Civil Procedure made by O. Reg. 284/01 which came into force on January 1, 2002. Under new rule 57.01(3), “[w]hen the court awards costs, it shall fix them in accordance with subrule (1) and the Tariffs.” Subrule (1), which was not amended by O. Reg 284/01, provides that in exercising its discretion under s. 131 of the Courts of Justice Act, the court may consider certain factors. The respondents submit that the following factors are relevant to this proceeding:

(a) the result in the proceeding;

(b) the amount claimed and the amount recovered in the proceeding;

(c) the complexity of the proceeding;

(d) the importance of the issues; and

(e) any other matter relevant to the question of costs.

We shall refer to these factors later in these reasons.

7As far as Tariff A is concerned, it provides a “costs grid” for costs on two scales, a “Partial Indemnity Scale” and a “Substantial Indemnity Scale”. It is clear from several amendments to the rules that the partial indemnity scale is to replace the former party and party scale and that the substantial indemnity scale is to replace the former solicitor and client scale.

8The respondents, for reasons that will be discussed, seek full compensation, and to accomplish this, claim the “applicable billing rate” for Mr. Morrison and Mr. Sookman, on a solicitor and client basis, of $525 an hour. The maximum rates provided for in the costs grid in Tariff A are $450 an hour for Mr. Morrison (over 20 years experience as a lawyer) and $400 an hour for Mr. Sookman (19 years as a lawyer). The total for Mr. Morrison at $525 an hour for 236.5 hours (232.5 hours for appeal preparation plus 4 hours preparation of costs submissions) is $124,162.50. The total for Mr. Sookman at $525 an hour for 262 hours (for appeal preparation) is $137,550. With respect to Mr. Treloar (20 years experience as a lawyer), the respondents seek $450 an hour for $609.2 hours, a total of $274,140.

9The respondents calculate the counsel fee for the attendance at the hearing of the appeal as follows:

F. Paul Morrison $ 5,000 3 days $15,000.00

Barry Sookman $ 5,000 3 days $15,000.00

James T. Treloar $ 4,000 3 days $12,000.00

Aleks Mladenovic $ 2,000 3 days $6,000.00

Sub-Total

$48,000.00

10The maximum rate provided for in the costs grid in Tariff A, on a substantial indemnity basis, is “up to $4,000.00” for a day.

11Having set out this background, the approach that we will follow in these reasons is to address, first, the appellant’s basic and initial submission that we should not fix the costs, but rather direct that they be assessed. For the reasons that we will give, we do not accept this submission. We will then address the respondents’ basic submission in support of the bill. Finally, we will address each of the appellant’s objections to the bill.

Should the Costs be Assessed Rather than Fixed?

12The appellant submits that the costs of the appeal should be assessed by an assessment officer rather than fixed by this court. Rule 57.01(3.1), which is part of the new rules package, provides:

Despite subrule (3), in an exceptional case the court may refer costs for assessment under Rule 58.

13The appellant submits that this is “an exceptional case”, chiefly because of the substantial size of the costs order being sought by the respondents. It submits that a detailed investigation of the bill of costs and supporting materials of the respondents should be made before any costs order is made.

14The rules do not contain any definition of “an exceptional case”. The basic rule, which clearly is intended to operate in the substantial majority of cases, is that the court should fix the costs. Taking a functional view of the issue, it would seem that a primary exception to this would be where it is likely that the assessment process would be more suited to effect procedural and substantive justice than the fixing process by the court.

15We accept the appellant’s submission that the size and detail of the bill of costs sought to be fixed is a valid factor to be taken into account in favour of assessment rather than fixing by the court, but it is not the only one. In this case, while the appeal itself involved complex legal arguments and evidence of a highly technical nature, we do not think that the issue of costs is complex. In addition to the parties’ submissions, we have all of the information needed to properly fix the costs of the appeal: the bill of costs, detailed time and expense reports, docket entries detailing the work that was done, and the disbursements. In our view, the most important consideration is that this court, by virtue of having decided the substantive issues in the appeal, has extensive knowledge of the legal and factual issues that were addressed on the appeal. This gives us an important advantage over an assessment officer, who necessarily lacks this direct knowledge that is so important in understanding the nature and extent of the services performed by the respondents’ counsel. Accordingly, we feel obliged to accept the obligation, not one that we welcome, to fix the costs rather than refer them for assessment.

Should the Principles Applicable to the Former Solicitor and Client Scale of Costs be Applied to the Costs in Issue?

16The respondents submit that the court should apply these principles, chiefly because the vast majority of the services were performed before January 1, 2002 when the new costs provisions came into force. They further submit that the former solicitor and client scale was intended to provide for complete indemnification for all costs reasonably incurred in the course of prosecuting or defending an action or proceeding, citing Apotex Inc. v. Egis Pharmaceuticals (1991), 1991 ON SC 2729, 4 O.R. (3d) 321 (Gen. Div.) and Murano v. Bank of Montreal (1998), 1998 ON CA 5633, 41 O.R. (3d) 222 (C.A.).

17The respondents referred to the trial judge’s reasons for ordering solicitor and client costs:

In any event, if the undertaking to pay damages is to have the effect of compensating the defendants for their losses, it is necessary that the defendants be reimbursed for the cost of the litigation. Accordingly, the defendants are awarded their costs throughout, on a solicitor-client basis.

18They also referred to this court’s reasons as showing the intent that the respondents be fully indemnified:

costs – as in the trial judgment, on a substantial indemnity basis.

19Alternatively, if the court were to decline to apply the principles applicable to the former solicitor and client scale, the respondents seek to have the hourly rate classifications of Mr. Morrison and Mr. Sookman in the Tariff A grid varied to $525 an hour. Tariff A provides that “[w]here counsel has special expertise, his or her hourly rate classification may be varied accordingly”.

20Before dealing with these submissions directly, we shall refer to the respondents’ general submissions why the costs of the appeal should be fixed at the highest possible level.

21The respondents submit that the reference to the factors in the rule 57.01(1), referred to earlier in these reasons, supports their request that the court fix costs in an amount that will fully compensate them for the expense of this appeal.

22With respect to the result of the appeal, they point out that the court declined to give effect to any of the appellant’s four grounds of appeal from the decision on liability and that the court held the trial judge’s reasons with respect to damages to be “unassailable” on the three objections raised by the appellant. They submit that the appeal was a complete success.

23With respect to the amount recovered in the proceedings, the respondents rely on the fact that at the conclusion of the eighteen day hearing on the damages the respondents incurred as a result of the interlocutory injunction, the trial judge awarded the defendant Duncombe the amount of $130,500 and the defendant Triolet the amount of $6,762,000, together with pre-judgment interest on both amounts. According to the respondent, the total value of the judgment as of March 1, 2002, was $10,132,954.98. This was not challenged by the appellant.

24With respect to the complexity of the proceeding, the respondents submit that the appeal involved extremely complex and technical points of law and evidence. In order to prepare for the appeal, Mr. Morrison and Mr. Sookman, who did not appear as counsel in the two trials that preceded the appeal, were required to carefully review 28 volumes of trial transcripts totalling nearly 7,000 pages, as well as 22 volumes of exhibit books. Much of this evidence was of a highly technical nature involving computer source codes and user interface technology.

25Because much of the trial judge’s reasoning was based on the evidence before him, the respondents’ counsel was required to have a detailed working knowledge of the evidence and the manner that this evidence was dealt with by the trial judge.

26In addition to the challenges presented by the nature and quantity of the evidence, the respondents’ counsel was required to prepare highly complex legal arguments in the area of copyright law and damages. These arguments dealt not only with Canadian jurisprudence, but also with the pertinent English and American law on the subject of copyright.

27With respect to the importance of the issues, the respondents submit that, aside from its great significance to them, this case involved important issues of law. In particular, the principles applicable to the entitlement to, and the scope of, copyright protection for computer programs and software were raised in the liability trial and on appeal. The court was required to consider whether copyright protection could extend to the literal and non-literal portions of a computer program. The issue involved an analysis of Canadian, American and English jurisprudence.

28The respondents further submit that the court was also required to address and analyze whether the respondents’ program was a “substantial reproduction” of the appellant’s program. This involved an analysis of the proper principles to be applied in order to determine whether there had been an infringement. The appellant contended that the trial judge had erred in law in applying principles of law drawn from the United States. It was therefore necessary to canvas decisions from Canada, the United States, the United Kingdom and other commonwealth jurisdictions, to assist the court in assessing the similarities in the applicable laws. The analysis included consideration of the doctrine of original expression in copyright law, the “merger” doctrine, a predominantly American method of analysis called the “abstraction-filtration-comparison” method, and the effect of international treaties on Canadian copyright law. Submissions were also required on the question of the trial judge’s application of the term “copying” to the creation of a computer program, and particularly, to the development of the programs in issue in this case.

29We accept the general validity of the foregoing submissions.

30We return to the respondents’ submissions that the principles applicable to the former solicitor and client scale should be applied to the costs in issue. The short and direct answer to this question is that the order made on this appeal, as signed and entered, awards costs on a substantial indemnity basis. It is true that the reasons for judgment, which were released on March 1, 2002 (after the new rules came into force), provided for costs on a substantial indemnity basis but this, of course, did not preclude counsel from making a submission to the court before the formal order was prepared, that the order should read “on a solicitor and client basis”. We express no opinion on what our response would have been if such a submission had been made, or what the practical effect might have been had costs been fixed on the basis sought by the respondents. We are obliged to fix the costs by applying the new rules and the costs grid.

31We turn to the specific issues raised by the appellant.

The Costs of Interlocutory Proceedings which took place before the Hearing of the Appeal

32As part of their bill of costs, the respondents claim $66,811.00 for costs of a “motion for security for costs”, which they brought, and which resulted in a consent order of Abella J.A. dated July 21, 2000. The appellant submits that this is inconsistent with an earlier order of Charron J.A. dated August 31, 1999 which reserved costs to the judge presiding over the motion and a cross-motion by the respondents to have the appeal ordered out of time.

33The appellant submits that it was successful on all interlocutory proceedings relating to the appeal. It therefore submits that it is entitled to costs as specified by Charron J.A. and by an order of this court dismissing the respondents’ cross-motion. Accordingly, the appellant submits that not only should the respondents not receive costs for the interlocutory proceedings, but the appellant should receive costs for them. It seeks $40,354 for fees, $2,363.60 for disbursements, and $2,984.98 for G.S.T. for a total of $45,702.58 for the costs of its motion for an order extending the time for perfection of the appeal and of the cross-motion by the respondents to have the appeal ordered out of time and for security for costs.

34The respondents do not dispute the appellant’s entitlement to its costs on a party and party basis for the cross-motion and submit that, once they are fixed, this court can set them off against the costs fixed in favour of the respondents.

35We must observe, with respect, that there is some confusion in the submissions respecting the costs of the interlocutory proceedings. The only costs which may be recovered are those relating to the respondents’ motion to strike out the appeal as being out of time. By order of this court dated April 25, 2000 this motion was dismissed “with costs”, that is, with costs to the appellant.

36The respondents are not entitled to any costs for interlocutory proceedings. The order of Abella J.A. dated July 21, 2000, on which they rely and which was made on consent, orders that the appellant post a bond with the court in the amount of $12,000,000 as security for the trial judgment (not as security for costs) and that the appellant had until October 31, 2000 to perfect its appeal. It does not contain a costs order. Accordingly, it is as though it had ordered no costs with respect to the motion: M. Orkin, The Law of Costs, looseleaf (Aurora, Ont.: Canada Law Book Inc., 2001) at 1-15.

37Although Charron J.A. in her order of August 31, 1999 reserved the costs of “today’s date” to the judge presiding over the motion and the cross-motion, no subsequent action was taken with respect to that part of the order.

38In the result, only the appellant is entitled to costs, but these relate only to the matter covered by the order of April 25, 2000 and not to the appellant’s motion for an order extending the time for perfection of the appeal or for responding to the respondents’ cross-motion for security for costs (correctly, security for the trial judgment). As indicated above, the appellant claims a total of $45,702.58 for these motions. The respondents do not challenge the total quantum of the claim. We think that only $15,000, about one third of the amount claimed, should be recoverable. This amount should be set off against the respondents’ costs. The net result, under this heading, is that $81,811 ($66,811 plus $15,000) should be deducted from the bill.

The Fees Claimed for the Services of Mr. Treloar

39The respondents’ claim for Mr. Treloar’s fee for preparation for the appeal is claimed at the rate of $450 an hour, for a total of $274,140. As indicated earlier in these reasons, this is the maximum rate for lawyers with 20 years experience or more. Mr. Treloar has 21 years experience. The appellant submits that the $450 rate was intended to take into account the fees charged by the most experienced and senior counsel and represents the absolute maximum. The appellant submits that Mr. Treloar has provided no evidence of his actual hourly rates and has not shown what his experience is in the area of copyright litigation.

40Dealing with the latter point first, it is true that Mr. Treloar performed effective services at trial. This is indicated not only by the result, but also by the comments of the trial judge. This, however, does not necessarily mean that he had the level of experience and expertise that would justify his services being charged at the maximum rate of $450 an hour. The information submitted with respect to him is that he is a sole practitioner who practices commercial civil litigation, corporate/commercial law, real estate law, and wills and estates law in the East Mall. As indicated, no information has been furnished respecting the rate that he actually charges.

41The appellant submits that the rate should be $250 an hour. We think this is too low. We think that $300 an hour would be an appropriate rate. This is proportionate, in our view, to the rates which, later in these reasons, we allow for Mr. Morrison and Mr. Sookman.

42The next submission relating to Mr. Treloar’s fees is that there is insufficient evidence supporting the claim for the 609.2 hours of work which was done in preparation for the appeal. Of this, some 210 hours were devoted to reviewing and preparing a summary of the 1992 trial. The respondents retained McCarthy Tétrault LLP as lead counsel for the appeal, and no doubt, Mr. Treloar’s experience in the case was of substantial assistance to the new counsel in the preparation for the appeal. We think, however, that the total amount of hours claimed is excessive to instruct Mr. Morrison and Mr. Sookman, and that the combined time claimed for the three of them (609.2 hours for Mr. Treloar, 262 hours for Mr. Sookman and 232.5 hours for Mr. Morrison) must involve unnecessary duplication in the preparation of the factum and for the appeal. In this regard, we refer to the respondents’ submission that Mr. Morrison and Mr. Sookman were required to review 28 volumes of transcripts and 22 volumes of exhibit books. We think that 400 hours for Mr. Treloar’s time is reasonable.

43Accordingly, $120,000 (400 hours at $300 an hour) should be allowed under this heading. The result is a deduction of $154,140.

Whether the Counsel Fees Claimed for Mr. Morrison and Mr. Sookman at or above the Maximum Hourly Rates Set Out in the Costs Grid Should be Awarded

44As stated above, the counsel fees for both Mr. Morrison and Mr. Sookman for preparation are claimed at the rate of $525 an hour – more than the $450 grid rate for Mr. Morrison and the $400 grid rate for Mr. Sookman. We have already given our reasons for refusing to allow these claims on the former solicitor and client basis. It remains to be determined whether they should be allowed on the basis provided for in Tariff A: “Where counsel has special expertise, his or her hourly rate classification may be varied accordingly.”

45No doubt Mr. Morrison is a very experienced and able counsel but we do not think that this qualifies him in the present case of having “special expertise” within the meaning of this term in the tariff. In the interest of predictability and uniformity we think that his rate should be the maximum provided for in the tariff, $450 an hour.

46It is demonstrated to our satisfaction that Mr. Sookman possesses the special expertise referred to in the tariff, an expertise which is relevant to this case. His practice area lies in intellectual property, technology law, and related subjects, and he is the author of three substantial texts in this field. We have no doubt that this experience was particularly relevant to the preparation and presentation of this appeal. It is appropriate that his rate be increased from $400 an hour to $450 an hour.

47Accordingly, $106,425 should be allowed for Mr. Morrison and $117,900 for Mr. Sookman. This results in a total reduction of $37,387.50.

Whether the Costs for the Hearing of the Appeal Should be Awarded for Extra Counsel and the Costs for Mr. Morrison and Mr. Sookman Should be Limited to $4,000 a day

48We set forth again the claim for the counsel fee at the hearing:

F. Paul Morrison $ 5,000 3 days $15,000.00

Barry Sookman $ 5,000 3 days $15,000.00

James T. Treloar $ 4,000 3 days $12,000.00

Aleks Mladenovic $ 2,000 3 days $6,000.00

Sub-Total

$48,000.00

49The appellant submits that, because only Mr. Morrison and Mr. Sookman argued the appeal, fees should not be allowed for extra counsel because they were not necessary for the purpose of the argument of the appeal. Further, because the costs grid sets a maximum of $4,000 a day, the appellant submits that the respondents should be limited to $12,000 for Mr. Morrison and $12,000 for Mr. Sookman.

50We do not think that a case has been made for charging a counsel fee at the hearing for Mr. Mladenovic, who was not gowned and made no submissions. We cannot, however, say that it was unreasonable to claim a counsel fee for Mr. Treloar although he made no submissions on the appeal. His rate should be fixed at $2,500 a day. Once again, having regard to the respective contributions of the three counsel, this fee is proportionate to those allowed for Mr. Morrison and Mr. Sookman.

51There is no basis in the grid for increasing the counsel fee at trial to $5,000 for Mr. Morrison and Mr. Sookman. It should be set for each of them at the maximum grid rate of $4,000 a day.

52Accordingly, we would reduce the claim for counsel fee at the hearing to $31,500, a reduction of $16,500.

53The total costs claimed by the respondents is $846,591.62, which comprises $767,163.50 for fees, $24,043.62 for disbursements, and G.S.T. at 7% on each of these amounts. We reduce the fee claimed to $477,325, a reduction of $289,838.50 (the total of the above four deductions of $81,811, $154,140, $37,387.50 and $16,500). G.S.T. in the amount of $33,412.75 is added to this amount. The disbursements of $24,043.62 plus G.S.T. of $1,683.05 are allowed. Therefore, we fix the respondents’ costs at $536,464.42.