Court of Appeal for Ontario

Date: 2018-11-28

Docket: C64207

Judges: Epstein, van Rensburg and Brown JJ.A.

Between

Barry Lavender Plaintiff (Respondent)

and

Miller Bernstein LLP Defendant (Appellant)

Counsel

Robert Staley and Nathan Shaheen, for the appellant

Daniel Bach, Serge Kalloghlian and Paul Bates, for the respondent

Shantona Chaudhury and Cristina Senese, for the Law Foundation of Ontario

Appeal Information

Appeal heard: March 5, 2018

On appeal from: The judgment of Justice Edward P. Belobaba of the Superior Court of Justice, dated July 12, 2017, with reasons reported at 2017 ONSC 3958, and reasons on costs reported at 2017 ONSC 4739.

Costs Endorsement

Overview

[1] The appellant was successful in its appeal of a summary judgment in a class proceeding. This court reversed the decision of the motion judge. Although the appellant had been negligent in its audit of the Form 9 reports that Buckingham Securities was required to file with the Ontario Securities Commission (the "OSC"), confirming its segregation of assets and minimum capital, there was no duty of care owed by the auditor to Buckingham's investor clients. This court concluded that the motion judge erred, in particular, in his "proximity" analysis.

Costs Sought

[2] The appellant seeks partial indemnity costs of the summary judgment motion in the sum of $1,009,063.32 and of the appeal in the sum of $159,463.29.

[3] The respondent and the Law Foundation of Ontario ("LFO") submit that the appellant should be awarded costs of the summary judgment motion in the sum of $400,000 and costs of the appeal in the sum of $50,000. They do not take issue with the appellant's entitlement to costs of both the summary judgment motion and appeal. Nor do they dispute that the amount of costs sought reflects the actual time and expense incurred by the appellant in defending the proceedings and pursuing the appeal.

Comparison to Prior Costs Awards

[4] Indeed, the respondent and LFO acknowledge that the amounts they ask this court to award the appellant for the summary judgment motion and appeal are considerably less than what the respondent was awarded following its success in the summary judgment motion at first instance, and what the respondent proposed as its own costs, if successful on the appeal, at the close of argument in this court:

• At first instance the respondent class was awarded $775,000, which reflected a 25% reduction from partial indemnity costs assessed at $1,067,900 because the respondent had been successful on liability, but had failed to prove damages, and was given the opportunity to file further evidence on this issue; and

• The respondent's costs outline submitted to this court indicated that, if successful, it would be seeking partial indemnity costs of the appeal in the sum of $176,691.49.

Class Proceedings Fund Involvement

[5] We invited written submissions on costs, after the respondent advised that the class had received funding from the Class Proceedings Fund. LFO had a right to be heard on costs, according to r. 12.04 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

Arguments on Costs

[6] The respondent and LFO make three arguments in support of their position on costs. First, they contend that this is an appropriate case for the court to exercise its discretion to impose a reduced level of costs under s. 31(1) of the Class Proceedings Act, 1992, S.O. 1992, c. 6. They submit that the case raised a novel point of law and involved matters of public interest. Second, the respondent and LFO argue that the appellant's costs of the summary judgment motion should be reduced under r. 57.01(1)(g) of the Rules of Civil Procedure because of its conduct in refusing to admit facts that were either uncontroversial or had been admitted in the prior OSC proceedings. Third, they submit that the costs claimed by the appellant are disproportionate.

Court's Rejection of Arguments

[7] We do not give effect to these arguments.

Novel Point of Law and Public Interest

[8] This was not a case that engages the court's discretion under s. 31(1) of the Class Proceedings Act. The claims made by the respondent in this action do not raise any novel question of law or matter of public interest.

[9] The respondent's claim falls within a relatively common category of claims asserting auditors' negligence and involved the application of settled law. While the Supreme Court's decision in Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63, [2017] 2 S.C.R. 855, added clarity to the application of the Anns/Cooper test for assessing whether a duty of care is owed, the issue in this case was the application of that test to a particular set of facts. Nor did the case have "some specific, special significance for, or interest to, the community at large beyond the members of the proposed class": Pearson v. Inco Ltd. (2006), 79 O.R. (3d) 427 (C.A.), at para. 9; Williams v. Mutual Life Assurance Co. of Canada (2001), 27 C.C.L.I. (3d) 256, at para. 24. The respondent's claim depended on an evaluation of whether a duty of care was owed by the auditor to a group of client investors in the context of a particular statutory scheme, which no longer exists. Even if, as the respondent argues, auditors perform an important role in ensuring proper disclosure by companies within the capital markets, this does not transform every case involving auditors' negligence into one that engages the public interest.

Delayed Admissions

[10] We turn to the contention that the appellant's costs should be reduced by reason of its delay in admitting certain facts. The respondent and LFO say that the appellant refused, in response to a 2013 request to admit, to admit facts that had previously been admitted in its settlements with regulatory agencies, that many such facts were later admitted in Mr. Kornblum's cross-examination in 2017, and that in the interim, the respondent was put to the unnecessary expense of retaining experts to review Buckingham's records and to opine on the appellant's compliance with auditing standards.

[11] At first instance, the respondent relied on this argument to seek costs on a level exceeding partial indemnity, which were refused by the motion judge who concluded that "elevated" partial indemnity costs were not available and that there was no reprehensible conduct on the part of the appellant that would justify an award of substantial indemnity costs. We note that the same evidence is relied on here to argue for the application of r. 57.01(1)(g).

[12] There is simply no basis on this record to reduce the appellant's costs for this reason. While the respondent and LFO assert that additional costs were incurred when the respondent had to "prove" facts that ought to have been admitted, the chart provided to the court below, and included in the submissions to this court, simply shows that numerous facts that were already admitted by the appellant in regulatory proceedings were ultimately admitted by the appellant on cross-examination. Nothing is provided to support the contention that additional expense was incurred in order to prove facts that ought to have been admitted. Indeed, the respondent and LFO argue only for a general reduction in costs, without pointing to any specific amount of costs that they say could have been avoided if the admissions had been made at an earlier stage. In any event, the record before us shows that the respondent also refused to admit many facts that were set out in the appellant's request to admit.

Proportionality of Costs

[13] Finally, the quantum of costs is reasonable and proportionate. There were two fact witnesses and seven expert witnesses. All were cross-examined. As the motion judge noted, the issues were complex and important, the record voluminous, and the parties provided lengthy written submissions. In this court, the parties, after delivering their factums, provided additional submissions to address the Supreme Court's decision in Livent. And, as already noted, the costs sought by the appellant are significantly less than the respondent's own costs at first instance and what the class was seeking if successful in the appeal.

Decision

[14] For these reasons, the appellant is entitled to its costs on a partial indemnity basis of the summary judgment motion fixed at $1,009,063.32, and of the appeal fixed at $159,463.29, both amounts inclusive of disbursements and HST.

"Gloria Epstein J.A."

"K. van Rensburg J.A."

"David Brown J.A."