United States of America et al. v. Yemec et al. [Indexed as: United States of America v. Yemec]
85 O.R. (3d) 751
Ontario Superior Court of Justice, Divisional Court,
Chapnik, Swinton and Linhres de Sousa JJ.
May 25, 2007
Civil procedure -- Costs -- Fixing costs -- Motion judge setting aside ex parte Mareva injunction and Anton Piller order following five-day motion -- Motion judge fixing costs of motion at over $690,000 -- Motion judge failing to consider all relevant factors and carrying out mechanical exercise of multiplying hours by specified rates -- Motion judge not responding to allegations that some work billed related to action in general and not to motion and that some dockets reflected more than 24 hours work in one day -- Motion judge applying wrong test in asking whether costs claimed were so wildly excessive as to warrant paring down -- Costs reduced on appeal.
Civil procedure -- Costs -- Interest -- Interest on costs award running from date of award of costs -- Motion judge erring in ordering interest on costs to run from date of his decision on merits when that decision did not include order with respect to costs -- Courts of Justice Act, R.S.O. 1990, c. C.43, s. 129(1).
Civil procedure -- Costs -- Substantial indemnity -- Motion judge erring in stating that costs on substantial indemnity basis can and should be awarded based on want of adequate or accurate disclosure, regardless of whether lack of disclosure was wilfull or inadvertent -- Trial judge's award of costs on substantial indemnity basis nevertheless being upheld as he in fact found that parties' failure to make full and frank disclosure on ex parte motion was not inadvertent.
The respondents moved successfully to set aside an ex parte Mareva injunction and an Anton Piller order obtained by the appellants. The motion judge awarded substantial indemnity costs against the appellants for the motion argued before him and for another procedural motion. He found that a punitive costs order was warranted as the appellants had obtained the Mareva injunction and the Anton Piller order without making full and frank disclosure and had advanced a position before the judge hearing the ex parte motion that was contradictory to evidence in their possession. The total substantial indemnity award was $691,304.74, payable forthwith. The appellants appealed the costs order.
Held, the appeal should be allowed in part. [page752]
The motion judge erred in stating that there is a plethora of cases standing for the proposition that costs on a substantial indemnity basis can and should be awarded when there is a finding of want of adequate or accurate disclosure, regardless of whether such was occasioned willfully or through inadvertence. Reprehensible, scandalous or outrageous conduct is required to justify the highest level of costs, and such costs are reserved for rare and exceptional cases to mark the court's disapproval of the conduct of the party in the litigation. Despite the motion judge's incorrect statement of law, he did not err in the application of the law in light of the facts as he found them. He found that the appellants had failed to establish a strong prima facie case of fraud and dishonesty, that their failure to provide full and frank disclosure to the court in their request for the ex parte orders was not inadvertent, and that they had also not been inadvertent in advancing on the motion a position contradictory to the evidence in their possession. The motion judge made no palpable and overriding error in awarding costs on a substantial indemnity basis.
In fixing costs, the motion judge did not appropriately and sufficiently apply all of the required principles. While he was not required to engage in a detailed analysis of the respondents' accounts, as an assessment officer might do, some analysis of the accounts was required from the point of view of time expended and number of lawyers called on to do the work. The motion judge appeared to have given substantial importance to the large volume of documents involved in the motion before him and the fact that the motion took five days to complete. The motion judge failed to specifically address the appellants' submissions, which were in fact substantiated, that there were some dockets submitted which reflected more than 24 hours work in a day and that some time docketed was in relation to other proceedings, rather than the motion proper. In failing to carry out the appropriate examination of the bill of costs and in accepting all of the time docketed without question, the motion judge denied himself the opportunity of stepping back after the calculation of costs to finally consider whether the result was a fair and reasonable amount for the appellants to pay in the circumstances. He carried out a mechanical exercise of multiplying hours by specified rates. The ultimate test used by him, namely whether the costs claimed were so wildly excessive as to warrant a paring down in any respect, was not the correct test. The costs awarded to one group of respondents should be reduced by 40 per cent, and the costs awarded to a second group of respondents should be reduced by 20 per cent.
The motion judge did not err in ordering that costs be payable forthwith rather than in the cause.
The motion judge erred in ordering that interest on the costs award should run from the date of his original order, namely October 3, 2003, rather than the date on which he fixed costs, October 18, 2005. The wording of s. 129(1) of the Courts of Justice Act is clear. Post-judgment interest is to run on "money owing under an order, including costs to be assessed or costs fixed by the court", from the date of the order. While interest can run from a date prior to the date of quantification of the costs, it can only run from the date of an order for payment of costs. The motion judge made no order with respect to the payment of costs in his decision on the merits. Interest on the costs award should run from October 18, 2005.
APPEAL from an award of costs.
Cases referred to Andersen v. St. Jude Medical, Inc., 2006 85158 (ON SCDC), [2006] O.J. No. 508, 264 D.L.R. (4th) 557, 208 O.A.C. 10 (Div. Ct.); Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 14579 (ON CA), 71 O.R. (3d) 291, [2004] O.J. No. 2634, 188 O.A.C. 201, 48 C.P.C. (5th) 56 (C.A.); [page753] Young v. Young, 1993 34 (SCC), [1993] 4 S.C.R. 3, [1993] S.C.J. No. 112, 84 B.C.L.R. (2d) 1, 108 D.L.R. (4th) 193, 160 N.R. 1, [1993] 8 W.W.R. 513, 18 C.R.R. (2d) 41, 49 R.F.L. (3d) 117, apld Delphi Solutions Corp. v. Sendrea, 2004 66287 (ON SC), [2004] O.J. No. 1941, 238 D.L.R. (4th) 766 (S.C.J.); Hodgson v. Canadian Newspapers Co., [2004] O.J. No. 537, 128 A.C.W.S. (3d) 1184 (S.C.J.); Roberts v. Aasen, 2003 2000 (ON SC), [2003] O.J. No. 2169, [2003] O.T.C. 491, 36 C.P.C. (5th) 185 (S.C.J.), consd Other cases referred to CCH Canadian Ltd. v. Law Society of Upper Canada, 2004 FCA 278, [2004] F.C.J. No. 1399, 243 D.L.R. (4th) 759, 34 C.P.R. (4th) 1 (C.A.); Erco Industries Ltd. v. Allendale Mutual Insurance Co. (No. 2) (1984), 1984 2069 (ON SC), 48 O.R. (2d) 17, [1984] O.J. No. 3339, 46 C.P.C. 100 (H.C.J.); Hamilton v. Open Window Bakery Ltd., [2004] 1 S.C.R. 303, [2004] S.C.J. No. 72, 235 D.L.R. (4th) 193, 316 N.R. 265, 2004 SCC 9, 40 B.L.R. (3d) 1; Hassen v. Anvari, 2002 18680 (ON SC), [2002] O.J. No. 4096, [2002] O.T.C. 792, 117 A.C.W.S. (3d) 532 (S.C.J.); Hunt v. R.M. Douglas (Roofing) Ltd., [1988] 3 All E.R. 823, [1990] 1 A.C. 398 (H.L.); Hunt v. TD Securities Inc. (2003), 2003 3649 (ON CA), 66 O.R. (3d) 481, [2003] O.J. No. 3245, 229 D.L.R. (4th) 609, 36 B.L.R. (3d) 165, 39 C.P.C. (5th) 206 (C.A.), supp. reasons 2003 48369 (ON CA), [2003] O.J. No. 4868, 40 B.L.R. (3d) 156, 43 C.P.C. (5th) 211 (C.A.); Keays v. Honda Canada Inc. (c.o.b. Honda of Canada Mfg.) (2006), 2006 33191 (ON CA), 82 O.R. (3d) 161, [2006] O.J. No. 3891, 274 D.L.R. (4th) 107 (C.A.), varg 2006 3968 (ON SC), [2006] O.J. No. 560, 48 C.C.E.L. (3d) 86, 145 A.C.W.S. (3d) 772 (S.C.J.); Nykredit Mortgage Bank plc. v. Edward Erdman Group Ltd. (No. 2), [1998] 1 All E.R. 305, [1997] 1 W.L.R. 1627 (H.L.); R. v. Palmer, 1979 8 (SCC), [1980] 1 S.C.R. 759, [1979] S.C.J. No. 126, 106 D.L.R. (3d) 212, 30 N.R. 181, 50 C.C.C. (2d) 193, 14 C.R. (3d) 22 (sub nom. Palmer and Palmer v. R.); Risorto v. State Farm Mutual Automobile Insurance Co. (2003), 2003 43566 (ON SC), 64 O.R. (3d) 135, [2003] O.J. No. 990, 32 C.P.C. (5th) 304 (S.C.J.); Yang v. Mao (1995), 1995 7052 (ON SC), 23 O.R. (3d) 466, [1995] O.J. No. 1323, 39 C.P.C. (3d) 10 (Gen. Div.); Zesta Engineering Ltd. v. Cloutier, 2002 25577 (ON CA), [2002] O.J. No. 4495, 21 C.C.E.L. (3d) 161, 118 A.C.W.S. (3d) 341 (C.A.) Statutes referred to Courts of Justice Act, R.S.O. 1990, c. C.43, ss. 19(1) [as am.], 127(1), 128(4), 129(1), 130, 131, 133, 134(4) Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 57.01 [as am.], 57.03
Malcolm Ruby and Duncan C. Boswell, for appellants. David E. Wires and Teresa Cheung, for Yemec respondents. H. James Marin, for Bungaro respondents.
The judgment of the court was delivered by
DE SOUSA J.: --
Introduction
1This is an appeal, brought pursuant to s. 19(1)(b) of the Courts of Justice Act, R.S.O. 1990, c. C.43, from a costs order of [page754] Gans J. (the "motion judge") dated October 18, 2005. Leave to appeal was granted by Epstein J. on February 9, 2006, pursuant to s. 133(b) of the Act.
2In the course of its proceedings against the respondents for operating a telemarketing business in violation of American law, the appellants obtained an ex parte Mareva injunction and an Anton Piller order against the respondents in Ontario in October 2002. The respondents brought a motion before the motion judge to set aside the ex parte Mareva injunction and the Anton Piller order and were successful. When the question of costs on the motion to set aside the ex parte orders came before him, the motion judge awarded substantial indemnity costs against the appellants for the motion argued before him and for a procedural motion argued before O'Connell J. in 2003.
3The total substantial indemnity award was $691,304.74. Of this amount, $553,762.18 was payable to the Yemec respondents and $137,542.56 was payable to the Bungaro respondents. These amounts were to be payable forthwith.
4In addition to the appeal from the order of costs, the appellants also brought a motion to adduce fresh evidence pursuant to s. 134(4)(b) of the Courts of Justice Act. They asked the court to receive the affidavit of Clarence Boudreau sworn May 31, 2006, regarding the Yemec respondents' alleged false statements in relation to their knowledge about the legality of their business dealings.
5In their respective facta, the respondents opposed the appellants' motion to adduce fresh evidence. However, in his oral submissions, counsel for the Yemec respondents indicated that he was content that the fresh evidence be received by this court, taking the position that it would have had no effect on the decision of the motion judge.
6We are not satisfied that the test for admitting fresh evidence, as established in the Supreme Court of Canada decision R. v. Palmer, 1979 8 (SCC), [1980] 1 S.C.R. 759, [1980] S.C.J. No. 126 has been met by the appellants. When considered in the context of the other material, the evidence in the affidavit is not determinative of the issues before the motion judge. Moreover, while the fresh evidence might well be relevant at the trial stage, given the issue before [the] motion judge it is unlikely that the fresh evidence would have influenced him to change his view with respect to costs. The affidavit of Mr. Clarence Boudreau sworn May 31, 2006 is therefore not admitted into evidence. [page755]
Standard of Review
Standard of Review
7An award of costs by a trial or motion judge is discretionary. Consequently, an appellate court will generally defer to the judge's exercise of discretion in the matter. It will not interfere with the decision solely because the appellate court would have decided the question differently.
8In Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303, [2004] S.C.J. No. 72, the Supreme Court of Canada stated that an appellate court can and should set aside a discretionary costs award if it is plainly wrong or based on an error in principle. At para. 27 of that decision Arbour J. stated:
A court should set aside a costs award on appeal only if the trial judge has made an error in principle or if the costs award is plainly wrong. . . . In light of the privileged position of the trial judge to assess first-hand the credibility of witnesses, and given the highly fact- driven nature of the analysis that was required here, the costs order made by Wilkins J. must be restored.
See also Andersen v. St. Jude Medical, Inc., 2006 85158 (ON SCDC), [2006] O.J. No. 508, 264 D.L.R. (4th) 557 (Div. Ct.), where the same test was reiterated and applied.
Decision of the Motion Judge
Decision of the Motion Judge
9In his decision setting aside the Mareva injunction and the Anton Piller order, the motion judge found that the appellants had obtained those orders from the court without full and frank disclosure. They had also advanced a position before the judge hearing the ex parte motion and before him that was contradictory to evidence in their possession. For this reason the motion judge concluded that a punitive costs order was warranted. At p. 7 [(QL), para. 15, [2005] O.J. No. 6275, [2005] O.T.C. 925 (S.C.J.)] of his costs decision he speaks about,
. . . this court's obligation and power to supervise its own process. Put otherwise, in my view an award of costs at this stage of the proceedings, in circumstances where I found an injunction was obtained without full and frank disclosure, warrants, if not mandates, not only redress for the costs incurred by the defendants so affected, but a sanction meted out by the court against those who have trifled with, if not torn asunder, the very essence of the integrity of the ex parte process.
10Furthermore, the motion judge went on to conclude that a proper exercise of his discretion in the awarding of costs in this case should mean that costs should be set"as a minimum", on a substantial indemnity basis. He indicated that a "plethora of cases" supported the conclusion that "costs on a substantial indemnity basis can and should be awarded when there is a [page756] finding of want of adequate or accurate disclosure, regardless of whether such was occasioned willfully or through inadvertence" [at para. 22]. In his view, it had not been inadvertent in this case.
11The motion judge went on to add that in his opinion the conduct of the appellants would also warrant an award of costs on a full indemnity basis (a term that speaks to the previous notion of what was known as "solicitor-and-client costs", which was meant to cover the account the lawyer actually rendered to his client). However, this became "academic", since he did not have the necessary evidence of the accounts transmitted to the Yemec respondents.
12Refusing the request of the appellants to order an assessment of the costs before an assessment officer, the motion judge determined to fix costs. He concluded at p. 14 (QL) [para. 27]:
In my opinion, the circumstances of the requests of costs are more to be governed by the principles expressed by the Court of Appeal in Boucher [Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 14579 (ON CA), 71 O.R. (3d) 291, [2004] O.J. No. 2634 (C.A.)] than by exceptional circumstances. There has not been the passage of untold years since my initial involvement and the request for costs is not being made after trial.
13The motion judge further stated that in coming to his decision on costs he did not feel that it was necessary to engage in a minute analysis of the bills of costs. He saw that his role in effect was to do "procedural and substantive justice between the parties in arriving at an amount that is fair and reasonable".
14He acknowledged that the amounts claimed by each set of defendants seemed large at first glance. However, he concluded with the following words at pp. 14 and 15 (QL) [paras. 28-30] of his decision:
As well, I do not feel it necessary or appropriate to engage in the minute analysis of the Bills of Costs that was urged upon me by counsel for the FTC, presumably in an effort to persuade me to send the matter for an assessment. What I am obligated to do is effect procedural and substantive justice between the parties in arriving at an amount that is fair and reasonable. While the amounts claimed by each set of defendants seem large at first glance, I am not now sitting in a courtroom, as I was in the fall of 2003, surrounded by countless documents which went to make up the brief. Nor can I now be called upon to second-guess the Defendants' counsel in respect of what was done, whether it was necessary, and how long each step in the process should reasonably have taken. In my view, in the wake of the Court of Appeal decision in Boucher, the presiding Judge cannot and should not engage in a detailed analysis of accounts, particularly extensive accounts, spanning months, if not years. To review accounts at "ground level" would turn trial judges into assessment officers, a task I did not sign onto perform.
Furthermore, a five day motion speaks volumes in and of itself and, as with most litigation, the attendance in court to argue the motion is but merely the [page757] tip of the work product iceberg. All that being said, I am not persuaded that the amounts claimed by category are so wildly excessive as to warrant a paring down in any respect.
Costs in favour of the Yemec Defendants will be fixed in the amount claimed at $481,276.71, inclusive of disbursements and G.S.T. Costs in favour of the Bungaro Defendants will be fixed in the amount of $119,524.21, inclusive of disbursements and G.S.T.
15The motion judge ordered that the costs be payable forthwith, refusing the appellants' request that costs be payable in the cause and also refusing the appellants' request that any costs award be set-off against a judgment obtained by the appellants in the United States. He subsequently ordered that post-judgment interest on the costs should run from the date of his original order of October 3, 2003.
Order of Epstein J. Dated February 9, 2006 for Leave to Appeal
Order of Epstein J. Dated February 9, 2006 for Leave to Appeal
16Epstein J. granted leave to appeal the costs award of the motion judge on the basis that there was good reason to doubt its correctness. Firstly, based on the submissions of counsel, she had reason to question whether there was indeed a "plethora of cases standing for the proposition that costs on a substantial indemnity basis can and should be awarded when there is a finding of want of adequate or accurate disclosure, regardless of whether such was occasioned willfully or through inadvertence", as was stated by the motion judge in his reasons.
17Secondly, she found that in order to have confidence in the magnitude of the award in this case, it should have been accompanied by a full analysis as contemplated by Boucher and the new rule on costs, rule 57.01 [of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194], the legislative response to the guidance regarding the fixing of costs provided by the Court of Appeal in Boucher. It was not possible to tell from the reasons of the motion judge whether he undertook such an analysis.
18Epstein J. concluded that the questions raised, in light of the new legislative costs regime and the benefits of an appellate consideration of the issue, were of sufficient public importance to warrant granting leave.
Position of the Parties
i. The appellants' position
Position of the Parties
19The appellants raise five issues on this appeal. First, they take the position that the motion judge erred in law by concluding that punitive costs were warranted on the facts of non-disclosure in ex parte proceedings, whether "occasioned willfully or through [page758] inadvertence". They say recent jurisprudence suggests punitive orders are appropriate where the conduct is "reprehensible, scandalous or outrageous", which was not the case here.
20Second, the appellants argue that the motion judge erred in receiving inadmissible material into evidence (the Hooley and MacBain documents) and relying upon it, or appearing to rely upon it, to award substantial indemnity costs. The appellants also submit that in receiving the Hooley and MacBain documents in the way that he did, there was a breach of natural justice or at least the appearance of unfairness to the appellants.
21Third, the appellants argue that the motion judge erred by failing to apply the principles mandated by the Court of Appeal in Boucher, supra. They say that a reasonable and responsible review of the bill of costs shows that the dockets are excessive and included items that had already been provided for in other proceedings. Furthermore, the motion judge failed to consider the impact of the award, particularly one of this magnitude, and whether in this case it generally exceeds any fair and reasonable expectation of the parties.
22Fourth, the appellants also take the position that in the circumstances of this case, the motion judge erred in not exercising his discretion to order costs payable in the cause. These proceedings are far from at an end. To date the Yemec respondents have been found liable in the U.S.A. for criminal activities and deceptive conduct. They should only be entitled to their costs if they ultimately win on the merits of this case.
23Fifth and finally, the appellants argue that the motion judge erred in concluding that interest on his costs award ran from his decision on the motion (October 3, 2003), rather than his decision on costs (October 18, 2005), which added an additional $61,358.24 to the total costs award. They say this contravenes s. 129(1) of the Courts of Justice Act, which permits post-judgment interest only on costs "owing under an order . . . from the date of the order".
ii. The respondents' position
The Respondents' Position
24The Yemec respondents take the position that the motion judge did not err in the way he exercised his discretion to award costs. First, the respondents point out that counsel for the appellants did not make full and frank disclosure before the court in the ex parte hearing. Both the motion judge and the Divisional Court found that the appellants had not demonstrated a strong prima facie case with respect to their allegations of fraud and [page759] dishonesty against the respondents. The Supreme Court of Canada in Hamilton v. Open Window Bakery Ltd., supra, held the standard of "reprehensible, scandalous or outrageous conduct" applies to unproven allegations of fraud and dishonesty.
25According to the Yemec respondents, substantial indemnity costs are warranted because ex parte allegations of fraud and dishonesty are very damaging. The consequences to the respondents have been serious. Irreparable harm has been caused by taking away the respondents' business and assets, which has put them at a disadvantage in defending themselves in protracted litigation. Their financial resources have been wiped out.
26Second, regarding the appellants' claim that they were denied natural justice, the respondents say this argument should be rejected because the motion judge, as he indicated in his reasons, did not consider the newly discovered MacBain and Hooley documents in coming to his costs decision.
27Third, the respondents submit that the motion judge conducted a full, fair and reasonable analysis of the bill of costs as contemplated in Boucher, supra. They say it is evident from his reasons that the motion judge considered all of the relevant factors, as stipulated in the amended rule 57.01 and enunciated in the relevant jurisprudence. They also say that deference is owed to the motion judge given his first-hand assessment of the evidence, the nature of the case and the conduct of the parties.
28Fourth, according to the Yemec respondents there is a substantial jurisprudence and policy reasons supporting a judge's discretion to award costs payable forthwith rather than in the cause. They say the appellants' conduct in obtaining the ex parte orders is justification enough for this part of the costs award. Furthermore, the issue decided by the motion judge on the motion to set aside the ex parte orders on the basis of lack of full and frank disclosure is not the same issue that will be decided if this action proceeds to trial. This point is also raised by the Bungaro respondents, who say they are not parties to any further criminal or administrative proceedings in Canada or the U.S.; thus it would not be appropriate to order their costs "in the cause".
29Fifth and finally, the respondents say the weight of recent authority suggests that under s. 129(1) of the Courts of Justice Act, interest on costs is payable from the date of judgment rather than from the date of assessment or the fixing of costs. [page760]
Analysis
i. Level of costs
Analysis
30At para. 22 of his decision the motion judge stated that there is a "plethora of cases standing for the proposition that costs on a substantial indemnity basis can and should be awarded when there is a finding of want of adequate or accurate disclosure, regardless of whether such was occasioned willfully or through inadvertence". This court is of the view that this statement, presented as a general rule, is incorrect in law. While this statement does properly recognize a judge's discretion to award costs, it disregards the high threshold of willful misconduct identified by the Supreme Court of Canada in Young v. Young, 1993 34 (SCC), [1993] 4 S.C.R. 3, [1993] S.C.J. No. 112 ("reprehensible, scandalous or outrageous conduct") which would justify the highest level of costs, reserving such costs for "rare and exceptional cases to mark the court's disapproval of the conduct of the party in the litigation" (see Hunt v. TD Securities Inc. (2003), 2003 3649 (ON CA), 66 O.R. (3d) 481, [2003] O.J. No. 3245 (C.A.) at pp. 508-09 O.R.).
31There does not appear to be a plethora of cases in support of the motion judge's proposition. The one case cited by him, Delphi Solutions Corp. v. Sendrea, 2004 66287 (ON SC), [2004] O.J. No. 1941, 238 D.L.R. (4th) 766 (S.C.J.), is an endorsement of Juriansz J. awarding costs against plaintiffs who were found to have been careless in failing to make full and fair disclosure when requesting an ex parte Anton Piller order. He stated that the "manner with which the plaintiffs applied for the Anton Piller award may be described as casual" [at para. 4]. Juriansz J. had set aside the ex parte order and ordered costs on a substantial indemnity basis in an endorsement that speaks to the specific facts of the case. It does not support the broad inclusive statement made in the motion judge's reasons.
32Having said this, this court is of the view that despite the incorrect statement of law made by the motion judge, he did not err in the application of the law when one takes account of the facts of this case as found by him. He held that the appellants had failed to establish a strong prima facie case of fraud and dishonesty. Moreover, contrary to the appellants' submissions, the motion judge found as fact at para. 22 of his reasons that the appellants did not inadvertently fail to provide full and frank disclosure to the court in their request for the ex parte orders and in advancing on the motion a position contradictory to the evidence in their possession. The appellants have failed to [page761] show any palpable and overriding error in this finding of fact. Therefore this court has no basis to interfere with it.
33Based on his findings of fact, it was within the motion judge's discretion to award costs on a substantial indemnity basis. Furthermore, the jurisprudence supports the proposition that based on such findings of fact it is a proper and correct exercise of the court's discretion (see Delphi Solutions Corp. v. Sendrea, supra, and Yang v. Mao (1995), 1995 7052 (ON SC), 23 O.R. (3d) 466, [1995] O.J. No. 1323 (Gen. Div.)). This court finds no error in the motion judge's decision on the level of costs awarded.
ii. The Hooley and MacBain documents and the issue of natural justice
The Hooley and MacBain Documents and the Issue of Natural Justice
34The appellants allege that there was a breach of natural justice, or at least an appearance of unfairness, because the motion judge received documents that the Yemec respondents relied upon to allege a fraud on the court, without providing the appellants with an opportunity to challenge them on cross- examination. He did, however, allow a responding affidavit from the appellants.
35This court is of the view that the motion judge ought to have granted the appellants the right to conduct an examination of Mr. Yemec prior to admitting the MacBain and Hooley documents. It would have been more in keeping with the parties' rights under the Rules of Civil Procedure.
36Nonetheless, this court comes to the conclusion that the admission of these documents is of no consequence to the final award of costs and specifically the level of costs awarded. There is no basis in the evidence for rejecting the motion judge's statement that he came to his conclusion that punitive costs were warranted "independently" of these documents.
iii. Analysis contemplated by Boucher and the new rule 57.01
Analysis Contemplated by Boucher and the New Rule 57.01
37As Epstein J. pointed out in her decision granting leave, after January 2002 amendments to the Rules of Civil Procedure resulted in both the costs grid and the obligation of judges to fix costs except in "exceptional cases" where an assessment officer would be required to perform an assessment. In Boucher, supra, the Court of Appeal attempted to provide judges with guidance in this exercise of fixing costs. Following that decision, cost grids were abolished and a new rule regarding the fixing of costs was implemented, incorporating the principles enunciated in Boucher. In particular, two factors were explicitly added to the existing list of factors which the court had to consider in fixing costs, namely the following (0.a) and (0.b): [page762]
57.01(1) In exercising its discretion under section 131 of the Courts of Justice Act to award costs, the court may consider, in addition to the result in the proceeding and any offer to settle or to contribute made in writing,
(0.a) the principle of indemnity, including, where applicable, the experience of the lawyer for the party entitled to the costs as well as the rates charged and the hours spent by that lawyer;
(0.b) the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed; . . .
38In Boucher, the Ontario Court of Appeal was called upon to determine whether the costs award granted by the motion judge was excessive. The court determined that fixing costs is not simply a mechanical exercise beginning and ending with a calculation of hourly time and rates. It went on to state at para. 24 of its reasons that in addition to that calculation "it is also necessary to step back and consider the result produced and question whether, in all the circumstances, the result is fair and reasonable". The court cited with approval the following citation from Zesta Engineering Ltd. v. Cloutier, 2002 25577 (ON CA), [2002] O.J. No. 4495, 118 A.C.W.S. (3d) 341 (C.A.), at para. 4:
In our view, the costs award should reflect more what the court views as a fair and reasonable amount that should be paid by the unsuccessful parties rather than any exact measure of the actual costs to the successful litigant.
39In the end, the Court of Appeal in Boucher significantly reduced the costs award. The court concluded that the costs award was not fair or reasonable where there was substantial duplication and reliance on previous materials and arguments filed in earlier proceedings and where the partial indemnity award intended was tantamount to a substantial indemnity award that was specifically rejected by the motion judge.
40At paras. 37 and 38, the Court of Appeal stated:
The failure to refer, in assessing costs, to the overriding principle of reasonableness, can produce a result that is contrary to the fundamental objective of access to justice. The costs system is incorporated into the Rules of Civil Procedure, which exist to facilitate access to justice. There are obviously cases where the prospect of an award of costs against the losing party will operate as a reality check for the litigant and assist in discouraging frivolous or unnecessary litigation. However, in my view, the chilling effect of a costs award of the magnitude of the award in this case [$187,682.51] generally exceeds any fair and reasonable expectation of the parties.
In deciding what is fair and reasonable, as suggested above, the expectation of the parties concerning the quantum of a costs award is a relevant factor. . . . [page763]
41It is evident from its reasons that the Court of Appeal not only examined the lawyers' bills of costs in some detail at both the substantial indemnity and partial indemnity levels, but also examined the proceedings in question in the context of the immediate results as well as in the context of the overall litigation. At para. 29 of its decision the court listed its reasons for finding that the costs award was not justifiable.
42In Andersen v. St. Jude Medical, Inc., supra, the Divisional Court considered the quantum of costs granted on a class certification motion totaling, with disbursements, $610,700.85, an amount designated by the court to be probably the largest award for a class certification motion in Ontario.
43Lax J. speaking for the court reiterated at para. 22 that"the magnitude of a costs award by itself did not constitute a principled basis upon which to interfere". She summarized the applicable principles as follows:
The discretion of the court must be exercised in light of the specific facts and circumstances of the case in relation to the factors set out in Rule 57.01(1): Boucher, Moon and Coldmatic.
A consideration of experience, rates charged and hours spent (formerly a costs grid calculation) is appropriate, but is subject to the overriding principle of reasonableness as applied to the factual matrix of the particular case: Boucher. The quantum should reflect an amount the court considers to be fair and reasonable rather than any exact measure of the actual costs to the successful litigant: Zesta Engineering.
The reasonable expectation of the unsuccessful party is one of the factors to be considered in determining an amount that is fair and reasonable: Rule 57.01(1)(0.b).
The court should seek to avoid inconsistency with comparable awards in other cases. "Like cases, [if they can be found], should conclude with like substantive results": Murano at p. 249.
The court should seek to balance the indemnity principle with the fundamental objective of access to justice: Boucher.
A discretionary decision of a case-management judge in a class proceeding is entitled to a very high level of deference: Khan and Bre-X.
44Finally, the court stated that a very large costs award must be carefully scrutinized to determine whether the judge exercised his or her discretion on proper principles and that the award is not "plainly wrong". In such cases"there is a high obligation on the judge to adequately explain the basis for the award" (see para. 58).
45In upholding the costs award the court concluded that the motion judge applied all of the proper principles and detailed analysis required to come to his decision. Some examples of the [page764] details of the analysis which the court found worthy of note were the following:
(1) The plaintiffs had supported their costs and disbursements claim by time dockets and details of disbursements. In contrast to this the defendants did not submit their own dockets, permitting the judge to make the inference that the defendants devoted as much or more time and money in an attempt to contest the motion.
(2) An examination of the dockets indicated that there was a duplication of effort by lawyers.
(3) A large amount of time was spent on the merits of the main litigation than the issues on the motion.
(4) There was an expensive overuse of experts and expert reports on each side. Given this over-lawyering and excessive expenditure of time, a reduction of the costs grid results was warranted to 40 per cent of the time charged (referred to as a "stepping back" requirement).
(5) One consideration is the need to avoid clear inconsistency with awards in other similar cases. However, such comparators may be rejected if comparisons are difficult and of limited value because of the fact-specific aspect of any one case such as the one in question.
(6) It was recognized that the value of comparators is limited. The inflexibility to fix costs in an amount that is within the range of earlier decisions should not interfere with a judge's ability to exercise his or her discretion under s. 131 of the Courts of Justice Act nor impair the judge's ability to do procedural and substantive justice between the parties in determining a fair and reasonable costs award in the particular circumstances of the case.
46In coming to his decision on costs in this case, the motion judge had before him the running dockets and bills of costs by "job category". Both the Yemec and the Bungaro respondents limited their respective claims for costs to the substantial indemnity scale. The plaintiffs did not submit their own time dockets or any information for the court to consider the relative costs incurred by the opposite parties in the motion.
47The motion judge conducted his analysis of that material pursuant to the Boucher principles in the manner set out earlier in the quotation found in para. 14 of these reasons. [page765]
48For the reasons stated earlier we take no issue with the motion judge's decision to award the respondents their costs on a substantial indemnity scale. However, based on a reading of the motion judge's stated reasons for his award, we are not satisfied that he appropriately and sufficiently applied all of the required principles as enunciated in Boucher, supra.
49While we agree that the motion judge, in applying the principles of Boucher, need not engage in a detailed analysis of a party's accounts, as an assessment officer might do, some analysis of the accounts is required from the point of view of time expended and number of lawyers called on to do the work, as was done by the court in both Boucher and in Andersen v. St. Jude Medical, Inc., supra. Such an analysis is required to arrive at a reasonable and fair costs award and to be able to meet the obligation to adequately explain the basis of the costs award.
50There is no indication in his reasons that the motion judge carried out any such analysis of the bills of costs. From his reasons he appears to have given substantial importance to the large volume of documents involved in the motion before him and the fact that the motion took five days to complete. To the motion judge these two factors seemed sufficient for him to accept the total hours claimed and the "amounts claimed by category" without any "paring down in any respect".
51An appropriate examination of the bill of costs would at a minimum have required the motion judge to specifically address and respond to the submissions of the appellants that there were some dockets submitted which reflected more than 24 hours work in a day and that some time docketed was in relation to other proceedings, rather than the motion proper, both of which might justify some reduction in the bills of costs. He failed to do this.
52In failing to carry out the appropriate examination of the bills of costs and in accepting all of the time docketed without question, the motion judge denied himself the opportunity of "stepping back" after the calculation of costs to finally consider whether the result was a fair and reasonable amount for the appellants to pay in the circumstances of the case. He carried out, in the result, a mechanical exercise of multiplying hours by specified rates. The ultimate test used by him, namely whether the costs claimed were "so wildly excessive to warrant a paring down in any respect" is not the correct test. Therefore this court concludes the motion judge committed an error in principle, which requires us to substitute an award for costs.
53Before proceeding, two other points need mentioning. First, the motion judge cannot be faulted for not considering any [page766] comparator decisions. There is no evidence that counsel presented any for the motion judge's consideration. We have not been made aware of any comparator decisions. Furthermore, given the length, importance and complexity of the case before him, as is evident from his decision on the main motion, it would indeed have been difficult for the motion judge, as it was for this court, to have found any appropriate comparators.
54Second, the appellants cannot argue strenuously that the motion judge should have discussed in more detail his consideration of the reasonable expectations of the unsuccessful party as one of the factors to be considered in determining an amount of costs that is fair and reasonable. The appellants did not submit their own bills of costs. Consequently, as pointed out in Risorto v. State Farm Mutual Automobile Insurance Co. (2003), 2003 43566 (ON SC), 64 O.R. (3d) 135, [2003] O.J. No. 990 (S.C.J.), an attack on the quantum of costs based on excess in circumstances where the court does not have before it the bills of all counsel "is no more than an attack in the air". In such case, the court can rightly make the inference that the appellants devoted as much or more time and money in an attempt to contest the motion (see Andersen v. St. Jude Medical, Inc., supra, at para. 27). But, as Lax J. also points out in the same paragraph, it can only be some measure of what was expected. It still cannot be determinative, especially where both sides conduct themselves excessively, as was the case in Andersen v. St. Jude Medical, Inc., supra.
a. The Yemec respondents
The Yemec Respondents
55After a careful examination of the Yemec respondents' bill of costs and time dockets in this case and in light of the Boucher principles discussed above, this court comes to the following conclusions. The magnitude of costs in this case can reasonably be expected to be high because of the complexity and importance of the issues and the volume of documents involved in the case. Nevertheless, after "stepping back" to consider whether the costs award is fair and reasonable, there is justification for reducing the bill of costs.
56A notable amount of time was spent in researching the case, reviewing documents and the parties' evidence, preparing organizational charts, reviewing U.S. case law, preparing legal and factual research briefs, and in the extensive continued reviewing of file material and research into the multiple aspects of the lottery business in both the United States and in Canada. This extensive research and review was not undertaken exclusively for the presentation of the motions before O'Connell J. and [page767] the motion judge. Some of it related to the appeal of the motion judge's decision to vacate the ex parte orders, for which costs have already been awarded. The materials will also ultimately be used by the parties in the main litigation in relation to the principal issues outlined in that action. This point equally applies to some of the time docketed for case management of the matter before Nordheimer J. Consequently, the cost of some of this work is more appropriately left to the results in the main action when the matter will be dealt with on its merits.
57Some items on the bill of costs are questionable as to whether they had anything to do with the litigation of the motions or whether they pertain to other proceedings. Some examples of this found in the bill of costs are time dedicated to dealing with creditors of the Yemec respondent demanding certain payments, and with Revenue Canada extracting information from the Yemec respondent. And as already mentioned, there were entries related to the appeal of the motion judge's decision to vacate the ex parte orders where costs have already been awarded.
58There are also examples of excessive and questionable docketing practices. For instance, the Yemec respondents dockets show a lawyer docketing 24 or more hours in a single day on a number of occasions. We are also troubled by the amounts docketed for the motion before O'Connell J. ($32,645) and the amounts docketed for preparing the costs submissions before the motion judge ($19,124). The amount claimed for the one-day motion before O'Connell J. is in our view excessive. With the exception of their claim for the payment of living expenses from otherwise frozen assets, the respondents were completely unsuccessful in the motion. O'Connell J. found that the motion was premature and that the more appropriate forum for these issues was the hearing before the motion judge. Regarding the amount claimed for the costs submissions, in our view spending just over 70 billable hours solely on this issue is excessive on its face.
59For these reasons, this court would reduce the Yemec respondents' costs award by 40 per cent (40 per cent of $481,276.71), to be fixed at $288,766.
b. The Bungaro respondents
The Bungaro Respondents
60After reviewing the Yemec respondents' bill of costs and time dockets in this case, it is our view that the costs claimed for the motion before O'Connell J. and the costs submissions before the motion judge are excessive, for the same reasons set out above. We would reduce the Bungaro respondents' costs award by 20 per cent (20 per cent of $119,524.21), to be fixed at $95,619.00. [page768]
iv. Costs payable in the cause
Costs Payable in the Cause
61We cannot find that the motion judge erred in ordering that costs be payable forthwith rather than in the cause. Authority for such an order is clearly provided for in rule 57.03 of the Rules of Civil Procedure. Furthermore, it is a significant and necessary power if the court is to meet its obligation to control and supervise its own process. In this case, it was a proper exercise of the motion judge's discretion in view of his findings relating to the conduct of the appellants on the ex parte motions.
v. Payment of post-judgment interest on the costs award
Payment of Post-Judgment Interest on the Costs Award
62The last issue deals with the question of the timing of the payment of interest. The motion judge ordered that interest on the costs award should run from the date of the original order, namely October 3, 2003, rather than the date on which he fixed costs, being October 18, 2005. Relying on the decision of McIssac J. in Roberts v. Aasen, 2003 2000 (ON SC), [2003] O.J. No. 2169, [2003] O.T.C. 491 (S.C.J.), the motion judge concluded that to do otherwise would be inequitable to the party awarded costs who could not control the conduct of the other party who could intentionally delay the payment of costs by resorting to the appeal courts.
63The appellants take the position that the motion judge erred in ordering interest on the award of costs to run from the date of the original order rather than from the date when costs were fixed. They say this contravenes the established jurisprudence regarding the interpretation of s. 129(1) of the Courts of Justice Act.
64Subsection 129(1) reads as follows:
Postjudgment interest
129(1) Money owing under an order, including costs to be assessed or costs fixed by the court, bears interest at the postjudgment interest rate, calculated from the date of the order.
65The issue is whether the words "from the date of the order" in the above section are to be interpreted to mean the date of the original order dealing with the merits or the date on which the costs were awarded. Subsection 127(1) of the Act defines "date of the order" as "the date the order is made . . .".
66There is a division in the jurisprudence concerning the interpretation of "date of the order" in s. 129(1). A line of cases state that interest begins to run on a cost award only when the amount of money properly payable can be finally ascertained. In Erco Industries Ltd. v. Allendale Mutual Insurance Co. (No. 2) (1984), 1984 2069 (ON SC), 48 O.R. (2d) 17, [1984] O.J. No. 3339 (H.C.J.), Rosenberg J., [page769] who at that time was dealing with an earlier version of the relevant legislation, concluded "interest should run from the time that the defendant can determine the amount of money that is 'properly payable' " [at p. 20 O.R.]. On the facts of that case what delayed the final calculation of the amount payable was the uncertainty of whether expert fees in an amount in excess of the judgment would be payable to the defendant as an offset amount.
67The decision of Rosenberg J. in Erco Industries v. Allendale Mutual Insurance Co. (No. 2), supra, was followed in Hassen v. Anvari, 2002 18680 (ON SC), [2002] O.J. No. 4096 (S.C.J.).
68In the face of this jurisprudence, McIsaac J. stated in Roberts v. Aasen, supra. at paras. 10-11, that interest calculated "from the date of the order" pursuant to s. 129(1) means that interest accrues from the date of the judgment and not from the date that the actual amount of costs is determined. In that case, the trial judge had dismissed an action to vary child custody and access "with costs".
69McIsaac J. concluded that to delay the application of post-judgment interest to a later date than the original order would be unfair to a successful litigant. It would deprive them of interest on legal costs, often borrowed with interest to begin with, and it would encourage the losing side to delay and protract the determination of the costs process. In coming to his decision, McIsaac J. made reference to the decision of the House of Lords in Hunt v. R.M. Douglas (Roofing) Ltd., [1988] 3 All E.R. 823, [1990] 1 A.C. 398 (H.L.), which held that a litigant was entitled to interest on costs from the date of the judgment awarding costs (the incipitur rule) rather than the date the taxation of the costs was completed (the allocatur rule).
70McIsaac J. also held that s. 130 of the Courts of Justice Act "permits discretionary avoidance of any mischief that might be occasioned by a mechanical application of the interpretation of s. 129(1) requiring immediate liability for interest on costs" (emphasis added). The relevant part of s. 130 states:
Discretion of court
130(1) The court may, where it considers it just to do so, in respect of the whole or any part of the amount on which interest is payable under section 128 or 129,
(c) allow interest for a period other than that provided in either section.
71Lane J. in Hodgson v. Canadian Newspapers Co., [2004] O.J. No. 537, 128 A.C.W.S. (3d) 1184 (S.C.J.) came to the same [page770] conclusion as that of McIsaac J. in respect of the interpretation of s. 129(1). In deciding to make interest on costs run from the date of the original order in a libel case instead of the date when costs were finally fixed, Lane J. stated at para. 8 of his decision:
Accordingly, the interest on the costs should commence to run at the date of judgment, July 3, 1998, for all costs incurred by then. It would be manifestly unjust to require interest to be paid prior to the time the sums were incurred. Interest on costs incurred after July 3, 1998 will run from the first day of the quarter following the incurring of costs.
In Hodgson, Lane J. had given judgment for the plaintiff in an action for defamation and ordered that party and party costs would follow the event unless either party wished to contend for a different costs order.
72Rothstein J.A. (as he then was) in CCH Canadian Ltd. v. Law Society of Upper Canada, 2004 FCA 278, [2004] F.C.J. No. 1399, 243 D.L.R. (4th) 759 (C.A.) also adopted McIsaac J.'s interpretation of s. 129(1), saying at paras. 33-34:
Subsection 129(1) appears to contemplate the circumstance where an order is made with costs to be assessed subsequently. In such case, the costs would bear interest from the date of the order, even though they were not taxed and ascertained until a later date. . . .
There is a rationale for this approach. . . . Interest recognizes the time value of money. I acknowledge that under paragraph 130(1)(c) of the Courts of Justice Act, the Court has a discretion to allow interest for a period other than that provided under subsection 129(1). However, in usual circumstances, I see no reason why a successful party should have an award of costs eroded by delay simply because it was required to go through a series of appeals and a taxation of costs before obtaining the result to which it was entitled in the first place.
In this case, each party had been ordered to bear their own costs after an appeal to the Federal Court of Appeal. The decision was overturned by the Supreme Court of Canada, which awarded costs to the Law Society throughout. The Federal Court of Appeal then held that interest on the costs of the appeal to it should run from the date of its earlier judgment, since the costs should have been awarded to the Law Society in the first place.
73Finally, in Keays v. Honda Canada Inc. (c.o.b. Honda of Canada Mfg.), 2006 3968 (ON SC), [2006] O.J. No. 560, 145 A.C.W.S. (3d) 772 (S.C.J.) at para. 15, McIsaac J. ordered that post-judgment interest on a costs award run from the date of the original judgment, although no explicit award of costs had been made in the original judgment. On appeal, the Court of Appeal reversed McIsaac J. in part (see (2006), 2006 33191 (ON CA), 82 O.R. (3d) 161, [2006] O.J. No. 3891 (C.A.)), but said nothing about this aspect of his order. [page771]
74In our view, the wording of s. 129(1) is clear. Post- judgment interest is to run on "money owing under an order, including costs to be assessed or costs fixed by the court" from the date of the order. The wording of the section makes it clear that interest can run from a date prior to the date of quantification of the costs. However, it can only run from the date of an order for payment of costs. That is the holding of the House of Lords in Hunt to which McIasaac J. made reference in Roberts, supra, as is clear in a more recent decision of the House of Lords in Nykredit Mortgage Bank Plc. v. Edward Erdman Group Ltd. (No. 2), [1998] 1 All E.R. 305, [1997] 1 W.L.R. 1627 (H.L.), at para. 29:
Interest on costs runs from the date on which the order for payment is made (the so-called incipitur rule), not from the (later) date on which the amount of costs is quantified (the allocatur rule).
75In the present case, the motion judge made no order with respect to the payment of costs in his decision on the merits, unlike the judges in Roberts and Hodgson, supra. No order for the payment of costs was made until October 18, 2005. In our view, he therefore erred in law in awarding interest on costs from October 3, 2003, the date of his original order.
76There is a discretion under s. 130 of the Courts of Justice Act to allow interest on an amount in which interest is payable under s. 129 for a period other than that provided in the section. However, s. 129 permits post-judgment interest on costs, while s. 128(4)(c) explicitly prohibits prejudgment interest on an award of costs. Therefore, the discretion in s. 130 does not permit a court to order interest payable for a period prior to the order for the payment of costs.
77The appeal is allowed in regard to the interest component, and interest on the costs award, as amended in these reasons, shall accrue commencing October 18, 2005. Disposition
Disposition
78The appeal is allowed in part, and the motion judge's order of October 18, 2005 is varied as follows:
-- The appellants shall pay costs forthwith to the Yemec respondents in the amount of $288,766, inclusive of fees, disbursements, costs awarded for costs submissions, and GST, plus post-judgment interest from October 18, 2005.
-- The appellants shall pay costs forthwith to the Bungaro respondents in the amount of $95,619, inclusive of fees, disbursements, costs awarded for costs submissions, and GST, plus post-judgment interest from October 18, 2005. [page772]
-- Any party wishing to make submissions as to costs of this appeal on costs may do so by way of brief written submissions to the court within 30 days of the release of these reasons for judgment.
Appeal allowed in part.
