CITATION: North American Financial Group Inc. v. Ontario Securities Commission, 2018 ONSC 1282

DIVISIONAL COURT FILE NO.: DC-14-000495

DATE: 20180223

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

Sachs, Spies and Fitzpatrick JJ.

BETWEEN:

North American Financial Group Inc., North American Capital Inc., Alexander Flavio Arconti and Luigino Arconti

Appellants

– and –

Ontario Securities Commission

Respondent

Ronald Chapman, James Cooper, Paul Pape and Shantona Chaudhury, for the Appellants

Michelle Vaillancourt and Derek Ferris, for the Respondent

Sean Dewart and Mathieu Belanger, for the Intervenors, Ian Ross Smith, Scott Fenton Professional Corporation and Fenton, Smith

HEARD at Toronto: In writing

SPIES J.

DECISION ON cOSTS

Introduction

[1] The appeal by the Appellants to this Court, from the decision of the Ontario Securities Commission (the “Commission”) dated December 11, 2013, which found (among other things) that the Appellants had committed securities fraud, and the decision of the Commission made on September 11, 2014, which imposed sanctions on the Appellants, was dismissed by this Court with written reasons; North American Financial Group Inc. v. Ontario Securities Commission, 2017 ONSC 6766. A motion brought by the Appellants to file fresh evidence was also dismissed.

[2] On this appeal the Appellants argued that the Commission’s finding of fraud and its penalty decision were unreasonable. They also submitted that the decisions should be set aside because the Commissioner who presided over the hearings was biased. Finally, they argued that the decisions should be set aside because of the conduct of the lawyer who represented them at the hearing. First, according to the Appellants, that lawyer had a conflict because his firm also represented the Commission in unrelated matters and this fact was not disclosed to the Appellants. Second, the Appellants alleged that their lawyer was incompetent in his conduct of the case.

[3] As the successful party there is no dispute that the Commission is entitled to its costs on a partial indemnity basis. The Intervenors also seek their costs, but on a substantial indemnity basis. The Appellants did not file any submissions with respect to the Commission’s Costs Outline but they assert that no costs ought to be awarded to the Intervenors.

Costs of the Commission

[4] The Commission seeks costs in the amount of $40,000. The hours spent were roughly equally apportioned between Ms. Vaillancourt, who argued the motion, and Mr. Ferris. They are both senior counsel with the Commission and the hourly rates claimed are quite modest for their year of call. No disbursements are claimed. Based on the actual time spent by the two Commission lawyers of 395 hours, the costs incurred total just over $80,000 and so the costs claimed reflects a 50% discount in addition to the exclusions I will come to.

[5] In this case, the Commission responded to the appeal on the merits, the alleged bias issue and the fresh evidence motion. In addition, there were two days of cross-examination on affidavits filed by the Appellants and the Intervenors in relation to the fresh evidence motion. The Commission has not included time related to a motion dealing with privileged communications that was ultimately resolved by the parties by a consent order dismissing the Appellants’ motion without costs. The Commission does not claim costs with respect to two articling students and a law clerk who also worked on the file. Considering the reasonable expectations of the parties, I note that the Appellants were represented by four lawyers from three law firms who argued the appeal. The facta filed were lengthy; one factum for each issue, and the appeal was argued over two days.

[6] The Commission concedes that the costs sought on this appeal are higher than costs awarded in other recent Court of Appeal and Divisional Court appeals involving the Commission but submits that the higher costs order in this case is justified. In all of those cases the parties had agreed upon the quantum of costs. One of the cases the Commission relies on is Xanthoudakis v. Ontario Securities Commission (North Norshield Asset Management Ltd.), 2011 ONSC 4685 at para. 98 where the appellants appealed on the merits and alleged bias by the Chair of the Commission. The appeal was heard by the Divisional Court over two days and the parties agreed to costs in the amount of $40,000.

[7] Costs are in the discretion of the court and the factors to be considered are enumerated in Rule 57 of the Rules of Civil Procedure. The fixing of costs is not a mechanical exercise of calculating hours times hourly rates. The quantum should reflect an amount the court considers to be fair and reasonable for the unsuccessful party to pay in the particular proceeding. The overall objective is to fix an amount that is fair and reasonable from the perspective of the reasonable expectations of the losing party.

[8] In my view, considering all of the Rule 57 factors, the costs claimed are very reasonable given the substantial discount made by the Commission of the time spent. To discount the fees claimed further would not be justified. Accordingly the Appellants shall pay the Commission its costs in the amount claimed of $40,000.

Costs of the Intervenors

[9] The Intervenors were permitted to intervene as parties to the appeal by order of Justice Nordheimer, as he then was, dated May 12, 2017, but only on the issues that affected them, namely the application for leave to introduce fresh evidence and the issue of ineffective assistance of counsel. Justice Nordheimer's order was silent on the issue of whether costs of the appeal could be awarded to or against the Intervenors. The order did fix costs of the motion at $3,000 "to be disposed of as directed by the Panel."

[10] The Intervenors seek their costs on a substantial indemnity basis in the amount of just over $53,000 as well as costs of their successful motion to intervene of $3,000.

[11] The Appellants argue that the Intervenors are not entitled to any costs as they could have requested that Justice Nordheimer also reserve the question of costs of the appeal itself to the Panel but he was not asked to do so. They submit that there was therefore no reason for them to consider that they might be asked by the Intervenors to pay legal costs if their appeal was dismissed.

[12] The Intervenors take the position that since Justice Nordheimer's order is silent on the issue of whether costs could be awarded to or against the Intervenors it was not one of the terms framing their intervention on the appeal and they are not prevented from seeking costs against the appellants.

[13] The Intervenors were granted leave to intervene as parties to the appeal pursuant to Rules 13.01 and 13.03 of the Rules of Civil Procedure, not as friends of the court, pursuant to Rule 13.02. This is a critical distinction on the question of their entitlement to costs. The one term that Justice Nordheimer was asked to impose by the Appellants was a term of that would have prohibited the Intervenors from appealing any order that the Panel might make. Nordheimer J. declined to order such a term, finding at para. 10 of his Endorsement that the Intervenors should enjoy the same rights of appeal as any party, but restricted to the issues in which their interests are engaged. He also quoted with approval from Trempe v. Reybroek (2002), 2002 49410 (ON SC), 57 O.R. (3d) 786 (S.C.J.) where at para. 27 Molloy J held that the former solicitor for the defendants, whom she added as a party, should have the same right of participation as any other party. In my view participation as a party necessarily includes the right to seek costs or to have costs awarded against the Intervenor unless the order granting leave to intervene states otherwise. As I will come to there is other support for this conclusion. Therefore I find that the fact the order is silent on costs does not disentitle the Intervenors to make a claim for costs.

[14] That does not settle the issue. In their costs submissions, as the Intervenors fairly set out, the law on the issue of whether or not an Intervenor is entitled to costs is unsettled. They refer to the recent decision of Justice Firestone in Canadian Union of Postal Workers v. Her Majesty in Right of Canada, 2017 ONSC 6503, a case where Canada Post had intervened as a party to the proceeding. In that case Justice Firestone undertook a thorough review of the various principles at play and held that there are a number of factors that are relevant in deciding whether to deviate from the general rule that an intervenor is neither liable for nor entitled to costs. These factors include the intervenor's interests in the issues, the extent of the intervenor's involvement, the intervenor's resources, success on the merits, whether the parties anticipated the intervenor's involvement and the terms of the order granting leave to intervene. At para. 32 of that decision Justice Firestone held that costs are more likely to be awarded to an intervenor where he or she has a direct interest that was affected by the outcome of the proceeding.

[15] As the Intervenors point out Justice Firestone at para. 87 also reviewed case law standing for the principle that where the order granting leave to intervene does not include a term specifying that no costs would be awarded to an intervenor, the appellant effectively accepted the possibility of a costs award against him or her (or for him or her, depending on the outcome of the appeal), which supports the conclusion I have already come to.

[16] In this case Justice Nordheimer found at para. 8 of his Endorsement that the Intervenors would clearly be adversely affected if it should transpire that a decision was made allowing the appeal on the basis of ineffective assistance of counsel. He held that among other reasons it is possible such a determination might give rise to res judicata or issue estoppel arguments in the solicitor negligence proceedings that have been brought by the Appellants. As the Intervenors submit, they also had reputational issues at stake.

[17] In my view the Intervenors are entitled to their costs of responding to the motion to introduce fresh evidence and the alleged ineffective assistance of counsel. They had a real interest in the issues that they were allowed to respond to and they responded to those issues as any party would.

[18] The Appellants also object to the Intervenors' request for costs on a substantial indemnity basis and they complain that as dockets were not included it is impossible to make submissions that the amount of time spent is excessive. They submit that an amount of $15,000 would be a reasonable amount if there is to be an award in favour of the Intervenors.

[19] The cases the Intervenors rely on in support of their claim for substantial indemnity costs are cases, or refer to cases, where the allegations of improper conduct was of fraud, other criminal conduct, conduct that could result in disbarment or other allegations of moral turpitude. In my view the allegations in this case although serious did not rise to that level to justify costs on a substantial indemnity base.

[20] The Intervenors are accordingly entitled to their costs on a partial indemnity basis. On that basis they claim costs with disbursements totaling almost $32,500. Most of the 168 hours claimed were spent by Messrs. Dewart and Belanger. The hourly rates the Intervenors were able to charge are set by LawPro and they assert that these rates are below the partial indemnity rates set by the Rules Committee, once adjusted for inflation. They are therefore claiming fees in excess of what LawPro was charged “to recover their actual costs thrown away”.

[21] In my view, even if it is the case that counsel can claim more than what they have charged their client, which I am not satisfied is permitted, that is not a reasonable request in this case particularly where senior counsel for the Commission have claimed costs at the rate of $205 per hour and the LawPro rate for senior counsel, discounted to partial indemnity, is $210 per hour. Mr. Dewart did a better job of delegating to a junior lawyer which resulted in savings but the overall hours claimed are excessive when compared to those of the Commission after their discount of 50% and given that the role of the Intervenors was more limited than that of counsel for the Commission.

[22] The Intervenors point out that the applications to introduce fresh evidence and the issue of ineffective assistance of counsel formed a large part of the appeal and were argued over a full day of the two-day hearing and are dealt with substantially in the Court's reasons. The issues were clearly important to the Intervenors as found by Justice Nordheimer. Their costs however must be fixed at a reasonable amount relative to the costs of the Commission in order to be fair from the perspective of the Appellants. In my view, considering all of the relevant factors, costs in the amount of $20,000 is reasonable for the costs of the Intervenors, which includes the costs of the motion for leave to intervene.

Disposition

[23] For these reasons the Appellants shall pay the Commission costs in the amount of $40,000 and the Intervenors costs in the amount of $20,000. These costs shall be paid within 30 days of the release of this decision.

Spies J.

Sachs J.

Fitzpatrick J.

Released: February 23, 2018

CITATION: North American Financial Group Inc. v. Ontario Securities Commission, 2018 ONSC 1282

DIVISIONAL COURT FILE NO.: DC-14-000495

DATE: 20180223

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

SACHS, SPIES & FITZPATRICK JJ.

BETWEEN:

North American Financial Group Inc., North American Capital Inc., Alexander Flavio Arconti and Luigino Arconti

Appellants

– and –

Ontario Securities Commission

Respondent

DECISION ON COSTS

SPIES J.

Released: February 23, 2018