Watterson v. Canadian EMU, 2018 ONSC 301

Watterson v. Canadian EMU, 2018 ONSC 301

CITATION: Watterson v. Canadian EMU, 2018 ONSC 301

COURT FILE NO.: DC-14-88

DATE: 2018-01-11

ONTARIO SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

B E T W E E N:

SANDRA WATTERSON, ROBERT WATTERSON, and WATTERSON FINANCIAL SOLUTIONS, INC.

Suzanne E. Deliscar, for the Appellants

Appellants

• and -

CANADIAN EMU CO-OPERATIVE INC.

Sarah Shannon, for the Respondent

Respondent

HEARD: December 11, 2015,

at Brampton, Ontario

Price J.

Costs Endorsement

OVERVIEW

1Robert Watterson, his wife, Sandra Watterson, and Mr. Watterson’s corporation, Watterson Financial Services Inc. (collectively, “the Defendants”), appealed successfully to the Divisional Court from a Small Claims Court judgment rendered against them following a trial on August 8, 2014. Mr. Watterson was a director and officer of Watterson Financial. Through that corporation, Mr. Watterson acted as bookkeeper and insurance advisor to EMU, an incorporated agricultural cooperative carrying on the business of farming large birds. EMU alleged that the Defendants had taken $15,000.00 that EMU had invested with them, and converted the funds to their own use. The Defendants claimed that EMU owed them the funds for investments it had made with them.

2This court set aside the Small Claims Court’s verdict against Mr. Watterson, who was self-represented, and the other Defendants, who were represented by Mr. Watterson, on the ground of procedural unfairness. A new trial was directed to take place in Small Claims Court. The court found that the trial judge had erred in law by failing to advise the Defendants of their right to object to EMU’s witnesses, whom EMU called without providing advance notice to the Defendants, and of their right to request an adjournment for the purpose of calling witnesses and preparing to testify themselves in response to EMU’s witnesses. The trial judge erred further by drawing an adverse inference from the Defendants’ failure to testify.

3The parties were unable to agree on the costs of the appeal. This endorsement addresses those costs.

POSITIONS OF THE PARTIES

4The Appellants seeks costs on a substantial indemnity scale in the amount of $11,616.60, based on their success in having the verdict against them set aside and a new trial ordered.

5EMU seeks an order that each party bears its own costs on the ground that the appeal involved issues of public interest, and on the further ground that the Defendants, while the decision in their appeal was pending, improperly filed claims in Small Claims Court against the two witnesses who testified against them at the trial. These claims raised issues that should have been raised in the original action. Lastly, EMU alleges that it would not have the ability to pay the costs order, if one is made.

ANALYSIS AND EVIDENCE

General principles

6In awarding costs, the court must balance two conflicting principles: indemnification of the successful litigant for the cost of enforcing or defending its rights and avoiding making potential litigants feel unduly hesitant to defend their rights by requiring them, as unsuccessful litigants, to bear all the costs of the successful party as well as their own.¹ The ultimate objective in balancing these principles is to ensure that the justice system works fairly and efficiently.²

Discretion to be exercised

7Costs awards are governed by section 131 of the Courts of Justice Act³ and Rule 57.01 of the Rules of Civil Procedure.⁴ Section 131 confers the court with a general discretion to determine costs. Rule 57.01 provides guidance in the exercise of that discretion by enumerating factors that the court may consider when determining costs.

Objectives of a costs order

8The indemnification of the successful party is the paramount objective, but not the only one, to be served by a costs order. Other objectives that the court has recognized include encouraging settlement, discouraging frivolous proceedings and unnecessary steps in litigation, and preserving access to justice.⁵

9The overriding principles that the court must apply when determining costs are fairness and reasonableness: Boucher v. Public Accountants Council for the Province of Ontario⁶ and Moon v. Sher.⁷ The overall objective is “to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding, rather than an amount fixed by the actual costs incurred by the successful litigant.”⁸ This is a “fundamental concept in fixing or assessing costs.”⁹

Factors to be considered in awarding costs

10Rule 57.01(1) provides, in part:

57.01(1) In exercising its discretion under section 131 of the Courts of Justice Act to award costs, the Court may consider…

(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;

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

(c) the complexity of the proceeding;

(d) the importance of the issue;

(e) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding;

(f) whether any step in the proceeding was

(i) improper, vexatious or unnecessary, or

(ii) taken through negligence, mistake or excessive caution;

(i) any other matter relevant to the question of costs. [Emphasis added]

11I will review the factors which I consider most relevant in arriving at the appropriate costs order in the present case.

a) Indemnification

General Principles

12Costs generally follow the event. In other words, a successful party is generally entitled to compensation for his or her costs. Exceptions are sometimes made where the successful party has forfeited its right to costs by acting unreasonably in the conduct of the action or by refusing a reasonable offer to settle.

13Costs are generally awarded on a partial indemnity scale. In Akagi v. Synergy Group (2000) Inc., the Court of Appeal stated:

The general rule is that costs are awarded on a partial indemnity basis. In some – generally rare – circumstances, however, the level of costs may be increased to substantial indemnity or even a full indemnity basis. One of those circumstances is where it is necessary “to mark the court’s disapproval of the conduct of the party in the litigation”: Mark M. Orkin, The Law of Costs, loose-leaf (2015-Rel. 54), 2nd ed. (Aurora: Canada Law Book, 1993) vol. 1 at p. 2-217, cited by this Court with approval in Hunt v. TD Securities Inc. (2003), 2003 3649 (ON CA), 66 O.R. (3d) 481, at para. 123. See also Mortimer v. Cameron (1994), 1994 10998 (ON CA), 17 O.R. (3d) 1 (C.A.), at p. 23, leave to appeal refused, [1994] S.C.C.A. No. 150.¹⁰

The Appellants’ lawyer’s hourly rate

14The Appellants’ lawyer, Suzanne E. Deliscar, was called to the Bar in Ontario in 2004. She had practiced law for 12 years when the appeal was argued. In determining the appropriate hourly rates to be applied to the time she spent, the court follows the approach taken by Aitkin J. in Geographic Resources Integrated Data Solutions Ltd. v. Peterson.¹¹ That is, the starting point is the successor of the Costs Grid, namely, the “Information for the Profession” bulletin from the Costs Sub-Committee of the Rules Committee (the “Costs Bulletin”), which can be found immediately before Rule 57 in the Carthy or Watson & McGowan edition of the Rules. This grid sets out maximum partial indemnity hourly rates for counsel of various levels of experience.

15The Costs Bulletin suggests maximum hourly rates (on a partial indemnity scale) of $300.00 for lawyers of between 10 and 20 years’ experience.¹² The Costs Bulletin, published in 2005, is now dated. Aitkin J. considered adjusting the Costs Subcommittee’s hourly rates for inflation, as Smith J. did in First Capital (Canholdings) Corp. v. North American Property Group.¹³ However, the unadjusted rates of the lawyers in her case were only slightly less than the actual fees they charged, so she elected to use their unadjusted rates. Normally, however, it is appropriate to adjust the hourly rates in the Costs Bulletin to account for inflation since 2005. Based on the Bank of Canada Inflation Calculator, available online at http://www.bankofcanada.ca/rates/related/inflation-calculator/, the 2016 equivalent of the $300.00 hourly rate that the Costs Bulletin assigns to lawyers of Ms. Deliscar’s experience was $358.22.

16In determining a lawyer’s partial indemnity hourly rate, the court is guided by the rates in the Costs Bulletin, not the actual hourly rates charged. The Costs Subcommittee’s rates apply to all lawyers and all cases, so everyone of the same level of experience starts at the same rate. The actual rates charged are relevant only as a limiting factor, in preventing the costs awarded from exceeding the actual fees charged.

17The court adjusts the total fees arrived at by applying the inflation-adjusted hourly rates of the lawyers to the time spent in order to reflect unique features of the case, including the complexity of the proceeding, the importance of the issues, and the other factors set out in Rule 57.01(1). If an excessive amount of time was spent, or too many lawyers worked on the file, the court reduces the resulting amount of fees accordingly. As long as the resulting amount does not exceed the amount actually charged to the client, the actual fee that the client agreed to pay is irrelevant. I do not find that there are any factors which require a reduction in Ms. Deliscar’s partial indemnity hourly rate in the case at bar.

18Ms. Deliscar claims an actual rate of $285.00. The upper limits in the Costs Bulletin are generally intended for the most complex and important of cases. Having regard to the fact that Ms. Deliscar’s years of experience was at the middle of the range for lawyers entitled to claim a maximum hourly rate of $300.00 in 2005, or $358.22 in 2016, I find that her actual rate of $285.00, on a partial indemnity scale, is reasonable, if not conservative.

The time spent on the appeal

19Ms. Deliscar spent a total of 27.1 hours on the appeal. Her time is itemized in her costs outline, and I find the time set out there for each of the tasks to be reasonable. EMU’s lawyer, Sarah Shannon, who had four years’ experience at the time of the hearing, spent 24 hours to prepare for and appear at the appeal, as evinced by her Bill of Costs. It is reasonable that Appellants had to spend more time preparing for the appeal than the respondent, as the Appellants bore the onus on the appeal. On this basis, I find that time spent by Ms. Deliscar on this matter was reasonable. As noted above, Ms. Deliscar’s actual hourly rate of $285.00 is less than the maximum partial indemnity rate ($300.00) she is entitled to claim and is much less than the $450.00 ($300.00 x 1.5) that she would be entitled to claim on a substantial indemnity scale. The costs she claims in the amount of $11,616.60 represents her fees, on a partial indemnity scale, HST, and disbursements.

b) The amount claimed in the proceeding

20As noted above, the Deputy Judge granted a verdict against the Defendants for $16,982.00 plus disbursements, interest, and costs.

c) Complexity

21The appeal was moderately complex. It required a re-examination of the role that a trial judge must properly assume when faced with self-represented litigants who are unfamiliar with the rules of evidence and procedure.

d) The importance of the issues

22The appeal was of importance to each of the parties. The Appellants were seeking to overturn the verdict of the Deputy Judge and win a new trial, conducted in a procedurally fair manner, where they may be able to establish their innocence of the allegations of fraud made against them.

23EMU was seeking to maintain the verdict of the Deputy Judge to avoid undergoing a second trial that would entail duplication of expenses. EMU submits that it is an unincorporated agricultural cooperative of modest means that can ill afford these further costs.

24The appeal involved issues of some importance to the public, as it dealt with the principles set out in the Canadian Judicial Council’s advisory “Statement of Principles on Self-Represented Litigants and Accused Persons” and their implication for judge faced with self-represented litigants who are unfamiliar with the rules of evidence and procedure.

e) The conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding;

25There was no unreasonable conduct by the Appellants that substantially lengthened the duration of the proceeding or otherwise that would justify depriving them of the costs to which they are otherwise entitled to by reason of their success in the appeal.

26EMU also did not conduct itself in a manner that would make it necessary for this Court to mark its disapproval by imposing costs at a scale higher than partial indemnity costs.

f) Reasonable expectations of the parties

27A costs award must be within the reasonable expectations of the parties in order to preserve access to justice. Armstrong J.A. explained the rationale for this principle in Boucher:

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….

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.¹⁴

28Armstrong J.A. expanded on the rationale for this principle:

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 generally exceeds any fair and reasonable expectation of the parties.¹⁵

29When exercising my discretion under Rule 57.01, I must be guided by Rule 1.04(1.1) to ensure that costs, like any other orders, are proportionate:

Proportionality

(1.1) In applying these rules, the court shall make orders and give directions that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding.

30The real question is what costs EMU should reasonably have expected to pay if unsuccessful in the appeal, and what amount is proportionate for the costs claimed by the Appellants. The deputy judge awarded EMU $16,982.00, plus disbursements, interest, and costs. The Appellants seek costs of the appeal, on a substantial-indemnity scale, in the amount of $11,616.60, and I have found that she is entitled to that amount, even on a partial indemnity scale.

31In relation to EMU’s reasonable expectations, I have considered the following costs awards by the Divisional Court in other appeals from verdicts of the Small Claims Court following trials in that Court:

a) In Grande National Leasing Inc. v Vaccarello, Molloy J. awarded costs on a partial indemnity scale in the amount of $8,344.75, inclusive of $6,000.00 for fees, and HST and disbursements, despite the fact that costs were sought on a substantial indemnity scale:

The defendant has been wholly successful and is entitled to his costs. Disbursements were $2,344.75 and I have no difficulty with that claim. The defendant also seeks fees on substantial indemnity basis in the amount of $9,600.00. I do not see this as an appropriate case for substantial indemnity costs. However, I do recognize the result achieved by the defendant may well have been inevitable given the irregularity that arose as a direct result of the plaintiff commencing a second action in a different court, rather than taking the proper steps to set aside the dismissal of the original action. To that extent, the plaintiff is the author of much of its own misfortune. Accordingly, I am not inclined to reduce the costs I might otherwise award to reflect the relatively small monetary amount involved. Defence counsel kept costs to a minimum by having much of the work done by a law clerk, thereby reducing the amount the award might otherwise have been. In my view, the appropriate total award for fees is $6,000.00. Plaintiff’s counsel, the respondent in the appeal, was seeking approximately $4,400.00 if successful. Therefore, the fee I have awarded to the defendant is not beyond the reasonable contemplation of the parties. Accordingly, costs are fixed at $8,344.75, inclusive of tax and disbursements, payable forthwith to the Appellant/Defendant Vaccarello.¹⁶ [Emphasis added.]

b) In Transport Training Centres of Canada v. Wilson, Ratushny J. awarded all-inclusive costs of $5,000.00 to the successful appellants, who had requested costs on a substantial indemnity scale in the amount of $23,800 in a case where a judgment of the Small Claims Court for $7,000.00 was set aside:

[7] In my view, the principal factor influencing the quantum of costs is that this action arose in Small Claims Court and involved a damages award of $7,000. That, of course, is the factor of “the amount claimed and the amount recovered in the proceeding” referred to in Rule 57.01(1)(a).

[8] While it was the appellant’s right to appeal and it succeeded on grounds of errors of law on its appeal, in my view it is disproportionate to the original amounts in issue (Rule 57.01(1)(a)) and the degree of complexity in the proceeding (Rule 57.01(1)(c)) to claim, as the appellant has, a costs amount over three times greater than the $7,000 originally awarded.

Appeal Costs

[12] … I fix the costs of the appeal at $5,000 all inclusive, as representing an amount that is proportional in all of the circumstances and that the respondent could reasonably have expected to pay in the event she was unsuccessful.¹⁷ [Emphasis added.]

32In 1489018 Ontario Ltd. v. Kaur, Emery J. awarded the successful respondent $5,000.00 costs in her dismissal of the plaintiff’s appeal from Deputy Judge’s dismissal of the appellant’s claim for $4,931.92 for fees billed for rehabilitation services. This order was made despite the fact that $14,130.65 for substantial indemnity costs and $10,961 for partial indemnity costs that the respondent were sought:

Under all of the circumstances, I conclude that costs fixed in the amount of $5,000 all-inclusive would be fair and reasonable to award to the respondent. To award any more would be disproportionate to the amount involved. To award any less would deprive the respondent too much of the actual legal expense to oppose the appeal. A costs award equal to the amount involved seems proportionate and fair.¹⁸ [Emphasis added]

33In Grande National Leasing Inc. v Vaccarello, the Divisional Court awarded costs that were twice the amount that was at stake in the appeal. In Transport Training Centres of Canada v. Wilson, the Court awarded slightly less than the amount that was at stake. In 1489018 Ontario Ltd. v. Kaur, the Court awarded approximately the same amount that was at stake. These decisions should have informed the parties’ reasonable expectations as to what costs they would face if unsuccessful in the present appeal. In the present case, the amount that was at stake was $16,982.00 plus disbursements, interest, and costs. While costs on a partial indemnity scale are appropriate, the Appellants’ costs of the appeal on that scale, in the amount of $11,616.60, are within the range of what EMU should have expected to pay if unsuccessful.

g) Any other matter relevant to the question of costs.

Public Interest

34There is no reason to depart from the general rule that the Appellants should have their costs as the successful parties because this matter involved issues of public interest. The Appellants were successful in establishing that the deputy judge made procedural errors that resulted in unfairness to them. A successful appellant should not be deprived of costs just because the verdict was set aside based on the fact that it was the conduct of the deputy judge, and not the respondents, that was procedurally unfair.

35The appeal did not raise novel issues, notwithstanding that it called for re-examination of the procedural obligations of trial judges in relation to self-represented litigants. While that issue involves the public interest, and the re-examination may be of assistance to judges, it should not result in depriving the appellants of their costs, as this would defeat the objective of fairness that the outcome of the appeal was intended to achieve.

Appellants’ new claims in the Small Claims Court

36EMU acknowledges that both of the Appellants’ other claims were dismissed with minimal out-of-pocket expenses to the Defendants. I do not find those claims, in relation to which no evidence was submitted to this court, to be a basis for depriving the Appellants of their costs of the appeal.

Inability to pay

37There is no evidence before me that would support a finding that EMU is unable to pay the Appellants’ costs of the appeal, or that an order requiring it to do so on a partial indemnity scale would result in undue hardship.

Disbursements

38The Appellants claim $1,458.34 for their disbursements. The disbursements consist of $490.20 for transcripts, $482.00 for court filing fees, $314.14 for process servers’ fees, and $172.00 for postage, photocopies, and printing. None of these amounts are excessive. I find the disbursements to be reasonable and will allow them at the amounts claimed.

Deferring payment of the Costs

39The outcome of this appeal was based on procedural unfairness and did not entail findings on the substantive issue of the Defendants’ liability. As that issue still remains to be determined in the Small Claims Court and may result in a verdict that could be set off against the costs of this appeal, it is reasonable to defer payment of costs of the appeal until the action has been retried or otherwise disposed of in the Small Claims Court.

CONCLUSION AND ORDER

40For the foregoing reasons, it is ordered that:

1. EMU shall pay the Defendants’ costs of the appeal on a partial indemnity scale, fixed in the amount of $11,635.12, inclusive of fees, H.S.T., and disbursements.

2. EMU shall pay the Defendants’ costs of this appeal following the re-trial or other final disposition of its action in the Small Claims Court.

Price J.

Footnotes

1. 1Mark Orkin, The Law of Costs (2nd ed.) (2001, Canada Law Book), p. 23.
2. 2British Columbia (Minister of Forests) v. Okanagan Indian Band, 2003 SCC 71, [2003] 3 S.C.R. 371 at paras. 25-26.
3. 3Courts of Justice Act, R.S.O. 1990, c. C.43, s. 131.
4. 4Rules of Civil Procedure, R.R.O. 1990, Reg. 194.
5. 51465778 Ontario Inc. v. 1122077 Ontario Ltd. (2006), 2006 35819 (ON CA), 82 O.R. (3d) 757 (C.A.) at para. 45, Feldman J.A.
6. 6Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 14579 (ON CA), 71 O.R. (3d) 291 (C.A.).
7. 7Moon v. Sher (2004), 2004 39005 (ON CA), 246 D.L.R. (4th) 440 (Ont. C.A.).
8. 8Boucher v. Public Accountants Council for the Province of Ontario at para. 26.
9. 9Gratton-Masuy Environmental Technologies Inc. v. Building Materials Evaluation Commission, 2003 8279 (ON SCDC), 2003 ONSC 8279, 170 O.A.C. 388 (Div. Ct.) at para. 16. See also Boucher. v. Public Accountants Council for the Province of Ontario at para. 38; Davies v. Clarington (Municipality), 2009 ONCA 722, [2009] O.J. No. 4236, 100 O.R. (3d) 66.
10. 10Akagi v. Synergy Group (2000) Inc., 2015 ONCA 771, 128 O.R. 64 at para. 31.
11. 11Geographic Resources Integrated Data Solutions Ltd. v. Peterson, 2013 ONSC 1041, 226 A.C.W.S. (3d) 57 (Div. Crt.) at paras. 7, 11-16.
12. 12“Information for the Profession” bulletin (“the Costs Bulletin”) from the Costs Sub-Committee of the Rules Committee (that the Costs Sub-Committee of the Rules Committee issued to replace the Costs Grid, which it repealed in 2005). The Costs Bulletin has advisory status only and not statutory authority. It was not included in the Regulation that repealed the Costs Grid.
13. 13First Capital (Canholdings) Corp. v. North American Property Group, 2012 ONSC 1359, 40 C.P.C. (7th) 46.
14. 14Boucher v. Public Accountants Council for the Province of Ontario at paras. 37-38.
15. 15Boucher v. Public Accountants Council for the Province of Ontario at para. 37, cited with approval in Moon v. Sher at para. 28.
16. 16Grande National Leasing Inc. v Vaccarello, 2015 ONSC 5463, , 258 A.C.W.S. (3d) 70 at para. 92.
17. 17Transport Training Centres of Canada v. Wilson, 2010 ONSC 2714, 263 O.A.C. 226.
18. 181489018 Ontario Ltd. v. Kaur, 2015 ONSC 1118, 251 A.C.W.S. (3d) 41 at para. 11.