Court File and Parties

COURT FILE NO.: CV-09-392962-CP DATE: 20160906 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 1250264 Ontario Inc., Plaintiff AND: Pet Valu Canada Inc., Defendant

BEFORE: Justice Edward P. Belobaba

COUNSEL: Geoffrey B. Shaw and Derek Ronde for the Defendant / Moving Party Jean-Marc Leclerc for the Plaintiff / Responding Party

HEARD: September 1, 2016 after written submissions

Costs award

[ 1 ] After seven years of litigation, this franchisee class action against Pet Valu Canada is over. The certified common issues have been summarily answered in favour of the defendant and the action has been dismissed in its entirety. [1] Pet Valu Canada (“PVC”) now seeks its costs and further asks that a non-party, Robert Rodger (the plaintiff company’s sole shareholder and director), be found jointly and severally liable for the costs award.

[ 2 ] In the first part of this Endorsement, I consider the parties’ costs submissions and I conclude that PVC is entitled to costs on a partial indemnity basis in the amount of approximately $1.5 million plus applicable taxes, payable forthwith by the plaintiff numbered company. In the second part of this Endorsement, I explain why the motion to attach joint and several liability for the payment of these costs to non-party Rodger must be dismissed. In doing so, I note that the defendant is not precluded from commencing an appropriate proceeding against Rodger directly, to determine Rodger’s personal liability for these costs under s. 41(e) of the Franchise Agreement and/or the provisions of the Unlimited Continuing Guarantee that was signed by Rodger after receiving independent legal advice.

I. Costs Award

[ 3 ] The parties’ costs submissions are focused on the summary judgment component in which defendant prevailed on all of the common issues. There is no basis for the plaintiff’s submission that “no costs” should be awarded. The defendant prevailed completely on the merits and is entitled to costs. I made it clear in my decision on common issues 1 to 5 that the defendant was entitled to costs. [2] The Court of Appeal did so as well. After ruling on common issue 6 (with no need to answer common issue 7), the Court dismissed the action against the defendant and directed that costs “ should be fixed by the motion judge, having regard to these reasons.” [3]

[ 4 ] The defendant asks for a costs award on a partial indemnity basis, inclusive of fees, disbursements and taxes, in the amount of $1,806,118. The plaintiff does not question the overall reasonableness of this amount. Nor is there any suggestion that had the plaintiff prevailed on the merits, it would have sought anything less. Given the length and multi-layered complexity of this litigation, and the fact that the damages claim was always in the tens of millions of dollars, the defendant’s costs request of approximately $1.8 million is neither surprising nor disturbing. Cost awards in the range of $1.5 to $5 million are not unusual for the merit-based portion of a class proceeding, whether via trial or summary judgment. [4]

[ 5 ] Counsel should also understand that as much as I have tried to constrain costs in the certification context to preserve access to justice, [5] I also recognize and accept that once you clear the modest certification hurdle and are into the merits, common issue trials (or summary judgment motions) can be very costly. That is why almost all representative plaintiffs minimize or eliminate their exposure for costs by seeking indemnification from class counsel, third party funders or the Class Proceedings Fund. For some reason, this was not done in this case.

[ 6 ] Having determined that the defendant’s costs request is not unreasonable, I must still ensure that the hourly rates being charged by counsel comply with the Grid. The only irregularity is with respect to the hourly rate claimed by senior counsel. The $450 hourly rate must be reduced to $350. I know that some judges have suggested that the $350 maximum set out in the Grid, indeed the entire Grid, is out of date. [6] For my part, I do not agree. As I noted in Goldsmith : [7]

[T]he objective of the costs award is to fix an amount that is “fair and reasonable” to the unsuccessful party “rather than an amount fixed by the actual costs incurred by the successful litigant.” Actual legal costs incurred are irrelevant and all the more so in an era where the legal profession continues to enjoy protection from market forces and where access to justice for most litigants remains illusory mainly because of the high hourly rates charged by lawyers. The Grid coupled with the judicial admonition in Boucher may be the only way to signal to the legal profession and its self-regulator what “reasonable” legal fees should look like. [8]

[ 7 ] In Inter-Leasing Inc. v. Ontario, [9] a panel of the Court of Appeal suggested that 55 to 60 per cent of “a reasonable actual rate” [10] might more appropriately reflect partial indemnity. In my view, as I said in Goldsmith , this was a sensible suggestion: 60 per cent of a “ reasonable actual rate.” I continued:

But what is a reasonable actual hourly rate for a senior Toronto litigator? It is certainly not $900 or $1000 per hour. This is obviously not market-pricing. What about $500 to $600? Is this more reasonable? No doubt - but if so, the Grid rates are actually up to date (i.e. the $350 maximum is pretty much in line with the Court of Appeal’s suggested 60 per cent measure.) [11]

[ 8 ] Having adjusted the hourly rate charged by the senior litigator from $450 to $350 and reduced the fees portion by $82,950 I find that the appropriate costs award is $1,074,347 for fees and $442,536 for disbursements, for a sub-total of $1,516,883 exclusive of taxes. I would ask counsel to calculate and add the applicable taxes and thus determine the total award.

II. Personal Liability for Costs

[ 9 ] The defendant asks that non-party Rodger be found jointly and severally (i.e. personally) liable for the above costs award. In my view, this motion cannot succeed on the facts herein.

[ 10 ] The case law in Ontario is clear that this court’s jurisdiction under s. 131 of the Courts of Justice Act [12] to award costs against a non-party is very limited. To obtain such a costs award, the moving party must satisfy the three-step test affirmed by the Court of Appeal in Television Real Estate : [13] (i) that the non-party would have had status to bring the action himself; (ii) that the named plaintiff in the action was not the true plaintiff; and (iii) that the named plaintiff in the action was a “man of straw” put forward to protect the non-party from liability for costs. [14]

[ 11 ] The defendant can arguably satisfy the first requirement because “franchisee” is defined in the Franchise Agreement as including the plaintiff’s shareholder. But it cannot satisfy the second requirement. The plaintiff company is the party to the Franchise Agreement and carried on the franchised business. The defendant cannot show that the numbered company is not the true plaintiff.

[ 12 ] Nor can the defendant show that the plaintiff company is a “man of straw” that was put forward to protect the non-party from liability for costs. The suitability of the plaintiff company as the representative plaintiff, which includes its capacity to pay costs, [15] was examined at certification under s. 5(1)(e) of the CPA. The certification judge found “no basis at all to conclude that this litigation was commenced with a view to promoting Rodger's interests as opposed to the interests of the class.” [16]

[ 13 ] In Moja Group [17] the Court of Appeal noted that the Television Real Estate test requires proof that the plaintiff is a “sham” in the sense of having been used fraudulently to commence the action.” [18] There is absolutely no evidence that the plaintiff company was a sham put up to shield Rodger from costs or was fraudulently used to commence the action. In any event, Rodger must have known that he would not necessarily be shielded from liability for costs given has indemnity obligations under s. 41(e) of the Franchise Agreement and his execution of the Unconditional Continuing Guarantee.

[ 14 ] If the defendant wants to bring a separate and discrete proceeding against Rodger claiming that he is personally liable under the provisions just noted, it has every right to do so. Just as Rodger has every right to raise any and all appropriate defences. But the defendant’s motion as currently filed, asking that costs be awarded against a non-party, must be dismissed.

[ 15 ] The plaintiff is entitled to costs on this motion. Having reviewed the parties’ costs submissions which range from $7500 to $16,300, I find it fair and reasonable to fix costs at $10,000 all-inclusive, payable forthwith by the defendant. In the circumstances, I direct that this $10,000 costs award to the plaintiff be deducted from the costs awarded to the defendant.

III. Disposition

[ 16 ] The costs on the summary judgment litigation are fixed at $1,516,883 plus applicable taxes to be calculated by counsel, minus the $10,000 costs award noted above. The final costs amount shall be paid by the plaintiff to the defendant forthwith.

[ 17 ] Order to go accordingly.

Date: September 6, 2016 Belobaba J.

[1] 1250264 Ontario Inc. v. Pet Valu Canada , 2014 ONSC 6056 ; and 2016 ONCA 24 . [2] Supra, note 1, 2014 ONSC 6056 at para. 45 . [3] Supra, note 1, 2016 ONCA 24 at paras. 65 and 68 . [4] See for example, Fairview Donut Inc. v. The TDL Group Corp ., 2014 ONSC 776 ($1.85 million costs award for certification and summary judgment on the common issues); and Trillium Motor World Ltd. v. General Motors of Canada Limited et al, 2016 ONSC 1725 ($5.4 million costs award for common issues trial). [5] See any of Dugal v. Manulife Financial , 2013 ONSC 4083 ; Rosen v. BMO Nesbitt Burns, 2013 ONSC 2144 ; Crisante v. DePuy Orthopaedics , 2013 ONSC 5186 ; Brown v. Canada (Attorney General) 2013 ONSC 5637 ; or Sankar v. Bell Mobility , 2013 ONSC 5916 . [6] For example, in Stetson Oil & Gas Ltd., v. Stifel Nicolaus Canada Inc. , 2013 ONSC 5213 at paras. 22 and 25 , Newbould J. commented that the Grid rates were “completely outdated” and found it appropriate to award 60 per cent of time charged on a partial indemnity scale and 90 per cent of time charged on a substantial indemnity scale. Also see Trillium Motor World, supra, note 4, at paras. 62-65. [7] Goldsmith v. National Bank of Canada , 2015 ONSC 4581 . [8] Ibid., at para. 8. [9] Inter-Leasing Inc. v. Ontario (Revenue), 2014 ONCA 683 . [10] Ibid., at para. 5. [11] Goldsmith, supra, note 7, at para. 9. [12] Courts of Justice Act, R.S.O. 1990, c. C.43. [13] Television Real Estate Ltd. v. Rogers Cable T.V. Ltd. , [1997] O.J. No. 1944. [14] Ibid., at para. 15. Also see The Hearing Clinic (Niagara Falls) Inc. v. 866073 Ontario Limited et al , 2016 ONSC 4509 (Div. Ct.) at paras. 48-50 . [15] Western Canadian Shopping Centres Inc. v. Dutton, [2001] S.C.R. 534, at para. 41. [16] 1250264 Ontario Inc. v. Pet Valu Canada Inc. , 2011 ONSC 287 , at para. 116. [17] Moja Group (Canada) Inc. v. Pink . [18] Ibid. , at para. 6.