COURT FILE NO.: CV-10412884 DATE: 20200728 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

MDS INC. and MDS (CANADA) INC. c.o.b. MDS NORDION Plaintiffs – and – FACTORY MUTUAL INSURANCE COMPANY c.o.b. FM GLOBAL Defendant

Counsel: Brian Brock and Camille Walker, for the Plaintiffs David Liblong and James Kitts, for the Defendant

Heard: March 4, 2019, September 3, 9-13, 16-20, 2019

Before: J. Wilson J.

Endorsement for interest and costs

Overview

[1] This Endorsement deals with questions concerning interest and costs following the trial in this matter and the decision rendered March 30, 2020.

[2] A significant proportion of worldwide income of MDS Inc. and MDS (CANADA) INC. c.o.b. MDS Nordion (the Plaintiffs) involves purchasing radioisotopes, processing them for various medical purposes and selling them for a profit worldwide. Atomic Energy of Canada Limited (“AECL”) produced radioisotopes at the nuclear reactor at Chalk River, Ontario (the “NRU”). AECL was a major supplier to the Plaintiffs. On May 14, 2009 the unanticipated leak of heavy water containing radioactive Tritium was discovered and the NRU shut down. The shutdown lasted fifteen months.

[3] The defendant insurer Factory Mutual Insurance Company, FM Global (the Insurer) issued a worldwide insurance policy to the Plaintiffs. MDS submitted a claim for loss of profits under the Contingent Time Element Policy coverage on May 21, 2009. FM denied coverage on August 4, 2009 claiming that exclusions in the Policy apply. This action was commenced in October 2010.

[4] In the reasons I concluded that the Plaintiffs are entitled to recover from the Insurer the limit of the worldwide All-Risks policy issued to MDS (the “Policy”) in the amount of US$25,000.000.00.

Prejudgment Interest

[5] The Plaintiffs sought recovery of their actual cost of borrowing, rather than the statutory prejudgment interest. The actual profits of the Insurer over the same period exceeded the Plaintiffs’ borrowing costs. Given the facts, as outlined in some detail in the reasons, I concluded that it was appropriate to order prejudgment interest in accordance with the average of the actual cost of borrowing of the Plaintiffs over the years of the loss, compounded annually, calculated from 60 days from the proof of loss of the claim.

[6] I provided the following guidance to calculate the interest based upon the submissions made at the trial:

• In accordance with the Policy, the interest begins to run 60 days from the date of the filing of the proof of loss, which was submitted on the same date as the issuance of the Statement of Claim, in October 2010, payable until the date of judgment.
• The interest shall be calculated annually, and compounded in accordance with the Plaintiffs’ borrowing costs in accordance with the average actual borrowing rate of interest each year of MDS.
• This calculation will reflect the average rate of borrowing, compounded, that the Plaintiffs were required to pay over the years.
• The calculation should be in Canadian dollars.
• If there is any dispute on the exact calculation counsel may make further brief submissions to me, preferably in writing, with an updated report from Mr. Zimmerman.

[7] Post judgment, the Plaintiffs submitted the Zimmerman report dated April 6, 2020 which confirms its average rate of borrowing throughout the period was 5.14%, which represents prime plus 2%. The report of Gerry Bouwman, forensic accountant, dated April 7, 2020 submitted on behalf of the Insurer does not contest this calculation. His report uses this figure as the average rate of borrowing during the period. I accept this figure as accurate. This confirms the evidence given by Mr. Zimmerman at the trial.

[8] Two issues are raised by the Insurer with respect to the calculation of prejudgment interest.

[9] First, the Insurer’s expert suggests based upon the Policy that the date of conversion from US dollars to Canadian dollars should be the date of loss suggested by the Insurer’s expert to be the date of the shutdown. The Plaintiffs’ expert converts the funds from US to Canadian dollars as of March 30, 2020, when the decision was released. Due to the fluctuations in the exchange rate, this interpretation favours the Insured.

[10] Second, the Insurer’s expert suggests that there should be a 30% reduction in any capital and prejudgment interest award, subject to gross-up, as “most likely the ultimate award, as well as the interest would be taxable”.

[11] I reject both suggestions made by the Insurer’s expert, and I accept the calculations of Mr. Zimmerman.

[12] Mr. Zimmerman calculates the prejudgment interest, compounded annually on the capital obligation of $25,000,000.00 US based upon the Plaintiffs’ actual average cost of borrowing of 5.14%. He then does the conversion from US funds to Canadian funds based upon the applicable exchange rate at the date of the release of the decision on March 30, 2020.

[13] As of the date of the release of the decision the principal amount owing is $25,000,00 US. The annual interest of 5.14% compounded annually over the period from the notice of the claim to the release of the decision is $14,821,338.00 US, for a total claim in US dollars as of March 30, 2020 of $39,821.338.00. These amounts converted to Canadian dollars using the applicable exchange rate of 1.4165 at the date of the release of the decision, results in a total amount owing by the Insurer in Canadian funds of $56,406,911.00. The conversion from US funds to Canadian funds should be at the option of the Insured.

Date of calculating the exchange rate

[14] The Insurer did not make any submissions during the trial as to the appropriate date for the conversion from Canadian to US funds if the Plaintiffs were successful in this action.

[15] On May 14, 2009 the exchange rate between the Canadian and the US dollar was 1.177, compared to 1.4165 as of March 30, 2020. Applying the exchange rate as suggested by the Insurer at the date of the shutdown of the NRU provides a significant benefit to the Insurer.

[16] Mr. Baumann, on behalf of the Insurer, presumptively makes two adjustments in his calculation. First, he does the conversion from US to Canadian dollars as of May 14, 2009: the date of the nuclear reactor shutdown. He does not calculate separately the effect of this adjustment.

[17] He also deducts 30% from the principal owing of $25,000,000 US converted to Canadian dollars for his notional tax argument, that the principal amount is “likely” taxable. He then also deducts 30% from the total of the interest on the principal based upon his argument that this too is likely taxable. He then grosses up the figures to calculate what he opines is the actual after-tax loss to the Plaintiffs. He blends his arguments in his summary charts.

Date of Conversion to Canadian Funds

[18] I conclude that the appropriate date of conversion in this case is the date that the decision was released.

[19] The following principles apply:

• There is a statutory presumption that the date of the currency conversion is the date that the repayment occurs, or in the case of a decision by the Court, the date that the decision is released (See: Hollowcore Incorporated v. Visocchi, 2016 ONCA 600, at para. 69).
• This statutory presumption is subject to the Court’s discretion to choose a conversion date that is equitable. If a defaulting party has refused to pay amounts properly due, a different conversion date may be imposed by the trial judge to make the plaintiff whole, if due to the passage of time the conversion rate has changed and the Plaintiff is disadvantaged.
• Finally, if the parties have an agreement that is clear in its terms for when the conversion should take place, then the Court should give effect to that agreement.

[20] The default presumptive rule is found at Section 121(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43 (CJA):

Subject to subsections (3) and (4), where a person obtains an order to enforce an obligation in a foreign currency, the order shall require payment of an amount in Canadian currency sufficient to purchase the amount of the obligation in the foreign currency at a bank in Ontario listed in Schedule I to the Bank Act (Canada) at the close of business on the first day on which the bank quotes a Canadian dollar rate for purchase of the foreign currency before the day payment of the obligation is received by the creditor.

[21] Section 121(3) of the CJA confirms the Court’s equitable discretion to order a different date for any conversion:

Subject to subsection (4), where, in a proceeding to enforce an obligation in a foreign currency, the court is satisfied that conversion of the amount of the obligation to Canadian currency as provided in subsection (1) would be inequitable to any party, the order may require payment of an amount in Canadian currency sufficient to purchase the amount of the obligation in the foreign currency at a bank in Ontario on such other day as the court considers equitable in the circumstances.

[22] If there is a pre-existing enforceable obligation Section 121(4) confirms that the Court shall enforce the parties’ agreement:

(4) Where an obligation enforceable in Ontario provides for a manner of conversion to Canadian currency of an amount in a foreign currency, the court shall give effect to the manner of conversion in the obligation.

[23] The Insurer’s expert suggests that the “Loss Adjustment and Settlement” section applies as a pre-existing enforceable obligation, and therefore the date of conversion as stipulated in the Policy that should be applied is the date of the loss: May 14, 2009.

[24] I conclude that the Loss Adjustment and Settlement Section in the Insurance Policy does not apply.

[25] The following is the section relied upon by the Insurer at Section D of the Policy at page 64:

LOSS ADJUSTMENT AND SETTLEMENT - SECTION D

2. CURRENCY FOR LOSS PAYMENT Losses will be adjusted and paid in the currency of the United States of America, except in Canada where losses will be paid in Canadian currency, unless directed otherwise by the Insured.

In the event of a loss adjustment involving currency conversion, the exchange selling rate will be calculated as follows:

A. As respect the calculation of deductibles and limits of liability, the rate of exchange published in The Wall Street Journal on the date of loss.

B. As respects loss or damage to Real and Personal Property:

1. The cost to repair or replace Real and Personal Property will be converted at the time the cost of repair or replacement is incurred based on the rate of exchange published in The Wall Street Journal.

2. if such property is not replaced or repaired, the conversion will be based on the rate of exchange published in The Wall Street Journal as of the date of loss.

C. As respects TIME ELEMENT loss the conversion will be based on the average of the rate of exchange published in The Wall Street Journal on the date of loss and the rate of exchange published in The Wall Street Journal on the last day of the Period of Liability. [emphasis added]

[26] The Loss Adjustment and Settlement section of the Policy confirms that although the limits of the Policy are in US dollars, that the insured shall be paid in Canadian funds, or as directed by the insured. For Time Element Losses that are paid the conversion date is not the date of loss as suggested by the Insurer, but rather the average rate between the date of loss and the last day of liability.

[27] The provisions in the Policy in the Loss Adjustment and Settlement section assume that an insurer accepts liability, and that a payment is to be made. These sections provide guiding principles for the conversion date, and other matters to facilitate fair payment.

[28] The Loss Adjustment and Settlement section does not apply broadly as suggested by the Insurer defining how currency is converted for all purposes, such as a payment in a judgment after trial, many years after the loss took place. These sections of the Policy have no application where the Insurer has denied liability for years requiring a determination of all issues by the Court in a trial.

Adjustments for “likely” taxes payable

[29] The defense expert suggests that taxes would have “in all likelihood” have been payable on both the principal amount owing and the interest. Their expert deducts notional taxes from the payment of both the principal and prejudgment interest, then grosses up the figures to come to what he thinks should be the Plaintiffs’ actual after-tax recovery, assuming the presumptions are correct.

[30] These arguments were not raised during the trial.

[31] I do not accept that notional taxes estimated to be 30% should be deducted from the principal or the interest owed, then grossed up to calculate the actual after-tax loss. Such a position should have been advanced at the trial, based upon expert evidence. It is not appropriate to raise such an issue as an afterthought after completion of the trial.

[32] I reject this suggestion as being relevant to the calculation of either principal or interest owed by the Insurer, particularly at this juncture after the decision has been released.

[33] This bald allegation is without precedent that in an insurance claim, that notional taxes should be deducted from an award of principal owing under an insurance policy, or for pre-judgment interest. The suggestion is speculative, requiring complex analysis and is very factually dependent.

[34] The suggestion of the Insurer appears to muddy the waters, confusing what is a simple calculation based upon known facts.

[35] For these reasons I accept the calculations of amounts owing as outlined in the Zimmerman report totaling $39,821,328.00 US converted at the option of the Plaintiffs to Canadian funds as of March 30, 2020 using the exchange rate of 1.41165 for a total judgment owing before costs of $56,406,911.00 Canadian dollars.

Post-judgment interest

[36] As outlined in my reasons, there is precedent to establish an incentive for payment after judgment is rendered in favour of a party to encourage compliance.

[37] I am of the view for the reasons that I have outlined, that the post-judgment interest rate should continue at the rate of 5.14% annually representing the Plaintiffs’ continued estimated actual cost of borrowing. If the Insurer challenges this factual presumption of the actual future losses, it may seek to have disclosure of actual borrowing and have the issue of the Plaintiffs’ actual cost of borrowing post-judgment determined by myself, or a judge to be appointed by the Civil Team leader in Toronto, once all appeal rights have been exhausted.

Costs

[38] In accordance with my usual practice, I required counsel to exchange their Bills of Costs with each other, and to file them with the Court sealed along with any relevant Offers to Settle, prior to the release of the decision. Counsel did comply with my direction and exchanged their documents, but due to Covid19 issues the documents were not filed with the Court office.

[39] I have now received from counsel their respective Bills of Costs and I have carefully reviewed them.

[40] Neither party provided me with any Offer to Settle served under the Rules of Civil Procedure, so the rules with respect to enhanced or reduced costs depending upon Offers to Settle served do not apply.

[41] The Plaintiffs have been successful in this action, and prima facie are entitled to receive partial indemnity costs.

[42] The Plaintiffs have submitted their Bill of Costs on a substantial indemnity basis, and on a full indemnity basis without providing any argument justifying an enhanced level of costs to be awarded.

[43] As I indicated in my reasons when I considered the question of prejudgment interest, this has been a hard fought case, with the Insurer raising multiple issues on every front, and changing their position as the case and facts unfolded. A hard fought case, fairly conducted as in this case, does not, without more, justify an award for enhanced costs to substantial indemnity, or full indemnity costs.

[44] I note as well from a close review of the Bills of Costs submitted, that there was a very significant difference in the amount of time spent by Plaintiffs’ counsel, compared to defense counsel throughout the proceeding. Mr. Liblong protested the amount of time spent, as well as the level of costs requested. As well I note that there is a significant difference in the flat rate $275.00 hourly rate charged by Mr. Liblong, compared to the much higher hourly rate of Mr. Brock and his team, adjusted for fee increases over the ten year period of this litigation. Although considerably higher than the rate for defense counsel, I find that Mr. Brock and his team charged hourly rates in line with fees charged by experienced counsel in Toronto.

[45] It is usual for plaintiff’s counsel to have time dockets that significantly exceed the time spent by the defense. The defense can raise multiple issues, as they have in this case, and can then sit back awaiting the plaintiff’s response. The Plaintiffs certainly made legal submissions and filed briefs on multiple issues, as evidenced by the volumes of law filed throughout the trial. ]

[46] I am not reducing any time spent by the Plaintiffs’ legal team in this award for partial indemnity costs.

[47] I therefore require the defendants to pay the Plaintiffs’ partial indemnity costs, calculated at recovery of 50% of the full indemnity cost calculations of $2,208,484.71.00 including taxes for time spent in accordance with the Bill of Costs submitted, for a cost award of $1,104,242.36 inclusive of taxes on a partial indemnity scale.

[48] There can be no criticism of the expenses for the various expert reports, and no issue has been raised by the defense with respect to the Plaintiffs’ expert reports or disbursements. The disbursements total $20,633.12 non taxable, plus $141,230.00 taxable disbursements, including HST and GST. This amount includes the last bill of Mr. Zimmerman. The total recovery for disbursements is $161,863.12.

[49] I thank counsel for their submissions.

J. Wilson J.

Released: July 28, 2020