McBride Metal Fabricating Corp. v. H & W Sales Company Inc.

59 O.R. (3d) 97

[2002] O.J. No. 1536

Docket No. C34734

Court of Appeal for Ontario

Abella, Austin, and Goudge JJ.A.

April 25, 2002

Civil procedure -- Costs -- Offer to settle -- Action for breach of fiduciary duty -- Offer to settle not qualifying as offer under Rule 49 of Rules of Civil Procedure -- Court's discretion to consider any offer to settle not changing law about when award of solicitor and client costs is appropriate -- Trial judge erring by awarding costs on a solicitor and client scale -- Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 49.13.

Fiduciaries -- Breach of fiduciary duties -- Remedies -- Declaration -- Principle that guilty fiduciary should not be permitted to profit from breach of fiduciary duty -- Principle that victim should be put in position it would have been but for breach of fiduciary duty -- Defendant breaching fiduciary duty under sales representation agreement -- Agreement providing for payment of commissions to defendant for a period after any termination of agreement -- Victim unaware of defendant's breach of fiduciary duty for two years -- Trial judge correct in declaring that no moneys owed to defendant.

The plaintiff, MMF Corp., was a manufacturer of automotive products, and under an agreement signed by predecessor corporations, the defendant, H & W, was MMF Corp.'s exclusive sales representative to sell products to Ford Motor Company and non-exclusive agent for sales to others. In January 1994, H & W secured a contract for MMF Corp. to sell products to ST, but H & W did not disclose that it had a 25 per cent equity interest in ST. In August 1996, when MMF Corp. learned of H & W's interest in ST, H & W promptly terminated the sales representation agreement effective September 30, 1996. In the event of any termination, under para. 13 of the sales representation agreement, MMF Corp. had an obligation to pay commissions on sales under contracts with customers in existence at the time of termination. MMF Corp. brought an action for a declaration that it owed nothing further, and in that action H & W counterclaimed, seeking payment for commissions unrelated to ST. At trial, Zuber J. concluded that H & W had breached its fiduciary duty to MMF Corp., and he held that para. 13 came into effect in 1994 and that H & W was not entitled to recover commissions beyond 1996. The result was that nothing further was owned by MMF Corp. H & W appealed. The sole issues on the appeal were whether the declaratory remedy was appropriate and whether Zuber J. had been wrong in exercising his discretion to award costs on a solicitor and client scale. In this regard, he relied on rule 49.13 of the Rules of Civil Procedure, under which a court may take into account any offer to settle, even if it did qualify as an offer under Rule 49.

Held, the appeal about costs should be allowed; the appeal otherwise should be dismissed.

Zuber J. was correct in his reasoning that had MMF Corp. been aware of the breach of fiduciary duty when it occurred, it would have terminated the agreement at that time and para. 13 of the agreement would have come into effect in 1994 and not 1996 as submitted by H & W. Zuber J. was correct in concluding that it would be contrary to the law of fiduciary duties to permit H & W to profit from sales for an additional two years after 1996. Otherwise H & W would wrongfully profit from its breach of duty. The remedy of declaring that no moneys were now owing was appropriate relief since it was designed to rectify a breach of fiduciary duty, a unique wrong distinct from a contractual breach and calling for a distinct equitable remedy. The remedy was properly guided by the principle of putting the person owed the fiduciary duty in the position it would have been in but for the breach. Moreover, a principal can repudiate an agency contract when an agent has breached its fiduciary duty and refuse to pay commissions in respect of that breach. Accordingly, this part of the appeal should be dismissed.

Zuber J. was, however, not justified in awarding costs on a solicitor and client scale on the facts of this case. The judicial discretion under rule 49.13 is not so broad as to permit a fundamental change to the law that has governed the award of solicitor and client costs. It is only in rare and exceptional cases that costs are awarded on a solicitor and client scale.

APPEAL in an action involving a breach of fiduciary duty.

Cases referred to Dyer v. Mekinda Snyder Partnership Inc. (1998), 35 C.C.E.L. (2d) 299 (Ont. Gen. Div.), supp. reasons (1998), 1998 14847 (ON SC), 40 O.R. (3d) 180 (Gen. Div.); Foulis v. Robinson (1978), 1978 1307 (ON CA), 21 O.R. (2d) 769, 92 D.L.R. (3d) 134, 8 C.P.C. 198 (C.A.), revg (1977), 3 C.P.C. 16 (Ont. S.C.); Hodgkinson v. Simms, 1994 70 (SCC), [1994] 3 S.C.R. 377, 97 B.C.L.R. (2d) 1, 117 D.L.R. (4th) 161, 171 N.R. 245, [1994] 9 W.W.R. 609, 16 B.L.R. (2d) 1, 22 C.C.L.T. (2d) 1, 57 C.P.R. (3d) 1, 95 D.T.C. 5135, 5 E.T.R. (2d) 1; Mortimer v. Cameron (1994), 1994 10998 (ON CA), 17 O.R. (3d) 1, 111 D.L.R. (4th) 428, 1 L.W.R. 57, 19 M.P.L.R. (2d) 286 (C.A.) [Leave to appeal to S.C.C. refused (1994), 19 O.R. (3d) xvi, 23 M.P.L.R. (2d) 314, 178 N.R. 146n]; Olson v. Gullo (1994), 1994 1268 (ON CA), 17 O.R. (3d) 790, 113 D.L.R. (4th) 42, 1 L.W.R. 417, 20 B.L.R. (2d) 47, 54 C.P.R. (3d) 497, 2 E.T.R. (2d) 286, 38 R.P.R. (2d) 204 (C.A.) [Leave to appeal refused (1994), 20 O.R. (3d) xv, 41 R.P.R. (2d) 317, 4 E.T.R. (2d) 280n, 179 N.R. 400n, 20 B.L.R. (2d) 47n]; Scanlon v. Standish (2002), 2002 20549 (ON CA), 57 O.R. (3d) 767, 24 R.F.L. (5th) 179, [2002] O.J. No. 194 (C.A.), affg (2001), 2001 28200 (ON SC), 17 R.F.L. (5th) 136 (Ont. S.C.J.); Soulos v. Korkontzilas, 1997 346 (SCC), [1997] 2 S.C.R. 217, 32 O.R. (3d) 716n, 146 D.L.R. (4th) 214, 212 N.R. 1, 46 C.B.R. (3d) 1, 17 E.T.R. (2d) 89, 9 R.P.R. (3d) 1; Visagie v. TVX Gold Inc. (2000), 2000 5749 (ON CA), 49 O.R. (3d) 198, 187 D.L.R. (4th) 193, 6 B.L.R. (3d) 1 (C.A.); William R. Barnes Co. Ltd. v. MacKenzie (1974), 1974 465 (ON CA), 2 O.R. (2d) 659, 44 D.L.R. (3d) 9, 14 C.P.R. (2d) 270 (C.A.)

Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 49, 49.10, 49.13

Authorities referred to Bowstead, W., F.M.B. Reynolds and B.J. Davenport, Bowstead on Agency, 15th ed. (London: Sweet & Maxwell, 1985) Ellis, M., Fiduciary Duties in Canada (Don Mills, Ont.: DeBoo, 1999) Orkin, M.M., The Law of Costs, 2nd ed. (Aurora: Canada Law Book Inc., 1993)

Thomas G. Heintzman, Q.C., and D. Stephen Jovanovic, for appellant. Ronald G. Slaght, Q.C., for respondent.

The judgment of the court was delivered by

[1] ABELLA J.A.: -- The main issue in this appeal is the appropriate remedy for breach of a fiduciary relationship.

Background

[2] On October 1, 1978, Retco entered into an agreement appointing Harbaugh, Walwarth & Associates Inc. to sell its automotive products on an exclusive basis to the Ford Motor Company, and to the remainder of the automotive industry on a non-exclusive basis. Retco and Harbaugh, Walwarth and Associates were the predecessor companies of the parties to this action. Retco became McBride Metal Fabricating Corporation ("McBride") and Harbaugh, Walwarth and Associates became H & W Sales Company Inc. ("H & W").

[3] Although the contract provided that it would expire on September 30, 1984, the parties agreed to continue to be bound by its terms and maintained their business relationship until 1996.

[4] Sales to Ford constituted a major part of McBride's business until 1991, when Ford began to reduce its supplier base by consolidating all its business to large suppliers, deemed Tier 1 suppliers. Smaller suppliers, such as McBride, were deemed Tier 2 suppliers. Tier 2 suppliers no longer sold their products directly to Ford, but instead supplied parts to Tier 1 suppliers who in turn supplied them to Ford.

[5] In 1994, H & W secured a contract for McBride for the manufacture and sale of "jack handles". On this project, McBride was a sub-contractor to Sequoia Tubular ("Sequoia") for parts to be incorporated by Sequoia into a product to be supplied to Ford. When McBride entered into this sub-contract with Sequoia, it was aware that H & W also represented Sequoia. However, it was unaware that H & W had, in January 1994, obtained a 25 per cent equity interest in Sequoia which it retained throughout the duration of the contract between H & W and McBride.

[6] McBride became aware of H & W's interest in Sequoia in August 1996 and promptly terminated the sales representative agreement effective September 30, 1996. In its letter of termination dated August 15, 1996, drafted with the assistance of legal counsel, McBride gave, among other reasons, the following explanations for its decision to terminate the agreement:

. . . McBride finds itself without the level of representation required to meet established goals. We have also been made aware of conflicts in the representation being provided. H & W initially agreed, in writing, that it would not represent accounts which provided products which were competitive or potentially competitive to those products manufactured by McBride. You and your organization have made a conscious business decision to represent other stampers. This is not acceptable.

. . . due to the gross neglect of this account and the lack of integrity displayed by representing other stampers, it is really McBride which should be asking to be reimbursed, since we have not been getting the level of representation initially agreed upon, and that you personally assured us we would get.

[7] From 1994 to 1996, McBride paid H & W commissions totalling approximately $737,000 (USD), excluding commissions for sales related to the Sequoia group. These commissions were paid on the basis of 5 per cent of sales. The gross sales generated by H & W for McBride for the years 1994 to 1996 (apart from the sales to Sequoia) were approximately $14,740,000.

[8] Paragraph 13 of the contract between McBride and H & W specified McBride's obligations upon termination as follows:

In the event of termination of this agreement whether by notice, by effluxion of time or otherwise, the Representative will be entitled to continue to receive its commissions on sales under contracts with the Customers in existence at Retco at the time of such termination, so long as the sale parts produced under such contracts continues at the original contract price, provided that such commissions shall be payable only on the following basis:

(a) five per cent (5 [per cent]) on continuing production parts as set out above based on sales made (as hereinbefore defined) during the period of twelve (12) months from the effective date of termination;

(b) three per cent (3 [per cent]) on continuing production parts as set out above based on sales made (as hereinbefore defined) during the period of thirteen to eighteen (13 to 18) months from the effective date of termination;

(c) one per cent (1 [per cent]) on continuing production parts as set out above based on sales made (as hereinbefore defined) during the period of nineteen to twenty-four (19 to 24) months from the effective date of termination.

After the above periods no further amounts shall be paid or payable. During the periods above mentioned, the Representative will continue to render such services as are reasonably required by Retco.

[9] McBride received a letter dated January 9, 1997 from the Michigan attorneys for H & W, setting out its estimates of commissions still owing to H & W following the termination of the contract. As a result, McBride brought an action for declarations that H & W had breached the terms of its contract and the fiduciary duties it owed to McBride, by acting as a sales representative for competitive stampers. McBride claimed damages and an accounting.

[10] H & W brought a counterclaim, seeking payment for commissions owing to it under the termination provisions of the contract. At trial, H & W limited its claim to $208,005.85, the commissions that were unrelated to the Sequoia group of companies. McBride eventually abandoned its claim for damages and an accounting, and instead sought a declaration that it owed H & W nothing further under the sales representative agreement.

The Trial

[11] Justice Zuber found that H & W was an agent for McBride at all material times and that a fiduciary relationship existed between them. He also concluded that H & W's position as an owner of Sequoia put it in a conflict of interest with McBride, and that the failure to disclose this interest was a clear breach of fiduciary duty. This finding was not challenged on appeal. The sole issue in this appeal therefore, is the appropriate remedy for H & W's breach.

[12] As Justice Zuber observed, McBride did not seek the recovery of any property, secret profits, or commissions arising out of the agreement with Sequoia or damages for the loss of any contracts which may have been awarded to Sequoia rather than McBride. Instead, its submission was that had it known about H & W's breach of fiduciary duty when it occurred in 1994, it would have terminated the sales agreement at that time. As a result, it argued that any obligation to pay diminishing commissions after termination pursuant to para. 13 of the contract began in 1994, when it would have been entitled to terminate the agreement, and ended two years later in 1996. Its position was that H & W should not be permitted to take advantage of its failure to disclose its fiduciary breach by having the termination date run from the date of the discovery of the breach, a calculation that would extend H & W's entitlement to commissions by two years. Since the $737,000 (USD) McBride paid H & W during the two years after the actual breach in 1994 would more than satisfy McBride's obligations pursuant to para. 13 of the sales contract, McBride claimed it owed nothing more to H & W.

[13] H & W, on the other hand, argued that the two-year termination period commenced with McBride's discovery of the breach and resulting termination of the contract in 1996, and that it was therefore owed approximately $208,000 in commissions under para. 13 of the contract. It also argued that its entitlement to the commissions should not be affected by the non-disclosure of its interest in Sequoia, citing the following principle in favour of severable transactions enunciated by Evans J.A. in William R. Barnes Co. Ltd. v. MacKenzie (1974), 1974 465 (ON CA), 2 O.R. (2d) 659 at p. 664, 44 D.L.R. (3d) 9 (C.A.):

The principle that a dishonest agent is not entitled to a commission from his principal is well recognized, as is the right of a principal to any secret profit earned by his dishonest agent. An agent stands in a fiduciary relationship with his principal with his remuneration usually attributable to separate transactions. If he is dishonest in one transaction he forfeits his commission thereon, but not on other transactions faithfully performed.

(Emphasis added)

[14] The same principle is stated in Bowstead On Agency, 15th ed. (London: Sweet & Maxwell, 1985) at p. 242:

There can obviously be cases where the agent effects severable transactions, and in these cases the rule depriving him of commission will only apply to those in respect to which he is in a breach of duty.

[15] The trial judge concluded [at p. 47 C.P.R.] that this was not a case of severable transactions, since he found that if there had been no breach of fiduciary duty and thus full disclosure, McBride would have terminated the whole contract in 1994, not merely those transactions relating to Sequoia:

In this case the sales contract which entitled the defendant, H & W, to commissions also conferred on the plaintiff the ability to alter those obligations, an ability which McBride did not exercise because there had not been full disclosure.

[16] In Justice Zuber's view, therefore, it would be inappropriate and contrary to the law of fiduciary duty, to permit H & W to profit from the sales contract for an additional two years as a result of its continued concealment of its ownership interest in Sequoia. To hold otherwise would permit a fiduciary to profit from its wrongful non-disclosure. To allow H & W to recover commissions beyond 1996 would also, according to Justice Zuber"dilute the fiduciary obligation" and "erode the protection the law affords to modern business structures".

[17] Justice Zuber concluded that the only appropriate remedy was the declaratory judgment sought by the plaintiff which he granted in the following language [at p. 47 C.P.R.]:

. . . [T]he defendant was in breach of its duty to the plaintiff and there is nothing owing by the plaintiff to the defendant. It follows that the counterclaim must be dismissed.

[18] For purposes of a possible appeal, Justice Zuber quantified the value of H & W's counterclaim for commissions owing up to August 1996 as being $208,005.85.

[19] It was common ground between the parties that the amount of commissions paid over this period exceeded the amount to which the appellant would have been entitled had the agreement been terminated in 1994. Since McBride was prepared to leave matters as they stood, there was no need on the trial judge's part for any further inquiry into the scope or amount of its damage.

Analysis

[20] The issue in this appeal is whether the trial judge erred in finding that nothing further was owed to H & W because of its breach of fiduciary duty and because of McBride's resulting loss of opportunity to terminate the agreement in 1994 as it would have done had it known of the breach.

[21] H & W argued not only that the sales to customers other than Sequoia are severable from the Sequoia sales, but also that it is contrary to contract law to retroactively rescind a contract, which is the effect of the trial judge's remedy. It also argued that absent proof of damage or loss connected to the breach, McBride was not entitled to "damages" represented by the retention of the 1996-1998 commissions.

[22] Justice Zuber in effect, found that the Sequoia and non- Sequoia sales were not separate or severable transactions because they were all governed by the same sales representative agreement, under whose terms the entitlement to commissions on all sales would be affected in the event of the agreement's termination, a step McBride did not take only because there had not been full disclosure. I agree with this conclusion. The only reason H & W is in a position to claim commissions after 1996 is because it failed to disclose in 1994. Both the Sequoia and the non-Sequoia transactions are equally tainted by the fiduciary breach and the appellant is no more entitled to commissions after 1996 on the non-Sequoia sales than on the Sequoia sales.

[23] The trial judge also found that McBride had suffered a loss as a result of the appellant's failure to make full disclosure, namely the right to terminate the agreement in 1994.

[24] It is clear that Justice Zuber found the breach to be one going to the root of the entire agreement, an occurrence which, in equity, justifies the refusal of any remuneration from a principal to his or her agent. His remedy was based upon a breach of fiduciary duty, not a breach of contract. It was appropriate relief since it was designed to rectify a breach of fiduciary duty, a unique wrong distinct from a contractual breach calling for a distinct equitable remedy.

[25] H & W's submission that it would be unfair to allow McBride to retain the commissions owing on the contract for the 1996-1998 period because it also had the benefit of the profits earned on the sales made by H & W, is, while understandable, not a determinative consideration in breaches of fiduciary duty. As Charron J.A. stated in Visagie v. TVX Gold Inc. (2000), 2000 5749 (ON CA), 49 O.R. (3d) 198 at p. 210, 187 D.L.R. (4th) 193 (C.A.):

. . . "[f]iduciary law, being concerned with the exaction of a duty of loyalty, does not require that harm in the particular case be shown to have resulted." [Lac Minerals Ltd. v. Int. Corona Resources, 1989 34 (SCC), [1989] 2 S.C.R. 574 at p. 657.] Hence the remedy for breach of fiduciary duty is not necessarily commensurate to the loss to the beneficiary. It is a question rather of not allowing the fiduciary to profit from its misconduct.

(See also Ellis, Mark, Fiduciary Duties in Canada, p. 20-13 (Don Mills, Ont.: Deboo, 1999); Olson v. Gullo (1994), 1994 1268 (ON CA), 17 O.R. (3d) 790, 113 D.L.R. (4th) 42; and Soulos v. Korkontzilas, 1997 346 (SCC), [1997] 2 S.C.R. 217, 146 D.L.R. (4th) 214.)

[26] The remedy granted by the trial judge was, in my view, properly guided by the principle which informs remedies for breach of fiduciary duty: putting the respondent in the position it would have been in but for the breach. There is, moreover, no doubt that a principal can repudiate an agency contract when an agent has breached its fiduciary duty, and refuse to pay commissions in respect of that breach.

[27] In this case, the breach was the appellant's failure to disclose its ownership interest in Sequoia. The trial judge found that had such disclosure been made, the respondent would have terminated the agreement in 1994, a finding not challenged on appeal. This would have resulted in commissions being payable only until 1996.

[28] In my view, H & W's claim for commissions beyond 1996 would have allowed it to profit from its misconduct. The issue is not whether McBride can show any actual monetary loss. Nor is it appropriate to impugn the remedy by characterizing it as a retroactive rescission of the contract. What was lost, as the trial judge found, was McBride's right to terminate the contract at the time of the breach.

[29] The remedy, therefore, that would best put McBride in the position it would have been in had there been no breach of fiduciary duty, was to prevent H & W from profiting from commissions it was able to earn after 1996 solely through its dishonesty. As Justice Zuber said [at p. 47 C.P.R.]:

The law demands from the fiduciary the most abundant good faith, candor, and honesty. To permit the [appellant] to profit from the [Agreement] for an additional two years as a result of the continued concealment of its ownership interest in Sequoia would be inconsistent with this demand. The law should therefore prohibit the fiduciary from profiting in this way from non-disclosure.

[30] The remedies for breach of fiduciary duty are discretionary, dependent on all the facts before the court, and designed to address not only fairness between the parties, but also the public concern about the maintenance of the integrity of fiduciary relationships. As La Forest J. stated in Hodgkinson v. Simms, 1994 70 (SCC), [1994] 3 S.C.R. 377 at p. 453, 117 D.L.R. (4th) 161:

The law of fiduciary duties has always contained within it an element of deterrence . . . In this way the law is able to monitor a given relationship society views as socially useful while avoiding the necessity of formal regulation that may tend to hamper its social utility.

[31] McBride did not request that all the commissions earned in the two years after the breach be returned. Instead it simply wanted a declaration that it owed the appellant nothing further. Based on the uncontested findings of breach of fiduciary duty and the consequential loss of McBride's ability to terminate the contract in 1994, the trial judge's granting of this declaration was consistent with the facts and responsive to the misconduct. The appellant has shown no error in principle or failure to appreciate relevant factors by the trial judge in making his discretionary order.

[32] Justice Zuber did not apply a contract law remedy in this case and did not state that the contract was terminated at the time of the breach. Instead, applying an equitable remedy, he found that had McBride been aware of H & W's breach of fiduciary duty in 1994, it would have terminated the contract at that time, and that H & W should not be permitted to benefit from the contract for two years longer than it would have had it disclosed its ownership interest in Sequoia. Otherwise, it would wrongfully profit from its breach of duty. Justice Zuber exercised his discretion to simply "call it even" between the parties, as he was fully entitled to do, and found that McBride owed nothing further to H & W.

[33] I would therefore dismiss this part of the appeal with costs.

Costs

[34] The appellants also appeal the award of costs on a solicitor and client scale made at trial. With respect to the trial judge, I agree that costs on a solicitor and client scale were not justified in this case and would allow this portion of the appeal.

[35] Prior to the beginning of the litigation in this matter, the respondents made an offer to settle this action for $19,000 (USD). However, as it was a pre-litigation offer, it is not an offer within the meaning of Rule 49 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. (See Scanlon v. Standish (2002), 2002 20549 (ON CA), 57 O.R. (3d) 767, [2002] O.J. No. 194 (C.A.).) However, rule 49.13 indicates that in exercising its discretion as to costs, a court may take into account any offer to settle made in writing, the date the offer was made, and the terms of the offer.

[36] The trial judge elected to exercise his discretion under rule 49.13 and award the respondent costs on a solicitor-client scale. The grounds for this award were that the litigation had been unnecessary due to the settlement offer and that the result obtained by the respondent at trial was more favourable than the offer. The trial judge also noted that the appellant had seriously abused the fiduciary relationship between the parties, although he specifically declined to find that the appellant's conduct had been reprehensible.

[37] In Dyer v. Mekinda Snyder Partnership Inc. (1998), 1998 14847 (ON SC), 40 O.R. (3d) 180 (Gen. Div.), Fedak R.S.J. held that solicitor and client costs should not be awarded under rule 49.13 unless there has been egregious or reprehensible conduct that warrants sanction.

[38] In Mortimer v. Cameron (1994), 1994 10998 (ON CA), 17 O.R. (3d) 1, 111 D.L.R. (4th) 428, this court held that the judicial discretion under rule 49.13 is not so broad as to permit a fundamental change to the law which has traditionally governed the award of solicitor and client costs. Speaking for the court, Robins J.A. affirmed the general principle expressed in Foulis v. Robinson (1978), 1978 1307 (ON CA), 21 O.R. (2d) 769, 92 D.L.R. (3d) 134 (C.A.), that costs are usually paid by the unsuccessful party on a party and party scale and that it is only in the rare and exceptional case that costs are awarded on a solicitor and client scale. At p. 23 O.R., Robins J.A. cited the law respecting solicitor and client costs, as reviewed by Orkin, The Law of Costs, 2nd ed. (Aurora: Canada Law Book, 1993), pp. 2-91 to 2-92:

Costs on the solicitor-and-client scale should not be awarded unless special grounds exist to justify a departure from the usual scale.

Such orders are not to be made by way of damages, or on the view that the award of damages should reach the plaintiff intact, and are inappropriate where there has been no wrongdoing.

An award of costs on the solicitor-and-client scale, it has been said, is ordered only in rare and exceptional cases to mark the court's disapproval of the conduct of a party in the litigation. The principle guiding the decision to award solicitor-and-client costs has been enunciated thus:

[S]olicitor-and-client costs should not be awarded unless there is some form of reprehensible conduct, either in the circumstances giving rise to the cause of action, or in the proceedings, which makes such costs desirable as a form of chastisement.

[39] In Dyer, Fedak R.S.J. noted that the ruling in Mortimer v. Cameron has been consistently followed in this jurisdiction. Apart from the operation of rule 49.10 (introduced to promote settlement offers), only conduct of a reprehensible nature has been held to give rise to an award of solicitor and client costs. In the cases in which they were awarded there were specific acts or a series of acts that clearly indicated an abuse of process, thus warranting costs as a form of chastisement. The conduct of the parties relating to the circumstances giving rise to the litigation or to their actions during the trial can be used to justify an award of costs.

[40] Justice Zuber made a specific finding that while H & W's conduct represented a serious breach, there was nonetheless insufficient evidence to say that the conduct was reprehensible. An award of solicitor and client costs, therefore, was not, with respect, justified in this case. I would therefore allow this aspect of the appeal with costs.

Order accordingly.