DATE: 20030303

DOCKET: C37686

COURT OF APPEAL FOR ONTARIO

DOHERTY, AUSTIN and GILLESE JJ.A.

B E T W E E N:

3664902 CANADA INC. and 174616 CANADA INC.

Robert J. Morris for the appellants

Plaintiffs/Appellants

• and -

HUDSON’S BAY COMPANY, c.o.b. as “THE BAY DEPARTMENT STORES”

Bonnie A. Tough and Jason Squire for the respondent

Defendant/Respondent

Heard: February 25, 2003

On appeal from the judgment of Justice S.E. Lang dated January 3, 2002.

BY THE COURT:

The Appeal

[1] The appellants submit that the trial judge erred in holding that the parties had not reached an enforceable agreement by the middle of October 1999. According to the appellants, the parties had reached an agreement whereby the appellants would become the new fur salon licensee for the respondent.

[2] We have the benefit of the trial judge’s detailed and careful review of the evidence. She also made clear findings of fact. The trial judge concluded that while the parties were in serious negotiations, they had not reached agreement on several terms which she held were essential to the existence of the agreement alleged by the appellants. Among the terms which the trial judge held had not been agreed upon was the term concerning the length of the licence. Counsel for the appellants, quite correctly, conceded that the term of the proposed licence was an essential term of any licence agreement. If there was no agreement as to the term of the licence, there was no enforceable contract. Consequently, if this aspect of the trial judge’s judgment can withstand scrutiny on appeal, the appeal must fail.

[3] After reviewing the evidence, the trial judge said:

The term of the contract was a matter of ongoing negotiations.

[4] The trial judge’s review of the evidence supports the conclusion that the parties had not agreed upon the length of time for which the appellants would have the licence. In coming to that conclusion, the trial judge did not consider irrelevant factors, did not materially misapprehend the evidence and did not fail to consider relevant evidence. The evidence was far from all one way. It was for the trial judge to sort through that evidence and reach the necessary findings of fact. In doing so, she did not err.

The Cross-Appeal

[5] The cross-appellant (the Bay) contends that the trial judge erred in finding that it misrepresented to the appellants its ability to terminate its existing licence agreement. From the outset of the discussions, the Bay represented that it could terminate the existing agreement on ninety days notice when, on the facts as found by the trial judge, it knew or ought to have known that it could not do so or, at a minimum, that there was a significant “obstacle to termination of the licence”. The trial judge’s finding as to the nature of the representation made by the Bay and her finding that it was negligently made, was amply supported by the evidence.

[6] The evidence leaves no doubt but that the appellants relied on the misrepresentation. The Bay submits, however, that given the commercial context in which the negotiations were taken place, it was not reasonable for the appellants to rely on the respondent’s representation. We cannot agree. The reasonableness of a party’s reliance in cases of negligent misrepresentation requires a fact-specific inquiry. Given the history of these negotiations and the central importance to both parties of the appellants’ ability to step into the role of licensee the following February, it was reasonable for the appellants to take steps to be in a position to take over the fur salon operation in reliance on the Bay’s representation as to its ability to terminate the ongoing lease. The steps the appellants took as a result of that reliance were reasonable and were properly considered in assessing the damages flowing from the negligent misrepresentation. The Bay’s heavy reliance on Martel Building Ltd. v. Canada, [2000] 3 S.C.R. 860 is misplaced. Martel was not a case of negligent misrepresentation. Rather, it dealt with the claim that principles applicable to economic loss flowing from negligent misrepresentation should be applied to allegations of mere negligence in the conduct of negotiations.

[7] The Bay also took issue with the damages awarded on the negligent misrepresentation claim. The Bay conceded that the appellants had incurred damages, but argued that they had failed to properly distinguish between losses arising out of the negligent misrepresentation and losses which arose because of the appellants’ assumption that they would obtain the licence agreement. While it is fair to say that the appellants’ damage claim lacked specificity in some areas, it was sufficient to establish that losses in the nature of professional fees and employees’ salaries were incurred as a result of the negligent misrepresentation. The trial judge did not pretend that the figures she arrived at represented any kind of mathematical calculation. In our view, the figures she arrived at reasonably reflected the fact that some, but by no means all, of the professional fees and employees’ salaries paid by the appellants were attributable to the respondent’s negligent misrepresentation.

The Costs Appeal

[8] The Bay also requested leave to appeal the judgment as to costs and asked that it be varied to substitute a lesser amount for costs than the $250,749.65 awarded to the plaintiffs.

[9] The Bay’s factum limited its appeal respecting costs to one item, an award of $115,000 for an experts’ report from PriceWaterhouseCoopers, the plaintiffs’ accounting witness. The claim in the bill submitted by the plaintiffs was for the full cost to them of $116,726 including GST. Accordingly, the award constituted virtually full indemnity for this disbursement.

[10] The trial judge dealt with this item as follows:

The second main point of contention was the amount charged by way of experts’ fees. In this case, the plaintiff submits accounts both for PriceWaterhouseCoopers (the expert that produced reports and testified at trial) and for Friedman & Friedman (the plaintiff’s accounting firm). The onus is on the plaintiff to establish that, at the time, the disbursement was a reasonable one reasonably necessary for the trial of the matter. If the plaintiff submits an account that satisfies those requirements, I will allow it unless there is some reason to persuade me to a contrary result.

PriceWaterhouseCoopers produced two detailed reports and testified at trial. Expert evidence on the claimed loss quantification was a major issue at trial. This expert has produced accounts giving details of the time spent on different matters. The accounts include time to prepare the expert to give evidence and to prepare argument for counsel on the accounting issues. While the defendant takes issue with this part of the report, it no doubt contributed to trial efficiency to have the accountant brief counsel and assist with damages submissions. Provided there is no duplication of effort, I cannot take exception to the expert’s account in that respect. The administrative costs claimed in the accounts, however, are not detailed. I have no information to determine whether they are reasonable. I have deducted a modest amount from the accounts to reflect the lack of information. I allow the expert’s account at $115,000.00 inclusive of GST.

[11] The cross-appellant raised two complaints respecting this allowance: first, that the onus was on the party awarded costs to justify them and second, what might be called the partial indemnity factor. In the circumstances, we are not prepared to interfere on the justification point.

[12] The partial indemnity argument is to the effect that, the award being on a partial indemnity basis by agreement between the parties, the trial judge erred in law in making an award constituting virtually full indemnity.

[13] It is suggested that authority for this proposition is to be found in r. 57.01, in Tariff A, Part I (the “new” Costs Grid) and in Tariff A, Part II Disbursements, items 26 and 28. These latter items deal with the allowing of “reasonable amounts” for expert’s reports and expert testimony “reasonably necessary for the conduct of a proceeding”. It was conceded that no reliance was being placed on any recent change in the rules or Tariff and that the argument now being made could equally have been made prior to the coming into force of the relatively recent amendments respecting “partial indemnity” and “substantial indemnity”.

[14] Reliance was placed on the decision of Nordheimer J. in Pearson v. Inco Ltd., [2002] O.J. No. 3532. This decision dismissed the plaintiff’s motion to certify a class action. Having decided to award costs to the defendants, apparently on a partial indemnity basis, the motion judge then dealt with a claim by Inco for “$154,722.50 in fees, $103,070.36 for expert’s fees and $6,013.34 in disbursements”. After dealing with legal fees, the motion judge continued:

In addition there are disbursements to be considered. I do not intend to go through the disbursements line by line. The disbursements sought, outside of the witness fees, are appropriate disbursement items and the amounts appear to be reasonable. I would allow them at $6,000. The other issue is the amount of approximately $100,000 paid to witnesses. I consider that the approach to the recovery of fees paid to expert witnesses ought to be exactly the same as the approach to the fees to be recovered by counsel. The court should consider what is fair in terms of hours and rates as well as the overall amount and should then fix an amount which it is reasonable for the losing party to pay. In so doing, the court is not bound by what the client may have actually had to pay the expert. Further, if a witness, lay or expert, had to travel to be cross-examined, then the losing party is required to pay the reasonable travel expenses of the witness. However, the losing party is not required to pay for travel time nor for travelling expenses that are not reasonable.

In considering the fees for witnesses, I would observe that some of the amounts sought are out of proportion to the contribution which the experts made to the proceeding. For example, more than $25,000 is sought for the work of Clayton Research. That amount includes time for eight different people at rates up to $285 per hour. Such fees are beyond what the unsuccessful party should have to pay on a partial indemnity basis. Similarly, the fees charged by Mr. Becking, insofar as his expenditure of time is revealed, include travel time and hotel expenses which it is not clear was necessary.

In the result, I would allow those disbursements as follows:

Ron Pearson $3,500

Frank Clayton (and those assisting

him) $10,000

Brian Watts $5,000

George Becking $20,000

Finally, I must consider whether the resulting amounts of $72,000 for fees plus disbursements of $6,000 and witness fees of $38,500 are reasonable amounts to fix for costs of this four day certification motion. I do not believe that they are. The total of these amounts is, no doubt, much more than this representative plaintiff would have expected to have to pay by way of costs. Having said that, however, and as I said in Gariepy, it seems to me that a representative plaintiff who institutes a proposed class proceeding of this scope must, or should, realize that the costs associated with doing so are going to be substantial. This same representative plaintiff would no doubt have expected to recover a significant amount by way of costs if he had been successful and there is no sound basis for the costs to differ greatly just because the certification motion was unsuccessful.

In the end result, balancing the actual work done against the existing range of costs awards on other certification motions, I fix the costs of Inco at $45,000 for fees and $40,000 for disbursements (including the witness fees) for a total of $85,000. (emphasis added)

[15] Counsel for the cross-appellant in the instant case relies upon the italicized sentences as authority for the proposition that where an award is being assessed on a partial indemnity basis, even where it is determined that a witness is reasonably necessary and his or her expert’s fees are reasonably calculated at say $10,000, some further deduction is appropriate to reflect the fact that the award is intended to be only partial indemnification.

[16] We agree that the sentences relied upon can be construed as supporting that proposition. Nordheimer J. himself, however, does not appear to have applied that interpretation in that same case. His award was on a partial indemnity basis. The claim for disbursements was $6,013.34 and he allowed $6,000 or substantial indemnity.

[17] No other authority was cited for the principle in issue and the collective experience of this panel of this court is to the contrary. To be explicit, it is our experience that both under the party-and-party costs regime and the newer partial indemnity regime, disbursements, including witness fees, are assessed upon the basis of what was actually spent, reduced if appropriate to what is reasonably spent. The resulting figure is not then further reduced by reason of the fact that the indemnification is on a party-and-party or partial indemnity basis as opposed to a solicitor-and-client or substantial indemnity basis. To take an example, a witness’s travel expense of $1,000 to travel first class/business class by Air Canada from Ottawa to Toronto would, if the witness’s attendance from Ottawa by air was found reasonably necessary, be reduced to an economy fare of $750 on the basis of “reasonableness” but would not be further reduced by reason of the fact that the award was on a partial indemnity basis.

[18] In this regard, we question the distinction drawn by Nordheimer J. between disbursements on the one hand and witness fees on the other. Both are found in Part II of Tariff A under the heading “Disbursements”. In our experience, witness fees, whether to expert or lay witnesses, are simply one class of disbursement. Accordingly, we question the proposition that “the approach to the recovery of fees paid to expert witnesses ought to be exactly the same as the approach to the fees recovered by counsel”. Unless some custom has grown up, perhaps in the context of class proceedings, upon which this statement is based and which has not been drawn to our attention, we disagree with it. Legal fees which are paid to lawyers for their own use are determined according to the principles set out in rules 57 and 58 and Tariff A., Part I. Disbursements are assessed according to Tariff A, Part II, items 26 and 28 of which deal specifically with the reports and testimony of experts. Each of items 26 and 28 is expressly limited to “a reasonable amount”.

[19] Part I, dealing with the fees of lawyers, clerks and students is expressly divided into two scales – partial indemnity and substantial indemnity. No item in either scale is a flat figure; every item is “up to” so many dollars per hour. Thus the potential fee of any lawyer of any experience, can, accepting the number of hours engaged, be calculated to the penny either on a partial indemnity basis or on a substantial indemnity basis. Those fees so calculated can also be varied exercising the “up to” aspect of the scale. In these ways, an assessment officer or judge can make adjustments for efficiency, inefficiency, experience and a host of other factors, including the partial or substantial nature of the award.

[20] Disbursements, including expert’s fees, are dealt with under Part II of Tariff A. Some of the items allow the amount “actually paid”. Item 27 for instance reads simply:

The cost of the investigation and report of the Official Guardian.

Other items allow simply “a reasonable amount”. There is no provision for any alteration in the actual cost in the event of an award on a partial indemnity basis. Nor is there any provision for the reduction of any item in Part II beyond the requirements of “reasonably necessary” and “reasonable amount”.

[21] Accordingly, in our view, the fees for the reports and testimony of experts are to be dealt with as disbursements under Part II of Tariff A and recovery of such fees is not to be treated in the same fashion as counsel fees. We agree with the manner in which Lang J. dealt with the PriceWaterhouseCoopers account in the instant case. We see no basis for the further reduction of that account upon the basis that the award of costs under which it was assessed was for partial indemnity only.

[22] A further objection was raised to the effect that some of the hourly rates in the PriceWaterhouseCoopers account were as high as or higher than those in the Costs Grid in Part I of Tariff A. This argument is not mentioned expressly in the reasons of the trial judge. Whether or not raised below, she has dealt with it implicitly by finding the total amounts reasonable. We find no error in that conclusion.

[23] Leave to appeal costs is granted but that appeal is dismissed.

RELEASED: “DD” “MAR 03 2003”

“Doherty J.A.”

“Austin J.A.”

“E.E. Gillese J.A.”