COURT OF APPEAL FOR ONTARIO
CITATION: Oz Optics Limited v. Timbercon, Inc., 2012 ONCA 735
DATE: 20121030
DOCKET: C51799
Simmons, Armstrong and LaForme JJ.A.
BETWEEN
Oz Optics Limited
Plaintiff (Appellant)
and
Timbercon, Inc.
Defendant (Respondent)
Stephen Victor, Q.C. and David Cutler, for the appellant
Jonathan Stainsby, Mark E. Davis and Andrew McIntyre, for the respondent
Heard: April 29, 2011
On appeal from the judgment of Justice Julianne A. Parfett of the Superior Court of Justice, dated February 10, 2010, with reasons reported at 2010 ONSC 310, 73 B.L.R. (4th) 120.
COSTS ENDORSEMENT
INTRODUCTION
[1] The court allowed this appeal in respect of a claim for negligent misrepresentation and ordered a new trial limited to damages. We awarded the appellant its costs of the appeal on a partial indemnity scale fixed in the amount of $40,000, including disbursements and applicable taxes.
[2] Since the majority of the trial covered various issues of liability in respect of the FiberStar Project, we allowed the appellant its costs of the trial. However, we ordered that the trial costs should be adjusted to account for the fact that the appellant, Oz, did not succeed in respect of the issue related to the manufacture and sale of manual attenuators.
[3] If the parties were unable to agree on the costs of the trial, we invited the parties to make written submissions. They could not agree. We have received and reviewed the written submissions and this is our endorsement on the costs of the trial.
THE APPELLANT’S SUBMISSIONS
[4] Oz submits that its costs of the trial on a substantial indemnity scale are $616,903.08 and, on a partial indemnity scale, are $411,334.94. Oz applies a 10 per cent discount to its costs to take into account its lack of success on the issue of the manual attenuators. It therefore claims $555,212.77 on a substantial indemnity scale or $370,201.45 on a partial indemnity scale.
[5] We note that Timbercon’s original claim for costs of the trial was $774,229, and Timbercon received a costs award of $454,700 on a partial indemnity scale for the trial.
[6] Oz submits that it is entitled to substantial indemnity costs because of Timbercon’s conduct giving rise to the cause of action and its conduct in the discovery stage of the litigation.
[7] In particular, Oz argues that Timbercon acted in a reprehensible manner in assuring Oz that it would be the sole supplier of the automatic attenuators and then, without the knowledge of Oz, inviting another supplier, DiCon, to bid on the project and ultimately rigging the bids in favour of DiCon. Oz further submits that in the discovery stage of the litigation, Timbercon failed to disclose key relevant documents, which ultimately exposed its prior reprehensible conduct.
THE RESPONDENT’S SUBMISSIONS
[8] The respondent makes the following submissions:
(i) Although the court has held that Oz is entitled to its costs of the trial, the assessment of the costs should be deferred until the damages are quantified in a new trial.
(ii) If the costs are to be assessed, they should be assessed on a partial indemnity scale.
(iii) The quantum claimed by Oz is excessive and should be reduced due to a number of factors including the amount of the damages claimed, the trial delay attributed to the conduct of Oz and the divided success.
(iv) Timbercon should be awarded its costs of the trial related to the manual attenuators and its success in defending the allegation of breach of confidence and misappropriation of intellectual property as well as its success in certain motions during the course of the trial.
ANALYSIS
(i) Should the assessment of the trial costs be deferred until the damages are quantified after a new trial?
[9] Timbercon submits that the assessment of the costs should be deferred and makes four points in support of its submission.
[10] First, it submits that the amount claimed compared to the amount recovered is an important factor for the court to consider pursuant to rule 57.01(1)(a) of the Rules of Civil Procedure. The amount recovered is not yet known.
[11] Second, it submits that the period for which Oz may claim reliance damages for negligent misrepresentation is limited to a short timeframe: August 4, 2003 to October 4, 2003 and therefore damages are likely to be minimal.
[12] Third, if the amount recovered is less than the $50,000 cap provided under the simplified procedure rules, the cap could operate to deny Oz its costs.
[13] Fourth, there could be costs consequences under rule 49.
[14] In respect of the first point, we agree that the amount claimed compared to the amount recovered is a factor that the court may consider under rule 57.01 and that it will not be possible to make the comparison until the damages assessment is done. However, in all the circumstances of this case and in particular the conduct of Timbercon, discussed below, we think it is appropriate to proceed to make a costs award now.
[15] We are not persuaded by points 2, 3 and 4. Given the exceptional circumstances of this case, and, in particular, the conduct of Timbercon before the commencement of the action and in respect of the discovery stage of the litigation, a low damages award would not be a significant factor in determining the scale or the quantum of costs. Even if the damages are so low that rules 49 or 76 come into play, we would exercise the court’s discretion to deny the application of those rules.
(ii) On what scale should the costs be assessed?
[16] This is a case for costs on a substantial indemnity scale. There is a finding by the trial judge, not challenged on appeal, that Timbercon rigged both of the bids presented to Lockheed Martin in order to ensure that DiCon was the successful bidder. In respect of the failure to produce relevant documents from DiCon, including the key e-mail between Timbercon and DiCon inviting DiCon to make a bid, Timbercon takes the position that they did not have this document and other documents in their possession, and therefore could not produce them. While that may be so, there is no explanation as to why it is so. If there was a credible explanation, we are sure we would have heard it. In any event, substantial indemnity costs are warranted when one of the parties is guilty of reprehensible conduct either prior to the litigation or during the litigation itself: see Hunt v. TD Securities Inc. (2003), 2003 CanLII 3649 (ON CA), 66 O.R. (3d) 481 (C.A.) at para. 123. In our view, the conduct of Timbercon in rigging the bids prior to the commencement of the litigation is sufficient to justify such an award.
(iii) The quantum
[17] The assessment of costs is not an exact science. The overriding principle is that a costs award must be fair and reasonable. As indicated, costs in this case need to be adjusted to take into account Oz’s lack of success in respect of the manual attenuators. Also, we agree with counsel for Timbercon that an adjustment should be made because of the lack of success in respect of the claims for breach of confidentiality and misappropriation of intellectual property. Those issues were not before us on appeal, however, they are relevant to the trial costs.
[18] As already noted, Oz submits that the adjustment in respect of the manual attenuators should be 10 per cent. Timbercon submits this adjustment should be “approximately 25 per cent to 30 per cent”. Timbercon also submits that the adjustment in respect of the issue of breach of confidence and misappropriation of intellectual property should be 25 per cent to 35 per cent. We are of the view that a fair and reasonable adjustment is 20 per cent for each of those issues, i.e. a 40 per cent adjustment overall. Using a “rounded figure” of $617,000 for Oz’s substantial indemnity costs, we would deduct 40 per cent or $247,000, which produces a global rounded figure of $370,000. Finally, we do not consider it appropriate to make an adjustment or deduction on account of certain motions that Timbercon submits it won at trial and in respect of alleged delay created by Oz relating to the claim for breach of confidentiality and misappropriation of intellectual property. The adjustment in respect of the latter has already been made.
(iv) Should Timbercon be awarded its costs related to the manual attenuators, its success in defending the allegation of breach of confidence and misappropriation of intellectual property and its success on certain motions during the course of the trial?
[19] In view of our above reasons, it is apparent that we do not agree that costs should be awarded in favour of Timbercon. Timbercon, in effect, is asking for a distributive costs order, which this court has said is restricted to the rarest of cases: see Eastern Power Ltd. v. Ontario Electricity Financial Corp., 2012 ONCA 366 at para. 18.
CONCLUSION
[20] In the result, we fix Oz’s trial costs on a substantial indemnity scale in the amount of $370,000 inclusive of disbursement and applicable taxes.
“Janet Simmons J.A.”
“Robert P. Armstrong J.A.”
“H.S. LaForme J.A.”