COURT FILE NO.: 439/05

DATE: 20060209

SUPERIOR COURT OF JUSTICE - ONTARIO

DIVISIONAL COURT

RE: The united states of america et al. v. george michael yemec, et al.

BEFORE: Justice Epstein

COUNSEL: Thomas J. Dunne, Q.C. and Duncan Boswell, for the Plaintiffs

David E. Wires and Teresa Cheung, for the Respondents, George Michael Yemec and Related Defendants

H. James Marin and Wendy R. Cole, for the Respondents, Julia F. Bungaro, Nelson Bunting and Jackpots & Prizes

HEARD: December 21, 2005

E N D O R S E M E N T

EPSTEIN J.

[1] The plaintiffs seek leave to appeal the costs Order of Gans J. dated October 18, 2005 granting the defendants substantial indemnity costs plus interest. The defendants’ motion to set aside an ex parte Mareva injunction and an Anton Piller order was successful. Gans J. awarded costs in their favour in the aggregate of $616,900. This amount includes fees, disbursements, interest and GST.

Background

[2] In October 2002, the plaintiffs obtained the ex parte orders from Nordheimer J.

[3] In October 2003, following five days of argument, Gans J. dissolved the injunctions.[^1] His reasons included a finding that in their submissions before Nordheimer J., the plaintiffs had not made full and frank disclosure. Gans J. did not determine costs at that time. Rather he ordered that costs would be determined, if necessary, at a later date. McCombs J. granted leave to appeal. Upon hearing the appeal, the Divisional Court panel agreed with Gans J. that the plaintiffs had failed to disclose a particular material fact. The panel dismissed the appeal and rejected the defendants’ demand for substantial indemnity costs and premiums. Costs related to the application for leave and the appeal itself were made payable by the plaintiffs and fixed in the amount of $70,000 including fees, disbursements and GST.

[4] After the Divisional Court released its reasons, Gans J. was asked to fix costs. In a case conference on May 20, 2005 he indicated he would accept written submissions but would not be able to issue the award until the fall of 2005.

[5] The defendants were divided into two groups: the Yemec defendants and the Bungaro defendants. In their first costs submissions, both sets of defendants claimed substantial indemnity costs. The Yemec defendants sought costs of $645,304.98, and the Bungaro defendants claimed $136,778. Both of these amounts included fees, disbursements, GST and a premium.

[6] On June 23, 2005, the Yemec defendants delivered supplementary costs submissions containing an affidavit sworn by George Yemec dated January 10, 2005.

[7] On August 10, 2005, the plaintiffs delivered their responding costs submissions. The next day the Yemec defendants delivered an additional set of supplementary submissions containing, for the first time, allegations of deliberate non-disclosure in the materials presented before Nordheimer J. Attached to these submissions, without any supporting affidavit, were copies of two documents seized during the enforcement of the ex parte injunctions. The Yemec defendants submitted that these documents should have been brought to the attention of Nordheimer J. and that the failure to do so amounted to a fraud on the court.

[8] On September 9, 2005, the plaintiffs indicated they would be filing an affidavit to respond to the fraud on the court allegations and asked permission to cross-examine Yemec on his affidavit. Gans J. refused to allow this.

[9] An issue arose over whether the plaintiffs were requesting a stay of the costs order. In their supplementary written argument of September 9, 2005, they said that if costs were not made payable in the cause, they would be asking the court for a stay, given their position that the plaintiffs had set-off claims against some of the defendants.

[10] On October 18, 2005, Gans J. released his detailed reasons as to costs that contained, among other things, his conclusion that costs on a substantial indemnity basis should be awarded when there is a finding of lack of full disclosure, regardless of whether the failure was willful or not.

[11] Gans J. determined it was not appropriate to examine the bills of costs in detail. Rather he concluded that the amounts claimed were not “so wildly excessive to warrant a paring down”. On this basis, Gans J. awarded each set of defendants the full amount of the substantial indemnity costs claimed, including costs for the preparation of the costs submissions up to June 2005. He refused to award any premium.

[12] Gans J. also dealt with the issue of a stay by observing that there “appeared to be no precedent for setting-off a costs order against some other claim.” He went on to order the costs to be paid forthwith.[^2]

[13] On November 18, 2005, the parties appeared before Gans J. to settle the order, including the question of the costs associated with the costs submissions and interest. I am advised that when the parties arrived, Gans J. had an endorsement already prepared in which he awarded interest back to October 3, 2003, and further costs for the costs submissions covering the time from June to October 2005, in the amount of approximately $16,000.

Analysis

[14] Pursuant to the provisions of subrules 62.02(4)(a) and (b), leave to appeal is granted where either: (a) there are conflicting cases on the point and the leave judge finds it is desirable that leave be granted, or (b) there is good reason to doubt the correctness of the order made and the matter is of importance beyond the interests of the parties alone. In each case there is an element of public interest required.

[15] With respect to the application of this rule, counsel for the plaintiffs submits that there are conflicting cases as to: (1) whether a failure of full and frank disclosure, in the absence of intentional misconduct, warrants a punitive costs award; and (2) when post-judgment interest begins to run on a costs award.

[16] Mr. Dunne, counsel for the plaintiffs for the purposes of this leave application, further argues that there is good reason to doubt the correctness of the order for a number of reasons, including the awarding of costs as claimed in the defendants’ bill of costs despite clear errors in the bill of costs[^3] and a breach of natural justice or fairness.

[17] Concerning the public interest branch of both subrules 62.02(4)(a) and (b), plaintiffs’ counsel relies on a number of issues that he submits are of a policy concern; namely, (1) whether substantial indemnity costs should be granted for an unintentional failure to disclose material information in the record before the judge hearing an ex parte motion; and (2) when post-judgment interest begins to run on a costs award.

[18] I start by expressing sympathy for a colleague in the Superior Court facing the taxing task of fixing costs after a complicated proceeding. Prior to 2002, the common practice was for judges to refer costs to an assessment officer. Amendments to the Rules of Civil Procedure effective January 1, 2002, resulted in both the costs grid and the obligation on judges to fix costs, except in “exceptional cases” where an assessment officer would be required to perform an assessment. The costs grid has since been revoked by amendments effective July 1, 2005, but the obligation on judges to fix costs, and, thus, the transfer of time and work from assessment officers to judges, remains effective.

[19] Since the time of this transfer, the Court of Appeal has attempted to provide guidance. I refer in particular to the decisions in Boucher v. Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 291, Moon v. Sher (2004), 246 D.L.R. (4th) 440 and Coldmatic Refrigeration of Canada Ltd. v. Leveltek Processing LLC (2005), 75 O.R. (3d) 638.

[20] Following Boucher, the Rules Committee abolished the costs grid and incorporated a guide regarding the fixing of costs under r. 57.01. Two factors were explicitly added as subsections (0.a) and (0.b) setting out additional considerations when a court fixes costs. The relevant portions of the rule now provide:

57.01 (1) In exercising its discretion under section 131 of the Courts of Justice Act to award costs, the court may consider, in addition to the result in the proceeding and any offer to settle or to contribute made in writing,

(0.a) the principle of indemnity, including, where applicable, the experience of the lawyer for the party entitled to the costs as well as the rates charged and the hours spent by that lawyer;

(0.b) the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed;

(a) the amount claimed and the amount recovered in the proceeding;

(b) the apportionment of liability;

(c) the complexity of the proceeding;

(d) the importance of the issues;

(e) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding;

(f) whether any step in the proceeding was,

(i) improper, vexatious or unnecessary, or

(ii) taken through negligence, mistake or excessive caution;

[21] I return to the “leave rule”. While I am aware that leave to appeal costs orders are granted sparingly, I am satisfied that leave to appeal ought to be granted in this case.

[22] I suggest that r. 62.02(4)(a) is of little application in a costs matter. In order to find a “conflicting decision”, one must assume there exists a case with fairly similar facts. Costs awards are, by nature, almost totally fact driven, and the facts are almost always unique.

[23] This takes me to r. 62.02(4)(b). When is there good reason to doubt the correctness of a costs award?

[24] It is not necessary that I disagree with the result the motion judge reached. For the purpose of the leave application, the moving parties are not required to convince me that the motion judge was wrong or even probably wrong. Leave to appeal should be granted if “the correctness of the order is open to serious debate”: see Hollick v. Toronto (Metropolitan), [1998] O.J. No. 2418 at para. 1 (Gen. Div.).

[25] Can there be any significance in a bare number? Decisions as to costs are within the discretion of the judge of first instance. In Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303, Arbour J. stated at para. 27: “A court should only set aside a costs award on appeal if the trial judge has made an error in principle or if the costs award is plainly wrong”.

[26] I start with whether there is reason to doubt the correctness of the decision. First, the motion judge awarded costs on a substantial indemnity scale based on his understanding that there is “a plethora of cases standing for the proposition that costs on a substantial indemnity basis can and should be awarded when there is a finding of want of adequate or accurate disclosure, regardless of whether such was occasioned willfully or through inadvertence.” This proposition is open to debate as counsel were only able to identify one decision that stands for this proposition. Secondly, in my view, in order for there to be confidence in an award of this magnitude it should be accompanied by a full analysis as contemplated by Boucher and the new rule 57.01. It is not possible to tell from the reasons of Gans J. whether he undertook such an analysis in arriving at the award in favour of each set of defendants. These concerns, when taken together with the process issues the plaintiffs have raised, lead me to conclude that there is reason to doubt the correctness of the award.

[27] The next step is to consider whether the issues raised are of sufficient public importance to warrant granting leave. Importance to the parties themselves is not enough.

[28] I am aware that the Divisional Court has just released its decision in St. Jude Medical, Inc. and St. Jude Medical Canada, Inc. v. Erik Andersen, Yvonne Andersen and Sharon Frost (released February 8, 2006), Toronto, 367/04 (Div. Ct.) in which Lax J., writing for the panel of which I was a member, examined in considerable detail, the current state of the law with respect to the principles guiding the exercise of discretion in fixing costs.

[29] However, the impact of costs awards, particularly ones of this magnitude, together with the benefits of appellate consideration of this most recent costs regime, cause me to conclude that the decision raises issues of general public importance within the meaning of Rankin v. McLeod, Young, Weir Ltd. et al. (1986), 57 O.R. (2d) 569 (H.C.J.) and Greslik v. Ontario Legal Aid Plan (1988), 65 O.R. (2d) 110 (Div. Ct.).

Conclusion

[30] Leave to appeal is granted on all issues. Costs of this motion are reserved to the panel hearing the appeal.

EPSTEIN J.

DATE: February 9, 2006

[^1]: See: United States of America v. Yemec (2003), 67 O.R. (3d) 394.

[^2]: In a Costs Addendum released on October 18, 2005, Gans J. specifically said he rejected the plaintiffs’ claim for a stay.

[^3]: The Yemec defendants’ bill of costs shows instances where counsel billed for more than 20 hours per day. It also shows time spent on the appeal, for which costs were already awarded by the Divisional Court.