CITATION: Berry v. Scotia Capital Inc., 2010 ONSC 5489
COURT FILE NO.: 391/09
DATE: 20101206
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
THEN R.S.J., MATLOW AND SWINTON JJ.
B E T W E E N:
DAVID M. BERRY
Plaintiff (Respondent on Appeal)
- and -
SCOTIA CAPITAL INC.
Defendant (Appellant)
Robert Colson and Kimberly Boara Alexander, for the Plaintiff (Respondent on Appeal)
Sheila Block, for the Defendant (Appellant)
HEARD at Toronto: September 21, 2010
Swinton J.:
[1] Scotia Capital Inc. (“the appellant”) appeals, with leave, from the order of Pollak J. dated August 4, 2009 in which she awarded the plaintiff, David Berry (“the respondent”), costs in the amount of $345,733.53 on a summary judgment motion. At issue in this appeal is the quantum of the costs awarded. In the submission of the appellant, the amount is not fair and reasonable in the circumstances and serves as a precedent that will have a chilling effect on litigation, thereby depriving parties of access to justice.
Background
[2] The appellant operates as an investment dealer across Canada. Its business includes, among other things, trading preferred shares on an agency basis to clients and proprietary trading of preferred shares for its own accounts.
[3] The respondent is a chartered accountant and certified financial analyst. Until June 2005, he was employed in a senior capacity by the appellant as head of preferred share trading. His employment was terminated for cause, as the appellant alleged that he had committed serious misconduct and breaches of employment obligations.
[4] In the present action, the respondent claims he was wrongfully dismissed or, in the alternative, he was constructively dismissed. He seeks damages for wrongful dismissal that exceed $100 million, including a claim for $50 million for “loss of competitive advantage”.
[5] The appellant denies the respondent’s claims and has counterclaimed for damages suffered as a result of his conduct, including fines the appellant paid to the regulator as a result of the respondent’s conduct and compensation paid to various issuers.
[6] The Statement of Claim was issued November 20, 2006. In June 2007, before documentary or oral discovery had taken place, the appellant brought a summary judgment motion in which it sought dismissal of all the claims in the Statement of Claim because there was no genuine issue for trial.
[7] Following cross-examinations that lasted eight days, the appellant concluded that there were genuine issues for trial concerning the claim of wrongful dismissal. Therefore, in August 2008, the respondent was advised that the appellant would proceed with a motion for partial summary judgment based only on the claims for constructive dismissal and loss of competitive advantage. The parties agreed that the cross-examination transcripts of the respondent and the appellant’s affiant would be used as examinations for discovery in the action going forward. There had been a total of over five days of examination of these individuals.
[8] The motion was scheduled to be heard for a day on April 8, 2009, but submissions were not completed. Therefore, the parties continued on April 15. At the end of argument, the parties provided the motions judge with costs outlines. The appellant’s costs outline claimed $36,740, while the respondent’s claims were made on both a substantial and partial indemnity basis. In respect of the motion argued, he claimed $148,700 on a substantial indemnity basis and $100,964 on a partial indemnity basis. In respect of the abandoned part of the motion and the cross-examinations, he claimed $251,005 (substantial) or $172,800 (partial).
[9] On May 21, 2009, the motions judge dismissed the motion for partial summary judgment She subsequently received written costs submissions from the parties in which the appellant submitted that the costs should be $50,000 to $60,000 on a partial indemnity basis. The respondent requested costs on a substantial indemnity basis in the amounts set out in the earlier costs outlines.
The Costs Decision
[10] On August 4, 2009, the motions judge awarded costs of $345,733.53, including disbursements of $14,578.70 against the appellant. She broke that amount into three components. First, she held that the respondent was entitled to his costs on a substantial indemnity basis for the abandoned part of the original motion – that is, in respect of the wrongful dismissal component that was abandoned following cross-examinations. For that, she awarded $142,285 - the amount sought by the respondent.
[11] Second, she awarded costs on a partial indemnity scale for the partial summary judgment motion, finding that it was reasonable for the appellant to have proceeded with the motion respecting the claims for constructive dismissal and loss of competitive advantage. She awarded $100,964 for that part of the motion, again the amount sought on this scale.
[12] Third, with respect to the cross-examinations, she awarded $102,484.17. She concluded that the transcripts would not necessarily reduce the costs of the examinations for discovery. As 80% of the costs were attributable to the abandoned part of the motion, she awarded 80% of the costs of the cross-examinations on a substantial indemnity basis and 20% on a partial indemnity basis.
[13] She then stated (at para. 17):
I have taken all the factors set out in the jurisprudence referred to by both parties into consideration and find that the amounts requested above and awarded to Berry are reasonable in all of the circumstances and do comply with the requirements of the jurisprudence.
The Motion for Leave to Appeal
[14] In granting leave to appeal, Sachs J. noted that leave to appeal a costs order is granted only “sparingly and only in very obvious cases”. However, she described this order as an “outlier” because of its size and noted that an outlier “raises a concern about whether the fundamental principle of reasonableness was followed” (at para. 18).
[15] She concluded that it was open to very serious debate whether the motions judge exercised her discretion in accordance with the overriding principle of fairness and reasonableness, given the lack of particulars in the reasons (at para. 19).
The Test on Appeal of a Costs Order
[16] A judge has a wide discretion in awarding costs. Therefore, on appeal, a court will set aside a costs order only if the judge making that order has made an error in principle or the costs award is clearly wrong (Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303 at para. 27).
[17] In exercising the discretion to award costs, a judge is required to consider the factors set out in rule 57.01(1). Moreover, the Court of Appeal made it clear in Boucher v. Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 291 that the hours spent and the rates claimed by the successful party are only one consideration in determining a costs award. Ultimately, the judge must “step back and consider the result produced and question whether, in all the circumstances, the result is fair and reasonable” (at paras. 24-26). This principle is now set out explicitly in rule 57.01(1)(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.
[18] The Court of Appeal in Boucher spoke of the “chilling effect of a costs award of the magnitude of the award in this case” in determining whether the costs exceeded the fair and reasonable expectations of the losing party (at para. 37).
[19] This Court, in Andersen v. St. Jude Medical, Inc., [2006] O.J. No. 508 set out a number of considerations that apply in reviewing a costs award. The Court observed that “[a]ppellate intervention based solely on quantum is problematic because there is no meaningful way to determine when a number is too high” (at para. 22). The Court then set out the principles to be applied. Among those principles, the Court noted that courts should seek to avoid inconsistency with comparable awards in like cases. As well, they should seek to balance the indemnity principle with the objective of access to justice (at para. 22).
Analysis
[20] It is clear that the summary judgment motion was hard fought and of great importance to the respondent. It was, in effect, a “fight for his life”, given that the original motion sought to strike his claim in full. The motion was also brought at an early stage of proceedings, before documentary disclosure had occurred.
[21] The appellant argues that the motions judge erred in principle because she failed to step back from the costs outlines submitted by the respondent and determine, on an objective basis, the amount that is fair and reasonable in the circumstances for an unsuccessful party to pay. As well, she erred in ordering that the costs of the cross-examinations be paid to the respondent at this time, given the parties’ agreement to use the cross-examinations of the respondent and the appellant’s affiant as discoveries.
[22] The respondent argues that the motions judge did consider the overall reasonableness of the costs, as she stated that she had considered the jurisprudence and the factors and concluded that the amount was reasonable in the circumstances.
[23] The problem I have in accepting the respondent’s argument lies in the fact that the motions judge never engaged in a critical examination of the costs outlines. She states at the end of her endorsement that she has taken account of all the factors in the jurisprudence and finds the amounts sought are reasonable in the circumstances (at para. 17), but there is no indication in her endorsement of how she did so.
[24] Moreover, the motions judge appears to have accepted the costs outlines submitted by the respondent’s counsel and effectively rubber stamped them. Indeed, with respect to the award of $142,285 for the abandoned motion, she states that she reviewed the affidavit evidence from the respondent, the Bill of Costs and the dockets and concluded that the amount claimed was reasonable. There is no indication that she stepped back and asked whether that amount was within the reasonable expectations of the losing party, especially in light of the fact that the amount awarded did not include the cross-examinations. Nor did she address the appellant’s detailed arguments as to why the hours and rates claimed were excessive, except to state that she disagreed.
[25] Similarly, in the one paragraph dealing with the quantum for the motion argued, she states that she reviewed the dockets and the Bill of Costs and finds the amounts reasonable. Again, there is no discussion of the reasonableness of this amount for a two day summary judgment motion which does not include anything for cross-examinations.
[26] This is not a case where the party seeking costs set out its hours and rates and then discounted them in its costs submissions. That was what occurred in Fresco v. Canadian Imperial Bank of Commerce, 2010 ONSC 4724 (Div. Ct.), a case on which both parties relied. While the Divisional Court upheld the costs award of $525,000 made by the motions judge in that case, it is noteworthy that the costs order was given after a lengthy certification motion in a class proceeding. The successful party had sought $750,000 before the motions judge, while the actual bill for fees to the client was close to $4 million (at para. 31).
[27] The Court of Appeal in McNaughton Automotive Ltd. v. Co-operators General Insurance Co., [2009] O.J. No. 3240 commented that it had a problem with the bills of costs submitted by some of the parties in that case because they were based on hours times rates, and there was no effort to step back and take an objective look (at para. 17).
[28] In the present case, the affidavit of Ane Lowe on behalf of the respondent indicates that the hours in the costs outlines were not reduced by the respondent from the time docketed. Rather, the costs outlines were drafted to attribute 80% of the time prior to August 1, 2008 (excluding cross-examinations) to the abandoned issues and 20% to the issues in the motion actually argued.
[29] In its costs submissions, the appellant had submitted that the costs outlines were excessive, both in relation to the hourly rates and the number of hours. The claim was for more than 800 hours of time by six lawyers, two clerks and three students. The respondent had claimed 338 hours by five different lawyers to review the appellant’s motion materials and to prepare the responding record. That responding record contained a lengthy affidavit from the respondent and two shorter affidavits from two other individuals. The respondent had also claimed 150 hours by four lawyers to draft the 30 page factum for the motion, exclusive of research. He also claimed 129 hours by four lawyers and two clerks to review and summarize transcripts of cross-examinations. Further hours were claimed for research.
[30] The motions judge accepted the hours, and in doing so she erred in principle. Even if this was an important and hard fought motion, there was obviously some duplication in the hours worked, which should have been taken into account. This was the approach of the motions judge whose order was upheld in Andersen, supra. He reduced the amount claimed to reflect duplication and excessive hours (at para. 35). Here, the effect of the order was to compensate the appellant for 68.3% of his actual costs of the proceeding to date.
[31] More importantly, the motions judge made no reference to the amount that an unsuccessful party would reasonably expect to pay in costs for this type of motion. The appellant had argued that its costs outline of $36,740 was a measure of its reasonable expectations for the partial summary judgment motion. This argument is consistent with the statement of the Divisional Court in Andersen that the losing party’s bill of costs gives some indication of reasonable expectations (at para. 19). However, the appellant also conceded that the respondent would be entitled to higher costs than it sought if successful, as the respondent had spent more time preparing affidavit material to respond to the abandoned part of the motion. Therefore, the appellant had submitted that costs should reasonably be in the range of $50,000 to $60,000.
[32] I disagree that the figures suggested by the appellant here are the proper measure of the reasonableness of the award in this case, as the award would not reflect the importance of the motion and the range of issues raised in it.
[33] The appellant also made reference to other summary judgment motions where costs awarded were significantly lower than on this motion. For example, this Court recently stated that an award of $135,000 in costs on a summary judgment motion was “clearly excessive”, and the amount was reduced to $85,000 (Vaughan (City) v. Rizmi Holdings Ltd., 2010 ONSC 1563, [2010] O.J. No. 1063 (Div. Ct.) at para. 22).
[34] The respondent relied on Factor Gas Liquids Inc. v. Jean, [2008] O.J. No. 2802 (S.C.J.), a case where a substantial amount in costs was awarded both with respect to a summary judgment motion involving fraud allegations and with respect to the consequences of setting aside an Anton Piller order. In my view, this case is not comparable to Factor Gas in terms of complexity.
[35] Moreover, while consistency with other like awards should be sought, the cases cited in this appeal appear to turn on their own facts and circumstances. At most, they show that the order under appeal is an “outlier”, to use the words in the endorsement granting leave.
[36] Nevertheless, when the overall reasonableness of this award of costs is considered on an objective basis, the amount awarded is clearly excessive, even for a hard fought and important motion like this one. An award of this type will have a chilling effect on litigation that must be taken into account (Boucher, supra at para. 37).
[37] That leaves the difficult task of determining an appropriate award of costs. In the costs outlines, counsel for the respondent broke the work down by time periods and types of tasks.
• June 6, 2007 to October 30, 2007: receipt and review of motion materials and preparation of responding materials, including affidavits from two independent witnesses
• October 30, 2007 to August 1, 2008: development of strategy for the motion and other motion related activity
• June 6, 2007 to August 1, 2008: legal research
• August 2, 2008 to April 1, 2009: preparation of the factum and Book of Authorities; legal research
• Costs associated with the cross-examinations.
[38] With respect to the abandoned motion, the amount awarded by the motions judge was $142,285, including disbursements of $2,985.51. This part of the order did not include costs of the preparation for or attendance at the cross-examinations and for the summaries of those cross-examinations. Rather, it was for preparation of the three affidavits in the responding materials, strategy sessions, and research.
[39] By far the largest amount of time was spent on the preparation of the responding materials - some 270 hours. In addition, 41.3 hours was billed for strategy and meetings. I do not accept the appellant’s argument that Mr. Berry’s affidavit largely mirrored the Statement of Claim: it was a detailed response to the appellant’s affidavit material. However, in my view, the hours are excessive and reflect overlapping work that the losing party should not be expected to pay for.
[40] The partial summary judgment motion was argued over the course of two days. I do not take issue with the presence of two counsel at the motion, given the importance of this motion. However, the hours expended for the preparation of the factum (152 hours spent by four lawyers) are excessive and duplicative. I note that the amount does not include research, which is a separate category of work. Similarly, the amount claimed for preparation for argument by three lawyers is excessive.
[41] As well, the motions judge erred in awarding the entire costs of the cross-examinations to the respondent, 80% of which were awarded on a substantial indemnity basis. She concluded that they would “not necessarily reduce the costs of the examination for discovery”.
[42] The respondent, relying on Ledore Investments Ltd. v. Murray (2002), 58 O.R. (3d) 627 (S.C.J.), argues that the motions judge properly exercised her discretion to award these costs at this stage. In Ledore, Stinson J. stated that “a party who incurs legal expenses for work performed in responding to a summary judgment motion should be entitled to recover those expenses as part of its costs on the summary judgment motion even if that work may assist the party in the continuing proceeding” (at para. 19).
[43] The passage cited was a response to the argument that the party seeking costs should not get costs for work that would have been necessary for the litigation. However, in Ledore, the motion for summary judgment was abandoned before the cross-examinations occurred.
[44] Other cases have held that costs on a motion should not indemnify a party for work that would be required in any event in the normal course of the proceeding (Frumcor Investments Ltd. v. Dorwal Ltd., [2008] O.J. No. 1817 (S.C.J.) at para. 26; Toronto-Dominion Bank v. Entretel Inc., [2008] OJ. No. 1300 (S.C.J.) at para. 12). Here, the parties have agreed that the five days of cross-examinations of the respondent and Ms. Williams, the appellant’s affiant, will be treated as discoveries. Evidently, they saw a benefit in doing so. Therefore, it was inappropriate to award the total cost of the cross-examinations to the respondent at this stage of the proceeding. The costs of the cross-examinations for the respondent and Ms. Williams should be left to the trial judge, as should the costs of reviewing and summarizing the transcripts (see North American Steel Equipment Co. v. Rona Inc., [2008] O.J. No. 3662 (S.C.) at para. 8; DMR Truck Inc. v. Jaguar Canada, a Division of Ford Motor Co. of Canada, [2002] O.J. No. 2301 (S.C.) at para. 6).
[45] A different approach is warranted with respect to the cross-examinations of the two individuals who gave affidavits in support of the respondent. He is entitled to costs for preparation for and attendance at those cross-examinations, which were incurred only for the abandoned motion. These occurred over the course of two days. I would award $10,000.00 for those cross-examinations (including preparation and summaries) on a substantial indemnity basis.
[46] That brings me to the appropriate award relating to the abandoned motion and the motion argued. As I have said above, the hours claimed are excessive for both motions. In stepping back and determining an amount that is fair and reasonable, I would award $75,000 for the abandoned motion, on a substantial indemnity scale.
[47] For the partial summary judgment motion, even taking into consideration the difficult issue of the loss of competitive advantage, a costs award of $60,000 on a partial indemnity basis would be fair and reasonable, particularly in light of the treatment of the cross-examinations.
[48] Thus, the overall amount of costs that I would award is $145,000. While this is still a large sum for a summary judgment motion, the award is fair and within the reasonable expectations of the losing party in the circumstances of this case.
Conclusion
[49] For these reasons, the appeal is allowed. The costs order is set aside, and the appellant is ordered to pay the respondent costs of $145,000 inclusive of HST and disbursements, for the abandoned part of the summary judgment motion and the motion for partial summary judgment. That amount is payable by the appellant within 30 days. Costs related to the cross-examinations of Mr. Berry and Ms. Williams are reserved to the trial judge.
[50] Costs of the motion for leave to appeal and the appeal are fixed at $15,000.00 inclusive of disbursements and HST payable by the respondent within 30 days.
Swinton J.
Then R.S.J.
Matlow J.
Released: December , 2010
CITATION: Berry v. Scotia Capital Inc., 2010 ONSC 5489
COURT FILE NO.: 391/09
DATE: 20101206
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
THEN R.S.J., MATLOW AND SWINTON JJ.
B E T W E E N:
DAVID M. BERRY
Plaintiff (Respondent)
- and -
SCOTIA CAPITAL INC.
Defendant (Appellant)
REASONS FOR JUDGMENT
Swinton J.
Released: December 6, 2010