ONTARIO

SUPERIOR COURT OF JUSTICE

NEWMARKET COURT FILE NO.: 11-103100-00
DATE: 20120301

B E T W E E N:

PARADIGM SHIFT TECHNOLOGIES INC. Plaintiff

A. Patrick Wymes, for the Plaintiffs

• and -

ALEXANDER OUDOVIKINE also known as ALEXANDRE OUDOVIKINE, ANDREI OUDOVIKINE and ISG PREVENTIVE TECHNOLOGY INC. Defendants

Sandra L. Secord, for the Defendants

COSTS ENDORSEMENT

LAUWERS J.:

[ 1 ] The factual context for this endorsement is set out in the Reasons for Decision found at 2012 ONSC 148 . The defendant Alexander Oudovikine is a former employee against whom the plaintiff sought injunctive relief to enforce non-competition obligations. Paragraphs 4, 50, 56 and 60 of the decision set the context:

The facts are highly disputed. There are serious credibility issues which cannot be resolved on a motion. Adding difficulty is the fact that the intellectual property area within which the dispute is centered has not been well defined by the plaintiff or by the defendants. The parties are clearly paying “cat and mouse” with each other and, perforce, with the court. The technology is important enough to warrant a lawsuit. The material and the argument seemed in many ways, however, to amount to shadowboxing in a shadow world. This unsatisfactory state of affairs affects the way in which the court must exercise its responsibility under the Courts of Justice Act .

The Employment Agreements called for Alex to devote substantially his whole time and effort to the plaintiff’s employment. It appears that he did not do so. He also appears to have breached the non-competition provisions in the Employment Agreements. Taking the evidence together, I find that the plaintiff has demonstrated on a strong prima facie basis that Alex breached the related provisions of the Employment Agreements.

I find that the plaintiff has not demonstrated that it will suffer irreparable harm as required by the cases. The motion for an interlocutory injunction is therefore dismissed.

While I have found that the plaintiff has not demonstrated a strong prima facie case that Alex has breached his obligations in respect of the development of ISG Technology, I did find that it is a serious issue to be tried. Given Alex’s clear breaches of the Employment Agreements and his central role in the development of the Plaintiff’s ISG Technology, I am prepared to provide the plaintiff with some interim relief.

The Defendants’ Position

[ 2 ] The defendants say that they were substantially successful in the motion and seek costs under rule 57.01 of the Rules of Civil Procedure . The Bill of Costs filed sets the bill to the clients for the work done on the file at $100,558.00 plus HST of $13,072.54, plus disbursements and HST of $9,453.86, for a total of $123,084.40. The defendants’ substantial indemnity costs, all in, would be $102,497.20. The defendants seek partial indemnity fees of $74,749.00 plus HST of $9,717.37 plus disbursements and HST of $9,453.86, for a total of $93,920.23.

The Plaintiff’s Position

[ 3 ] Paradigm Shift Technologies Inc. (“Paradigm”) seeks fees in the amount of $28,800.00 plus HST and disbursements; I calculate the all-in total at about $33,400.00. It submits that bringing the motion was reasonable based on the following findings of the court:

(a) the technology to which Paradigm claims rights is important enough to warrant a lawsuit;

(b) because the Defendant, Alexandre Oudovikine, invented the ISG Technology at issue there was a “serious element of confidentiality” to his relationship with Paradigm;

(c) Alexandre Oudovikine owed a fiduciary duty to Paradigm;

(d) there was a serious issue to be tried as to whether Alexander Oudovikine breached his fiduciary and/or other obligations with respect to the development and confidentiality of the ISG Technology; and

(e) Paradigm had a strong prima facie case that Alexandre Oudovikine had breached the non-competition clauses in his employment agreement.

[ 4 ] Paradigm argues that these findings justify the motion and relies heavily on its success in obtaining a preservation order.

[ 5 ] Turning to quantum, Paradigm submits that the fees claimed by the defendants are excessive and unreasonable. In particular, it argues that “it was unnecessary to employ six lawyers to work on the interlocutory motion.” It argues that involvement of so many practitioners and clerks led to the duplication of time and billing and submits that approximately 48.6 hours are devoted to inter-office meetings and email correspondence among counsel.

[ 6 ] Finally, Paradigm argues that its reasonable expectations in relation to the motion are effectively set by its own claim for costs in the amount of $29,000.00, and that there is no justification for the defendants to seek over three times that amount on a partial indemnity basis.

Defendants’ Reply

[ 7 ] In the reply submissions, the defendants do not explain the way in which the file was staffed or the reasons for such a large expenditure of time. The defendants offer only a general explanation stating:

21. In defending these allegations, these Defendants were put to tremendous cost and, at times, unnecessary expense, responding to many of the Plaintiff’s allegations that were not germane to the success, or failure, of the Plaintiff’s Motion for injunctive relief.

22. Had these Defendants not fully defended, the results would have been disastrous as Alex would no longer have been able to earn a living, in circumstances where the granting of an interlocutory injunction is an extraordinary remedy obtained only in exceptional circumstances.

23. Many of these allegations were unsubstantiated, and were only put forward in an attempt to wrongly cast aspersions on Alex’s and Andrei’s character. Moreover, the majority of these allegations were not even referred to during the Plaintiff’s oral submissions.

Discussion

[ 8 ] In DUCA Financial Services Credit Union Ltd. v. Bozzo , 2010 ONSC 4601 , [2010] O.J. No. 3758, Cumming J. noted at paragraph 5:

5 Costs are in the discretion of the Court: s. 131 , Courts of Justice Act , R.S.O. 1990, c. C.43 and Rule 57.01 of the Rules of Civil Procedure. In Ontario, the normative approach is first, that costs follow the event, premised upon a two-way, or loser pay, costs approach; second, that costs are awarded on a partial indemnity basis; and third, that costs are payable forthwith, i.e. within 30 days. Discretion can, of course, be exercised in exceptional circumstances to depart from any one or more of these norms.

[ 9 ] In my view the defendants were substantially successful despite the preservation order and are entitled to the costs of the motion.

[ 10 ] The relevant principles for the exercise of the court’s discretion were canvassed by the Court of Appeal in Davies v. Clarington (Municipality) (2009), 2009 ONCA 722 , 100 O.R. (3d) 66 per Epstein J.A. at para 51, focussing on the specific facts and circumstances of the case in relation to the factors set out in rule 57.01(1): Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 14579 (ON CA) , 71 O.R. (3d) 291 (C.A.) [2004] O.J. No. 2634, Moon v. Sher (2004), 2004 39005 (ON CA) , 246 D.L.R. (4th) 440 (Ont. C.A.) [2004] O.J. No. 4651, and Coldmatic Refrigeration of Canada Ltd. v. Leveltek Processing LLC (2005), 2005 1042 (ON CA) , 75 O.R. (3d) 638 (C.A.). She noted at paragraph 52 that:

…the overriding principle is reasonableness. If the judge fails to consider the reasonableness of the costs award, then the result can be contrary to the fundamental objective of access to justice. Rather than engage in a purely mathematical exercise, the judge awarding costs should reflect on what the court views as a reasonable amount that should be paid by the unsuccessful party rather than any exact measure of the actual costs of the successful litigant. In Boucher , this court emphasized the importance of fixing costs in an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding at para. 37, where Armstrong J.A. said "[t]he failure to refer, in assessing costs, to the overriding principle of reasonableness, can produce a result that is contrary to the fundamental objective of access to justice."

[ 11 ] In Gratton-Masuy Environmental Technologies Inc. (c.o.b. Ecoflow Ontario) v. Building Materials Evaluation Commission, 2003 8279 (ON SCDC) , [2003] O.J. No. 1658, the Divisional Court noted at paragraph 17:

The amount at which costs are to be fixed is not simply an arithmetic function dependent on the number of hours worked and the hourly rates employed but, rather, the party paying the costs should be subjected to an order which is fair and predictable. In other words, the party required to pay costs must not be faced with an award that does not reasonably reflect the amount of time and effort that was warranted by the proceedings.

[ 12 ] An element is the reasonable expectation of the party having to pay: Moon v. Sher , 2004 39005 (ON CA) , [2004] O.J. No. 4651, 246 D.L.R. (4th) 440 (C.A.) at para. 21 , 22, 35. Proportionality also plays a role: Rule 1.04(1.1).

[ 13 ] I note in passing that although the partner hours were discounted appropriately in the transition from the client account to the partial indemnity Bill of Costs, the juniors were charged at full rates and not discounted at all. In all, Ms. Secord, who appeared before me, spent 70 hours on the file. Lindsay Kantor spent 74.1 hours, Mordy Mednick spent 58.1 hours, and Marco Falco spent 56.8 hours. While I am normally reluctant to second guess the hours spent by counsel, there is considerable merit in Paradigm’s submission that the defendants’ time expenditures are simply excessive in the circumstances.

[ 14 ] That said, I agree with the defendants’ criticism of the plaintiff’s approach to the case and particularly its refusal to provide relevant and necessary evidence through the cross-examination process. By doing so, the plaintiff extended the proceedings and undermined its own case.

[ 15 ] I am not bound to use the plaintiff’s own partial indemnity costs claimed as a cap or limit. Considering the gravity of the allegations made by Paradigm, I do not find that Paradigm put the time or effort into the case that was necessary or warranted, hence the outcome of the motion. Paradigm must have known that its posture would affect the defendants’ handling of the case and increase the associated costs.

[ 16 ] Paradigm submits that much of the work claimed by the defendants is not thrown away, but will be useful in the balance of the litigation, and argues that it is appropriate not to award those costs at this time but leave them to be determined in the application: Dragon Systems Inc. v. Kolvox Communications Inc. , 1996 8174 (ON SC) , 64 C.P.R. (3d) 506 at para. 6 . I agree; the defendants may carry forward the time that was spent on research on the merits of the plaintiff’s case in the calculation of the costs in the ultimate litigation.

[ 17 ] Taking these considerations into account, I fix the defendants’ partial indemnity costs at $40,000.00 plus HST plus disbursements.

[ 18 ] Paradigm submits that the costs of this motion, even if fixed by the court, should be awarded in the cause since the issues are largely live and have not yet been determined on the merits. Paradigm relies on the decisions in Kitchen Tire and Bradd Automotive (1989) Ltd. v. Mikula Investments , [1994] O.J. No. 2129 at para. 3 :

3 While I recognize the principle enunciated by Henry, J., in Apotex Inc. v. Egis Pharmaceutical and Novo Pharm Limited, cited at 1990 6829 (ON SC) , 2 O.R. (3rd) 126 , that the issue on the motion is discreet and costs may be fixed if justified, I am not persuaded it is proper in this case. Firstly, the Apotex Inc. case is distinguishable in that Henry, J., clearly found the grounds were tenuous. In my judgment, I identified the valid reasons for concern although the plaintiff was not in a position to satisfy me to the degree necessary without the benefit of a trial in which credibility can be tested. Secondly, in my view it would be incongruous to order costs against the plaintiff now, before it can be known whether the defendants are responsible for creating the circumstances upon which relief may ultimately be granted.

[ 19 ] Paradigm also relies on Lucky Palace Holdings Ltd. v. Lucky Palace Investments Ltd. , [2008] O.J. No. 3828, 2008 CarswellOnt. 5850 at para. 6 :

6 Although I found that the legal thresholds had not been reached by the plaintiffs in their request for mandatory injunctive relief, that finding cannot be taken to mean that I am not of the view that the allegation levelled against the defendants are not in fact serious and might not warrant sanctioning in the final analysis. Those issues are best left to be determined after a trial.

[ 20 ] In Cana International Distributing v. Standard Innovation Corp, [2011] O.J. No. 461, 2011 ONSC 752 C.D.A., McKinnon J. reviewed the jurisprudence on costs in an unsuccessful interlocutory injunction, and concluded:

7 In my opinion, absent extraordinary circumstances, costs on an unsuccessful interlocutory injunction should be payable forthwith. An application for an injunction is a discrete legal remedy involving substantial costs. There is no reason that costs should not follow the event where the application is unsuccessful. There is never an assurance that there will be a trial, particularly in circumstances where an injunction is not in place. I agree with the submission of the Defendant that the general approach in the recent caselaw is that when a plaintiff seeking an injunction is unsuccessful, costs should be ordered paid forthwith, in any event of the cause.

[ 21 ] I see this as a matter of the court’s discretion. In the circumstances I prefer the approach of the court in Cana International Distributing . I see no reason why Paradigm should not be obliged to carry the costs of this motion in any event of the cause, given the outcome and its own conduct, so I dismiss its request that costs be in the cause. The costs will be paid by the plaintiff to the defendants within 30 days.

[ 22 ] Order accordingly.

Justice P.D. Lauwers

DATE: March 1, 2012