ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 08-CL-7458
DATE: 20120405

B E T W E E N:

1159607 ONTARIO INC. JOSEPH SIRIANNI AND EUGENE SIRIANNI

Ben Hanuka, for the Plaintiffs

Plaintiffs

• and -

COUNTRY STYLE FOOD SERVICES INC., COUNTRY STYLE REALTY LIMITED, AND MELODY FARMS SPECIALTY FOODS AND EQUIPMENT LIMITED

Arnold Zweig, for the Defendants

Defendants AND BETWEEN: COUNTRY STYLE FOOD SERVICES Plaintiff by counterclaim -and- EUGENE SIRIANNI AND JOSEPH SIRIANNI Defendants by counterclaim

HEARD: in writing

MESBUR J

ENDORSEMENT ON COSTS

Introduction:

[ 1 ] The plaintiffs were successful at trial, and obtained a judgment more favourable than a rule 49 offer they delivered more than seven days before the commencement of the trial. As a result, they claim partial indemnity costs of $75,178 to the date of their offer, and substantial indemnity costs of $58,113 after that date, for a total of $133,291, including HST.

[ 2 ] The defendants do not dispute the plaintiffs’ entitlement to both partial and substantial indemnity costs. They take issue, however, with the amount of costs claimed. They suggest the hours claimed are disproportionate to the amount claimed and the amount recovered, and also say the rates claimed for plaintiffs’ counsel are excessive, given his years of experience. Last, they say any costs award should be offset by costs in the defendants’ favour, since they were successful on their counterclaim.

Discussion:

[ 3 ] Costs are in the court’s discretion. The general discretion on costs is provided in section 131(1) of the Courts of Justice Act and rule 57 of the Rules. Section 131(1) of the Courts of Justice Act provides:

Subject to the provisions of an Act or rules of court, the costs of and incidental to a proceeding or a step in a proceeding are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid.

Rule 57.01(1) sets out the factors the court may consider, in addition to the result in the proceeding, and any written offer to settle or to contribute.

[ 4 ] I look first at the factors rule 57.01(1) requires the court to consider in fixing costs.

[ 5 ] The amount claimed and the amount recovered in the proceeding : The plaintiffs claimed about $600,000 in damages plus an additional $500,000 for exemplary and punitive damages. They recovered $187,730.15 for general damages, plus $25,000 for the defendants’ breach of their duty of good faith dealing. These were offset against the defendants’ success on their counterclaim of about $49,000. The plaintiffs’ net recovery was therefore about $164,000. This case began as an application, and was later converted to an action. This necessitated both drafting the application, and then pleadings.

[ 6 ] The complexity of the proceeding : The plaintiffs suggest that the proceeding were relatively complex, both factually and legally, with “an intricate and lengthy chronology of events”. The defendants say the proceeding was rather straight forward, with most of the facts agreed on. The parties agreed, in large part, on the general chronology of events. It was left to the court to determine the legal effect of those events on the parties’ rights and obligations. I would describe the proceeding, overall, as moderately complex on the basis of issues that were questions of mixed fact and law. That said, it was neither unduly complex, nor completely straightforward. This factor weighs slightly in favour of more time spent by lawyers in preparation and analysis.

[ 7 ] Importance of the issues : Both parties agree the issues were important to the parties. The plaintiffs suggest the legal issues are important to the franchise bar in Ontario and the franchise business community. In this regard, I agree with the defendants’ position that the case did not make new law – it was completely fact-driven. This factor is therefore a neutral one in the analysis of the issue of costs.

[ 8 ] The conduct of any party that tended to shorten or lengthen unnecessarily the duration of the proceeding : Here the plaintiffs suggest that the defendants’ failure to make timely disclosure tended to lengthen the proceeding unnecessarily. They point to the fact that they needed to bring a motion to compel production, and the production they obtained as a result of the motion was critical to the plaintiffs’ case. I will deal with the costs of this motion later in these reasons.

[ 9 ] Both parties confirm that they presented the evidence at trial in an efficient manner. Their cooperation and efficiency tended to shorten the length of the trial.

[ 10 ] Whether any step in the proceeding was improper, vexatious or unnecessary or taken through negligence, mistake or excessive caution : Both parties agree this criterion does not apply here.

[ 11 ] A party’s denial of or refusal to admit anything that should have been admitted : The plaintiffs take the position the defendants should have admitted they acted in bad faith. It seems to me this is not the type of fact that is readily found, and therefore is not something that one would assume would be readily admitted. I disagree with the plaintiffs’ position on this issue. It is a neutral factor in addressing the issue of costs.

[ 12 ] The experience of the party’s lawyer: plaintiffs’ lawyer has 14 years’ experience as franchise litigation counsel.

[ 13 ] The hours spent, the rates sought for costs and rate actually charged by the party’s lawyer: When considering this factor, I look at both the hours spent, and the lawyer’s actual rate to his client. Here, the lawyer’s actual rate ranged from $450 to $500 per hour. The defendants’ counsel does not quarrel with the actual rate, but simply says his clients should not have to bear as large a proportion of that rate as plaintiffs’ counsel claims. I agree.

[ 14 ] According to the “Information for the Profession” published by the Costs Subcommittee of the Civil Rules Committee, a lawyer with between ten to twenty years’ experience can charge a maximum of $300 per hour on a partial indemnity basis. This maximum fee is anticipated to “apply only to the more complicated matters and to the more experienced counsel within each category.” [1]

[ 15 ] In my view, in this case, given plaintiffs’ counsel’s years of experience and the complexity of the case, he should be entitled to a partial indemnity rate of less than the maximum allowed. I would allow his partial indemnity costs at the rate of $275 per hour. As for the other lawyers who did work on the case, I see no problem with the rates charged for them.

[ 16 ] As I said at the outset, the plaintiffs delivered a rule 49 offer that was more favourable to the defendant than the result at trial. As a result, plaintiffs are entitled to their substantial indemnity costs from that point onward.

[ 17 ] As far as substantial indemnity costs are concerned, here I consider the lawyer’s actual rate to his client, and look at the amount claimed for substantial indemnity costs. Mr. Hanuka charged his client between $450 to $500/hour. No one has suggested this is out of the range of a reasonable rate for a lawyer of his experience to charge to his client. He suggests that on a substantial indemnity basis, rates of $360 to $400 per hour are appropriate. I agree.

[ 18 ] When I apply the adjusted rates to the hours claimed, the partial indemnity costs come to $69,734, while the substantial indemnity costs remain $58,113, inclusive of HST. This is where I begin, before addressing whether there should be further adjustments as the defendants’ counsel suggests.

[ 19 ] I begin with the issue of the hours spent. Defendants’ counsel tells me he spent a total of 202 hours on the case, as compared with 368.1 hours for the plaintiffs’ counsel. He suggests that it is disproportionate for the plaintiffs’ counsel to have spent nearly double the time on the case than he did. He complains, in particular, about nearly 84 hours of lawyer time spent in trial preparation.

[ 20 ] The amount of time defendants’ counsel spends is an important comparator when considering whether the number of hours spent is reasonable. It should not, however, be viewed as an “hour for hour” analysis. Plaintiffs’ counsel, as the one who frames the case and carries the case will generally have to spend more time than defence counsel. Here, defendants’ counsel tells me he spent a total 202 hours on the case, from start to finish. Plaintiffs’ counsel, by contrast claims a total of 368.1 hours, for himself and other lawyers in his firm. The bulk of the work, however, was done by Mr. Hanuka himself. Defendants’ counsel suggests that this is disproportionate, and his clients should not have to bear costs at this level. He points to the “chilling effect” such an order might have. He says costs should not be so crushing as to create a sense of injustice to the unsuccessful litigant by being out of proportion to the relatively simple issues before the court.

[ 21 ] In the circumstances of this case, I disagree that a large costs order will have the kind of “chilling effect” contemplated by the cases. The defendants could have settled the case. They did not. As far as I am aware, they made no offer to settle – reasonable or otherwise. They did not make timely disclosure, but forced the plaintiffs to bring a motion in that regard.

[ 22 ] The defendants are sophisticated commercial entities. They have been involved in litigation in the past, both as plaintiffs and defendants. They have a clear idea of what is at stake in terms of costs of litigation. They chose to continue the case through to the end of trial. I cannot see that a reasonable, if high, award of costs will have any effect on their ability to litigate in the future.

[ 23 ] Having said that, however, I must take a good hard look at the hours plaintiffs’ counsel spent when compared with that of defence counsel. Plaintiffs’ counsel was extraordinarily thorough and detail-oriented. That is time consuming. It should not, however, in the great scheme of things result in nearly double the hours of time spent. I will not engage in a meticulous examination of the time spent. It simply strikes me as disproportionately high in the overall context of this case. I would reduce the bill by $15,000 plus HST for a total of $16,950 overall to reflect a more proportionate amount of time. This results in an adjusted figure for costs of $110,897 [2] inclusive of HST plus $7,820.98 for disbursements, also inclusive of HST. I will now turn to consider some additional issues the defendants raise.

[ 24 ] The defendants say the plaintiffs’ costs should be reduced further because of some additional issues concerning two motions, and who is entitled to costs for them, as well as issues about the costs of the counterclaim.

[ 25 ] The plaintiffs’ bill of costs claims 19.5 hours of lawyer time for what are described as “Defendants’ Motion for Declaration re Notice of Rescission/Amend Claim.” It appears from the plaintiffs’ responding costs submissions that this motion in August of 2009 was settled on the basis of each party bearing its own costs. The plaintiffs’ costs must therefore be reduced by this time. Roughly speaking, this is a reduction of $5,300 plus HST ($5,989) from the figures set out above. Accordingly, the adjusted figure for costs on this account comes to $104,908, inclusive of HST. [3]

[ 26 ] This brings me to the costs of two motions in August of 2010. Costs were reserved to the trial judge. The plaintiffs say they are entitled to costs of both motions. First, they say the defendants’ motion regarding the amended statement of claim was settled. They suggest this amounts to a withdrawal of the defendants’ motion, entitling them to costs. I do not view a settlement of the motion as tantamount to a withdrawal, and reject the claim for costs on account of that motion. I have already reduced the plaintiffs’ bill of costs for this motion, and would make no further adjustment.

[ 27 ] Next, the defendants take issue with the plaintiffs’ claim for costs on a motion regarding production and undertakings. The material was finally produced a week before the motion’s return date. The motion was necessary in order to compel production. The plaintiff is entitled to some costs on account of the motion. That said, claiming a total of 38.1 hours for a motion that was resolved strikes me as excessive. I would reduce the amount claimed by 10 hours for a total of $2,750 plus HST. This is a reduction of $3,107. Accordingly, the adjusted costs for the plaintiffs come to $101,801, inclusive of HST. [4]

[ 28 ] As to the counterclaim, the defendants were successful on it. Very little time was spent on the issues on the counterclaim. The defendants’ suggestion that they should be entitled to costs on the counterclaim of $1,925 seems reasonable to me. This should be set off against the plaintiffs’ costs.

[ 29 ] In the result, therefore, the plaintiffs are entitled to their costs of the action fixed at $99,876 [5] plus $7,820.98 for disbursements, all inclusive of HST.

MESBUR J.

Released: 20120405

[1] “Information for the Profession” appended to rule 57, and published by the Costs Subcommittee of the Civil Rules Committee

[2] ($69,734 + $58,113) - $16,950 = $110,897

[3] $110,897 - $5,989 = $104,908

[4] $110,897 - $3,107 = $101,801

[5] $101,801 - $1,925 = $99,876