COURT FILE NO.: 07-CL-6992
DATE: 20120116
ONTARIO
SUPERIOR COURT OF JUSTICE
COMMERCIAL LIST
BETWEEN:
3574423 Canada Inc.
Plaintiff
– and –
Baton Rouge Restaurants Inc./Les Restaurants Baton Rouge Inc., Baton Rouge Restaurants Company/Compagnie Les Restaurants Baton Rouge (now known as Sara-Mammas Corporation Inc.), John Mavromichalis, Kostas Mavromichalis, Vasilios Varvaris (also known as Billy Varvaris), Anthony Varvaris (also known as Tony Varvaris), 4077822 Canada Inc., 4089537 Canada Inc. and Mikes Restaurants Inc. (now known as Imvescor Restaurants Inc.)
Defendants
I. Roher and D. Altshuller, for the Plaintiff
T. Hill and A. Mahdavian, for the Defendants, Baton Rouge Restaurants Company,/ Compagnie Les Restaurants Baton Rouge (now know as Sara-Mammas Corporation Inc. and Mikes Restaurants Inc. (now known as Imvescor Restaurants Inc.)
B. Skolnik and R. Winterstein, for the Defendants, John Mavromichalis, Kostas Mavromichalis, Vasilios Varvaris (also known as Billy Varvaris), Anthony Varvaris (also known as Tony Varvaris, 4077822 Canada Inc. and 4089537 Canada Inc.
HEARD: January 31, February 1, 2, 7, 8, 9, 10, 11, 14, 16, 17, 18, 22, 23, 24 and 25, 2011; subsequent written cost submissions dated November 29, 30, December 16, 22 and 23, 2011, and January 11 and 13, 2012.
D. M. Brown J.
I. Parties’ positions on costs
[1] By Reasons for Judgment released November 14, 2011[^1] I dismissed the plaintiff’s action. The parties have filed cost submissions.
[2] The defendants, Baton Rouge Restaurants Company (“BRRC”) and Mikes Restaurants Inc. (“Mikes”) (collectively the “BRRC Defendants”) seek (i) substantial indemnity costs of the entire action in the amount of $795,797.11, (ii) alternatively, costs of $736,555.77 calculated on a partial indemnity basis until the date of a Rule 49 Offer to Settle and thereafter on a substantial indemnity basis, or (iii) alternatively, partial indemnity costs of $632,517.80.
[3] The other defendants, John Mavromichalis, Kostas Mavromichalis, Vasilios Varvaris, Anthony Varvaris, 4077822 Canada Inc. and 4089537 Canada Inc. (collectively the “GR Clients”) seek (i) substantial indemnity costs of the entire action of $354,992.25, (ii) alternatively, costs of $333,997.13 calculated on a partial indemnity basis until March 27, 2008, the date of an offer to settle made by the Varvaris brothers, and thereafter on a substantial indemnity basis, (iii) alternatively, costs of $328,753.92 calculated on a partial indemnity until the date of the offer to settle made by the BRRC Defendants and thereafter on a substantial indemnity basis, or (iv) alternatively, partial indemnity costs of $294,144.03.
[4] Although the plaintiff (incorrectly) acknowledged that the BRRC Defendants would otherwise be entitled to substantial indemnity costs for the period of time following the making of their offer to settle (which it estimated at $736,555.77), the plaintiff submitted that certain factors justified awarding costs only on a partial indemnity scale. The plaintiff submitted that the offer to settle made by the Varvaris brothers should not be taken into account in determining the appropriate cost award and that the GR Clients should only receive partial indemnity costs, but reduced by reason of certain litigation conduct. The plaintiff submitted that the defendants should receive no more than $500,000.00 in costs in total.
II. Scale of costs
[5] The BRRC Defendants seek substantial indemnity costs for the entire action on the basis that the plaintiff made extremely serious allegations against the defendants which were not proven at trial and that findings of fact were made against the plaintiff and its principals. The GR Clients adopted those submissions. While unfounded allegations of improper conduct which are seriously prejudicial to the character or reputation of a party may justify an award of substantial indemnity costs in an appropriate case,[^2] in my view the nature of the plaintiff’s allegations did not rise to that level. The plaintiff argued that the defendants had breached a contractual right of first refusal, as well as disclosure and good faith performance obligations under the Arthur Wishart Act. No allegations of fraud were made against the defendants, and at trial the plaintiff was not prepared to go so far as to contend that the July 6 Letter had been concocted.
[6] The BRRC Defendants and the GR Clients also point to many findings of fact which were made against the plaintiff and its principals, including adverse findings of credibility, and argue that substantial indemnity costs should result. But adverse findings of fact and credibility quite often are made against the losing party in standard-fare commercial litigation, yet substantial indemnity costs normally do not arise. I reject the contention implicit in the submission of the BRRC Defendants that if a court does not accept the evidence of a party, then substantial indemnity costs should follow. Such logic would see substantial indemnity costs become the norm, not the exception as they are treated under our law. Something more is required to push costs to an elevated level, and I do not see that “something more” in this case. The litigation was hard-fought and the commercial allegations asserted by the plaintiff were not proven, but such circumstances point only to an award of partial indemnity costs to the successful defendants, not substantial indemnity.
[7] The BRRC Defendants contend that two offers to settle they made justified the award of some substantial indemnity costs and the plaintiff acknowledged a prima facie entitlement to substantial indemnity costs (although I believe this acknowledgement was based on a misunderstanding of the law). BRRC made an offer to settle on July 24, 2009 under which it would pay the plaintiff $750,000.00, plus partial indemnity costs, as well as the costs of its co-defendants under Rule 49.11(b)(i). That certainly was a very serious offer to settle. Mikes Restaurants made a more tactical offer to settle, but an offer to settle nonetheless, by offering, on August 20, 2009, to consent to a dismissal of the action against it on a without costs basis. Accumulated costs of the action to that point of time were significant, so that offer was a tangible one. The GR Clients point to the March 13, 2008 offer to settle made by the Varvaris brothers which, like the Mikes Restaurants offer, offered to settle the matter on the basis of a consent dismissal without costs.
[8] Although Rule 49.10(2) of the Rules of Civil Procedure does not speak in terms of awards of substantial indemnity costs to defendants who “better” their offers to settle when the plaintiff’s action is dismissed, the BRRC Defendants submit that the case law entitles a court to make such a discretionary award.[^3] Yes and no. The decision of the Court of Appeal in St. Elizabeth Home Society v. Hamilton (City)[^4] re-iterated that substantial indemnity costs are only awarded in “rare and exceptional cases”,[^5] and that it would be an error for a trial judge to rely on offers to settle to award successful defendants substantial indemnity costs absent conduct by a plaintiff which supported a finding of reprehensible conduct. As I stated above, I do not regard the conduct of the plaintiff as egregious or reprehensible, therefore I see no basis for an award of substantial indemnity costs in favour of the defendants.
[9] The defendants successfully resisted the plaintiff’s claims. Costs should follow the cause. The defendants are entitled to their costs on a partial indemnity basis.
III. Quantum of costs
A. The guiding principles
[10] In determining the costs of a trial, a court must take into account the factors enumerated under Rule 57, including the time spent, the result achieved, and the complexity of the matter, as well as the application of the principle of proportionality found in Rule 1.04(1). In addition, a court must consider the principles set forth by the Court of Appeal in Boucher v. Public Accountants Council for the Province of Ontario[^6] and Davies v. Clarington (Municipality)[^7], specifically that the overall objective of fixing costs is to fix an amount that is fair and reasonable for an unsuccessful party to pay in the particular circumstances, rather than an amount fixed by actual costs incurred by the successful litigant. More detailed consideration of these general principles was made by the Divisional Court in Andersen v. St. Jude Medical, Inc.[^8] where the court stated:
22 … Appellate intervention based solely on quantum is problematic because there is no meaningful way to determine when a number is too high. However, an award of this magnitude warrants careful scrutiny because in exercising the discretion to award a significant amount for costs, we must be satisfied that the judge has exercised the discretion on proper principles and that the award is not "plainly wrong". We understand these principles to be:
The discretion of the court must be exercised in light of the specific facts and circumstances of the case in relation to the factors set out in Rule 57.01(1)…
A consideration of experience, rates charged and hours spent (formerly a costs grid calculation) is appropriate, but is subject to the overriding principle of reasonableness as applied to the factual matrix of the particular case: Boucher. The quantum should reflect an amount the court considers to be fair and reasonable rather than any exact measure of the actual costs to the successful litigant…
The reasonable expectation of the unsuccessful party is one of the factors to be considered in determining an amount that is fair and reasonable: Rule 57.01(1)(0.b).
The court should seek to avoid inconsistency with comparable awards in other cases. "Like cases, [if they can be found], should conclude with like substantive results"…
The court should seek to balance the indemnity principle with the fundamental objective of access to justice…
A discretionary decision of a case-management judge in a class proceeding is entitled to a very high level of deference…
[11] In reviewing a claim for costs after a trial a court need not undertake a line by line analysis of the hours claimed, nor should a court second-guess the amount claimed unless it is clearly excessive or overreaching. A trial judge must consider what is reasonable in the circumstances and, after taking into account all of the relevant factors, should award costs in a more global fashion.[^9]
B. Complexity of the proceeding
[12] This was a factually-dense action. The pleadings, which the plaintiff amended several times to alter its theory of the case, put into question close to 5 years of dealings between the parties. The amended pleadings expanded the theories of liability and put into dispute more, rather than less, of the history of the parties. That lengthy history of events was the subject-matter both of extensive examinations for discovery, as well as a trial which consumed 16 days spread over 4 weeks. The facts surrounding key events were hotly disputed, with material parts of the narrative taking on a “he said/she said” character. The exhibits filed at trial were numerous.
[13] The plaintiff’s amendment of its pleading to include claims under the Arthur Wishart Act increased the legal complexity of the case, with some of the interpretations of the AWA advanced by the plaintiff raising novel issues for determination.
[14] In sum, I would characterize this proceeding as both factually and legally complex.
[15] The amount claimed by the plaintiff was significant – about $15 million in the last iteration of its Statement of Claim, and the issues were of obvious importance to the parties.
C. The defendants’ proof of costs
[16] Both sets of defendants submitted Bills of Costs which described the legal work performed at each stage of the proceeding, identified the time spent by each lawyer or clerk for each stage of the proceeding, and set out the hourly rates used and the experience of each counsel or clerk. However, neither set of defendants initially included docket-like statements of time expended. Although a court need not undertake a line-by-analysis when reviewing a claim for costs of a trial, Rule 57.01(5) and Form 57A require parties to file “dockets or other evidence” in support of their claim for fees. As a result of directions which I issued on December 20, 2011, the defendants filed copies of their dockets.[^10]
D. Review of the BRRC Defendants’ claim for fees and disbursements
D.1 Fees
[17] The BRRC Defendants filed a Bill of Costs on a partial indemnity basis seeking fees of $560,281.12, including taxes. According to its submissions, the BRRC Defendants excluded from that Bill of Costs any costs previously settled or disposed of by the court on pre-trial motions. The dockets stroked out the entries for time so excluded.
[18] The plaintiff voiced four “line-specific” criticisms of the fees sought by the BRRC Defendants:
(i) The amount claimed for pleadings was excessive and largely spent by virtue of various court orders;
(ii) The amount claimed for trial preparation was excessive, particularly the 330 hours claimed by counsel for January, 2011, the month prior to trial, especially in light of the fact that the BRRC Defendants’ witnesses took up less than three days of court time;
(iii) Given that these defendants were represented by two counsel at trial, time claimed for a student should be reduced or disallowed; and,
(iv) Counsel’s fees for two mediations (October, 2004 and June, 2009) were not recoverable.
[19] The BRRC Defendants colour-coded their submitted dockets so one could readily identify the time relating to the various categories set out in their Bill of Costs. That was most helpful. A review of the dockets revealed that the category “Pleadings” on the Bill of Costs included time for non-pleadings work. The “Pleadings” category essentially tracked time for work not related to discoveries, case conferences and trial preparation. My review of the specific “pleadings”-coded entries on the dockets revealed that the time claimed was for work reasonably related to the conduct of the action and therefore is recoverable as part of partial indemnity costs. The distribution of work amongst the lawyers and students showed a proper delegation of task to more junior time-keepers. The partial indemnity hourly rates sought - $350 for a 1980 call; $225-$250 for a 1997 call; and $60-$80 for students and clerk – are reasonable. Accordingly, I see no reason to adjust the fees sought for “pleadings”.
[20] The plaintiff made no objection to the fees claimed for the case conferences, pre-trial conference and discoveries.
[21] Turning to the category “Trial Preparation”, the BRRC Defendants sought to recover time for work performed after July 1, 2010 and prior to trial. The dockets showed that preparation for trial commenced in July, 2010, with work performed on transcript summaries, witness interviews, will says, and draft examination questions. From July through to November junior counsel obviously was doing the detailed leg-work, with some review by senior trial counsel, and then in December senior trial counsel began to engage in a more detailed review and preparation for trial. Such a division of labour was reasonable and to be expected.
[22] With respect to the portion of January, 2011 prior to the opening day of trial, the time recorded on the Bill of Costs for senior counsel (280.5 hours) and junior counsel (150.1 hours) did not correspond to that shown on the January 31, 2011 invoice to client – 113.9 hours for senior counsel and 61.0 hours for junior counsel. Even making some allowance for differences related to when time was booked and billed, I agree with the plaintiff’s submission that the time sought for January, 2011 is excessive. I therefore reduce the recoverable 2011 “trial preparation” time of senior counsel to 120 hours and junior counsel’s to 70 hours, which should make some allowance for time-recording differences. That reduces the amount claimed by 160.5 hours for senior counsel and 80.1 hours for junior counsel, or $56,175.00 and $20,025 respectively, for a total reduction of “trial preparation” by $76,200 to $128,897.00, plus a reduction of H.S.T. by $9,906.00 to $16,756.61, resulting in a total allowed for that category of $145,653.61 (compared to $231,759.61 claimed).
[23] As to the claim for a daily “counsel fee” for the student during the trial, while a student does not attract a “counsel fee”, my review of the dockets reveals it is reasonable for the BRRC Defendants to seek recovery of such time. Those defendants only sought daily counsel fees of six hours for each of senior and junior counsel. It is clear from the dockets that counsel put in much longer days during the trial, as is inevitable and necessary. Relevant work must be performed each day of trial outside of the courtroom. In those circumstances I think it fair and reasonable to allow the fees sought for the student during the trial in substitution for the before/after-court work performed by counsel during the trial. I therefore make no adjustment to the counsel fee sought for trial.
[24] Finally, I do not accept the plaintiff’s submission that counsel’s fees for the mediations are not recoverable. Judges of this court strongly encourage parties to mediate their disputes. Fees paid for mandatory mediations are recoverable under Tariff Item 23.1, and in my view fees paid to mediators for mediations which were not mandatory would be recoverable under Tariff Item 35. I regard the counsel fees incurred by a party for a mediation as reasonably related to the conduct of the proceeding and therefore also recoverable.
[25] By way of summary, based on a review of the time dockets of counsel for the BRRC Defendants, I conclude that a fair and reasonable amount of costs for legal fees incurred by those defendants would be $474,175.12 ($560,281.12 - $86,106.00 adjustment for “trial preparation”).
D.2 Disbursements
[26] The BRRC Defendants seek to recover disbursements (including taxes) of $72,236.68. The plaintiff voiced two criticisms of those disbursements:
(i) Fees charged by Mr. Paul Colangelo, an expert who reviewed an expert report filed by the plaintiff on a motion to amend, but whose own report was not filed with the court, should not be allowed; and,
(ii) Amounts claimed for travel by witnesses and a representative of the party to trial from Montreal and accommodations during the trial should not be allowed.
Claim for expert’s fees
[27] The plaintiff retained Mr. Farley Cohen of Navigant Consulting to prepare an expert report calculating the present value of losses the plaintiff alleged it had suffered. Mr. Cohen prepared a report dated December 14, 2006. The BRRC Defendants retained Mr. Paul Colangelo to review that report. Mr. Colangelo did so. He rendered an account on June 7, 2007 in the amount of $22,260.00. Mr. Colangelo did not prepare a report which was provided to the other side. His work was performed before Cumming J. made his bifurcation order in 2008.
[28] Item 26 of Tariff A permits the court, in fixing costs, to include a reasonable amount “for experts’ reports that were supplied to the other parties as required by the Evidence Act or these rules and that were reasonably necessary for the conduct of the proceeding”. Mr. Colangelo did not prepare a report which was supplied to the other party. However, Item 35 of Tariff A permits the inclusion in a cost award “where ordered by the presiding judge or officer, for any other disbursement reasonably necessary for the conduct of the proceeding, a reasonable amount in the discretion of the assessment officer.” There is no doubt that the work performed by Mr. Colangelo was “reasonably necessary for the conduct of the proceeding” because his work was performed in response to the expert report served by the plaintiff. That his report was not served resulted solely from the bifurcation order made by Cumming J. and the plaintiff’s lack of success on the liability trial before me. Nonetheless, the costs incurred by the BRRC Defendants were real, reasonable and prompted by the litigation conduct of the plaintiff. The BRRC Defendants are entitled to indemnification for costs relating to the entire action. In those circumstances I concluded the amount charged by Mr. Colangelo is recoverable under Item 35 of Tariff A.
Travel expense
[29] The BRRC Defendants also seek to recover $10,344.26 for costs relating to travel from Montreal to Toronto and accommodation at hotels in Toronto during the trial for witnesses and for a representative of BRRC. Although Schedule “A” to BRRC’s Bill of Costs did not differentiate between witness and client representative costs, given the number of Montreal-based witnesses called by the BRRC Defendants during the trial, it is reasonable to infer that a large amount of the costs claimed were witness-related.
[30] As to the amounts paid for the witnesses’ travel and accommodation, they are recoverable under Tariff A, Item 21. As to the amount paid by a representative of the BRRC Defendants, those amounts also are recoverable.[^11] Although the plaintiff did not quarrel with the reasonableness of the actual amounts expended, the plaintiff argued that the amounts were not recoverable because the BRRC Defendants failed to file “copies of invoices or other evidence” as required by Form 57A. The plaintiff is correct in its position that Form 57A requires the filing of such evidence, but why counsel simply could not pick up the phone and work out the numbers on this item is beyond me. The BRRC Defendants shall send the “invoices or other evidence” to plaintiff’s counsel by January 27, 2012. If they agree on a number, they shall inform me and I will release a further supplemental set of reasons. If they cannot agree on the amount recoverable by February 3, 2012, they shall book a 9:30 appointment before me for the week of February 13, 2012 and I will fix the number. No costs will be allowed to any party for such an attendance.
[31] Accordingly, having reviewed the Bill of Costs and dockets filed by the BRRC Defendants, I conclude that the disbursements in the amount of $61,892.42 ($72,236.68 - $10,344.26), including taxes, are reasonable and should be allowed.
E. Review of the GR Clients’ claim for fees and disbursements
E.1 Fees
[32] The GR Clients filed a Bill of Costs on a partial indemnity basis seeking fees of $255,868.90, plus H.S.T. of $17,910.82. According to its submissions, the GR Clients excluded from that Bill of Costs any costs previously settled or disposed of by the court on pre-trial motions.
[33] The plaintiff only advanced one “line item” objection to the Bill of Costs submitted by the GR Clients – the fees paid to the Loopstra Nixon firm. The plaintiff argued that the fees paid to Loopstra Nixon, the initial counsel for the GR Clients, should not be allowed because “such fees largely related to the crossclaim, which was soon abandoned”. I do not accept this argument. The GR Clients are entitled to recover reasonably incurred fees in connection with this action for work performed by both initial and subsequent counsel.
[34] I have reviewed the Bill of Costs and dockets filed by the GR Clients. Most of the work on the action was performed by a senior (1996 call) and a junior (2002 or 2006 call, depending on the time period) counsel. All the work appears reasonably related to the action, and the partial indemnity hourly rates sought for the main lawyers are reasonable: $250-$265/hour for 1996 call; $120/hour for 2002 call; $155/hour for 2006 call. The amount of work billed by students and law clerks seems reasonably proportional to the work performed by the lawyers. Accordingly, I accept as otherwise fair and reasonable partial indemnity fees for the GR Clients in the amount of $255,868.90, plus taxes of $17,910.82.
E.2 Disbursements
[35] The GR Clients claim disbursements of $19,923.12, plus H.S.T. of $441.19. The plaintiff raised no specific objection to the disbursements sought. The list of disbursements discloses that they consist of expenses necessarily connected to the conduct of the litigation. Accordingly, I accept as otherwise fair and reasonable disbursements for the GR Clients in the amount of $19,923.12, plus H.S.T. of $441.19.
F. Factors plaintiff contends should reduce further the amount of the cost awards
[36] Having reviewed the defendants’ bills of costs and dockets for their reasonableness in connection with the steps undertaken in this piece of litigation, let me now turn to the arguments advanced by the plaintiff seeking further reductions of the amounts of partial indemnity costs claimed by both sets of defendants by reason of the defendants’ litigation conduct and other matters.
F.1 Inadequate production of documents
[37] Mr. Gerry Analytis had acted as counsel to BRRI and the Mavromichalis brothers in respect of the franchise agreement with the plaintiff. Mr. Analytis had not acted for BRRC (save to write one letter after the plaintiff threatened litigation), nor had Mr. Analytis acted for Mikes Restaurants. As described in my Reasons for Judgment, I interrupted the trial for two days during the defendants’ case when it became apparent that the GR Clients had not produced relevant productions from the working files of Mr. Analytis. Undertaking answers given by John Mavromichalis and Kostas Mavromichalis had suggested that Mr. Analytis had reviewed his files and produced relevant documents. In fact a thorough review of Mr. Analytis’s files had not taken place. In the result the trial was interrupted so that his files could be produced and inspected by plaintiff’s counsel. A number of documents from the files of Mr. Analytis were admitted into evidence. In large part they supported the defendants’ case.
[38] The plaintiff submits that the defendants’ failure to provide timely production of these materials documents is conduct which the court should not condone, and it submits that, as a result, the defendants’ costs should be reduced or denied pursuant to Rules 57.01(1), (2) and (4).
[39] In response the BRRC Defendants argued that (i) they already had removed from their Bill of Costs any time spent in connection with the production of the files of Mr. Analytis ordered during the trial; (ii) this was not a case of a deliberate attempt by a party to conceal or withhold damaging documents; and, (iii) it was found that the plaintiffs had failed to disclose some critical documents. The GR Clients added that although the Analytis documents were not produced before trial, good faith efforts were made by the Mavromichalis brothers and their counsel to secure documents from Mr. Analytis.
[40] On Monday, February 14, 2011 – Day 9 of the trial – I made the following ruling regarding the documents in the files of Mr. Analytis which had not been produced by the GR Clients:
Issues have arisen twice during the Examination in chief of Mr. Analytis about the adequacy of documentary production by defendants. This ruling was prompted by the most recent episode when Mr. Hill sought to have Mr. Analytis identify an original copy of the Vaughan franchise agreement which contained a territory map in a form not yet seen in the evidence. The Vaughan franchise agreements in the record contain a different map.
It is apparent from questions asked during the discovery process and from answers Mr. Analytis gave to my questions a few minutes ago, that the defendants have not complied with their obligations under Rule 30 and 31 of the Rules of Civil Procedure.
Mr. Analytis was the agent of the Mavromichalis brothers and their companies in respect of a number of transactions relevant to issues pleaded in this action – specifically, the franchise agreements for outlets at the Eaton Centre, Vaughan, Thornhill and North York. As well Mr. Analytis acted for the Mavromichalis brothers on their sale of BRRI to the Sara/Mammas group. As corporate counsel for the Mavromichalis brothers and their companies, the documents relevant to those issues contained in Mr. Analytis’ files which were not privileged should have been produced for inspection, and those that were privileged should at least have been listed on Schedule B to those defendants’ affidavits of documents. Since that did not occur, the Mavromichalis defendants breached their production obligations.
Mr. Hill submitted that he would withdraw his request to adduce the Vaughan franchise agreement through Mr. Analytis. That does not address the larger issue - it is clear that relevant documents contained in Mr. Analytis’ files have not been produced.
I must be guided by Rule 53.08 which reads as follows:
53.08(1) If evidence is admissible only with leave of the trial judge under a provision listed in subrule (2), leave shall be granted on such terms as are just and with an adjournment if necessary, unless to do so will cause prejudice to the opposite party or will cause undue delay in the conduct of the trial.
(2) Subrule (1) applies with respect to the following provisions:
Subrule 30.08 (1) (failure to disclose document).
Rule 30.09 (failure to abandon claim of privilege).
Rule 31.07 (failure to answer on discovery).
Subrule 31.09 (3) (failure to correct answers on discovery).
Subrule 53.03 (3) (failure to serve expert’s report).
Subrule 76.03 (3) (failure to disclose witness).
There have been breaches of Rules 30.08(1), 31.07 and 31.09(3).
I think terms can be imposed on the admission of the original Vaughan franchise agreement which would not result in prejudice to the plaintiffs and would not cause undue delay in the conduct of the trial. As a result, I order as follows:
1/ I adjourn this trial until Wednesday, February 16 at 10 a.m.;
2/ I require the defendants to secure from Mr. Analytis his files in respect of the Eaton Centre, Vaughan, Thornhill and North York franchises, as well as his file on the sale of BRRI to the Sara/Mammas group.
3/ The defendants shall make available to the plaintiffs for inspection by no later than 2 p.m. tomorrow afternoon, Tuesday, February 15, 2011, at their office here in Toronto any non-privileged documents relating to the Eaton Centre, Vaughan, Thornhill, North York franchises, as well as his file on the sale of BRRI to the Sara/Mammas Group;
4/ The costs of securing and producing those files shall be borne by the defendants;
5/ On the resumption of the trial Wednesday morning, I shall hear any further submissions about (i) the admission into evidence of the original Vaughan franchise agreement and (ii) whether the plaintiff wishes the recall of John and Kostas Mavromichalis for further cross-examination on any newly produced document. Given the possibility of the recall of J and Kostas Mavromichalis for further evidence, I order that their counsel inform them promptly this afternoon that they are not to discuss this case with anyone until such time as I determine whether they may be recalled to give evidence.
I can only emphasize the need for counsel to co-operate on this issue. I am very disappointed that pre-trial production obligations were not complied with. I do not want any further delays in this trial due to production-related issues.
[41] The following answers given by Mr. Analytis in response to questions which I asked prior to making that ruling revealed how the problem had come about:
THE COURT: In answering these questions, I don't want you to reveal to me at all any solicitor-client communications that you had with your client. My questions are not designed in any way, shape or form to go behind solicitor-client privilege. I am just going to ascertain some facts which would be process-related and [not] privileged, but after this litigation started in 2004, did you produce those files to make available those files for review by the litigation counsel?
Mr. Analytis. I did.
THE COURT: Were they reviewed by litigation counsel?
Mr. Analytis. I-- no, but they asked for documents which I provided. They didn't physically come to my office to view the files.[^12]
[42] As a practical matter it falls to a party’s litigation counsel to review with care the various repositories of documents for whose production counsel’s client is responsible. I found that the GR Clients were responsible for producing the non-privileged documents of their agent, Mr. Analytis. It is apparent that although Mr. Analytis informed the GR Clients and their counsel that he had relevant documents in his possession, neither the party nor its litigation counsel actually reviewed his files to identify relevant documents. As a result of that incomplete review of documents during the production process, the inevitable happened – relevant documents surfaced while preparing the witness on the eve of his testimony, and the disputes about production ensued. The trial was delayed for two days, not resuming until Thursday, February 17, 2011.
[43] The failure of the GR Clients to produce before trial relevant, non-privileged documents from the files of Mr. Analytis was a serious one. Rule 30 imposes documentary disclosure and production obligations on a party. Those obligations must be taken seriously and fulfilled before trial starts. In this case the Mavromichalis brothers did not comply with their production obligations, necessitating a two-day adjournment of the trial. Such conduct lengthened unnecessarily the duration of the proceeding.[^13] Although the evidence indicates that the delay resulted from sloppiness during the production process, not a deliberate attempt to conceal documents, I think some reduction in costs claimed by the GR Clients is appropriate to sanction such sloppiness. Other judges have talked about the “fragility” of discovery obligations – the fairness of trials conducted in Ontario depends heavily on parties who are adverse in interest nonetheless scrupulously and comprehensively complying with their production obligations.[^14] In some cases where they do not, fairness can still be achieved by granting an adjournment of the trial. But such adjournments always impose costs, and they also reflect a failure by one party to meet obligations clearly spelled out in our Rules of Civil Procedure. I think it fair, in the circumstances of this case, to deny the GR Clients some of the partial indemnity costs to which they would otherwise be entitled because of the delay caused by their unnecessarily sloppy performance of their production obligations.
[44] At the same time I must take into account my finding at trial that the principals of the plaintiff likely failed to produce important letters as part of their productions.[^15] While two wrongs do not make a right, I think that fairness demands some mitigation of any reduction in costs I make in respect of the GR Clients by virtue of the plaintiff’s own non-disclosure.
[45] On balance I conclude that I should reduce the award of partial indemnity costs to which the GR Clients otherwise would be entitled to reflect their failure to produce relevant, non-privileged documents from the files of Mr. Analytis during the course of their pre-trial productions. Of course, it is not possible to measure with scientific precision what reduction in costs is appropriate. Here, the failure in production delayed the trial for two days. I think that depriving the GR Clients of four days’ worth of their claimed counsel fees for trial, or one-quarter of the amount set out in their Bill of Costs, would represent an appropriate and proportionate sanction for this aspect of their litigation conduct. Accordingly, I reduce their counsel fees claimed by $14,892.13, plus taxes of $1,042.45, for a total reduction of $15,934.58.
[46] Although Mr. Analytis was called as part of the case of the BRRC Defendants, the Rule 30 production obligations regarding his files rested with the GR Clients. Accordingly, I see no reason to make any reduction in the partial indemnity costs awarded to the BRRC Defendants.
F.2 Successive transfers of the franchise system
[47] The plaintiff submitted that amendments to the pleadings were required because the franchisor changed hands several times – BRRI to BRRC to Mikes Restaurants – and that some reduction in the cost awards should be made as a result. The BRRC Defendants argued that the transfers of ownership of the franchise system provided no basis to reduce costs.
[48] I agree. I see no merit to the plaintiff’s argument. The successive changes of ownership in the franchisor were made as part of arm’s-length commercial transactions. Such events did not “unnecessarily” lengthen the duration of the proceeding.
F.3 Status of BRRI
[49] As noted in my Reasons for Judgment BRRI was dissolved before the plaintiff started this action, but that fact did not come to light until later in the life of the action. The plaintiff submitted that any costs relating to BRRI should be denied, but did not proffer a specific amount for the reduction.
[50] BRRC submitted that the plaintiff elected to sue BRRI notwithstanding its dissolution, and when informed in 2007 about the dissolution, the plaintiff refused to discontinue its action against BRRI, necessitating Aird & Berlis to bring a motion to remove itself as counsel of record for BRRI, which was granted.
[51] It falls upon a plaintiff to satisfy itself, through appropriate corporate searches, that any corporation against which it intends to take action exists at the date of commencement of the lawsuit. Accordingly, I see no basis for the plaintiff’s complaint.
F.4 Disparity between the defendants’ bills of costs
[52] As a final submission the plaintiff argued that the significant disparity between the defendants’ bills of costs should be taken into account and that no more than a total of $500,000.00 in partial indemnity costs should be awarded against the plaintiff.
[53] I see no merit to this argument. From the January, 2005 indemnity agreement entered into amongst the defendants BRRC clearly assumed the lead role in defending this action. From my observation of the conduct of the trial, counsel for the two sets of defendants co-ordinated their efforts and kept duplications to a minimum. The plaintiff did not suggest that such co-operation and avoidance of duplication was absent from the pre-trial steps of the litigation.
[54] As to the argument that there should be a $500,000 “cap” on costs, it was the plaintiff which determined the number of defendants that had to respond to its allegations as well as the scope of those allegations. The plaintiff made broad allegations against a large number of defendants, prompting a factually-detailed trial. Having set the scope of the proceeding, the plaintiff cannot now seek to impose an arbitrary costs cap. I see no merit to this submission.
IV. Summary
[55] By way of summary, having reviewed the defendants’ Bills of Costs, the submissions made by all parties, including the specific objections advanced by the plaintiff, and taking into account the governing principles of law, I conclude that the defendants are entitled to their partial indemnity costs of the action which I fix as follows:
(i) to the BRRC Defendants, fees in the amount of $474,175.12 and disbursements in the amount of $61,892.42, both inclusive of taxes, for a total of $536,067.54;
(ii) to the GR Clients, fees in the amount of $227,845.14 and disbursements in the amount of $20,364.31, both inclusive of taxes, for a total of $248,209.45,
and I order the plaintiff to pay such amounts to those defendants.
[56] As to the claim for travel expenses on Schedule “A” of the Bill of Costs of the BRRC Defendants, the parties shall follow the procedure described in paragraph 30 above.
D. M. Brown J.
Released: January 16, 2012
COURT FILE NO.: 07-CL-6992
DATE: 20120116
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
3574423 Canada Inc.
Plaintiff
– and –
Baton Rouge Restaurants Inc./Les Restaurants Baton Rouge Inc., Baton Rouge Restaurants Company/Compagnie Les Restaurants Baton Rouge (now known as Sara-Mammas Corporation Inc.), John Mavromichalis, Kostas Mavromichalis, Vasilios Varvaris (also known as Billy Varvaris), Anthony Varvaris (also known as Tony Varvaris), 4077822 Canada Inc., 4089537 Canada Inc. and Mikes Restaurants Inc. (now known as Imvescor Restaurants Inc.)
Defendants
SUPPLEMENTARY REASONS FOR JUDGMENT: COSTS
D. M. Brown J.
Released: January 16, 2012
[^1]: 2011 ONSC 6697 [^2]: 1175777 Ontario Ltd. v. Magna International Inc. (2007), 61 R.P.R. (4th) 68 (Ont. S.C.J.), para. 27. [^3]: Morden & Perell, The Law of Civil Procedure in Ontario, First Edition, p. 576 [^4]: 2010 ONCA 280. [^5]: Ibid., para. 92. [^6]: (2004), 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291 (C.A.). [^7]: (2009), 2009 ONCA 722, 100 O.R. (3d) 66 (C.A.). [^8]: (2006), 2006 CanLII 85158 (ON SCDC), 264 D.L.R. (4th) 557 (Ont. Div. Ct.)(citations omitted) [^9]: See the cases referenced in Fazio v. Cusumano, 2005 CanLII 33782 (ON SC), 2005 CarswellOnt 4518 (S.C.J.), para. 8. [^10]: 2011 ONSC 7572 [^11]: Jama v. McDonald’s Restaurants of Canada Ltd., 2004 CarswellOnt 4308 (S.C.J.), paras. 19 and 20; Ed Miller Sales & Rentals Ltd. v. Caterpillar Tractor Co. (1998), 1998 ABCA 118, 216 A.R. 304 (Alta. C.A.), para. 17. [^12]: Rough transcript, February 14, 2011, page 154. [^13]: Rule 57.01(1)(e). [^14]: See the remarks of J. Macdonald J. in McColl-Frontenac Inc. v. Aerospace Realities (1986) Ltd., 2000 CarswellOnt 436 (S.C.J.), para. 14. [^15]: Reasons for Judgment, para. 53.