SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-09-385359
HEARD: April 2, 2012

RE: 2189205 Ontario Inc., Parminder Mutti and Navjot Kaur Chandi, plaintiffs

and

Springdale Pizza Depot Ltd., Ranjit Singh Mahil, Dilawar Singh Khakh, 2147390 Ontario Inc. and Kulwinder Singh, defendants

BEFORE: MASTER R.A. MUIR

COUNSEL: Allan D.J. Dick and Shane P. Murphy for the plaintiffs
David S. Altshuller for defendants

REASONS FOR DECISION - COSTS

[ 1 ] This action involves a claim by the plaintiffs for a declaration that they validly rescinded their franchise agreement with the defendants pursuant to section 6(2) of the Arthur Wishart Act (Franchise Disclosure ), 2000 , S.O. 2000, C.3 ( the “Act” ) and that they are entitled to compensation as provided for under the Act.

[ 2 ] On June 29, 2010, Justice D. Wilson granted partial summary judgment to the plaintiffs. In an order dated August 11, 2010, Justice Wilson made a declaration that the franchise agreement in question was validly rescinded by virtue of the plaintiffs’ notice of rescission dated July 16, 2009. Justice Wilson also ordered that the defendants Springdale Pizza Depot Ltd., Ranjit Singh Mahil and Dilawar Singh Khakh [1] were jointly and severally liable to pay compensation to the plaintiffs as required by section 6(6) of the Act and that such amount was to be determined by reference. An appeal from Justice Wilson’s order was dismissed by the Court of Appeal on June 22, 2011. On September 7, 2011 Master Glustein made an order appointing me as reference master. A hearing for directions was held on November 30, 2011 at which time I scheduled the hearing of the reference for April 2, 2012.

[ 3 ] On June 11, 2012, I released my reasons for decision from the reference hearing and ordered that the Springdale Defendants pay compensation to the plaintiffs under section 6(6) of the Act in the total amount of $290,830.72, plus pre-judgment and post-judgment interest. In those reasons for decision I also asked that the parties provide the court with written costs submissions. I have now received and reviewed those submissions.

[ 4 ] The court’s general authority to award costs as between parties to litigation is found in section 131(1) of the Courts of Justice Act , R.S.O. 1990, c. C.43. Rule 57.01(1) of the Rules of Civil Procedure , R.R.O. 1990, Reg. 194, sets out a non-exhaustive list of factors the court is to consider when awarding costs. Rule 1.04(1.1) is also applicable. It requires the court in applying the Rules of Civil Procedure to make orders that are proportionate to the importance and complexity of the issues and to the amount involved in the proceeding. In general terms, the overall objective for the court is to fix an amount that is fair and reasonable for the unsuccessful party who generally must pay the costs of the successful party. See Zesta Engineering Ltd. v. Cloutier, 2002 25577 (C.A.) at paragraph 4 . In Clarington (Municipality) v. Blue Circle Canada Inc. , 2009 ONCA 722 the Court of Appeal stated as follows at paragraph 52:

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.

[ 5 ] The plaintiffs submit that they were the successful party on the reference and should receive their costs on a substantial indemnity basis. Their costs outline identifies substantial indemnity costs of $43,742.78 and partial indemnity costs of $35,670.38. Both of these amounts are inclusive of disbursements and applicable taxes.

[ 6 ] The Springdale Defendants argue that the plaintiffs were only successful in recovering an amount the defendants had already conceded was owed at the outset of the hearing of the reference. As a result, the Springdale Defendants argue that there should be no order respecting costs.

[ 7 ] The plaintiffs were successful on this reference and, in my view, are entitled to their costs. I see no reason why the usual practice of awarding costs to the successful party should not apply in the circumstances of this reference. It is true that the plaintiffs did not recover the full amount they were asking for but they did establish that the Springdale Defendants owed them $290,830.72, which the Springdale Defendants had refused to pay. Rather than simply conceding that this amount was owed, the Springdale Defendants should have paid it to the plaintiffs before being ordered to do so. Alternatively, they could have served a Rule 49 offer to settle for the conceded amount. They did neither of those things.

[ 8 ] However, I see no basis for an award of costs on a substantial indemnity basis. Except as provided for by Rule 49, elevated costs orders should only be made on a clear finding of reprehensible conduct on the part of the party against whom the costs award is being made. See Clarington (Municipality) at paragraph 40 . The plaintiffs did not succeed in beating their Rule 49 offer served January 31, 2012 and there is no evidence of the kind of conduct that would attract an elevated costs award.

[ 9 ] However, the plaintiffs argue that one of the policy objectives of the Act is to make a franchisee whole upon exiting a franchise system. Substantial indemnity costs would further that policy objective. The authority they cite for this proposition is the decision of the Court of Appeal in Guelph Centre Partners Inc. v. Guelph Storm Ltd. , [2005] O.J. No. 5345 (C.A.) at paragraph 3 . In my view, a careful reading of that decision makes it clear that the award of substantial indemnity costs was based on the overall conduct of the party and not on the basis of a general principle that the failure to pay statutory compensation should result in an elevated costs award. I also note that the Act contains no provision that provides for substantial indemnity costs. Finally, Justice Wilson rejected this same argument in her costs decision on the summary judgment motion. In my view, partial indemnity costs are appropriate in the circumstances.

[ 10 ] Having reviewed and considered the costs outline submitted by the plaintiffs, it is my view that the amounts claimed are excessive in the circumstances of this reference. The issues dealt with on the reference were not complex and the Springdale Defendants properly conceded many of the claims being advanced by the plaintiffs. The hearing for directions required only a brief court appearance. The evidence portion of the reference took less than one day, although I do concede that additional time was necessary in order to prepare written argument. No expert evidence was required.

[ 11 ] I do note, however, that the Springdale Defendants have not provided the court with a costs outline so there is no way of knowing what costs they incurred in connection with the reference. I have also taken into account the fact that the Springdale Defendants did not provide their response to the plaintiffs’ compensation brief until the eve of the hearing of the reference.

[ 12 ] Given all of these factors, it is my view that it is fair and reasonable that the Springdale Defendants pay the partial indemnity costs of the plaintiffs fixed in the amount of $25,000.00, inclusive of applicable taxes and disbursements.

Master R.A. Muir

DATE: July 11, 2012

[1] I will refer to these defendants as the Springdale Defendants.