COURT FILE NO.: CV-12-453360

DATE: 20120830

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 2156384 ONTARIO INC. o/a MOOL AND GRILL, Applicant

AND:

C & K PROPERTY MANAGEMENT INC., and VITO VALELA, Respondents

BEFORE: Madam Justice Darla A. Wilson

COUNSEL: Julian Heller and Zabi Yaqeen , Counsel for the Applicant

Warren Rapoport , Counsel for the Respondents

HEARD: August 22, 2012

ENDORSEMENT

[ 1 ] The moving party brought an application returnable June 15, 2012 for relief from forfeiture of a commercial tenancy at 100 Steeles Avenue West. The Respondents, the landlords, locked the Applicant out on March 26, 2012. The Applicant had a lease which runs to the end of December 2014 and they wished to re-enter the premises. No responding materials were filed.

[ 2 ] On the morning of the return date of the application, the parties entered into a consent order to resolve the application, which was signed by Justice C. Brown. The relevant terms of the consent order were that the Applicant was permitted to resume possession and operation of the premises, and its equipment was to be returned by the Respondents. Paragraph 2 of the order reads as follows:

All other issues including costs, damages for any parties’ conduct, and responsibility to pay for any repairs of either the Applicant or C&K to be adjourned to court date prior to July 11, 2012 for 1 hour.

[ 3 ] On July 11, 2012, the matter appeared before me and Mr. Rapoport requested an adjournment in order to file responding materials on the costs submissions as he advised the Court that he had only received Mr. Heller’s costs demand the day before and it contained a request for costs on a substantial indemnity basis. Furthermore, I was advised by Mr. Valela, a principal of the corporate defendant who is also named in his personal capacity, that Mr. Rapaport did not act on his behalf and he wished to retain his own counsel to deal with the demand for costs made against him personally.

[ 4 ] In my hand-written reasons released that day, I reluctantly agreed to adjourn the matter to August 22 before myself. I ordered that the retainer of Mr. Rapoport be clarified prior to that attendance. Further, counsel agreed that there should be a trial of the issue of the expenses incurred and loss of revenue alleged as a result of the lock out. To that end, it was anticipated there would be a timetable set on the August 22 attendance. Counsel for the Applicant filed his costs submissions as did the solicitor for the Respondents, along with their briefs of authorities.

Applicant’s Position

[ 5 ] Counsel for the Applicant seeks costs on a substantial indemnity scale totaling $57,536.66. It is submitted that the conduct of the Respondents was reprehensible, consisting of locking out the Applicant, taking possession of their property, attempting to re-lease the premises and making unsupported allegations that the premises were being operated as a brothel. The issues were of paramount importance to the Applicant because it involved the ability to carry on its business.

[ 6 ] Mr. Heller points to the conduct of the Respondent from the time of the lockout, his attempts to resolve the matter without litigation, the lack of co-operation encountered and the necessity of proceeding with the application in these circumstances. The Respondent was aware that the legal costs were escalating, yet refused to compromise in order to achieve resolution. The settlement came on the morning that the Application was to be argued and the Applicant was successful in achieving the result it wanted of being returned to the premises. Thus, the costs should be fixed on the higher scale and it was submitted the time expended was reasonable given the issues.

Respondents’s position

[ 7 ] Mr. Rapoport confirmed that he was retained by both Respondents, including Mr. Valela, for the costs submissions. He submitted that there was no basis for ordering costs on a substantial indemnity scale, as there has not been any finding by the court that the conduct of the landlord was deserving of sanction. He was retained mid-May 2012 and after that date, he worked to achieve a resolution on behalf of his clients without proceeding with a hearing.

[ 8 ] Mr. Rapaport argued that the costs being demanded were outrageous, given the nature of the Application. The matters at issue were not complex and the time spent was excessive and not proportional to the relief sought. It was submitted by the Respondents that costs ought to be no more than $8,000.00

Analysis

[ 9 ] In Anderson v St Jude [1] , the Divisional Court summarized the principles that should guide the Court in the exercise of its discretion in fixing costs and I set them out here:

15 “The principles that should guide the exercise of discretion in fixing costs are reviewed in Boucher at paras. 24, 37 and 38:

[24] ... While it is appropriate to do the costs grid calculation, it is also necessary to step back and consider the result produced and question whether, in all the circumstances, the result is fair and reasonable. This approach was sanctioned by the court in Zesta Engineering Ltd. v. Cloutier, 2002 25577 (ON CA) , [2002] O.J. No. 4495, 21 C.C.E.L. (3d) 161 (C.A.) at para. 4 where it said:

In our view, the costs award should reflect more what the court views as a fair and reasonable amount that should be paid by the unsuccessful parties rather than any exact measure of the actual costs to the successful litigant.

[37] The 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... However, in my view, the chilling effect of a costs award of the magnitude of the award in this case generally exceeds any fair and reasonable expectation of the parties.

[38] In deciding what is fair and reasonable, as suggested above, the expectation of the parties concerning the quantum of a costs award is a relevant factor [citations omitted]. I refrain from attempting to articulate a more detailed or formulaic approach. The notions of fairness and reasonableness are embedded in the common law. Judges have been applying these notions for centuries to the factual matrix of particular cases.

16 As Boucher observes, the notions of fairness and reasonableness are notions with which judges have been long familiar, although it is not evident that they are necessarily familiar with how to determine the reasonable expectations of the parties. In fixing costs, judges have traditionally had regard to the factors set out in Rule 57.01(1). This Rule includes the factors with which we are all familiar as well as the following two additional factors which came into effect on July 1, 2005:

57.01(1) (0.a) the principle of indemnity, including where applicable, the experience of the lawyer for the party entitled to the costs as well as the rates charged and the hours spent by that lawyer;

(0.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;

17 Although the costs grid has been revoked, judges who are tasked with fixing costs must continue to consider as a factor the experience of the lawyer, the rates charged and the hours spent in light of subrule (0.a) and in light of the information to the profession from the Costs Subcommittee of the Civil Rules Committee, which has published a guideline with rates and years of experience on a partial indemnity scale that is identical to the former costs grid. Costs on a substantial indemnity scale are to be 1.5 times higher. Thus, an hours and rates calculation will continue to be performed and serve as a guideline for allowable costs.

18 Subrule 57.01(0.b) reflects the dictum from the brief endorsement of the Court of Appeal in Zesta Engineering, quoted with approval in Boucher and Moon. As stated in Boucher at para. 25, Zesta and Stellarbridge Management Inc. v. Magna International Canada Inc. (2004), 2004 9852 (ON CA) , 71 O.R. (3d) 263 "confirmed a well-settled approach to the fixing of costs prior to the establishment of the costs grid as articulated by Morden A.C.J.O. in Murano v. Bank of Montreal (1998), 1998 5633 (ON CA) , 41 O.R. (3d) 222 (C.A.) at p. 249...". This approach emphasizes the overriding principle of reasonableness.

19 The amount of costs that an unsuccessful party could reasonably expect to pay in relation to a step in the proceeding for which costs are being fixed is, in view of subrule 57.01(1)(0.b), one of the factors to be considered in fixing costs. Although Boucher does not explain how this is to be determined, the introduction of the Costs Outline in Rule 57.01(6) will provide some measure of what the unsuccessful party expected as the court will now have available to it the hours, rates and amount claimed by the unsuccessful party who, if successful, would be seeking this amount for costs.

20 An award of costs is a matter in the discretion of the judge by virtue of s. 131 of the Courts of Justice Act and in light of the factors set out in Rule 57.01(1) of the Rules of Civil Procedure. The principle of deference is firmly established in our law and particular deference is due to an exercise of discretion by a judge who is case-managing a proceeding in light of the familiarity that case management judges acquire not only in relation to particular motions, but also with the proceedings as a whole: Khan v Metroland Printing, Publishing & Distributing Ltd. (2003), 2003 49412 (ON SCDC) , 68 O.R. (3d) 135, [2003] O.J. No. 4261 at para. 5 (Div. Ct.) (QL).”

[ 10 ] I will deal first with the issue of the appropriate scale of costs . I have concluded that based on the circumstances of this case, costs on a substantial indemnity scale are warranted. In coming to this conclusion, I make no finding on whether or not the Landlord had a basis for locking out the tenant, or to put it another way, I am not required to come to a conclusion about the merits of the Respondents’s position on the motion. That would have been the province of the motions judge hearing the Application, had it proceeded through a full hearing instead of being resolved on a consensual basis. Rather, in order to determine the appropriate scale of costs, I will scrutinize the manner in which the Respondents and the Applicant conducted themselves after the lockout.

[ 11 ] First, reviewing the affidavit material filed on the application, it is clear that the actions of the Respondents from the time of the lockout forward were high handed, aggressive and designed to intimidate the Applicant. After the tenant retained counsel, efforts were made to resolve the dispute without the necessity of proceeding to litigation. These suggestions were rebuffed and the actions of the Respondent left the Applicant with no option other than to launch the Application.

[ 12 ] In addition, in mid-May the Respondents alleged that the Applicant was using the premises as a brothel which necessitated counsel for the Applicant preparing further affidavit material to rebut this allegation, which was without foundation. Mr. Yaqeen advised Mr. Rapoport of the work that he was undertaking and the additional costs that were being incurred and specifically stated that as a result, costs on a substantial indemnity basis would be demanded. Despite repeated requests, the allegation of the operation of a brothel was not withdrawn.

[ 13 ] There was a settlement meeting at the end of May which did not resolve the dispute. The draft materials for the application were served May 30. Although Mr. Rapoport stated in an e-mail June 7 that if the matter did not settle, he would be bringing evidence to demonstrate that his client’s “concerns are not without merit”, no materials were ever served or filed. Responding materials had to be filed by June 12. On June 13, Mr. Rapoport advised counsel for the Applicant that he understood the parties had settled the matter between themselves. When this did not prove to be the case, Mr. Rapoport advised that he had a limited retainer and that he would be requesting an adjournment of the application which was scheduled for June 15. While Mr. Rapoport submitted to me that it was clear that the matter was going to be resolved and that explains why no materials were filed on behalf of his clients, the chain of e-mails does not support this contention.

[ 14 ] Looking at the conduct of the Respondents after the Applicant retained counsel, in my view, the landlord was attempting to intimidate the tenant in order to dissuade it from proceeding with the Application. Mr. Yaqeen’s initial letter of April 2012 invited the landlord to resolve the matter through negotiation but advised that if his client was not permitted to re-enter the premises, a Court application would be brought. The response from Mr. Valela was that any court application would be “vigorously defended” and costs would be demanded. Mr. Yaqeen was advised that Mr. Rapoport would be acting on behalf of the Respondents.

[ 15 ] Mr. Yaqeen then wrote to Mr. Rapoport and advised that the application would have to be served in the next week. After following up and telephoning Mr. Rapoport and not receiving a response, Mr. Yaqeen wrote to Mr. Valela, only to be told not to write to Mr. Valela again and to address all correspondence to Mr. Rapoport. There was a threat that Mr. Yaqeen would be reported to the Law Society by Mr. Valela for doing exactly what Mr. Rapaport advised him to do. Mr. Rapoport finally responded on May 7 advising that he had not been retained and that he would not accept service of any documentation. It is unclear to me why this “cat and mouse game” was engaged in, but it increased the legal fees that were expended.

[ 16 ] The allegation that the premises were being used to operate a brothel was seemingly offered as an explanation for the lock out. Yet counsel for the Respondents refused to provide Mr. Yaqeen with evidence supporting these serious allegations nor would he agree to abandon them. Instead, it was suggested that if the offer to settle made by the Respondents was not accepted, the evidence would then be brought forward. In my opinion, this tactic is particularly offensive and certainly not conducive to resolution of the issues.

[ 17 ] Furthermore, when it was clear that the Respondents’s offer to settle would not be accepted, their counsel, Mr. Rapaport, who had been dealing with the file for a month and had been involved in the settlement negotiations, advised the solicitor for the Applicant at the eleventh hour that he was not retained and he was going to request an adjournment of the Application. This smacks of bad faith.

[ 18 ] The bottom line is that the Applicant was forced to bring the Application to be permitted to return to the premises that they had been locked out of and to obtain the return of their equipment and the consent order reflects that they were successful in obtaining this relief. This consent order was secured on the morning of the Application and given that counsel had been provided with the materials relied on in the Application more than 2 weeks prior to the return date, it is unclear why the consent order was only arrived at the day of the hearing.

[ 19 ] I agree with the submission of Mr. Heller that the conduct of the Respondents was aggressive and designed to take advantage of the tenant to force an end to the tenancy. Contrary to the submissions of Mr. Rapoport, the attitude of the Respondents was not to facilitate resolution; it was to bully and intimidate. This behaviour resulted in the Applicant incurring significant legal fees which, in my view, were unnecessary had the Respondents been receptive to resolving the issues without the necessity of resorting to the courts. While a party to litigation is certainly entitled to take an aggressive position, to play “hard ball”, they must understand that this almost invariably comes with a price: the payment of the unnecessary costs incurred as a result of this behaviour. In my view, the conduct of the Respondents after the Applicant retained counsel was inappropriate, cannot be encouraged and is deserving of sanction. Under these circumstances, the appropriate scale of costs is on a substantial indemnity basis.

[ 20 ] I turn now to the issue of quantum of costs . It is the overall objective of the court to fix an amount that is fair and reasonable in all of the circumstances as opposed to performing an assessment of the costs which entails reviewing the various items claimed and determining whether or not they ought to be allowed and at what amount.

[ 21 ] I have considered the various factors set out in Rule 57.01. I am of the view that the proceeding was complex and it did require urgent action by counsel for the moving party, given that their means of earning a living had been taken away. Clearly, the issues were of the utmost importance to the principals of the Applicant.

[ 22 ] One of the factors the court considers is the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding and whether any step in the proceeding was vexatious or unnecessary. Mr. Rapoport argued strenuously that the conduct of the Respondent ought not to be taken into consideration when dealing with the issue of costs because although many allegations of unsavoury conduct had been made by the moving party in its materials, there were no responding materials filed and the Application was not heard on its merits and no finding made about the conduct of the Respondents. I do not agree.

[ 23 ] The court is specifically directed to consider the conduct of any party when fixing costs and if the behaviour of a party was a barrier to an early resolution of the issues that is a relevant point. As I indicated earlier in these reasons, when assessing costs, I need not determine the propriety of the lockout, nor would it be appropriate for me to do so because I do not have all of the evidence before me. It is sufficient for my purposes to understand the nature of the Application that was brought as well as the fact that a consent order was obtained which essentially provided the Applicant with the relief that it sought, specifically, re-entry to the premises and the ability to carry on its business.

[ 24 ] A review of the conduct of the Respondent makes it clear that after effecting the lockout at the end of March, 2012, it continued to engage in aggressive behaviour and was resistant to working on a co-operative basis to resolve the matters, which necessitated the Applicant incurring additional legal fees. Consequently, the solicitor for the Applicant had no option but to prepare the materials and serve them. The Respondents cannot now be heard to say that they object to the fees that were charged for preparing the Application materials or that the work done was unnecessary because a consent order was eventually obtained.

[ 25 ] Further, at several times leading up to the application date, Mr. Rapaport was advised of the quantum of legal fees that had been incurred and the fact that they were increasing as the application date approached.

[ 26 ] In my view, the hours expended were reasonable given the nature of the application the steps that were taken prior to June 15. Further, it seems that the time of Mr. Heller was kept to a minimum so as to keep costs down. There may be some overlap of work done between Mr. Yaqeen and Mr. Foley as the hours of Mr. Foley seem somewhat high.

[ 27 ] I have considered the factors enumerated under Rule 57, including the time spent, the results achieved, and the complexity of the matter, as well as the application of the principle of proportionality: Rule 1.04(1). Furthermore, I have taken into account the principles set forth by the Court of Appeal in Boucher v. Public Accountants Council for the Province of Ontario 2004 14579 (ON C.A.) , (2004), 71 O.R. (3 rd ) 291 (C.A.), specifically that the overall objective of fixing costs is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular circumstances, rather than an amount fixed by actual costs incurred by the successful litigant.

[ 28 ] I am of the view that fees and disbursements, including taxes, fixed in the sum of $50,000 is fair and reasonable and I fix costs in that amount, which sum is to be paid forthwith by the Respondents to the Applicant.

Other Issues

[ 29 ] Counsel for the parties agree that the remaining issues be dealt with by way of a trial, which they anticipate will take 2 days of court time. They have requested my direction to the trial judge on the scope of the issues. What follows is the requested direction.

[ 30 ] The trial of the issues is to determine the damages incurred by either party as a result of the lock out of March 26, 2012, in accordance with paragraph 2 of the consent order. This includes a determination of the period of time the damages were sustained, the damages that were incurred and their quantum and a determination of what, if any repairs, were necessitated and who bears the responsibility for payment of the repairs. The trial judge shall determine the costs of preparation and attendance at trial.

[ 31 ] Counsel will contact the court to secure a mutually agreeable date for the trial of the issue of damages. Counsel for the Applicant is to serve on the solicitor for the Respondents a calculation of the damages sought by his client along with the supporting documentation on or before September 30, 2012. Counsel for the Respondents is to serve on opposing counsel a calculation of any damages sought by his clients and the supporting documentation on or before November 15, 2012. The parties are to attend examinations for discovery if desired on or before December 31, 2012. Any documentation which will be relied on at trial is to be served at least 60 days prior to the trial date.

[ 32 ] If there is any ambiguity concerning the terms of the trial of the issues, counsel are directed to contact me to arrange a teleconference to discuss this.

D.A. Wilson J.

Date: August 30, 2012

[1] Anderson v. St. Jude Medical , Inc. 2006 85158 (ON SCDC) , 2006 CarswellOnt 710 (Div. Crt.)