COURT FILE NO.: CV-11-431862

DATE: 20120917

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Direct Energy Marketing Limited Applicant – and – National Energy Corporation Respondent

Paul Le Vay and Brennagh Smith, for the Applicant

Brad Teplitsky, for the Respondent

j.s. o’neill

Ruling on Costs

[ 1 ] On July 17, 2012 I released my reasons in relation to the above noted Application and in paragraph 34 therein, the said reasons provided that certain declarations and orders shall issue. At paragraph 35 of my reasons I stated in part as follows:

“The Applicant is entitled to its costs of this application on the partial indemnity scale”

[ 2 ] After the reasons were released, counsel for the Responded forwarded correspondence dated August 15, 2012 in which he stated in part as follows:

“The issue [with respect to costs] normally does not arise because both liability and damages are determined at the same time in proceedings commenced by Statement of Claim and even proceedings commenced by Notice of Application, the quantum is often determined at the same time as liability...as I mentioned, Direct may recover no money or a nominal amount but yet will be seeking thousands of dollars at this point if they are awarded costs at this point and have little or no award for damages, the principle of proportionality will not be followed”.

[ 3 ] Prior to receiving this correspondence, I conducted a teleconference with counsel and I directed that both file written submissions with respect to costs, and with respect to whether costs at this juncture should be deferred or ordered to be paid forthwith.

[ 4 ] I have since received and reviewed costs submissions from the Applicant dated August 20, 2012, correspondence from the Respondent as noted, dated August 15, 2012, as well as Reply submissions from the Respondent dated September 4, 2012.

[ 5 ] S. 131 of the Courts of Justice Acts 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.

[ 6 ] Rule 57 of the Rules of Civil procedures sets forth the factors to be considered by the court in exercising its discretion under s. 131 of the Courts of Justice Act , placing emphasis on the result in the proceeding and any written offer to settle. At p. 1197 of the Ontario Annual Practice, it is noted as follows:

Effective January 1, 2002, party-and-party and solicitor-and-client costs were replaced with “partial indemnity” and “substantial indemnity” costs. Until July 1, 2005, Rules 57.01 and 57.03 required the court to fix costs in accordance with a costs grid established by Part I of Tariff A, except in “exceptional” cases when the costs could be referred for assessment under Rule 58. After a trial, a motion that disposed of a proceeding or an application is completed, the party who was awarded costs was to serve and file a bill of costs grid. The court then proceeded to fix the costs in accordance with the costs grid. Effective July 1, 2005, the costs grid was revoked, given a number of Court of Appeal decisions critical of bills of costs and awards that were mathematical applications of the grid’s hourly rates to hours expended. It was replaced by reliance on the discretionary factors set out in Rule 57.01(1), now supplemented by reference to the principle of indemnity (including the experience of the lawyers, the rates charged and the hours spent by the lawyers), and the amount of costs that an unsuccessful party could reasonably expect to pay. In addition, the power to award costs on a “full” as opposed to “substantial” indemnity basis and to an unrepresented party is clarified.

Lawyer must now come to court, including trials, prepared for judges who will fix costs, except in exceptional cases that justify assessment, or where the service of bills of costs require a re-attendance or written submissions. Fixing costs will end the tradition of painstaking analysis of each step of the litigation, with dockets presented and then attacked on cross-examination. Inevitably, there will be a more general approach to costs, returning, to some extent, to the process of some 35 to 40 years ago when the weight and “feel” of the file and issues indicated the appropriate assessment.

[ 7 ] While I appreciate that my ruling and the declarations and order which I issued may or are now subject to an appeal, and that the reference itself has not been heard and that the quantum of damages has not been determined or finalized, nevertheless in the exercise of my discretion, I consider it fair and just that at this point in the legal proceeding, an order with respect to costs be made. I come to this conclusion for several reasons:

i. The order which I granted on July 17, 2012 is a final order, to the extent that the declarations granted therein declare an infringement of a right. My decision determined that the Respondent had breached the Trade-Marks Act and the Competition Act in its distribution of the brochure. Subject to an appeal, the Respondent is now precluded from raising this infringement issue again. I agree with the Applicant that the liability findings made by me on the application are now res judicata.

ii. S. 131(1) of the Courts of Justice Acts recognizes that the court has jurisdiction to determine both the entitlement to costs, as well as the quantum of costs. This includes the costs both incidental to a proceeding or “a step in a proceeding”. In the within application, the Applicant was largely successful on most of the outstanding issues argued before me. I have compared the relief sought by the Applicant on July 29, 2011 with the relief granted by me on July 17, 2012 and I conclude that except for the issue of quantum of damages, the Applicant has been successful in securing most of the of the declarations and orders sought.

iii. Importance of the Issues

It is clear that the issues raised in the application were important to the Applicant. On the application before me, much time was spent in submissions dealing with the nature of the good will which the Applicant attached to its corporate name and trademark. Considerable time was spent by the Applicant dealing with the potential or likely harm that the Applicant experienced arising out of the fact that thousands of brochures were printed and distributed to the public in the geographical areas and to the extent summarized in my reasons. In the portion of my reasons dealing with the issue of damages, I stated in paragraph 26 as follows:

As many as 38,000 brochures were distributed throughout the communities and cities in question. It defies logic to argue that as a result of this printing and distribution run, not a single customer or consumer of the Applicant would have been swayed by the publication, and that any such customer would not have directed his business to the Respondent or to another water heater rental provider. Changing rental contracts and moving business to another supplier clearly comes at a financial cost to the Applicant, even if at this stage of the proceedings the amount of the loss cannot be accurately verified and calculated. I am also satisfied that the distribution of the brochure was likely to have the effect of depreciating, to some extent, the value of the goodwill attaching to the Applicant’s trade-mark. In short, I conclude that the Applicant has demonstrated a prima facie case of damages, which on a reference will require appropriate computation and calculation

iv. In its cost submissions, the Applicant set out in paragraphs 12 through 17 inclusive, a series of cases which in its submission stood for the proposition that costs can be ordered to be paid even prior to the hearing or finalization of a reference. I accept in general that this court has a cost discretion to assess and order costs even prior to the hearing or finalization of a reference.

v. The bill of costs forwarded by counsel for the Applicant outlines the various fee items engaged in by counsel for the Applicant for the period commencing as early as September 2011, and concluding with my reasons in July 2012. Indeed, on the application and argument before me, it was necessary that I review affidavit materials, the brochure in question, Justice Strathy’s consent order and various legal principles relating to the misuse of registered intellectual property, as well as provisions of both the Trade-Marks Act and the Competition Act .

[ 8 ] These issues were ultimately determined by me on a final basis with respect to the nature of the orders and declarations which I granted at the conclusion of my reasons.

[ 9 ] The Principle of Proportionality

[ 10 ] The Respondent has made concise arguments to the effect that this court cannot presently fix or assess costs, absent a finding following a reference as to the amount or degree of damages sustained by the Applicant. Accordingly, counsel has argued that costs cannot be fixed at this stage of the application absent weighing and considering the important principle of proportionality.

[ 11 ] There is merit in this submission. However, I conclude that it is in the interests of justice that at this stage of the application, even absent a finding as to the degree or amount of damages, the court fix and assess the Applicant’s costs. Having said that, as requested by the Respondent, I am prepared to accept short written submissions from the Respondent as to the quantum of costs requested by the Applicant.

[ 12 ] In its filed documentation, the Applicant is seeking payment of costs on a partial indemnity basis totalling $54,488.17 comprised of fees and HST, as well as disbursements and applicable HST.

[ 13 ] I am not able to accept a legal principle that in the exercise of a court’s discretion, absent an ability to weigh out fully or finally the principle of proportionality, a court cannot or ought not to fix costs. It may be months, perhaps greater than a year before the reference is finally concluded and the amount of damages are determined and ordered. On the other hand, in my reasons, I concluded that “it is reasonable to infer that it is more likely than not that Direct Energy suffered damage as a result of the distribution of the brochure, even if quantification of the damage cannot be finalized at this stage of the application.”

[ 14 ] It is also to be noted that the principle of proportionality is but one of the many factors a court may consider, as outlined in Rule 57.01(2).

[ 15 ] In my view, having regard to the complexity of the matters at issue, the attendances in court by the parties, the materials filed to date, the submissions made in court as well as my ruling and reasons of July 17, 2012, in the exercise of my costs discretion, it is fair and just that the costs incurred by the Applicant to date be fixed and ordered paid forthwith by the Respondent on the partial indemnity scale.

[ 16 ] I decline to fix those costs in view of the Respondent’s request that it be entitled to make written submissions as to quantum.

[ 17 ] Accordingly, I herein order that the Respondent is entitled to file written submissions with respect to the quantum of costs. Such submissions shall be forwarded to the Trial Coordinator at Parry Sound by September 28, 2012.

[ 18 ] Order accordingly.

Justice J.S. O’Neill

Released: September 14, 2012

ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: Direct Energy Marketing Limited Applicant – and – National Energy Corporation Respondent Ruling on costs Justice J.S. O’Neill

Released: September 14, 2012