SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-09-373946
DATE: 20121003

RE: Shoppers Drug Mart Inc.

and

6470360 Canada Inc. c.o.b. Energyshop Consulting Inc./Powerhouse Energy Management Inc. and Michael Wayne Beamish

BEFORE: Justice E.M. Morgan

COUNSEL:
Kenneth Prehogan and Scott McGrath, for the Plaintiff

Joseph Jebreen and Michael Walsh, for the Defendants

DATE HEARD: September 28, 2012

C O S T S E N D O R S E M E N T

[ 1 ] This endorsement is further to my reasons for judgment issued on September 14, 2012. The results of that judgment were, strictly speaking, mixed, although it is fair to say that the Plaintiff Shoppers Drug Mart Inc. (“Shoppers”) was the overall successful party since the judgment ordered the corporate Defendant 64703060 Canada Inc. (“647”) to pay Shoppers the sum of $2,236,585.14, plus pre-judgment and post-judgment interest. Shoppers obtained summary judgment against 647 and succeeded in dismissing the Rule 21 motion brought against it by the Defendant Michael Wayne Beamish (“Beamish”), while Beamish obtained summary judgment dismissing Shoppers’ personal claim against him.

[ 2 ] The parties have now provided me with written submissions on costs. Each side submits that the other should not be awarded costs for the portion of the judgment in which it was successful. For the reasons that follow, and given its overall success in the combined motions, Shoppers will be awarded its costs on a partial indemnity basis. There will be a reduction in the amount of costs going to Shoppers in view of its lack of success in Beamish’s summary judgment motion.

[ 3 ] At para. 5 of its costs submission, Shoppers argues that, “[t]hese motions were all inextricably linked to one another such that it was not possible to parse out exact legal expenses between them.” I agree with that observation.

[ 4 ] In my reasons for judgment of September 14, 2012, I discussed Shoppers’ Rule 20 motion and Beamish’s Rule 20 motion together since they both raised the same legal and factual issues. That is not to say, however, that an equal amount of resources were expended on each of those Rule 20 motions. Nothing could be further from the case.

[ 5 ] The vast majority of the affidavits and exhibits, cross-examinations, written submissions, and oral submissions at the three days of hearings, were devoted to the defendants’ failed defense of Shoppers’ summary judgment motion. Both defendants had the same counsel and Beamish was the sole representative of both of them to provide affidavit evidence and be cross-examined. The lion’s share of that effort was devoted to trying, unsuccessfully, to establish that Shoppers is responsible for late fees on utility bills, which the defendants contended should be deducted from any money otherwise owed to Shoppers. These unmeritorious set-off claims raised were by far the most time consuming aspect of the hearing.

[ 6 ] Following closely on the heels of the set-off claims in terms of consuming court time and parties’ resources was the defendants’ position that 647 was justified in taking Shoppers’ money and using it for its own expenses. This position, once again, proved entirely without merit.

[ 7 ] In terms of legal argument, much of the motion was devoted to an exploration of the grounds of liability for 647’s misappropriation of Shoppers’ funds. Counsel for the defendants submits that a number of Shoppers’ arguments were ultimately not accepted (e.g. breach of trust), and that Shoppers should bear the cost of the time devoted to those arguments. The fact is, however, that Shoppers succeeded in establishing 647’s liability on the grounds of unjust enrichment. The argument put forward by the defendants misconstrues the concept of how costs follow results. Costs generally go to the successful party; courts do not tally up the number of sub-arguments that the winning and losing party made and try to count the micro-score in that way. If I may be permitted a baseball analogy, a home run by one side beats sporadic base hits by the other side.

[ 8 ] Turning from Shoppers’ motion to Beamish’s motions, much of the argument related to the challenge to Shoppers’ pleadings under Rule 21. Although it is difficult to make a precise allocation as between Beamish’s Rule 21 motion and his Rule 20 motion, his factum devoted significant attention to pleadings issues and to attempting to establish that Shoppers had not pleaded a sustainable cause of action against him. In this, Beamish was unsuccessful.

[ 9 ] Beamish’s success was in having the action against him dismissed under Rule 20. Here, the costs that Shoppers otherwise deserves should be reduced somewhat to take account of this narrow success. I say this was a narrow success not because it was unimportant – no doubt it was a major part of the overall ruling from Beamish’s perspective – but because the issues and time it entailed were limited. Beamish put forward some evidence going to his misuse of corporate names and his failure to properly register trade names, and made some arguments about pre-incorporation contracts and related matters. However, the majority of evidence and legal argument put forward by Beamish was, in effect, piggy-backed on the evidence submitted by his corporation, 647.

[ 10 ] Perhaps the best illustration of the double use of the defendants’ evidence, preparation time, and legal submissions is found in the defendants’ own Bill of Costs. There is one Bill submitted for both defendants, with no attempt to differentiate the lawyer time devoted to Beamish’s case from that devoted to 647’s case. The same goes for the disbursements. When counsel paid for taxis or parking, to pick just the first disbursements listed by the defendants, they were traveling or parking for both clients equally.

[ 11 ] I say this not because there is anything wrong with counsel sharing fees and disbursements between two clients with mutual interests. From a law firm’s accounting point of view this is doubtless a common and perfectly acceptable way to structure client billings. But what it does emphasize is the extent to which the burden was borne jointly by the defendants.

[ 12 ] As Shoppers points out at para. 34 of its costs submission, “[Beamish] was not required to adduce significant evidence that his company, 647, would not have adduced in any event.” Counsel for 647 had to prepare affidavits and attend at the cross-examination of all of the affiants whether Beamish was also a defendant or not. Likewise, counsel for 647 had to park his car at discoveries or take a taxi to the hearing regardless of whether he was also doing so for Beamish.

[ 13 ] The one disbursement that counsel for the defendants singles out for special treatment is the cost of the forensic report by Gregory Hocking. The defendants state, at paragraph 12 of their costs submission, that the Hocking report “was required to show that, other than reasonable and modest salaries, Mr. Beamish did not personally benefit or profit from the funds at issue in this proceeding… Accordingly, Shoppers should pay for the costs of Mr. Hocking’s involvement in this proceeding in the amount of $45,463.29 (see enclosed Bill of Costs at p. 8).”

[ 14 ] When one turns to the Bill of Costs appended to the defendants’ costs submission, the Hocking report is listed as an undifferentiated disbursement as between the two defendants. Hocking himself states in para. 2 of his Acknowledgment of Expert’s Duty dated October 22, 2010 that accompanied his report: “I have been engaged by or on behalf of Powerhouse Energy Management Inc. to provide evidence in relation to the above-noted court proceeding.” It has always been the defendants’ position that Powerhouse Energy Management Inc., although not the name of an incorporated entity, is not an alter ego for Beamish but rather is a trade name for 647.

[ 15 ] Most importantly, one cannot forget the context in which Hocking was retained: in the final week before its contract was terminated, 647 had taken for itself more than $1.3 million of Shoppers’ money and it was trying to explain why it did so. 647 required the services of an expert by virtue of having engaged in conduct which otherwise appeared to be utterly inexplicable.

[ 16 ] It is true, of course, that in the process the Hocking report managed to demonstrate that Beamish did not personally siphon money out of his own company. However, that does not mean that it was not essential for 647 to commission the report. In this, as with so much of the legal costs, Beamish capitalized on 647’s efforts.

[ 17 ] I should add that Shoppers made use of the Hocking report in a way that saved the defendants substantial costs. Shoppers utilized Hocking’s figures in calculating its damages against 647, thus saving the extra expense of retaining its own accounting expert to support its damages claim. Had this expense been incurred, it would have been passed on to 647 as a result of Shoppers winning the claim for reimbursement of its misappropriated funds. In all, the Hocking report represents an expense that cannot be shifted to Shoppers as the defendants suggest.

[ 18 ] Counsel for Shoppers has submitted a Bill of Costs showing fees and disbursements, on a partial indemnity scale, in the amount of $56,117.73. From this, Shoppers concedes that some amount should be deducted to reflect its lack of success in the Rule 20 summary judgment motion brought by Beamish. It suggests that just over $11,000 be set off against this amount, for an overall costs award in its favour of $45,000.

[ 19 ] In my view, this is a very reasonable submission on Shoppers’ part. It takes into account a number of factors listed in Rule 57.01(1) as governing the exercise of discretion in the award of costs, including the principle of indemnity in respect of the time and experience of counsel, the apportionment of liability, and the amount claimed and recovered in the case. It also takes into account the incremental increase in the defendants’ costs flowing from Beamish’s successful Rule 20 motion, and at the same time reflects an acceptable level of costs for Shoppers’ own success in the motions.

[ 20 ] Each side argues that the conduct of the other increased the costs of the motions. The defendants accuse Shoppers of refusing their reasonable requests to admit further evidence after cross-examinations, while Shoppers claims that this new evidence was not “necessary or helpful”. It seems to me that neither side acted so egregiously that this should be factored into a costs award.

[ 21 ] 647 is liable for costs as a result of the summary judgment motion that it lost, and Beamish is liable for costs as a result of the Rule 21 motion that he lost. The defendants in their Bill of Costs cannot distinguish between the blended costs of 647 and Beamish, and neither can I. Shoppers’ claim for costs in both of those motions should be shared jointly and severally between the two defendants.

[ 22 ] Shoppers is therefore granted costs in the amount of $45,000, inclusive of disbursements and tax, against both defendants.

Morgan J.

DATE: October 3, 2012