COURT FILE NO.: 08-CV-42628
DATE: December 12th, 2012
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: N12 Consulting Corp. and Paul Hulford
BEFORE: MASTER MACLEOD
B
COUNSEL: Jock Climie, for the Plaintiff
Paul D’Angelo, for the Defendant
E N D O R S E M E N T
[ 1 ] The defendant brought a motion to determine who should pay the costs of this action. Counsel have agreed that the action is at an end, that the costs would be determined on motion and that the liability for costs will not exceed $20,000.00. The issue before the court is whether to award costs to either party and if so in what quantum?
[ 2 ] For the reasons that follow I have concluded that the just result is for each party to bear its own costs and I so order.
Background
[ 3 ] A brief review of the facts giving rise to the action is necessary. The plaintiff is a corporation providing consulting services to government in the areas of financial applications, systems and solutions. The defendant has considerable experience in the area and was hired by the plaintiff as a manager and given responsibility in sales and marketing. He was employed by the plaintiff between November 15, 2007 and June 24, 2008.
[ 4 ] For purposes of this motion it is not necessary to delve deeply into the relationship between the parties during the period of employment. There are radically different versions of reality described in the affidavits of the defendant and those of Mr. Bastodkar and Mr. Sharp on behalf of the plaintiff. It appears that there was some turmoil and ongoing negotiations during which the defendant came to believe that many of his expectations in joining N12 would not be realized. There appears also to have been some misunderstanding about whether his duties required him to be in the office or to work from home. No formal contract was ever signed and there was no non competition agreement.
[ 5 ] At some time in June there was a bizarre circumstance which appears to be attributable to the phenomenon of “pocket dialling”. One of the principal shareholders and officers of the plaintiff resigned and shortly thereafter he had a meeting with the defendant and another of N12s key consultants. During that meeting it appears that the defendant inadvertently called Mr. Bastodkar on his cell phone and consequently the conversation was overheard. The nature of that conversation is in dispute but there is no doubt it included the unhappiness of the participants with the direction of the company. While the defendant dismisses it as “beer talk” Mr. Bastodkar swears that he overheard specific plans to set up in competition with N12, to undermine its contractual relations, to induce its consultants to leave and join the new company, to appropriate corporate opportunities and to sabotage the business of N12. Four days later Mr. Hulford was terminated for cause.
[ 6 ] During his period of employment Mr. Hulford had been supplied with a laptop and a Palm Trio personal digital assistant “PDA”. At the termination meeting Mr. Hulford removed the hard drive from the laptop and over the objections of the representatives of the plaintiff he pocketed it and removed it from the office. The PDA was seized but as it was passworded the plaintiff could not get access to it. Subsequent demands to return the hard drive and to divulge the password were refused.
[ 7 ] Thus when the action was commenced, the plaintiff believed it had evidence that the defendant was planning to use confidential information to set up a competing business. It appeared he had possession of a company hard drive and data and that he was denying access to the data on the PDA by withholding the password.
[ 8 ] As events have unfolded, the defendant did not get involved in starting a competing business but rather he obtained other employment. The PDA password was ultimately disclosed pursuant to court order. Mr. Hulford has also explained that the hard drive he removed was actually a personal hard drive that he had put into his company laptop and that he has in fact physically destroyed it so that there is no possibility of him accessing any company data or information that might have been on the drive. He also returned the original hard drive for the laptop which he indicates has been reformatted. Whether it was reformatted or electronically erased, it is in fact empty of data.
[ 9 ] Though it is of little moment, the explanation for the substitution of hard drives and reformatting of the original drive is that Mr. Hulford was having so much trouble with the “Windows Vista” operating system that he wanted to downgrade to “Windows XP”. He put in a removable drive of his own that had the XP operating system. His reluctance to disclose the passwords or to have the drive available to his former employers was because he had highly sensitive and embarrassing personal information on both of his devices.
10] In any event, however it appeared at the beginning of the action, it does not appear the plaintiff has sustained significant damages. Consequently the plaintiff does not wish to proceed with the action. No statement of defence was ever filed, only a notice of intent to defend, because the plaintiff granted a waiver of defence. The only real activity in the action centred on a motion which I will come to momentarily.
Jurisdiction
11] There was some procedural confusion leading up to the motion for costs. This meant that counsel were unsure under what rule the costs should be considered. For example if the action had been discontinued, the costs would be determined under Rule 23 but if it was dismissed by the Registrar under Rule 48.14 there would be a presumption of costs to the defendant.
12] One of the reasons there is uncertainty on the point is that neither party was meticulous in complying with the rules. Although the action was spoken of as being discontinued, no notice of discontinuance was filed. Although the parties purported to file a status hearing in writing, they had not received a status notice and the order that was filed did not comply with the requirements of the rule. At one point they had agreed to have the costs assessed but the assessment officer can only quantify the costs and cannot determine to which party they should be awarded.
13] Ultimately following a case conference it was agreed to proceed by way of motion. This is the correct procedure in a case such as this. Rule 23.05 states that if a party discontinues an action, any party may make a motion regarding the costs of the action within thirty days. There is a similar provision in Rule 24 dealing with dismissal for delay on a motion. Rule 48.14 states that if the registrar dismisses the action it shall be dismissed “with costs” unless a judge or case management master at a status hearing orders otherwise. In any of these circumstances the court has the ultimate discretion concerning the award of costs.
14] Even if no specific rule applies due to technical non compliance, there is a general curative provision in Rule 2.01 that a failure to comply with the rules is an irregularity which the court may rectify. Rule 2.03 provides that if the interests of justice require it the court may dispense with compliance with any rule at any time. Finally, as this is a case managed action, Rule 77.04 provides the authority to make orders, impose terms, give directions and award costs as necessary to carry out the purpose of this rule. There can be no doubt that whatever procedural defects may exist this action should now be brought to a close by determining the only remaining issue in a prompt and summary fashion.
15] I conclude that whether the action is treated as dismissed for delay or discontinued, the court has complete discretion to fashion a costs award that is in the interests of justice. Certainly this is so under the current circumstances in which the parties have consented to proceeding in this fashion.
Analysis
16] This matter should be approached as a case in which the parties have agreed that the action be discontinued. The plaintiff asserts that it was reasonable to launch the litigation but having obtained interim relief, in light of the fact that the defendant ultimately did not engage in a competitive business, it is equally reasonable to halt the litigation. But the plaintiff argues that it should still have its costs because the defendant acted wrongfully and even outrageously in the first instance thereby forcing the plaintiff to litigate. The defendant of course denies any wrongful conduct and argues that the litigation was a vindictive overreaction. Since it is now clear that the plaintiff is not going to proceed with the litigation, the defendant requests he be indemnified for the costs incurred in having to defend against it.
17] Parties frequently launch litigation under circumstances where it appears significant damages may be incurred only to subsequently determine that the actual damages do not justify the cost of continuing with the litigation. Examples of this are claims for wrongful dismissal in which the success of the employee in mitigating his or her loss within the notice period can eliminate or reduce the claim for damages. In other situations an interim injunction may be successful in thwarting the anticipated harm. There are many other situations in which the damages anticipated from an apparently wrongful act do not ultimately materialize.
18] It would discourage resolution in such instances if the plaintiff could not concede the question of damages without automatically conceding costs as well. There will of course be many situations in which it remains appropriate for a defendant to be compensated in costs for having to face litigation which a plaintiff fails to pursue but it is no longer automatic. The presumption that a party discontinuing an action is liable for costs was repealed on January 1st, 2010 and replaced with the current Rule 23.05.
19] In awarding costs, of an aborted court proceeding, however, it is not appropriate for the court to conduct a shadow analysis of the merits involving speculation about who would have prevailed had the matter gone to trial. Specifically in this case I am unable to deal with the question of precisely what was said in the conversation that was overheard and precisely what occurred at the termination. Nor am I in a position to deal with the allegation that the plaintiff removed much more confidential information than he returned on the flash drive. Even if I felt that was appropriate, key evidence has been destroyed. The recording of the overheard conversation has been lost and the defendant physically destroyed his hard drive so that is impossible to say what information it contained. Thus I cannot determine whether the plaintiff is in the right or the defendant was wrongfully accused. The evidence does however demonstrate that the action was not frivolous. Given the information the plaintiff had at the time, litigation was not unreasonable. Neither party appears to have engaged in conduct that ran up costs unnecessarily.
20] The plaintiff states that the main reason for commencing the action was as a platform for the motion for interim relief. A motion may only be brought under the Rules of Civil Procedure in an action or an intended action. It might have been possible to structure the motion as an application (at one time known as “an originating notice of motion”) but at the time the plaintiff anticipated it might have a claim for damages and might also have anticipated a counterclaim. I do not fault the plaintiff for starting an action rather than an application. In any event all of the activity in the action centred around the motion. No statement of defence was ever filed. There were no discoveries.
21] The motion sought return of the hard drive and disclosure of the PDA password. It was originally returnable on October 7th, 2008 but was not argued until September 22nd, 2009. The period in between was occupied with responding to the motion, cross examination on affidavits and negotiations between counsel. Various efforts were made to craft a consent order. Eventually at the motion McNamara J. indicated he would be ordering the password to be disclosed. The hard drive had become moot because it had been destroyed. He invited counsel to negotiate the precise terms of the order and ultimately signed an order for disclosure of the password on terms. One of those terms was that costs of the motion would be costs in the cause.
22] When a judge awards costs in the cause (or when the parties consent to such a disposition) rather than awarding and fixing costs immediately as is the presumptive approach under our rules, it indicates that notwithstanding one party may have been successful on the motion, it appears appropriate that the costs of the motion be awarded to the party who prevails in the litigation. Since the matter never went to trial there has never been a determination on the merits. I do not consider it appropriate to now in effect award costs of that motion to either party. Neither party has prevailed on the merits. They have simply agreed to end the litigation.
23] In summary, an action appears to have been an appropriate vehicle for the plaintiff to act to protect itself against the imminent damage it believed it would incur. Though the plaintiff was generally successful on the motion for interim relief, no costs of the motion were awarded. Instead the costs of the motion were made contingent on success on the merits and those costs constitute the bulk of the costs that were incurred. Notwithstanding what appeared at the time to be misappropriation of company property and information it is now impossible to determine which party would have been successful on the merits.
24] For these reasons, in the exercise of my discretion, I award no costs.
25] Consequently in accordance with the agreement of the parties an order will go dismissing the action without costs.
December 20th, 2012
Master C. MacLeod