ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 06-CV-035351SR
DATE: 20120222

BETWEEN:

KEVIN MOBERG
Respondent/Plaintiff

– and –

PETER PATAFIE
Appellant/Defendant

Alan Riddell, for the Respondent/Plaintiff

Pat Peloso/Dawn Searle, for the Appellant/Defendant

HEARD: February 1, 2012

DECISION

toscano roccamo j.

[ 1 ] This is an appeal from the Decisions and Certificate of Assessment of the Regional Hearings Officer L. Bender, dated May 20, 2011, and September 16, 2011 (amended September 26, 2011) which awarded the Plaintiff/Respondent $72,500 in costs (inclusive of disbursements and exclusive of HST) for an action that proceeded under the Simplified Rules and $20,400 for costs of the assessment itself (inclusive of GST, HST and disbursements).

The Issues

[ 2 ] The key issues raised by the Defendant/Appellant are:

1. The application of the principle of proportionality to an action commenced under the Simplified Rules;

2. The application of the notion of “the reasonable expectations of the losing party” in an assessment of costs under the Simplified Rules.

[ 3 ] The Defendant/Appellant also advanced the reasoning that these considerations should apply to the fixing of costs awarded to the successful party on the assessment itself.

[ 4 ] Subsidiary questions were raised with respect to whether Ms. Bender’s Decision fully conformed to the factors listed in Rule 58.06(1) of the Rules of Civil Procedure .

Standard of Review

[ 5 ] In an appeal from an Assessment Officer’s decision, the Court is concerned with questions of principle not with questions of amount or how the Assessment Officer exercised discretion, unless the decision is so unreasonable as to amount to an error in principle: see Samuel Eng and Associates v. Ho, 2009 ONCA 150 , para. 1 . I echo the view expressed by Justice Perell in G.M. v. Alter , [2008] O.J. No. 3493, at para. 27 where he concluded:

An appeal from an award of an assessment officer is not an opportunity for the reviewing court to rehear the assessment and to make its own assessment. It is a genuine appeal where considerable deference is given to the decision of the assessment officer. The reviewing court will interfere only if the assessment officer made an error in principle or the award is so grossly large or small as to be beyond question improper: see Huff v. Dailey , [2006] O.J. No. 913 (S.C.J.) at para. 14 ; Billman v. Investments Ltd. v. Toronto (City) , [2005] O.J. NO. 3150 (S.C.J.) at paras. 7 , 10; Eastwalsh Homes Ltd. v. Anatal Development Corp., [1995] O.J. No. 608 (C.A.) at para. 7 ; Dical Investments Ltd. v. Morrison , [1993] O.J. No. 114 (Gen. Div.) ; Keller, Hoskinson v. Knipfel (Executors of the Estate of) (1982), 1982 3319 (ON CA) , 37 O.R. (2d) 92 (C.A.); Nelson (Next friend of) v. Dean , [1982] O.J. No. 741 (H.C.J.) at para. 3 ; Re Solicitors (1912), 1912 461 (ON CA) , 27 O.L.R. 147.

Position of the Defendant/Appellant

[ 6 ] The Defendant/Appellant characterized the Plaintiff’s action in defamation, commenced in May 2006, as a modest claim for damages not exceeding $50,000. No examination for discovery was permitted or conducted in the action. The parties engaged in two case conferences, a mediation, and a settlement conference before having discussions which ended in resolution on January 14, 2009, the week before trial was scheduled to commence.

[ 7 ] The Defendant/Appellant takes no issue with the hourly rates charged by the Plaintiff’s counsel, but maintains that the hours expended on behalf of the Plaintiff in trial preparation, particularly after settlement discussions began on January 9, 2009, amounted to “over lawyering”.

[ 8 ] At the heart of this Appeal is the Defendant/Appellant’s contention that the Assessment Officer’s decision reflects neither an application of the principle of proportionality nor consideration of the reasonable expectations of the losing party, particularly as the claim was commenced under the Simplified Rules.

Position of the Plaintiff/Respondent

[ 9 ] The Plaintiff/Respondent refutes the suggestion that the action was a minor claim for damages. It was a civil jury action alleging defamation arising from three separate statements made by the Defendant. These statements affected the Plaintiff’s professional reputation and his future income earning ability as a commissioned sales person in the packaging industry in Eastern Ontario. More important than his claim for damages was the Plaintiff’s demand for a public apology and retraction from the Defendant. Indeed, this was the only remedy sought in the Plaintiff’s Offer to Settle dated May 25, 2006, in addition to a claim for costs. The Plaintiff’s Rule 49 Offer served January 6, 2009, was not materially different except insofar as the Plaintiff sought full indemnity costs in addition to the apology and public retraction. Without revoking this Offer, on January 9, 2009, the Plaintiff served alternative Offers to Settle for the Defendant’s consideration, incorporating payment of substantial indemnity costs and some amount for damages.

[ 10 ] The Plaintiff/Respondent maintains that Ms. Bender’s decision reflects no breach of the principle of proportionality or failure to consider the circumstances of the losing party. Instead, the decision reflected a consideration of the unique factors at play in this assessment which are not addressed by other reported cases dealing with costs under the Simplified Rules procedure. In this case, in order to settle the civil jury action, and to avoid the inevitable verdict of the jury, the Defendant accepted the Plaintiff’s offer and agreed in writing to pay the Plaintiff/Respondent’s full indemnity costs , rather than substantial indemnity costs coupled with an award of damages. Moreover, before the Defendant’s insurer agreed to pay full indemnity costs, it had been formally notified in writing on January 13, 2009, that the Plaintiff/Respondent had already incurred costs in excess of $85,000. Therefore, Ms. Bender found that the insurer agreed to pay full indemnity costs with the full knowledge and expectation that costs could be awarded in a range close to the amount ultimately fixed by her decision.

[ 11 ] The Plaintiff/Respondent also emphasized the fact that, although the civil jury action was pleaded under the Simplified Rules, because the Plaintiff’s claim for past loss of income was less than $50,000, the evidence before Ms. Bender was that without an apology and public retraction to restore his reputation, the amount at stake was future commissioned sales of approximately $500,000. To this extent, the award of costs for the action was reasonably proportionate to a civil law suit of this complexity and dollar value.

[ 12 ] In addition, the Plaintiff/Respondent argues that the Decision on its face pointedly addressed the factors in Rule 58.06(1) and, in particular, the conduct of the Defendant which served to increase the Plaintiff’s costs.

[ 13 ] Finally, the Plaintiff/Respondent argues special circumstances gave rise to Ms. Bender’s subsequent substantial indemnity costs award of $20,400 for the protracted hearing related to the assessment of costs itself, which took place over all or part of 6 days commencing November 23, 2009 and ending February 23, 2010, after which the parties made written submissions. These circumstances included the Plaintiff/Respondent’s service of an Offer to Settle costs for the action for an amount less than the costs Ms. Bender ultimately awarded, as well as the fact that the Defendant’s insurer had unnecessarily insisted on the Plaintiff/Respondent’s production of voluminous documentation, totalling more than 1,100 pages, which required considerable effort for counsel to locate, review and redact (for privilege purposes). This increased the legal costs incurred by the Plaintiff/Respondent for the assessment itself. It is noted that the cost incurred with respect to this production was a waste in that the Defendant/Appellant made no use of the material at the hearing for assessment of costs.

The Decisions Appealed

Decision dated May 20, 2011

[ 14 ] In her detailed reasons of nine pages in length, Assessment Officer Bender specifically found that, “this was a defamation suit where the Plaintiff’s goal was to restore his reputation, and to secure a full public retraction of the statements to restore his future commission earning ability.”

[ 15 ] The Assessment Officer detailed the considerable background facts of the case as set out in a voluminous record tendered at the hearing.

[ 16 ] By the date of hearing, she observed that the Plaintiff had paid $89,795.69 in legal fees.

[ 17 ] The Assessment Officer noted the efforts made by the Plaintiff to resolve the action over a two year period. She also noted the Offers of Settlement made by the Plaintiff in writing on January 9, 2009.

[ 18 ] Ms. Bender specifically referred to the significant time spent at the hearing detailing the actions by the Plaintiff/Respondent’s counsel during the period from January 9 to January 13, 2010, when preparing for trial in the event that settlement discussions failed and the matter proceeded to trial.

[ 19 ] Against the background of these circumstances, Assessment Officer Bender specifically questioned “what constitutes reasonable fees for the Defendant to pay after the acceptance of the Offer while considering the factors and the evidence heard during the hearing.”

[ 20 ] She specifically addressed the eight factors listed in Rule 58.06(1) of the Rules of Civil Procedure to be considered by an Assessment Officer on an assessment of costs. She made reference to the case law prohibiting the allowance of costs for extra services not reasonably necessary by citing Singer v. Singer (1976), 1975 662 (ON SC) , 11 O.R. (2d) 234 (S.C.), where full indemnity costs were held to be limited to those services reasonably necessary for the prosecution of an action.

[ 21 ] Key among the eight factors she considered were:

1. The amount at stake in the proceedings;

2. The importance of the issues;

3. The conduct of the Defendant which unnecessarily lengthened the proceedings;

4. The Defendant’s denial or refusal to admit what should have been admitted.

[ 22 ] In relation to the amount at stake, she found that the testimony and documentation produced at the hearing were consistent with the Plaintiff’s stated objective to secure a public retraction of the Defendant’s three defamatory statements, namely, that the Plaintiff stole from the Defendant, was lazy and ineffective while employed by the Defendant and carried on an affair with another employee of the Defendant. Ms. Bender found that the Plaintiff was legitimately concerned about the long-term financial impact these statements would have upon his earning ability.

[ 23 ] With respect to the importance of these issues, she found the matter was extremely important to his public reputation and earning ability. She referred to the Plaintiff’s evidence that the potential long-term annual financial impact over the next 20 years of his career was an estimated loss of $25,000 in commissions per year, amounting to an overall loss of $500,000.

[ 24 ] With respect to the Defendant’s conduct, she found that the Defendant accepted an Offer in January 2009 that was identical to one made in July 2006. While I accept that the Offer made in 2006 only sought substantial indemnity costs in relation to costs incurred after the date of acceptance of that Offer, whereas the Offer to Settle accepted in January 2009 sought full indemnity costs, these Offers were not materially different in that the chief aspect of both featured an apology and a retraction of the defamatory statements made by the Defendant.

[ 25 ] In considering the Defendant’s denial or refusal to admit anything that should have been admitted, Assessment Officer Bender specifically noted that the Defendant refused to admit that the statements were untrue or that he had uttered them, and consequently, costs were incurred by the Plaintiff to secure counsel, obtain and interview witnesses, and prove the defamation at trial.

[ 26 ] While Ms. Bender’s Reasons for Decision do not specifically refer to the principle of proportionality and the reasonable expectations of the losing party, they reflect that she questioned whether the Defendant should pay all costs as sought by the Plaintiff. Ms. Bender went on to consider the position of the Plaintiff that it would be unfair for the Plaintiff to bear any of the costs for a litigation he did not cause. Nonetheless, she asked herself “what are fair and just legal costs?” under the circumstances. She reiterated that her mandate was to determine “fair and just remuneration for services rendered.”

[ 27 ] In regard to the eight factors pertinent to an assessment under Rule 58.06(1), based upon the evidence she received, both verbal and documentary, and the authorities submitted, she fixed costs at $72,500 inclusive of disbursements. This amount represented an approximate 20% discount from the full indemnity costs claimed and paid by the Plaintiff to his counsel. The discounted fees roughly equate to the value of services performed by Plaintiff’s counsel from January 9, 2009, until the Defendant accepted the Offer to Settle on January 14, 2009.

Decision dated September 16, 2011

[ 28 ] This decision addressed the Defendant’s objection to the reasons released May 20, 2011, on the basis that the findings failed to take into account the overriding principle of proportionality pursuant to Rule 1.04(1.1) and the fact that the matter was commenced pursuant to the Simplified Rules.

[ 29 ] While acknowledging a factual error was made in relation to the her finding that there had been a consolidation of the Plaintiff’s action in wrongful dismissal and defamation, Ms. Bender noted no costs were pursued by the Plaintiff in respect to wrongful dismissal and such costs were not reflected in the bill of costs; therefore, these costs were not part of her award of costs.

[ 30 ] In dismissing the objections to her assessment of costs, Ms. Bender stated that she not only considered the principle of proportionality when assessing costs but that this was integral to her decision. She reiterated her consideration of the factors pertinent to Rule 58.06(1) and noted that because of the Defendant/Appellant’s conduct the Plaintiff/Respondent was involved in protracted litigation and experienced emotional hardship and suffering.

[ 31 ] In her review of the bill of costs of both parties for the assessment hearing itself as well as their submissions, she discounted the fees incurred by the Plaintiff by 60% and awarded costs in the amount of $20,000 for fees inclusive of GST and HST and disbursements in the amount of $400.

Conclusion and Analysis

Applicability of the Principle of Proportionality to the Simplified Rules

[ 32 ] In Culligan Springs Ltd. v. Dunlop Lift Truck (1994) Inc . (2006), 2006 13419 (ON SCDC) , 211 O.A.C. 65 (“ Culligan ”), the Divisional Court discussed the principle of proportionality as it applies to actions commenced under the Simplified Procedure . The Court specifically directed that the purpose of the Simplified Procedure must be considered in the application of the principle of proportionality. The Court noted that the Simplified Procedure was introduced to respond to the mounting costs in cases that involved modest amounts, which posed a significant barrier to access to justice. The Court then made reference to case law where concern is expressed “about the appropriate award for costs payable to the successful party by the losing party, in order to provide reasonable compensation while also promoting affordable access to justice.” (paras. 13-16)

[ 33 ] The Divisional Court observed that costs awards under the Simplified Procedure have been significantly lower than they would be under the ordinary procedure and that such lower costs serve a dual purpose of allowing cases involving smaller amounts to go to trial without disproportionate cost consequences and providing additional incentive to parties to settle or recognize the likelihood of bearing a proportion of his or her own lawyer’s fees. (paras. 22 and 23)

[ 34 ] The Court in Culligan pronounced that an Offer to Settle under Rule 49 is an important factor, but not determinative, in the fixing of costs in cases decided under the Simplified Procedure. In those cases, costs should be fixed with reference to the factors in Rule 57.01(1) or, in assessments before the Assessment Officer, in Rule 58.06(1) and with reference to the objective of the Simplified Procedure of promoting affordable access to justice. (paras. 27 and 29)

[ 35 ] The Court in Culligan also noted that the principle of proportionality engages an objective analysis having regard to the issue and the amount in dispute, whereas a more subjective analysis is required to address the reasonable expectations of the losing party. However, in Culligan , the Court was concerned with a case where there was no egregious conduct by the losing party requiring the Court’s censure, and the award of costs was still significant at $40,000 inclusive of disbursements and GST for a counterclaim of $1,003.88, after a 4 day trial.

[ 36 ] The issue of the interests at stake as well as the conduct of the Defendant in the case before Ms. Bender were clear considerations in her conclusions. Based on the evidence, it was open to her to conclude that the interests at stake were quite significant as they related to the future earning ability of the Plaintiff, particularly if his reputation was not restored by an apology and retraction of the Defendant’s defamatory remarks. Her reasoning is supported by the case law on defamation claims where cost awards can legitimately exceed the value of the claim: see Cusson v. Quan , [2006] O.J. No. 3186 , where costs of $246,000.00 were awarded despite the Plaintiff’s recovery of only $125,000.00. This costs award was subsequently upheld on appeal to the Supreme Court of Canada.

[ 37 ] This Court has also confirmed that the proportionality rule expressed in Trafalgar Industries of Canada Ltd. (c.o.b. Canadian Custom Packaging) v. Pharmax Ltd. (2003) , 2003 40313 (ON SC) , 64 O.R. (3d) 288 (S.C.) at para. 23 and Pitney Bowes of Canada v. Noia, [2009] O.J. No. 4822 (S.C.) at para. 8 will not always be rigidly applied in Simplified Rules cases where one of the main objectives of the litigation is to restore the Plaintiff’s injured reputation: see Vigna v. Levant, 2011 ONSC 629 at paras. 9-11 . In my opinion, Ms. Bender’s conclusions in this regard reflect no error in principle.

The Reasonable Expectations of the Parties

[ 38 ] The Court in Culligan also addressed the reasonable expectations of the parties as they affect an award of costs in Simplified Rules cases. In so doing, the Court made reference to the trilogy of cases in which the Ontario Court of Appeal emphasized that an “overriding principle of reasonableness must govern the judicial exercise of awarding costs”: see Boucher v. Public Accountants Council for the Province of Ontario (2004) , 2004 14579 (ON CA) , 71 O.R. (3d) 291 (C.A.) (“ Boucher ”) ; Moon v. Cher (2004) , 2004 39005 (ON CA) , 246 D.L.R. (4th) 440 (C.A.) (“ Moon ”) ; and Coldmatic Refrigeration of Canada Ltd. v. Leveltek Processing LLC (2005) , 2005 1042 (ON CA) , 75 O.R. (3d) 638 (C.A.) at para. 37 .

[ 39 ] In Culligan , the Court held that the exercise of fixing costs is an assessment of what is “fair and reasonable” in all of the circumstances of that case and that rigid application of grids or formulas must be avoided. In the exercise of its discretion, the Court considered what each party would have anticipated would be the cost award they would reasonably be expected to pay if they lost the lawsuit. (paras. 38 and 39)

[ 40 ] On the other hand, the Court in Culligan also referred to the reasonableness of a cost award being closely linked to the fundamental objective of access to justice. The Court noted the dicta of Armstrong J.A. in Boucher , at paras. 37 and 38 as cited with approval by Borins J.A. in Moon at para. 28 , where he stated: “there are obviously cases where the prospect of an award of costs against the losing party will operate as a reality check for the litigant and assist in discouraging frivolous or unnecessary litigation.” In my opinion, Ms. Bender had evidence before her on which it was open to her to conclude this was unnecessary litigation and that costs were generated by the Defendant’s conduct.

[ 41 ] Moreover, the evidence before her was that the Defendant knew precisely the magnitude of the claim for costs it faced before accepting, in writing, the Plaintiff’s Offer to Settle for an apology, a public retraction of the Defendant’s defamatory comments, and payment of the Plaintiff’s full indemnity costs. Ms. Bender also had evidence before her that the Defendant was periodically informed throughout the litigation of the Plaintiff’s mounting costs. By contrast, Ms. Bender was favoured with no similar evidence as to the reasonable expectations of the Defendant. Indeed, only in the objections to her assessment did the Defendant offer details of its own costs incurred of $20,000, but this amount failed to include the costs incurred by the Defendant’s previous counsel.

[ 42 ] I must also observe that the Defendant/Appellant did not file before me any part of the large body of evidence considered by Ms. Bender or any Supplementary Affidavit material raising questions as to her assessment of costs for the action. This effectively precluded a potential to substitute her award with any this Court could reasonably consider in the event of a finding of reversible error. Moreover, I raised this evidentiary gap at the hearing of the Appeal and queried whether the estimated fees of the Defendant’s costs in the action of $20,000 included the costs incurred by the Defendant’s previous counsel. I was advised that the Defendant’s global costs of the action approached $38,000 before disbursements and taxes. After the Appeal, I received a Supplementary Affidavit sworn February 9, 2012, to the effect that global fees to the date of settlement of the action were $32,263.84. None of this evidence was put before Ms. Bender and cannot now be considered evidence to which I can attach any weight in determining whether or not her decision reflects reviewable error.

[ 43 ] In the result, I must conclude that the decision of Ms. Bender reflects no error in principle as it pertains to the assessment of costs for the action.

Application of Principles in Rule 58.06(1)

[ 44 ] In my opinion, Ms. Bender’s decision does not reflect any breach of principle as related to the application of the factors listed in Rule 58.06(1). In both of her decisions, she considered the conduct of the Defendant which lengthened the proceedings, including the lack of cooperation received from the Defendant’s insurer and its counsel in response to the Plaintiff’s attempts to simplify the action and contain costs. The evidence before her in the written submissions and exhibits filed on the assessment hearing established:

(a) The insurer’s refusal to consent to an order authorizing late filing of the jury notice by the Plaintiff, thereby requiring the Plaintiff to bring a motion for that order;

(b) The insurer’s year long delay in the disclosure of its insurance policy which revealed the terms by which the Defendant insurer was obliged to defend the action;

(c) The refusal to consent to a hybrid trial which would have enabled the Plaintiff to file Affidavits in place of having to laboriously prepare and call each of 14 witnesses viva voce to prove the defamation;

(d) The failure to admit any of the facts in order to narrow the issues for trial as set forth in three Requests to Admit; and

(e) The refusal, until the eve of trial, to admit that the defamatory statements were untrue or had been uttered as pleaded in the Statement of Claim. It was only on the eve of trial, on January 12, 2009, that the Defendant admitted having told others that the Plaintiff was a thief who stole computer files and printed off reports belonging to the Defendant before leaving his employment with the Defendant. Even then, the Defendant refused to admit that he called the Plaintiff lazy and that he suggested the Plaintiff had had an affair with Leona Martin, a former employee of the Defendant.

The Decision on Costs the Assessment Hearing

[ 45 ] The Defendant/Appellant takes the position that an award of $20,000 in fees in response to the Plaintiff’s Bill of Costs claiming approximately $45,000 in fees reflects no consideration of the principles of proportionality and the reasonable expectations of the losing party.

[ 46 ] The only evidence that was filed by the Defendant in support of this Appeal is the Affidavit of the litigation clerk, Maureen Morden, dated January 10, 2012, which only addressed the actual time spent on the hearing of the assessment of the matter. According to Ms. Morden, the hearing that took place required about two days over the six days scheduled for the hearing between October 2, 2009, and February 23, 2010. Above this expenditure of time, the parties also made written submissions on costs. After the hearing of this Appeal, I received the Supplementary Affidavit of Ms. Morden sworn February 9, 2012, which indicates that total fees and disbursements incurred by the Defendant for the assessment of costs was $11,973.32. Again, this was not evidence put before Ms. Bender and, in fairness, cannot now be considered in determining whether her decision reflects an error in principle.

[ 47 ] By contrast, the Affidavit dated January 26, 2012, of Katherine Davis, a litigation clerk in the office of Plaintiff’s counsel described the Assessment Hearing as a long and protracted proceeding, which took up all or part of six days, over a five month period. The Plaintiff’s evidence was that the insurer had unnecessarily forced Plaintiff’s counsel to produce 1,100 pages of handwritten time dockets, the location and redacting of which required Plaintiff’s counsel’s law clerk to incur almost 150 hours of additional billable time. This was a needless exercise according to the Plaintiff as these documents were not used at the assessment. Plaintiff’s counsel argues that the Defendant’s insurer was repeatedly advised about this unnecessary expenditure of costs and was asked to pare down its excessive documentary demand but refused to do so. Finally, weeks prior to the commencement of the assessment hearing, the Plaintiff served an Offer to Settle the assessment under Rule 49. This Offer sought full indemnity costs for the entire action for an amount less than the amount which Mr. Bender ultimately awarded, with the result that the Plaintiff was entitled to substantial indemnity costs for the assessment hearing itself.

[ 48 ] While there can be no doubt that the award by Ms. Bender of substantial indemnity costs of $20,400 inclusive of fees and disbursements does not amount to an inconsequential award of costs, the amount she awarded represented a 60% discount on the fees incurred by the Plaintiff in what appears to have been a protracted process of assessment where the Plaintiff’s counsel was required to incur unnecessary fees and disbursements to produce evidence of docketed time.

[ 49 ] I am mindful that the costs awarded for the assessment hearing itself relate to a Simplified Rules Procedure, in which the principle of proportionality should also be applied here. However, there were circumstances that unduly prolonged the assessment. Conduct cited by the Assessment Officer which resulted in increased costs to the Plaintiff was a factor that continued to be at play. Accordingly, her award of costs for the assessment cannot be considered without regard to these circumstances.

[ 50 ] In the result, I am unable to conclude that the decision of Ms. Bender awarding substantial indemnity costs of $20,400 inclusive of fees and disbursements for the assessment hearing reflects an error in principle.

Costs

[ 51 ] If the parties are unable to agree on costs within 30 days, they may both deliver submissions of no more than five pages in length addressing costs on the Appeal. The Defendant/Appellant may make submissions in reply of no more than two pages in length, whereupon I will fix costs.

Madam Justice Toscano Roccamo

Released: February 22, 2012

COURT FILE NO.: 06-CV-035351SR
DATE: 20120222

ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: KEVIN MOBERG Respondent/Plaintiff – and – PETER PATAFIE Appellant/Defendant REASONS FOR DECISION Toscano Roccamo J.

Released: February 22, 2012