SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: Metropolitan Toronto Condominium Corporation No. 943, Plaintiff

AND:

Channel Property Management Ltd., Manzoor Moorshed Khan, Canali Engineering Group Ltd., Mihaela Jurkovic, Mohammad Irfan Naeem, Deacon Spears Fedson & Montizambert, Michael J. Campbell, Royal Bank of Canada, Morrison Financial Services Limited and The Equitable Trust Company, Defendants

BEFORE: D. M. Brown J.

COUNSEL:
M. Morden, for the Plaintiff

H. Cohen, for the Defendant, Mohammad Irfan Naeem

HEARD: May 30, 2013

reasons for decision

I. Motion for leave to discontinue without costs

[1] Over the past year and one-half I case-managed several actions which involved allegations that Manzoor Moorshed Khan and his related companies, Channel Property Management Ltd. and Canali Engineering Group Ltd., ran a $20 million fraud in which several lenders made loans to several condominium corporations which, when the loans came to light, said they had never authorized the loans. The case management process readied the actions, including the present one, for a mediation before The Honourable George Adams late last year. A settlement was reached.

[2] Two procedural loose ends remained. Two of the defendants in this action, Mihaela Jurkovic and Mohammad Irfan Naeem, both former employees of Channel Property Management, the property manager of MTCC No. 943, did not participate in the mediation. When MTCC No. 943 advised that it wished to discontinue its action against them, both sought their costs. A settlement was reached with Jurkovic in which she was paid costs of $6,500.00.

[3] Naeem sought costs of $51,700.00. This motion ensued in which MTCC 943 sought leave to discontinue the action against Naeem without costs or, alternatively, leave to discontinue with costs fixed at an amount the Court deemed just, which counsel for the corporation submitted would be $6,500.00, the same amount as paid to Jurkovic.

II. Applicable legal principles

[4] Earlier this year, in Carriere Industrial Supply Limited v. 2026227 Ontario Inc., I summarized the applicable legal principles on this issue:

[8] As a result of changes to Rule 25 which came into effect in 2010, the entitlement of a defendant to costs for a discontinued action requires the bringing of a motion. Rule 23.05(1) of the Rules of Civil Procedure provides:

23.05(1) If all or part of an action is discontinued, any party to the action may, within thirty days after the action is discontinued, make a motion respecting the costs of the action.

[9] As Master McLeod observed in N12 Consulting Corp. v. Hulford, “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”. The authors of Archibald, Killeen and Morton, 2013 Ontario Superior Court Practice, regard the cost consequences of Rule 23.05(1) as “presumptive” and consider that “the appropriate test to be applied by the court in the exercise of its discretion under r. 23.05 may be called the ‘justified action test’”:

P must satisfy the court on a balance of probabilities that it had a bona fide cause of action, that it was not frivolous or vexatious and that there was some justification for commencement of the claim. Although r. 23.05 establishes a prima facie right to costs in favour of the defendant, it does not restrict the broad discretion of the court to determine costs on a case-by-case basis.

The authors of Morden & Perell, The Law of Civil Procedure in Ontario, First Edition, take a similar view:

In our opinion, the former case law remains relevant. Under the case law on the former rule, to be relieved of costs, the plaintiff must satisfy the court that the material filed discloses a bona fide cause of action that is not frivolous or vexatious and that he or she was justified in commencing a lawsuit.

Obviously, whether or not a defendant should be awarded costs on the discontinuance of an action will require a very fact-specific analysis of the circumstances giving rise to the initiation of the action and its discontinuance.[^1]

III. Analysis

[5] The person whom the parties contend was the perpetrator of the fraud, Mr. Khan, left Canada some time ago, leaving behind different groups of parties who were, in various ways, victims of his fraud: the condominium corporations which he saddled with unauthorized debt, the lenders which lent not knowing of the fraud, as well as a number of individuals who got caught up in the events. In the case of Jurkovic and Naeem, both were employees of Channel who managed the property of MTCC 943, and both contended that Khan had forged their signatures on the set of loan documents which resulted in the condominium corporation incurring the debt. In a very real sense, both parties to this motion were the victims of fraud.

[6] MTCC 943 is entitled to discontinue the action. The parties in the various actions worked hard to settle this complicated problem; this last procedural loose end should be tied up so that the whole matter can be closed.

[7] Although MTCC 943 was justified in commencing this action against Naeem – his name was all over the loan documentation which the condominium contended it had not authorized – I think on the facts of this case, Naeem is entitled to some costs on the discontinuance, for two reasons. First, within two months of the commencement of the action, Naeem’s counsel had delivered an affidavit from his client explaining why the signature on the documents was not his. While I can understand why, in a complex fraud case such as the present one, the plaintiff was not willing to let Naeem out of the action on receipt of the affidavit, that decision did require Naeem to file a Statement of Defence (December 13, 2011) and Statement of Defence to the Crossclaims (July 24, 2012). As a result, Naeem necessarily incurred some legal costs. Second, the plaintiff has paid Jurkovic some costs as the price of discontinuance. Jurkovic and Naeem essentially stood in the same positions in the action. Since Jurkovic received some costs, so should Naeem.

[8] As to the quantum of those costs, the position of Naeem that he is entitled to $51,700.00 in costs - reduced to $35,000.00 during the course of the hearing - is untenable for several reasons.

[9] First, apart from preparing and delivering his two Statements of Defence and having his counsel attend one case management meeting, Naeem did not participate in any other steps in the litigation, such as the discoveries, additional case management conferences or the mediation. That may well have been a very wise strategic decision by Naeem based upon his assessment of his legal exposure, but his minimal participation in the formalities of the action certainly points to a much reduced award of costs on the discontinuance.

[10] Second, the time and disbursements ledgers submitted by Naeem’s counsel revealed that by the time he had filed his Defence to the Crossclaims, his counsel had rendered the following invoices to his client:

Date of Invoice

Invoice No.

Amount of Invoice: Fees

Amount of Invoice: Disbursements

September 28, 2011

3687

1,675.00

217.75

October 21, 2011

3710

1,115.62

63.50

November 7, 2011

3726

1,525.00

65.50

December 1, 2011

3752

862.50

104.25

February 29, 2012

3821

2,362.50

44.25

May 17, 2012

3879

500.00

15.75

Total

$8,040.62

$511.00

To those amounts could be added another $375.00 (July 18, 2012) found in a subsequent docket entry dealing specifically with the Statement of Defence to the Crossclaims filed by Naeem. Consequently, the ledger only shows about $9,000.00 actually billed to Naeem, or carried as work-in-progress specifically attributed to a pleading, by the time his final pleading was delivered. As I say, Naeem’s counsel only attended one case management meeting and that time was billed as part of the May 17, 2012 invoice.

[11] How, then, does Naeem arrive at a claim of some $51,000 or $35,000? On May 23, 2013, a week before the hearing of this motion, Naeem’s counsel issued Invoice No. 4266 which billed his client $41,505.88 in fees, together with $160.25 in disbursements. No evidence was filed to explain three groups of work which, according to the time and disbursements ledger, constituted the work included on Invoice No. 4266.

[12] The first group consisted of work which pre-dated the issuance of the May 17, 2012 invoice, but which the ledger showed as forming part of Invoice No. 4266. No evidence was filed as to why such old work had not been captured on earlier invoices. Moreover, each dated entry on the ledger bears a distinct identification number. The numbers appear to increase in chronological fashion. For example, the number attributed to work performed on August 11, 2011 was 99385, and by October 6, 2011, the identifying number had risen to 101867. The numbers were attached to entries for both fees and disbursements.

[13] Yet, the number attributed to the first work captured on the May 23, 2013 Invoice No. 4266, the work recorded for October 11, 2011, was 122045. So, whereas the identifying number for October 6, 2011 work was 101867, that for five days later was 122045. But, the numbers were down to 101857 for the next worked performed on October 14, 2011, and billed on Invoice No. 3710. A similar lack of correspondence can be found in respect of all work contained on Invoice No. 4266 which was performed prior to May 17, 2012 – i.e. the invoice before No. 4266.

[14] That sequence of work-identifying numbers certainly raises in my mind concerns that work recorded on the ledgers as performed back in 2011 and 2012, but billed on Invoice No. 4266, in fact was entered into the ledger around May 22, 2013, the date on which the ledgers showed the identifying numbers ranged between 122016 and 122072. The work recorded for October 11, 2011, for example, would fall within that numerical range.

[15] Where a docket for work performed is not entered into a ledger until some 18 months after the work was performed, I think it legitimate for a court to question the reasonableness of that docket entry in the absence of cogent evidence which explains such a most unusual docketing practice. No such evidence was filed in this case. I therefore disallow any recovery for the docket entries which fall into that category.

[16] The second group of docket entries shared the same characteristic as those in the first group – well after-the-fact entries billed on Invoice No. 4266 – and consisted of end-of-month entries for email reviews. Each entry described the review of a certain number of emails, and then a fee was recorded for that review which, on my review of all the entries, was a consistent $50 per email. When I asked counsel how he had arrived at a uniform billing rate of $50 per email, he submitted that such a practice was generally accepted.

[17] I am not aware of any case law which authorizes a party to claim partial indemnity costs of $50 per email, regardless of the length or complexity of the email. Certainly none were put before me on this motion. Costs are designed, in part, to indemnify a party for the actual legal work performed by its counsel. Two things flow from this. First, when legal work is done, it should be recorded on dockets, assuming the solicitor-client billing relationship is a time + disbursements one. Second, the amount of time docketed should reflect accurately the amount of time spent on the task. Eye-balling the amount of work performed long after the fact or billing the same amount for reviewing emails of different lengths simply are not acceptable bases upon which to claim costs from a court.

[18] No evidence was filed to explain this most unusual e-mail review docketing process, therefore I disallow any recovery for the docket entries which fall into this category.

[19] The third group was actually one entry, made one week before the motion, on May 23, 2013, which simply read, “To balance of fees and disbursements owing per Direction signed May 8, 2013”. No evidence was filed to explain the legal work covered by that entry, nor was the direction filed. In the absence of any such evidence, I disallow any recovery for that docket entry.

[20] I should also note that on September 13, 2012, Naeem’s counsel wrote to other counsel in the action informing them that “we are unable to continue to act as counsel to Mr. Naeem, in relation to these proceedings, due to his ongoing financial difficulties. Accordingly, Mr. Naeem will file a Notice of Intention to Act in Person shortly”. Notwithstanding this letter, Mr. Naeem’s counsel stated that he continued to work behind the scenes on behalf of his client.

[21] That then leaves for consideration the approximately $9,000.00 billed or docketed for work performed up to the filing of the last pleading. In the circumstances of this case, where all parties except Mr. Khan were victims and the plaintiff had a bona fide basis to assert a claim against Mr. Naeem, any allowance of costs of discontinuance should be on a partial indemnity scale, or approximately $5,000.00, all in. Although I am strongly tempted not to award any costs given the extravagant cost over-reach revealed in the recent docket entries on counsel’s ledger placed before me, I suspect that such an approach did not result from any instructions from the client.

[22] Consequently, I grant the plaintiff leave to discontinue this action against Mr. Naeem upon the payment to him of costs in the amount of $5,000.00, all in.

D. M. Brown J.

Date: June 4, 2013

[^1]: 2013 ONSC 1016