Superior Court of Justice - Ontario

COURT FILE NO.: CV-12-446378, CV-12-446381 and CV-12-446385

DATE: 20130801

RE: NORMAN GLEDHILL, Plaintiff and NICK LE DONNE, Defendant

AND

SCOTT GLEDHILL, Plaintiff and MARY STOIKOS, Defendant

AND

SCOTT GLEDHILL, Plaintiff and LOUIS KLASIOS, Defendant

BEFORE: R. F. Goldstein J.

COUNSEL:
Ranjan Agarwal, for the Plaintiffs

Edward Babin, for the Defendant Nick Le Donne

Samil Chagpar, for the Defendant Mary Stoikos

Allan Sternberg, for the Defendant Louis Klasios

HEARD: May 6, 2013

COSTS ENDORSEMENT

[1] The Plaintiffs were late entrants to a Ponzi scheme. The Defendants were early entrants. Unusually for a Ponzi scheme, when the Plaintiffs paid into the scheme they made their payments directly to the Defendants. The Plaintiffs and the Defendants were generally unknown to each other. The Plaintiffs sued the Defendants to obtain the funds back. On May 30, 2013, I dismissed a motion for summary judgment brought by the Plaintiffs. I found that the fact situation raised a genuine issue for trial. The parties now make submissions as to costs.

ANALYSIS

1. Should costs be awarded?

[2] Mr. Agarwal, for the Plaintiffs, argues that there should be no costs awarded because of the novel features of the case: MDG Kingston Inc. v. MDG Computers Canada Inc., 2008 ONCA 656. In that case, the Court of Appeal simply stated that in view of the novelty and importance of the issue on appeal no costs would be awarded.

[3] The overarching principle is that the Court should award costs that are fair and reasonable in the circumstances: Boucher v. Public Accountants Council for Ontario, 2004 14579 (ON CA), [2004] O.J. No. 2643, 71 O.R. (3d) 291 (C.A.).

[4] As a general rule, costs ordinarily follow the event and are awarded to the successful party: Schreiber v. Mulroney, 2007 31754 (ON SC), [2007] O.J. No. 3191 (Sup.Ct.). In this case, although I agree that there was novelty to the factual issue, the Plaintiffs pursued an unsuccessful litigation strategy. Novelty is not a special circumstance that would justify departure from the usual practice: Bell Canada v. Olympia & York Developments Limited (1994), 1994 239 (ON CA), 17 O.R. (3d) 135 (C.A.). I distinguish this case from the MDG case, where the litigants were parties to a commercial dispute that was to be resolved through arbitration. Although all parties are victims here, there were significant costs consequences to the otherwise innocent Defendants, who were strangers to the Plaintiffs.

2. Should costs be awarded on a substantial indemnity basis?

[5] Mr. Babin, on behalf of the Defendant Mr. Le Donne, argues that costs should be paid on a substantial indemnity basis. He says that the action is frivolous and should never have been advanced, relying on Rule 26.06 of the Rules of Civil Procedure.

[6] Mr. Sternberg, for the Defendant Mr. Klasios, and Mr. Chagpar, for the Defendant Ms. Stoikos, seek only partial indemnity costs.

[7] I disagree that costs should be payable on a substantial indemnity basis. The previous Rule 20.06(1) presumed that substantial indemnity costs would be awarded against an unsuccessful party. The significant amendments in 2010 to the summary judgment rules changed that presumption. The rules now place the burden on a successful party to show that the unsuccessful party acted unreasonably by making or responding to the motion, or acted in bad faith for the purpose of delay: Rule 20.06.

[8] Mr. Babin’s argument is that the claims advanced on behalf of the Gledhills are frivolous because Mr. Le Donne is also a victim of the Ponzi scheme. I do not see how this claim can be said to be frivolous in the face of my ruling that there is a genuine issue for trial. The Plaintiffs pursued an unsuccessful litigation strategy but not an unreasonable one. There is nothing wrong with taking a principled position that is arguable in law even if it turns out to be incorrect. There is no basis to award costs on a substantial indemnity basis.

3. What is the appropriate quantum?

[9] Mr. Babin submits a cost outline seeking substantial indemnity costs (inclusive of HST and disbursements) of $21,589.55 and partial indemnity costs (inclusive of HST and disbursements) of $17,510.11. Mr. Sternberg submits a cost outline seeking partial indemnity costs (inclusive of HST and disbursements) of $28,804.32. Mr. Chagpar submits a cost outline seeking partial indemnity costs (inclusive of HST and disbursements) of $6,004.54.

[10] Mr. Agrawal argues that the amounts claimed are unreasonable and excessive. They point to the fact that the Defendant’s claims for partial indemnity costs totaling $56,398.41 is unreasonable. Mr. Agrawal says that the amounts of time docketed by counsel and law clerks are far in excess of what was necessary for a motion where the facts were uncomplicated.

[11] Mr. Agrawal also argues that the rates sought by Mr. Babin and Mr. Sternberg - $420/hour and $450/hour - are in excess of the $350/hour recommended by the Costs Subcommittee in 2005. Mr. Sternberg justifies the increased amount on the basis that the 2005 costs grid is out of date.

[12] It is unfortunate that the Plaintiffs did not submit a bill of costs as it makes it difficult to assess the reasonable expectations of the parties, as well as compare the hours spent in preparation. I agree with proposition that one party may bear a more difficult burden than another party in litigation, and that there are limits to the use that can be made of an opposing party’s bill of costs: TransCanada Pipelines v. Potter Station Power Co. [2002] O.J. No. 1637, (2002) C.P.C. (5th) 382 (Sup.Ct.). I adopt the following statement made by Brown J. in Smith Estate v. Rotstein, 2010 ONSC 4487, [2010] O.J. No. 3266, 2010 CarswellOnt 5629 (Sup.Ct.):

57 In light of the potential magnitude of the cost award, I had no doubt that one side would argue that the costs sought by the other were exorbitant, unreasonable and beyond the bound of any amount the unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs were being fixed: Rule 57.01(1)(0.b). One of the most effective ways to measure the reasonableness of the expectations of an unsuccessful party is to require that party to file a Bill of Costs as part of its costs submissions. If the unsuccessful party's lawyers billed, or docketed, huge fees and incurred substantial expenses, then those level of expenditures would be relevant to the issues of both how much the unsuccessful party could reasonably expect the successful side to claim for costs, as well as the quantum of costs that the court might award.

[13] In the absence of a realistic bill of costs I can only assume that if the Plaintiffs had been successful Mr. Leon would also have submitted a partial indemnity hourly rate in excess of the $350/hour set out by the Costs Subcommittee. He is comparable in terms of seniority and skill to Mr. Sternberg and Mr. Babin. Furthermore, I am reluctant to second-guess the amounts of time spent by counsel on a file (who know the matter far better than I do) unless those amounts appear to be truly excessive.

[14] The fact that the total amount sought by the Defendants totals more than $56,000.00 does not militate against awarding costs. The Plaintiffs undertook a litigation strategy that encompassed three Defendants. They must have anticipated that each Defendant would retain his or her own counsel and put a significant effort into defending the motion. A costs award to each defending party had to have been within the reasonable expectation of the Plaintiffs if they lost the motion.

[15] In this case, Mr. Agrawal states in his submissions that the Plaintiffs expended approximately $20,000 in partial indemnity costs. Since the Plaintiffs did not submit a bill of costs I do not know the full indemnity amounts but it is safe to assume that they are significantly higher than $20,000.00. The Plaintiff’s actual costs are likely not that different from the amounts submitted by the individual defendants. Mr. Babin’s full indemnity costs total $28,388.62 and Mr. Sternberg’s full indemnity costs total $35,230.00. Under the circumstances, I infer that the Plaintiffs and the Defendants approached the matter in a similar way in terms of complexity, difficulty, and magnitude of preparation. The amounts sought are within the “ballpark” of the reasonable expectation of the parties.

[16] Although I agree that the partial indemnity rates for senior counsel set by the subcommittee are out of date and need to be reviewed, I do not see a basis for the hourly amounts set out for Mr. Babin and Mr. Sternberg. Both are able, experienced senior counsel but the amounts seem arbitrary. In awarding costs I therefore have applied a small discount.

[17] The partial indemnity amount sought by Mr. Chagpar is very reasonable and clearly within the reasonable expectation of the parties. No discount will be applied.

[18] Accordingly, partial indemnity costs are awarded as follows:

• To the Defendant Louis Klassios: $25,000.00 inclusive of disbursements and HST.

• To the Defendant Nick Le Donne: $15,000.00 inclusive of disbursements and HST.

• To the Defendant Mary Stoikos: $6,004.54 inclusive of disbursements and HST.

[19] The individual Plaintiffs will be jointly and severally liable for all costs. The amounts are to be paid within 30 days.

R. F. Goldstein J.

Date: August 1, 2013