SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: 08-CV-352127PD3
DATE: 20130807

RE: American Environmental Container Corp, San Juan Products, Inc. and Kijo Leasing ULC (Plaintiffs) and Paul Kennedy, Leanne Kennedy Darren Green,

San Juan Products (Canada) Ltd., SJP Enterprises (Canada) LTD., SJP Enterprises Inc., AECC/San Juan, Oasis Fiberglass Pools Inc., Backyard Oasis, 2001530

Ontario Inc., o/a Southern Comfort and San Juan Enterprises (Canada) Inc.

Defendants)

BEFORE: Frank J.

COUNSEL:
Avrum Slodovnick, for the Plaintiffs

Trent Bridger, for the Defendants

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

[1] The plaintiffs seek costs of their motion to strike the defendants statement of defence based on the defendants’ failure to comply with an earlier disclosure and non-dissipation order in this action. I did not strike the defence but did grant relief to the plaintiffs by way of strict terms for disclosure by the defendants. In reaching my decision, I rejected the defendants’ principle excuse for failing to comply with the disclosure order and concluded that their assertion that the plaintiffs had themselves stolen the documents in issue in December 2009 was not true.

[2] The plaintiffs’ seek costs on a substantial indemnity basis totaling $45,615.34 in fees and $6,744.52 in disbursements.

[3] The defendants’ position is that the plaintiffs are not entitled to costs; that if any costs are ordered they should be in favour of the defendants; or, in the alternative, costs should be in the cause. They base their position on the conduct of the plaintiffs in the action and the defendants’ alleged inability to pay costs. They do not take issue with the time spent by counsel for the plaintiffs nor counsels’ hourly rates. They do not take issue with the scale of costs sought.

Are the plaintiffs’ entitled to costs?

[4] Although the plaintiffs did not obtain the dismissal of the action that they sought, they were successful in obtaining relief that will either facilitate the progress of the action or result in its dismissal on an ex-parte basis. Had the plaintiffs limited the relief sought in their motion to an order compelling compliance as opposed to an order dismissing, it would have made little difference in the proceedings before me.

[5] The plaintiffs are entitled to costs. Those costs are reduced, however, by the percentage of the motion that related to the argument that a dismissal of the action was the appropriate remedy. I assess that to be 20%.

[6] The defendants are not entitled to a corresponding recovery of costs. I concluded that their failure to comply with the disclosure order of Strathy J. was deliberate and that they are guilty of additional breaches of that order. That, combined with their failure to comply with their undertakings made on cross-examinations in this motion and their having given incorrect evidence on that cross-examination makes any award of costs in their favour on this motion inappropriate.

[7] I do not see any basis for ordering that the costs be in the cause. The defendants rely on Kenneth Smith v. National Money Mart, 2008 45406 (ONSC), a cost decision in a summary judgment motion in a class proceeding. As Perell J. discussed at para. 13 of that decision, there are special considerations that apply to costs in class proceedings. Those considerations have no application to this action. The fact that Perell J. ordered costs in the cause does not assist the defendants.

[8] The defendants submit that if the plaintiffs are otherwise entitled to costs, no costs should be awarded because they cannot afford to pay any costs. They maintain that the conduct of the action by the plaintiffs has required them to incur “tremendous” legal fees such that they can no longer afford to have counsel. They refer to the injunction application initially brought by the plaintiffs and the subsequent motion for the appointment of a receiver. It is the latter motion that resulted in the disclosure order that gave rise to this motion. The defendants argue that these motions were improper and designed to prevent the defendants from having the action determined on its merits; but, in neither motion were the defendants awarded costs. This is inconsistent with the defendants’ position regarding the impropriety of those motions. The defendants made decisions as to how to respond to those motions – those decisions proved costly. But, that does not justify denying the plaintiffs of costs to which they would otherwise be entitled on this motion.

[9] The defendants submit that “it is clearly demonstrated” that they cannot afford to pay any cost order made against them. I do not agree. The evidence falls far short of establishing impecuniosity.

[10] Paul Kennedy states, in his costs submissions, that he and Leanne Kennedy, his wife, are salaried employees of Leisure Pools Canada earning only $630.00 weekly and that neither are owners or directors of the company. What he did not say in these submissions is that the company is owned by his son, a full time student. Darran Green relies for his claim of impecuniosity on the statement that he is a status Indian operating a construction business that has suffered three or more consecutive years of loss and that he is divorced so that there is no money “within the matrimonial estate.” That is the extent of the evidence of impecuniosity relied on by the defendants.

[11] The defendants’ claim of impecuniosity is in the context of their having failed to account for millions of dollars of inventory, of their having concocted the allegation that the documents that are the subject of the disclosure order were stolen by the plaintiffs and of the defendants having breached not only the disclosure order, but a non-dissipation order, as well. It is a claim that I cannot accept in the circumstances.

Are the plaintiffs entitled to substantial indemnity costs?

[12] The defendants have not addressed the issue of the scale of costs to be awarded, should I find the plaintiffs to be entitled to their costs. This may be because they take the position that they cannot afford to pay any costs, rather than because they accept that the plaintiffs are entitled to substantial indemnity costs.

[13] Substantial indemnity costs are awarded only in rare and exceptional cases: Elizabeth Home Society v. Hamilton (City), 2010 ONCA 280, [2010] O.J. No. 1515 at para. 92. They are appropriate as a form of chastisement and a mark of the court’s disapproval of a litigant’s conduct and are intended to punish as well as to deter others from engaging in similar conduct: Manning v. Epp, [2006] O.J. No. 4239, at para. 7, relying on Beaver Lumber Co. v. 222044 Ontario Ltd. (1997), 5 C.P.C. (4th) 253(Ont. Gen. Divisional Court.) at p. 256.

[14] Failure to comply with an order of the court will not necessarily warrant an award of costs on a higher scale. But, the circumstances in this case do warrant such an award. The defendants falsely maintained, initially before Strathy J. and then before me, that the plaintiffs stole all of the defendants’ business records. They relied on this falsehood in responding to the motion before me. The defendants’ conduct, both in relation to the court and the plaintiffs, must be condemned in strong terms and it must be made clear that the court will not condone false allegations of dishonesty against another party.

[15] I accept the plaintiffs’ submission that substantial indemnity costs are appropriate in this case not only to protect the administration of justice, but also to redress the unfairness to the plaintiffs in their having to incur what would otherwise be unrecoverable costs to uncover the truth behind the false allegations made by the defendants.

[16] In reaching this conclusion, I am mindful of the fact that the plaintiffs do not come to court without any shadow cast on their integrity. Their surreptitious removal of property provided the defendants with the opportunity to make the allegations of theft against the plaintiffs. And, if there is merit to the allegations made by the defendants in the volumes of evidence before the court, then the plaintiffs will ultimately not be found to be entitled to the protection of this court. But, in decided the issue of costs, my concern is with conduct in relation to this motion. That conduct, on the part of the defendants, warrants the sanction of substantial indemnity costs.

To what amount of costs are the plaintiffs entitled?

[17] Although costs are being fixed on a substantial indemnity basis, the same considerations apply as in the fixing of all costs. It is not the actual costs incurred by the successful litigant, but rather what is fair and reasonable to the losing litigant in the particular circumstances that exist that determine the amount at which costs are fixed.

[18] In determining what is fair and reasonable, I must apply the factors enumerated in Rule 57.

[19] This motion was critical to the plaintiffs. An accounting lies at the heart of this action. But, without production in accordance with the order of Strathy J., that accounting cannot take place. The defendants’ conduct effectively deprived the plaintiffs of the ability to proceed with a determination of the action on its merits.

[20] To a large degree, the time spent was a product of the approach adopted by the defendants. It is not a court’s role to second guess how much time is reasonable for a party to devote to a matter where it faces allegations such as made by these defendants.

[21] As for the reasonable expectations of the defendants, they have made it clear through their reference to the costs they incurred while represented by counsel that they are acutely aware of how expensive litigation is.

[22] Further, I accept that the cost outline on which the plaintiffs rely does not reflect all of the time spent that could properly be attributed to this motion. Since the preparation of that outline, the defendants have served additional affidavits requiring a response from the plaintiffs. As well, the outline does not include the account of Farley Cohen, the expert retained by the plaintiffs in accordance with the order of Strathy J. to review the defendants’ records, but who could not provide a report because of the failure of the defendants to produce records.

[23] In spite of these considerations, a total of $52,359.86 in costs for a motion in which the legal issues were not complex raises concerns as to its reasonableness. In my view, the time spent at the hourly rates applied results costs that do not meet the fair and reasonable test.

[24] I appreciate that the over 42 hours spent on cross-examinations are the result in significant measure of the conduct of the defendants. However, for a motion based on failure to comply with a production order, even though the key issue required cross-examination of the defendants on their credibility, costs of almost $13,000 for cross-examinations cannot be supported.

[25] Similarly, costs of approximately $10,000 for the preparation of the supplementary record and responding records are excessive in this context at the hourly rate at which the time spent is charged. I am mindful of the fact that the defendants share the responsibility for the record being as voluminous as it is. But, absent an explanation for why this preparation needed to be done by someone with an hourly rate of $304.50, the cost must be reduced.

[26] Balancing these various considerations, I fix the costs at $38,000 plus disbursements of $6,744.52. The costs are payable within 30 days.

Frank J.

DATE: August 7, 2013