ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 06-CV-36872
DATE: 2013/08/23
BETWEEN:
OTTAWA COMMUNITY HOUSING CORPORATION
Plaintiff
– and –
PETER FOUSTANELLAS o/a ARGOS CARPETS, DAVID GRIMES, LITIGATION ADMINISTRATOR FOR THE ESTATE OF ROBERT GRIMES, o/a ARGOS CARPETS, and ARGOS CARPETS LTD.
Defendants
Joseph Y. Obagi and Elizabeth Quigley for the Plaintiff Ottawa Community Housing Corporation
Gary G. Boyd, for the Defendants Peter Foustanellas and Argos Carpets Ltd.
AND BETWEEN:
ARGOS CARPETS LTD.
Plaintiff by Counterclaim
– and –
OTTAWA COMMUNITY HOUSING CORPORATION/LA SOCIÉTÉ DE LOGEMENT COMMUNAUTAIRE D’OTTAWA
Defendant by Counterclaim
HEARD: May 29, 2013.
SUPPLEMENTARY REASONS FOR JUDGMENT and COSTS AWARD
Mr. Justice Douglas Rutherford
I Supplementary Reasons for Judgment
[1] After receiving submissions from counsel for the defendants Argos Carpets Ltd. and Peter Foustanellas, and from counsel for the plaintiff, Ottawa Community Housing Corporation, (OCHC), I accept that I need to clarify an aspect of the Reasons for Judgment that I released on February 12, 2013 ( 2013 ONSC 973 ). In the final sentence of paragraph 40, referring to a ruling I had made at the outset of the trial, I said,
I concluded that OCHC was entitled to pursue judgment against both principal and agents, although I think both sides agree that if I find liability against both principal and agents, the plaintiff would then have to elect those against whom it wants to have judgment, the undisclosed principal or its agents.
Under the heading “Conclusions as to Liability,” I went on to say, part way through paragraph 103,
OCHC will have to elect against which of the defendants it wishes to proceed to judgement, as I explained in Part V at paragraph 40 of this judgment. OCHC may elect to proceed to judgment against Mr. Foustanellas and the Estate of Robert Grimes, or either of them, or, it may proceed to judgment against Argos Carpets Ltd., the undisclosed principal on behalf of which Mr. Foustanellas and Mr. Grimes were acting as agents.
[2] What I failed to make clear, however, was that only the judgment for part of the relief granted need be pursued by way of election. That is, only the damages granted on the basis of breach of contract alone must be pursued to judgment by electing to have judgment against either the undisclosed principle or against its agents. The damages awarded on the basis of fraud, a separate actionable wrong, may be pursued to judgment against all the defendants, as I found them all responsible in that fraud.
[3] The total compensatory damage figure of $633,844.65 that I calculated in paragraphs 88- 91 of my Reasons for Judgment is comprised of three components. The first component, $282,069.10, represents the total overcharge, and does not include wastage or substandard quality. The second component of the compensatory damages award represents wastage, a cost element that should not have been passed on to OCHC. The amount attributable to wastage, $206,842.36, was based on a finding of 25% waste, although I did not calculate that monetary figure in paragraph 89. The third component was for substandard quality of carpet and installation. The amount attributable to that was based on my finding of a requisite adjustment of 20%, and amounted to $144,933.19, although I did not calculate that monetary figure in paragraph 90. I brought those three components together and calculated the total compensatory dollar figure in paragraph 91 by relying on the helpful calculation chart at Tab B of OCHC’s written submission dated October 9, 2012.
[4] It is with reference to that same calculation chart that the actual figures for the 25% wastage component and the 20% substandard quality component can easily be discerned. To summarize, the three components of the total compensatory damage figure of $633,844.65 are
i) basic overcharge $282,069.10
ii) wastage $206,842.36
iii) substandard quality $144,933.19
Total $633,844.65
[5] It is only component iii), liability for which is based only on a breach of contract, together with pre- and post-judgment interest thereon, which is subject to OCHC’s election OCHC of whether to pursue judgment against principal or agents. Liability for components i) and ii) of the compensatory damages, totalling $488,911.46, together with the $250,000 in punitive damages, was based on the fraudulent scheme perpetrated by the defendants. Judgment for those amounts, together with pre- and post-judgment interest, may be pursued against any and all defendants.
[6] The counterclaim award of $141,724.55 in favour of Argos Carpets Ltd. can be set off against whatever amount is pursued by OCHC against the defendant corporation.
II Costs Award
[7] On May 29, 2013, counsel for OCHC and counsel for Argos Carpets Ltd. and Peter Foustanellas made extensive submissions as to costs. As the successful party in the action, OCHC filed a Costs Outline seeking full indemnity for its actual costs, as follows.
Fees $485,983.00
H.S.T. on Fees $ 63,177.79
Disbursements + H.S.T. $ 59,278.48
Disbursements (H.S.T. exempt) $ 37,147.09
Costs re Estate of Robert Grimes $ 15,000.00
SUBTOTAL $660,586.36
Credit for interim costs awards paid $ 33,110.89
TOTAL $627,475.47
[8] This total does not include any amount for the hearing on May 29, 2013, in which the issue in Part I above and the whole matter of costs were addressed. Mr. Boyd, appearing alone, questioned the need to have two counsel appear for OCHC. I note that there was significant legal preparation by counsel for OCHC on the election of judgment issue, in anticipation that the defendants, Argos Carpets Ltd. and Peter Foustanellas, would oppose OCHC’s request for clarification and would argue that it was beyond the scope of mere clarification and amounted to an impermissible extension of the judgment. That issue essentially evaporated early in the hearing, however, when Mr. Boyd asked if I had intended the refined position advanced by Mr. Obagi. I said that, had I focused on the finer detail of what specific components of the damages were subject to the election, I would have done what was being sought. Mr. Boyd then opted not to argue that I could not make the clarification.
[9] I think it reasonable for both Mr. Obagi and Ms Quigley to have appeared as counsel for what had been anticipated. A fair assessment of the full, plaintiff counsel fee for the full day hearing on May 29 last would be $3,000. This would bring the plaintiff’s full or actual costs to $630,475.47.
Partial, Substantial and Full Indemnity Costs
[10] Section 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C-43, as amended, provides that
Subject to the provisions of an Act or rules of court, the costs of and incidental to a proceeding or a step in a proceeding are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid.
[11] J. Carthy, W. Millar & J. Cowan, 2012-2013 Ontario Annual Practice (Toronto: Canada Law Book, 2012) offer this commentary on the interplay between s. 131 and R. 57 of the Rules of Civil Procedure, R.R.O., Reg. 194:
Effective January 1, 2002, party-and-party and solicitor-and-client costs were replaced with "partial indemnity" and "substantial indemnity" costs. Until July 1, 2005, Rules 57.01 and 57.03 required the court to fix costs in accordance with a costs grid established by Part I of Tariff A, except in "exceptional" cases when the costs could be referred for assessment under Rule 58. After a trial, a motion that disposed of a proceeding or an application is completed, the party who was awarded costs was to serve and file a bill of costs. The court then proceeded to fix the costs in accordance with the costs grid. Effective July 1, 2005, the costs grid was revoked, given a number of Court of Appeal decisions critical of bills of costs and awards that were mathematical applications of the grid's hourly rates to hours expended. It was replaced by reliance on the discretionary factors set out in rule 57.01(1), now supplemented by reference to the principle of indemnity (including the experience of the lawyers, the rates charged and the hours spent by the lawyer), and the amount of costs that an unsuccessful party could reasonably expect to pay. In addition, the power to award costs on a "full" as opposed to "substantial" indemnity basis, and to an unrepresented party is clarified. (underlining mine).
[12] Rule 57.01(4) is of particular importance to OCHC’s claim for “full indemnity” for its actual costs of this action. It states that:
(4) Nothing in this rule or rules 57.02 to 57.07 affects the authority of the court under section 131 of the Courts of Justice Act,
(d) to award costs in an amount that represents full indemnity;
[13] There are some who suggest that, because r. 1.03 includes definitions for “partial indemnity costs” and for “substantial indemnity costs,” but not for “full indemnity costs,” full indemnification for a party’s legal costs is not authorized. On the other hand, full indemnification really needs no further definition, and r. 57.01(4)(d) certainly suggests authority, under former and present iterations of R. 57.01, for full indemnification if the circumstances call for it.
[14] In Mortimer v. Cameron (1994), 1994 10998 (ON CA), 17 O.R. (3d) 1 (C.A.) at p. 23, Robbins J.A. considered an award of “solicitor-client” costs fully indemnifying the successful litigant. Quoting Orkin. Justice Robins wrote:
The law respecting solicitor-and-client costs is admirably reviewed in Orkin, The Law of Costs, 2nd ed. (1993), pp. 2-91 to 2-92:
Costs on the solicitor-and-client scale should not be awarded unless special grounds exist to justify a departure from the usual scale.
Such orders are not to be made by way of damages, or on the view that the award of damages should reach the plaintiff intact, and are inappropriate where there has been no wrongdoing.
An award of costs on the solicitor-and-client scale, it has been said, is ordered only in rare and exceptional cases to mark the court's disapproval of the conduct of a party in the litigation. The principle guiding the decision to award solicitor-and-client costs has been enunciated thus:
[S]olicitor-and-client costs should not be awarded unless there is some form of reprehensible conduct, either in the circumstances giving rise to the cause of action, or in the proceedings, which makes such costs desirable as a form of chastisement.
[15] The rule that “elevated costs,” whether substantial or full indemnity, should be awarded only in limited circumstances involving reprehensible misconduct was more recently reiterated in Davies v. Clarington (Municipality), 2009 ONCA 722, 100 O.R. (3d) 66 at paras 30-33.
[16] In his submissions, Mr. Boyd conceded that evidence of fraud in a civil action might normally lead to an award of substantial indemnity costs. However, he argued that Mr. Obagi’s Costs Outline contained a number of unreasonable or excessive elements. I will deal with those in due course.
[17] Let me acknowledge, at the outset, that the claim for full indemnity costs in such an amount as is sought here on behalf OCHC is a very, very large costs claim, and one that would be well beyond the contemplation and capacity of many litigants. However, the circumstances of this case and its progress through the litigation process are, thankfully, rare and unusual. I need only refer back to Part I of my Reasons for Judgment, in which I summarized the launching of multiple claims, their consolidation for trial, the difficulties and complications that arose in getting through the trial, and the added complexities of post-trial amendments of pleadings and additional written submissions, to illustrate how the legal costs, on both sides, became so extensive. The health problems of various trial participants and the untimely death of defendant Robert Grimes gave rise to significant delays, and necessitated, on several occasions, that preparations for continuing with the trial be, in whole or in part, repeated.
[18] Only after extensive trial preparation work had been undertaken, in an attempt to quantify the scope of the alleged over-billing, did OCHC discover, in Argos’ own copies of the transaction documentation, details of the actual quantities of carpet and under-pad shipped by Argos Carpets to the various installation sites. This work, as well as the need for expert evidence, the assembling of quantity and costing data from the numerous documents, and the preparation of various reports, all made for a very costly proceeding for the plaintiff.
[19] I think it fair to conclude that both sides in the action must have anticipated a costly proceeding. Both the plaintiff and defendants engaged very competent and experienced counsel to represent them from the outset. And, while there is no obligation on the losing party to disclose the extent of its legal costs, Mr. Boyd made no suggestion that the defendants’ legal costs are significantly exceeded by those disclosed and claimed by the plaintiff.
[20] Notwithstanding the very extensive legal costs incurred by the plaintiff, given the basis on which I have found the defendants primarily liable, it is my view that the costs award to OCHC should fully indemnify the public housing corporation. It was inordinate and blatant wrong-doing on the part of the defendants that inflicted $633,844.65 in compensable damages on the plaintiff. In these particular circumstances, I see no reason that OCHC, the assets and liabilities of which are, in essence, public accounts, should have to absorb any legal costs to rectify such an exacerbated loss. I recognize that the defendant Argos Carpets Ltd. succeeded on its counterclaim in the amount of $141,724.55. However, that issue and amount was ultimately conceded and I do not view that relatively small success as having had much impact on the preparation and trial of the major issues in the plaintiff’s claim. The additional award of punitive damages to OCHC should not figure in the costs calculation. As explained in the passage from Whitten v. Pilot Insurance Co. set out at paragraph 90 of my Reasons for Judgment, this award is punitive, and not compensatory in nature. To include that punitive award in the equation in measuring OCHC’s legal costs would, in effect, dilute or nullify its punitive effect.
[21] Neither the fee rates nor the amounts of time expended by the various lawyers and law students, as outlined in the plaintiff’s Costs Outline, appear open to any substantial criticism. The amount of lawyering time spent on the various components of the proceedings by the plaintiff’s participating legal personnel seems reasonable to me. In light of Costs Subcommittee’s guideline rate maximums published with r. 57.01 in the Rules of Civil Procedure, brought by Aitken J. to 2012 values in Geographic Resources Integrated Data Solutions Ltd. v. Peterson, 2013 ONSC 1041, 226 A.C.W.S. (3d) 57, at paragraph 7, I find all the fee rates applied to the plaintiff’s legal team to be reasonable.
[22] Mr. Boyd took issue with the inclusion in the costs outline of the fees of Sheppard & Claude. His argument, as I understood it, was that those two lawyers were not part of the litigation legal team and were doing what was essentially “in house clerical work” which should be valued at a much lower rate. Mr. Obagi explained that Sheppard & Claude, retained by OCHC as its “corporate lawyers,” helped Connolly Obagi LLP, essentially a “boutique firm” with the organization and development of the case. They worked on the case, billed for their work and were paid for it. I know of no authority holding that legal costs are confined to lawyers working in the same firm. I think those fee components are properly included.
[23] In March of 2010, with the trial on hold while Mr. Foustanellas convalesced following a heart attack in January of that same year, Mr. Obagi pressed for a spring resumption of the trial. Mr. Boyd sought a longer period of convalescence, suggesting that the trial not resume until the fall. Mr. Obagi then produced evidence, including video footage showing Mr. Foustanellas at his place of business dealing with customers, some of whom were members of a surveillance team brought in by OCHC. Ultimately, based on the opinion of a leading cardiologist who had been treating Mr. Foustanellas, I was persuaded that it would be dangerous for the latter to participate in the trial without further convalescence and I adjourned the trial until fall. The cardiologist explained that Mr. Foustanellas’ work-related activities were strictly against the doctor’s medical advice and did not demonstrate that Mr. Foustanellas was fit for such work or to proceed with his trial. Mr. Boyd argued that I should not allow the plaintiff’s fees and disbursements for that extended and strongly opposed adjournment motion for two reasons. Firstly, Mr. Boyd argued that a further adjournment was unreasonably opposed by the plaintiff. Secondly, as Mr. Boyd saw it, it was unethical for the plaintiff’s surveillance team to have gone in and captured Mr. Foustanellas’ activity on video, specifically engaging him in what must have been some conversation in the absence of his lawyer.
[24] I do not agree that the plaintiff’s opposition to the requested extended adjournment was unreasonable in the circumstances. Mr. Foustanellas’ bad judgment in returning to work against his physician’s advice, gave OCHC, in the circumstances, reasonable grounds to oppose the further delay of an already delayed proceedings. As for any ethical issue, there was no evidence of any questioning by the plaintiff’s agents or of statements made by Mr. Foustanellas in the absence of his counsel. All I was shown was video; there was no audio. I think the plaintiff’s legal costs associated with that much disputed motion are all part of its recoverable costs made necessary by the defendants’ actions.
[25] Mr. Boyd took issue as well, with the $15,000 fee account of Hamilton Appotive to OCHC. For this fee, Mr. Eric Appotive provided advice to and represented the Estate of Robert Grimes in the procedure under r. 31.11(6), through which the evidence given by Robert Grimes on discovery was made “trial evidence.” Mr. Boyd objected to the fees being paid by OCHC. Mr. Obagi pointed out, however, that there were virtually no assets in the Grimes Estate. Consequently, in order to get all the Robert Grimes discovery in as trial evidence, including portions which would, if read-in on the part of OCHC, have constituted OCHC impeaching its own witness, OCHC was required to cover the legal costs incurred by the Estate in securing legal advice, filing and appearing on the r. 31.11(6) motion. In the circumstances, while I would call the plaintiff’s agreement to foot the bill for the Estate unusual, and even exceptional, I would not call it unreasonable, as it had the important tactical objective of allowing the plaintiff to have all of the Grimes discovery in as trial evidence.
[26] There were several other smaller disbursements to which Mr. Boyd objected as well. The first was a bill of $2,200 from the law firm of Soloway Wright. This bill represented witness preparation by a former law student of Mr. Obagi, now in practice at Solway Wright He had, while a student, undertaken the task of inputting invoice amounts into Excel spreadsheets in preparation for trial. His work product was to be part of the plaintiff’s case and having him prepare to testify and be able to introduce the materials he had previously prepared was a necessary piece of trial preparation. The materials were the subject of a “request to admit” just before the trial began, and Mr. Hargadon eventually consented to its admission into evidence. But the advance witness preparation by the now lawyer-witness was responsible and his firm’s account was a reasonable litigation cost. So too, in my opinion was the $465.50 payment to Gillespie Reporting Service for the discoveries of Mr. Grimes and of Mr. Foustanellas in digital-audio format. As Mr. Obagi explained to Mr. Hargadon in an email a few days before the trial began,
In addition, we have secured the audio of the examinations of both Peter F. and Robert G. It is my intention to play them during the trial rather than “read-in” from the transcript. I think this will be quicker and more interesting for the jury rather than listening to me drone on for hours.
The case was to be tried with a jury and it was not until after the jury had been selected that a successful motion to discharge it was brought. While not strictly speaking necessary, it seems to me that putting any significant amount of transcript evidence to a jury with the aid of a recording of the actual audio of the witness himself, is likely to be somewhat, and perhaps significantly more effective than a traditional “read-in” by counsel. Indeed, counsel who tries to add life and drama to a reading in of evidence risks an objection from his opponent and being admonished by the trial judge. Playing the actual recording could bring the evidence to life and would, I suppose, only be objectionable on a strict and literal construction of r. 31.11(1). This is an age of electronic technology in which information is transferred increasingly in audio and video format. It was not unreasonable for counsel to anticipate that the judge would permit discovery evidence of the defendants to be “read-in” by playing the recorded questions and answers, presumably with the jurors reading along on copies of transcript. This was an innovative idea and I think the plaintiff’s outlay of $465.50 was a reasonable litigation cost.
[27] Objection was also taken to the inclusion of a $60.17 item representing the cost of a meal for OCHC’s American carpet expert witness, Daniel Bernazzini, while he was in Ottawa to give evidence. Mr. Bernazzini apparently had lunch with the OCHC lawyers a day or two before it was anticipated he would take the witness stand. As it turned out, successive illnesses of trial participants led to his not giving his evidence until almost a year later. Nonetheless, his expenses while in Ottawa to give evidence are legitimate litigation expenses. Whether he paid his own expenses and invoiced the plaintiff for them, or whether the lawyers paid them on behalf of the plaintiff, it seems to me that the expenses are properly included in the costs list.
[28] As a final item in dispute, I come to an interesting expenditure of $50 for a parking ticket paid for by the plaintiff when a prospective witness interview ran longer than planned and the witness, a Mr. Andrews, had his car ticketed for overtime parking. Mr. Boyd argued that it would be improper to recover a fine or penalty through costs. Mr. Obagi, noting that there were no amounts for charged in the disbursements for conduct money to witnesses, urged that the $50 was a reasonable amount, actually paid out, to secure the witness’ attendance. Additionally, had the witness been paid for taxis, or for mileage and downtown parking, the costs would not have been much different. In view of my earlier conclusion, at paragraph 20 herein, that the circumstances of the case warrant full indemnification of the plaintiff’s litigation related costs, I favour the inclusion of this expenditure to develop the witness. I will allow this cost.
[29] The judgment for the plaintiff as against the defendants given with my reasons released on February 12, 2013, and as modified by Part I above, will include an award of costs as against the defendants, jointly and severally, in the amount of $630,475.47.
Judgment accordingly.
Rutherford J.
Released: August 23, 2013
2013 ONSC 5443
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
OTTAWA COMMUNITY HOUSING CORPORATION
Plaintiff
– and –
PETER FOUSTANELLAS o/a ARGOS CARPETS, DAVID GRIMES, LITIGATION ADMINISTRATOR FOR THE ESTATE OF ROBERT GRIMES, o/a ARGOS CARPETS and ARGOS CARPETS LTD.
Defendants
AND BETWEEN:
ARGOS CARPETS LTD.
Plaintiff by Counterclaim
– and –
OTTAWA COMMUNITY HOUSING CORPORATION/LA SOCIÉTÉ COMMUNAUTAIRE D’OTTAWA
Defendant by Counterclaim
SUPPLEMENTARY REASONS FOR JUDGMENT AND COSTS AWARD
Rutherford J.
Released: August 23, 2013