COURT FILE NO.: CV-12-459909

WRITTEN SUBMISSIONS: August 6 and August 19, 2013

ENDORSEMENT RELEASED: September 10, 2013

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: BEATRICE LEASEHOLDS LIMITED, DAVID SHAINHOUSE, BATSHEVA SHAINHOUSE and JONATHAN SHAINHOUSE v. HAROLD ISRAEL SHAINHOUSE also known as CHAIM SHAINHOUSE, PATHWAY APARTMENTS LIMITED, SKYVIEW PLACE APARTMENTS INC., 478832 ONTARIO LIMITED, R.M.S. ENVIRO SOLV INC., FIRST NATIONAL MORTGAGE INVESTMENT CORPORATION, IRVING SNITMAN and JOSEPH ZEV SHAINHOUSE

BEFORE: Master R. Dash

COUNSEL: David Midanik, for the plaintiffs

Mark Ross, for the defendants Shainhouse, Pathway, Skyview and First National

REASONS FOR DECISION

[1] This endorsement concerns a request by certain of the defendants for costs of an "abandoned motion". The plaintiffs had sought to book a motion to remove the lawyer for these defendants based on several grounds including conflict of interest. I conducted a case conference and ordered a timetable for the initial stages of the motion. On the date that the plaintiffs' motion record was due, the plaintiffs indicated they were not proceeding with the motion. The plaintiffs claim that as neither a notice of motion nor a notice of abandonment was ever served, there is no basis for a costs award.

[2] This action was commenced on July 27, 2012 by three children of Beatrice Shainhouse and a family corporation against two of their siblings and related companies. The action concerns ownership of assets and use and transfer of funds. On or about October 19, 2012 lawyer Mark Ross delivered a statement of defence on behalf of one of the brothers, Chaim Shainhouse ("Chaim"), and three companies, but not on behalf of R.M.S. Enviro Solv Inc. ("RMS"), against whom the action is stayed based on a proposal in bankruptcy.

THE HISTORY OF THE "MOTION" TO REMOVE MR. ROSS AS LAWYER OF RECORD

[3] On May 24, 2013 Mr. Midanik, the lawyer for the plaintiffs, wrote to Mr. Ross, stating it was his intention to "bring an application to have [Mr. Ross] removed as solicitor of record" in this action if Mr. Ross did not respond that day. Mr. Ross responded within minutes and asked Mr. Midanik what the conflict was. Between May 24 and May 30 the two lawyers exchange emails but the issue was not resolved.

[4] Mr. Midanik initially alleged that Mr. Ross had a conflict of interest and "alternatively you have filed a false representation in the statement of defence." On May 30, Mr. Midanik set out three bases why Mr. Ross must be removed as lawyer of record: Firstly, Mr. Ross would be a material witness on the ownership of RMS shares as it relates to the Beatrice claim against Chaim and RMS. Secondly, since Mr. Ross was once counsel of record for RMS and since the defendants represented by Mr. Ross in this action pled that the plaintiff Beatrice owned the shares of RMS, Mr. Ross has a continuing duty to Beatrice. Mr. Ross responded by pointing out that if he did represent RMS, his legal obligation was to the company and not the shareholder.

[5] The third ground was stated by Mr. Midanik as follows: "You may have violated the Rules of Professional Conduct by knowingly pleading a falsehood in the Statement of Defence and Counterclaim by alleging that BLL bought RMS." In my view this amounts to an allegation of fraud against Mr. Ross.

[6] On May 30 Mr. Midanik booked a date for motions scheduling court for June 5 to set a date for a long motion before a judge to remove Mr. Ross as lawyer of record for the defendants. Mr. Ross suggested the motion was a master's motion. Later that day, and after some communications to which I will refer later in this endorsement, Mr. Midanik sent in a request for the appointment of a master to hear the long motion for the removal of Mr. Ross as lawyer for certain defendants. I was appointed and on June 6 Mr. Midanik asked me for available dates for "scheduling discussions", estimated the length of the motion at a half day and set out his same three grounds for removing Mr. Ross. In response I convened a case conference for June 11, 2013 to schedule the motion.

[7] The case conference was conducted on June 11, 2013. I concluded that a date to hear the motion could not be set at that time because of a number of uncertainties that would affect the timing of the motion. These included disputes about whether certain examinations of witnesses by Mr. Midanik under rule 39.03 would be contested and whether it would be necessary to resolve certain privilege issues, both of which could involve motions that relate to and must be heard prior to the removal motion. Because of the serious allegations against Mr. Ross, the responding defendants had retained another lawyer to argue the motion.

[8] I then set a timetable for the initial stages of the motion that would allow for a determination at the next case conference of a hearing date for the removal motion and of any other interlocutory motions that needed to first be heard. The first item in the timetable was an order that the plaintiffs "serve their motion record including all affidavits upon which they will rely by July 23, 2013." I then set a schedule for a responding motion record and reply as well as a deadline for booking and conducting any rule 39.03 examinations. The next case conference was scheduled for November 26, 2013.

[9] On July 23, 2013, the deadline for service of the plaintiffs' motion record, I received a short fax from Mr. Midanik, copied to Mr. Ross, which stated, in its entirety: "Please be advised that I will not be proceeding with the above noted Motion." The "above noted motion" in the reference line was "Motion to Remove Mr. Mark Ross as Counsel for Various Defendants."

[10] On July 26, Mr. Ross asked for an opportunity to make submissions as to costs, which I permitted. I received Mr. Ross's costs submissions dated August 6, 2013 and Mr. Midanik's costs submissions dated August 19, 2013.

ANALYSIS: SHOULD COSTS BE PAYABLE FOR THE "ABANDONED MOTION"?

[11] Mr. Ross relies primarily on rule 37.09(3). Rule 37.09 provides as follows:

37.09 (1) A party who makes a motion may abandon it by delivering a notice of abandonment.

(2) A party who serves a notice of motion and does not file it or appear at the hearing shall be deemed to have abandoned the motion unless the court orders otherwise.

(3) Where a motion is abandoned or is deemed to have been abandoned, a responding party on whom the notice of motion was served is entitled to the costs of the motion forthwith, unless the court orders otherwise.

[12] Mr. Midanik argues that subsection 1 does not apply because, since he neither made a motion nor delivered a notice of abandonment, he did not abandon a motion. He argues that section 2 does not apply because he never served a notice of motion and thus cannot be deemed to have abandoned it. Since the motion was neither abandoned nor deemed to have been abandoned as described in subrules 1 and 2, Mr. Midanik submits that the costs consequences in rule 37.09(3) do not apply.

[13] Clearly subsection 2 does not apply since no notice of motion was ever served and there is no deemed abandonment.

[14] Subsection 1 is less straightforward. What does it mean to "make a motion"? It does not always involve serving a notice of motion, since some motions are heard ex parte, without service of a notice of motion: rule 37.02(2). A motion is usually made by notice of motion but not necessarily. For example, rule 37.01 states: "A motion shall be made by a notice of motion (Form 37A) unless the nature of the motion or the circumstances make a notice of motion unnecessary." Further, when a motion is "made" on notice, the notice of motion need not be filed (with proof of service) until seven days before the hearing, and if service is not required, the notice of motion may be filed at the hearing itself: rule 37.08.

[15] In this case the plaintiffs took positive steps toward "making" a motion. They sent in a requisition for a master to be appointed to hear the motion. They set out in writing the allegations that form the basis of the motion to remove Mr. Ross. They requested a case conference to schedule the motion. They participated in the case conference and set a timetable for delivery of motion material. The issues were clearly laid out by the moving plaintiffs.

[16] During this process Mr. Ross incurred costs in communicating about the motion, participating in the case conference, retaining counsel and, because of the serious nature of the allegations against him, reviewing all files in which he dealt with RMS to see if there was any substance to the allegations of conflict and researching the law. Between the date of the case conference on June 11 until Mr. Midanik's letter of July 23, there was no suggestion from Mr. Midanik that the plaintiffs motion would not proceed. Had the plaintiffs determined not to proceed and communicated this to Mr. Ross earlier, much of the costs would not have been incurred.

[17] I am of the view that for the purposes of rule 37.09(1), the plaintiffs, in taking the steps outlined above, "made" a motion. I agree with Mr. Ross when he says that the plaintiffs should not be able to make allegations of this nature and be insulated from costs by virtue of having abandoned their motion without the formality of having delivered a notice of motion. It is a mere technicality. All indications from the plaintiffs "were that the motion was proceeding and the framework was clearly set out." Mr. Midanik himself, when he sent his letter of July 23, indicated he was not proceeding with the "above noted motion", referenced as the motion to remove Mr. Ross as counsel for various defendants.

[18] In coming to this conclusion I rely on rule 1.04(1) which requires that the rules, including rule 37.09, be liberally construed to secure a just result. In that light I construe rule 37.09(1) as including a motion where the issues are clearly set out in writing, communicated to the responding party and to the court and particularly where a case conference is convened to schedule the motion, as having been "made" even where no formal notice of motion has yet been served.

[19] To the extent that rule 37.09(1) does not apply to the situation herein and there is no other provision to reimburse a responding party for costs it necessarily incurs for a motion that a party says it is making, sets out the issues and takes steps to schedule the motion, I rely on rule 1.04(2) which provides that "where matters are not provided for in these rules, the practice shall be determined by analogy to them". I draw an analogy from rule 37.09 and conclude that a responding party in such situation is entitled to its costs when the unserved motion is abandoned.

[20] Further, I rely on rule 2.03 that provides that "the court may, only where and as necessary in the interest of justice, dispense with compliance with any rule at any time." In my view it is both necessary and just to dispense with the requirement of service of a notice of motion for rule 37.09(1) to apply.

[21] As for the fact that the plaintiffs did not serve a formal notice of abandonment, but rather sent a letter saying they "will not be proceeding with the above noted motion", that is a mere irregularity, for which the court may grant relief under rule 2.01. The notice that the plaintiffs were not proceeding with the motion is in pith and substance no different from a notice of abandonment. Further, to avoid a victory of form over substance, I would apply rule 2.03 and dispense with the requirement in the circumstances for a formal notice of abandonment in the interest of justice. The plaintiffs should not be permitted to escape costs consequences by their own failure to follow proper procedure.

[22] I am therefore of the view that rule 37.09(1) applies, or a similar result by analogy to it, and as a result the cost consequences that flow from rule 37.09(3) follow.

[23] What if I am wrong and section 37.09 does not apply, even with the aid of rules 1.04(1), 2.01 and 2.03 and I am unable to rule by analogy under rule 1.04(2)?

[24] Even if rule 37.09 does not apply I have broad jurisdiction to determine costs of any step in a proceeding under section 131(1) of the Courts of Justice Act which reads:

131.(1)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.

[25] The definition of "court" in the case of the Superior Court of Justice is defined in rule 1.03(1) as including a case management master.

[26] In exercising my discretion to award costs under section 131 the court may consider, in addition to the result in the proceeding, the factors listed in rule 57.01(1).

[27] The plaintiffs made serious allegations of conflict of interest as well as professional misconduct that, by alleging Mr. Ross knowingly pleaded a falsehood, amounted to an allegation of fraud. They set in motion a process to bring a motion to remove Mr. Ross before the court, gave every indication a motion was proceeding and participated in a case conference to schedule the motion. As a result they put Mr. Ross to some expense to review numerous files given the nature of the conflict alleged, conduct research, participate in correspondence and attend the case conference with the master. Then, after six weeks without contact, on the very deadline for delivering a motion record, the plaintiffs send a letter that they were not proceeding with the motion. They have never given a reason why they were abandoning the motion.

[28] I find that the responding defendants should be considered successful on the intended motion when the plaintiffs indicated the motion would not proceed. I further rely on rule 57.01(1)(e) that the conduct of the plaintiffs, in taking the steps outlined in this endorsement, unnecessarily lengthened the duration of the proceeding.

[29] An award of costs is most appropriate in the circumstances. I exercise my discretion under section 131 of the Courts of Justice Act to award costs to the responding defendants that they incurred as a result of the plaintiffs initiating and partially proceeding with the steps that would have resulted in a motion to remove Mr. Ross as lawyer for certain of the defendants.

SCALE OF COSTS

[30] I am further of the view that those costs should be on a substantial indemnity basis for several reasons.

[31] The first basis for substantial indemnity costs derives from unsubstantiated allegations of fraudulent conduct.

[32] One of the grounds for the removal of Mr. Ross was stated by Mr. Midanik as follows: "You may have violated the Rules of Professional Conduct by knowingly pleading a falsehood in the Statement of Defence and Counterclaim by alleging that BLL bought RMS." It is interesting that Mr. Midanik should refer to Mr. Ross's breach of the Rules of Professional Conduct since the commentary under Rule 6.01(1) of those Rules provides that "a lawyer should avoid ill-considered or uninformed criticism of the ... conduct of other lawyers." Paragraph 27 of the Principles of Civility for Advocates provides that "Counsel should not attribute bad motives or improper conduct to opposing Counsel, except when relevant to the issues of the case and well-founded."

[33] This ground for Mr. Ross's removal amounts to an allegation of fraud on the part of Mr. Ross and is a serious attack on his character. If substantiated it could have serious ramifications for Mr. Ross, both within the context of this litigation and professionally. If an allegation of fraudulent conduct is made but is unsubstantiated, an award of costs on a substantial indemnity scale may be appropriate.[^1] The same result applies when a proceeding alleging fraud is abandoned, thereby depriving the solicitor against whom fraud is alleged to vindicate himself.[^2] It is open to the court to infer that the party making the allegations could not establish the alleged fraud when the proceeding is abandoned.[^3]

[34] Serious allegations were made impugning Mr. Ross's professional conduct and alleging that he deliberately pleaded a falsehood, which I consider to be an allegation of fraud. The motion to remove him was then withdrawn six weeks later with no explanation, giving Mr. Ross no opportunity to clear his name yet continuing to hang as a cloud over his head for the duration of this action.

[35] In his responding submissions respecting costs, Mr. Midanik goes to some length to set out 19 documents that he claims are evidence of Mr. Ross's conflict and knowledge that his pleading was false. He claims that the plaintiffs "continue to believe that Mr. Ross will not be able to act at trial for any of the Plaintiffs [sic: Defendants], and whether or not he has a conflict or not, there is a reasonable basis to believe that he knowingly filed a false pleading and/or may be a witness at any trial..." and that whether or not he is called as a witness "his continuing to appear for the Defendants would blacken the administration of justice."

[36] Far from justifying the plaintiffs' actions in starting the motion process, these continuing allegations serve only to throw more fuel on to the fire they have lit. They have abandoned their motion to remove Mr. Ross yet continue to insist they have grounds to remove him and continue to allege misconduct. They cloud his continuing representation of the defendants, yet provide him no forum to defend himself against the allegations and have provided no reason for abandoning the motion. Whether Mr. Midanik's serious and continuing allegations against Mr. Ross have merit, the motion to remove him has been abandoned. Far from being a credible argument against an award of costs, it rather reinforces an award of costs on a substantial indemnity scale.

[37] This is the type of conduct that an award of substantial indemnity costs is intended to address.[^4]

[38] The second basis suggested for substantial indemnity costs derives from the conduct of plaintiffs' lawyer demeaning opposing counsel.

[39] When Mr. Ross suggested the motion was a master's motion, Mr. Midanik responded that it could be a judge's motion and quoted two decisions where such a motion was before a judge (one of which was Urquhart v. Allen Estate, [1999] O.J. No. 4816, a decision of Justice Gillese). Mr. Midanik sarcastically and unnecessarily added: "As you seem more comfortable before a Master" he would vacate the June 5 scheduling date and book a long motion before the Master. When Mr. Ross pointed out that it was not a matter of his comfort, but the two decisions he referenced were from outside Toronto where there are no Masters, Mr. Midanik again sarcastically responded: "I take it Madame Justice Gillese sat in Timbuktu?"[^5] When Mr. Ross commented that because of the delay caused by the proposed motion, his scheduling of the motion was without prejudice to the continuation of the action, Mr. Midanik responded: "I do not need your permission or need to agree to any conditions before bringing an application which I must bring." Mr. Midanik also suggested Mr. Ross retain senior counsel and share with him all the actions Mr. Ross has taken on behalf of certain of the parties.

[40] These references by Mr. Midanik were in my view meant to demean Mr. Ross's competence and bully him as a junior member of the bar. There is no place for such comments in communications between solicitors. They were unnecessary and did nothing to advance the position of the plaintiffs.[^6] Rule 6.03(5) of the Rules of Professional Conduct prohibits communication to another lawyer "that is abusive, offensive, or otherwise inconsistent with the proper tone of a professional communication from a lawyer." As previously noted, the commentary under Rule 6.01(1) provides that "a lawyer should avoid ill-considered or uninformed criticism of the ... conduct of other lawyers." Further, Rule 28 of Principles of Civility for Advocates advises that "Counsel should avoid disparaging personal remarks or acrimony toward opposing Counsel." While I do not find, nor is it my role to determine, that Mr. Midanik has violated the rules of professional conduct, there is little doubt in my mind that the remarks were unprofessional, abusive and offensive.

[41] Such derogatory comments, if made to the court about opposing counsel, could result in an award of substantial indemnity costs.[^7] Mr. Midanik's conduct however was restricted to communications between counsel and were not contained in any documents filed by him with the court:

It is not the function of a judge or master to police counsel's unprofessional behaviour out of court. That is the function of the Law Society. Therefore, despite the court's disapproval of counsel's conduct, I am of the view that taken by themselves such comments would not attract an award of costs on a substantial indemnity scale on the motion before me, although they are an aggravating factor.[^8]

[42] Therefore, while the demeaning conduct would not be grounds to award an elevated level of costs by itself, taken together with the allegations of fraudulent conduct which were not substantiated when the plaintiffs withdrew their motion to remove Mr. Ross, I am of the view that costs should be on a substantial indemnity scale.

QUANTUM OF COSTS

[43] Mr. Ross has provided a costs outline respecting costs of the abandoned motion on both a partial and substantial indemnity basis. I am of the view that the costs claimed of $4,370.27 on a substantial indemnity basis, inclusive of disbursements and HST is fair and reasonable. Costs in that range should have been within the reasonable expectations of the plaintiffs given the serious allegations made, steps taken and then abandoned.

ORDER

[44] The plaintiffs shall pay to the defendants Harold Israel Shainhouse also known as Chaim Shainhouse, Pathway Apartments Limited, Skyview Place Apartments Inc. and First National Mortgage Investment Corporation their costs of the abandoned motion to remove Mark Ross as their lawyer within 30 days fixed in the sum of $4,370.27.

Master R. Dash

DATE: September 10, 2013

[^1]: Murano v. Bank of Montreal (1998), 1998 CanLII 5633 (ON CA), 41 O.R. (3d) 222, [1998] O.J. No. 2897 (C.A.) at para. 82; McNaughton Automotive Ltd. v. Co-Operators General Insurance Co. (2008), 2008 ONCA 597, 95 O.R. (3d) 365 (C.A.) at paras. 44-45 [^2]: Cogan (Re) (2005) O.R. (3d) 223, 2005 CanLII 474 (ON SC), [2005] O.J. No. 81 (S.C.J.) at para. 8 [^3]: Yang v. Mao (1995), 1995 CanLII 7052 (ON SC), 23 O.R. (3d) 466 (Gen. Div.) at p. 477. [^4]: Yang, supra, at p. 477 [^5]: Of course Justice Gillese was not sitting in Timbuktu, nor was she sitting in Toronto, as Mr. Midanik was insinuating. Mr. Midanik failed to realize that Justice Gillese was sitting in London when she decided Urquhart. [^6]: See Close Up International Ltd. v. 1444943 Ontario Ltd., [2006] O.J. No. 4225 (SCJ- Master) at paras. 7-14 [^7]: Baksh v. Sun Media (2003), 2003 CanLII 64288 (ON SC), 63 O.R. (3d) 51 (SCJ – Master) at para. 23 [^8]: Close Up, supra, at para. 11