ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 10-50202
DATE: 20131009

BETWEEN:

PETER LAGEVEEN
Plaintiff

– and –

JOHN DE HAAS and EXPERT HOME EXTERIORS and 1766885 ONTARIO INC.
Defendants

Peter J. Bishop, for the Plaintiff
Jaye E. Hooper, for the Defendants

HEARD: By written submissions

decision on costs

POLOWIN J.

[1] In March 2010, the Plaintiff, Peter Lageveen left his employment and went to work with the Defendants, John de Haas and Expert Home Exteriors (“Expert”). The nature of their business relationship was the focus of the trial. According to the Plaintiff, Mr. de Haas approached him and asked him to leave his employment and become a 50% partner in Expert. According to Mr. de Haas, the Plaintiff worked as an independent contractor in sales and he was to earn a commission on all new sales generated by him. Their business relationship was short lived and was terminated by Mr. de Haas in October 2010.

[2] As indicated in the Reasons for Decision, the Plaintiff’s pleadings and his theory of the case evolved through the course of the litigation. Initially it was pled that they had entered into a partnership agreement, whereby the Plaintiff would become a 50% partner in the business. However, in the Amended Statement of Claim, dated October 6, 2011, the Plaintiff resiled from the allegation that they had entered into a “legal” partnership. Instead it was claimed that they had entered into a contractual business relationship entitling him to a 50% share of all profits and retained earnings of the firm for all sales and contracts resulting from business opportunities that arose after March 1, 2010. The Plaintiff relied on the doctrine of unjust enrichment. Then at trial, during the second day of Mr. de Haas’ cross-examination, on May 22, 2013, a new theory of the case was advanced by counsel for the Plaintiff. That theory was based on the tort of deceit and fraudulent misrepresentation. On May 23, 2013, the last day of trial, the Plaintiff brought a motion for leave to further amend his pleadings to reflect his new theory of the case, which was unopposed by the Defendants, for costs and expediency reasons.

[3] The trial in this matter was heard from May 13-17, 2013 and May 21-24, 2013. The Plaintiff’s claim was dismissed in its entirety.

[4] The Defendants made a Rule 49 offer to settle on April 24, 2013. According to the Defendants the offer was made in the range of damages expected for a finding that the Plaintiff was a dependent contractor. The Defendants offered to pay the Plaintiff the sum of $21,000.00 plus interest and costs to be agreed upon or assessed on a partial indemnity basis pursuant to the Small Claims Court tariff. The Defendants also made a settlement offer by letter dated January 19, 2013, after the pre-trial before Justice Beaudoin, for an all inclusive sum of $21,000.00.

[5] The Defendants provided a Bill of Costs. Two sets of calculations were provided. One set calculated substantial indemnity costs throughout the proceeding. Some $70,632.90 is claimed for fees. The second set calculated partial indemnity costs to the date of the Defendants offer to settle and substantial indemnity costs thereafter. The Defendants claim $63,530.10 for fees. Disbursements are also claimed in both scenarios.

Submissions of the Parties

[6] The Defendants ask for costs for the entire action on a substantial indemnity basis. In the alternative, the Defendants seek an order of costs on a partial indemnity basis to the date of its offer to settle and substantial indemnity thereafter. They submitted that they were entirely successful in their defence of claim. They submitted that the issues and allegations raised were vital to the Defendants’ business (at least until the closing arguments where the concept of “partnership” was abandoned). They stated that new issues and allegations, as well as the abandonment of other allegations, caused additional preparation time. Moreover, it was noted that considerable trial time was spent by the Plaintiff on red herrings and irrelevant details.

[7] In addition, they submitted that the amendment of the claim on the last night of trial to allege fraud was a vexatious act and entirely unnecessary given the evidence before the Court. Counsel pointed to case law which held that fraud should not be alleged for tactical purposes: see Corfax Benefit Systems Ltd. v. Fiducie Desjardins Inc. (1997), 1997 12195 (ON SC), 37 O.R. (3d) 50 (Ont. Gen. Div.). Counsel also referred to Murano v. Bank of Montreal (1995), 41 C.P.C. (3d) 143 (Ont. Gen. Div.) in support of the proposition that if allegations of fraud or dishonest conduct are made and not proven, the normal cost consequence is to award substantial indemnity costs for the entire proceeding. The Defendants stated there was not one piece of evidence to support the Plaintiff’s theory.

[8] The Plaintiff acknowledged in his submissions that, in light of the dismissal of the action, the Court would award costs to the Defendants. However, the Plaintiff submits that, under all of the circumstances of this case, and the Plaintiff’s devastating economic situation since the termination of his relationship with the Defendants, that costs be awarded on a moderate basis. It is submitted that the Court should fix fees in the amount of $40,000.00 plus HST.

[9] The Plaintiff submitted that after the first amendment to the Statement of Claim in October 2011, it was clear that the Plaintiff was not making any claim to any interest in the Defendants’ business. The Defendants’ business was not in jeopardy. Further, the amendment of the Plaintiff’s Statement of Claim at trial occurred on the morning of the last day of trial. The Defendants’ counsel did not incur additional preparation time. In addition, the Plaintiff submitted that it did not raise or pursue any red herrings or irrelevant details and denied that the amendment of the Statement of Claim on the last day of trial was vexatious or unnecessary. The Plaintiff submitted that he made the allegation of fraud in good faith, genuinely believing in the truth of the allegations. The Plaintiff submitted that it became clear to him that this claim was only way he could explain the actions of the Defendants from 2009 onwards.

Reasons

[10] Rule 57.01(1) sets out the factors that the court may consider in determining costs. It provides:

57.01 (1) In exercising its discretion under section 131 of the Courts of Justice Act to award costs, the court may consider, in addition to the result in the proceeding and any offer to settle made in writing,

(0.a) the principle of indemnity, including, where applicable, the experience of the lawyer for the party entitled to the costs as well as the rates charged and the hours spent by that lawyer

(0.b) the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed;

(a) the amount claimed and the amount recovered in the proceeding; (b) the apportionment of liability; (c) the complexity of the proceeding; (d) the importance of the issues; (e) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding; (f) whether any step in the proceeding was,

(i) improper, vexatious or unnecessary, or (ii) taken through negligence, mistake or excessive caution;

(g) a party's denial of or refusal to admit anything that should have been admitted; (h) whether it is appropriate to award any costs or more than one set of costs where a party,

(i) commenced separate proceedings for claims that should have been made in one proceeding, or (ii) in defending a proceeding separated unnecessarily from another party in the same interest or defended by a different solicitor; and

(i) any other matter relevant to the question of costs.

[11] Sub rule 57.01 (1)(0.b) came into effect in July 2005. It introduced as a factor to be considered “the amount of costs that an unsuccessful party could reasonably expect to pay.” This change reflected the jurisprudence of the Ontario Court of Appeal which confirmed that a critical controlling principle for the fixing of costs is to ascertain an amount that is a fair and reasonable sum to be paid by the unsuccessful litigant, rather than any exact measure of the actual costs to the successful litigant.

[12] The Defendants seek costs throughout on a substantial indemnity basis against the Plaintiff, for failing to prove fraud, relying on the Murano case noted above. While the issue has given me great pause, especially in light of the warning I gave to the Plaintiff of the potential cost consequences should he fail to prove fraud, on reflection I have decided not to award substantial indemnity costs for the entire action.

[13] In Murano, it was noted that costs on a solicitor-and-client (now substantial indemnity) scale should not be awarded unless special grounds exist to justify a departure from the usual scale. The following was stated at para. 1:

Costs on a solicitor-and-client scale should not be awarded unless special grounds exist to justify a departure from the usual scale. See Foulis v. Robinson (1978), 1978 1307 (ON CA), 21 O.R., (2d) 769 (C.A.); Orkin, The Law of Costs, 2d ed. (1993), para. 219; and Mortimer v. Cameron (1994), 1994 10998 (ON CA), 17 O.R. (3d) 1 (C.A.). Stated another way, while the award of costs is within the discretionary power of a court, the court’s discretion must be exercised in accordance with accepted principle and having regard to relevant considerations. Indeed, it has been held that the award of costs on solicitor-and-client basis “should only be made in very exceptional circumstances.” See Procor Ltd. v. U.S.W.A. (1990), 1990 6637 (ON SC), 71 O.R. (2d) 410 at 434 (H.C.) [additional reasons] at p 437. The policy underlying this approach was articulated by Dubin J.A. (as he then was) in Foulis v. Robinson, supra, at p. 776:

The expense of litigation is a matter of concern for all those interested in the administration of justice, but one must have regard for the burden which such costs place on all parties. Generally speaking, an award of costs on a party-and-party scale to the successful party strikes a proper balance as to the burden of costs which should be borne by the winner without putting litigation beyond the reach of the loser. There are, of course, cases in which justice can only be done by a complete indemnification for costs, but, in my respectful opinion, this is not such a case.

[14] In Murano, the trial judge awarded solicitor-and-client costs where there had been unfounded allegations that the plaintiff had intended to abscond with assets in a manner that went to his honesty and integrity. Officers of the bank inaccurately relayed to other lenders as well as to existing and prospective business associates that the plaintiff was financially desperate and that he had acted dishonestly. In addition, the trial judge found that the wilful misconduct of the bank essentially destroyed the plaintiff’s business. Further, it was noted that the unfounded allegations were then repeated in the bank’s pleadings and pursued with vigour at trial, where the bank insisted that it was necessary for the court to analyze in minute detail the entirety of its relationships with the plaintiff.

[15] In the case at hand, the Plaintiff only raised, for the first time, the issue of fraud and deceit during second to last day of trial. The motion to amend the pleadings was brought on the last day of trial prior to closing submissions. In my view the raising of this issue was more in the nature of a misguided last ditch “hail Mary pass” than an allegation made in bad faith or for tactical advantage. Moreover, the issue was not pursued through the initial pleadings, or the litigation. The Defendants did not have the spectre of fraud allegations hanging of their heads during the substantial period of time that it took for the litigation to be completed.

[16] However, I am not inclined to accept the Plaintiff’s submission that the Defendants’ should be awarded costs on a moderate basis and that the fees should be fixed at $40,000.00. An offer to settle was made by the Defendants on April 24, 2013 under Rule 49. There was also an earlier offer made on January 9, 2013. The Plaintiff’s claim was completely dismissed. Clearly, the cost consequences of Rule 49 are engaged. There is no reason in the circumstances of this case to depart from the usual consequence that the Plaintiff be required to pay the partial indemnity costs of the Defendants to the date of the offer and substantial indemnity costs thereafter.

[17] This is especially so, in light of the manner in which the Plaintiff chose to conduct the litigation which could only have increased the Defendants’costs. As noted above, the Plaintiff’s pleadings and the theory of the case evolved through the course of the litigation. The Defendants had to meet and respond to ever shifting grounds, including alleged partnership, contractual business arrangement, unjust enrichment and constructive trust. Further, as the theory of the case evolved during the trial, so did the damage claim. In addition, a significant amount of time was spent in the cross-examination of Mr. de Haas with respect to issues that were irrelevant and unhelpful.

[18] The Plaintiff did not challenge the hourly rates requested by counsel for the Defendants or the number of hours claimed. The hourly rate claimed for Christopher Reil (a lawyer of 32 years experience) and Jaye Hooper (a lawyer of 12 years experience) fall well within the rates set out in the Ontario Courts Information for the Profession guidelines. The number of hours claimed do not seem excessive, especially in light of the shifting nature of the claim and the length of the trial.

[19] In summary, in determining costs, I have concluded that there should be partial indemnity costs to the date of the Rule 49 offer and substantial indemnity costs thereafter. In determining costs, I am mindful of the factors referred to in Rule 57.01(1), the Information for the Profession, and the case law which directs that a court is to ascertain an amount that is a fair and reasonable sum to be paid by the unsuccessful litigant rather than any exact measure of the actual costs to the successful litigant. In my view it is fair and reasonable in all of the circumstances of this case, that the Plaintiff pay costs in the amount of $63,000.00 for fees plus HST. The Plaintiff shall also pay $378.00 for non taxable disbursements and $6,292.77 for taxable disbursements, plus the HST therein.

The Honourable Madam Justice Polowin

Released: October 9, 2013

COURT FILE NO.: 10-50202
DATE: 20131009

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

PETER LAGEVEEN
Plaintiff

– and –

JOHN DE HAAS and EXPERT HOME EXTERIORS and 1766885 ONTARIO INC.
Defendants

decision on costs

Polowin J.

Released: October 9, 2013