SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: 08-CV-43544 and 08-CV-43188
DATE: 2013/10/08

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Allen-Vanguard Corporation v. Richard L’Abbé et al

BEFORE: Master Macleod

COUNSEL: Eli S. Lederman for Allen Vanguard Corporation

Thomas. G. Conway for the “offeree shareholders”

HEARD: Written submissions on costs

COSTS AWARD

[1] This endorsement deals with the costs of the pleading amendment motion in which Allen-Vanguard was permitted to amend its claim by raising the amount claimed from $40 million to $650 million.[1] I have already awarded costs of the motion to Allen-Vanguard in the amount of $10,000.00 but that was subject to possible set off for costs which might be incurred as a result of the amendment.[2]

[2] The offeree shareholders have asked that I set aside and reconsider the $10,000.00 because the failure to file responding material was inadvertent. They also seek substantial costs consequential on granting of the amendment.

[3] For the reasons set out in paragraph 13 of Allen-Vanguard’s submissions, I am in agreement with the submissions of counsel for Allen-Vanguard that there is no basis to set aside the $10,000.00 costs award. Even if I were to set it aside however and to give full weight to the submissions of the Offeree Shareholders I would arrive at the same conclusion. Allen-Vanguard is entitled to costs of the highly contested motion to amend the pleadings but subject to any countervailing costs that may be awarded as terms of permitting the amendment. Having regard to all of the factors in Rule 57.01 and in the exercise of my discretion under s. 131 of the Courts of Justice Act, the costs of the motion are reasonably fixed at $10,000.00 on a partial indemnity scale.

[4] I turn now to the question of offsetting costs. The offeree shareholders seek an award of $125,000.00 for costs thrown away. I am mindful that the original motion was not argued on the basis of prejudice other than the prejudice which was said to flow from having to respond to an amendment which the offeree shareholders believed to be untenable in fact and at law. Neither I nor RSJ Hackland agreed with this position as we both found the proposed amendment raised an issue which – at a pleadings level – could constitute a triable issue.[3] This was the focus of the motion and of the appeal. There was no evidence put before the court that there would be substantial monetary prejudice.

[5] For this reason, Allen-Vanguard objects to the affidavits put before the court subsequent to the motion. It is argued that the court allowed further submissions on terms to be imposed but did not make an order permitting the offeree shareholders to tender additional evidence. The fact is however that those affidavits are largely speculative. They speak to costs that may be incurred and are lacking in specifics about steps that were taken under the former pleadings that will now be wasted and must be done over. Taken at their highest, those affidavits do not support a finding that there is $125,000.00 in wasted costs. It is not as if the central claims of the plaintiffs have been recast or altered. Nothing has been withdrawn. There is no suggestion that any documents that have been reviewed or produced are now unnecessary nor that any discovery already conducted has been rendered unnecessary.

[6] It is clear from even an extreme case such as King’s Gate Developments Inc. v. Collangelo that the costs to be awarded as a consequence of a pleading amendment are not the costs inherent in defending against the amended claim. Rather it is costs that are wasted by the need to do steps over. In King’s Gate those were the costs of trial preparation. In other cases affidavits of documents must be completely revised and reorganized. But as counsel for Allen-Vanguard points out in this case there have been ongoing production disputes and there remain motions to be argued over privilege and production. There are also further discoveries contemplated and scheduled. While the allegation that purchasing of Med-Eng caused Allen-Vanguard to spiral into insolvency is new and will almost certainly give rise to additional requirements of disclosure and discovery these are not at this point wasted costs but will be costs of the amended action itself. The submissions of the offeree shareholders mingle the costs that will be necessary to respond to the amended claim with costs already incurred that must now be duplicated.

[7] There are some obvious costs that are inherent in having to deal with a greatly enlarged claim for damages at this advanced stage in the litigation. Firstly there was a need to review the original statement of defence and to prepare an amended defence. The offeree shareholders are entitled to compensation for the duplication that would not have been necessary if the action as originally pleaded had included the amendments. More significantly, the defendants had to carefully reconsider their defence strategy, whether the defendants continued to have a community of interest and whether it remained appropriate not to join other parties into the litigation. This is because up until the time of the amendment the damages sought by Allen-Vanguard were fully secured by the escrow fund and created no exposure for the parties beyond the loss of the fund and their exposure for costs. A claim which now seeks to recover the entire purchase price paid for Med-Eng is not a mere difference in quantum but significantly alters the very character of the litigation. There are peculiarities to the structure of this litigation which mean that this change would have required considerable consultation and review of the position of each defendant in respect of the co-defendants and the non party former managers. Clearly this also involves an element of repetition of work done earlier.

[8] As discussed at several case conferences, while there may well be aspects of the claim that were previously canvassed during discoveries or in documentary production, there will now be aspects of the claim that take on enhanced significance. At the very least this has required a review of the importance of points that may not have been pursued previously. Rule 29.2 requires a proportionality assessment be applied to all aspects of discovery and it is conceivable that something considered disproportionate when the claim was against the escrow fund may now have new importance. This evaluation and re-evaluation has occupied the time of the offeree shareholders’ litigation team. The offeree shareholders estimate it will take 5 days to review the productions and they estimate another 5 days of discovery will be needed. While I accept that some of this time is in the nature of a “do over” it is obvious that some of it is simply the cost of responding appropriately to the amended claim. I am not satisfied that the wasted costs – as opposed to the additional costs of contesting the larger claim – have been shown to be anything like the amount claimed but on the other hand the amount is certainly not zero. The volume of documents already produced and the volume of documents over which privilege has been claimed is so high that even the most cursory of reviews and reconsideration will involve substantial costs.

[9] On the evidence properly before the court on the motion and even on the evidence subsequently tendered, the defendants cannot convince the court that there will be $125,000.00 in wasted costs because of these amendments. There have obviously been some. I allow the offeree shareholders 45 hours of time at a blended hourly rate of $275.00 on a partial indemnity scale. This generates an award of $12,375.00. This will be set off against the $10,000.00 previously ordered in favour of Allen-Vanguard with the net effect that Allen-Vanguard is to pay the offeree shareholders $2,375.00.

Master MacLeod

[^1]: 2013 ONSC 1098

[^2]: 2013 ONSC 2526

[^3]: 2013 ONSC 2950