COURT FILE NO.: 11-25007

DATE: 2013-01-30

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: RICHARD ROUSSEAU, Plaintiff

AND:

SCOTIA MORTGAGE CORPORATION, SCOTIA INSURANCE, and CANADA LIFE ASSURANCE, Defendants

BEFORE: The Honourable Mr. Justice Robert B. Reid

COUNSEL:
E. Boschetti, Counsel, for the Plaintiff

D. Smith and D. Elman, Counsel, for the Defendants Scotia Mortgage Corporation and Scotia Insurance

M. Stroh for Lou Ferro personally

No one appearing for Canada Life Assurance

HEARD: November 19, 2012

COSTS ENDORSEMENT

[1] The plaintiff sued Scotia Mortgage Corporation, Scotia Insurance and Canada Life Assurance in this action commenced January 19, 2011. The claim was for negligence, bad faith damages, mental distress damages and punitive damages.

[2] The defendants, Scotia Mortgage Corporation and Scotia Insurance, collectively “the Scotia defendants” brought a summary judgment motion, seeking a dismissal of the action because:

a. it is statute barred under the Limitations Act, 2002[1];

b. it is an abuse of process since it is the second court action brought by the plaintiff on the same facts; and

c. based on findings of fact and law in the first action, the claim is res judicata.

[3] The defendant Canada Life Assurance did not participate in the proceedings and there appears to be a live dispute about whether it was served with the statement of claim. No defence has been filed by it, nor did counsel attend the motion.

[4] The Scotia defendants were successful on all three grounds and as a result, the action was dismissed. Written submissions have been received on the question of costs.

Issues in the Costs Submissions:

[5] The costs submissions involve four issues:

a. Are the Scotia defendants entitled to costs?

b. What is the proper scale of costs?

c. What is the appropriate quantum of costs?

d. Should the costs be payable personally by counsel for the plaintiff?

Background to the Litigation:

[6] The factual basis of the claim began with the plaintiff’s application for a residential mortgage through the Bank of Nova Scotia in 2002. The claim alleges that the bank was acting as agent for Scotia Mortgage Corporation. Representatives of the bank apparently offered creditors’ group insurance to the plaintiff. The insurance was held by the Bank of Nova Scotia with Canada Life including mortgage insurance for the plaintiff payable in the event of the plaintiff's death. Also offered was so-called “health crisis protection” which would cover the plaintiff’s loan balance in the event he suffered specified illness. The plaintiff completed the application for life insurance coverage and declined the health crisis protection. In the claim, it is alleged that the bank and its employees, acting on behalf of Scotia Mortgage Corporation, ought to have advised the plaintiff about the need for disability coverage and failed to do so. Disability coverage was not available as part of the bank's group insurance.

[7] The plaintiff was disabled in a motor vehicle accident that occurred in October 2005.

Prior Action and Summary Judgment Argument:

[8] The previous court action was begun March 20, 2007 between the plaintiff and “Scotia Bank”. The defendant was incorrectly named and should have been Bank of Nova Scotia. The essential facts of that action were the same as those in the current claim, set out above.

[9] Mr. Justice James Ramsay dismissed the prior action on a summary judgment motion on August 2, 2011 and his decision was upheld by the Court of Appeal in a decision issued April 12, 2012. A subsequent application for leave to appeal to the Supreme Court of Canada by the plaintiff was denied.

[10] The plaintiff alleged that in January 2011, during cross examinations on affidavits filed in support of a summary judgment motion in that prior proceeding, he discovered for the first time that a relationship may have existed between the Bank of Nova Scotia, Scotia Mortgage Corporation, Scotia Insurance and Canada Life. The plaintiff wished to explore that relationship to appreciate the various roles undertaken by those entities, in support of his allegation that a duty of care was owed by those parties to the plaintiff. The plaintiff chose not to move to amend his statement of claim in the previous action but to start the second action instead.

[11] I found that the circumstances of the mortgage application, the insurance application and the motor vehicle accident were all well known to the plaintiff at a much earlier date than the commencement of these proceedings. That is demonstrated by the facts alleged in the first statement of claim issued in March 2007.

[12] There is no dispute that the plaintiff was provided with an affidavit of documents by the defendant in the prior action during December 2007. The Schedule A documents in the affidavit of documents fully disclosed the participation of the various parties to the transaction. I agreed with the defendants that by exercising reasonable diligence, the plaintiff could have discovered all the facts necessary to support his current claim from the date that the documentary material was provided. As a result, the commencement of this claim in January 2011 was at least one year out of time.

[13] The plaintiff argued that the statement of claim in this action set out a different duty of care than what was relied on in the first action. He submitted that it would be improper to shut down this action without allowing a full examination of that duty of care applicable to the facts as they may be disclosed. I accept the caution offered by the Supreme Court of Canada in Toronto City v. Canadian Union of Public Employees Local 79[2] where the court indicated that the discretionary remedy arising from abuse of process in order to prevent re-litigation should not be used in circumstances which would create unfairness. I also noted that that doctrine should not typically be used when there are different parties to the litigation. On that latter point, I was satisfied that in both actions, with the exception of the defendant Canada Life, the Bank of Nova Scotia is the actual defendant. In the first claim, the defendant was named as Scotia Bank but the claim was defended by Bank of Nova Scotia. In this action, Scotia Mortgage Corporation appears to be a subsidiary of Bank of Nova Scotia and the action has been defended on that basis. In its statement of defence, the defendants alleged that Scotia Insurance is not a legal entity. However it is clear that the allegations in the statement of claim relate to the mortgage offered through Bank of Nova Scotia and ultimately held by Scotia Mortgage Corporation, and that the insurance applications were offered and processed by Bank of Nova Scotia employees.

[14] I was satisfied that this action is simply a recasting of the same facts as were alleged in the first claim with the proposed addition of a different legal theory of negligence. As such, adopting Justice Sharp's comments in Las Vegas Strip Ltd. v. Toronto (City)[3], the contentions advanced by the plaintiff did not constitute a separate and distinct cause of action. There were no new facts, merely new legal arguments and these could readily have been advanced in the earlier proceeding. To permit the plaintiff to advance them would violate the policies underlying the rules against abuse of process, namely the public interest in finality to litigation and the private interest in being protected from repeat litigation. At paragraph 30 of his judgment, Justice Sharp quoted from the Privy Council in Hoystead v. Commissioner of Taxation[4] as follows:

Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the Court of the legal result either of the construction of the documents or the weight of certain circumstances.

If this were permitted, litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted, and there is abundant authority reiterating that principle.

[15] Based on my previous comments, the parties or their privies with the exception of Canada Life are the same in the two actions. Clearly Scotia Mortgage Corporation and Scotia Insurance (if in fact it exists as a separate entity) are privies of the Bank of Nova Scotia which was the proper defendant in the previous action. Not only was that confirmed by the defendants but in the statement of claim, the plaintiffs allege that the Bank of Nova Scotia was acting as agent for Scotia Mortgage Corporation. Scotia Insurance is identified in the statement of claim as a mortgage insurance intermediary and a wholly-owned subsidiary of the bank.

[16] In his endorsement dismissing the earlier action, Justice Ramsay found that the evidence of the plaintiff and his wife that they thought they had bought disability insurance when they applied for the mortgage loan was not believable. He further found that it was not credible that the plaintiff would have bought disability insurance if it had been offered. Those findings were accepted by the Court of Appeal. In addition, the Court of Appeal noted that the plaintiff acknowledged that he did not have disability insurance at any point prior to obtaining the loan in question from the bank, that there was no evidence that he had intended to apply for disability insurance, that he did not recall asking the bank’s representative about any disability insurance and that the bank representative did not offer disability insurance to its customers at the relevant time. The Court of Appeal added that the record was devoid of any evidence of a reasonable basis for the plaintiff to believe that he had disability insurance with Canada Life as a result of his dealings with the bank.

[17] In my view, those findings of fact would prevent any damages flowing to the plaintiff even if he was successful in establishing a duty of care and a breach of the standard of care arising from the sale of insurance products by the bank employees.

Award of Costs:

[18] The Bank of Nova Scotia seeks costs on a substantial indemnity basis for the motion and the action and an order that payment be made by counsel for the plaintiff personally. The plaintiff responds that any costs should be payable on a partial indemnity basis only and not against counsel personally.

[19] The discretion to award costs under section 131 of the Courts of Justice Act[5] is guided by the factors set out in rule 57.01(1) of the Rules of Civil Procedure[6]. The first consideration is the result in the proceeding and presumptively the successful party receives some portion of its costs from the unsuccessful party.

[20] In this case, the Scotia defendants were entirely successful and there is no reason to make a costs order other than in their favor for both the action and the summary judgment motion.

Scale of Costs:

[21] Although rule 20.06 of the Rules of Civil Procedure[7] gives the court discretion to award costs on a substantial indemnity basis as regards a summary judgment motion, that discretion is to be exercised if a party acted unreasonably by making or responding to the motion or if a party acted in bad faith for the purpose of delay. The Scotia defendants suggest that the plaintiff acted in bad faith in commencing the action itself. I do not consider that to be within the proper ambit of rule 20.06. The rule is focused on ensuring that summary judgment motions are appropriately brought and defended.

[22] There was no rule 49 offer to settle which could attract a substantial indemnity costs award.

[23] Substantial indemnity costs when awarded independently of a relevant rule 49 offer contain an element of penalty. For example, such a costs award was made where one party to the litigation behaved in an abusive manner, brought proceedings wholly devoid of merit, and unnecessarily ran up the costs of the litigation.[8] An award of substantial indemnity costs, or the threat of it, can ideally function as a tool available to the courts to prevent or control frivolous or needless litigation. Making such an award in proper circumstances enhances access to the justice system for other litigants.[9]

[24] Similarly, where the claim made includes allegations of misconduct, high-handed, malicious, arbitrary or highly reprehensible conduct, or other suggestions that call into question the character or reputation of a party, it is to be expected that the claim will be vigorously defended. In addition, if the claims are not substantiated, a substantial indemnity costs award may follow on the theory that such allegations should be discouraged except in appropriate cases[10].

[25] In the statement of claim, the plaintiff alleged that the Scotia defendants were unlicensed insurance brokers, unlawfully arranging for the sale of insurance products. The plaintiff alleged that the Bank of Nova Scotia was doing business illegally in that it was selling mortgage disability insurance without a license even though there was no evidence of mortgage disability insurance being offered. It was alleged that the group insurance offered “was nothing but a cleverly disguised policy of junk insurance” and the plaintiff claimed that he intended to introduce evidence of extensive bank misconduct as regards the sale of financial services.

[26] My conclusion that the action was an abuse of process and that the issues were res judicata, since it was based on the same facts as were alleged in the 2007 action which were dealt with by Justice Ramsay, is relevant to the scale of costs issue. As I noted, the re-litigation of claims is not in the public interest and is to be discouraged. Defendants are entitled to protection as to their own costs and plaintiffs must expect to pay accordingly.

[27] Based on the foregoing, it is appropriate to award costs on a substantial indemnity scale.

Quantum of Costs:

[28] The Scotia defendants seek costs for both the motion and the action in the total amount of $24,949.59 inclusive of HST and disbursements.

[29] The result in the prior action was an award of costs, presumably on a partial indemnity basis in the amount of $25,000. It is reasonable to assume that the plaintiff must have understood that costs could be in that order of magnitude if the matter was unsuccessfully re-litigated. Given the allegations of improper conduct, it would have come as no surprise to the plaintiff to learn that the claim was being aggressively defended.

[30] Although in general I take no exception to the Bill of Costs provided by the Scotia defendants, I do note that a counsel fee of three hours, amounting to $834, for the attendance October 25, 2012 seems unreasonable. The matter was to be argued on October 23 but counsel for the plaintiff was hospitalized that day. The presiding judge ordered the plaintiff to advise the defendants whether counsel would be available October 25 or whether a further adjournment would be sought. That advice was provided within the time contemplated and yet some three hours was spent on October 25, presumably for the purpose of arguing that the further adjournment should be peremptory to the plaintiff. However frustrated the defendants may have been with the plaintiff’s conduct, it seems unreasonable to me that the matter could not have been dealt with in advance on consent. As result, the substantial indemnity costs award will be reduced by $834 plus HST, resulting in a total payable of $24,007.07.

Responsibility for Costs:

[31] Presumptively, the plaintiff should be responsible for the costs award in favor of the Scotia defendants. However, the defendants have submitted that costs should be payable by counsel for the plaintiff personally.

[32] The Scotia defendants argued that the commencement and prosecution of the second action was at counsel's direction. They referred to repeated arguments made by the plaintiff in the first action that he only had a grade 8 education and that as such, he relied on the bank’s advice regarding insurance. By analogy, the Scotia defendants suggest that he must have relied on the advice of his counsel as to the commencement of the second action as opposed to seeking leave to amend the statement of claim in the first action.

[33] The defendants note the provisions of rule 57.07 of the Rules of Civil Procedure[11] which specifically authorize the court to make a costs award against a solicitor where the lawyer has caused costs to be incurred without reasonable cause.

[34] The defendants acknowledge the direction from the Supreme Court of Canada in Young v. Young[12] to the effect that costs are typically awarded as compensation for the successful party, not in order to punish a barrister. As well, that case stands for the principle that courts must be extremely cautious in awarding costs personally against a lawyer, given the duties upon a lawyer to guard the confidentiality of instructions and to bring forward with courage even unpopular causes.

[35] In response, counsel for Lou Ferro (the plaintiff’s lawyer in both actions) submits that any consideration of a personal costs award against the lawyer should be on the basis of the two-part inquiry set out by the Divisional Court in Carleton v. Beaverton Hotel[13]. The first step is to determine whether the lawyer's conduct falls within rule 57.07(1) in the sense of causing costs to be incurred unnecessarily. The second step is to consider, as a matter of discretion and applying the extreme caution principle identified in Young v. Young[14], whether in the circumstances of the particular case the imposition of costs against the lawyer personally is warranted.

[36] I am satisfied as to the first part of the inquiry that, based on the abuse of process and res judicata findings, costs were certainly incurred unnecessarily by way of the commencement and prosecution of a duplicate proceeding.

[37] As to the second part of the inquiry, counsel for Mr. Ferro references the recent Ontario Court of Appeal decision in Galganov v. Russell (Township)[15] to the effect that where the lawyers client has not waived solicitor client privilege, it is very difficult to presume that the lawyer has proceeded without the instructions of his client in taking the steps that are subject to criticism. Clearly it would be unfair to award costs against a lawyer personally when he or she was following the client’s instruction but where that position could not be asserted without breaching solicitor client privilege.

[38] An argument could be made that, in respecting solicitor client privilege, lawyers are able to avoid liability which would otherwise attach to them. However, in this case, I am satisfied that privilege has not been waived and that there is insufficient evidence available to conclude that the steps taken by counsel in prosecuting the second action were without the client’s instruction.

[39] As a result, costs are awarded on a solicitor-client basis, with the adjustment that has been noted and will be payable by the plaintiff to the Scotia defendants.

Reid J.

Date: January 30, 2013