SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO: CV-09-393452
DATE: 20130129

RE: Circoflex Corporation, Devco Group Inc. and Skylite Residential Inc.
Responding Party/Plaintiffs

• and -

Royal Bank of Canada

Moving Party/Defendant

BEFORE: The Honourable Mr. Justice Robert F. Goldstein

COUNSEL:
Larry J. Levine, Q.C.,
for the Responding Party/Plaintiffs

Rachel Moses,
for the Moving Party/Defendant

HEARD: Written submissions

E N D O R S E M E N T

AS TO COSTS

[1] On December 5, 2012 I granted summary judgment to the Defendant and released my reasons on December 7. See: Circoflex Corp. v. Royal Bank of Canada, [2012] O.J. No. 5866, 2012 ONSC 6971. In my reasons for judgment I invited the parties to make written costs submissions. The following is my endorsement on the issue of costs.

[2] The Defendant submits that costs should follow the event. The Defendant further submits that substantial indemnity costs are appropriate and submits a costs outline for $99,962.82 (including HST and disbursements). Finally the Defendant submits that Mr. Zadeh should be held jointly and severally liable with the Plaintiffs, although he is not a named party. The Defendant does not dispute that costs should follow the event, but argues that the amount of almost $100,000.00 is excessive and that a realistic and proportionate amount, including HST and disbursements, is in the range of $37,500.00.

[3] I agree that the ordinary rule should apply and that costs should follow the event in the absence of a very good reason: Schreiber v. Mulroney, 2007 31754 (ON SC), [2007] O.J. No. 3191 (Sup.Ct.) at para. 2.

[4] Substantial indemnity costs are very much the exception rather than the rule. One of those exceptions exists when there are baseless or unproven allegations of fraud or deceit: Murano v. Bank of Montreal, 1998 5633 (ON CA), [1998] O.J. No. 2897, 41 O.R. (3d) 222 (CA.).

[5] In Manning v. Epp, [2006] O.J. No. 4239, 2006 CarswellOnt 6508 (Sup.Ct.) Lax J. discussed the rationale for an award of substantial indemnity costs where unproven allegations of fraud have been made:

7 Costs on the higher scale can be awarded as a form of chastisement and as a mark of the court's disapproval of a litigant's conduct. This is intended to punish as well as to deter others from engaging in similar conduct. Unproved allegations of fraud frequently attract awards on the higher scale. Unproved allegations of breach of trust, conspiracy, misrepresentation, breach of fiduciary duty, and the like, may also attract this kind of award: Beaver Lumber Co. v. 222044 Ontario Ltd. (1997), 5 C.P.C. (4th) 253 (Ont. Gen. Div.) at p. 256.

8 Cost sanctions are imposed for these kinds of unproved allegations because they are rooted in assertions of dishonesty and deceit and go to the heart of a person's integrity: Bargman v. Rooney (1999), 30 C.P.C. (4th) 259 (Ont. Gen. Div.) at pp. 268-269; Dyer v. Mekinda Snyder Partnership Inc. (1998), 1998 14847 (ON SC), 40 O.R. (3d) 180 (Gen. Div.) and see cases referred to at pp. 184-185. Where serious allegations of dishonest or illegal acts are made, but are so inadequately pleaded that they are not permitted to go forward, costs consequences should likewise follow. These allegations have stood in the public record and over the heads of the defendants. The plaintiffs admitted that the allegations were akin to or as serious as fraud. The allegations were made against public officials in the course of carrying out their public duties. To strike recklessly at the integrity of a person occupying a position of public trust is a serious matter.

[6] It would be unreasonable for the Plaintiffs to expect that they can throw everything, including the kitchen sink (in this case an allegation of fraud) at the Defendant and expect to escape unscathed when the case is dismissed on a summary judgment motion. In this case, I found that there was no evidence of fraud and that, in any event, no particulars of fraud had been set out in the statement of claim. In my view, this is an appropriate case for substantial indemnity costs. The Plaintiffs alleged that the Defendant fraudulently moved the loans to Special Accounts. The evidence showed, however, that not only did the move to Special Accounts not constitute fraud, it likely saved the Plaintiffs from bankruptcy. It also likely saved the principal of the Plaintiff companies, Mr. Zadeh, a considerable amount of money based on the personal guarantees he had given the Defendant.

[7] Turning to the costs sought by the Defendant, the principle to be applied is that the Court should fix an amount that is fair and reasonable: Boucher v. Public Accountants Council for Ontario, 2004 14579 (Ont.C.A.), 71 O.R. (3d) 291, [2004] O.J. No. 2634 (C.A.). The court should also take into account the factors set out in Rule 57.01(1) of the Rules of Civil Procedure.

[8] I have reviewed the costs outline submitted by the Defendant in detail. Although I agree with the Defendant that substantial indemnity costs are appropriate, I also agree with the Plaintiffs that a bill for $100,000.00 for motion that took a half-day, a discovery of Mr. Zadeh that took one day, and the preparation of affidavits (as well as a one-hour discovery of the Defendant’s representative) is excessive, although not outrageous. In my view, taking into account what is fair and reasonable and takes into account the reasonable expectation of the parties, an amount of $75,000.00, inclusive of HST and disbursements, is appropriate.

[9] Thus, I award $75,000.00 to the Defendant, payable within 30 days.

[10] I add that I see no basis for holding Mr. Zadeh jointly liable with the Plaintiffs. I did find that he was the driving force and directing mind behind the Plaintiff. That said, it is a thin basis upon which a court should pierce the corporate veil and I decline to do so.

GOLDSTEIN, J.

DATE: January 29, 2013