SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-12-466156
HEARING DATE: NOVEMBER 5, 2013

RE: V. Vinokur Foundation in Support of Culture and Arts v. Mark Lathem, Litigation Administrator for the Estate of Oleg Fraev, Vladislav Moskalev and Snowview Bancorp Inc.

BEFORE: MASTER R. A. MUIR

COUNSEL:
Albert Formosa and Rachel Goldenberg for the plaintiff

David Taub and Barbara Green for the defendant Snowview Bancorp Inc.

Tim Gleason, counsel to the lawyers for the plaintiff

E N D O R S E M E N T

[1] The defendant Snowview Bancorp Inc. (“Snowview”) asks for its costs of this action. Snowview seeks approximately $100,000.00 on a full indemnity basis payable by the plaintiff and the plaintiff’s lawyers (“WeirFoulds”) on a joint and several basis.

[2] The background to this action is set out in my decision on the defendants’ security for costs motions dated January 31, 2013.[^1] Paragraphs 4-7 of that decision read as follows:

4 The plaintiff is a not for profit corporation located in Russia. It has no assets in Ontario or elsewhere in Canada.

5 The defendant Mark Lathem, Litigation Administrator for the Estate of Oleg Fraev (the "Estate") is the owner of a property located at 59 Anglewood Court in Vaughan, Ontario (the "Property").

6 Moskalev lives in Vaughan, Ontario. In 2011 he was appointed Chairman of the Board of Trustees of the plaintiff. The plaintiff alleges that between December 2011 and August 2012, Moskalev fraudulently misappropriated more than $3,700,000.00 from the plaintiff. The plaintiff further alleges that Moskalev used a portion of the misappropriated funds as consideration for the transfer of a mortgage registered against title to the Property from the Toronto-Dominion Bank ("TD Bank") to himself. The plaintiff goes on to allege that on the same day as the mortgage was transferred from TD Bank to Moskalev, it was transferred again to the defendant Snowview, for no consideration or for inadequate consideration. Although the statement of claim does not specifically allege fraud on the part of Snowview, it can certainly be inferred from the allegation that it has obtained the benefit of the mortgage for inadequate consideration and the plaintiff's demand that the mortgage be transferred to it. The defendants deny these allegations.

7 This action was commenced on October 24, 2012. On the same day, the plaintiff brought a motion without notice to obtain an order granting it leave to issue a certificate of pending litigation ("CPL") over the Property. That motion was granted by Master Graham and the CPL was issued on November 14, 2012.

[3] After the plaintiff’s certificate of pending litigation (“CPL”) was registered, Snowview brought a motion to discharge the CPL. Motion records were exchanged between the parties. Several court attendances were necessary. However, the motion itself was never fully argued on an opposed basis. Ultimately, the parties agreed to an order discharging the CPL, along with summary judgment dismissing this action against Snowview. The costs Snowview is seeking arise primarily from its motion to discharge the CPL but also include other costs of the action such as the preparation of its statement of defence and the limited material necessary for its summary judgment motion.

[4] The court’s general authority to award costs as between parties to litigation is found in section 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43, which provides that costs are in the discretion of the court. Rule 57.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”) sets out a non-exhaustive list of factors the court is to consider when awarding costs. Rule 1.04(1.1) is also applicable. It requires the court in applying the Rules to make orders that are proportionate to the importance and complexity of the issues and to the amount involved in the proceeding. In general terms, the overall objective for the court is to fix an amount that is fair and reasonable for the unsuccessful party who generally must pay the costs of the successful party. See Zesta Engineering Ltd. v. Cloutier, 2002 25577 (ON CA), [2002] O.J. No. 4495 (C.A.) at paragraph 4 and Boucher v. Public Accountants Council for the Province of Ontario, 2004 14579 (ON CA), [2004] O.J. No. 2634 (C.A.) at paragraph 26. In Clarington (Municipality) v. Blue Circle Canada Inc., 2009 ONCA 722 the Court of Appeal stated as follows at paragraph 52:

Rather than engage in a purely mathematical exercise, the judge awarding costs should reflect on what the court views as a reasonable amount that should be paid by the unsuccessful party rather than any exact measure of the actual costs of the successful litigant

[5] It is also important to note that costs on an elevated scale are awarded only sparingly. Apart from the operation of Rule 49, substantial indemnity or full indemnity costs should only be ordered on the basis of a clear finding of reprehensible conduct on the part of the party against whom the costs order is made. See Clarington at paragraph 40.

[6] Costs orders against a party’s lawyer are even less common. Rule 57.07 permits the court to make an order for costs against a lawyer where the lawyer has caused costs to be incurred without reasonable cause or to be wasted by undue delay, negligence or other default. The test is set out in Galganov v. Russell (Township), 2012 ONCA 410 at paragraphs 17-22. The court must first determine whether the lawyer’s conduct falls within the general ambit of the rule in the sense that the costs were incurred or wasted unnecessarily and without reasonable cause. See Galganov at paragraph 18. Second, the court must determine as a matter of discretion whether the personal costs order is warranted in the circumstances of each particular case. See Galganov at paragraph 22.

[7] However, courts must be extremely cautious in awarding costs personally against a lawyer. The court’s power under Rule 57.07 must be exercised with the utmost care and only in the clearest of cases and not simply because the conduct of the lawyer may appear to fall within the circumstances described in the Rule. See Young v. Young, 1993 34 (SCC), [1993] 4 S.C.R. 3 at paragraph 254 and Galganov at paragraph 22.

[8] I have carefully considered the evidence before the court along with the submissions of the parties and counsel to WeirFoulds. In my view, the facts of this case do not support an award of costs against WeirFoulds personally or an award of costs against the plaintiff on an elevated scale.

[9] Obviously, Snowview has been successful in this action and is entitled to an award of costs. The allegations made against it by the plaintiff proved to be unfounded. I see no reason to depart from the usual practice of awarding costs to the successful party. However, I see nothing in the conduct of the plaintiff that could be described as reprehensible or otherwise justifying an elevated costs order. In my view, it was not unreasonable for the plaintiff to have included Snowview in its claim, given the timing of Snowview’s purchase of the TD Bank mortgage and the underlying allegations regarding the conduct of the defendant Vladislav Moskalev (“Moskalev”). It is also important to note that the plaintiff withdrew its allegations against Snowview very soon after receiving satisfactory evidence establishing the legitimacy of the Snowview purchase of the TD mortgage. This is not a case where a plaintiff blindly pursued unsupported allegations of fraud all the way to trial. This action was dismissed against Snowview, without opposition from the plaintiff, seven months after it was commenced. In my view, partial indemnity costs are appropriate in the circumstances.

[10] I also see nothing in the conduct of WeirFoulds or Ms. Chaytor that would bring this matter within the ambit of Rule 57.07. As I stated above, it was reasonable to include Snowview in the claim given the timing of the mortgage transactions and Moskalev’s alleged conduct. It is also important to note that Ms. Chaytor was dealing with a client located in Russia who needed sophisticated legal assistance on very short notice. The plaintiff had a legitimate concern that the underlying property would be sold imminently and the plaintiff would then lose any potential for recovery on its claim. The CPL materials were not perfect. The evidence before Master Graham could have been more complete and perhaps more explicit and detailed with respect to the nature of the allegations being made against Snowview. However, perfection is not the applicable standard. The test is reasonableness. I see nothing in Ms. Chaytor’s conduct that could be described as unreasonable in the circumstances that obtained at the time the CPL motion was brought.

[11] Moreover, it is my view that Ms. Chaytor was at all times willing to meet with counsel for Snowview to review Snowview’s records with a view to assessing the strength of the plaintiff’s case against Snowview. It was Snowview who insisted that Ms. Chaytor not share with her client any of the information she obtained from such meetings. Only in extraordinary circumstances should a lawyer be prevented from sharing evidence with her client. Such circumstances were not present here as is evidenced by the fact that Snowview ultimately agreed to provide the necessary information and documents without any form of confidentiality order. Shortly after it did so, this matter was resolved.

[12] I therefore see no basis for making such an extraordinary order. There shall be no costs order against WeirFoulds.

[13] I have already dealt with the appropriate quantum for a partial indemnity costs order as part of my reasons for decision on Snowview’s security for costs motion.[^2] Little has changed since that decision. If anything, the costs should be somewhat less given that Snowview’s motion to discharge the CPL was never argued on an opposed basis. I determined those costs to be approximately $35,000.00 assuming a one day hearing. As Snowview’s motion was never argued, it is my view that $35,000.00 constitutes a fair and reasonable costs order for the action as a whole. By comparison, I note that I awarded Moskalev partial indemnity costs for his motion to discharge the plaintiff’s CPL in the amount of $10,000.00.

[14] I therefore order that the plaintiff pay Snowview’s costs of this action on a partial indemnity basis fixed in the amount of $35,000.00, inclusive of HST and disbursements. These costs shall be paid from funds paid into court pursuant to my earlier security for costs order. The relief against WeirFoulds is dismissed. If the parties are unable to resolve the issue of the costs arising from this costs hearing, they may make brief submissions in writing by no later than December 6, 2013.

Master R. A. Muir

DATE: November 19, 2013

[^1]: Reported at 2013 ONSC 733

[^2]: See my decision of January 31, 2013 at paragraphs 22 and 23.