ONTARIO
SUPERIOR COURT OF JUSTICE
IN THE MATTER OF the Construction Lien Act, R.S.O. 1990, c.C.30
COURT FILE NO.: CV-13-473812
DATE: March 5, 2014
BETWEEN:
MICAHEL SEREBRENNIKOV o/a NEPTUN LIGHT
Mark Wiffen, for the plaintiff,
Tel.: 416-792-3494,
Fax: 647-317-1515;
Email: mark.wiffen@wiffenlaw.ca.
Plaintiff
- and -
POWERUP INC. ELECTRICAL CONTRACTORS and THE GREAT-WEST LIFE ASSURANCE COMPANY
Gregory N. Hemsworth, for the added party, Neptun Distributors,
Tel.: 905-850-7000,
Fax: 905-850-7050,
Email: ghemsworth@csllp.ca.
Defendants
Paul Guaragna, for Powerup Inc. Electrical Contractors,
Tel.: 905-273-3300,
Fax: 905-273-6920
Eamil: pguaragna@pallettvalo.com
HEARD: February 12, 2014.
Master C. Wiebe
COSTS AWARD
I. BACKGROUND:
[1] On February 18, 2014 I issued my ruling on the trial of the issue as to which party is to be paid the money that is owed by Powerup. I found that it should be paid to Neptun Distributors.
[2] As ordered, counsel appeared before me on February 28, 2014 to make submissions on costs, both as to the trial of the issue and as to the whole proceeding. As a preliminary matter, counsel made it clear that, given my judgment, there were now no residual issues in this reference save and except the issue of costs, and that I could issue my report as a “final report,” not as an “interim report.”
[3] There are therefore no residual issues as to the Powerup set-off defence of $6,600.83 (this will be allowed) or as to return of the posted security for costs to Powerup of $36,944.15 and any interest accrued thereon in the hands of the Accountant (this will be allowed as well). The balance of the posted funds, $141,175.77, plus any interest accrued thereon in the hands of the Accountant, will be ordered paid to Neptun Distributors.
[4] There are no residual issues as to validity or invalidity of the Serebrennikov claim for lien. The Serenbrennikov claim for lien will be ruled invalid. Mr. Wiffen confirmed all this in argument.
[5] Once I determine the costs, I will therefore issue a final report.
II. NEPTUN DISTRIBUTOR COSTS:
[6] Mr. Hemsworth submitted a revised Costs Outline for Neptun Distributors. It showed two costs claims: $15,107.93 on a partial indemnity basis; $18,136.33 on a substantial indemnity basis. I was advised that the Costs Outline Mr. Hemsworth delivered to Mr. Wiffen at the conclusion of the trial argument only contained the partial indemnity claim.
[7] All of the time shown on this Costs Outline is that of Mr. Hemsworth. The partial indemnity rate applied is $350/hour; the substantial indemnity rate is $450/hour. Mr. Hemsworth has 36 years of experience as a lawyer. The total number of hours shown for preparation is 26.8 hours. The disbursements shown are $989.85. Counsel fee for the two court attendances (February 12, 2014 and February 28, 2014) is shown as $1,500 for each under both partial and substantial indemnity claims.
[8] There is no time shown in this Costs Outline for activity other than the trial of an issue. Mr. Hemsworth confirmed that Neptun Distributors had no other claims for costs. This makes some sense as Neptun Distributors was not initially a party to this action. It did not deliver pleadings. It only started participating in this reference when Mr. Guarangna notified Mr. Hemsworth of the first trial management conference, and when another lawyer at Mr. Hemsworth’s firm attended at that first trial management conference. I formally joined Neptun Distributors to this action by my order of December 11, 2013.
[9] Mr. Wiffen filed the Costs Outline of Mr. Serebrennikov that he handed to Mr. Hemsworth at the conclusion of the trial argument. It contained only a partial indemnity claim of $10,124.60. It concerned only the trial of an issue. It showed a total number of hours for preparation of 33.4 hours. The rate applied was a partial indemnity rate of $215/hour, with an “actual rate” shown of $350/hour. The counsel fee for court attendance is shown as $1,000. Mr. Wiffen has 9 years of experience as a lawyer. The disbursements are shown as $1,010.07.
[10] There was no issue that Neptun Distributors should be awarded costs as against Mr. Serebrennikov as Neptun Distributors was clearly successful in the trial on an issue.
[11] Mr. Wiffen raised three issues argued concerning Neptun Distributors costs. Firstly, there was the issue of whether I should award substantial indemnity costs as against Mr. Serebrennikov. Mr. Hemsworth argued that I should, as there was clear evidence of conduct on the part of Mr. Serebrennikov, both in the conduct leading up to the action and in the action itself, which should attract the displeasure of the court. He argued that there was evidence that Mr. Serebrennikov behaved in a manner that was reprehensible, as he had intentionally misappropriated funds from his employer, and as he had intentionally misled Powerup and Mr. Nicoletti as to the nature of the contract. Mr. Wiffen argued that the case authority stood for the proposition that the court could take into consideration the conduct of the action itself, not the facts leading up to the action. He also argued that Mr. Serebrennikov showed in any event that he honestly believed in his claim and that he should not be punished by what would be a rare award of substantial indemnity costs.
[12] I have reviewed my judgment and have concluded that an award of substantial indemnity costs is appropriate in this case as against Mr. Serebrennikov, for the following reasons:
• The decision of Justice Nordheimer in Celanese Canada Inc. v. Murray Demotion Corp. 2010 CarswellOnt 4297 at paragraph 24 quotes approvingly from Hunt v. TD Securities Inc. (2003), 2003 3649 (ON CA), 66 O.R.(3d) 481 (Ont.C.A.) as follows: “Solicitor-and-client costs should not be awarded unless there is some form of reprehensible conduct, either in the circumstances giving rise to the cause of action, or in the proceeding, which makes such costs desirable as a form of chastisement.” It is appropriate to consider Mr. Serebrennikov’s conduct, both leading up to the action and in the action.
• There is evidence that Mr. Serebrennikov intentionally misled Powerup as to the nature of the contract. He had no corroboration for his position that he had a meeting with Mr. Talbot wherein he, Mr. Serebrennikov, told Mr. Talbot that the contract was with him. Then, when Powerup produced the deposit cheque made out to Neptun Distributors, Mr. Serebrennikov got Mr. Talbot to change the name by making Mr. Talbot believe that the change was approved by Neptun Distributors, when Mr. Serebrennikov knew it had not. I note that Mr. Serebrennikov did not deliver the Neptun Light invoice until after the deposit money was paid. He deposited the deposit money into his own account. Mr. Serebrennikov further misled Powerup (and others) by then sending correspondence in the name of Neptun Distributors.
• There is evidence that Mr. Serebrennikov intentionally did not disclose this attempt to contract with Powerup and this misappropriation of the deposit money to Mr. Nicoletti. Mr. Serebrennikov stated in cross-examination that Mr. Nicoletti knew or should have known that this was being done. There is no corroboration for this. I found in fact that there was not breakdown in their relationship. Mr. Serebrennikov led Mr. Nicoletti to believe that Mr. Serebrennikov was still working for Neptun Distributors all along. I was struck by Mr. Serebrennikov’s statement in cross-examination that he did not care whether Mr. Nicoletti knew that Mr. Serebrennikov had “contracted” with Powerup.
• This evidence shows that Mr. Serebrennikov did not have an honest belief in his own claim. He would not have resorted to these devious methods had he had such an honest belief. Therefore, I find his conduct indeed reprehensible.
• Mr. Serebrennikov’s conduct of this proceeding also merits the court censure. In the face of letters from Powerup’s lawyer stating that they were holding the remainder of the contract money until the dispute between Mr. Nicoletti and Mr. Serebrennikov was resolved, Mr. Serebrennikov registered a claim for lien and forced Powerup to post the contract money plus security for costs. A less costly alternative was an interpleader for money against which Powerup made no claim and a Small Claims Court action for the relatively small remainder, all secured by the monies being held by Mr. Guaragna. In addition, Mr. Serebrennikov did not name Neptun Distributors as a party, and did not notify Neptun Distributors of the reference proceedings, despite the fact that he knew that Neptun Distributors had started a separate action asserting a claim to the monies Powerup had posted for the Neptun Light claim for lien. He resisted having Mr. Talbot called as a witness. This all shows a propensity on the part of Mr. Serebrennikov both to overreach his position and to avoid appropriate disclosure, all to gain an advantageous result.
[13] The second issue concerned counsel fee. Mr. Wiffen argued that the amount of $1,500 for the counsel fee for the attendance on February 28, 2014 to address costs was too much. This is the same amount as the $1,500 Neptun Distributors claims for counsel for the entire day of the trial of an issue on February 12, 2014. Mr. Wiffen argued that the $1,500 being claimed for the 1 ½ hours of costs submission is excessive and should be reduced to $750. I agree, and will make that adjustment.
[14] The third issue was the hourly rate being claimed by Neptun Distributors for Mr. Hemsworth’s time. The rate is $450/hour. Mr. Wiffen argued, relying on the case of OGT Holdings Ltd. v. Startek Canada Services Ltd. 2010 ONSC 1090, [2010] O.J. No. 762 (Ont. Sup. Crt.) at paragraph 6, that substantial indemnity rates should be no more than 90% of the actual rate charged to the client. He also referred to the decision of Justice Newbould in Stetson Oil & Gas Ltd. v. Stifel Nicolaus Canada Inc. 2013 ONSC 5213, [2013] O.J. No.3702 (Ont. Sup.Crt.) at paragraph 24. Mr. Hemsworth admitted that the $450/hour rate is what he charged his client. Mr. Wiffen argued that the applicable substantial indemnity rate should be $405/hour.
[15] I do not agree with Mr. Wiffen on this point. I notice that in both the OGT and Stetson Oil cases, actual hourly rates for senior counsel were described as being in $650 to $700 range. At these levels the logic urged by Mr. Wiffen would apply. But not when the actual rate is substantially less, namely $450/hour. This level of actual rate is comparable to what the old costs grid would have allowed for substantial indemnity rates for lawyers of Mr. Hemsworth’s experience. Awarding Neptun Distributors 90% of this lower actual rate of $450/hour (namely $405/hour) grants Mr. Serebrennikov a benefit that he could not reasonably have expected given Mr. Hemsworth level of experience, and that he, Mr. Serebrennikov, did not deserve. I therefore accept a substantial indemnity rate of $450/hour.
[16] There were no other issues with the Costs Outline submitted by Neptun Distributors. I therefore award Neptun Distributors costs of this trial of an issue and this action in the total amount of $17,288, which are the substantial indemnity costs claimed by Neptun Distributors less the aforesaid $750 counsel fee and the tax thereon.
III. POWERUP COSTS:
[17] Mr Guaragna filed a Bill of Costs showing claims for costs in favour of Powerup for the entire action. The shown claims were: partial indemnity of $14,164.44 (60% of actual); substantial indemnity of $21,246.66 (90% of actual); full indemnity of $23,607.40 (actual costs). Mr. Guaragna argued that Powerup be given the rare order of full indemnity costs from both Neptun Distributors and Mr. Serebrennikov jointly and severally, to be deducted from the monies to be paid out of court to Neptun Distributors.
[18] Mr. Guaragna’s argument was that Powerup was the entire innocent party in this matter. He submitted the two letters he wrote on January 22, 2013 to both counsel for Neptun Distributors and Neptun Light advising them that he was holding the contract monies of $147,776 “until the dispute with respect to this matter is resolved.” He blamed Neptun Distributors for being responsible for “the arrangement” that led to the dispute it had with Mr. Serebrennikov. He blamed Mr. Serebrennikov for registering its claim for lien in the face of these letters, for then forcing Powerup to defend the lien action, for then forcing Powerup to post the contract monies and security for costs to vacate the Serebrennikov claim for lien, and for then forcing Powerup to attend the trial management conferences and the eventual trial of an issue. Mr. Guaragna argued that had Mr. Serebrennikov sought an interpleader order, he would have arrived at the same result at a fraction of the cost. He claimed full indemnity costs as a costs award pursuant to Construction Lien Act (“CLA”) section 86 and Rule 57.01, and as damages pursuant to CLA section 35.
[19] Concerning the issue of full indemnity recovery, I do not accept that submission. I do not agree that Powerup was entirely the innocent party in this proceeding. It initially raised a set off defence concerning three issues, totaling $17,417. The three issues were the replacement of 39 non-motion fixture ($10,499.97), the replacement of 4 motion sensors ($316.20); and the labour for assembling motion sensors ($6,600.83). The set off defence in the end succeeded only to the extent of one of these items, the labour cost of $6,600.83. It appears, therefore, that some of the set off defence had no merit. I am also not sure as to whether the Neptun Distributors’ agreement to the set off of the $6,600.83 was merely a strategic decision that had nothing to do with the merits of that defence, or the lack thereof. Mr. Serebrennikov never conceded the set off defence. Therefore, I find that Powerup had a stake in this case that was only partially successful.
[20] Furthermore, Powerup was not entirely blameless in Mr. Serebrennikov’s conduct. It made no effort to confirm that the name change on the deposit cheque had the approval of Mr. Nicoletti. A name change is an important step, and Mr. Talbot new of Mr. Nicoletti’s existence. As indicated in Mr. Serebrennikov's affidavit, Powerup confirmed the name change on the deposit cheque when it received a call from its bank at the time Mr. Serebrennikov was getting the cheque certified. Powerup had the opportunity to confirm the name change with Mr. Nicoletti and chose not to do so, which I find to be reckless at best. Had Powerup done so, the issue that is the subject matter of this action could have been dealt with at that point.
[21] Concerning the claimed liability of Neptun Distributors, I do not agree with that submission. Neptun Distributors’ dispute with Mr. Serebrennikov did not seem to be unusual for such a partnership. I was not given enough evidence of the history and functioning of the Neptun Distributors partnership to make a further finding in that regard. Furthermore, I note that Neptun Distributors was as much misled by Mr. Serebrennikov as was Powerup, if not more so. Also, I note that Neptun Distributors did not register a claim for lien and had nothing to do with the lien action until Powerup notified it, Neptun Distributors, of the reference proceedings. Neptun Distributors did commence a separate action naming Powerup and Mr. Serebrennikov as defendants and claiming recovery of the monies posted as security for the Serebrennikov claim for lien, but I was advised that Neptun Distributors was careful not to require a defence from Powerup in that action. It tried to minimize costs. I do not think Neptun Distributors should be liable for Powerup’s costs in this action.
[22] On the other hand, for the reasons stated above, I think that Mr. Serebrennikov should be liable for the costs of Powerup. He misled Mr. Talbot into changing the name on the deposit cheque. He rendered an invoice to Powerup in the wrong name. He registered a claim for lien in his own name, forced Powerup to post security (including security for costs), and did not choose a less costly alternative method to resolve its claim. The claim for lien caused Powerup embarrassment with GWL.
[23] Having said that, I am not prepared to award substantial indemnity costs in favour of Powerup. As stated earlier, Powerup was not an entirely blameless in this action. It asserted a set off and failed to succeed in doing so in part. It was reckless in not confirming the authority behind the name change on the deposit cheque. I believe that a partial indemnity award is more appropriate as a result.
[24] I also agree with Mr. Wiffen that the quantum of the Powerup claim for costs is quite excessive when compared with the costs outlines of the other parties. The 87.5 hours claimed by Powerup is more than 3 times the amount of time claimed by Neptun Distributors and more than 2.5 times the amount of time claimed by Mr. Serebrennikov. There was no discovery or production. Powerup did not prepare any of the affidavits for the trial of an issue, did not participate in the cross-examinations, and had minimal involvement in the trial of an issue other than the preparation of Mr. Talbot for his evidence. On the other hand, Powerup’s Statement of Defence was comprehensive and helpful. It was in the nature of an affidavit. Furthermore, Powerup had to embark upon the motion to vacate the Serebrennikov claim for lien.
[25] Mr. Wiffen submitted that an award of $4,000 to $5,000 was appropriate. This is too low. I must take into consider what I have found to be reprehensible conduct on the part of Mr. Serebrennikov. I will not reduce the Powerup partial indemnity claim by as much as I otherwise would have done as a result. Balancing all the factors, I conclude that Mr. Serebrennikov must pay Powerup $12,000 in partial indemnity costs of this action.
IV. CONCLUSION
[26] I order that Mr. Serenbrennikov pay Neptun Distributors $17,288 in substantial indemnity costs for this action, including the trial of an issue.
[27] I order that Mr. Serebrennikov pay Powerup $12,000 in partial indemnity costs for this action.
[28] In addition, and as part of the reference, I declare that the claim for lien of the plaintiff is invalid, and order it discharged.
[29] I also order that $141,175 of the monies paid into court by Powerup for the benefit of this action, plus interest accrued on that sum, be paid to Neptun Distributors.
[30] I also order that the remainder of the monies in court for the benefit of this action including the posted security for costs, plus interest accrued on that sum, be paid to Powerup.
[31] Finally, I order that Mr. Hemsworth prepare my final report and, after to obtaining the approval of Messrs. Wiffen and Guaragna, submit it by email to my Assistant Trial Coordinator, Al Noronha, for my final review and execution. If there is a disagreement in this regard, a telephone conference call can be organized with me through Mr. Noronha. This all should be done as soon as possible.
MASTER C. WIEBE
Released: March 5, 2014
COURT FILE NO.: CV-13-473812
DATE: March 5, 2014
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Michael Serebrennikov o/a Neptun Light.
Plaintiff
- and -
Powerup Inc. Electrical Contractors and The Great-West Life Assurance Company
Defendants
COSTS AWARD
Master C. Wiebe
Released: March 5, 2014