OTTAWA
COURT FILE NO.: 11-52236
DATE: June 3, 2014
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 1828445 Ontario Ltd., Plaintiff
AND
Pino Guerra, Marilena Guerra, Rosangela Guerra and Ernesto Guerra, Defendants
AND BETWEEN
Pino Guerra, Marilena Guerra, Rosangela Guerra and Ernesto Guerra, Plaintiffs by Counterclaim
AND
472383 Ontario Ltd., 1828445 Ontario Ltd., and Claridge Homes (Centretown) Inc., Defendants by Counterclaim
AND BETWEEN
472383 Ontario Ltd., Third Party Claimant
AND
Subhash Malhotra also known as Bill Malhotra, Neil Malhotra, Jim Burghout and John Doe, Third Parties
BEFORE: The Honourable Mr. Justice Martin James
COUNSEL: Michael Hebert and Cheryl Gerhardt McLuckie, Counsel, for the Plaintiff, the Defendants 1828445 Ontario Ltd. and Claridge Homes, and for the Third Parties Subhash Malholtra, Neil Malhotra, Jim Burghout and John Doe
Chris Moore, for the Defendants and Plaintiffs by Counterclaim, Pino Guerra, Marilena Guerra, Rosangela Guerra and Ernesto Guerra
Stephen Appotive, for the Defendant by Counterclaim and Third Party Claimant 472383 Ontario Ltd
HEARD: Written Submissions
COSTS ENDORSEMENT
James J.
[1] This endorsement follows a successful motion for summary judgment by the defendants dismissing the plaintiff’s action relating to a failed commercial real estate transaction.
[2] The costs issues are complicated, involving numerous parties, various offers to settle and costs claims against non-parties. While the multiplicity of issues could support an extensive treaty on the law of costs, it is appropriate that the matter be dealt with summarily bearing in mind that ultimately the impecunious corporate plaintiff was completely unsuccessful. Rule 57.01(7) directs that the court shall devise and adopt the simplest, least expensive and most expeditious process for fixing costs.
[3] The issues here are closely connected to a separate proceeding. They are differentiated by referring to this action as the 182 action; the other is sometimes referred to as the Claridge Centretown action.
The Costs Claim of the Guerra Defendants
[4] The Guerras have delivered a bill of costs that seeks recovery of costs on a partial indemnity basis totalling $107,793.28 inclusive of disbursements and HST and costs on a substantial indemnity basis of $144,207.42 inclusive of disbursements and HST.
[5] A review of the bill of costs discloses that the Guerras were represented by two lawyers. There are instances where the lawyers provided overlapping services. Examples include the following:
a. Review of Statement of Claim and discussions
Chris Moore (“CM”) 10 hours, Kristi Ross (“KR”) 6.5 hours;
b. Receipt and review of certificate of pending litigation (“CPL”) motion records
CM 3.0 hours, KR 2.0 hours;
c. Discussions re: CPL motions
CM 4.0 hours, KR 8.9 hours;
d. Preparation of responses to CPL motions
CM 10 hours, KR 10 hours;
e. Preparation of motion record for summary judgment motion in the 182 action
CM 15 hours; KR 20 hours.
[6] There are other examples of duplicative services. The engagement of multiple counsel by a single client or single group of clients who share a common interest is not unusual especially where, as here, the facts are relatively complicated, the amount in dispute is substantial and the paper burden is onerous. In the context of party and party assessments, however, the losing (paying) party is entitled to have potentially duplicative costs considered conservatively. There is room for downward adjustment of the costs claim of the Guerra defendants on this basis.
[7] The Guerras delivered an offer to settle at the same time as their statement of defence. It proposed settlement of this action on terms whereby the plaintiff would agree to the dismissal of its claim and pay partial indemnity costs less $100. A $100 reduction of a claim in the circumstances of this case is not a meaningful compromise. They made a second written offer to settle on September 14, 2012 directed at the pending motion for summary dismissal of the plaintiff”s claim. This offer to settle compares favourably with the final result and justifies an enhanced recovery of costs by the Guerras from the plaintiff.
[8] The Guerras also set out various other grounds in support of a generous treatment of costs in their favour. The plaintiff was not successful in its action and there is a reasonable basis to conclude that it initiated and pursued the action as a tactic to gain a financial advantage in a business transaction.
[9] The plaintiff should have known that the cost of failure would be high. Reduction of the costs claim of the Guerras on the basis of proportionality considerations is not a significant factor in the circumstances of this case.
[10] The plaintiff advances several arguments in an effort to reduce the quantum of costs to which the Guerras are entitled. Considering the numerous competing factors, I conclude that the sum of $125,000, all inclusive, is appropriate. They are entitled to more than partial indemnity costs but I have reduced their substantial indemnity claim for the reasons set out above.
The Costs Claim of the Defendant by Counterclaim, 472383 Ontario Limited (“472”)
[11] This party seeks recovery of its legal costs calculated on a full indemnity basis of $116,090.82 from the plaintiff, Neil Malhotra, Subhash “Bill” Malhotra and James Burghout jointly and severally.
[12] 472 claims that a substantial portion of these costs ($94,076.16) is recoverable against Claridge Homes (Centertown) Inc., Claridge Landholdings Inc., and Claridge Homes (Gladstone) Inc., jointly and severally.
[13] 472 can only collect one set of costs but collectability or the lack of collectability from a particular party justifies an examination of i) who is responsible, and ii) for what scale of costs.
[14] The presence of a covenant to indemnify makes the indemnifier liable to pay costs at the highest level, ie. full indemnity costs. 472 relies on the terms of an indemnity and hold harmless agreement that provides as follows:
The Assignee (and/or its officers, directors, representatives or designated investors) also agrees to indemnity and hold harmless the Assignor from any responsibility or legal action that may arise, in any nature whatsoever, as a result of the Assignment and/or the attached Agreements of Purchase & Sale as contained hereof.
[15] With one exception, I do not accept the submission that the indemnity and hold harmless agreement entitles 472 to recover 100 per cent of its legal costs from the assignee, 182 as well as its officers and directors, representatives and designated investors. Firstly, the use of the conjunctive-disjunctive combination of “and/or” is problematic. In the text, Elements of Style, 4th ed (New York: Longman, 1999 at p. 40, Strunk and White refer to this usage as “a device, or shortcut, that damages a sentence and often leads to confusion or ambiguity.” Other commentators have variously referred to it as “inherently ambiguous”, a “linguistic aberration”, and a “verbal monstrosity”. Secondly, the agreement is not signed by any of the other parties 472 seeks to hold liable.
[16] The situation is different for Neil Malhotra. He was a vice-president of 182 and the person who signed the indemnity clause on its behalf. Under certain conditions, a person who signs an agreement as agent for a corporation may also be taken to have signed in some other capacity as well. Here the allegation is that he knew he was acquiring personal liability as well. The following sequence from his cross-examination is instructive:
- Q. Okay? And then it indicates the assignee and/or its officers, directors, representatives or designated investors also agree to indemnify and hold harmless the assignor from any responsibility of legal action that may arise?
A. That’s what it says.
Q. And you agreed with that?
A. Yes. Signed.
[17] Only 182 and Neil Malhotra, jointly and severally, are liable for 472’s full costs.
Who Should be Liable for Costs?
[18] The Guerras and 472 have advanced extensive arguments as to the parties who ought to be liable for costs in addition to 182. This request encompasses Claridge Homes (Centretown) Inc, the owner of the adjacent land at 287 Lisgar Street, Claridge Land Holdings Inc., the proposed purchaser under the 472 agreements of purchase and sale as a trustee and Claridge Homes (Gladstone) Inc., the company that provided the funds for a deposit required from 182. As well they seek costs from three individuals who are associated with the companies.
[19] While various Claridge companies participated in the transaction in some way, it does not automatically follow that they ought to be liable. In my view the Claridge companies’ participation is more incidental than substantial. Instead, the common denominator is Subhash Malholtra. The evidence discloses that he was the controlling force of 182. He was the sole director of the company. He was present when the critical decisions were made. The company had no financial resources; funds required for the deposits under the assignment agreement were provided by others. It did not have a meaningful independent existence. It was his puppet. There is an adequate basis to conclude that he was the alter ego of 182 which was a newly-formed, shell corporation incorporated for the sole purpose of receiving the assignment of the agreements of purchase and sale. I accept the suggestion that he is the real litigant who ought to be liable, jointly and severally, with 182 for the legal costs associated with this proceeding. (See comments of Sharpe J. in Transamerica Life Insurance Co. v. Canada Life Assurance Co., 1996 7979 (ON SC), [1996] O.J. No. 1568 at paras. 20-23). At the same time, there is insufficient evidence to conclude that 182 was a pawn or alter ego of the other Claridge companies.
[20] There is an important point of distinction between Neil Malhotra’s joint liability with 182 and that of his father. Neil Malhotra’s liability is based on his legal obligation, along with 182, to indemnify 472. This creates a requirement to pay 472’s full costs. Subhash Malhotra’s joint liability with 182 arises due to the lifting of the corporate veil. It relates to the costs payable to both the Guerras and 472. This liability is on a different scale. I recognize that there is an argument that if Subhash Malhotra is the alter ego of 182, he should also be liable along with his son Neil for 472’s full costs but contractual issues related to the indemnity complicate this analysis. The issue is moot if 472 is actually able to collect its full costs from either182 or Neil Malhotra.
[21] Regarding the argument that 182 and Subhash Malholtra shouldn’t be liable for 472’s costs because it was the Guerras who brought this company into the lawsuit via their counterclaim, I do not agree. It is not uncommon to review the role of all the participants and fix costs on the person or persons who are found to be ultimately responsible.
[22] It was Mr. Malholtra’s decision to pursue the litigation in an effort to secure a financial advantage. As the action was unsuccessful and is now at an end, it is appropriate that the parties responsible for having launched it be answerable for the cost consequences of having done so.
What is the Appropriate Scale of Costs for 472?
[23] Elevated costs are warranted only in two circumstances. The first is where an offer to settle is in play. The second involves sanction-worthy behavior by the losing party. I agree that substantial indemnity costs in favour of 472 (apart from the covenant to indemnify) are appropriate because:
a. there is good reason to believe that the action was initiated as a tactical measure to secure a commercial advantage. There was an ulterior motive for pursuing the litigation that warrants enhanced recovery of costs by the successful parties;
b. Neil Malholtra, son of Subhash Malholtra, swore an affidavit containing false evidence regarding the plaintiff’s state of knowledge of the presence of environmental contamination.
[24] I have determined that an appropriate amount for substantial indemnity costs in favour of 472 is $93,323.90 inclusive of disbursements and HST.
The Position of 182 and the Claridge Companies
[25] 182 claims costs for:
a) its motion to amend its statement of claim; and,
b) its request to strike portions of an affidavit.
[26] Also, Claridge Homes (Centretown) Inc. claims for the costs of its motion to dismiss the counterclaim.
[27] It is not clear what amounts are claimed for each of these items. Instead these parties have presented a bill of costs for an aggregate amount of $92,874.84 on a partial indemnity basis, $139,602.97 on a substantial indemnity basis and $143,378.07 on a full indemnity basis.
[28] It is remarkable is that the costs claims of all the parties or groups of parties fall within a relatively narrow range. It is common to see very divergent costs claims; that is not the case here. This fact tends to support the view that the quantum of the competing costs claims is realistic. In this case it is more a question of who ought to be liable rather than a dispute regarding what is a reasonable amount.
[29] These parties seek to parse the competing claims with scalpel-like precision. That approach is not warranted and perhaps not realistically possible on the available information.
[30] In my view the joint 182 and Claridge offer to settle of November 21, 2012, which was subsequently revoked, contributes nothing to the just determination of costs and does not provide a basis for re-ordering the costs that any party would otherwise be entitled to.
[31] The third parties who are individual litigants associated with the Claridge companies state that they ought to have their costs of defending the third party claim and 472’s motion for summary judgment on a substantial indemnity basis in the amount of $10,143.26 plus HST plus disbursements in the amount of $727.31 for a total of $12,189.19.
[32] I have determined that one of the third parties, Subhash Malholtra, ought to be liable for costs. It is not unusual for a claimant to include parties against whom it is not ultimately successful yet not be liable to those parties for their costs. That is the case here. If any party ought to be liable for their costs, it should be Subhash Malhotra and 182.
[33] In the result, the following order respecting costs will issue:
[34] The Guerras are entitled to recover costs of $125,000 from 182 and Subhash Malholtra, jointly and severally, inclusive of disbursements and HST.
[35] 472 is entitled to recover costs of $116,090.82 (all inclusive) from 182 and Neil Malhotra. The substantial indemnity portion of these costs, being $93,324.90 (all inclusive), is also payable by Subhash Malholtra, jointly and severally with 182.
[36] The costs claims of 182, Claridge Homes (Centretown) Inc. and the Third Parties are dismissed.
Disposition of the Deposits
[37] In my reasons for decision I ordered that the sum of $50,000 being deposit money in the hands of Coldwell Banker Sarazen Realty be paid into court pending a further order.
[38] I also ordered that $50,000 being additional deposit money in the hands of Primecorp Commercial Realty Inc., be paid into court to the credit of this action.
[39] Mr. Appotive has requested that I remain seized of this matter in order to deal with the disposition of the deposits. It makes sense that I should deal with this because of the complicated fact situation and the time that would be required for another judge to familiarize himself or herself with the issues.
[40] If the parties are unable to agree on how to deal with the deposits or any part of them, I am directing that the parties through their counsel provide written submissions if any issues remain unresolved. The submissions should include information in the source of the deposit, the transaction it relates to, the current holder of the deposit and an indication as to who is entitled to keep it. The submissions are due within 30 days and shall be delivered in accordance with a timetable agreed to by the parties.
Mr. Justice Martin James
DATE RELEASED: June 3, 2014
OTTAWA COURT FILE NO.: 11-52236
DATE: June 3, 2014
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
1828445 ONTARIO LTD.
Plaintiff
--and—
PINO GUERRA, MARILENA GUERRA, ROSANGELA GUERRA, ERNESTO GUERRA
Defendants
AND BETWEEN
PINO GUERRA, MARILENA GUERRA, ROSANGELA GUERRA, ERNESTO GUERRA
Plaintiffs by Counterclaim
--and—
472383 ONTARIO LTD., 1828445 ONTARIO LTD. and CLARIDGE HOMES (CENTRETOWN) INC.
Defendants by Counterclaim
COSTS ENDORSEMENT
Mr. Justice Martin James
DATE RELEASED: June 3, 2014