ONTARIO

SUPERIOR COURT OF JUSTICE

KINGSTON COURT FILE NO.: CV-13-483-00

DATE: 2014/07/15

BETWEEN:

John McFarland and David Bonham Executors of the Estate of Harvey McFarland

Plaintiffs

– and –

Pauline Spanos, Peter Spanos, and Niadni Inc.

Defendants

R. Bruce Nelson, for the Plaintiffs

Benjamin D. Arkin, for the Defendants

HEARD in KINGSTON: July 12, 2014

DECISION ON COSTS

PHILLIPS J.

[1] This is a complex estate litigation matter with a somewhat tortured history. The parties are back before the court for two reasons. First, the defendants seek costs arising out of the work necessary to have the plaintiffs’ original counsel removed from the record due to conflict of interest. Secondly, the parties need direction regarding whether the defendant’s application for dependant’s relief should be left to the trial or requires a distinct pretrial motion given that it is brought past the relevant limitation period.

Background facts:

[2] This matter concerns the estate of the late Harvey McFarland, a widower with two sons who died on January 15, 2012. While it is difficult to describe their relationship with precision, it would appear that Mr. McFarland and the defendant Ms. Spanos were exceptionally close, arguably spouses of one another. She is 85 years old and is ordinarily resident in both Florida and New Hampshire. He lived in Picton. Nonetheless, they spent quite a bit of time together, especially in his declining years.

[3] About 17 years ago, Mr. McFarland conveyed to Ms. Spanos and her son the sum of $1.3 million. Today, dispute exists as to whether those funds were loaned or gifted. Indeed, this action originated as an effort by Mr. McFarland’s estate to recover that money. Ms. Spanos responded with a claim of her own, asserting gift, a claim for unjust enrichment, proprietary estoppel as a common-law spouse as well as making application under section 58 of the Succession Law Reform Act for dependant’s relief. Importantly, for present purposes, it is noted that her claim in that regard was not made within the limitation period outlined in the legislation thus requiring an extension pursuant to section 61 of the Act.

[4] What complicated matters and brings us to this juncture is that the plaintiffs’ original counsel was present along with Ms. Spanos, the plaintiffs and the deceased in a meeting in a hospital room involving discussions to put his affairs in order. There is now disagreement with respect to the deceased’s position at that time regarding his relationship with Ms. Spanos, his intention to provide for her financially, and the nature of the $1.3 million. Accordingly, as things got litigious after Mr. McFarland’s death, Ms. Spanos came to the view that the plaintiffs’ original counsel had to be removed from the record due to conflict of interest as he was a potential witness.

[5] A flurry of letter writing ensued. Interestingly, in an effort to “keep the temperature down”, the defendant’s counsel repeatedly offered that the plaintiffs’ counsel could stay involved so long as he agreed to settle the matter on terms acceptable to the defendant. Initially, therefore, the defendant’s view that plaintiffs’ counsel had to get off the record was not exactly unequivocal. In any event, plaintiffs’ counsel declined to remove himself from the record, taking the view that the matter was primarily one of enforcement of promissory notes to be resolved by a summary judgment. Eventually, the defendant initiated a motion to have him removed. That motion ultimately proved unnecessary as plaintiffs’ counsel agreed to step aside at essentially the eleventh hour.

[6] The defendant, Ms. Spanos, applies now for the costs she expended in marshaling that motion. She asserts that the intransigence on the plaintiffs’ side regarding the conflict of interest issue caused the entire proceeding to grind to a halt and warrants an award of costs on a substantial indemnity scale.

Issue One - Costs - Legal Principles:

[7] The jurisdiction of this court to award costs is found in s. 131(1) of the Courts of Justice Act, R.S.O. 1990, C. 43:

131(1) Subject to the provisions of an Act or rules of court, the costs of and incidental to a proceeding or a step in a proceeding are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid.

[8] Rule 57.01(1) of the Rules of Civil Procedure sets out the factors for the court to consider on an award of costs:

57.01(1) In exercising its discretion under section 131 of the Courts of Justice Act to award costs, the court may consider, in addition to the result in the proceeding and any offer to settle or to contribute made in writing,

(0.a) the principle of indemnity, including, where applicable, the experience of the lawyer for the party entitled to the costs as well as the rates charged and the hours spent by that lawyer;

(0.b) the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed;

(a) the amount claimed and the amount recovered in the proceeding;

(b) the apportionment of liability;

(c) the complexity of the proceeding;

(d) the importance of the issues;

(e) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding;

(f) whether any step in the proceeding was,

(i) improper, vexatious or unnecessary, or

(ii) taken through negligence, mistake or excessive caution;

(g) a party's denial of or refusal to admit anything that should have been admitted;

(h) whether it is appropriate to award any costs or more than one set of costs where a party,

(i) commenced separate proceedings for claims that should have been made in one proceeding, or

(ii) in defending a proceeding separated unnecessarily from another party in the same interest or defended by a different solicitor; and

(i) any other matter relevant to the question of costs. O. Reg. 627/98

[9] As a general proposition, the successful party is usually entitled to its costs incurred in bringing or defending the action: see Bell Canada v. Olympia and York Developments Ltd. (1994), 1994 239 (ON CA), 17 O.R. (3d) 135 (C.A.). The fixing of costs is not just a mechanical exercise based solely upon calculating of hours and rates. Rather, it involves a consideration of the constellation of factors set out in Rule 57.01 to determine what is appropriate in the circumstances. The overriding objective is to fix costs in an amount that is fair and reasonable for the unsuccessful party to pay in a particular proceeding rather than what the actual costs were of the successful litigant: see Boucher v. Public Accountants Council for the Province of Ontario (2004) 2004 14579 (ON CA), 71 O.R. (3d) 291 (C.A.); Zesta Engineering v. Cloutier (2002), 2002 45084 (ON CA), 164 O.A.C. 234 (C.A.); Moon v. Sher, (2004), 2004 39005 (ON CA), 246 D.L.R. (4th) 440 (C.A.).

[10] In determining the appropriate scale of costs to be awarded, the partial indemnity scale is intended to provide indemnification for costs reasonably incurred in the course of the action. In the usual circumstances, an award of costs on a partial indemnity basis is the appropriate award to impose on the unsuccessful party: see Foulis v. Robinson (1978), 1978 1307 (ON CA), 21 O.R. (2d) 769 (C.A.); Mortimer v. Cameron (1994), 1994 10998 (ON CA), 17 O.R. (3d) 1 (C.A.).

[11] Costs on a substantial indemnity scale are usually reserved for those "rare and exceptional" cases, where the conduct of the party against whom costs is ordered may be considered reprehensible or where there are other special circumstances such as an offer to settle within the meaning of Rule 49.10 that justify costs on the higher scale. An award of costs on a substantial indemnity scale is reserved for special and rare circumstances: see McBride Metal Fabricating Corp. v. H & W Sales Co. (2002), 2002 41899 (ON CA), 59 O.R. (3d) 97 (C.A.).

Analysis:

[12] The defendant seeks some $46,000 in costs arising out of the efforts required to remove the plaintiffs’ original counsel from the record. I have reviewed a detailed account outlining the various steps undertaken to accomplish that objective.

[13] I should make clear that my analysis pertaining to costs is restricted solely to the motion necessary to remove counsel from the record. It is apparent on reviewing the pleadings that the conflict of interest issue had a rippling out effect on the litigation on the whole. In my view, assessing the impact of the conflict of interest dispute on the litigation writ large is a global determination that can only be properly done after a trial judge has assessed all of the evidence and made the ultimate finding. I will leave any costs arising out of the larger fallout from the conflict of interest dispute, therefore, in the cause.

[14] I note that defendant’s counsel practices ordinarily in Toronto at an hourly rate of $385 per hour, along with a senior principal also involved in the file billing at $560 per hour.

[15] The deceased lived in Picton. The action that started all of this was initiated in Kingston.

[16] While no one would call this case a simple matter, there is no reason why out of town counsel were required. While I am sure that her counsel are worth every penny to Ms. Spanos, a costs award here must consider what the plaintiffs ought to have expected to pay in conducting themselves as they did. In my view, it would have been reasonable for them to assume that her costs were roughly the same as theirs - that is, at the general Kingston rate for civil and estate litigation. As an access to justice issue, people should expect to pay legal costs contextualized by the communities in which they live and work. The plaintiffs’ expectation in this regard is valid notwithstanding that they were put on notice that a most impressive sum would be sought by the defendants (communicated via an offer to settle made earlier in the proceedings).

[17] While it is always preferred that counsel cooperate enough to work out disagreements on their own, this is not a case where anyone’s conduct was reprehensible. This was a significant disagreement to be sure, but it needs to be viewed in its context while remembering that it was ultimately resolved without coming to court. In any event, in the unique circumstances of this case, a motion to remove counsel opposite due to conflict of interest would not have been an especially time-consuming or complex motion to bring. The evidentiary foundation was already in the record and no viva voce evidence would have been required. The law in this area is well-established and uncontroversial. Even if hotly contested, the motion should not have taken more than a day. Indeed, the matter was so straightforward that it was ultimately done on consent.

[18] That said, it is the case that the defendant had to expend considerable costs to accomplish a result that was ultimately conceded by the plaintiffs. While the parties were able to resolve this particular part of the dispute, they did not do so until just prior to litigating it. By then, materials undoubtedly had been prepared and significant time was essentially wasted. As well, given the nature and larger ramifications of the conflict of interest issue, it is fair to say that the failure to resolve it in a timely way has delayed the expeditious achievement of justice.

[19] I have considered the circumstances of the case including the nature of the claim made and the conduct on both sides of this discrete part of the larger litigation. In my view, this is not a rare and exceptional case for a costs award on the higher substantial indemnity scale. It is, however, a circumstance where costs should be awarded and I do so, albeit on a partial indemnity basis. I have considered the criteria outlined in section 57.01 of the Rules of Civil Procedure along with the account submitted by the defendant. I conclude that a fair and reasonable result in the circumstances is that costs specific to the issue of removing the plaintiffs original counsel be fixed in the amount of $15,000 inclusive of disbursements and taxes, payable by the plaintiffs within 30 days.

Issue Two: Timing of Application for Extension of Time for Dependant’s Relief Claim

[20] Under section 61(1) of the Succession Law Reform Act, an application for dependant’s support must be brought within six months from the grant of probate. However, under section 61(2):

The court, if it considers it proper, may allow an application to be made at any time as to any portion of the estate remaining undistributed at the date of the application.

Succession Law Reform Act, R. S.O. 1990, c.S.26, s.61.

[21] The discretion to extend the time, “should be exercised judicially in a broad and liberal manner” (see: Blatchford (Litigation guardian of) v. Blatchford Estate, 1999 15091 (ONSC) at para 22).

[22] Blatchford Estate goes on to explain that the court will consider all of the relevant facts in determining whether to exercise the discretion to extend the time:

[29] There is broad discretion under s. 61(2) of the SLRA authorizing a court, if it considers it proper, to allow an application to be made as to any undistributed portion of the estate. That decision must involve a consideration of the delay and any prejudice to the defendant...

[31] The respondent’s argument under section 61(2) is construed so that the subsection has the meaning that an applicant for an extension of time a show good cause as to why the application was not made within six months. In my opinion, this is not the statutory intent. The discretion to extend or to refuse to extend the time limit is to be exercised having regard to what is equitable as between the parties concerned in all the circumstances of the particular case. The existence of a satisfactory reason for delay in applying may be a circumstance to be considered, but delay is not the sole consideration upon which an extension of time is to be granted or refused. Where, as in the case at bar, the applicant has been living in isolated existence in a foreign jurisdiction, unaware of Canadian law and his rights, it is in equitable to refuse to extend the time period. The respondent has not demonstrated that the assets of the estate will be prejudicially affected by remaining undisturbed in the hands of the executrix pending the disposition of the application on the merits.

Ibid. at paras 29 and 31.

[23] Put another way, the discretion to extend or to refuse to extend the time is to be exercised having regard to what is equitable as between the parties concerned in all the circumstances of the particular case (see: B. (J.D.D.) (Litigation Guardian of) v. G. (J.E.) (1999), Carswell Ontario 3204).

[24] While it is not directly applicable to this case, the recent Supreme Court of Canada summary judgment decision of Hryniak v. Mauldin, [2014] SCC 7, springs to mind. That case encourages somewhat of a culture shift toward streamlining the judicial process so as to allow decisions to be made on the most efficient and cost effective basis. This approach is, of course, nothing new in a general sense - it is what is called for by Rule 1.04(1) of the Rules of Civil Procedure.

[25] I note that Ms. Spanos has brought claims founded in unjust enrichment, proprietary estoppel, and equitable and legal set off. These claims were brought within the applicable two-year limitation period and will proceed to trial. The facts and issues in these claims overlap with the facts and issues in the dependant’s support claim. I agree that it would be a waste of time to have a separate hearing for leave to bring the dependant’s support claim when the same facts and issues will be addressed at trial in any event. A bifurcated procedure would not be the most expeditious and least expensive method for determination of the issues, a consideration that affects both the parties specifically and the administration of justice generally.

[26] I conclude that it would be in the best interests of the parties, the administration of justice, and the fair disposition of this case, that the application for leave for the defendant to bring her dependant’s support claim be heard at the same time as the trial of the remainder of the issues and not as a distinct pretrial motion.

[27] There will be no further costs with respect to this motion.

Justice Kevin B. Phillips

Released: July 15, 2014

KINGSTON COURT FILE NO.: CV-13-483-00

DATE:
DATE: 2014/07/15

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

John McFarland and David Bonham Executors of the Estate of Harvey McFarland

Plaintiffs

– and –

Pauline Spanos, Peter Spanos, and Niadni Inc.

Defendants

REASONS FOR JUDGMENT

PHILLIPS J.

Released: July 15, 2014