SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: DBDC Spadina Ltd. and Those Corporations Listed on Schedule A Hereto, Applicants

AND:

Norma Walton, Ronauld Walton, The Rose & Thistle Group Ltd. and Eglinton Castle Inc., Respondents

AND:

Those Corporations Listed on Schedule B Hereto, To Be Bound by the Result

BEFORE: D. M. Brown J.

COUNSEL:
P. Griffin and S. Roy, for the Applicants

N. Walton, Respondent in person

H. Cohen, for the remaining Respondents, Ronauld Walton, The Rose & Thistle Group Ltd. and Eglinton Castle Inc.

M. Dunn and J. LaBine, for Schonfeld Inc., Manager and Inspector

J. Simpson, for Harbour Mortgage

D. Jackson and R. Fisher, for Christine DeJong, Michael DeJong, Christine DeJong Medical Professional Corporation, C2M2S Holding Corp. and DeJong Homes Inc.

L. Wallach, for the Handelman/Sorga mortgagees

G. Benchetrit, for the Business Development Bank of Canada

D. Michaud, for Equitable Bank

A. Jackson, for Home Trust Company

J. Marshall, for Firm Capital Credit Corp.

HEARD: July 16, 17 and 18, 2014, with subsequent written submissions filed July 30, 2014 by the Applicants, Respondents and Inspector.

REASONS FOR DECISION - costs

I. Positions of the parties

[1] Pursuant to the directions contained in my August 12 Reasons (2014 ONSC 4644), the parties have filed their cost submissions. As the successful parties, the Applicants seek substantial indemnity costs of their motion and application, together with a similar level of costs in respect of the motion of Ms. Walton which was dismissed. Specifically, the Applicants seek substantial indemnity costs against the Respondents in the amount of $428,968.46, consisting of fees and HST in the amount of $407,202.73, together with disbursements, including HST, totaling $24,184.15.

[2] In her responding submissions Ms. Walton made two main points. First, she submitted that prior offers to settle made by the Respondents justified limiting costs awarded to the partial indemnity scale. Second, Ms. Walton submitted that the effective level of substantial indemnity hourly rates used by the Applicants to calculate their present cost claim was inconsistent with the levels of substantial indemnity hourly rates used by the Applicants and adopted by this Court in previous cost awards.

II. The scale of costs

[3] Let me deal first with Ms. Walton’s submissions regarding the settlement offers. Ms. Walton pointed to offers to settle made by the Respondents on October 10 and December 10, 2013 to pay Dr. Bernstein $98.99 million and $111 million respectively in exchange for the transfer of his equity in the joint portfolio. The October offer promised to pay Dr. Bernstein by April 15, 2014; that offer was made prior to the appointment of the Manager. The December offer, made after the appointment of the Manager, promised to pay Dr. Bernstein by January 31, 2014. Neither offer was made in contemplation of the motions and application heard this past July, and neither offer met the criteria of Rule 49.10(1), both having expired long before the hearing of the application and motions.

[4] The Applicants submitted that the Respondents’ October and December, 2013 offers were not “real offers” for several reasons: (i) the offers contemplated future payments which were uncertain and (ii) the mortgages offered to secure part of the future payments were on properties which lacked adequate equity. The Applicants made some additional points:

In neither case was the source of the funding to repay Dr. Bernstein evident. As the Inspector’s work has made clear (and as Ms. Walton has admitted in her examinations), the Waltons never had sufficient funds to repay Dr. Bernstein. Even using others’ monies to pay Dr. Bernstein would never have funded those offers…

The settlement proposals would have essentially put Dr. Bernstein into the position of an unsecured creditor of the Waltons while they continued to divert assets to prefer the “creditors” they wanted to take care of…

Both offers required Dr. Bernstein to cede any claims he had to the Schedule B Corporations or their assets and resign his position as director and officer of the Schedule B Corporations. Doing so would have left Dr. Bernstein without any control over or recourse to those assets in the face of the only conclusion this court can draw – that the Waltons would have carried on their deceitful conduct.

I accept those submissions of the Applicants; the findings of fact which I made in the August 12 Reasons support such a conclusion.

[5] I conclude that the Applicants are entitled to an award of costs on a substantial indemnity basis. In the August 12 Reasons I found that the Respondents had failed to provide the accounting ordered by this Court last October and had engaged in deceitful and fraudulent conduct. An award of substantial indemnity costs is more than justified on those facts.

III. The quantum of the costs awarded

[6] In considering an award of costs a Court must take into account the factors enumerated under Rule 57, including the time spent, the result achieved, and the complexity of the matter, as well as the application of the principle of proportionality, the practical application of which the Court of Appeal recently described as “cutting the cloth to fit”.[^1] In addition, a Court must consider the principles set forth by the Court of Appeal in Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 14579 (ON CA), 71 O.R. (3rd) 291 (C.A.) and Davies v. Clarington (Municipality) (2009), 2009 ONCA 722, 100 O.R. (3d) 66 (C.A.), specifically that the overall objective of fixing costs is to fix an amount that is fair and reasonable for an unsuccessful party to pay in the particular circumstances, rather than an amount fixed by actual costs incurred by the successful litigant.

[7] In their submissions the Applicants contended that it is not the function of the Court to second-guess successful counsel on the amount of time spent on the case or the allocation of counsel’s time to the tasks at hand unless the time spent was so grossly excessive as to be obvious overkill. With respect, I do not think that is an accurate statement of the current law on costs. The Rules of Civil Procedure require a Court to exercise a supervisory function over the reasonableness of all steps taken by a party and its counsel in a civil proceeding. Rule 1.04(1.1) of the Rules of Civil Procedure - the proportionality rule - specifically provides that in applying the Rules a court “shall make orders and give directions that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding.” That proportionality principle applies to the making of cost awards. Accordingly, the proportionality principle not only enables, but requires, a Court to review the amount of time spent by successful counsel on a case to ensure that any resulting cost award is a proportionate one.

[8] That said, as a practical matter the Court relies heavily upon counsel for the unsuccessful party to provide the evidence and argument which “second guesses” successful counsel on the amount of time spent on a case. Rule 57.01(6) sets out the mechanism by which that should happen on a motion by requiring every party who intends to seek costs for a step in a proceeding to “give to every other party involved in the same step, and bring to the hearing, a costs outline not exceeding three pages in length”. In the Toronto Region that practice is honoured more in the breach than in the observance. As well, in complex cases such as the present one, post-hearing cost submissions may be more practical. Further, in the present case Ms. Walton represented herself, so the type of mirror-image bill of costs which a unsuccessful counsel could prepare was not available. Nevertheless, Winkler J., as he then was, said it best when he observed in Risorto v. State Farm Mutual Automobile Insurance Co. that an attack on the quantum of costs where the court did not have before it the bill of costs of the unsuccessful party “is no more than an attack in the air”.[^2]

[9] I have reviewed the bill of costs submitted by the Applicants and I am satisfied both that the amount of work performed was proportionate to the importance and monetary value of the issues at stake at the July hearing and, as well, that Applicants’ counsel engaged in the appropriate delegation of work to the lowest-cost timekeepers who were qualified to perform the work.

[10] Turning, then, to Ms. Walton’s objection to the effective substantial indemnity hourly rates claimed by the Applicants, in my earlier May 22, 2014 Reasons in this proceeding (2014 ONSC 3145) I stated:

[6] At present no cost grid exists under the Rules of Civil Procedure, but Rule 1.03 defines “substantial indemnity costs” as “costs awarded in an amount that is 1.5 times what would otherwise be awarded in accordance with Part I of Tariff A…” Recent jurisprudence emerging from the Toronto Region Commercial List has calculated substantial indemnity costs by awarding partial indemnity costs “at 60% of the time charged”, then multiplied by 1.5 to arrive at 90% of time charged for an award of substantial indemnity costs.[^3] I adopt and shall apply that method of calculating the substantial indemnity costs 213 is entitled to under section 14 of the Collateral Debenture.

In so doing I followed the approach employed by Newbould J. in his earlier cost awards in this proceeding.

[11] In her submissions Ms. Walton argued that the earlier level of substantial indemnity hourly rates employed by the Court in this proceeding was significantly lower than that claimed by the Applicants for this step of the proceeding and, as a result, she did not expect the quantum of costs now sought by the Applicants. Although the actual billable hourly rates employed by the Applicants has not changed in any material fashion (although they appear to have increased slightly for the firm’s 2014 fiscal year), I do not accept Ms. Walton’s submission that she could not reasonably have expected the Applicants to claim substantial indemnity costs at the level of hourly rates now sought. In his December 9, 2013 Cost Reasons (2013 ONSC 7572), Newbould J. stated, in paragraph 7:

The billing rates or the hours claimed are not questioned by the Respondents, nor could they. Mr. Griffin, who charged his client $910 per hour, a fee quite supportable given his experience and ability, has claimed a substantial indemnity rate of only $525 per hour, based on a partial indemnity rate of $350 per hour. The same can be said for the other persons whose work is being claimed. All the hours claimed are substantially below their actual rates charged, which are all reasonable. Courts have awarded substantial indemnity costs of 90% of actual rates…

[12] It is apparent from this portion of his reasons that Newbould J. would have been more than prepared to award a higher level of substantial indemnity costs at that time, but simply granted those costs actually claimed by the Applicants. That the Applicants did not then claim the level of costs to which they otherwise would have been entitled does not prevent them from now asking for the level which they can reasonably claim. Indeed, the July hearing could well be described as a sort of “main event” hearing at which both sides were requesting, in part, types of final relief and, in those circumstances, I conclude that the substantial indemnity hourly rates claimed by the Applicants are reasonable. I therefore award the Applicants substantial indemnity costs for legal fees, including HST, in the amount of $407,202.73.

[13] As to the Applicants’ claim for $24,184.15 in disbursements, the Respondents made no objection. The disbursements claimed are recoverable in nature and the amounts claimed are reasonable when measured against the Tariff.

[14] I would observe, however, that the amount of $16,201.70 claimed for photocopying, printing and binding in a very real sense was an unnecessary cost imposed upon a litigant by reason of the failure of this Court to move into the digital age. Although the parties in this case most helpfully provided me with electronic copies of all materials filed, the continued requirement that the parties file paper copies of materials with the Ontario Superior Court of Justice imposes an unnecessary cost on litigants who avail themselves of the service of this Court. If our provincial government truly is committed to providing the residents of this province with access to affordable justice, it must remove the very real financial barriers to such access caused by the continued insistence that litigants deal with this Court through the dated and expensive medium of paper.

IV. Summary

[15] For these reasons, I award the Applicants their substantial indemnity costs in the amount of $428,968.46 against the Respondents, and I order the Respondents to pay the Applicants those costs within 30 days of the date of this order.

D. M. Brown J.

Date: September 2, 2014

[^1]: Marcus v. Cochrane, 2014 ONCA 207, para. 15.

[^2]: (2003), 2003 43566 (ON SC), 64 O.R. (3d) 135 (S.C.J.), para. 10, quoted with approval by the Divisional Court in United States of America v. Yemec, 2007 65619 (ON SCDC), para. 54.

[^3]: Stetson Oil & Gas Ltd. v. Stifel Nicolaus Canada Inc., 2013 ONSC 5213, para. 25; George Bozikis/Plasman Investors’ Limited Partnership v. APP Holdings Limited Partnership, 2013 ONSC 6401, paras. 14 and 15.