Court File and Parties

COURT FILE NO.: 11-4922SR

DATE: 2014/09/23

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: JONES FEED MILLS LTD., Plaintiff/Defendant to the Counterclaim

AND:

MAXWELL RAIVIO, Defendant/Plaintiff by Counterclaim

BEFORE: The Honourable Justice D.A. Broad

COUNSEL:
Wayne F. McCormick, for the Plaintiff in respect of Main Action

James D. Bromily for the Plaintiff/ Defendant to the Counterclaim

Donald R. Good, for the Defendant/ Plaintiff by Counterclaim

COSTS ENDORSEMENT

[1] The parties have now delivered their submissions on costs as directed in my Reasons for Judgment released July 21, 2014. The following is my disposition with respect to the costs of the action and the counterclaim.

Costs of the Main Action

[2] Mr. McCormick acted for the plaintiff in respect of the main action and seeks costs on a partial indemnity basis to October 25, 2012 when the plaintiff served an Offer to Settle pursuant to rule 49.02(1) of the Rules of Civil Procedure, and substantial indemnity costs thereafter. The plaintiff's Offer to Settle provided for payment by the defendant of $25,000 plus pre-judgment interest in accordance with the Courts of Justice Act R.S.O. 1990, c. C.43 and costs of the main action on a partial indemnity scale. Mr. McCormick submits that rule 49.10 is applicable on the basis that the plaintiff obtained a judgment as favorable as or more favorable than the terms of the Offer to Settle, and that the offer was made at least seven days before the commencement of the hearing and was not withdrawn or expire before the commencement of the hearing. The plaintiff recovered judgment against the defendant on the main action in the sum of $26,079.08 plus prejudgment interest in accordance with the Courts of Justice Act.

[3] Mr. McCormick claims fees on a partial indemnity rate of $2,136 comprising 14.88 hours of lawyers' time to the date of the Offer to Settle and fees at a substantial indemnity rate of $2,238 comprising 8.9 hours of lawyers' time thereafter. He also claims disbursements of $2,371.20 and applicable GST and HST on the fees and taxable disbursements. The total amount claimed in respect of fees, disbursement and tax is the sum of $5,885.75.

[4] Mr. Good, in his response, consented to the costs claimed by Mr. McCormick on behalf of the plaintiff in respect of the main action in the total sum of $5,885.75.

[5] I find that the costs claimed by the plaintiff in respect of the main action are well within the range of what the defendant could have expected the costs to be. The fee component on a partial indemnity basis represents less than 15% of the plaintiff’s claim. The hours spent are reasonable and junior lawyers, with lower hourly rates, were appropriately utilized to conduct examinations for discovery and legal research.

[6] I see no reason to depart from the application of rule 49.10 to award to the plaintiff substantial indemnity costs from and after service of its Offer to Settle.

[7] The plaintiff is therefore entitled to costs in respect of the main action in the sum of $5,885.75, as claimed.

Costs of the Counterclaim

[8] In respect of the counterclaim, Mr. Bromily seeks costs on a substantial indemnity scale in the sum of $135,854.59 for fees, inclusive of GST and HST and $57,704.97 for disbursements, inclusive of GST and HST. In the alternative, Mr. Bromily seeks an award of costs on a partial indemnity basis in the sum of $81,512.77 for fees and $57,704.97 for disbursements, both inclusive of applicable taxes.

(a) Effect of Offers to Settle

[9] In support of his submission that costs should be awarded to the defendant in respect of the counterclaim on a substantial indemnity basis Mr. Bromily points to two Offers to Settle which his office served on counsel for the plaintiff.

[10] The first Offer to Settle was dated July 14, 2010 in reference to both the main action and the counterclaim and called for the defendant to pay to the plaintiff in respect of the main action $15,000 inclusive of interest and costs and for dismissal of the counterclaim. The July 14, 2010 Offer to Settle was open for acceptance until August 4, 2010 and was not renewed.

[11] The second Offer to Settle was dated November 25, 2011 and remained open for acceptance until commencement of the trial and provided for dismissal of the counterclaim and for the defendant to pay to the plaintiff costs on a partial indemnity basis referable to the defence of the counterclaim only.

[12] With respect to the first Offer to Settle dated July 14, 2010, rule 49.10 has no application as the offer by its terms expired before the commencement of the trial. Although rule 49.13 permits the court to take into account any offer to settle made in writing in the exercise of its discretion respecting costs, limits have been placed around its application by the authorities.

[13] In the case of Schwark v. Cutting (2010), 2010 ONCA 299, 57 E.T.R. (3d) 1 (C.A.) the Court of Appeal stated as follows:

This court has recently considered the interplay of s. 131 of The Courts of Justice Act, rule 49.10 and rule 49.13. In Davies v. Clarington (Municipality) (2009), 2009 ONCA 722, 312 D.L.R. (4th) 278 (Ont. C.A.) at para. 40, Epstein J.A. writing for this court stated:

In summary while fixing costs is a discretionary exercise, attracting a high level of deference, it must be on a principled basis. The judicial discretion under rules 49.13 and 57.01 is not so broad as to permit a fundamental change to the law that governs the award of an elevated level of costs. Apart from the operation of rule 49.10, elevated costs should only be awarded on a clear finding of reprehensible conduct on the part of the party against which the cost award is being made. As Austin J.A. established in Scapillati, Strasser should be interpreted to fit within this framework - as a case where the trial judge implicitly found such egregious behaviour, deserving of sanction.

[14] There is no basis for a finding of reprehensible conduct on the part of the plaintiff in the present case which would justify an award of elevated costs against him through the application of a discretion under rule 49.13.

[15] In my view, the defendant’s second Offer to Settle calling for dismissal of the counterclaim with costs, would not attract an award of substantial indemnity costs, absent some conduct of the Plaintiff in the prosecution of the action which would justify the imposition of a sanction by the Court through an award of costs, which I have found was not present.

[16] I adopt the reasoning of Justice Taylor in the case of Smith v. Hayden, [2009] O.J. No. 814 at para. 6, that, although defendants should be encouraged to make reasonable Offers to Settle and should be rewarded with an award of substantial indemnity costs following the date of the offer if the action is ultimately dismissed, the offer should be a substantial offer in order to attract such consideration.

[17] Mr. Good, in his submissions, acknowledges that costs of the counterclaim should follow the event and that the plaintiff is therefore entitled to the costs of defending the counterclaim on a partial indemnity basis. I agree, as I have found no reprehensible or blameworthy conduct of the plaintiff in the prosecution of the counterclaim. I therefore turn now to a consideration of the plaintiff’s claim for costs, to be fixed on a partial indemnity basis.

(b) Partial Indemnity Costs

(i) Guiding Principles

[18] The factors to be considered by the Court, in the exercise of its discretion on costs, are set forth in sub rule 57.01(1), including, the principle of indemnity and the amount of costs that an unsuccessful party could reasonably expect to pay.

[19] The Court of Appeal has observed that modern costs of rules are designed to foster three fundamental purposes: (1) to indemnify successful litigants for the cost of litigation; (2) to encourage settlements; and (3) to discourage and sanction inappropriate behavior by litigants (see Fong v. Chan (1999) O.J. No. 3707 (CA) at para. 24).

[20] It is well known that the overall objective in dealing with costs is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular circumstances of the case, rather than an amount fixed by the actual costs incurred by the successful party. The expectation of the parties concerning the quantum of costs is a relevant factor to consider. The Court is required to consider what is "fair and reasonable" having regard to what the losing party could have expected the costs to be (see Boucher v. Public Accountants Council (Ontario) (2004) 2004 14579 (ON CA), O.J. No. 2634 (C.A.) at para. 26 and Coldmatic Refrigerator of Canada Ltd. v. Leveltek Processing LLC 2005 1042 (ON CA), [2005] O.J. No. 160 (C.A.)).

[21] Armstrong, J.A. in Boucher cast the overriding principle of reasonableness as an access to justice issue. At para 37 he stated as follows:

The failure to refer, in assessing costs, to the overriding principle of reasonableness, can produce a result that is contrary to the fundamental objective of access to justice. The costs system is incorporated into the Rules of Civil Procedure, which exist to facilitate access to justice. There are obviously cases where the prospect of an award of costs against the losing party will operate as a reality check for the litigant and assist in discouraging frivolous or unnecessary litigation. However, in my view, the chilling effect of a costs award of the magnitude of the award in this case generally exceeds any fair and reasonable expectation of the parties.

[22] The Court of Appeal in the recent case of Marcus v. Cochrane 2014 ONCA 207 recently reaffirmed that the application of the principle of proportionality in making sound costs awards is fundamental to the health of our system of justice. Goudge, J.A. put it this way at para. 15:

In fixing those costs, it is important to remember that the dispute was essentially about a claim for approximately $80,000. The partial indemnity bill of costs of appellant's counsel Mr. Marks was $172,645.55. The full indemnity bill of costs of the respondents was $160,706.99. The comparison of what this dispute was about and what was spent on it is stark and difficult to justify. While undoubtedly Mr. Marks, as counsel asserting the claim, must bear the greater responsibility, the principle of proportionality which is fundamental to any sound costs award cries out for application by both counsel. With the assistance and indeed the direction of the trial judge if need be, counsel simply must cut the cloth to fit. The health of the justice system depends on it. Trial costs cannot serve as an incentive to look away from this important challenge.

(ii) Analysis

[23] The plaintiff/defendant to the counterclaim submits that the following factors should be considered pursuant to rule 57.01:

• the subject matter was vitally important to Jones Feed as a large-scale commercial feed supplier;

• a team approach was used in defending the counterclaim up to trial to achieve the most efficient use of time and money;

• the defendant advanced the counterclaim after being sued for unpaid invoices and evidence adduced at trial indicated that he had used this tactic previously when confronted with an action for unpaid invoices;

• the counterclaim sought damages totaling $85,000 plus costs and interest;

• the defendant was completely unsuccessful at trial in his counterclaim and his damages were assessed at $13,950, which was within the jurisdiction of the Small Claims Court

[24] The plaintiff also pointed out that the trial was originally scheduled to start in September 2013 but was not reached and was subsequently adjourned to the sittings in June, 2014 which led to duplication of preparation time.

[25] The defendant argues that the costs claimed by the plaintiff in defending the counterclaim are exorbitant and not proportional to the amount in issue. He does not take issue with certain items set forth in the Bill of Costs of the defendant/plaintiff by counterclaim, but does take issue with the time attributed to the following tasks:

• file review, document review communication, internal and external, communication with client, meeting with client and correspondence;

• instructions re: retainer of expert witnesses, communications with and correspondence to expert witnesses, meetings with expert witnesses;

• miscellaneous trial preparation

[26] The defendant also takes issue with four of the requested disbursements, namely:

• the report and trial fee of the plaintiff's damages expert;

• the expert fee of Dr. Trevor Smith which greatly exceeds the amount charged by the defendant's own expert;

• the expert fee of the Bossy Nagy Group respecting government agricultural stabilization programs on the issue of mitigation;

• the expert fee of Meghan Hewitt who was not qualified as an expert but was a lay witness

[27] The submission of the defendant that the time spent by counsel for the plaintiff in reference to the counterclaim was excessive and not proportional to the amount in issue must be balanced against the nature of the issues advanced in the counterclaim and the importance of the issues to the plaintiff in respect of the potential impact on its business reputation. The counterclaim involved highly technical and scientific issues. The case mounted by the defendant was supported by the expert evidence of a highly qualified and respected expert. It was reasonable for the plaintiff to respond in kind by retaining an equally qualified and respected expert to provide evidence to the court on the complex and difficult issues raised by the counterclaim. The amount in issue is of course a very important factor for the court to consider in applying the principle of proportionality, and in the typical case, may be the only factor for consideration. However it may not be the only factor in less typical cases. The nature of the issues, particularly where they are complex and technical nature, and the importance of the matter to the parties may also be relevant considerations.

[28] The court is hampered in the present case, in gauging the reasonable expectations of the defendant respecting his potential liability for costs if unsuccessful on the counterclaim, by the absence of a Bill of Costs or Costs Outline detailing the time spent by his counsel. In short, it is difficult for the defendant to argue that the time spent by counsel for the plaintiff for preparation was "exorbitant" where no information was presented respecting the amount of preparation time expended by his own counsel.

[29] It is not necessary for the court to carry out a line by line analysis of the time expended by counsel for the party entitled to costs or to embark upon a precise mathematical calculation based upon the actual costs incurred, as supported by time dockets. Rather the court should take a holistic approach in determining what is fair, reasonable and proportional in the circumstances of the particular case, with the actual costs incurred being a relevant factor and point of reference.

[30] In the present case, the fees claimed on a partial indemnity basis are $72,927 plus applicable taxes, totalling $81,512.77. In the exercise of my discretion, in application of the principle set forth above, I would set the fee portion at $60,000 and estimate the applicable taxes, given that a small portion of the fees were incurred prior to the introduction of the HST, with the majority after, at $7,000 for a total of $67,000 in respect of fees, inclusive of taxes.

[31] I would not allow the expert fee and report of the Bossy Nagy Group as being unnecessary, given that the plaintiff abandoned the argument that the government subsidy received by the defendant represented mitigation of his damages. This amount represents $4,254.45. I would also not allow the claimed expert fee of Meghan Hewitt. Although her evidence was very helpful, it represented fact evidence and she was not qualified at trial to give expert opinion evidence. This amount is the sum of $2,389.00.

[32] Although I am hampered by the failure of the plaintiff to provide the account of his own damages expert for comparison purposes, I would nevertheless agree that, for the purposes of fixing costs to be paid by the unsuccessful party, the plaintiff’s damages expert’s costs of $20,882.40 for the report and expert’s fee at trial of $5,622.22 (both inclusive of taxes) is excessive. The complexity of the case related to the scientific evidence respecting the presence of toxins in the feed and its effect on mortality in the defendant’s rabbit herd, and was not necessarily related to the calculation of damages. I would reduce the cost of the plaintiff’s damages expert by 50% or $13,252.31.

[33] I do not accept the submission of the defendant that the expert fee of Dr. Trevor Smith is excessive on the basis that it “greatly exceeds” what the defendant’s own expert Dr. Boermans charged for the same services. Again, the defendant did not provide Dr. Boermans’ account for comparison purposes. Moreover, Dr. Trevor Smith is in a different situation from Dr. Boermans in that the latter is currently retired. Given the centrality and importance of the evidence of the scientific experts to the determination of the case I am not in a position to find that the expert fee of Dr. Trevor Smith was unreasonable nor that it was inappropriate for the plaintiff to engage him to carry out the tasks which he undertook.

[34] On the basis of the foregoing I would reduce the plaintiff’s claim for disbursements by the sum of $19,895.76, to $37,809.21.

[35] The plaintiff’s costs of defending the counterclaim are therefore fixed in the sum of $104,809.21, inclusive of fees, disbursements and applicable taxes.

Disposition

[36] It is therefore ordered that the defendant pay to the plaintiff the following in respect of costs:

(a) costs in respect of the main action in the sum of $5,885.75;

(b) costs of defending the counterclaim in the sum of $104,809.21.

D.A. Broad

Date: September 23, 2014