SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-12-459926

DATE: 2014\09\22

RE: Her Majesty the Queen in Right of the Province of Ontario, Plaintiff

AND:

Chartis Insurance Company of Canada, American Home Assurance Company, Royal & Sun Alliance Insurance Company of Canada, The Royal Insurance Company of Canada, Royal Insurance Company Limited, Aviva Canada Inc., Aviva Insurance Company of Canada, General Accident Assurance Company of Canada, Travelers Insurance Company of Canada, and St. Paul Fire and Marine Insurance Company, Defendants

BEFORE: Justice A.J. O’Marra

COUNSEL:
Bill Manuel and Jonathan Sydor, for the Plaintiff

Gavin MacKenzie and Brendan Clancy, for the Defendants, Chartis Insurance Company of Canada, and American Home Assurance Company

HEARD: June 30, 2014

COSTS ENDORSEMENT

[1] The defendants, Chartis Insurance Company of Canada and American Home Assurance Company, collectively known as AIG instituted a motion, and the plaintiff, Her Majesty the Queen in Right of the Province of Ontario (Ontario) brought a cross motion for a determination as to whether Lloyd, Burns, McInnis LLP could continue to act for AIG, as counsel of record in the action between them.

[2] In January 2014 a lawyer, Michael Foulds who had been actively involved as counsel acting on behalf of Ontario with Theall Group LLP, joined the firm of LBM to work with the lead lawyer for AIG, Douglas McInnis on AIG files and clients other than Ontario. The issue on the motion was as to whether the ethical screen created by LBM due to the inherent conflict of interest presented by Mr. Foulds having joined LBM was sufficient to protect Ontario’s confidential information.

[3] On July 16, 2014 I granted AIG’s motion for a declaration that LBM could continue to act for AIG in the matter against the plaintiff, Ontario. Correspondingly, I denied Ontario’s cross motion for an order to disqualify LBM due to the inherent conflict of interest caused by one of its former lawyers acting in the matter having joined LBM.

[4] I directed that if the parties were unable to agree as between themselves as to costs they could make written submissions. I have received those submissions and the following is my costs endorsement.

[5] AIG seeks costs on a partial indemnity basis in the amount of $59,807.57 inclusive of disbursements and HST.

[6] Ontario’s position is that while AIG was successful on the motion, the need for the motion was entirely outside the conduct of Ontario. The situation was entirely the making of LBM having admitted Mr. Foulds, former counsel to Ontario in the litigation to partnership. LBM knew that a conflict of interest situation would arise and absent the consent of Ontario a motion would be necessary if LBM was to continue to represent AIG. Ontario submits that it acted reasonably in its response to the conflict of interest created by LBM counsel for AIG and each party ought to bear their own costs of the motion.

[7] In the alternative, Ontario submits that the costs claimed by AIG are excessive and ought to be reduced to an amount that an opposing party might reasonably expect to pay in the circumstances. In its view, the amount it could reasonably be expected to pay was contained in their costs outline exchanged at the hearing of the motion before the outcome was known, $32,960, exclusive of any disbursements and HST.

[8] The court has discretion to award costs of and incidental to a proceeding pursuant to s.131.1 of the Courts of Justice Act. The factors the court should consider, in addition to the result of the proceeding, and any offers to settle in the award of costs are set out in Rule 57 of the Rules of Civil Procedure:

a) whether any step in the proceeding was improper, vexatious or unnecessary;

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

c) the complexity of the proceeding;

d) the importance of the issues;

e) rates charged and hours spent for the party entitled to costs.

[9] In considering the issue of costs I am mindful that I must adhere to the principles set out by the Court of Appeal in Boucher v. Public Accountants Counsel for the Province of Ontario, 2004 14579 (ON CA), [2004] O.J. No. 2634; that the overall objective of fixing costs is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular circumstances, rather than an amount fixed by actual costs incurred by the successful litigant.

[10] The amount at which costs are to be fixed is not simply an arithmetical function dependent on the number of hours worked and the hourly rates employed but, rather, the party paying the costs should be subjected to an order which is fair and predictable. In other words, the party required to pay costs must not be faced with an award that does not reasonably reflect the amount of time and effort that was warranted by the proceeding. (See Moon v. Sher, 2004 39005 (ON CA), [2004] O.J. No. 4651 (CA) at para. 30).

[11] AIG was the successful party and as such is entitled to costs on the motion. There is some force to Ontario’s argument that but for the actions of LBM in admitting Mr. Foulds to partnership a motion would not have been necessary. However, LBM did provide advance notification to Ontario of Mr. Foulds joining the firm, as did Mr. Foulds. Further, AIG endeavored to engage Ontario’s input as to the form and structure of the ethical screen LBM intended to put in place in order to guard against disclosure of Ontario’s confidential information. AIG moved quickly to obtain a declaration from the court, absent Ontario’s consent.

[12] AIG contends that Ontario lengthened the proceedings unnecessarily by cross-examining three of the four affiants produced by AIG in support of its motion. Ontario contends that the key areas of complexity to the case were factual and as such it was necessary for it to cross-examine on the affidavits. Moreover, admissions obtained as a result of the three examinations were contained in its factum and referenced by the court in the reasons for judgment.

[13] AIG countered with the submission, Ontario’s argument on the motion was that a screen simply could not protect the former client’s confidential information unless the transferring lawyer was segregated from lawyers at the new firm who worked on the tainted file.

[14] The extent to which cross-examination of the affiants may have lengthened the proceeding was at best marginal and could not be considered unnecessary.

[15] Both parties agree that the matter was of moderate complexity.

[16] AIG argued that it was of greater importance to it given that Mr. McInnis had been AIG’s sole coverage counsel for the Ontario-AIG matters for over 25 years. AIG was required as a result to “leave no stone unturned in order to advance its position on the motion which Ontario should reasonably have expected”. Further, if it had not succeeded on the motion it would have suffered prejudice in having to retain new counsel at considerable expense as well as suffer a tactical disadvantage by having to retain counsel unfamiliar with the Ontario-AIG coverage issues and, in particular, the settlement agreement negotiated between AIG and Ontario pursuant to which Ontario and AIG had agreed to a process for resolving future coverage disputes.

[17] On the other hand, Ontario contends that it was of importance to it as well given that one of its counsel team had left to join and work closely with lead counsel for its adversary in the litigation, which presented the potential for disclosure of confidential information to its detriment.

[18] I accept that the motion was of great importance to both parties requiring them to fully engage and contest the issue. Further, the matter had public policy implications and importance beyond the parties involved.

[19] I note that costs of approximately $33,000 considered reasonable and fair in the costs outline prepared by Ontario were without disbursements and HST. In written submissions, AIG observed that had Ontario included in its calculation HST of approximately $4300 and disbursements in an amount equivalent to AIG’s, $3800, the amount Ontario considered to be reasonable would be more than $41,000.

[20] Both parties were represented by senior counsel assisted by junior counsel and the rates set out in their respective costs outline are appropriate.

[21] I accept that AIG was required to expend more time preparing and in martialing materials in support of its motion, however, costs of almost $60,000 to prosecute a half day motion appears excessive in the circumstances.

[22] In this instance, costs shall be fixed in an amount the responding party might reasonably have expected to be paid. Ontario shall pay $42,000 to AIG within 30 days of this endorsement.

A.J. O’Marra J.

Date: September 22, 2014