SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: 1621/13

DATE: 2014/03/05

RE: AKER BIOMARINE AS, AKER BIOMARINE ANTARCTIC AS, AKER BIOMARINE ANTARTIC US, INC., OLYMPIC SEAFOOD AS, OLYMPIC BIOTEC LTD., AVOCA INC., RIMFROST USA, LLC, BIORIGINAL FOOD & SCIENCE CORP., ENZYMOTEC LTD., and ENZYMOTIC USA, INC.

Applicants

AND:

KGK SYNERGIZE INC.

Respondent

BEFORE: Leach J.

COUNSEL: Arden V. MacLean, for the Applicants

Antonio Di Domenico, for the Respondent

HEARD: In writing

ENDORSEMENT (COSTS)

[1] On November 6, 2013, I released my decision concerning the applicants’ request for an order giving effect to certain letters rogatory issued by the United States District Court for the District of Columbia, in relation to patent litigation before the United States International Trade Commission. See Aker Biomarine AS et al. v. KGK Synergize Inc., 2013 ONSC 4897, [2013] O.J. No. 5048 (S.C.J.)

[2] For reasons set out in my decision, I declined to grant the relief requested, and dismissed the application.

[3] Because my decision was reserved, the parties had no opportunity to address costs when the motion was argued on October 25, 2014, and my reasons therefore invited written cost submissions.

[4] Those were delivered by both parties. In particular, I received written cost submissions from the respondent dated November 20, 2014, written responding cost submissions from the applicants dated December 5, 2013, and written reply cost submissions from the respondent dated December 12, 2013. Other pressing demands of my docket unfortunately have prevented my addressing those submissions before now.

Overview of Positions

[5] In broad terms, the respondent seeks recovery of its costs of the application on a full indemnity basis fixed at $72,285.15, (inclusive of claimed disbursements totalling $2,355.10 and HST). Although not put forth as expressly proposed alternatives, the respondent also provided information, in its detailed bill of costs, indicating that its all-inclusive costs would amount to $33,143.65 on a partial indemnity basis, and $48,537.92 on a substantial indemnity basis.

[6] These amounts include claims for the costs of an earlier appearance before Justice Grace on September 10, 2013, to settle an interim timetable dispute. (In his endorsement, Justice Grace reserved those costs to the judge hearing the substantive application.)

[7] In support of its cost requests, the respondent relies on considerations that include:

• authorities suggesting that a non-party successful in defeating an application for enforcement of letters rogatory should be indemnified for all of its costs; and

• allegations of unnecessary and unreasonable conduct by the applicants, (including insistence on an inappropriately aggressive timetable), all of which is said to have augmented the costs incurred by the respondent.

[8] For their part, the applicants apparently do not dispute that the respondent was successful on the application and that costs should follow the event.

[9] However, relying on authorities of their own, the applicants say that the scale of costs in such cases remains a case-specific and discretionary matter for the court, and that the appropriate scale in this case would be an award of costs on a partial indemnity basis. They deny unreasonable conduct on their part, and point to questionable actions by the respondent, (including the respondent’s insistence on a timetable to permit the respondent’s taking of steps that were then never taken), that are said to have elevated costs unnecessarily.

[10] In any event, the applicants contend that the quantum of costs sought by the respondent are excessive and entirely disproportionate to the nature and conduct of the dispute, and well beyond the costs which the parties reasonably might have expected to incur. They suggest that, having regard to all the circumstances, it would be more fair and reasonable to award costs to the respondent on a partial indemnity basis, fixed in the all-inclusive sum of $17,500.

Analysis

[11] Having regard to the general indemnity principle reflected in Rule 57.01(1)(0.a), costs of the application should follow the event and be awarded to the respondent. The only real issues for determination relate to scale and quantum.

[12] The court has a broad discretion in that regard.

[13] In particular, pursuant to section 131 of the Courts of Justice Act, R.S.O. 1990, c.C.43, as amended, and 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”.

[14] This is supplemented by the provisions of Rule 57.01, subsection (1) of which lists a broad range of factors the court may consider when exercising its discretion to award costs pursuant to section 131. Rules 57.01(4)(c) and 57.01(4)(d) expressly confirm that nothing in those provisions limits the court’s broad discretion to award costs on either a substantial or full indemnity basis, in appropriate cases.

[15] Notwithstanding that broad discretion, our Court of Appeal repeatedly has emphasized that awards on a partial indemnity basis generally strike the proper balance as to the burden of costs that should be borne by the “winner”, and that elevated cost awards should be reserved for “rare and most exceptional” cases. See, for example, Isaacs v. MHG International Ltd., (1984), 1984 1862 (ON CA), 45 O.R. (2d) 693 (C.A.), and Foulis v. Robinson (1987), 21 O.R. (2d) 179 (C.A.).

[16] Requests for elevated cost awards usually are based on allegations of misconduct, and the type of behavior justifying elevated cost awards has been described in various ways. For example:

• in Young v. Young, 1993 34 (SCC), [1993] 4 S.C.R. 3, at p.134, McLachlin J. indicated that elevated cost awards are warranted “only where there has been reprehensible, scandalous or outrageous conduct on the part of one of the parties”; and

• in Mortimer v. Cameron (1994), 1994 10998 (ON CA), 17 O.R. (3d) 1 (C.A.), and McBride Metal Fabricating Corp. v. H&W Sales Co. (2002), 2002 41899 (ON CA), 59 O.R. (3d) 97, whose principles were echoed and emphasized again by the Court of Appeal in Davies v. Clarington, 2009 ONCA 722, [2009] O.J. No. 4236 (C.A.), conduct warranting elevated cost awards was described as “reprehensible”, “egregious”, or “acts that clearly indicated an abuse of process”, justifying enhanced costs as a form of chastisement.

[17] In this case, despite respondent suggestions to the contrary, I am not persuaded that anything done by the applicants satisfies that demanding standard of misconduct warranting an elevated cost award.

[18] Without limiting the generality of that conclusion:

• Elevated costs are not justified by suggestions that a proceeding was “unnecessary and doomed to fail”, or reliance on other specified inadequacies that led to substantive failure, (such as the losing party’s filing of evidence which, in the opinion of the court, fell short of that demanded in the circumstances). Unless the nature of a substantive position itself suggests misconduct, (e.g., because the proceeding was frivolous or vexatious, or involved scandalous or clearly baseless allegations), merits analysis and cost determinations should not be confused and conflated in determining whether the situation warrants an elevated cost award. In particular, a losing argument should not be equated with reprehensible behaviour unless the manner of its advancement or presentation suggests otherwise.

• Although the respondent criticized the extent of formal notice given by the applicants, service of the application record was effected two weeks before the application’s initial return date, (thus exceeding the notice required by our Rules of Civil Procedure), and was coupled with simultaneous communications from the applicants’ Ontario lawyers indicating a willingness to discuss the situation, (albeit with an emphasis on the respondent complying with the applicants’ requests). This followed earlier correspondence and contact, wherein the applicants informally sought disclosure of information refused by the respondent), such that the application was unlikely to have come as a complete surprise. Moreover, service of Ontario process was effected shortly after the applicants were successful in obtaining letters rogatory from the American court.

• While the aggressive timetable proposed by the applicants was resisted by the respondent and rejected by Justice Grace, the desire for an urgent hearing was not advanced capriciously or without explanation. Moreover, Justice Grace obviously felt that the applicants’ concerns in that regard were sufficient to override the respondent’s more conservative proposals in relation to scheduling.

• While the applicants’ commitment to the court ordered timetable waivered somewhat in the wake of receiving the respondent’s factum, they did not pursue their contemplated request for an adjournment. Although they sought and obtained leave to file supplementary affidavit evidence, (notwithstanding the deadlines otherwise set by the court ordered timetable), that too falls short of “egregious” or “reprehensible” conduct of the sort justifying an elevated cost award.

[19] However, misconduct is not the only possible basis or rationale for awarding costs on a substantial or full indemnity basis.

[20] In that regard, the respondent relied on authorities indicating that, as a matter of fairness, those who are not parties to foreign litigation, and against whom no substantive claim is being made, should receive complete indemnification for all costs incurred in dealing with associated letters rogatory.

[21] For example, such an approach was adopted in j2 Global Communications Inc. v. Protus IP Solutions Inc. (2009), 184 A.C.W.S. (3d) 616 (Ont.S.C.J.), wherein an application brought in Ontario for enforcement of letters rogatory issued by a California court was dismissed. The respondent to the application, an Ontario corporation not party to the litigation in California, sought and was granted a cost award providing full indemnity for the costs it had incurred. In that regard, Justice Ray reasoned as follows, at paragraphs 5 and 6:

[The Applicant] quite properly conceded in argument on the application that if the order were made enforcing the Letters Rogatory, it would be obliged to indemnify the Respondent for all its costs. That would be a fair term since the Respondent is not a party to the California litigation, and no claim is made by the Applicant against the Respondent for a substantive claim. Instead it bears all the hallmarks of an indulgence being sought against a non-party for assistance in its prosecution of an action in California in which the respondent has no interest. If I were to have granted the application, I would have entertained argument on the issue of whether, since it was an indulgence, the Respondent should be indemnified for all its costs. Since the application was dismissed, I can see no reason why the Respondent should not be completely indemnified under these circumstances. …

The discretion to order costs includes the discretion to award full indemnity costs in the proper case. I consider this such a case. Rule 57.01(4)(d), Rules of Civil Procedure.

[Emphasis added.]

[22] The same approach was adopted by Regional Senior Justice Hackland in j2 Global Communications Inc. v. C.(B.) (2010), 190 A.C.W.S. (3d) 705 (Ont.S.C.J.), in relation to a similar unsuccessful application to enforce letters rogatory from California against another non-party to the litigation in that state. The reasons of R.S.J. Hackland include the following remarks at paragraphs 3 and 4:

It is well established in the case law that the costs of witnesses examined pursuant to Letters Rogatory, as strangers to the litigation, should be paid to them on a full indemnity basis. … On the same basis, costs of individuals who successfully oppose the issuance of Letters Rogatory should also be paid on a full indemnity scale. I agree with the comments of my colleague Ray J. in his costs ruling involving the same plaintiff. …

The respondents are therefore to be awarded their costs on a full indemnity scale.

[Emphasis added.]

[23] An application for leave to appeal from the cost order of Hackland R.S.J. was dismissed by the Court of Appeal, with the following brief remark: “The appellant seeks leave to appeal Hackland R.S.J.’s cost order. In our view, there is no basis for granting leave on this issue.” See j2 Global Communications Inc. v. C.(B.) (2010), 194 A.C.W.S. (3d) 763 (Ont.C.A.), at paragraph 9.

[24] The applicants in the case before me argue that the approach adopted in the above decisions is by no means universal or mandated, as noted by Justice D.M. Brown in Oticon Inc. v. Gennum Corp. (2010), 186 A.C.W.S. (3d) 626 (S.C.J.); a decision rendered after release of the above decision of Justice Ray, but prior to the above decision of R.S.J. Hackland, in respect of which leave to appeal then was denied by the Court of Appeal.

[25] In particular, Justice Brown reviewed the authorities brought to his attention in that case, and summarized his view of the relevant law with the following remarks, (found at paragraph 3 of the decision):

[The successful respondent] submitted that, as a general rule, parties applying for the enforcement of letters rogatory are required to indemnify responding parties for their legal costs. I do not read the case law as supporting that proposition. From the cases placed before me, the cost awards on unsuccessful letters rogatory applications have varied, with courts awarding:

(i) Full indemnity costs: j2 Global Communications Inc. v. Protus IP Solutions, [supra];

(ii) Substantial indemnity costs: Sherman v. Cross Canada Auto Body Supply Inc., … 2007 252;

(iii) Partial indemnity costs: Fecht v. Deloitte & Touche (1996), 1996 11782 (ON SC), 28 O.R. (3d) 188 (Gen.Div.); and

(iv) No costs: B.F. Jones Logistics Inc. v. Rolko (2004), 2004 21276 (ON SC), 72 O.R. (3d) 355 (S.C.J.).

These cases lead me to conclude that the appropriate award of costs on an unsuccessful application to enforce letters rogatory will depend upon the particular circumstances of each application, considered in light of the principles enumerated by s.131 of the Courts of Justice Act, Rule 57.01 of the Rules of Civil Procedure, and the principle of proportionality expressed in Rule 1.04(1.1.)

[Emphasis added.]

[26] For my part, I do not think the decisions relied upon by the respondent establish an invariable rule whereby those who successfully resist an application for enforcement of letters rogatory must always be awarded costs on a full indemnity basis.

[27] The comments of Justice Ray, adopted by R.S.J. Hackland, expressly indicate a decision based on the exercise of discretion, having particular regard to what was viewed as a “proper case” for the exercise of that discretion. I do not think either colleague, or the Court of Appeal in its brief comment denying leave to appeal, was suggesting the introduction, in such cases, of a universal fetter on the court’s otherwise broad discretion to make a cost award reflecting its view of what would be just having regard to the particular circumstances of each case.

[28] In other words, I think Justice Brown’s summary of the law on this point remains accurate. The scale of costs to be awarded in such a case, (if any), ultimately remains a matter of discretion for the presiding judge, having regard to all the circumstances of the case.

[29] In this case, application of the approach suggested by Justice Day and R.S.J. seems fair and sensible in principle.

[30] However, willingness to provide such a respondent with “full indemnity” for its reasonable litigation expense also must not be construed as a “blank cheque” that will necessarily ensure recovery of all fees and disbursements voluntarily incurred in responding to such an application; e.g., regardless of whether the chosen litigation response was reasonable and proportionate.

[31] In other words, costs awarded on a “full indemnity” basis are still subject to the “overriding principle of reasonableness” for such an application, as applied to the factual matrix of the case, pursuant to the ultimate “cross check” required by such authorities as Boucher, Moon and Coldmatic Refrigeration of Canada Ltd. v. Leveltek Processing LLC (2005), 2005 1042 (ON CA), 75 O.R. (3d) 638 (C.A.), and Anderson v. St Jude Medical Inc. (2006), 2006 85158 (ON SCDC), 264 D.L.R. (4th) 557 (Ont.Div.Ct.).

[32] Moreover, I do not think the court’s independent obligation to determine what conforms to that “overriding principle of reasonableness” is eliminated or constrained by an unsuccessful party’s failure to tender its own bill of costs, or otherwise supply the court with an indication of the fees the unsuccessful party incurred in dealing with that matter.

[33] To be sure, as emphasized by such authorities as Smith Estate v. Rotstein, 2011 ONCA 491, [2011] O.J. No. 3075, at paragraphs 50-51, leave to appeal refused, [2011] S.C.C.A. No. 441, and my own comments in Valastro v. The Corporation of the City of London, [2013] O.J. No. 1353, at paragraph 12(b), an unsuccessful party’s failure to supply information of its own costs is an important consideration in assessing the parties’ reasonable expectations, and permits an inference that the resources devoted to the matter by the unsuccessful party were comparable to those expended by the successful party.

[34] However, as emphasized by the provisions of Rule 57.01(0.b), viewed in context, the amount of costs that an unsuccessful party could reasonably expect to pay is but one factor to be considered.

[35] Moreover, the focus is on reasonable expectations, which suggests the court is not bound to accept the expense each litigant was willing to incur as an accurate indication of what should be regarded as reasonable. To the contrary, it may well be that litigants on both sides of a dispute choose to act unreasonably and resort to “overkill”; e.g., by each taking steps the court regards as unnecessary or suggestive of excessive caution, and/or by devoting resources to a dispute that seem entirely disproportionate to what was reasonably required.

[36] In this case, many of the considerations outlined in Rule 57.01 favour a generous cost award to the respondent. In particular:

• For the reasons outlined above, there is a sensible and fair rationale for providing a litigant in the respondent’s position with full indemnity for its reasonable litigation expense;

• Success was not divided, in the sense that the only real question was whether the letters rogatory should be enforced, and that question was answered decisively in favour of the respondent; and

• There is no question that the issues raised by the application were of great importance to the respondent, as the application would determine the extent, (if any), to which it would have to become involved and/or assume any burdens or exposure in relation to the ITC proceedings.

[37] However, even before receipt of cost submissions from the unsuccessful applicants, I independently was both surprised and troubled by the quantum of costs sought by the respondent in relation to this matter.

[38] In this case, the motion record filed by the applicants was not voluminous. Moreover, the respondent prepared and filed no responding evidence, and there were no examinations or cross-examinations of any kind. The respondent instead made a tactical decision, (successful in the result), simply to focus on the limited evidence tendered by the applicants, challenging its adequacy.

[39] Although the respondent prepared a detailed factum and book of authorities, its emphasized and successful position was that the governing legal principles actually were very clear and well-established, and that the minimal evidence filed by the applicants entailed a relatively straightforward and almost inevitable determination in the circumstances. This was borne out not only by the substantive result, but by the parties’ ability to address all factual and legal issues in a relatively brief (two hour) hearing.

[40] Having regard to these basic considerations, I find it very difficult to understand how there was any complexity to the matter reasonably requiring the involvement of six legal professionals, devoting a total of 156 billable hours to the matter. This is the equivalent of one lawyer working on the matter, eight hours a day, each and every day, for almost three solid weeks.

[41] Time obviously was spent dealing with the parties’ inability to agree on a timetable. However, as mentioned above, Justice Grace not only rejected the proposal of the applicants, but also that of the respondent, suggesting that both parties were somewhat to blame for the impasse.

[42] I also find it disturbing that the respondent attended before Justice Grace, making representations in support of a more drawn out timetable that would make adequate allowance for the preparation and filing of responding materials and cross-examinations, before then adopting a tactical strategy whereby all such allowances were completely unnecessary, and/or obtained through excessive caution.

[43] Similarly, large portions of the respondent’s factum, authorities and oral submissions were directed towards its preliminary additional argument that much of the applicants’ evidence was inadmissible; an argument which to me had no merit, for the reasons outlined in my substantive decision. In my view, this too unnecessarily complicated and prolonged the duration of the proceeding, and drove up the costs now being claimed by the respondent.

[44] In short, I consider the costs claimed by the respondent to be excessive and inappropriate. Whether that significant concern is addressed by formally awarding costs on a full indemnity scale coupled with a very substantial reduction in quantum, or by awarding costs at a scale less than full indemnity coupled with a less substantial reduction in quantum, is of little practical consequence. The overall goal generally is to award costs in an amount that is “fair and reasonable for the unsuccessful party to pay in a particular proceeding”; Boucher v. Public Accountants Council for the Province of Ontario, 2004 14579 (ON CA), [2004] O.J. No. 2634 (C.A.), at paragraph 26.

[45] Having regard to all the circumstances, I think that goal will be accomplished in this case by awarding the respondent costs fixed in the all-inclusive amount of $35,000.

Ian F. Leach
Justice

Date: March 5, 2014