SUPERIOR COURT OF JUSTICE - ONTARIO
Court File No.: CV-08-362807-00CP
Submissions in Writing
Endorsement Released: March 26, 2014
Re: Michael Cannon v. Funds for Canada Foundation et al
Before: Master R. Dash
Counsel:
Samuel Marr and Margaret Waddell, for the class plaintiff
Aaron Dantowitz and Kathrin Furniss, for the Law Foundation of Ontario
John P. Brown, Junior Sirivar and Stephanie Sugar, for the defendant Trafalgar Trading Limited
COSTS ENDORSEMENT
[1] The class plaintiff brought a motion under Rule 45 to require the defendant Trafalgar Trading Limited (“TTL”) to pay a fund into court. The motion was scheduled to be heard by me for two days on January 21 and 22, 2014. The motion was abandoned on January 6, 2014, approximately two weeks before the return date of the motion.
[2] The plaintiff claims the motion was abandoned based on a consideration of answers given to undertakings and refusals from cross-examinations on affidavits filed on the motion. TTL seeks its costs on a substantial indemnity basis.
[3] TTL has consistently taken the position that there was no fund in existence to pay into court and tracing of any such funds is not within the purview of Rule 45. Tracing is rather a trial or post-trial issue. That point was reinforced on the motion, heard by me on August 21, 2013, to compel answers to questions refused on the cross-examination of TTL’s representative filed in opposition to the Rule 45 motion. I ruled that a number of questions that sought tracing were improper for that very reason.
Liability for Costs of the Rule 45 Motion
[4] Section 131 of the Courts of Justice Act[^1] provides that “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.”
[5] Rule 37.09(3) provides that “where a motion is abandoned or is deemed to have been abandoned, a responding party on whom the notice of motion was served is entitled to the costs of the motion forthwith, unless the court orders otherwise.” While rule 37.09(3) is a presumptive rule and provides the ordinary result on an abandoned motion, it is not absolute. Each case is to be decided on its own facts, looking at the circumstances to determine whether it is appropriate to depart from the ordinary rule.[^2]
[6] Courts have on occasion departed from the ordinary rule particularly where an action is abandoned at an early stage and the court is unable to determine who would have won the motion. In those situations the court may examine the justification for commencing the motion to see if the moving party had a bona fide claim as well as the circumstances of the abandonment.[^3]
[7] In this case the plaintiff reasonably believed that TTL remained in possession of the fund based on evidence given and factum submitted by TTL on the certification motion, including the statement that “TTL continues to trade the funds it received from the charities.” It was only in the responding material of TTL to the Rule 45 motion that TTL asserted for the first time that the funds were now spent and no longer in its possession. It was reasonable to challenge TTL’s affiant, Edward Furtak, on that statement by cross-examination. Once answers were received to undertakings and questions ordered the plaintiff withdrew this motion.
[8] On the other hand, the timing of the abandonment caused the defendant to incur substantial costs. The plaintiff’s motion materials were voluminous, some of the evidence tendered was problematic to the defendant necessitating preparation of a motion to strike, which would have been heard on the return of the motion, responding materials were prepared, the defendant was required to attend for cross-examinations of its affiant and to attend a motion to compel answers to questions refused. It should have been apparent even before my rulings on the refusals motion that what was sought was a tracing which was inappropriate on a Rule 45 motion.
[9] In this case, while there may have been bona fide reasons for launching the action, it is not necessary to hear the motion to determine that the plaintiff would have lost the motion. It became clear that the plaintiff could not prove that there was a fund in existence which was fatal to a motion under Rule 45.
[10] The rule is also subject to any special considerations specific to class proceedings. Section 31(1) of the Class Proceedings Act[^4] provides that when exercising its discretion under section 131(1) of the Courts of Justice Act, “the court may consider whether the class proceeding was a test case, raised a novel point of law or involved a matter of public interest.” This proceeding was not a test case nor does it raise novel points of law. In fact the plaintiff, in a factum filed on appeal of the certification order stated that it was on all fours with other jurisprudence involving tax leveraged schemes, in this case a leveraged charitable gifting program. Further, the action is essentially a private dispute involving the direct financial interests of the members of the class rather than a matter of broad public interest. On appeal of the certification order, the plaintiffs conceded this was not a matter of public “importance” but not that there was no public “interest” in the proceeding since in many if not most class actions there is a public interest element respecting access to justice. The class plaintiffs also suggest there is a public interest involved in ensuring Canadian charitable tax policy is not misused for personal gain. Although the plaintiff alleges that the donation scheme was designed to financially enrich the defendants and there was no genuine charitable intent it is not the charities who are complaining about loss of revenue, but rather the investors who failed to obtain a promised tax credit in excess of their contributions or at all and as a result lost the value of their donations.
[11] The class plaintiff receives funding support from the Class Proceedings Fund of the Law Foundation of Ontario, however the issues of TTL’s entitlement, scale and quantum of costs must be determined on its own merit, without reference to whether the Law Foundation of Ontario provided support to the plaintiff or whether the Foundation is liable to pay costs awarded against the plaintiff.[^5]
[12] I must also consider the factors in rule 57.01(1). In the result, the defendant was successful on the motion in that it was abandoned prior to hearing. The issues on the motion were of great importance since it sought payment into court of $77 million, a matter akin to a Mareva injunction. The issues were complex and the motion materials were voluminous. The defendant was put to great expense to counter very severe allegations and provide evidence that the fund was not in existence.
[13] In all the circumstances I find that the defendant TTL is entitled to its costs of the abandoned Rule 45 motion.
Scale of Costs of Rule 45 Motion and When Payable
[14] There has, however, been no reprehensible conduct on the part of the plaintiff or his lawyers that would justify costs on a substantial indemnity scale as requested by TTL. I have not been made aware of any offers to settle the motion. While serious allegations may have been made about TTL’s improper use or transfer of the plaintiff’s funds akin to fraud, in my view that is more a matter for consideration of the costs of the action, in which the plaintiff has made allegations of fraud and conspiracy against TTL, once those allegations have been finally determined.
[15] The defendant alleges that the cross-examinations and refusals motion were a tactical attempt to obtain extensive documentary evidence on trial issues which were not relevant to the Rule 45 motion on which the cross-examinations were conducted. I am unable to draw that conclusion on the evidence before me.
[16] While the Rule 45 motion would likely not have been unsuccessful if argued, I am satisfied that conclusion was not apparent until the responding material was delivered, cross-examinations conducted and some response to the undertakings and documents produced in response to the refusals motion before me. As noted, it was reasonable up to a point for the plaintiff to believe TTL remained in possession of the fund based on earlier evidence given by TTL.
[17] On the other hand, a Rule 45 order is an exceptional order, not to be lightly made. The plaintiff should have been aware that much of the information it was seeking on this motion was akin to a tracing and should not have been sought on a Rule 45 motion. It also gambled, bringing the Rule 45 motion before examinations for discovery, which would have fleshed out whether there was a fund still in existence and thus a foundation for a Rule 45 motion.
[18] While the reasonableness of initiating this motion does not convince me to deprive the defendant of its costs given its success on the Rule 45 motion once it was abandoned, it is a mitigating factor as to the scale of costs. In all the circumstances the defendant TTL is entitled to its costs on a partial indemnity scale.
[19] Should costs be payable within 30 days, which is the presumptive order in accordance with rule 57.03(1)(a) or is a different order, such as payable at the end of trial be “more just”? Further, the presumption in rule 37.09(3) is that costs of an abandoned motion are payable “forthwith”. On one hand, it was reasonable to at least have commenced the Rule 45 motion in the circumstances and TTL may have been partly responsible for the motion being initiated as a result of statements made by Furtak in the certification proceedings. On the other hand, the plaintiff was seeking an exceptional remedy prior to discoveries and it is the financial interest of the class members that are primarily in issue. The plaintiff pursued its cross-examination, and to some extent the motion, as if it were seeking a tracing, While there may be a public interest in access to justice, I remind myself that the defendant too has rights. In my view there is no compelling reason to force the defendant to await the conclusion of this action to be paid its costs for what is in effect a very discreet motion.
Quantum of Costs of Refusals Motion
[20] Prior to the scheduled date for the Rule 45 motion, TTL’s affiant, Mr. Furtak, was cross-examined and on August 21, 2013 I heard a motion brought by the plaintiff to compel Mr. Furtak to answer questions refused on his cross-examination. The defendant was substantially successful on that motion, although there was some divided success. For that reason I ordered that the defendant TTL was entitled to 50% of its costs of the refusals motion on a partial indemnity scale in the cause of the Rule 45 motion. As the cause of the Rule 45 motion has been resolved in favour of the defendant TTL by virtue of the motion being abandoned, TTL should now be awarded its costs of the refusals motion based on 50% of partial indemnity costs.
[21] Because a separate costs order was made for the refusals motion, the defendant has provided two separate costs outlines, one for the refusals motion and a second one for all other costs related to the Rule 45 motion.
[22] On the refusals motion the defendant submits a costs outline indicating partial indemnity costs of $25,733, inclusive of $22,372 fees plus HST and disbursements, and requests 50% of that total, $14,736, in accordance with my August 21 endorsement. While the partial indemnity rates claimed for each of Mr. Brown and Mr. Sirivar are appropriate, I find 43.8 hours for Mr. Brown and 31.3 for Mr. Sirivar (for a total of 75.1 hours) excessive and it appears to me that there likely was a duplication of effort by each lawyer on various aspects of the work involved. While I do not criticize the lawyers providing Cadillac service for their client, particularly given that $77 million was involved in the action and on the Rule 45 motion, those costs cannot be at the expense of the class plaintiff on a refusals motion that was a motion within a (Rule 45) motion. It was less important than the Rule 45 motion, since the paying into court of $77 million did not hang in the balance, only the production of tracing documents, production of which I deemed improper on a Rule 45 motion. I also appreciate that the refusals motion took a full day to argue. Mr. Sirivar alone attended that motion on behalf of TTL. In any event the fixing of costs is not simply a mathematical exercise of multiplying rates by hours. I find that fair and reasonable costs of the refusals motion to be $17,500, inclusive of fees, disbursements and HST. That should be within the reasonable expectations of the plaintiff whose own costs outline for that motion indicates partial indemnity costs of $21,705, which he claims he would have reduced to $17,493. 50% of partial indemnity costs, $8,750, shall be awarded to the defendant TTL payable within 30 days.
Quantum of Costs of Abandoned Rule 45 Motion
[23] On the abandoned Rule 45 motion TTL claims its actual costs incurred were approximately $93,000. TTL seeks costs on a substantial indemnity scale of $54,655 inclusive of $48,367 fees plus HST and disbursements. I have however determined that TTL’s costs on the Rule 45 motion be on a partial indemnity scale. TTL outlines costs on a partial indemnity scale of $36,436, inclusive of $32,245 fees plus HST and disbursements. Again I accept that the hourly rates are appropriate but I have some concern over the 94.7 hours spent (87.5 for Mr. Brown and 7.2 for Mr. Sirivar). I appreciate however that far more was at stake on this motion including the paying into court of an alleged fund in the sum of $77 million. The motion was factually, and to some extent legally, complex. On the other hand the motion was never argued; however it was abandoned only two weeks before the dates set aside for the hearing of the motion. By that time the defendant had reviewed the plaintiff’s voluminous materials (the motion record alone consisted of 6 volumes inclusive of exhibits), met with the client, received productions respecting the motion, prepared a responding affidavit, prepared for and attended the cross-examination of TTL’s affiant by the plaintiffs, and prepared (but apparently did not file) a factum.
[24] TTL also prepared a motion to strike the affidavit of one of the plaintiff’s affiants and given that it became unnecessary to argue that motion given the abandonment of the Rule 45 motion, I am of the view that it is unnecessary to consider the merits of the motion to strike. Those costs should be included in the costs of the Rule 45 motion.
[25] Unlike the refusals motion, there was little if any duplication between counsels. The motion was complex and of great importance. The fixing of costs however is not simply a mathematical exercise of multiplying rates by hours. The court must fix costs that are fair and reasonable in all the circumstances and within the reasonable expectation of the losing party.
[26] An examination of the dockets of plaintiff’s counsel indicates that the actual fees incurred on the Rule 45 motion by the plaintiff’s various lawyers totalled approximately $133,784 plus HST and disbursements. The plaintiff’s costs on a partial indemnity scale are not set out (except for that of Ms. Waddell’s firm) but it appears they are approximately $88,000. While plaintiff’s counsel argues that the plaintiff necessarily had to spend more time on the motion than TTL because of the burden on him to prove the existence of the fund when all records were in the hands of TTL, and while the amount spent by the plaintiff is not determinative of what was reasonable for the defendant to spend, it is nonetheless instructive that the plaintiff was aware of the enormity of the stakes on the motion. I find that fair and reasonable costs of the Rule 45 motion to be $30,000 on a partial indemnity scale inclusive of HST and disbursements. This amount should clearly have been within the reasonable expectations of the plaintiff.
Order
[27] I hereby order as follows:
(1) The plaintiff shall pay to the defendant Trafalgar Trading Limited costs of the refusals motion heard on August 21, 2013 within 30 days of the date of this order fixed in the sum of $8,750.00.
(2) The plaintiff shall pay to the defendant Trafalgar Trading Limited costs of the abandoned Rule 45 motion within 30 days of the date of this order fixed in the sum of $30,000.
Master R. Dash
DATE: March 26, 2014
[^1]: Courts of Justice Act, R.S.O. 1990, Chap. C.43
[^2]: Morley v. Morley, 2013 ONSC 1595 (SCJ – Master) at para. 32
[^3]: Ibid, paras. 31 to 35
[^4]: Class Proceedings Act, 1992, S.O. 1992, c. 6
[^5]: McNaughton v. Co-Operators General Insurance Co., 2007 12709 (ON SCDC), [2007] O.J. No. 1453 (Div. Ct.) at para. 8