CITATION: Stradiotto v. BMO Nesbitt Burns et al. 2015 ONSC 1760

COURT FILE NO.: CV-09-930853

DATE: 20150331

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: DONNA STRADIOTTO and RINO STRADIOTTO, Plaintiffs

AND:

BMO NESBITT BURNS INC., BRAD CHARLTON and ALBRECHT WELLER, Defendants

BEFORE: Mr. Justice Graeme Mew

COUNSEL: Mark Wainberg, for the Plaintiffs

Jeremy Devereux and Robert Blair, for the Defendant BMO Nesbitt Burns Inc. and Brad Charlton

Julia Dublin for the Defendant Albrecht Weller

HEARD: In Writing

COSTS ENDORSEMENT

[1] The trial of this action resulted in a judgment in favour of the plaintiffs of $134,000 (reasons for judgment reported at 2014 ONSC 3477, 1 23 O.R. (3d) 184, as amended by further endorsement 2015 ONSC 461).

[2] The plaintiffs sued their investment advisors, BMO Nesbitt Burns (“BMO”), and two of its employees, Albrecht Weller and Brad Charlton, as a result of the defendants’ alleged breach of the duty of care owed by them to the plaintiffs in respect of their management and administration of the plaintiffs’ investment portfolios.

[3] At trial BMO was found to be liable to the plaintiffs as a result of the negligent handling of the plaintiffs’ accounts. As I noted in my endorsement of 26 January 2015, at para. 30:

“[BMO’s] liability arises from the breach of the duty of care which it owed the plaintiffs in both contract and tort, which required it to exercise such reasonable proper care, skill and diligence as would be expected of an investment dealer and its registered representatives in the circumstances and from its vicarious liability for the negligence of Mr. Weller and Mr. Charlton who I found to each be 50% at fault”.

[4] In respect of the apportionment between Mr. Weller and Mr. Charlton I concluded that there were practical difficulties in determining their respective degrees of fault and decided that, in the circumstances, s. 4 of the Negligence Act, R.S.O. 1990, c. N. 1 should be applied, with the result that each of Mr. Weller and Mr. Charlton were 50% at fault and, consequently, jointly and severally liable with BMO to the plaintiffs for the full amount of the judgment, but as between themselves they would be liable to make contribution and indemnity to each other to the extent of their 50% fault: 2014 ONSC 3477 at para. 176.

[5] It has not been suggested by any party at any time material to this litigation that either Mr. Weller or Mr. Charlton acted outside the scope of their employment with BMO. Further, BMO has always acknowledged its vicarious liability for the acts or omissions of Mr. Weller and Mr. Charlton, as its employees.

[6] I mention these matters relating to the liability of BMO and the apportionment of liability between Messrs. Weller and Charlton because the parties attach great significance to these issues when it comes to responsibility for, and apportionment of, costs.

[7] While I have not been made privy to the precise arrangements between BMO, Mr. Weller and Mr. Charlton respectively, I have assumed, based on what I have been told, that BMO has not committed itself to indemnify its employees for damages or costs arising from this litigation without further recourse to one or both of the individuals concerned.

[8] Until 2012, all of the defendants were represented by Norton Rose LLP (and its predecessor firm, Ogilvy Renault LLP). However, that changed in 2012. A letter from BMO to Mr. Weller at the time states BMO’s “understanding that you have obtained new counsel”. Mr. Weller, however, submits that it was BMO’s unilateral decision to terminate the joint retainer of Norton Rose LLP on behalf of all defendants after Mr. Weller had advised BMO that he did not want to contribute amounts to settlement offers that he considered unfair.

[9] This parting of the ways not only led to the separate representation of Mr. Weller. It also had an effect on attempts to settle the litigation. As will be seen, the plaintiffs ended up attempting to enter into separate settlement deals with BMO/Charlton and Weller respectively. BMO and Mr. Charlton have also noted, in their costs submissions, that their ability to make a rule 49 offer of settlement was impeded because it was dependent on the willingness of Mr. Weller to contribute.

[10] Before further analysis of how the relationship between the defendants, and the liability findings against them, should impact on the issue of costs, I will address some general principles, as they appear to pertain to this case, and consider the effect of attempts at settlement.

General Principles

[11] The costs of and incidental to 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: Courts of Justice Act, R.S.O. 1990, chap. C. 43, s. 131(1). The usual rule in Ontario is that costs follow the event. This is subject, however, to the overarching discretion of the court. In exercising its discretion and determining what costs are payable, the court may consider, in addition to the result in the proceeding:

a. Any offer to settle or to contribute made in writing (rule 49 of the Rules of Civil Procedure).

b. The enumerated factors set out in rule 57.01 of the Rules of Civil Procedure

c. The overarching principle of proportionality (rule 1.04(1)).

d. That costs should be fixed in an amount that is fair and reasonable to the parties against whom costs are awarded rather than an amount fixed by reference to the actual costs incurred by the successful litigant: Boucher v. Public Accountants Council of Ontario, 2004 14579 (ON CA), (2004) 71 O.R. (3d) 291 at para. 26.

Offers to Settle

[12] On 30 January 2013, the plaintiffs made a written offer to settle on terms that the defendant would pay to the plaintiffs the sum of $200,000 inclusive of damages and interest, plus costs of the action on a partial indemnity scale, to be assessed or agreed.

[13] Although not expressly presented as a rule 49 offer, on 16 May 2013 in correspondence with the then lawyers representing Mr. Weller, the plaintiffs’ lawyer asked whether Mr. Weller would be “willing to consider contributing $100,000.00 towards a settlement of this action? The balance of the settlement would have to come from the other defendants, that a significant contribution from [Mr. Weller] would greatly facilitate a global settlement”.

[14] In January 2014, BMO and Mr. Charlton made a verbal offer to settle for $50,000 all inclusive. By email correspondence on 31 January 2014, the lawyers for the plaintiffs conveyed a “counter-offer” to that verbal offer in these terms:

“1. BMO Nesbitt Burns and Brad Charlton will pay $200,000 to the plaintiffs in full settlement of the liability of those defendants. That $200,000 payment would not cover any damages, pre-judgment interest or costs to which Albrecht Weller would be liable if he were the sole defendant.

2. The plaintiffs will proceed to trial against Albrecht Weller only. If either or both of the plaintiffs obtain a judgment against Albrecht Weller, with costs, they will assign that judgment to BMO Nesbitt Burns, except for the costs portion of the judgment (which the plaintiffs will enforce for their own benefit). Any amounts recovered from Albrecht Weller by either [the plaintiffs] or [BMO/Charlton] will be applied first to any unpaid of the costs order and the balance will be applied to the assigned judgment in favour of BMO Nesbitt Burns.”

[15] The 31 January 2014 email goes on to note that the plaintiffs were offered approximately $52,000 by BMO approximately four years previously, before any action had been started.

[16] The total value of the award of damages made against the defendants, inclusive of pre-judgment interest, is $137,774.03. Accordingly, the plaintiffs recovered less at trial than their offer of 30 January 2013.

[17] Although it was argued by the plaintiffs that I should regard the subsequent settlement correspondence in which the plaintiffs explored the possibility of doing separate deals with BMO/Charlton on the one hand, and Weller, on the other, as offers, it was not suggested in any of the costs submissions that the offer of 30 January 2013 did not remain open for acceptance until the commencement of trial. This places into context the subsequent settlement correspondence. A subsequent rule 49 offer of settlement will, by implication, result in an earlier offer of settlement being deemed withdrawn: Diefenbacher v. Young (1995), 1995 2481 (ON CA), 22 O.R. (3d) 641 (C.A.).

[18] A settlement offer which may not amount to a formal offer of settlement pursuant to rule 49, may nevertheless be given appropriate consideration. Indeed, rule 49.13 expressly provides that the court, in exercising its discretion with respect to costs, may take into account any offer to settle made in writing, even if such an offer does not meet the formal requirements of rules 49.03 (time for making offer), 49.10 (costs consequences of failure to accept) and 49.11 (multiple defendants).

The Position of the Parties

The Plaintiffs

[19] Extensive submissions were made by the parties on the issue of costs. At the risk of doing a disservice to the comprehensive approach taken by the parties I would summarize their positions as follows:

[20] The plaintiffs seek costs against all of the defendants, as follows:

(a) Against BMO and Mr. Charlton the amount of $307,908.34, calculated on a partial indemnity basis up to and including 31 January 2014, and on a substantial indemnity basis thereafter; and

(b) Against Mr. Weller, the amount of $309,633.34, calculated on a partial indemnity basis up to and including 16 May 2013 and on a substantial indemnity basis thereafter (concurrent with, not in addition to, the amount awarded against BMO/Charlton).

[21] The plaintiffs reason that BMO and Charlton would have been better off accepting the 31 January 3014 offer because, after deducting Mr. Weller’s 50% portion of damages and pre-judgment interest awarded at trial, the value of the offer, in terms of the net effect for BMO/Charlton, would be $131,112.99 (i.e. $200,000 minus $68,887.01 representing Mr. Weller’s 50% portion of damages and pre-judgment interest awarded at trial).

[22] The plaintiffs argue that their “offer” to settle with Mr. Weller on the basis of him making an all-inclusive contribution of $100,000 towards the settlement of the action, is a more favourable outcome from Mr. Weller’s perspective than 50% of the damages and pre-judgment interest awarded at trial ($68,887.01) plus 50% of the plaintiffs’ costs.

[23] Acknowledging that the plaintiffs’ disbursements were substantial, including $39,189.82 for experts’ reports and the attendance of experts at trial, the plaintiffs submit that there is no general discretion, beyond the requirements that the experts reports were “reasonably necessary for the conduct of the proceeding” and that the amount charged be “reasonable” to vary the amount payable for reimbursement of the costs of experts reports: 3664902 Canada Inc. v. Hudson’s Bay Co. 2003 26101 (ON CA), paras. 20-21.

[24] In the event that the court determines that costs should be assessed on a partial indemnity basis throughout, the total fees and disbursements claimed are $224,158.31, consisting of $153,240 for fees (almost all of which are attributable to one fee earner, Mark Wainberg, called to the bar in 1976, claiming a partial indemnity hourly rate of $300/hr.), $47,237.64 for disbursements and $25,680.67 for GST/HST.

[25] In response to matters raised by the defendants in their costs submissions, the plaintiffs reject the suggestion that wasted costs resulted from the dropping of their claim for breach fiduciary duty or from their pursuit of the individual defendants.

Albrecht Weller

[26] A substantial portion of the submissions made on behalf of Mr. Weller are directed at the argument that he should not bear any personal liability for costs. In essence, his argument is that while he was a proper party to the litigation, he was not a necessary party, given (a) that the plaintiffs’ contractual relationship was with BMO; (b) there was never any issue about BMO being vicariously liable for any negligence on the part of Messrs. Weller and Charlton; and (c) that BMO never alleged that Mr. Weller was acting outside the course of his employment.

[27] As a practical matter, Mr. Weller submits that employees in his position would have no realistic opportunity to decline the risk of personal liability for negligent acts either to their employer or their employer’s clients. Referring to the dissenting opinion of Mr. Justice La Forest in London Drugs v. Kuehne & Nagel International Ltd., 1992 41 (SCC), [1992] 3 S.C.R. 299, Mr. Weller argues that his former employer should be absorbing the costs of simple employee negligence as a cost of doing business and, by extension, any award of costs which arises in that regard.

[28] On the same basis, Mr. Weller submits that fairness requires that BMO reimburse him for the costs which he incurred being separately represented after his parting of the ways with BMO in 2012. On a full indemnity basis he claims costs of $113,084.55. Awarding such costs against BMO would, according to Mr. Weller, address the public policy concerns of Ontario courts that employees should not be liable in tort to his employer or to third parties for simple foreseeable negligence (Douglas v. Kinger, 2008 ONCA 452) and censor BMO’s conduct as an employer.

BMO and Brad Charlton

[29] BMO and Mr. Charlton do not dispute that the plaintiffs are entitled to recover partial indemnity costs. They submit that the only offer of settlement that is valid, for the purposes of the considerations under rule 49, is the $200,000 offer made on 30 January 2013. The other offers would not engage the cost consequences of rule 49 because the offer was not made by all the defendants and was not an offer to settle against all defendants. Furthermore, the offer made to BMO and Mr. Charlton was not “crystal clear” in its terms, with the result that a fair comparison between the offer and the eventual decision at trial is difficult if not impossible to make: Malik v. Sirois, 2003 29931 (ON CA), [2003] O.J. No. 3488 (C.A.); Mark M. Orkin, The Law of Costs, 2nd ed. (looseleaf), (Toronto: Canada Law Book, 2014) at § 214.

[30] The plaintiffs should not be entitled to recover the $16,789.82 plus HST which they seek with respect to the fees of one of the experts, Paul Fettes, because his evidence merely duplicated the evidence given by another expert, Chris Robinson, regarding suitability and portfolio diversification and because a significant part of his evidence dealt with the issue of portfolio diversification, on which the plaintiffs were unsuccessful.

[31] The plaintiffs should also not recover any more than half of the $22,400 plus HST with respect to Chris Robinson’s fees, because approximately 50% of his reports and evidence dealt with portfolio diversification, on which the plaintiffs were unsuccessful, and with the quantification of damages, on which his evidence was not accepted.

[32] BMO and Mr. Charlton also submit that costs should not be awarded that are greater than the amount recovered on the basis that the costs were disproportionate to the recovery: Muskoka Fuels v. Hassan Steel Fabricators Ltd., 2011 ONCA 495, 2011 ON CA 495 at para. 6. Furthermore, where, as BMO and Mr. Charlton submit to have been the case, the plaintiffs were not successful on a significant issue (portfolio diversification), it is appropriate to reduce the cost award to reflect that: Rimmer v. Lahey, 2013 ONSC 7109 at para. 25.

[33] The total cost award should be reduced to no more than $150,000, a reduction of approximately 15% of the net amount of partial indemnity fees and disbursements, which results in an amount that is still greater than the damages awarded.

[34] With respect to the costs of Mr. Weller, given the findings that Mr. Weller owed and breached the duty of care to the plaintiffs and is jointly and severally liable to the plaintiffs as a result of his negligence, it should not be open to Mr. Weller to argue now that he is not also jointly and severally liable for any costs award made against the defendants with respect to the findings of negligence.

Analysis

[35] As noted by the learned authors of the Ontario Annual Practice 2014/2015 (Toronto: Canada Law Book, 2014) at 1337:

“Fixing costs will end the tradition of painstaking analysis of each step of the litigation, with dockets presented and then attacked on cross-examination. Inevitably, there will be a more general approach to costs, returning, to some extent, to the process of some 35 to 40 years ago when the weight and “feel” of the file and the issues indicated the appropriate assessment”.

[36] This was an action in which there were a number of twists and turns, both before and during the trial. Initially, all of the defendants were represented by the same lawyer and a common defence was mounted on behalf of all of them. From 2012 onwards, however, Mr. Weller was separately defended. That, and the fact that it would appear that Mr. Weller and, possibly, Mr. Charlton, will bear some personal financial responsibility as a result of the findings which were made at trial, has certainly influenced the position taken with respect to costs and may well have had an impact on the ability of the defendants to resolve this matter in the two years or so prior to trial.

[37] I am not persuaded by the plaintiffs’ arguments that I should regard the proposals made to Mr. Weller on 16 May 2013 and to BMO and Mr. Charlton on 31 January 2014 as offers to settle, as that term is employed in rule 49. In my view, the only valid offer of settlement that bears consideration is that made on 30 January 2013. The plaintiffs fared less well at trial than that offer of settlement and, consequently, rule 49.10(1) is not engaged.

[38] The plaintiffs are therefore entitled to their reasonable partial indemnity costs.

[39] In fixing the quantum of costs, proportionality is an overarching principle. Consideration is to be given to whether an amount awarded for costs is proportionate to the amount recovered: Elbakhiet v. Palmer, 2014 ONCA 544, at para. 36. It does not, however, follow that a reasonable amount for costs cannot exceed the award of damages in appropriate circumstances: Steelseal Waterproofing Inc. v. Kalovski, 2010 ONSC 2652 at para. 21

[40] I agree with the submission made by the plaintiffs that cases such as this are very expensive to litigate effectively and that ordinary citizens may be discouraged from bringing forward valid claims against large financial institutions if there is an expectation that even if they are successful at trial, most of their damage recovery will be consumed by legal costs.

[41] In this case, the plaintiffs sought damages of at least $384,523 but recovered $134,000, approximately one-third of what they sought. Of the approximately $225,000 which is claimed as partial indemnity costs, approximately $25,000 represents taxes and $47,000 is for disbursements.

[42] Having regard to all of the factors that should inform the exercise of my discretion, I would fix the plaintiffs’ costs in the all-inclusive amount of $195,000.

[43] As noted previously, Mr. Weller and Mr. Charlton were not necessary parties to this action. While it was not improper for them to be named as defendants (London Drugs v. Kuehne & Nagel International Ltd., supra), the result of the individual employees being sued led to the issue of their respective contributions being litigated as well as the cost consequences flowing from their respective contributory negligence. In the dissenting judgment of La Forest J. in London Drugs v. Kuehne & Nagel International Ltd., reference was made to a passage in a report by a Committee set up in England to enquire into the implications of the case of Lister v. Romford Ice and Cold Storage Co., [1957] A.C. 55, at para. 55 of La Forest J.’s opinion:

There can…be no doubt that if there were any real possibility of employees regularly being called upon to pay out of their own pockets damages resulting from acts of carelessness or inattention occurring in the course of their employment, a situation would be created for which some remedy would have to be provided.

La Forest J. goes on to say:

Shifting the loss to the employee, either by permitting a customer to act against the employee or by committing the employer to claim an indemnity against the employee, upsets the policy foundation of vicarious liability.

[44] In Douglas v. Kinger (Litigation Guardian of) (2008), 90 O.R. (3d) 721, 2008, ONCA 452, the Court of Appeal considered the case of a subrogated claim brought in the name of a plaintiff who had hired the 13 year old defendant to perform chores at the plaintiff’s cottage noting that there are other means of encouraging care by an employee without burdening him or her with an impossible financial judgment, such as discipline and dismissal, the Court of Appeal declined to find that the 13 year old employee had breached a duty of care owed by him to his employer. According to the Court of Appeal, at para. 61:

…the employer is generally in a better position than the employee to internalize the cost of ordinary employee negligence, whether as a cost of doing business or by acquiring appropriate insurance. Generally speaking, employers do so. This was the view taken in Morris v. Ford Motor Co., [1973] 1 Q.B. 792, [1973] 2 All E.R. 1084 (C.A.), where Lord Denning emphasized that the employer should bear the liability for employee negligence because the employer enjoys the benefit of the work and should, in turn, bear the burden.

[45] I see no reason why these principles should not inform the disposition of costs. Ultimately, it comes down to this. The individual employees were not necessary parties to the action. Whether, in the event that the plaintiffs collect their judgment from BMO, BMO is entitled to seek indemnity from Mr. Weller or Mr. Charlton for their respective contributions towards the breach of the duty of care that BMO owed to the plaintiffs lies beyond the scope of what the court has been asked to decide in this action. But in the exercise of the court’s discretion with respect to costs, it seems both commercially and practically reasonable that neither Mr. Charlton or Mr. Weller, personally, should be responsible for the costs of an action in which they were not necessary parties but their employer was.

[46] Although not a necessary party, Mr. Weller was a proper party. While he was separately represented at trial, there was no evidence adduced of any contractual obligation on the part of BMO to indemnify Mr. Weller for the costs he incurred. Absent such evidence, I would not require BMO to pay a portion of Mr. Weller’s costs.

Conclusion

By reason of the foregoing, I fix the plaintiffs’ costs of the action in the all-inclusive amount of $195,000, payable by the defendant BMO Nesbitt Burns Inc. I make no order of costs either in favour of or against the defendants, Brad Charlton or Albrecht Weller.

Mew J.

Date: 31 March 2015