Court File and Parties

COURT FILE NO.: CV-14-495833 DATE: 2015-04-07

ONTARIO SUPERIOR COURT OF JUSTICE

RE: WARBURG-STUART MANAGEMENT CORPORATION, Plaintiff -and- DBG HOLDINGS INC., O'HARA TECHNOLOGIES INC., 1346041 ONTARIO INC., THE GIL O'HARA FAMILY TRUST, BRIAN W. O'HARA and DAVID P. O'HARA, Defendants

BEFORE: F.L. Myers J.

COUNSEL: Peter I. Waldmann, for the Plaintiff Douglas D. Langley and Parisima Zandi, for the Defendants

READ: April 07, 2015

COSTS endorsement

[1] By reasons for decision dated March 9, 2015, reported at 2015 ONSC 1594, the plaintiff succeeded in obtaining summary judgment against the corporate defendants for $280,250 plus prejudgment interest. The plaintiff was completely successful except for one point worth $12,500. The claim and resulting judgment are for fees owing to the plaintiff for successfully finding financing for the defendants’ business. The defendants purported to terminate the plaintiff’s consultancy agreements when they already had in hand an acceptable refinancing proposal obtained by the plaintiff’s labours. They declined to pay the plaintiff the agreed upon fees and advanced a number of highly technical interpretive arguments to try to avoid their promise to pay the plaintiff for doing exactly what they hired it to do.

[2] The plaintiff seeks costs on a substantial indemnity basis in the amount of approximately $73,000 due to the defendants’ “reprehensible “conduct. Alternatively, it seeks costs on a partial indemnity basis to October 31, 2014 and substantial indemnity costs thereafter, totaling approximately $70,000, based on offers to settle that it made. The plaintiff’s final fallback is to claim costs of approximately $59,000 calculated under the tariffs on a partial indemnity basis.

[3] Included in the costs sought by the plaintiff are costs reserved by order of Master Abrams dated May 30, 2014. The individual defendants declined to instruct their counsel to accept service of the statement of claim despite the plaintiff’s request and they evaded service thereafter. The Master granted an order for substitute service on those defendants allowing service by mail to the offices of the corporate defendants. Playing service games is beneath the dignity of bona fide business people. While parties may not be positively required to authorize their counsel to accept service, declining to do so and evading reflects petulance and an attitude that ill-serves the parties’ efforts be taken to be acting bona fide. I did not know about this at the time of the hearing of the summary judgment motion. In my view, the plaintiff is entitled to its costs before the Master and I include those costs in the award below.

[4] I do not see this case as falling within the class of cases in which scandalous or reprehensible behaviour attract punitive costs. “As a general rule [substantial indemnity] costs are awarded on very rare occasions such as when a party has displayed outrageous conduct during the proceedings”. Prinzo v. Baycrest Centre for Geriatric Care, 2002 45005 (ON CA), at para. 76. Failing to accept service, while annoying, childish, and contrary to the goals of expediency and affordability, actually costs relatively little in wasted expenses. In addition, advancing arguments that ultimately fail is not outrageous behaviour. It is a shame that the defendants wasted their money doing so rather than engaging in settlement negotiations. But that too is not outrageous or reprehensible. Their conduct was ultimately contrary to their own economic interest in that they will spend more by their strategy than had they entered into settlement negotiations and resolved the case as discussed below. But that too has yet to be recognized as attracting punitive costs.

[5] The plaintiff made an offer to settle under Rule 49 on February 11, 2014. That offer remained open for acceptance until the hearing as contemplated by Rule 49. However, the amount that the plaintiff offered to accept exceeded the amount of the judgment that it obtained. No presumptive cost consequences flow from this offer.

[6] On October 31, 2014, the plaintiff made a second offer to settle to accept $275,000 inclusive of interest and costs fixed at $27,500. The plaintiff beat this offer. But it was open for acceptance for only seven days. Therefore, this offer too does not attract presumptive costs consequences under Rule 49.

[7] The plaintiff asks the court to consider its offers under the discretionary authority provided in Rule 49.13. That rule provides:

49.13 Despite rules 49.03, 49.10 and 49.11, the court, in exercising its discretion with respect to costs, may take into account any offer to settle made in writing, the date the offer was made and the terms of the offer.

[8] In Elbakhiet v. Palmer, 2014 ONCA 544, at para. 33, the Court of Appeal discussed the application of Rule 49.13 as follows:

As this court pointed out in Lawson v. Viersen, 2012 ONCA 25, at para. 46, rule 49.13 is not concerned with technical compliance with the requirements of rule 49.10. Rather, it “calls on the judge to take a more holistic approach.” The appellants complied with the spirit of Rule 49 even if they failed for technical reasons to provide an offer that exceeded the Judgment. As held in Lawson, at para. 49, this was the type of offer that ought to have been given “considerable weight in arriving at a costs award.”

[9] I do not see the plaintiff as having failed to beat its offers for mere technical reasons. Its formal Rule 49 offer was higher than the amount to which it was found to be ultimately entitled. Its second offer, which it did beat, was time limited. The defendant says that the offer was made very early in the motion process before enough had been done to arm the parties with sufficient information to make informed settlement decisions. It is hard to accept this reasoning since (a) the defendants had the ability to calculate the plaintiff’s fees from the moment they entered into their refinancing. The plaintiff’s particularized fee rates were set out in a schedule to the agreements in issue; and (b) the defendants never made any offer to settle. There is no basis in the evidence to support an argument that the plaintiff’s offer was just too early to be acted upon by the defendants. They knew the numbers throughout and they did not make any offer later when they had all the information that they claim they needed.

[10] Having said that however, the principal amount offered by the plaintiff in its time limited offer was very close to the amount that the plaintiff recovered. That is, the offer did not amount to much of a discount or compromise. If a party is trying to attract another to negotiate with a one-time special, time limited offer, the discount has to be sufficient to attract a response. Objectively speaking, the plaintiff assessed its case correctly and very responsibly in October, 2014. It made an offer that would have attracted presumptive cost consequences had it been left open to the hearing. By putting a short trigger on the offer, the plaintiff deliberately declined to live with its assessment and acted instead as if it was giving a very special discount that the defendants should take rather than incurring the costs of the motion process. For that type of time limited offer to attract significant weight under Rule 49.13, in my view, the discount must be substantial so as conclude that any reasonable litigant ought to have seen that the plaintiff was signaling a desire to make a significant compromise and thereby attract the opponent to negotiate at that time. Otherwise, the plaintiff had to leave its offer open if it wished to attract the cost consequences of the Rule.

[11] It does strike me as relevant too however, that the defendants made no offer to settle at all. This is a high risk, high cost strategy. It does not seem consistent with the goals of efficient, affordable, and proportional civil justice. There was no matter of principle at play in this case for the defendants. Both sides had the ability to assess their legal and practical risks and to handicap their positions. It is hard to understand why a party would not want to make at least some offer if only to try to take advantage of the cost consequences of Rule 49 and pressure the other side accordingly. The strategy of making no offer at all suggests perhaps a big guy v. little guy bullying strategy. This is consistent with declining to accept service of process and evading service to run up costs. The day has not yet arrived when the refusal to make an offer is itself a cause of costs on a substantial indemnity basis. The Court of Appeal would have to revise the clear law that conduct must be “reprehensible” to attract punitive costs. I do not see the failure to make an offer as “reprehensible” conduct.

[12] The fixing of costs is a discretionary decision under section 131 of the Courts of Justice Act, and that discretion is generally to be exercised in accordance with the factors listed in Rule 57.01 of the Rules of Civil Procedure. Overall, the court is required to consider what is “fair and reasonable” in fixing costs, and is to do so with a view to balancing compensation of the successful party with the goal of fostering access to justice: Boucher v Public Accountants Council (Ontario) (2004) 2004 14579 (ON CA), 71 O.R. (3d) 291 (C.A.). Rule 57.01(1) provides the following factor for consideration:

57.01 (1) In exercising its discretion under section 131 of the Courts of Justice Act to award costs, the court may consider, in addition to the result in the proceeding and any offer to settle or to contribute made in writing,

(0.a) the principle of indemnity, including, where applicable, the experience of the lawyer for the party entitled to the costs as well as the rates charged and the hours spent by that lawyer;

(0.b) the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed;

(a) the amount claimed and the amount recovered in the proceeding;

(b) the apportionment of liability;

(c) the complexity of the proceeding;

(d) the importance of the issues;

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

(f) whether any step in the proceeding was,

(i) improper, vexatious or unnecessary, or

(ii) taken through negligence, mistake or excessive caution;

(g) a party’s denial of or refusal to admit anything that should have been admitted;

(h) whether it is appropriate to award any costs or more than one set of costs where a party,

(i) commenced separate proceedings for claims that should have been made in one proceeding, or

(ii) in defending a proceeding separated unnecessarily from another party in the same interest or defended by a different lawyer; and

(i) any other matter relevant to the question of costs.

[13] Despite a specific direction, in para. 44 of my reasons for decision, requiring the defendants to submit a costs outline of their own with their costs submissions, they declined to do so. I am left to infer that had they done so, their costs would have been as high as or higher than those claimed by the plaintiff.

[14] The defendants’ failure to make an offer to settle was inconsistent with the goals of the civil justice system and it suggests a type of strategy that does not favour reasonable resolution of disputes. It may amount to unreasonable conduct (H.F. v. M.H., 2014 ONCJ 526 at para 17) but it does not seem to fall into Rule 57.01(1)(f).

[15] The costs claimed by the plaintiff are well within the realm of reasonable. Mr. Waldmann is a very experienced counsel whose rates are very modest. Apart from Mr. Waldmann, all other work on the file was performed by students. The plaintiff recovered nearly 100% of the amount truly in issue. The issues in the proceeding were very important to the plaintiff as a one-person company that relies on its fee agreements for its livelihood. To the defendants, by contrast, the issues were just part of the calculus of the cost of its refinancing. The defendants’ approach to service of process bordered on vexatious. Its refusal to make any offer to settle at all establishes its intention to incur fulsome costs in the proceeding. Considering, in particular, the desirability of fostering access to justice by conducting efficient, affordable proceedings, the low cap on partial indemnity rates, Mr. Waldmann’s seniority, and what the defendants ought reasonably have expected to pay in costs if they did not succeed, it is fair and reasonable for the corporate defendants to be jointly and severally liable to the plaintiff for costs on a partial indemnity basis of $65,000 inclusive of disbursements and taxes. I realize that this is approximately 10% above the amount calculated by Mr. Waldmann under the tariffs. The strict application of the tariffs does not strike me as a fair or reasonable assessment of the costs to which the plaintiff ought to be entitled on a partial indemnity basis in this case for the above-noted reasons.

F.L. Myers J.

Date: April 7, 2015