Ishani v. Kulasingham, 2015 ONSC 3230

COURT FILE NO.: CV-12-464474

DATE: 20150525

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: HANIF ISHANI, Applicant

AND:

RENUKA KULASINGHAM and WILLIAM HSIEH, Respondents

BEFORE: Mr. Justice Stephen Firestone

COUNSEL: Mark A. Klaiman, for the Applicant

G. Gordon Bent, for the Respondents

HEARD: In Writing

COSTS ENDORSEMENT

[1] This matter was commenced by way of Application. It was subsequently ordered to proceed by way of trial of an issue to determine the state of accounts between the partners of the partnership of Joint Therapy effectively dissolved on July 31, 2007. I heard the matter on April 28, 29, 30, May 1 and 2, 2014.

[2] The issues for determination on the Application were two fold. Firstly, what, if any, share of the Respondents’ new business profits was the Applicant entitled to under s. 42 of the Partnerships Act, R.S.O. 1990, c.P.5 for the Respondents’ use of the old partnership assets. Secondly, what is the fair market value of Joint Therapy as of the date of dissolution and what is the Applicant’s one third share of this fair market value?

[3] In my reasons for judgment dated December 19, 2014, I held that the total amount of the Applicant’s s. 42 claim for 2007 and 2008 was $16,066.94. I further held that the amount owing to the Applicant for his one-third share of Joint Therapy was $46,179.74 for a total of $62,246.68.

[4] In my reasons I indicated that if the parties could not agree on the issue of prejudgment interest and costs I could be contacted in order to set a timetable for the delivery of submissions. I have now received the parties’ costs submissions.

Position of the Applicant

[5] The Applicant seeks costs from the respondents in the sum of $97,612.67 on a partial indemnity basis given that he was the successful party in this Application. There are no reasons why the Applicant should be deprived of its costs. Further, there were no rule 49 compliant offers which would affect the determination of costs.

[6] Counsel for the Applicant argues that although there was some duplication of trial preparation given that he took the matter over shortly before trial, for the purposes of their cost submissions, the Applicant has deducted that time to such avoid duplication.

[7] The Applicant submits that all the work done by counsel is reasonable in light of the issues involved. This included production and review of financial records and the retainer of experts to determine the fair market value of the Applicant’s share of Joint Therapy.

[8] It further submits that the hours devoted to the matter are reasonable given that responding affidavits were prepared and reviewed, cross-examinations took place and undertakings were fulfilled.

[9] The Applicant highlights that although the costs claimed exceed the recovery this matter, is not unusual for a Court to order costs in an amount that exceeds the award. The Applicant, it submits, had no choice but to pursue his remedies given the position of the Respondents regarding his fair market interest in Joint Therapy and their refusal to contribute anything towards the section 42 claim. The Applicant effectively had to choose between discontinuing the matter or accepting a nominal offer.

[10] The recovery, he submits, is only one factor to be considered in the exercise of the judge’s discretion as to the amount of costs to be awarded. The applicant highlights cases in which courts have awarded costs in excess of the amount claimed.

Position of the Respondents

[11] The Respondent’s submit that in this application the Applicant sought payment of $100,000 as the value of his interest in the partnership as of the date of dissolution. In addition he sought the sum of $81,463 for his section 42 claim for a total claimed amount of $181,463.

[12] The Applicant was however awarded the sum of $16,066.94 for his section 42 claim and $46,179.74 as the value of his partnership interest for a total of $62,246.68. The Respondents submit that this sum is within the range of the Simplified Rules and represents approximately one-third of the claimed amount. As a result the outcome this matter was of mixed success and was not a total victory for the Applicant.

[13] Regarding the factors set forth under rule 57.01 to be considered by the Court in exercising its discretion, the Respondent highlights that while there were no rule 49.10 compliant offers, the court under rule 57.01 can consider any offer to settle made in writing.

[14] The Applicant, it submits, served an offer to settle in the sum of $120,000, being the lowest figure he ever considered in the litigation. At mediation the Applicant insisted on payment of $139,256 plus 5% interest.

[15] Just prior to the dissolution of the partnership, the Respondents made an offer to buy the Applicant’s interest for a net price of $55,000. Further, in subsequent offers dated September 14, 2012, November 1, 2012 and October, 2013 and April 21, 2014, the Respondents respectively offered to pay $20,000 plus $10,000 costs; $10,000 plus $5,000 costs; $15,000 plus assessed costs; and $20,000 for Small Claims Court costs. The Respondents submit that their offers are much closer to the result than that of the Applicant’s.

[16] The Respondents further submit that counsel’s hourly rate, while reasonable for his experience, are too high for the size of this claim. Further, while the Applicant claims that the original counsel’s trial preparation time was excluded, the hours claimed are grossly unreasonable for “communications and conversations.” The Respondents submit that the file was in effect “seriously over lawyered”.

[17] Applying the principles of reasonableness and proportionality to this claim in the range of the Simplified Rules, the Respondents submit that the Applicant is only entitled to fees of $15,000 plus disbursements of $10,000.

Applicant’s Reply

[18] The Applicant replies by pointing out that Respondent’s counsel has not submitted a costs outline to verify the time spent on this matter. With respect to the suggestion that it is a Simplified Rules matter they submit that the matter was commenced by way of Notice of Application and on consent it was ordered to proceed by way of trial of an issue(s).

[19] At mediation there were no real offers exchanged. In addition, one of the adjournments of the trial date took place because the Respondents required time to retain an expert and serve a responding report.

[20] Regarding offers to settle, the pre-litigation offer referred to was $45,000, less 1/3 of the bank indebtedness, plus net accounts receivable, plus 1/3 of $13,000. This offer was open for acceptance for four days only. All remaining offers were made during the course of litigation. All offers were below the result achieved by the Applicant.

[21] Finally he submits that this case was complicated as a result of the accounting issues involved. In addition, documentary disclosure from the Respondents was sporadic.

Analysis

[22] Section 131(1) of the Courts of Justice Act provides as follows:

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 costs shall be paid.

[23] Rule 57.01 of the Rules of Civil Procedure identifies the factors a court may consider when exercising its discretion to award costs:

(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.

[24] Rule 49.10 limits the court’s discretion on costs in certain circumstances when there has been a qualifying offer to settle:

(1) Where an offer to settle,

(a) is made by a plaintiff at least seven days before the commencement of the hearing;

(b) is not withdrawn and does not expire before the commencement of the hearing; and

(c) is not accepted by the defendant,

and the plaintiff obtains a judgment as favourable as or more favourable than the terms of the offer to settle, the plaintiff is entitled to partial indemnity costs to the date the offer to settle was served and substantial indemnity costs from that date, unless the court orders otherwise.

(2) Where an offer to settle,

(a) is made by a defendant at least seven days before the commencement of the hearing;

(b) is not withdrawn and does not expire before the commencement of the hearing; and

(c) is not accepted by the plaintiff,

and the plaintiff obtains a judgment as favourable as or less favourable than the terms of the offer to settle, the plaintiff is entitled to partial indemnity costs to the date the offer was served and the defendant is entitled to partial indemnity costs from that date, unless the court orders otherwise.

[25] Rule 49.13 provides as follows:

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.

[26] In Agius v. Home Depot Holdings Inc., 2011 ONSC 5272, the court set forth the general principles to be applied in fixing costs, at paras. 10-12:

Cumming J. in DUCA Financial Services Credit Union Ltd. v. Bozzo, 2010 ONSC 4601 at para. 5, described the “normative approach” to an application for costs:

Costs are in the discretion of the Court: s. 131, Courts of Justice Act, R.S.O. 1990, c. C.43 and Rule 57.01 of the Rules of Civil Procedure. In Ontario, the normative approach is first, that costs follow the event, premised upon a two-way, or loser pay, costs approach; second, that costs are awarded on a partial indemnity basis; and third, that costs are payable forthwith, i.e. within 30 days. Discretion can, of course, be exercised in exceptional circumstances to depart from any one or more of these norms.

Fixing of costs is not merely a mechanical exercise in reviewing the receiving party’s Cost Outline. In Andersen v. St. Jude Medical Inc. (2006), 2006 CanLII 85158 (ON SCDC), 264 D.L.R. (4th) 557, the Divisional Court set out several principles to be considered in making an award of costs:

1. The discretion of the court must be exercised in light of the specific facts and circumstances of the case in relation to the factors set out in rule 57.01(1): Boucher [Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291], Moon [Moon v. Sher (2004), 2004 CanLII 39005 (ON CA), 246 D.L.R. (4th) 440], and Coldmatic Refrigeration of Canada Ltd. v. Leveltek Processing LLC (2005), 2005 CanLII 1042 (ON CA), 75 O.R. (3d) 638 (C.A.).

2. A consideration of experience, rates charged and hours spent is appropriate, but is subject to the overriding principle of reasonableness as applied to the factual matrix of the particular case: Boucher. The quantum should reflect an amount the court considers to be fair and reasonable rather than any exact measure of the actual costs to the successful litigant: Zesta Engineering Ltd. v. Cloutier (2002), 119 A.C.W.S. (3d) 341 (Ont. C.A.), at para. 4.

3. The reasonable expectation of the unsuccessful party is one of the factors to be considered in determining an amount that is fair and reasonable: rule 57.01(1)(0.b).

4. The court should seek to avoid inconsistency with comparable awards in other cases. “Like cases, [if they can be found], should conclude with like substantive results”: Murano v. Bank of Montreal (1998), 1998 CanLII 5633 (ON CA), 41 O.R. (3d) 222 (C.A.), at p. 249.

5. The court should seek to balance the indemnity principle with the fundamental objective of access to justice: Boucher.

The Court of Appeal has identified the overriding principle to be that the amount of costs awarded be reasonable in the circumstances. In Davies v. Clarington (Municipality) (2009), 2009 ONCA 722, 100 O.R. (3d) 66 Epstein J.A. stated at paras. 51-52:

As can be seen, the overriding principle is reasonableness. If the judge fails to consider the reasonableness of the costs award, then the result can be contrary to the fundamental objective of access to justice. Rather than engage in a purely mathematical exercise, the judge awarding costs should reflect on what the court views as a reasonable amount that should be paid by the unsuccessful party rather than any exact measure of the actual costs of the successful litigant. In Boucher, this court emphasized the importance of fixing costs in an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding at para. 37, where Armstrong J.A. said “[t]he failure to refer, in assessing costs, to the overriding principle of reasonableness, can produce a result that is contrary to the fundamental objective of access to justice.”

The Application of Rule 57.01

[27] In addition to the result achieved and offers to settle, I may consider the factors enumerated in rule 57.01(1) when exercising my discretion under s. 131 of the Courts of Justice Act.

[28] Costs are in the absolute discretion of the court. A successful litigant has no right to costs, but only a reasonable expectation of costs. In Yelda v. Vu, 2013 ONSC 5903 (leave to appeal denied, 2014 ONCA 353) at para. 11, Arrell J. confirmed the long-standing principle that a successful party is entitled to costs except for good reason. He states as follows:

The principle that costs follow the event should only be departed from for very good reasons such as misconduct of the party, miscarriage in procedure, or oppressive or vexatious conduct of proceedings.

Quantum of Costs

[29] In this case, there is no basis to depart from the principle that the Applicant, who was the successful party in this matter, is entitled to its costs. The quantum of such costs is another matter. The Applicant is not, based on the applicable legal principles referred to above including the amount claimed and amount recovered as well as the complexity of the proceeding entitled to payment of costs in the requested sum of $97,612.67.

[30] Section 131 of the Courts of Justice Act affords discretion to determine the amount of costs to be paid.

[31] 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: Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291 (C.A.), at para. 16.

[32] In Haufler v. Hotel Riu Palace Cabo San Lucas, 2014 ONSC 2686 at para. 11, Quigley J. confirmed the principle that courts increasingly recognize that an hourly costs approach to determining costs awards as against the losing party is a problematic element of litigation. See also Brady v. Lamb, 14 C.C.L.I. (4th) 285, 2004 CanLII 27491 (Ont. S.C.) at para. 29.

[18] This concern was aptly expressed in Independent Multi-Funds Inc. v. Bank of Nova Scotia, 2004 CanLII 18796 at para. 23:

As between a lawyer and a client, this approach may be acceptable; certainly it is now almost universal, but the client, unlike the opposite party, has the option of seeking a less expensive lawyer. Combined with our system of requiring the loser to pay costs to the winner, measured by what the winner has spent, this approach is proving an enormous obstacle to access to justice in our courts. What middle class person would dream of financing an action, however meritorious, against an opponent capable of spending the sums illustrated by the Bill of Costs of the Bank, when the penalty for losing is financial disaster? It is time for this ruinous system to be revisited. Many jurisdictions do without costs altogether. Perhaps Ontario should join them. As a start, we could stop measuring costs by what the winner has spent, and move to a predictable fixed fee system.

[19] In accordance with the principles outlined above, I do not intend to engage in a purely mathematical exercise of reviewing the hours spent. My role is to fix a reasonable amount to be paid by the unsuccessful party rather than conduct an exact mathematical calculation of the actual costs of the successful litigant.

[20] While the rate charged per hour is an appropriate consideration, it is subject to the overriding principle of “reasonableness” and “access to justice” as applied to the factual matrix of the particular case before the Court.

[21] This was a straightforward case of moderate complexity. I have reviewed the cost outline. A review of the costs outline indicates that there is some duplication of effort and excessive hours.

[22] The Applicant has requested fees on a partial indemnity basis in the sum of $68,716.22 inclusive of HST. In applying the applicable legal principles to the facts of this case, I award fees on a partial indemnity basis in the all-inclusive sum of $19,950.

[23] The defendant claims disbursements in the sum of $28,905.45 inclusive of HST. The Applicant is not entitled to the sum of $466.74 for filing fees in addition to the amount claimed for Court filing fees. Given the nature of this case, it was reasonable and appropriate for the Applicant to retain the expert they did. There is to be no reduction for the cost of the experts report. The disbursement amount is reduced to $28,438.71.

[24] Costs are therefore fixed on a partial indemnity basis in the sum of $48,388.71 inclusive of fees, disbursements, and HST payable by the Respondents to the Applicant. The Respondents are given 150 days from the date of this order to pay these costs.

Firestone J.

Date: May 25, 2015