COURT FILE NO.: 5514/12- SR

DATE: September 30, 2015

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Valerie Gnys carrying on business as Health Services Recovery Network

Plaintiff

– and –

Marta Narbutt

Defendant

Shawn Knights, for the Plaintiff

Margaret Hoy, for the Defendant

Costs and Post Judgment Interest Endorsement

[1] In my decision of July 22, 2015 on a summary judgment motion in this summary procedure action, I awarded the Plaintiff damages for each of the litigation loans made to the Defendant of $10,400, $1040 and $2500 plus prejudgment interest on the first two mentioned loans at 18% annually calculated monthly or 19.5% annually. The total award inclusive of interest was $41,694.15.

[2] The Plaintiff now asks for costs on a substantial indemnity basis in the amount of $76,958.54 or alternatively $50,463.02 on a partial indemnity basis.

[3] The Plaintiff also asks the Defendant’s lawyer Margaret Hoy be held personally liable for a portion of the costs of the action because of her conduct during the action.

[4] The Plaintiff served a written offer to settle repayment of the litigation loans on April 17, 2012 for $22,500 before this action was commenced in August 2012. That offer remained open until June 26, 2015 when it was withdrawn in writing.

[5] However, the Plaintiff concedes that that offer does not comply with Rule 49 as it was a pre litigation offer. Scanlon v. Standish (2002) 2002 20549 (ON CA), 57 O.R. (3d) 767. There were no other written offers from the Plaintiff provided after the commencement of the litigation.

[6] The Defendant alleged in the litigation that her former lawyer Mr. Gnys and his firm had a conflict of interest by not disclosing that the litigation loans were coming from his spouse and was not fully candid and honest with her in that regard. That was essentially admitted at the hearing and confirmed as such by an investigation conducted by the Law Society of Upper Canada. On that basis, those allegations of the Defendant to that effect do not constitute reprehensible, scandalous or outrageous conduct entitling the Plaintiff to an award of substantial indemnity costs against her.

[7] The Plaintiff shall be awarded costs on a partial indemnity basis.

[8] The overriding principle in awarding costs is reasonableness. The judge awarding costs should reflect on what the Court views as a fair and reasonable amount that should be paid by the unsuccessful party in the proceeding rather than any exact measure of the actual costs of the successful litigant. Davies v. Clarington (Municipality) (2009) 2009 ONCA 722, 100 O.R. (3d) 66; Boucher v. Public Accountants Council for the Province of Ontario (2004) 2004 14579 (ON CA), 71 O.R. (3d) 291 (O.C.A).

[9] Costs incurred in simplified procedure actions, as in all cases, must be fair and reasonable and proportionate to the amount recovered. The Plaintiff should not expect to be compensated fully under this summary procedure action for its counsel’s claims for preparation and trial which are unrealistic and much too high bearing in mind the nature of this case in the summary procedure scope. Trafalgar Industries of Canada Limited v. Pharmax Limited (2003) 2003 40313 (ON SC), 64 O.R. (3d) 288.

[10] The pleadings were not complicated as this was not a complex matter. The parties prepared affidavits of documents. The examinations for discovery for parties were completed in one day. The cross examination on the affidavit of the Plaintiff took only seven pages. The Defendant’s counsel cross examined for almost a full day the Plaintiff’s witness Tim Beresh. Plaintiff’s counsel cross-examined the Defendant for three hours.

[11] The Plaintiff only requested five answers from the Defendant by undertaking but the Defendant required the Plaintiff to answer 55 undertakings from her examination for discovery.

[12] The hearing of this motion for summary judgment took one day.

[13] Senior counsel Ashley Gnys, the spouse of the Plaintiff, claims 48.5 hours preparing the summary judgment motion material. He attended on the examinations for discovery. However, he did not participate and is not noted as such on the record. In any event, the examinations for this case did not warrant two counsel attending. He stated he attended also for the motion for summary judgment but he did not sit at the counsel table or make any submissions and nothing is allowed for that time either.

[14] Mr. Knights, who was called to the bar in 2014, conducted the examinations for discovery and cross-examinations, helped prepare the motion materials and conducted the hearing of the motion claiming 127 hours.

[15] Unfortunately, the repayment of the initial loans totalling $13,500 and whether and to what extent interest thereon should be allowed was not complex at all to warrant costs claimed anywhere near the amounts claimed by Plaintiff’s counsel. This is even though the matter was of significant personal interest to the Plaintiff and her spouse’s law firm given the acrimony with Defendant’s counsel Ms. Hoy throughout this proceeding.

[16] I have also considered the importance of the issues that involved allegations of breach of fiduciary duty of the Defendant’s former counsel as well as the Defendant’s refusal to admit her obligation to repay even the principal amount of the loans until the hearing date and even then, only admitted having to repay $11,000 thereof and not all three loans totally $13,500.

[17] The following costs submissions made by Ms. Hoy have no merit or factual basis:

[18] a) she stated that the amount claimed included the $2500 disbursements “over and above $33,000 that she already paid and arguably was included in that amount” (i.e., for the legal fees of the Gnys firm). As indicated in my decision, there was no pleading or evidence whatsoever to that effect in the statement of defence or affidavit of her client, her examination for discovery or cross examination thereon or in any document or evidence from any witness tendered by the Defendant or her counsel. It was also strenuously denied by Plaintiff’s counsel at the hearing. Counsel’s submissions of what the facts are should have some basis in the evidence especially when those alleged facts are denied.

[19] b) she stated that "then after discoveries for the first time the Plaintiff brought a motion for summary judgment on June 26, 2015 and then refused to accommodate the Defendant’s lawyer schedule and to permit time to respond to the motion for summary judgment”.

[20] The Plaintiff's motion for summary judgment in this action was in fact served on September 25, 2014 and returnable October 29, 2014. Defendant’s counsel requested an adjournment of that motion until February 2015 but filed her client’s responding material to this motion at the end of October 2014.

[21] Ms. Hoy apparently is referring to a summary judgment motion in another action commenced by her involving the same parties but that matter was not heard before me. Her suggestion that this other summary judgment motion caused further delay for this summary judgment motion is simply not true. When I brought that to her attention and asked for an explanation, she then said she meant to say the Plaintiff’s motion in this case should have been brought earlier which makes no sense.

[22] c) she suggested that counsel for the Plaintiff “delayed the length of the proceeding” by “delayed time in sending us their affidavit of documents” until March 14, 2014. When received, she asked for copies of the schedule A documents and received them by April 25.

[23] However, she omitted to state that the examinations for discovery were in fact not scheduled to take place until May 9, 2014 and that she did not serve her own client’s affidavit documents on the Plaintiff’s lawyer until May 8, 2014, the day before the scheduled examinations for discovery even though it was sworn on April 24, 2014. The Plaintiff did not delay the length of the proceeding at all.

[24] d) she stated that the Defendant offered to resolve this matter on several occasions and purported to attach offers to settle not accepted by the Plaintiff. However, there was only one written offer to settle dated April 25, 2014 attached to her submissions which was that the Defendant pay the Plaintiff only the sum of $11,001 plus partial indemnity costs but it was only open for 10 days.

[25] Plaintiff’s counsel was adamant that his firm was only served with that offer dated April 25, 2014. Accordingly, I asked for copies of all of the offers to settle referred to by Ms. Hoy in her submissions.

[26] In response, she stated “There are three Offers to Settle but I note that they are all for the same monetary value”. In fact, the two other offers then provided by Ms. Hoy were simply verbatim with what the offer of April 25, 2014 stated and are dated May 2 and May 5, 2014. Ms. Hoy, when asked, could not produce any letters from her office to the Plaintiff’s lawyers confirming she had in fact served these other two purported “offers” on them. She finally admitted that those last two “offers” had not been served on the Plaintiff.

[27] However, after making that admission, she then stated that her client had made other offers during the litigation that I should consider. I reviewed the file but the only “offers” were those in a letter of March 6, 2012 before the action was commenced whereby Ms. Hoy indicated her client was prepared to offer $25,000 and another of April 24, 2013 in the amount of $40,000. However, these offers would be in exchange for a full and final release for both these litigation loans and the Gnys firm’s legal fees and there was no breakdown in those settlement offers. Those legal fees alone were settled in May 2013 for $33,000 and paid.

[28] Accordingly, I have no doubt that these letters were not meant to be included in the “three offers to settle” originally referred to by Ms. Hoy.

[29] e) she stated that arguably this matter “ought to be brought under the Small Claims Court rules”. However, she at no time before the hearing of the motion raised that issue with Plaintiff’s counsel. She did not raise that in her client’s statement of defence or affidavit material and did not argue that on this motion. Lastly, she brought no motion to transfer the action into Small Claims Court herself.

[30] f) she stated that no award for costs should be made as the Defendant was penurious and was unable to pay anything but modest costs as she had used her settlement award to live on and assist her parents and she now had only enough from the award left (i.e. of approximately $307,000) to pay a portion of the indebtedness owing to the Plaintiff.

[31] However, when it was pointed out to her that no evidence including any documentation was provided to support that bald statement of the Defendant being destitute, Ms. Hoy then said she could provide such evidence. I do not accept that submission especially as the amount payable to the Plaintiff at the time of the settlement in October 2011 was not that significant comparable to the financial settlement award she received then.

[32] Ms. Hoy did not initially disclose to the Court that she had in fact retained $25,000 from the settlement funds in her trust account on behalf of the Defendant and immediately after making those written submissions to the Court, paid $13,940 to the Plaintiff’s law firm being the principal amount of the loans “without prejudice”. She acknowledged in Court that she still retains the remaining $11,000 in her trust account.

[33] Moreover, Ms. Hoy then clearly stated in court that she had advised the Plaintiff law firm in writing earlier on that she was withholding this money in trust for this loan issue. Mr. Knights adamantly denied that. Accordingly, I asked Ms. Hoy to produce proof including correspondence that what she had submitted was true.

[34] She then advised the court in subsequent correspondence that in fact there was no such letter from her to Plaintiff’s counsel advising that she was holding back funds from the settlement for this matter. Accordingly, what she had orally submitted earlier to the Court on this issue again was not true.

Disposition on Costs

[35] In my view, a fair and reasonable amount of the Plaintiff’s fees for costs payable by the Defendant is $15,000 plus HST. The amount is calculated on a global basis of what I find is fair and reasonable for both parties given the amount involved. An approximate only breakdown is as follows:

Pleadings $1000

Affidavit of documents $1000

Examinations for discovery $2000

Compliance with undertakings $2000

Cross examinations March 4, 2015 $1500

Cross examinations March 5, 2015 $2000

Attendances for prior court dates $1000

Preparation for and hearing of

Summary judgment motion $3500 Costs submissions and attendance $1000

Total $15,000

[36] The following disbursements are allowed:

Issue statement of claim $181

Motion for summary judgment $127

Official examiner’s costs for examinations

Cross examinations and transcripts $2186.77

Total $2494.77

[37] I am not satisfied that the Plaintiff’s disbursement claimed of $2692.54 for her counsel’s usage of Westlaw Services is a reasonable expense for which the Defendant is responsible especially given the issues in this case, the amount involved, the availability of free legal research through other sources and no proof that this total amount was an actual disbursement for the Plaintiff’s file for this case. Orkin, The Law of Costs second ed., p 2-294.5.

Costs Claimed Against Ms. Hoy Personally

[38] Plaintiff’s counsel submits that Ms. Hoy should be personally responsible to pay a portion of the costs of the action but submits no amount. He submitted that her conduct tended to lengthen unnecessarily the duration of proceeding and caused significant unnecessary delays by:

a. refusing to agree on examinations for discovery dates for seven months.

b. not providing answers to undertakings until six months after examinations for discovery and on the day before this summary judgment motion was to be heard on a short motion date on October 29, 2014.

c. refusing to commit to a long motion date or a reasonable timeline for this motion to be heard resulting in a case management conference and a subsequent assignment court hearing.

d. alleging significant defences and allegations resulted in the Plaintiff incurring significant research costs and case law review.

e. alleging simply bald allegations in her pleadings that were scandalous, vexatious, abuse of process and using court process pressure so that the Plaintiff through embarrassment would later settle her claim for even less than the cumulative loan principal.

f. providing no particulars or evidence regarding any damages the Defendant sustained.

[39] Ms. Hoy’s position is that she was simply following her client’s instructions and to put her best foot forward. She states that whatever discussions took place between her and her client are protected by solicitor /client privilege and that there is no fraud or deceit or negligence on her part established in this case.

[40] A lawyer under Rule 57.07(1) of the Rules of Civil Procedure may be required to pay the costs in a proceeding of any party where that lawyer causes costs to be incurred without reasonable cause or to be wasted by undue delay, negligence or other default.

[41] Costs are awarded as compensation for the successful party, not punishment of lawyers.

[42] The first step is to determine whether the lawyer’s conduct falls within Rule 57.07 in the sense that it caused costs to be incurred unnecessarily. The second step is to consider whether in the circumstances, the imposition of costs against the lawyer is warranted bearing in mind the extreme caution principle in awarding costs personally against the lawyer, given the duties of the lawyer to his or her client, as fear of an adverse order of cost order may conflict with those fundamental duties. Young v. Young (1993) 1993 34 (SCC), 4 S.C.R. 3 (SCC).

[43] A finding of bad faith is not required for imposing the cost consequences of Rule 57.07(1) and it is only when a lawyer pursues a goal which is clearly unattainable or is clearly derelict in his or her duties as an officer of the court that resort should be had to Rule 57.07. Galgonov v. Russell (Township) 2012 ONCA 410; Carleton v. Beaverton Hotel (2009) 2009 92124 (ON SCDC), 314 D.L.R. (4th) 566 (Ont. Div. Ct.).

[44] The Plaintiff has not established, for example, that the 55 undertakings requested were unnecessary or unreasonable. The Plaintiff agreed to them.

[45] I am not persuaded that the evidence establishes that Ms. Hoy failed to follow her client’s instructions, advised her improperly with respect to the defence of this action or acted essentially as a joint venture with her client in defence of this action. There is evidence of Ms. Hoy’s conduct in delaying the examinations for discovery but no real evidence of any significant added costs incurred thereby by Plaintiff’s counsel other than some unnecessary correspondence required .

[46] The allegations and defences raised in the Defendant’s pleadings and affidavit are those “blind alleys” which are a factor in considering an award of party and party costs of the litigation, which I have done, rather than a claim against Defendant’s counsel personally. Galgonov, above, para. 43.

[47] The evidence does meet the high threshold necessary for an order against Ms. Hoy under Rule 57.07(1).

[48] Accordingly, I dismiss the Plaintiff’s claim that Ms. Hoy be held personally responsible for the some of her costs up to and including the motion for summary judgment.

[49] In my view, there is a separate issue as to whether or not Ms. Hoy should be personally responsible for some costs because of her making false or misleading statements in her submissions on costs. In particular, I am concerned with her submissions as noted in paragraphs b, c, d and f above.

[50] I am mindful of the principle that Rule 57.07(1) is not concerned with the discipline or punishment of a lawyer but only with compensation for conduct which has caused unreasonable costs to be incurred. The Court’s inherent power to order costs in rare cases for contempt or to control its officers in which punishment is an objective is a separate issue from a costs order under Rule 57.07(1). Galgonov, above at paras. 15 and 16.

[51] Firstly, because of my need to request further information from Ms. Hoy after receipt of her initial written submissions which resulted in further submissions from both Counsel and then a request for both Counsel to attend for further oral submissions to assist the Court, that required some additional time and expense for Plaintiff’s counsel. Some matters were clarified to explain Ms. Hoy’s position although others were clearly not.

[52] Under the Advocates’ Society’s Principles of Civility and Rules of Professional Conduct, advocates must not knowingly permit the giving of false evidence or engage in any other conduct calculated to induce the Court to act under a misapprehension of the facts. The Court expects Counsel to be zealous in protecting his or her client’s interests but also expects Counsel as an officer of the Court to be accurate and not careless, reckless or misleading as to the truth of the contents of their submissions.

[53] Ms. Hoy was obviously careless and perhaps even reckless and derelict in her duties as an officer of the Court in making submissions that had no factual basis, were not accurate and were in fact false. The Court expects much more of Counsel especially senior counsel who should know better.

[54] However, bearing in mind the “extreme caution” principle of Young v. Young as noted in Galgonov and after much considered deliberation, I cannot say for the certainty required under the case law that the misleading and false statements made by Ms. Hoy in her costs submissions were deliberately and knowingly made so as to render her personally responsible for those costs either under Rule 57.07(1) or under the Court’s inherent power to do so to control its officers of the Court. It goes without saying that the Court expects this type of conduct will not happen again in the future.

[55] Accordingly, the Plaintiff’s application that Ms. Hoy be personally responsible for some of her costs including costs submissions is dismissed.

Post Judgment Interest

[56] The Plaintiff asks for post judgment interest on the amounts claimed at the contractual rates specified in the litigation loan agreements of 18% compounded monthly or 19.5% per annum as the litigation was based on loan obligations with a specified rate which continues until the loans are repaid.

[57] The Defendant submits that post judgment interest should only run at the Courts of Justice rate and that the Court should not exercise its discretion to award further interest “given the delays what took place on both sides”.

[58] However, as I have found indicated above, there were no delays by the Plaintiff or her counsel.

[59] Given my reasons and findings in my decision, I agree with the Plaintiff that post judgment interest on the total amount of all three loans referred to in paragraph 107 of my decision commencing June 26, 2015 shall be calculated at the annual rate of 19.5%. Bank of America v. Mutual Trust Company (2002) 2002 SCC 43, 211D.L.R. (4th) 385 (SCC) at paras. 50 to 52.

The Honourable Mr. Justice R. J. Nightingale

Released: September 30, 2015