NEWMARKET

COURT FILE NO.: CV-13-116868-00

DATE: 2015-09-28

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: ROBERT CUSHNAGHAN, Plaintiff

AND:

YING KWAN, Defendant

BEFORE: THE HON. MADAM JUSTICE S.E. HEALEY

COUNSEL:
C. Losell, for the Plaintiff
R. Quance, for the Defendant

HEARD: By written submissions

COSTS ENDORSEMENT

[1] This endorsement addresses the costs of a successful motion for summary judgment brought by the plaintiff (Cushnaghan v. Kwan, 2015 ONSC 4837).

[2] Having regard to those factors set out in rule 57.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, that the court may consider in exercising its discretion to award costs under s. 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C. 43, the following considerations apply in this case: the principle of indemnity, the reasonable expectations of the unsuccessful party, the amounts claimed and recovered, the complexity of the proceeding, the importance of the issues, and the nature of the defendant’s allegations. This last consideration impacts on the scale of costs in this case.

The Principle of Indemnity

[3] The plaintiff’s lawyer has 34 years of experience. His actual rate is $375 per hour, and his costs outline applies a rate of $290 per hour on a partial indemnity rate. It is noted that this partial indemnity rate is well below that established by the Costs Subcommittee of the Civil Rules Committee in 2005 for a lawyer of over 20 years’ experience, which is a maximum of $350 per hour. Taking inflation into account, calculated in accordance with the Bank of Canada’s “Inflation Calculator”^1 at the equivalent rate in 2015 dollars is $414.35.

[4] While it is tempting to apply percentages to the actual rates to arrive at a partial or substantial indemnity rate, I prefer the approach explained in Mantella v. Mantella, 27 R.F.L. (6th) 76, 2006 17337 (O.N.S.C.), at para. 7:

In this case, because of the rates at which counsel undertook Ms. Murray's defence, there is little difference between partial indemnity and full recovery costs. The actual fees charged by counsel are not the starting point of a costs analysis. Costs are an indemnity, and thus may not exceed the client's total liability to her solicitor; the client may not gain a windfall as a result of a costs award. [Footnote omitted.] However, in fixing partial indemnity costs, the court does not look at the actual fee arrangement between solicitor and client and discount that arrangement to ensure that recovery is "partial". Rather, the court considers the pertinent factors laid down in the rules in fixing the amount of recovery appropriate on a partial indemnity basis. So long as the amount is equal to or less than the actual fees and disbursements charged, then the amount arrived at by reference to the factors listed in the rules will be the amount of the award —whether that represents 50% of actual fees, 75% of actual fees, or even 100% of actual fees. If counsel is prepared to work at rates approximating partial recovery costs, that is counsel's choice. There is no reason why the client's fee recovery ought to be reduced because she has negotiated a favourable rate with counsel, so long as the total of the indemnity does not exceed the fees actually charged.

[5] “Partial indemnity costs” are defined in the Rules as those costs awarded in accordance with Part 1 of Tariff A, which directs the court to determine the fees for any step in accordance with s. 131 of the Courts of Justice Act and the factors set out in Rule 57.01(1). Substantial indemnity costs are defined, in substance, as being one-and-one-half times that amount. This is typically 90 percent of actual rates charged, which in this case would amount to $338 per hour.

[6] Given that both the partial indemnity and substantial indemnity rate used by plaintiff’s counsel are well below those established by the Costs Subcommittee, and less than the amount charged to his client, either amount is reasonable, depending on the scale of costs to be applied.

[7] In terms of time spent, it is not productive to compare the hours allocated by each party’s counsel to his or her preparation and presentation of the case, as there are numerous variables that may create large discrepancies between the numbers. The reasonableness of the time spent should be measured against the step in the proceeding for which costs are sought. This was a summary judgment motion; the onus was on the plaintiff to adduce sufficient evidence to show there was no genuine issue requiring a trial. Unless the time spent cries out for reduction due to unreasonableness, the court is not to second guess the time required by counsel to prepare a case for summary judgment. In this case the issues were simple but the history of the dealings between the parties was reasonably complex, and therefore the lengthy docket entries, often involving discussions with the client, are seemingly warranted. There were no steps taken in this case that involved an excessive number of hours.

[8] In summary, I see no reason to reduce the rates charged or time spent by counsel.

The Amount of Costs an Unsuccessful Party Could Reasonably Expect to Pay

[9] The defendant has filed her former lawyer’s costs outline to demonstrate that her reasonable expectations for a summary judgment motion were between $10,000 and $15,000, based upon her counsel’s actual fees and disbursements of $20,103.92. Yet her former counsel’s actual hourly rate was $500 per hour, and accordingly she would know that Mr. Losell, who is also senior counsel, would charge an hourly rate in that same range.

[10] An expectation of $10,000 to $15,000 for a respondent on a summary judgment motion may be a realistic amount to expect to pay. However, so may be a much higher amount, depending on the factual complexity of the issues involved.

The Amount Claimed and the Amount Recovered in the Proceeding

[11] The defendant was ordered to pay the plaintiff $500,000, the entire amount remaining in issue in the action. It is a substantial amount for both parties.

Complexity of the Proceeding

[12] The action and motion were not overly complex but the factual matrix was quite involved, given the history between the parties involving the purchase of real property, disputes following closing, a settlement, further disputes, mortgage enforcement proceedings and the subsequent collapse of boat shelters on the property. The defendant also made an allegation of illegal contract based on tax avoidance, which created an extra issue of significance right up until the argument of this motion. In her pleading, the defendant made the following claims and allegations:

The Defendant states and the fact is that the Confidentiality Agreement was proposed and made by the Plaintiff with a view to avoiding his tax obligations and that the Minutes of Settlement were an effort to perpetuate such tax avoidance.

The Defendant states that it was the expressed purpose of the Plaintiff to understate the purchase price of subject property in furtherance of the avoidance of his tax obligations.

The Defendant states that the Plaintiff and [his] counsel at all material times were aware that the purported settlement of issues under the Confidential Agreement was void, illegal and unenforceable and contrary to public policy.

[13] These are allegations of tax fraud. These are serious allegations, damaging to the plaintiff’s reputation, and if proven, would have been grounds upon which the court could have refused to enforce the Minutes of Settlement. Such a situation would have resulted in a dramatic loss to the plaintiff and windfall to the defendant as a result of illegality of the agreement.

[14] The plaintiff points out in his costs submissions that on August 5, 2014, at the hearing of the defendant’s motion for an injunction to restrain the plaintiff from selling the property to recover the amount of his vendor take-back mortgage, the defendant’s counsel advised the court that the plaintiff had filed and produced tax returns disclosing the full sale amount, and accordingly, the defendant was not relying on the allegation of illegality on that motion. However, the defendant never withdrew the claim of illegality relating to the Confidential Agreement or Minutes of Settlement, but repeated and maintained the allegation and claim.

[15] Accordingly, addressing and refuting the claim of illegality was the primary issue addressed in the plaintiff’s motion for summary judgment. The motion record was served in November 2014. Thereafter, the defendant did nothing to advise that she was withdrawing the allegation and claim. Instead, in paragraph 13(c) of her affidavit sworn January 19, 2015, the defendant reiterated her allegation, inviting the court to conclude that the plaintiff’s 2013 tax filing was done after the fact in an attempt to avoid the consequences of his illegal conduct. That paragraph reads:

The Plaintiff was the person who wanted to enter into an Agreement whereby $500,000 was not reflected in the purchase price as he did not wish to report that additional income on his income tax returns. It is true that after I raised the issue of unenforceability of the Confidential Agreement that the Plaintiff proceeded to file [his] 2013 Tax Returns including the full amount of the purchase price and my belief is that he did so in order to avoid a declaration that the Confidential Agreement was unenforceable and potential adverse consequences with the Ministry of Revenue.

[16] When the plaintiff amended her statement of defence and counterclaim in 2015 to add the claim regarding the collapsed boat shelters, she did not delete or withdraw the claim and allegations regarding the agreement’s illegality and unenforceability.

[17] These facts demonstrate that the proceeding was made reasonably complex by the defendant’s conduct. The issue unnecessarily lengthened the proceedings, and for reasons explained below, became important to the issue of scale of costs.

The Importance of the Issues

[18] This motion was of great significance because it brought the action to an end, expedited the resolution, and lead to a significant judgment in favour of the plaintiff.

Scale of Costs

[19] There is ample authority for an award of costs on a higher scale where unsubstantiated allegations of dishonesty, illegality and conspiracy are advanced without merit. While substantial indemnity costs are an exception to the general rule and are awarded only under special circumstances, allegations of this sort can attract an award of substantial indemnity costs: Réno-Dépôt Inc. v. Wonderland Commercial Centre Inc., 2008 ONCA 786, 2008 CarswellOnt 6888; Lewis v. Cantertrot Investments Ltd., 2010 ONSC 5679, 1 C.P.C. (7th) 428; Lee v. Gerling Global General Insurance Co., [1988] I.L.R. 1-2345, 29 C.P.C. (2d) 142; A-C-H International Inc. v. Royal Bank (2005), 2005 17769 (ON CA), 254 D.L.R. (4th) 327, 197 O.A.C. 227 (Ont. C.A.), Susin v. Chapman, 2004 13175, 2004 CarswellOnt 3055 (Ont. C.A.).

[20] The defendant argues that this case does not merit costs on this higher scale because:

a) the allegations in and of themselves ought not to form the basis of a punitive costs order;

b) there is no reason to believe the allegations were made public or that the plaintiff was prejudiced by such allegations;

c) the defendant stated in her affidavit that the allegations were based on advice that she received from counsel;

d) her former defence counsel advised at the argument of the summary judgment motion that he was not relying on the allegation of illegality, as the plaintiff had produced tax returns; and

e) even though the statement of defence was not amended to withdraw the allegation, the allegation was not relied upon by the defendant.

[21] Even if these allegations were advanced after the defendant had the benefit of legal advice from her counsel, the court must also assume that as experienced counsel, he explained to the defendant the potential cost consequences of making unproven allegations of this nature. The allegations impugned the character and reputation of the plaintiff. The allegations were made in court documents, and therefore will always be publicly available. This court saw no evidence to support such allegations, and the fact that those allegations were not pursued indicates that the defendant tacitly acknowledged this absence of evidence. Such allegations must be made sparingly and only where there is good foundation, otherwise litigants risk facing reproach from the court through an award of substantial indemnity costs.

[22] The plaintiff seeks costs on a substantial indemnity basis, calculated at 95 percent of his actual rate, in the sum of $32,256.89. This amount is subject to the overriding principle of reasonableness, having regard to all of the circumstances of the case. The quantum must reflect an amount considered by the court to be fair and reasonable, rather than any exact measure of the actual costs of the successful party: Anderson v. St. Jude Medical, Inc. (2006), 2006 85158 (ON SCDC), 264 D.L.R. (4th) 557, 208 O.A.C. 10 (Div. Ct.), aff’g 28 C.P.C. (6th) 199 (Ont. S.C.).

[23] Anderson v. St. Jude Medical, Inc., together with Zesta Engineering Ltd. v. Cloutier, 2002 45084 (ON CA), 164 O.A.C. 234, 2003 C.L.L.C. 210-010 (Ont. C.A.), and Boucher v. Public Accountants Council (Ontario) (2004), 2004 14579 (ON CA), 71 O.R. (3d) 291, 188 O.A.C. 201 (C.A.) require the judge to step back and assess whether the costs claimed are fair and reasonable in circumstances. Given all of the factors and considerations outlined above, I am fully satisfied that the costs sought are fair and reasonable in the circumstances. I have allowed a small reduction to take into account the defendant’s reasonable expectations, and to reduce the substantial indemnity sum to closer to 90 percent of actual costs.

[24] Accordingly, for the above reasons, this court orders that the defendant shall pay to the plaintiff costs on a substantial indemnity basis fixed in the amount of $29,000 inclusive of H.S.T.

HEALEY J.

Date: September 28, 2015