COURT FILE NO.: CV-11-9062-00CL

DATE: 2015-12-21

SUPERIOR COURT OF JUSTICE – ONTARIO
COMMERCIAL LIST

RE: MARGARITA CASTILLO

Applicant

AND:

XELA ENTERPRISES LTD., TROPIC INTERNATIONAL LIMITED, FRESH QUEST, INC., 696096 ALBERTA LTD., JUAN GUILLERMO GUTIERREZ and JUAN ARTURO GUTIERREZ

Respondents

BEFORE: Newbould J.

COUNSEL: Jeffery S. Leon and Jason W.J. Woycheshyn, for the Applicant

Joseph Groia, Kevin Richard and Martin Mendelzon, for the Respondents

Cost ENDORSEMENT

[1] On October 28, 2015 I ordered that the respondents Juan Arturo Gutiérrez, Juan Guillermo Gutiérrez and Xela Enterprises Ltd. were jointly required to purchase the applicant’s shares in Tropic International Limited for $4.25 million. I have received cost submissions.

[2] Two weeks prior to the hearing of the matter, the applicant served a rule 49 offer to settle by accepting a price of $4.1 million for her shares. As the applicant’s offer was less than the award to her, she claims costs on a substantial indemnity basis from the date of her offer. I see no reason not to award costs from that date on a substantial indemnity basis.

[3] The application requested relief both in relation to the applicant’s shares in Tropic as well as her shares in Xela. In an earlier decision I did not accede to a request of the respondents that the application of Margarita regarding Tropic should go to a trial to be dealt together with her application regarding Xela. Rather, because it was not clear at that stage whether the Tropic and Xela issues in the application should or should not be severed, I permitted the applicant to proceed with her application relating to Tropic and permitted the respondents to contend on the hearing of the application that the Tropic and Xela issues could not be severed and should proceed together to trial. In my reasons of October 28, 2015 I held that the applicant’s claim to be paid for her Tropic shares could be dealt with separately from her claim for relief relating to her interest in Xela.

[4] A number of issues in the application involved both Tropic and Xela which made it difficult to separate what portion of her costs and disbursements related exclusively to Tropic. The applicant says that to be conservative in her calculation of costs, where issues in Tropic and Xela overlapped, she seeks costs in the range of 1/4 to 1/3 of her costs for those issues. The respondents do not quarrel with that discount. I suspect that is because they agree that the applicant has been conservative in her range of 1/4 to 1/3 of her costs. I was able during argument to understand the degree to which the issues in the Tropic and Xela overlapped and I would judge that 1/3 of the costs for these issues would be a fairer proportion for the applicant than just 1/4.

[5] A great deal of work was done, which is not surprising taking into account the ferocity of the litigation that has embroiled this family for many years. There were three affidavits filed on behalf of the applicant and eight on behalf of the respondents. There were 19 days of examinations between June 2012 and May 2015. There were six attendances required at 9:30 a.m. conferences to deal with refusals by the respondents to produce documents. There were several attendances at other conferences and a contested motion to determine whether the application regarding Tropic should be heard together with the Xela issues. It was all hard fought. The ultimate hearing took two days and arguments were compressed to complete the argument in the allotted time.

[6] The applicants seek fees plus applicable taxes on a partial indemnity basis to the date of the offer to settle and on a substantial indemnity basis after that date in the amount ranging from $502,879 to $585,486 depending on whether 1/4 or 1/3 of the work involving both Tropic and Xela issues is taken into account.

[7] This application was commenced in January 2011. Mr. Groia, current counsel for the respondents, was retained only in July, 2013. The respondents have produced nothing from their former counsel that would indicate the amount of work done before Mr. Groia was retained. The total hours spent by lawyers in Mr. Groia’s firm were 722. The total hours spent in Mr. Leon’s firm for the same period were 815.[^1] This difference does not in itself indicate that Mr. Leon’s firm spent too much time on the matter, and the respondents do not argue otherwise.

[8] The respondents are critical of the total hours spent on behalf of the applicant for an eight month period that preceded the commencement of this application, being 378 hours. It is said that while time spent prior to the application to prepare the materials required to commence the litigation are recoverable, the hours claimed by the applicant are far more than what a party could reasonable expect to pay for this work. What is said would be reasonable is not stated. The difficulty with this submission is that without knowing the amount of legal work that was done on behalf of the respondents before the application was brought and to initially respond to it, the submission is “an attack in the air”. See Winkler J. (as he then was) in Risorto v. State Farm Mutual Automobile Insurance Company (2003), 2003 43566 (ON SC), 64 O.R. (3rd) 135. See also LaForme, J.A. in Frazer v. Haukioja, 2010 ONCA 249.

[9] Without knowing what work was done on behalf of the respondents, it is difficult to say that the hours spent on behalf of the applicant were too much. Another consideration is that the applicant was shut out for some time by the respondents and in order to build a case she would have been in no different situation than many plaintiffs who have a much larger amount of work to do at the outset. In this case the respondents held the cards and acted in an oppressive and coercive manner towards the applicant leading up to the application. The respondents knew what they had done and would not have had to do the same amount of work to respond to the case as required on behalf of the applicant. The mistreatment of the applicant leading up to the filing of this application involved lawyers for the respondents and for the applicant and the material relating to that mistreatment was part of the record filed by the applicant with the application. It involved no little work on the part of Mr. Leon’s firm.

[10] It is not the court’s function when fixing costs to second guess successful counsel of the amount of time spent unless the time spent was obviously too much. See Fiorillo v. Krispy Kreme Doughnuts Inc. [2009] O.J. No. 3223 and the authorities cited in it. I am in no position to say that the time spent was obviously too much.

[11] The respondents also say that too much time was spent by senior counsel and there was a lack of appropriate delegation to the lowest-cost timekeeper. While I agree that appropriate delegation is a consideration in determining a reasonable cost award, in this case it is difficult to be critical of what occurred. The percentage of work done for the applicants was 26% for Mr. Leon, a 1979 call, 40% for Mr. Woycheshyn, a 2005 call, 21.5% for Mr. McKenna, a 2010 call and 11.5% for Mr. Bortolin, a 2014 call. For the period of time in which Mr. Groia’s firm was retained, the percentage of work done was 23% for Mr. Groia, a 1981 call, 29% for Mr. Richard, a 2000 call and 34% by Mr. Mendelzon, a 2012 call[^2]. The respondents say that 66% for senior counsel for the applicant is too high a percentage compared to 52% for the respondents. This is a little simplistic. There was really one senior counsel on each side, being Mr. Leon who had 26% and Mr. Groia who had 23%. The rates charged by the others were substantially less than their seniors.

[12] No complaint was made by the respondents as to the hourly rates charged by the lawyers for the applicant. In reviewing the rates charged, they are quite consistent with hourly rates charged by Toronto firms for litigation of this nature. Both the applicant and the respondents in their bills of cost have taken 60% of their hourly rates as being the appropriate rate for a partial indemnity bill of costs. This is in accordance with what has become normal practice in Toronto, certainly in the Commercial List.[^3] Costs claimed by the applicant on a substantial indemnity basis are claimed at 90% of the hourly rates charged.

[13] Costs awarded on a substantial indemnity scale are to be determined on the basis of applying a factor of 1.5 to the amount of the partial indemnity costs as fixed (or that would otherwise have been fixed). In determining an amount for partial indemnity costs, hourly rates charged are a factor to be considered but in the end, a court must balance the discretionary factors set out in r. 57.01(1) and arrive at an amount that is reasonable and fair in the circumstances and that bears some relationship to the amount that an unsuccessful party could reasonably expect to pay. See Akagi v. Synergy Group (2000) Inc. 2015 ONCA 771 at paras. 55 and 57.

[14] The total partial indemnity fees from July 2013 when Mr. Groia was retained, and before a reduction to 1/4 or 1/3 for work involving both Tropic and Xela, was $196,569 for the respondents and $325,000 for the applicant[^4]. The explanation for the difference lies in the higher hourly rates charged generally by Mr. Leon’s firm than those charged by Mr. Groia’s firm, for which no complaint was made[^5], and the extra hours docketed by Mr. Leon’s firm. These differences are a factor to be taken into account in considering what amount the respondents as the unsuccessful parties could reasonably expect to pay, although I do not think that an unsuccessful party can necessarily expect to pay no more than charged by that party’s lawyers.

[15] The conduct of the respondents caused a great deal of unnecessary work. This included a continuing refusal to deliver relevant documents to the valuer retained by the applicant, trying to put off the Tropic issue by having it tried at some future date with the Xela issues and refusing to admit until the last moment that the applicant was the owner of her shares in Tropic. It is relatively easy to refuse things and much more difficult with more legal work required to take the necessary steps to deal with such refusals.

[16] There is another factor that needs to be taken into account in assessing the costs. While the applicant did not request costs on a substantial indemnity basis throughout, the oppressive and abusive conduct of the respondents both before and after the application was commenced might well have given rise to costs being awarded on the higher scale had they been requested. This abusive conduct, which I need not discuss here but is contained in my reasons of October 28, 2015, made this litigation considerably more difficult than it should have been.

[17] Taking into account the factors in rule 57.01 and what the respondents could reasonably expect to pay, and awarding costs on a substantial indemnity basis from the date of the offer, I assess the amount of the applicant’s costs for fees and applicable taxes at $500,000.

[18] The applicant claims the usual sort of disbursements of $46,135.94, inclusive of applicable taxes, on the assumption that 1/3 of the disbursements relating to the joint Tropic and Xela work are allowed. The respondents take no issue with respect to this claim and the disbursements as claimed are allowed.

[19] The applicant also claims the amount paid to her expert valuation witness Farley Cohen from 2011 to 2015 of $343,722.27. This amount is contested by the respondents who paid their valuation expert Errol Soriano $124,823.44.

[20] Mr. Cohen charged approximately $173,000 from 2011 to 2013 identifying and reviewing documents required to determine a fair value determination. He charged approximately $39,000 in 2014 when he wrote his first report after obtaining the documents that were ordered more than once to be produced and approximately $130,000 in 2015 for writing a critique of Mr. Soriano’s valuation report, preparing for and attending on his cross-examination on his reports and the cross-examination of Mr. Soriano on his reports.

[21] The respondents attack the amount charged by Mr. Cohen from 2011 to 2013, saying it was excessive. Why it was excessive is not discussed in any material way. This complaint disregards the attempts by the respondents to deny the applicant relevant documentation to value her Tropic shares. This is referred to in some detail in my October 28, 2015 reasons. Documents came in dribs and drabs and Mr. Cohen had to consider them as they arrived and cause further requests to be made. Lengthy requests of March 2, 2011, February 1, 2012 and April 30, 2013 were made and answered for the most part after several orders had to be made. The issues that Mr. Cohen identified in the course of this documentary production were important, including the transfer pricing issue and the restatement of the books of Tropic regarding XGL that occurred after this application was commenced. The work spread out over three years should not have been necessary if all of the information had been provided to Mr. Cohen at the outset. It does not lie in the mouths of the respondents to be critical of the work required by Mr. Cohen to be done to review the documents produced piecemeal and to identify further documents required for his valuation. While no details of the work carried out by Mr. Soriano were provided, I am quite sure that he did not have any difficulty in being provided with the necessary financial information from the respondents.

[22] The respondents say that when the documents referred to by Mr. Cohen in his report are compared with all of the documents requested by him, it reveals that may of the document requests were unnecessary and that there should be a reduction in the amount awarded to the applicant for Mr. Cohen’s charges as a result. I do not agree. Mr. Cohen could hardly know in advance what the financial disclosure he was seeking would reveal, particularly when it was quite plain that the respondents were resisting meaningful disclosure. Mr. Cohen is a very experienced and well respected valuer, and neither I nor the respondents are in any position to say that what he was requesting should not have been requested or reviewed once produced.

[23] The respondents say that Mr. Cohen and Mr. Soriano performed a very similar scope of work and the amount awarded should reflect the reasonable expectations of the respondents which are reflected in the amount charged by Mr. Soriano. The difficulty with that contention in this case is that there are no details at all as to what Mr. Soriano did or what he had to do to get the required information. There is no information, for example, that Mr. Soriano was alerted to the transfer pricing issues or the XGL restatement of the books of Tropic before they were raised by Mr. Cohen or that he had to do the same amount of digging for information that Mr. Cohen was forced to undertake. The respondents and their advisors had to know that by playing hardball with respect to financial disclosure required by Mr. Cohen for a considerable period of time, the costs would mount substantially. I do not accept that what they paid Mr. Soriano is what they could reasonably expect to pay for Mr. Cohen’s charges if they lost.

[24] Mr. Cohen is no stranger to valuations and I cannot say that he wasted his time on wild goose chases or did more work than was required. His task in this case was no easy ride. I allow his charges in full.

[25] In the circumstances, I assess the costs to be paid to the applicant at $500,000 plus $46,135.94 plus $343,722.27 for a total of $889,858.21.

Newbould J.

Date: December 21, 2015

[^1]: In calculating the hours for Mr. Leon’s firm, I have taken one half of the total hours spent in 2013 and assumed that was the number of hours spent from July to the end of 2013.

[^2]: I have ignored student and litigation clerk time.

[^3]: See Stetson Oil & Gas Ltd. v. Stifel Nicolaus Canada Inc, 2013 ONSC 5213 and Inter-Leasing, Inc. v. Ontario (Revenue), 2014 ONCA 683.

[^4]: This is taking 50% of the partial indemnity amount for 2013 for Mr. Leon’s firm.

[^5]: I was not able to do a similar analysis from 2010 until July 2013 when Mr. Groia was retained to act for the respondents as the information from the respondents’ previous lawyer was not provided.