Court File and Parties

Newmarket Court File No.: CV-13-114646-SR Date: 2016-04-22 Ontario Superior Court of Justice

Between: 2012865 Ontario Inc. carrying on business as HIGGINS COHN BRAND MANAGEMENT, Plaintiff (Defendant by Counterclaim) – and – KINNIKINNICK FOODS INC., Defendant (Plaintiff by Counterclaim)

Counsel: Kevin L. MacDonald and Jason Allingham, for the Plaintiff (Defendant by Counterclaim) David Hawreluk, for the Defendant (Plaintiff by Counterclaim)

Heard: In Writing

Reasons for Decision on Costs

DiTOMASO J.

Introduction

[1] Pursuant to my reasons for judgment released February 23, 2016, judgment was granted in favour of the plaintiff HC on a claim for breach of contract in the amount of $86,727.69 plus pre-judgment interest from September 1, 2011 to February 23, 2016 in the amount of $5,055.24. The defendant’s (K) counterclaim was dismissed.

[2] The parties agreed that costs would be determined by way of written submissions. I have received and reviewed those written submissions from counsel. The following are my reasons on costs.

Overview

[3] HC commenced an action for the recovery of monies owing by K pursuant to a brokerage agreement. The action was commenced under the simplified procedure rules of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[4] On July 15, 2015, K originally counterclaimed for damages totalling $650,000 compelling this matter to be dealt with by way of ordinary procedure. Further, on June 10, 2015, nearly two years later, K served an amended statement of defence and counterclaim which sought damages for breach of fiduciary duty and was significantly reduced its claim for damages to $50,000 which would have brought this matter into the simplified rules, as was originally sought by HC in an effort to keep costs down.

[5] HC waived its right to discovery. However, K proceeded to discover Patrick Higgins on May 1, 2014 which examination took four hours and fifteen minutes instead of two hours had this matter proceeded under the simplified rules.

[6] The matter proceeded to trial at which K failed to produce Kim Reiniger who was the essential witness employed by K. K only produced Jerry Bigam whose evidence was contradictory and unreliable.

[7] At trial, K’s counsel spent considerable time cross-examining HC’s witnesses asking similar questions which had the effect of unnecessarily lengthening the trial.

[8] K made allegations of serious misconduct against HC which attacked its integrity, all of which were dismissed in their entirety.

[9] K was unsuccessful in pursuing allegations based on breach of the brokerage agreement and breach of fiduciary duties allegedly owed to K by HC.

[10] Over the course of this five-day trial, four witnesses testified for HC and one witness testified for K. The witnesses for HC were the two principals, Patrick Higgins and Jon Cohn, who each had involvement with Jerry Bigam and Kim Reiniger who did not attend to give evidence at trial. Also, Suzanne Prouse and Lynn McConnell testified at trial. They gave evidence about K’s account and commissions owed. First Ms. Prouse testified; she was an accounting manager from 2009 until April 2012 when her position was filled by Lynn McConnell.

[11] Thereafter, Lynn McConnell testified about trying to collect this outstanding account from K during the period April 2012 to December 2012.

[12] Jerry Bigam testified at trial on behalf of K.

[13] My reasons contain my findings adverse to Mr. Bigam on the issue of credibility. My reasons also support my findings that K should have called Kim Reiniger to testify at this trial. Mr. Reiniger dealt with both Mr. Higgins and Mr. Cohn and could have provided critical evidence if called to support the position taken by K. He was not called and an adverse inference was drawn in that Mr. Reiniger if called to give evidence would not have supported K’s case.

[14] HC delivered two Rule 49 offers. One on October 28, 2014 in the amount of $80,000 and one on November 23, 2015 in the amount of $60,000. HC recovered more than each of these offers at trial.

[15] HC claims costs on a substantial indemnity basis or on a partial indemnity basis to October 28, 2014 and costs at a substantial indemnity basis from that date forward based on HC’s first Rule 49 offer.

[16] K submits that the amounts sought either by way of partial indemnity costs, substantial indemnity costs or a combination of the two, are excessive and unreasonable. HC recovered damages in the amount of $86,727.69 plus pre-judgment interest.

Position of the Parties

Position of HC

[17] HC claims substantial indemnity costs (90%) in the amount of $94,445.90 plus HST and disbursements. In the alternative, HC claims costs in the amount of $86,159.25 plus HST and disbursements (partial indemnity 60%) to October 28, 2014, and substantial indemnity (90%) thereafter.

[18] HC submits that it was substantially successful at trial and the defendant’s counterclaim was dismissed. HC submits that there were unproven allegations of breach of fiduciary duty, K’s case was unmeritorious and the unsubstantiated allegations were an affront to the integrity of HC. The amended pleadings by K only complicated and unnecessarily protracted the proceedings. There was no duplication on the part of HC for calling witnesses that it did. There was no mixed success in respect of the outcome. Rather, HC was the successful party at trial.

[19] Further, while HC has produced a bill of costs to substantiate time, hourly rates and services rendered together with a list of disbursements, K has failed to produce any evidence of its costs notwithstanding directions from this court to provide same. No bill of costs and no evidence of dockets or disbursements were produced by K.

[20] HC submits that in failing to produce its bill of costs, K has admitted that its own costs would be higher than the costs of HC.

[21] Further, an adverse inference was drawn because Mr. Reiniger failed to attend to testify. The Rule 49 offers were unchallenged and HC disputes that there was duplication by counsel at trial which would attract the significant discount of counsel fee at trial.

Position of K

[22] K submits that the amounts claimed are equal to or in excess of the judgment of $86,727.69. They range from $86,159.25 to $94,445.90 plus HST and disbursements. K submits that these claims are excessive and unreasonable.

[23] K submits that it streamlined and simplified its proceedings by reducing its damage claim to $50,000. Further, it is submitted that the amended counterclaim did not add to the complexity of allegations raised and narrowed its claim for damages. HC asserts that K’s pleading amendment did the exact opposite.

[24] K contends that calling four witnesses at trial by HC substantially lengthened the trial and was duplication. K submits that HC only had mixed success at trial. HC’s claim for $102,032.57 was rejected. HC was only entitled to a commission on net sales, not gross sales which was accepted by the court.

[25] K submits that this is not a case for substantial indemnity costs. Further, the court should fix costs in the amount that is fair and reasonable for the unsuccessful party, rather than an amount fixed by reference to the actual costs incurred by the successful party. K submits that greater costs had been generated by HC by having a second counsel at trial.

[26] K submits that a costs award of no more than $40,000 plus HST and disbursement is appropriate.

Analysis

Entitlement

[27] There is no doubt that HC was the successful party in this action. There was no mixed result as submitted by K. Although HC did not recover the maximum amount claimed, it did recovery the sum of $86,727.69 plus pre-judgment interest in the amount of $5,055.24. The evidence at trial clearly supported findings that K controlled the accounting that would adjust gross sales figures to net sales figures on which commissions were based. It was K’s failure to provide this critical reconciliation, either late on a chronic basis or not at all, which gave rise to HC’s claim.

[28] Further, I have considered the offers to settle and conclude that HC is entitled to costs on a partial indemnity scale to October 28, 2014 (being HC’s first Rule 49 offer) and thereafter on a substantial indemnity scale at 90%.

[29] HC recovered more at trial than either of its offers to settle, October 28, 2014 in the amount of $80,000 and November 23, 2015 in the amount of $60,000. K was unresponsive to these offers to settle.

Quantum

[30] K submits that either on a partial indemnity or substantial indemnity scale, the costs claimed by HC are excessive and remote.

[31] I will deal with the number of the arguments raised by K regarding quantum.

K’s Amended Pleadings

[32] I find that contrary to K’s costs submissions, K’s amended statement of defence and counterclaim did not streamline or simplify this action. I agree with submissions made on behalf of HC that the amendments produced the opposite result. The amendments constituted approximately five pages of K’s ten page amended pleading and introduced new allegations of breach of fiduciary duty and agency which compelled HC to carefully vet, research and argue these issues at trial. In the end, these new allegations raised by K were completely rejected by the court. They were a failed attempt to transform a collection matter into breach of fiduciary duty and agency case which it was not. K’s own conduct increased HC’s costs.

Witnesses

[33] Contrary to K’s costs submission, I find that HC’s witnesses were necessary to the proof of HC’s case. The evidence of HC’s witnesses was not based on duplication. Mr. Higgins’ evidence went to the initial contract development and resulting collection efforts. Mr. Cohn’s evidence went to the business relationship and expectations of the parties. Ms. Prouse and Ms. McConnell both were required to testify as one replaced the other as K’s accounts receivable person during the material time at issue.

No Mixed Success

[34] Contrary to K’s costs submission, HC’s success at trial was not mixed. HC was entirely successful. HC was entitled to further commissions and the repayment of earlier commissions paid by K was rejected.

Quantum

[35] As K’s costs submission (delivered March 13, 2016), took issue with the quantum and reasonableness of the time spent by HC’s counsel, by letter dated March 14, 2016, HC’s counsel immediately requested delivery of K’s dockets and disbursement costs for the purpose of comparing them to the plaintiff’s bill of costs. Production of K’s dockets was required to establish, among other things, the reasonable expectation of the parties as to costs and the importance of the issues.

[36] In response to HC’s request, K’s counsel failed to produce his bill of costs, dockets or disbursement costs, and had admitted that K’s costs would be higher than HC’s costs (see email from defence counsel to plaintiff’s counsel dated March 15, 2016 at tab 5 of plaintiff’s reply cost submission brief).

[37] In addition, K failed to deliver its draft bill of costs in accordance with my direction (see my Reasons for Judgment dated February 23, 2016 (2016 ONSC 1345) at para. 227).

[38] The tactic of criticizing the winning party’s costs without providing any proof of the losing party’s own costs has been the subject of adverse comment by our courts. See Risorto v. State Farm Mutual Automobile Insurance Company, 2003 CarswellOnt 934 at para. 10. Winkler C.J. (as he became) stated:

The attack on the quantum of costs, insofar as the allegations of excess are concerned, in the present circumstances is no more than an attack in the air. I note that State Farm has not put the dockets of its counsel before the court in support of its submission. Although such information is not required under r. 57 in its present form, and the rule enumerates certain factors which would have to be considered in exercising the discretion with respect to the fixing of costs in any event, it might still provide some useful context for the process if the court had before it the bills of all counsel when allegations of excess and “unwarranted over-lawyering” are made. In that regard, the court is also entitled to consider “any other matter relevant to the question of costs”. (See r. 57.01(1)(i). In my view, the relative expenditures, at least in terms of time, by adversaries on opposite sides of a motion, while not conclusive as to the appropriate award of costs, is still, nonetheless, a relevant consideration where there is an allegation of excess in respect of a particular matter.

[39] I agree with the reasoning of Winkler C.J. that K’s attack complaint that HC’s costs are excessive and remote is no more than “an attack in the air”. K has produced nothing to demonstrate what its own costs are and to support K’s argument that the court should fix costs in an amount that is fair and reasonable for the unsuccessful party, rather than an amount fixed by reference to the actual costs incurred by the successful party.

[40] In Cvokic v. Belisario, 2008 CarswellOnt 5008, at para. 8, Justice Festeryga drew an adverse inference in that case:

I agree with the approach taken by Justice Nordheimer in Hague v. Liberty Mutual Insurance Co., 2005 CarswellOnt 1361 (Ont. S.C.J.) para. 15, that in order to determine the reasonable expectation of the unsuccessful party with respect to costs the unsuccessful party ought to reveal their costs. The unsuccessful party in this case, the defendants, have not revealed what they would be charging their client. Therefore, that does not help me in determining the reasonable expectation of the defendants with respect to the payment of costs. Since that information is missing I draw the adverse inference that what the defendants are being charged are equal to or in excess of what the successful plaintiff is asking for.

[41] In the case at bar, I adopt the reasoning of Justice Festeryga. The information missing from K does not assist me in determining the reasonable expectation of K with respect to the payment of costs. K is the unsuccessful party in this case and it has not revealed what it would have incurred by way of costs. Accordingly, I draw the adverse inference what K was being charged was equal to or in excess of what the successful plaintiff (HC) was asking for.

HC’s Rule 49 Offers

[42] K has not challenged HC’s submissions on HC’s offers to settle and the costs consequences that flow from those offers. I have already ruled on HC’s entitlement based on its October 28, 2014 offer.

Alleged Duplication by HC’s Counsel

[43] I do not find that this case was “over lawyered”. At various stages of the proceedings, one counsel, Mr. MacDonald, attended. At the pretrial stage, Mr. Allingham, his associate and senior counsel, attended. As for trial preparation and attendance, Mr. MacDonald was lead counsel. There were some responsibilities at trial that were shared between Mr. MacDonald and Mr. Allingham. I do acknowledge as does counsel for HC that there may have been some duplication but that duplication is limited. It is suggested that there be a ten percent discount of Mr. Allingham’s trial time. I will take this into consideration in arriving at the quantification of costs.

[44] I have carefully reviewed HC’s bill of costs. I have no difficulty with the hourly rates charged by counsel for HC and accept those hourly rates as fair and reasonable. I also accept as fair and reasonable the services provided by counsel for HC and the time spent. However, I would adjust for duplication any time spent by Mr. Allingham for trial preparation and attendance at trial. I have also considered any corresponding duplication on the part of Mr. MacDonald regarding trial costs.

[45] I am guided by the overarching principles set out in Davies v. Clarrington (Municipality), 2009 ONCA 722, in determining a costs award that is fair, reasonable and proportionate (see paras. 50 – 56 inclusive).

[46] I exercise my discretion in reducing fees claimed on behalf of HC in the amount of $86,159.15 plus HST. I fix those fees in the amount of $78,000 plus HST in the amount of $10,140 for a total of $88,140.

[47] I also fix disbursements in the amount of $8,249.61 inclusive of HST.

Disposition

[48] Therefore, I would award the total amount of $96,389.62 in costs to 2012865 Ontario Inc. carrying on business as Higgins Cohn Brand Management payable by Kinnikinnick Foods Inc. together with post-judgment interest thereon commencing this date.

[49] In coming to this conclusion, I am well aware that the costs closely approximate the amount recovered by way of judgment. It is also noteworthy that the costs are quantified as high as they are as a result of K’s conduct further particularized in these reasons.

DiTOMASO J. Released: April 22, 2016