Court File and Parties
COURT FILE NO.: CV-06-CV305132-0000 DATE: 20160707 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
MARK COUPER Plaintiff – and – NU-LIFE CORP., NU-LIFE NUTRITION LTD., VITAQUEST INTERNATIONAL LLC, AND KEITH FRANKEL Defendants
Counsel: Mr. G. McGuire, for the Plaintiff Mr. Kenneth E. Jull, for the Defendants
Reasons for Decision (Costs)
J. Macdonald, j.
Introduction
[1] The plaintiff Mark Couper sued the defendants for breach of various agreements and for inducing a breach of one agreement being a contract of employment of the plaintiff, deceit, fraudulent misrepresentation, negligent misrepresentation, unjust enrichment and oppressive conduct contrary to both the Ontario Business Corporations Act, R.S.O. 1990 c. B.19 (the OBCA) and the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (the CBCA).
[2] The defendants vigorously contested all of the plaintiff’s claims and counterclaimed against him for breach of fiduciary duties, wrongful misappropriation of funds, misrepresentation, wrongful interference in VitaQuest International LLC’s (VitaQuest) contractual relations, and for return of severance monies paid to Mr. Couper by Nu-Life Corp (which, together Nu-Life Nutrition Limited will be referred to as “Nu-life”). The counterclaim also included allegations of fraud against Mr. Couper. Shortly before trial, the counterclaim was abandoned. In addition, the defendants withdrew their allegations that Mr. Couper was terminated by Nu-Life for cause.
[3] I granted judgment to the plaintiff for breach of contract and dismissed all other claims. In determining costs issues, there are three aspects of this lawsuit to be considered: the claim, the abandoned counterclaim, and the defendants’ mistrial motion which was dismissed.
Costs Principles and Issues
[4] The Courts of Justice Act, R.S.O. 1990 c. C.43 (the CJA), s.131(1) states:
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 the costs shall be paid.
[5] Rule 57.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 states:
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.
[6] In assessing costs, the court’s objective is to determine fair and reasonable amounts to be paid which take into account the expectations of the parties, including the party paying the costs. See Zesta Engineering Ltd. v. Cloutier, [2002] OJ 4495 (CA) at paragraph 4; Boucher v. Public Accountants Council for the Province of Ontario, 71 OR (3d) 291 (CA) at paragraph 38.
[7] The general practice is to award costs to the successful party on the partial indemnity scale. The plaintiff states that he was successful in the action because he was granted judgment. The defendants dispute that and seek the costs of the action, saying most of the causes of action advanced in the plaintiff’s action were dismissed and the plaintiff succeeded only on a narrow contractual claim. In addition, each side seeks substantial indemnity costs from the other for having made allegations of fraud and other discreditable conduct which failed. Mr. Frankel and the corporate defendants seek substantial indemnity costs in the main action. Mr. Couper as defendant by counterclaim seeks substantial indemnity costs in the counterclaim.
[8] A court may award substantial indemnity costs in favour of a party which has faced unsuccessful allegations of fraud or other discreditable conduct including, for example, oppression claims. However, as mentioned, such an award is discretionary, pursuant to s.131(1) of the CJA.
The Plaintiff’s Claims
[9] In my opinion, the plaintiff’s action was primarily a contract action. The plaintiff commenced the trial on the basis that there were three potential contracts: the employment contract between Nu-Life and the plaintiff which was terminated, a contract between VitaQuest and the plaintiff which came to be described as the 2003 contract and another contract between VitaQuest and the plaintiff which came to be described as the 2004 contract. It was the plaintiff’s initial position that the latest of any contract to be established by evidence replaced the prior contracts. In final argument, the plaintiff conceded that the 2004 contract was not proven. I found that the 2003 contract was proven, albeit with less beneficial provisions than the plaintiff asserted.
[10] This was primarily a contract action in part because the deceit and misrepresentation claims turned on the allegations that the defendant Mr. Frankel misled the plaintiff, Mr. Couper, in their contractual negotiations. In my opinion, the deceit and misrepresentation claims were really contingent claims, advanced in the event that the primary contractual claims were not successful. I found that Mr. Frankel did not deceive the plaintiff and that he wanted to form a contractual relationship with him on behalf of VitaQuest. However, I found that Mr. Frankel did make duplicitous statements about issues surrounding the plaintiff but in doing so, he was misleading others, not the plaintiff.
[11] The unjust enrichment claim was also a contingent claim, advanced in the event that the primary contractual claims were not successful. I found that the plaintiff did the work for VitaQuest which he claimed that he did and which VitaQuest denied. I found that the work had value, which VitaQuest denied. The reason why the unjust enrichment claim was dismissed was that the contract established in evidence provided for payment to the plaintiff for that work. That made the equitable remedy of unjust enrichment superfluous.
[12] The oppression claims were brought against both the corporate defendants and Mr. Frankel. The plaintiff pleaded that Mr. Frankel, as the controlling shareholder, president and CEO of VitaQuest and indirectly, through VitaQuest, as the controlling shareholder of Nu-Life, caused the business and affairs of these companies to be conducted contrary to s.248 of the OBCA and s.241 of the CBCA in relation to the plaintiff. The facts alleged in support of the oppression claims were Mr. Frankel’s “actions as herein pleaded in causing damages to the plaintiff…”. Thus, all of the plaintiff’s allegations of contracts made and/or breached, deceit and both fraudulent and negligent misrepresentation were pleaded to be the basis of the oppression claims. As a result, the action proceeded to trial on the basis that the oppression claims also were, to a significant degree, dependent on the contractual claims. Little time was taken on oppression issues in presenting evidence and in argument, further indicating that this was primarily a contractual action.
[13] This was a case of a contract which was not reduced to writing, the proof of which turned on credibility issues and also upon the reliability of contemporaneous documents such as e-mails. In these circumstances, it was reasonable and prudent for the plaintiff to plead and to proceed on the basis of alternatives to the primary contractual cause of action.
[14] In these circumstances, it is my opinion that the plaintiff was substantially successful even though the majority of his causes of action were dismissed.
[15] In addition, the defendants’ assertions that they should recover costs of the action despite the plaintiff’s success or alternatively, the plaintiff’s costs should be reduced because the defendants defeated all but one of the plaintiff’s causes of action are incorrect, for the following reasons. In Eastern Power Limited v. Ontario Electrical Financial Corporation, 2012 ONCA 366, the Court of Appeal confirmed that awarding costs on an issue by issue basis, known as a “distributive costs award”, is inappropriate in the vast majority of cases. Individual issues and success therein are better considered in exercising the general discretion in respect of costs which s.131(1) of the CJA establishes, and pursuant to the factors mentioned in R.57.01(1). See Pearson v. Inco Ltd. and 118143 Ontario Inc. v. Mississauga (City), 2015 ONSC 6275.
Allegations of Fraud and Other Discreditable Conduct
a) Mr. Couper, Mr. Frankel, and their Relationship
[16] There were substantial credibility issues in this case which were made more intricate by the intense personal relationship between Mr. Couper and Mr. Frankel and the effects which that had on their dealings with each other, including contractual negotiations, and also on their trial testimony. Each of Mr. Couper and Mr. Frankel put their personal issues in their relationship ahead of prudent business practices on a number of occasions. Each displayed significant emotion in their business dealings. In testifying, Mr. Frankel displayed considerable emotion, while Mr. Couper was more able to contain his feelings and personal views. Nonetheless, this was heated litigation because of the personalities and personal issues of both Mr. Couper and Mr. Frankel.
[17] In their dealings with each other which were at the core of the contractual claims and thus at the heart of this lawsuit, Mr. Couper and Frankel veered from professions of friendship, love or loyalty to flinging obscenities and threats at each other. Their overheated interactions continued in the litigation resulting, in my opinion, in the allegations of fraud and other discreditable wrongdoing which they threw at each other. All of these allegations either have been abandoned or dismissed.
[18] Now, in arguing costs, each side seeks substantial indemnity costs from the other for having made and failed to establish the alleged fraud and other discreditable conduct. Mr. Couper as defendant by counterclaim seeks substantial indemnity costs in the counterclaim. Mr. Frankel and the corporate defendants seek substantial indemnity costs in the main action.
[19] In considering the allegations of fraud and other discreditable conduct, I conclude that anyone familiar with Mr. Couper, Mr. Frankel, their dealings or their litigation likely recognizes that each has engaged in hyperbole, exaggerated statements not intended to be taken literally, as a result of the intensity of their relationship and the intensity of their resulting conflict.
[20] In my opinion, a fair and reasonable disposition of each of these claims for substantial indemnity costs is to deny them. That treats these allegations as offsetting. My Reasons are as follows.
[21] The allegations of fraud and other discreditable conduct which on the one hand, Mr. Couper and, on the other hand, Mr. Frankel and the corporate defendants levelled at each other were approximately equal in their impact, in my opinion. Mr. Frankel has pointed to his undoubted businesses success and has claimed a stature commensurate with that, neither of which Mr. Couper has. Mr. Frankel therefore submits that he has been damaged more by these allegations and, as a result, Mr. Couper should not only pay costs but also costs on the substantial indemnity scale. I do not accept this submission. As noted, I found that Mr. Frankel had made duplicitous statements. He made misrepresentations in the course of his business dealings, but not to the plaintiff. Despite his undoubted financial success, I find that his stature in the business community is not proven.
[22] In addition, what Mr. Frankel had to say about Mr. Couper in his trial testimony went well beyond what Mr. Couper said about Mr. Frankel and in addition, went beyond the scope of Mr. Frankels pleadings. Mr. Frankels statements about Mr. Couper in his testimony were extreme by any measure. He testified that Mr. Couper was a fraudster. His Statement of Defence contained no pleading of fraud. He testified that Mr. Couper had “personal habit issues” which, he inferred, affected his actions. No such assertions were pleaded or put to Mr. Couper when he was cross-examined by Mr. Frankel’s counsel. Mr. Frankel testified that Mr. Couper was a deviant and that his former girlfriend had a restraining order against him. These assertions were irrelevant. Making these assertions in his evidence was frivolous, vexatious and improper.
[23] Consequently, I conclude that, if Mr. Frankel was more vulnerable to the allegations under consideration because of his claimed stature in business despite the evidence of his misrepresentations in the conduct of that business, he hit harder than Mr. Couper did.
[24] Further, Mr. Couper’s failed allegations of fraud or other discreditable conduct against VitaQuest probably have not affected it, on the evidence before me. As Mr. Frankel testified, at VitaQuest, he alone had a favourable impression of Mr. Couper. Everyone else at VitaQuest was opposed to Mr. Couper, either because of inability to work with him or because Mr. Couper was in charge of Nu-Life as it failed. As a result, I conclude that Mr. Couper’s allegations meant very little to those people who surrounded Mr. Frankel at VitaQuest and who carried on its business with Mr. Frankel. They put no stock in Mr. Couper’s assertions. They knew that VitaQuest had been very successful in growing its business. In addition, that ongoing business success is also evidence that Mr. Couper’s failed assertions of fraud and other discreditable conduct have not hurt VitaQuest. In this regard, Mr. Couper, on the one hand, and Mr. Frankel, VitaQuest and the Nu-Life companies on the other hand have given what they have received, in my opinion.
The Mistrial Motion
[25] The defendant’s mistrial motion was dismissed. They now seek to avoid paying the costs of the motion. They submit that an important public interest issue was decided and the plaintiff, therefore, should have remained neutral and not opposed the mistrial motion.
[26] The important public interest issue which the defendants see in my Reasons for dismissing their mistrial motion is clarification of “the role of cross-cultural comparisons in the assessment of testimony at trial”.
[27] The defendants’ mistrial motion was based primarily on the fact that I had raised in argument my concern about how to assess the brash and confrontational words and conduct of Mr. Couper and Mr. Frankel, whether in their dealings or in their testimony. The defendants had led evidence which raised the issue of community based views of confrontational brashness. Mr. Couper is from Ontario and Mr. Frankel is from New Jersey. I was contemplating that evidence and the differing views of confrontational brashness in different locales, the effect of these local views on the words and conduct of a witness from that locale, and how properly to assess such evidence.
[28] In bringing their mistrial motion, the defendants did not raise the public interest issue on which they now rely. Their mistrial argument was, in substance, that I had engaged in stereotypical thinking and as a result, a reasonable apprehension of bias had arisen. I conclude that the defendants’ objective in moving was to void the trial, for their own benefit. The plaintiff, therefore, was not confronted with a public interest issue. The plaintiff was confronted with the risk of having to recommence the trial. That would entail considerable additional personal expense, additional delay and repeating all trial testimony.
[29] Both sides were entitled to seek advantage in the mistrial motion. Both did. The plaintiff prevailed. The defendants lost a motion which was intended to provide them with an advantage. There is no fair or reasonable basis for depriving the plaintiff of the costs of this motion.
Conclusion
[30] Offsetting the mutual mudslinging and setting aside the defendants’ argument in favour of a distributive costs award and the defendants’ attempt to avoid paying the costs of their mistrial motion, substantial issues in relation to costs come to the fore. Mr. Couper was successful in his action. As defendant by counterclaim, Mr. Couper was successful in defeating the counterclaim. And Mr. Couper was successful in defeating the defendant’s mistrial motion.
[31] I conclude that Mr. Couper is entitled to the costs of the action, the costs of the counterclaim and the costs of the mistrial motion.
Scale of Costs
[32] In addition to the rejected claims for substantial indemnity costs based on abandoned or dismissed allegations of fraud and other discreditable conduct, Mr. Couper as defendant by counterclaim seeks substantial indemnity costs in respect to the counterclaim because of the alleged nondisclosure of relevant evidence by the plaintiffs by counterclaim. Mr. Couper also seeks substantial indemnity costs in respect to the mistrial motion for the time following his offer to settle the motion.
a) The Main Action
[33] There is no reason to depart from the general practice. The plaintiff is entitled to the costs of his action on the partial indemnity scale.
b) The Counterclaim
[34] As defendant by counterclaim, Mr. Couper alleges that the plaintiffs by counterclaim “intentionally or negligently failed to produce documents which were in their possession and which revealed that part of their counterclaim, based on the Mid-Ocean Partners transaction, was without merit”. These documents were produced a week before the trial commenced and, it is submitted, led to a last minute abandonment of the entire counterclaim.
[35] The plaintiffs by counterclaim concede that there was a failure to disclose documents. They submit that these documents were “received” by counsel in 2012. This contention does not assist the plaintiffs by counterclaim, who delivered five sworn supplementary affidavits of documents without mentioning the documents in issue. These documents were subject to specific questions by Mr. Couper’s counsel in 2012. In the result, for eight years, the plaintiffs by counterclaim did not disclose documents which were in their possession and which related to their contentious $8-million dollar counterclaim based on the Mid-Ocean Partners transaction.
[36] In my opinion, the number of sworn affidavits of documents by the plaintiff by counterclaim which did not disclose the documents in issue is extraordinary. Extraordinary noncompliance with disclosure rules is good reason for awarding Mr. Couper, as defendant by counterclaim, the costs of the counterclaim on a substantial indemnity basis.
c) The Mistrial Motion
[37] The mistrial motion was brought in mid-December 2014 and dismissed on September 30, 2015. On May 27, 2015, Mr. Couper offered to settle the motion on the basis that it would be dismissed with costs of the motion to the plaintiff to the date of acceptance of the offer, on the partial indemnity scale. The offer was open for acceptance until five minutes after the commencement of argument of the motion. The offer was not accepted and the plaintiff therefore seeks the costs of the motion up to May 27, 2015 on the partial indemnity scale and the costs thereafter on the substantial indemnity scale, relying on R.49.
[38] Rule 49.02(2) makes the R.49 offer regime applicable to motions, “with necessary modifications”. Consequently, R.49.10(1) determines the costs consequences of a failure to accept this offer to settle. This offer was made more than seven days before the commencement of the hearing, it did not expire prior thereto and it was not withdrawn. The motion decision was as favourable as that for which the plaintiff offered to settle. Consequently, the plaintiff has complied with the terms of R.49.10(1), subject to one issue. That rule refers to the plaintiff obtaining a “judgment” as favourable as, or more favourable than the plaintiff’s offer. Rule 1.03(1) defines “judgment” as meaning “a decision that finally disposes of an application or action on its merits”. My Order dismissing the mistrial motion did not finally dispose of an application or an action. In my opinion, this issue is covered by R.49.2(2) which makes R.49.10(1) applicable to motions. The modification of R.49.10(1) which is necessary to accomplish that is reading “judgment” as including “Order”.
[39] It also important to ensure that R.49.10 is applied consistently so that its consequences are as predictable as possible. I therefore award to the plaintiff the costs of the mistrial motion up to the date of his offer on the partial indemnity scale and subsequent to the date of his offer on the substantial indemnity scale.
Conclusions in respect of Rule 57.01(1) Factors
[40] The defendants made an offer to settle which was less than what the plaintiff was awarded. The offer therefore does not trigger Rule 49.10(2).
[41] I accept the years in practice of each of the three lawyers who rendered services on behalf of Mr. Couper as plaintiff and as defendant by counterclaim. I accept as reasonable the hourly rate claimed by each of these lawyers. Nonetheless, fixing fees is not the mechanical multiplication of hours times an hourly rate. Fairness, reasonability and proportionality require more than that.
[42] The defendants submit that Mr. Frankel has incurred approximately $1.55-million dollars (US) in costs in defending the action, exclusive of the costs of the counterclaim and mistrial motion. On that basis, the plaintiff’s costs are within the scope of the defendants’ reasonable expectations when Ontario law in respect of costs is taken into account.
[43] The plaintiff sued for $30 million damages and recovered judgment for $687,640.51. The plaintiffs by counterclaim sued for the Canadian dollar equivalent of $19.6 million (US) plus an additional $500,000 (Canadian) in damages, and recovered zero. As presented at trial, the plaintiff’s claim was for the Canadian dollar equivalent of $5 million (US) more than he recovered.
[44] I infer that the dollar amounts claimed in pleadings by each side were as inflated as their allegations of fraud and other discreditable conduct. The dollar values claimed in pleadings therefore are not as useful a measure of either claim or counterclaim as either the position at trial or the result. By any measure, Mr. Couper recovered substantially less than the amount he sought at trial and the plaintiffs by counterclaim were completely unsuccessful.
[45] The claim and the counterclaim were relatively complex. On a scale of 1 to 10, with 10 as the most complex action, this litigation was approximately a 7.85. The issues were very important to the parties, as the overheated allegations and testimony herein establish. However, these issues had little or no importance beyond their personal and private dimension.
[46] Both sides lengthened and complicated the litigation, not just the trial, by the approach they took. I have already taken into account their abandoned and dismissed allegations of fraud and other discreditable conduct by dismissing all claims for substantial indemnity costs based on these failed allegations, thereby treating their respective conduct as offsetting. Mr. Frankel’s improper assertions about Mr. Couper in his testimony to which I have referred took very little time. In my view, the driving factor in lengthening this trial was the heated nature of the contest. Both sides bear responsibility for this and in my view, the costs of this should follow the event. Mr. Couper’s costs entitlements therefore should be assessed on the basis of the time reasonably incurred, neither reduced because of his actions nor increased because of the identical actions of his adversaries.
[47] I have described Mr. Frankel’s testimony about Mr. Couper as frivolous, vexatious and improper. It was not a separate “step in the proceeding”. I think it is best regarded as an aspect of “other discreditable conduct”, which has been dealt with as aforesaid. Consequently, nothing more needs to be said or done in respect of this. I have also said what I intend to say about the nondisclosure of documents in the counterclaim. That improper noncompliance with the Rules has already been addressed. The defendants’ reliance on my midtrial conference statements in support of their mistrial motion was improper, as addressed in other reasons. Mr. Couper did not raise this issue in relation to his costs entitlements. The defendants, therefore, have not addressed this issue in relation to their costs obligations. I have ignored this issue in determining costs entitlements and obligations.
[48] No steps were taken herein through negligence, mistake or excessive caution. The issues that were tried all required a trial because of the heated nature of the dispute and the absence of a written contract.
[49] In assessing costs, significant factors herein are the complexity and the time consuming nature of this litigation. The concepts of reasonability and proportionality are also necessary to bear in mind, based on not only the amounts which were actually in issue but also the amounts recovered. It is also necessary to avoid overlap in respect of the costs of the action, the counterclaim and the mistrial motion. In my opinion, the hours spent by Mr. Couper’s counsel were reasonable, appropriate and necessary.
The Costs Assessed
[50] In the action, I award to Mr. Couper as plaintiff costs fixed on the partial indemnity scale in the amount of $425,000, including taxes, plus disbursements of $13,100.00.
[51] In the counterclaim, I award to Mr. Couper as defendant by counterclaim costs on the substantial indemnity scale fixed in the amount of $290,000.00, including taxes, plus disbursements of $5,250.00.
[52] In the mistrial motion, I award to Mr. Couper as plaintiff costs on the partial indemnity scale up to May 27, 2015, and costs on the substantial indemnity scale thereafter, fixed in the amount of $66,500.00, inclusive of taxes.
[53] The total costs award to Mr. Couper is therefore $781,500.00, plus disbursements of $18,350.00, which the defendants and plaintiffs by counterclaim shall pay to Mr. Couper forthwith.
Dated at Toronto this ______ day of July, 2016.
Mr. Justice John Macdonald