Court File and Parties
COURT FILE NO.: CV-1178-14 DATE: 2016-08-10 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: PIXIU SOLUTIONS INC., Plaintiff AND: CANADIAN GENERAL-TOWER LIMITED, CGT SHANGHAI TRADING CO. LTD. And CGT CHANGSHU CO. LTD. Defendants
BEFORE: The Honourable Mr. Justice D. A. Broad
COUNSEL: John D. Campbell, for the Plaintiff Ross F. Earnshaw, for the Defendant CGT Changshu Co. Ltd., properly named Canadian General-Tower (Changshu) Company Limited James H. Bennett, for the Defendant CGT Shanghai Trading Co. Ltd.
Costs Endorsement
[1] I was appointed by Regional Senior Justice Turnbull on October 19, 2015, pursuant to rule 37.15, to hear all motions in this proceeding and in a related proceeding in file number C-661-13 involving Pixiu Solutions Inc. (“Pixiu”) as plaintiff and Canadian General-Tower Limited (“CGT”) as defendant. CGT Changshu Co. Ltd., properly named Canadian General-Tower (Changshu) Company Limited (“Changshu”) and CGT Shanghai Trading Co. Ltd. are subsidiaries of CGT Inc. incorporated in 2006 and 2011 respectively pursuant to the laws of China.
[2] On April 12, 2016 the plaintiff Pixiu delivered a Notice of Discontinuance by which it wholly discontinued this action as against all three defendants.
[3] The defendants CGT, Changshu and Shanghai have brought a joint motion pursuant to rule 23.05(1) of the Rules of Civil Procedure to have their costs of the action fixed, consequent upon the discontinuance of the action against them. That rule provides as follows:
23.05 (1) If all or part of an action is discontinued, any party to the action may, within thirty days after the action is discontinued, make a motion respecting the costs of the action.
[4] The parties agree that each defendant is entitled to its costs of the action on a partial indemnity basis. The plaintiff does not agree to the quantum claimed by each defendant.
[5] Changshu claims partial indemnity costs in the total sum of $22,969.40, comprised of fees in the sum of $19,976.01, HST thereon in the sum of $2596.88 and disbursements and HST thereon in the sum of $396.51.
[6] Shanghai claims partial indemnity costs in the total sum of $5237.77, comprised of fees in the sum of $4419.54, HST thereon in the sum of $574.54 and disbursements and HST thereon in the sum of $243.69.
[7] CGT claims partial indemnity costs of $4228.27, comprised of fees in the sum of $3614.40, HST thereon in the sum of $469.87 and disbursements in the sum of $144.00.
[8] The action did not proceed very far before it was discontinued. CGT delivered a Statement of Defence. Each of Changshu and Shanghai served a motion seeking a stay of the action as against them on the basis that the court lacked jurisdiction in respect of the claims against them. A procedural motion was brought for directions in respect of examinations and cross examinations on the jurisdiction motions, the costs of which were fixed in favour of the Pixiu as against Changshu and Shanghai jointly and severally in the sum of $10,653 by Costs Endorsement made April 8, 2016. The jurisdiction motions were not argued prior to the discontinuance of the action. The costs awarded to Pixiu have not been paid. Changshu and Shanghai say that this is because of the discontinuance and their claims for costs resulting therefrom for which they will be seeking set-off against the costs awarded to Pixiu.
[9] Pixiu says that the court should fix the costs of all three defendants in the total sum of $10,653 which would result in a wash as against the outstanding costs award in its favour. Pixiu makes the following submissions in support of this position:
(a) Pixiu acted responsibly in discontinuing this action after my ruling in the related action that it could not pursue a claim for “China damages” at the “damages trial” in that bifurcated action; (b) Changshu and Shanghai have disobeyed my costs order in respect of the motion for directions; (c) there is no evidence to explain why there needed to be separate counsel for each defendant in this action, given that Changshu and Shanghai are wholly owned subsidiaries of CGT; (d) the defendants did not provide any evidence going to the exercise of the court’s discretion in respect of costs, the onus of which is on them; (e) the size of Changshu’s claim for costs is disproportionate and not within the reasonable expectations of an unsuccessful party; (f) many of the time dockets in respect of Changshu’s claim for costs seem to wholly or partially relate to the motion for directions and should therefore be excluded; (g) many of the time entries in respect of Changshu’s claim for costs seem to wholly or partially relate to discussions of strategy with Mr. Earnshaw’s instructing counsel and/or counsel for CGT and Shanghai, Mr. Bordin and Mr. Bennett respectively, and it was not within reasonable expectations to ask Pixiu to pay for that time; (h) Mr. Bennett for Shanghai largely duplicated Mr. Earnshaw’s efforts. Following the end of September, 2015, Mr. Bennett’s time and disbursements related to the impending motion for directions, not the action or the jurisdictional motion; (i) Mr. Bennett’s partial indemnity rates are in excess of those mandated by the definition of “substantial indemnity costs” (quere whether this was intended to be a reference to Mr. Earnshaw’s rates rather than those of Mr. Bennett given their respective hourly rates set forth on their Bills of Costs); (j) Mr. Bordin’s incremental costs in respect of this action should be minimal. Some of the docketed time appears to relate to the service issues and the motions of the China defendants in which CGT was not involved and some of his time appears to relate to the motion for which costs have already been paid; and (k) Mr. Campbell for Pixiu estimates his partial indemnity costs for this action (exclusive of the costs of the motion for directions) to be less than $10,000.00.
[10] The defendants deny that there was any duplication in the time sought in their current Bills of Costs with attendances for which costs of already been determined. They say that the discontinuance of the action was not “a virtuous and responsible action by Pixiu” but rather was a belated recognition that the action should not have been commenced at all and constituted an abuse of process from the outset, in light of the court’s finding on the motion in the related action.
[11] Changshu and Shanghai submit that, although the successful defence of the action was of utmost individual importance to each of the defendants, the jurisdictional issue raised by the two Chinese companies was of critical importance to them, going to the issue of the independent legal identity of each Chinese company and the applicability of the legal system of the nation in which they conduct their corporate undertakings. Unlike Pixiu, the case was new to the Chinese defendants and the question of their independent corporate status was an important issue and the interplay of that issue with the question of jurisdiction of the Ontario Court was complex. The Chinese defendants say that their Bills of Costs reflected much activity “behind the scenes” which would not have been apparent to Pixiu.
Guiding Principles re Costs
[12] Section 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43, as amended, provides that "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."
[13] The factors to be considered by the court, in the exercise of its discretion on costs, are set forth in subrule 57.01(1), as follows:
57.01 (1) 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, various factors, including:
(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.
[14] The Court of Appeal has observed that modern costs rules are designed to foster three fundamental purposes: (1) to indemnify successful litigants for the cost of litigation; (2) to encourage settlements; and (3) to discourage and sanction inappropriate behavior by litigants (see Fong v. Chan (1999) O.J. No. 3707 (CA) at para. 24).
[15] Justice Perrell in the case of 394 Lakeshore Oakville Holdings Inc. v. Misek, 2010 ONSC 7238, [2010] O.J. No. 5692 (S.C.J.) reformulated the purposes of the modern costs rules, at para. 10, as follows:
(1) to indemnify successful litigants for the costs of litigation, although not necessarily completely; (2) to facilitate access to justice, including access for impecunious litigants; (3) to discourage frivolous claims and defences; (4) to discourage the sanctioning of inappropriate behaviour by litigants in their conduct of the proceedings; and (5) to encourage settlements.
[16] It is well known that the overall objective in dealing with costs is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular circumstances of the case, rather than an amount fixed by the actual costs incurred by the successful party. The expectation of the parties concerning the quantum of costs is a relevant factor to consider. The court is required to consider what is "fair and reasonable" having regard to what the losing party could have expected the costs to be (see Boucher v. Public Accountants Council (Ontario), [2004] O.J. No. 2634 (Ont. C.A.) at para. 26 and Coldmatic Refrigeration of Canada Ltd. v. Leveltek Processing LLC, [2005] O.J. No. 160 (Ont. C.A.)).
Analysis
[17] In my view any expectation Pixiu may have had that the defendants would have retained one common counsel to defend the action was not realistic or reasonable. Each of the defendants is a distinct legal entity and in commencing its action against all three it would have been within Pixiu’s reasonable expectation that each would retain separate counsel. Moreover, it would not be within Pixiu’s reasonable expectation that the aggregate partial indemnity costs of the defendants’ counsel would be equivalent to that of its own counsel.
[18] It would also have been within the reasonable contemplation of Pixiu that counsel for the defendants would, by necessity, engage in consultation with one another and in coordinating (and streamlining) their efforts in response to the action and that, if it were unsuccessful in the action, it would be responsible for the reasonable partial indemnity costs of the defendants in so doing.
[19] It is apparent that, as between Mr. Earnshaw for Changshu and Mr. Bennett for Shanghai, Mr. Earnshaw and his firm took the lead, with Mr. Earnshaw spending 40 hours and his juniors an aggregate of 33.1 hours. By comparison Mr. Bennett spent 14.3 hours and his associates or juniors an aggregate of 5.8 hours. Mr. Campbell’s dockets, on behalf of Pixiu, indicate that he spent 11.4 hours and his associate 1.3 hours.
[20] In my view, even allowing for reasonable time spent on consultation among defence counsel and for an upfront investment of time in order to respond appropriately to the jurisdiction issue, the total counsel time spent by Mr. Earnshaw’s firm would not have been within the reasonable expectation of Pixiu at the stage that the action reached before was discontinued, and would be considered disproportionate from the standpoint of what the opposing party may be reasonably expected to pay in costs. I would reduce the fee component of Changshu’s Bill of Costs by approximately one-third to $13,300. To that should be added HST at $1729 and disbursements of $396.51 for a total of $15,425.51.
[21] I would not find the time spent by or the partial indemnity rates of Mr. Bennett’s firm on behalf of Shanghai to be disproportionate or outside Pixiu’s reasonable expectations and would allow Shanghai’s claimed costs of $5237.77.
[22] With respect to the costs claimed by CGT, its Bill of Costs includes 6.2 hours of lawyers’ time under the heading “receipt and review of motion materials” which must be a reference to the China defendants’ jurisdictional motions. It would not be within the reasonable expectation of Pixiu that this amount of time would be spent by counsel for CGT when it was not involved in the jurisdiction issue. I would reduce the fee component of CGT’s Bill of Costs to $3000, plus HST thereon in the sum of $390 and disbursements of $144, for a total of $3534.00.
[23] The aggregate fee component for the three defendants is $20,719.54 representing roughly twice that of the plaintiff Pixiu, notwithstanding the involvement of three law firms for the defendants. I find this to be the proportionate and to have been within Pixiu’s reasonable expectations.
Disposition
[24] On the basis of the foregoing it is ordered that the plaintiff Pixiu pay costs on a partial indemnity basis to the defendant Changshu in the sum of $15,425.51, to the defendant Shanghai in the sum of $5237.77 and to the defendant CGT in the sum of $3534.00.
[25] These amounts are payable within 30 days hereof.
D.A. Broad J.