And KGC Industrial Gases v. Air Liquide Canada Inc., 2016 ONSC 612
COURT FILE NO.: 2142/13 5424/13
DATE: 2016-01-26
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
1483489 Ontario Inc.
Applicant
- And –
Air Liquide Canada Inc.
Respondent
AND BETWEEN:
KGC Industrial Gases Inc.
Applicant
- And –
Air Liquide Canada Inc.
Respondent
Robert A. Watson, Counsel for the 1483489 Ontario Inc.
Aaron Kreaden, Counsel for Air Liquide Inc.
THE HONOURABLE MR. JUSTICE P.B. HAMBLY
Ruling on Costs
[1] I rely on the facts as set out in my judgment. I recite only the facts necessary to support this judgment on costs.
Background
[2] 1483489 Ontario Inc. (“148”), Sunox Industrial Gases Inc. (“Sunox”) and KGC Industrial Gases Inc. (“KGC”) are owned by the same shareholders. 148 purchased 44 Sheldon Drive (“Sheldon”) in the City of Cambridge (“the City”) in 2002. It erected a building on the land. It rented the land to Sunox which commenced doing business there. Sunox sold welding supplies and industrial gases.
[3] On July 31, 2002 Sunox entered into an agreement with Air Liquide (AL) to sell AL its business for $13,875,000 (“Asset Purchase Agreement”). Pursuant to the agreement AL held back $750,000 referred to in the agreement as the Indemnity Holdback amount (“IHB”) to satisfy claims by it against Sunox for 1 year.
[4] On August 1, 2012 148 entered into an agreement with AL to sell the land at Sheldon to it for $1,740,000 (“Property Purchase Agreement”). Claude Chabot (“Chabot”), president of 148/Sunox/KGC and Ross Fuller, vice president of AL and their lawyers conducted the negotiations.
[5] The Property Purchase Agreement provided that AL hold back $500,000 (“Holdback”) for 6 months as security for it receiving a Zoning Designation and Permitted Use Compliance Letter (“Zoning letter”). The $500,000 was paid into court on consent. The 6 month period was extended on consent for 2 months to March 31, 2013. If AL did not receive the Zoning letter by that time the Property Purchase Agreement provided that the $500,000 was to be paid to AL. The Asset Purchase Agreement also provided that AL could apply the IHB to any damages that it suffered from breaches by 148 of the Property Purchase Agreement.
[6] AL never received a zoning letter satisfactory to it. AL moved from Sheldon. It alleged that it moved as a result of concerns by it that Sheldon did not comply with the zoning requirements of the City and of safety. AL retained $250,000 from the IHB. It also sought to be paid the Holdback of $500,000 for a total of $750.000 for what it alleged was the cost of the move.
[7] Sunox changed its name to KGC Industrial Gases Inc. (KGC). 148 brought an application against AL for an order that the Holdback be paid out of court to it. KGC also brought an application for an order that AL pay to it the balance of the IHB in the amount of $250,000.
[8] I heard the 2 applications together. In written reasons released on November 30, 2015 I made an order that the Holdback be paid to AL and that KGC’s application be dismissed. This resulted in AL receiving the land and business of 148/Sunox/KGC for $750,000 less than provided in the agreements.
[9] I heard the applications on October 27 and 29, 2015. AL made an offer to settle the 2 applications in the amount of $250,000 on July 7, 2015.It seeks costs on a partial indemnity basis for fees to the date of the offer in the amount of $25,756.82 and on a substantial indemnity basis for fees after the offer in the amount of $61,867.80 for a total amount for fees of $87,624.63 plus disbursements of $3,036.12 for a total amount of $90,660.75. In the alternative it seeks costs throughout on a partial indemnity basis for fees before the offer on a partial indemnity basis in the amount of $25,756.83 and for fees after the offer on a partial indemnity basis in the amount of $41,245.20 for a total for fees of $67,002.03 plus disbursements of $3,036.12 for a total of $70,038.15.
Objections to Bill of Costs Raised by 148 and KGC
[10] 148 and KGC raise objections to AL’s claim for costs as follows:
Although the transactions for the purchase of the land in the amount of $1,740,000 and for the business in the amount of $13,875,000 total $15,615,000 the amount at stake in the 2 applications was only $750,000. The amounts claimed for costs are out of proportion to the amount at stake.
The bill of costs shows 4 litigation lawyers, 3 corporate lawyers and an unspecified number of students and clerks working on the file. The case was “over lawyered”. Only 1 lawyer represented 148 and KGC and 1 lawyer was all that was required for AL.
AL does not produce any dockets.
There were 2 lawsuits – the first seeking the holdback in the amount of $500,000 was commenced on April 17, 2013 and the second seeking a portion of the IHB in the amount of $250,000 was commenced on October 2, 2013. The bill of costs does not differentiate the work done between the 2.
The amount claimed for costs for the procedure of payment into court of $500,000 is grossly excessive. The bill of costs shows 4 lawyers working on the matter for a total claim for actual fees of $8,281.50, on a substantial indemnity basis of $7,453.31 and $4,968.87 on a partial indemnity scale. 148’s lawyer Mr. R. Watson who was the only lawyer who represented 148, Sunox and KGC throughout prepared the material for presentation to the court and the matter proceeded on consent.
Even taking into account the case law which states that the rates in the Information to the Profession issued in 2005 in the preamble to Rule 57.01 are now too low, the rates claimed by Stikeman Elliott are too high. The Information to the Profession states that lawyers with 20 or more years of experience should claim for partial indemnity costs a maximum of $350 per hour. The bill of costs for lawyers with a maximum of 14 years’ experience claim from $445 to $600 per hour as an actual rate. Taking 60% of these figures to convert to partial indemnity rates the range is $267 to $360. If anything it seems to me that these rates are low. Also it is my view that the quality of a lawyer’s work is a more important factor than his experience. The quality of the end product that was advanced before me by Mr. Kreaden was excellent although he has only 4 years of experience. In my view the quantum of the rates charged is acceptable.
Mr. Kreaden points out that the second Chabot affidavit in which he sets out heart of the position of the Applicants was not before the court when the hearing commenced. The hearing had to be delayed in order that it could be located, copied, placed before me and I could read it. During the course of Mr. Kreaden’s submissions I asked him to repeat some of his submissions. Mr. Watson characterizes these submissions as “ad hominen” attacks on him. I do not read Mr. Kreaden’s submissions in this way. I do agree that these factors are not relevant. The fact that Chabot’s second affidavit did not reach me before the hearing in order that I could read it the previous night was not the fault of Mr. Watson. Also my asking Mr. Watson to repeat his submissions was the result of my having insufficient time to absorb the complex argument that Mr. Chabot advanced in his affidavit of his interpretation of the bylaw.
AL submits that 148/KGC in filing the second Chabot affidavit was splitting its case. I do not agree. The essence of the second Chabot affidavit was that the business of Sunox in selling industrial gases was a general industrial use, not a heavy industrial use and hence permitted by the by law. This was because Sunox stored the gas under high pressure rather than atmospheric pressure. This affidavit was sworn October 2, 2013 and was served and filed with the application of KGC for the return of the $250,000 from the IHB. The 2 applications were heard together on consent. AL had to respond directly to this affidavit. This does not constitute “case splitting”. I held that this issue had to be addressed by expert evidence. Chabot was the president of 148 and Sunox. I held that he did not have the necessary independence to give expert evidence.
Analysis
Proper Approach
[11] In Boucher v. Public Accountant 2004 14579 (ON CA), [2004] O.J. No. 2634 the Court of Appeal in the judgement of Justice Armstrong stated the following:
[24] … it is … necessary to step back and consider the result produced and question whether, in all the circumstances, the result is fair and reasonable. This approach was sanctioned by this court in Zesta Engineering Ltd. v. Cloutier, 2002 25577 (ON CA), [2002] O.J. No. 4495, 21 C.C.E.L. (3d) 161 (C.A.) at para. 4 where it said:
In our view, the costs award should reflect more what the court views as a fair and reasonable amount that should be paid by the unsuccessful parties rather than any exact measure of the actual costs to the successful litigant.
See also Stellarbridge Management Inc. v. Magna International (Canada) Inc. (2004), 2004 9852 (ON CA), 71 O.R. (3d) 263, [2004] O.J. No. 2102 (C.A.) at para. 97.
[25] Zesta Engineering and Stellarbridge simply confirmed a well settled approach to the fixing of costs prior to the establishment of [page299] the costs grid as articulated by Morden A.C.J.O. in Murano v. Bank of Montreal at p. 249 O.R.:
The short point is that the total amount to be awarded in a protracted proceeding of some complexity cannot be reasonably determined without some critical examination of the parts which comprise the proceeding. This does not mean, of course, that the award must necessarily equal the sum of the parts. An overall sense of what is reasonable may be factored in to determine the ultimate award. This overall sense, however, cannot be a properly informed one before the parts are critically examined.
[12] My jurisdictions to award costs flows from the Courts of Justice Act s. 131 subject to the principles set out in Rule 57.01 of the Rules of Civil Procedure. The principles that apply are indemnity of the successful party, the consequences of AL receiving a better result that its offer, the amount of costs that the unsuccessful party could reasonably expect to pay, the amounts claimed in the applications, the complexity of the proceeding, the importance of the issues to the parties, proportionality and the conduct of the parties.
Indemnity
[13] Although the end product as advanced by Mr. Kreaden as I have said was excellent, I agree with 148 and KGC that there is evidence that AL’s defence was “over lawyered” particularly for the claim for work done on the payment into court. I see nothing in the evidence which could not be understood and advanced by a single competent litigation lawyer which Mr. Kreaden certainly is.
The Offer
[14] I agree with AL that the offer of $250,000 to 148 and KGC was obviously far superior to nothing which is what they received. Rule 49.13 requires that I take this into account. By analogy to Rule 49.10 in my view AL is entitled to partial indemnity costs to the date that the offer to settle was made which is July 7, 2015 and substantial indemnity costs thereafter.
What the unsuccessful parties could reasonably expect to pay.
[15] In Tri-S Investments Ltd. v. Vong, [1991] O.J. No. 2292 Justice Feldman (as she then was, now Feldman J.A.) in a frequently quoted passage stated the following:
I do not view it to be the court's function when fixing costs to second-guess successful counsel on the amount of time that should or could have been spent to achieve the same result, unless the time spent is so grossly excessive as to be obvious overkill.
[16] On the issue of a submission by the losing party that the costs claimed by the winning party are excessive, Justice Winkler (as he then was, later Chief Justice of Court of Appeal) in Risorto v. State Farm, 2003 43566 (ON SC), [2003] O.J. No. 990 stated the following:
[10] The attack on the quantum of costs, insofar as the allegations of excess are concerned, in the present circumstances is no [page139] 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 Rule 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 rule 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.
This principle has been applied in a number of cases (see Andersen v. St. Jude Medical Inc., 2006 85158 (ON SCDC), [2006] O.J. No. 508 (Div. Court ) at para. 24-26; Martin v. Astrazeneca Pharmaceuticals, [2012] O.J. N. 3829 at para. 60; Ontario v. Chartis. [2015] O.J. No. 2694 at para. at para. 6; Sumner v. Sullivan, [2014 O.J. No. 2297 at para. 22). Notwithstanding the failure of 148 and KGC to file a bill of costs given the number of lawyers, clerks and students for whose work AL claims compensation in my view there is an aspect of “overkill” in AL’s bill of costs. It is more than the unsuccessful parties would expect to pay.
The Amounts claimed in the Applications
[17] I agree with AL that it is the amount claimed in the applications which is $750,000 rather than the amount of the purchase and sale transactions which is $15,615,000 is the correct figure to use in applying the principle that the costs awarded should be proportional to the amounts at stake in the proceedings.
The Complexity of the Proceedings
[18] The proceedings were made complex by the theory advanced by Chabot in his second affidavit that the business of Sunox was a general industrial use and not a heavy industrial use. I ruled that this evidence was expert evidence that Chabot could not give.
The Importance of the Issues
[19] The applications were hard fought. Clearly the outcome was of importance to the parties.
The Conduct of the Parties
[20] The material filed by 148/Sunox/KGC is replete with allegations that AL through its vice president in defending the claims against it was acting with dishonesty and its positions were improper. The clear implication is that what AL through its agents was doing was trying acquire the land and business of 148/Sunox/KGC for $750,000 less than it had agreed to pay. What they were alleging was that AL was committing theft. They presented not a scintilla of evidence to support this allegation. It ignores s. 7.9 of the Property Purchase Agreement which states that “The Vendor and Purchaser acknowledge that the current uses of the Land and Building may not be permitted pursuant to the City of Cambridge zoning by-law and that further post-Closing investigations are required…” The $500,000 holdback was put in place to give AL security in receiving a zoning letter satisfactory to it. It never received the letter. Chabot contrary to his undertaking never approached the City of Cambridge by way of an application for a minor variance or otherwise to place the business in conformity with the bylaw. It could be equally argued that 148/KGC in its applications was attempting to sell a business to Sunox and KCL which it could not lawfully operate at a price that was too high. Neither argument has merit. What this case was about was the interpretation of the meaning of the agreements.
[21] In Hamilton v. Open Window Bakery Ltd. 2004 SCC 9 the trial judge awarded the plaintiff damages for wrongful dismissal. He ordered that the defendant pay to the plaintiff costs on a substantial indemnity basis because the defendant had alleged dishonesty by the plaintiff which it had been unable to prove. The Court of Appeal granted the defendant’s appeal reducing the damages. It also reduced the costs to the party and party scale. The Supreme Court of Canada in the judgement of Justice Arbour dismissed the plaintiff’s appeal on damages but granted her appeal on costs and restored the award of the trial judge. Justice Arbour stated the following:
26 In Young v. Young, 1993 34 (SCC), [1993] 4 S.C.R. 3, at p. 134, McLachlin J. (as she then was) for a majority of this Court held that solicitor-and-client costs "are generally awarded only where there has been reprehensible, scandalous or outrageous conduct on the part of one of the parties". An unsuccessful attempt to prove fraud or dishonesty on a balance of probabilities does not lead inexorably to the conclusion that the unsuccessful party should be held liable for solicitor-and-client costs, since not all such attempts will be correctly considered to amount to "reprehensible, scandalous or outrageous conduct". However, allegations of fraud and dishonesty are serious and potentially very damaging to those accused of deception. When, as here, a party makes such allegations unsuccessfully at trial and with access to information sufficient to conclude that the other party was merely negligent and neither dishonest nor fraudulent (as Wilkins J. found), costs on a solicitor-and-client scale are appropriate: see, generally, M. M. Orkin, The Law of Costs (2nd ed. (loose-leaf)), at para. 219.
Result
[22] In my view the unproven allegations of dishonesty made by Chabot against AL support the proposition that 148 and KGC pay costs to AL on a substantial indemnity basis. These allegations reflect not only on Fuller who spoke for AL but also on the lawyers and staff who advanced AL’s case successfully. There does need to be a reduction of AL’s claim by reason of the file being “over lawyered” by Stikeman Elliott on AL’s behalf.
[23] I fix costs to be paid by 148 and KGC to AL as follows:
Partial indemnity before the offer to settle $20,000
Substantial indemnity after the offer to settle 50,000
Disbursements 3,036
Total 73,036
The liability of 148 is joint and several and the costs shall be paid in 30 days.
P.B. Hambly, J.
Released: January 26, 2016
AND KGC Industrial Gases v. Air Liquide Canada Inc., 2015 ONSC 612
COURT FILE NO.: 2142/13 5424/13
DATE: 2016-01-25
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
1483489 Ontario Inc.
Applicant
- and –
Air Liquide Canada Inc.
Respondent
AND BETWEEN:
KGC Industrial Gases Inc.
Applicant
- and –
Air Liquide Canada Inc.
Respondent
RULING ON COSTS
P.B. Hambly J.
Released: January 26, 2016