Court File and Parties

COURT FILE NO.: CV-14-495750 DATE: 20160420 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

TD BANK, N.A., Plaintiff – and – LLOYD'S UNDERWRITERS THAT SUBSCRIBE TO POLICY NUMBER MMF/1710, PRIMARY LONDON REFERENCE NUMBER B0509QA025509 AND EXCESS LONDON REFERENCE NUMBERS QA025609, QA025709, QA025809, AND QA025909 AND THE ADDITIONAL DEFENDANTS LISTED ON SCHEDULE “A” HERETO, Defendants

Counsel: W. G. Scott, H. Afarian, for the Plaintiff G. Luftspring and S. Sasso, for the Defendants Underwriters and Axis J. Halfnight and A. Juntunen, for the Defendant Liberty Mutual Insurance P. Green and D. Vaillancourt, for the Defendant AIG C. Reain and C. Lui, for the Defendant ARCH Insurance E. Dolden and G. Gill, for the Defendant Allied World

HEARD: In Writing

Costs Endorsement

S. F. Dunphy, J.

[1] On December 22, 2016, I released my endorsement on a motion for partial summary judgment. This was the third major motion that I had heard over a period of approximately six months in this complex piece of insurance litigation pitting TD Bank against its fidelity insurers. TD’s statement of claim seeks indemnity for the consequences of a Ponzi scheme perpetrated by one of the former customers of the bank in Florida. My reasons for the three decisions and their background can be found at TD Bank, N.A. v Lloyd’s Underwriters, 2016 ONSC 4188; 2016 ONSC 5993; and 2016 ONSC 8006. In addition, the parties appeared before me on May 12, 2016 on a motion for directions relating to the partial summary judgment motion heard by me in December. Costs on that motion were reserved to the partial summary judgment motion that was ultimately heard by me over two days in December.

[2] In the last motion of these three motions, I indicated that I would receive written submissions from the parties on whether costs ought to be awarded on this last or the prior [1] motions and, if so, the amount to be awarded. I have now received and reviewed the helpful submissions as to costs made by the parties.

(a) Style of Cause – administrative issue

[3] I would like to clear away some administrative issues first.

[4] It will be apparent from a review of the style of cause that there are a large number of insurer parties who have been named as defendants. This arises from the syndicated nature of the policy and the various layers into which the risk had been divided.

[5] I mention this by way of background to my decision – apparent in the style of cause I have used above – to rationalize the unwieldy style of cause of this action. Motion records, books of authorities and the like have become prone to being misfiled or lost in the system because the title of filed documents ends up being buried on internal pages instead of being visible on the cover as intended.

[6] I am directing the parties hereafter to use the simplified style of cause as I have abbreviated it here for all future filings. Only the first defendant need be listed with the (long) list of additional defendants consigned to a Schedule “A” to be attached. Hopefully this simple device will ensure that filed documents are able to be more quickly identified for proper filing and retrieval in future. I do not think it necessary to amend the style of cause formally.

(b) Costs – general considerations

[7] I turn now to the matter of costs. However, I shall preface that discussion with a short digression.

[8] As I have mentioned throughout my rulings in this matter to date, the parties have demonstrated an exemplary level of professionalism in their management of this litigation. I need hardly note that the matter is large, complex and with very high stakes. While there are, for example, a large number of defendants named, the defendants have organized themselves to reduce the flood of paper that might otherwise have resulted into a manageable and rational flow. Where possible, joint briefs have been filed and “me too” submissions have been genuine “me too” submissions. Repetition has been avoided. The defendants have taken the time (and incurred the expense) to harmonize and rationalize their arguments before submitting them.

[9] This has resulted in streamlined hearings with the handful of key issues brought into sharp contrast by able counsel. Absent this cooperation, I should have been required to make my own way through an uncoordinated morass of similar presentations seeking to find and follow the important strands of thought to a logical conclusion.

[10] It will be obvious that I am a grateful beneficiary of that co-operative effort. There are necessarily winners and losers on the merits of court proceedings, but all parties can have the satisfaction of having gotten there faster and at lower cost than might have been the case by taking the path of least resistance.

[11] Another feature these three motions have in common is that they have been pre-planned during the course of a number of case conferences held with me in my role as case management judge. The issues dealt with on these motions were identified in advance, a timetable for getting them ready for a hearing was agreed and adhered to (or amended as the case may be). Our case conference meetings were not the sole occasions the parties had to meet with each other in person or by conference call. It was apparent in the case conference meetings we did hold that significant spade work had been done collectively in advance of each.

[12] All of this was a demonstration of civil litigation as it is meant to be conducted. It enabled the material issues separating the parties to be identified, brought to the fore and resolved. The court’s time was used efficiently and the parties were able to make considerable forward progress in the litigation in a relatively brief period of time. All litigants have a common interest in seeing a return of value and efficiency for their investment in the process. This is as true for individuals of modest means as it is for large commercial players with proverbially deep pockets.

[13] The polar opposite of the professionalism and pragmatism demonstrated here is, unfortunately, far too common in the motions culture afflicting our civil litigation system. Significantly more judicial resources are devoted to procedural or interlocutory motions than to actual trials or similar proceedings (such as summary judgment), a fact that the public would I suspect be quite surprised to learn. Such motions very often have little or no material impact on the actual advancement of a dispute towards its final resolution on the merits, a litmus test that ought to underlie every decision taken in the litigation process.

[14] Any motion that fails that simple litmus test – a test that is a core value of the Rules of Civil Procedure as expressed in Rule 1.04(1) - is almost certainly a waste of time and expense. Such motions are, however, a prominent, if not the predominant feature of modern litigation. There is no net benefit to anyone in this wheel-spinning. Securing the original Pyrrhic victory did little good for the Macedonian cause against Rome. The strategic value of such victories has not noticeably improved since then.

[15] It is no exaggeration to say that, unchecked, this practice erodes the rule of law in our society. The public justice system finds itself increasingly abandoned by sophisticated parties with the means to do so in favour of private systems that offer more suitable procedures. This threatens the continued development of the common law whose flexible genius has been a significant contributor to the civil peace and prosperity we enjoy. Meanwhile, access to justice is denied for those without the means to pay for a public system that often imposes costs without regard to benefit.

[16] Addressing this problem will require a concerted re-thinking of our approach to every stage of litigation from both bench and bar. In my view, the relentless pursuit of that re-thinking is a corollary of the “culture shift” Karakatsanis J. called for in Hryniak v. Mauldin, [2014] 1 SCR 87, 2014 SCC 7 (at para. 2):

“Increasingly, there is recognition that a culture shift is required in order to create an environment promoting timely and affordable access to the civil justice system. This shift entails simplifying pre-trial procedures and moving the emphasis away from the conventional trial in favour of proportional procedures tailored to the needs of the particular case. The balance between procedure and access struck by our justice system must come to reflect modern reality and recognize that new models of adjudication can be fair and just.”

[17] There is a point to this digression in an endorsement about costs. Every costs award reflects a balancing of a number of policy goals. These are expressed in a non-exhaustive list in Rule 57.01(1) of the Rules of Civil Procedure. These principles are broad and flexible enough to accommodate a costs analysis that is consistent with encouraging and fostering that culture shift. I consider that it is fit and proper for me to do so. I shall return to this theme below.

(c) Costs: the first production motion

[18] The first motion heard by me was brought by the defendants seeking an order requiring TD to include three categories of identified documents in its affidavit of documents. TD claimed legal prohibitions on producing these documents on a variety of grounds that the defendant insurers challenged. While success was somewhat divided, TD was largely successful on this motion (2016 ONSC 4188). In my ruling, I wrote (at para. 56):

“While TD has been largely successful on this motion, I am of the view that it is most appropriate to award costs in the cause in this instance… I am disinclined in a case such as this to issue a number of what could only be (in the scale of this case at least) nuisance costs awards that will simply create distractions and minor annoyance where motions have been reasonably brought and conducted. Such awards will neither incent better behaviour from the parties than I am able to monitor and secure as case management judge nor would they materially advance the principle of indemnity. If either side is of the view that a particular motion is deserving of different treatment as regards costs, they are of course invited to signal that position to me in their written or oral argument.”

[19] Prior to bringing their motion, the defendants might have stood firm on the black-letter requirements of Rule 30.02 of the Rules of Civil Procedure and insisted on the preparation of an affidavit of documents listing every conceivable document, including the tens of thousands of documents subject to certain very important restrictions imposed by United States law under which the plaintiff (a US subsidiary of Toronto-Dominion Bank) operates.

[20] Instead of taking that route, the parties rationally and pragmatically brought the legal issues before me at the outset. The issue was ripe for adjudication and properly delineated. The production of 10,000 documents or more for my review would not have advanced my understanding of those issues. Months of delay and many tens of thousands of dollars of pointless clerical work were avoided.

[21] In short, while the defendants were largely unsuccessful in their motion for directions, their pragmatic and sensible approach spared TD months of wasted clerical effort and the expenditure of costs that might not have been recoverable until final resolution of the action (if resolved in their favour). The “old school” approach would have been pointless and wasteful. However, most of that cost would have fallen on TD’s shoulders and little of it would have been normally recoverable on the motion when ultimately heard. While a hypothetical accounting of what TD spent compared to what it might have had to spend is an impossibility at this stage, I think it quite likely that TD saved more money than it spent as a result of this procedure having been co-operatively followed.

[22] In this case, the defendants were on the right side of the “culture shift” here even where the benefit to them was indirect and longer term. In my view that fact ought to be recognized by an equally pragmatic approach to the awarding of costs.

[23] The plaintiff suggests that, in light of Rule 57.03(1) of the Rules of Civil Procedure, I ought to reserve “in the cause” awards of costs for exceptional cases. The general rule ought to be that costs follow the event and that they should be payable within 30 days unless the court orders otherwise.

[24] I quite concur that that is the normal rule and the normal rule should normally apply. However, Rule 57.03(1)(a) does contemplate a judge ordering otherwise where a different order would be more just. This is, in my view, such a case.

[25] It would be unduly artificial to ask me to restrict my focus in assessing costs solely to the four corners of the motion without regard to its full context. While TD was successful on the motion, the pragmatic approach adopted by the defendants has resulted in significant litigation efficiencies of which TD has been a significant beneficiary. Some recognition of that fact when assessing costs is required in my view.

[26] I have kept these considerations in mind here. Taking a larger view of the motion in the context of the overall action, I have found that it raised questions that required an answer in a timely and pragmatic fashion that very likely advantaged the eventual winner of the motion (TD) more than would have been the case had the matter simply been allowed to surface in what I would describe as the “usual way”. The pragmatism of the defendants ought to be recognized and I have done so without abandoning the principle of indemnity.

[27] For the reasons expressed on the first motion and those expressed herein, I am confirming my award of costs of the first motion in the cause.

(d) The directions motion

[28] I heard a motion for directions in relation to the partial summary judgment motion on May 12, 2016. At that time, I reserved costs of that motion to be dealt with at the same time as the partial summary judgment motion. I shall consider both motions together and aggregate the costs claimed from both below.

(e) The partial summary judgment motion

[29] TD’s motion for partial summary judgment heard on December 6-7, 2016 was successful. I think that it is appropriate that I adopt a somewhat different approach to costs of this motion than I adopted for the first production motion.

[30] The motion for partial summary judgment goes to the merits of the action. The considerations that moved me to favour costs in the cause on the first motion pull less insistently here. Conversely, the principles of indemnity and that costs should follow the event on the other hand would appear to warrant greater weight. It would not be appropriate here to leave costs to be assessed at some future time “in the cause” and I decline the defendants’ invitation to do so. I note, for example, that the Court of Appeal in Canadian Imperial Bank of Commerce v. Deloitte & Touche, 2017 ONCA 43 declined to award costs in the cause in that partial summary judgment motion. While the circumstances are somewhat different here, I think this is not a case to depart from the general rule.

[31] TD has been successful on its motion for partial summary judgment. The motion has resolved a major issue – if not the major issue – that separates the parties. It would normally be entitled to its costs and I can see no valid reason to depart from that principle here. There will doubtless be an appeal of such a material decision unless a settlement intervenes. However, should my decision be affirmed, the motion’s outcome will have taken a very major issue off of the table for trial purposes. If it is not, costs will doubtless be re-examined at that time in any event.

[32] I find that TD is entitled to its costs of the partial summary judgment motion.

[33] I must next determine who should pay the costs and in what amount.

(i) Who should pay the costs?

[34] The defendant insurers have, until now, exhibited a fairly high degree of solidarity and discipline. The result has been quite beneficial to the process and to all of the parties. However, the legal burden has clearly not been equally distributed. Some defendants have assumed a leadership role in court while others have played a lesser role up front but have played a role behind the scenes in formulating strategy, commenting on drafts and the like.

[35] The defendant Allied World filed a written argument with me suggesting that, while it supported the Motion for Directions (regarding the partial summary judgment motion), it was not a moving party and should not bear the costs of it.

[36] I decline to give effect to that submission.

[37] Firstly, while the insurance that is the object of this claim is divided into multiple layers with some being responsible for the first dollar of loss and others the last, the fact of the matter is that amount of TD’s claimed loss far exceeds the total amount of insurance available even after the rather material ($100 million) deductible. I recognize that the insurers are challenging the quantum and causation of the loss and it is possible that, after a full trial, damages (if awarded) could potentially be awarded in an amount below the policy limits and over the deductible. However that theoretical possibility does not detract from the fact that virtually all of the issues raised to date have been common issues and appear to me to have been to the benefit of all insurers without distinction.

[38] The question of costs ought not to become an acid that corrodes the resolve of the defendants to continue pursuing a sensible and pragmatic collective approach. I should not be taken as saying that dissent among the defendants should not be permitted nor that a dissenter could not, in an appropriate case, make that dissent known and disclaim any responsibility for costs in responding to a particular motion. That was not the case here. Allied World has not – at least not audibly or on the record – chosen to dissent. It has sought to enjoy the fruits of collective action and ought in fairness to bear the occasional expense as well.

[39] In my view, the only reasonable outcome here would be to allocate responsibility for costs payable by the defendants globally pro rata to the percentage of the overall policy exposure borne by each insurer. I have the discretion to make such an order and I propose to do so. I make the order on a joint and several basis secure in the knowledge that the sophisticated commercial defendants with whom I am dealing will have no difficulty in implementing this order as among themselves. In the unlikely event that some unforeseen ambiguity in my reasons makes that difficult, I may be approached in writing for clarification.

(ii) Amount of costs

[40] TD seeks costs assessed on a partial indemnity basis. There is no dispute with that in principle, even if the defendants suggest the claimed costs are excessive or should only be payable in the cause. I must now consider the amount claimed.

[41] Prior to doing so, I remind all of the parties that the criteria for assessing costs in Rule 57.01(1) of the Rules of Civil Procedure are neither exhaustive nor to be mechanically applied.

[42] The principles of indemnity and elementary logic both suggest that the actual time charges and expenses incurred by the successful party is a starting point in the assessment process. Starting points and finishing points are not the same thing and the process can never be reduced to a mechanical exercise of addition and multiplication.

[43] The amount claimed, the importance of the issue decided, and the complexity of the proceedings: all of these factors suggest an outcome that cleaves fairly tightly to the principle of indemnity.

[44] What factors might tend the other way? The reasonable expectations of the unsuccessful party is the most commonly referenced criterion for reducing a costs award materially below the number that the principle of indemnity might otherwise suggest. This in turn is something of a proxy for reasonableness at large. Both of these considerations are normally – but not exclusively – informed by a consideration of what the losing party actually spent in terms of time and disbursements in bringing or responding to the motion in question.

[45] I have been given a costs outline of but two of the defendants on the motion for directions and partial summary judgment motions. TD suggests that I have not got the entire picture because there were numerous other defendants and counsel represented in court. The courtroom was quite full of gowned counsel on both occasions.

[46] That being said, the two law firms that carried the bulk of the water in defending the insurers’ cause on these two appearances are the ones whose outlines I have received. The data may not be perfect, but it is reasonably representative.

[47] With that preface, I shall dive into the numbers.

[48] TD has produced an Outline of Costs detailing its fees and expenses from (i) the motion for directions (approximately one day), (ii) the partial summary judgment motion (approximately two days); and preparation of costs submissions as follows:

| Fees | Disbursements | | :-------------------------------- | :---------------- | :---------------- | | Directions motion (1 day) | $48,267.23 | $2,653.06 | | Partial Summary judgment (2 days) | $295,370.23 | $5,552.26 | | Costs submissions | $7,953.22 | $0.00 | | Total | $351,590.68 | $8,205.32 | | Total Claimed | $359,796.00 | |

[49] The fees figures have been calculated inclusive of HST. They have been calculated premised on partial indemnity fees of 60% of actual rates. Mr. Scott and Mr. Afarian, the two lawyers with the lion’s share of recorded time/fees would receive rates of $458.40 and $323.40 on this basis as compared to the “grid” rates of $350 and $250 respectively based on their years of call.

[50] Let me start being dealing with the “grid” rates, these being the recommendations of the Costs Subcommittee of the Civil Rules Committee that were made in 2005. These were intended to be updated from time to time based “so that their currency can be maintained”. I (and others) have noted that inflation in the seventeen intervening years has eroded the currency of that grid materially. Inflation in the Toronto region since then has exceeded 20% with the result that an updated grid would, at all events, produce figures very close to the 60% amount claimed by TD.

[51] In applying the principle of indemnity having regard to the complexity of the proceeding and importance of the issues, the 60% methodology employed by TD in this case appears to me to be both reasonable and appropriate when compared to the inflation-adjusted grid. That is not the end of the inquiry by any means, but it does establish that the rates – if not necessarily the time – claimed represent a reasonable starting point for me to consider.

[52] The hours are another matter. The defendants submit that these are excessive. Indeed, at first blush, they have a point. The two lead lawyers recorded 293.05 and 452.4 hours respectively on the motion for directions and the partial summary judgment motions (as noted, I am considering the two as effectively a single motion). Even allowing for the pace of work that passes for normal on Bay Street, that claim is equivalent to between 1.5 – 3 months of full time, undivided effort of each lawyer. Is that reasonable or is it excessive?

[53] The plaintiffs counter that the stakes were high and the issues complex. From my exposure to this file as case management judge, I cannot take issue with that characterization. The written materials for this motion necessary required mastery of a file that is gargantuan in order to distill the complex to the manageably concise. As well, the plaintiff as moving party bore the brunt of all of this. I should have expected to have seen a considerable expenditure of effort at all events.

[54] I have considered the Motion for Directions along with the “main” motion for partial summary judgment. However, it is worth noting that this pre-emptive motion was designed to stop the motion for partial summary judgment in its tracks – at least temporarily and possibly permanently. TD had good cause to ensure that this was given all possible attention if it wished to pursue its partial summary judgment motion.

[55] What does a review of the defendants’ two outlines reveal? Looking only at the recorded hours, the lead lawyers of each of the two lead defendant law firms docketed hours of a total of 235.2 and 439.1 hours respectively. These hours are certainly in the same range as the plaintiff’s recorded hours. There are of course many points of similarity and dissimilarity that make the comparison imperfect.

[56] All things considered, I find that the plaintiff’s claimed time and rates bear a close comparison to the reasonable expectations of the unsuccessful parties, if being somewhat on the higher end of those expectations. I cannot say that the plaintiff’s claim falls outside the bounds of the reasonable expectations of a sophisticated syndicate of insurers responding to a motion for partial summary judgment that called into question what they viewed as a very fundamental aspect of their insurance policies.

[57] Of course, the exercise is not to determine whether a particular figure claimed falls outside the bounds so much as it is one of determining what a reasonable figure is. That exercise is necessarily more art than science. I have used the figures produced by the parties as a guide, but I have deliberately avoided trying to adjust them up or down by some precise but necessarily arbitrary formula. I found the amount claimed to be somewhat but not unduly high. It requires a downward adjustment to a figure that does not so appear to me.

[58] I would allow TD costs and disbursements of the motion for partial summary judgment and the motion for directions in the amount of $330,000 all inclusive.

Disposition

[59] Accordingly, I am ruling as follows regarding costs:

a. The costs of the motion heard by my on June 7, 2016 is confirmed as being in the cause to be fixed at the conclusion of the trial or other disposition of this claim; b. The plaintiff is entitled to its costs of the motion for directions and motion for partial summary judgment from the defendants on a joint and several basis, the responsibility for which is to be allocated pro rata to each insurer’s responsibility on the policy, which costs I fix in the amount of $330,000 all inclusive.

S.F. Dunphy, J.

Date: April 20, 2017

Schedule “A” List of Additional Defendants

ANTARES UNDERWRITING LIMITED FOR ITSELF AND ON BEHALF OF ALL MEMBERS OF LLOYD'S SYNDICATE 1274 (AUL)FOR THE OPERATING YEAR OF 2009, CATLIN SYNDICATE LIMITED FOR ITSELF AND ON BEHALF OF ALL MEMBERS OF LLOYD'S SYNDICATE 2003 (SJC) FOR THE OPERATING YEAR OF 2009, NOVAE CORPORATE UNDERWRITING LIMITED AND/OR NOVAE SYNDICATES LIMITED FOR THEMSELVES AND ON BEHALF OF ALL MEMBERS OF LLOYD'S SYNDICATE 2007 (NVA)FOR THE OPERATING YEAR OF 2009, ACE CAPITAL LIMITED, AVE CAPITAL IV LIMITED, AND ACE CAPITAL V LIMITED FOR THEMSELVES AND ON BEHALF OF ALL MEMBERS OF LLOYD'S SYNDICATE 2488 (AGM) FOR THE OPERATING YEAR OF 2009, BRIT UW LIMITED FOR ITSELF AND ON BEHALF OF ALL MEMBERS OF LLOYD'S SYNDICATE 2987 (BRIT) FOR THE OPERATING YEAR OF 2009, CHAUCER CORPORATE CAPITAL (NO. 3) LIMITED, CHAUCER CORPORATE CAPITAL (NO. 2) LIMITED, AND/OR IRONSHORE CORPORATE CAPITAL LTD. FOR THEMSELVES AND ON BEHALF OF ALL MEMBERS OF LLOYD'S SYNDICATE 4000 (PEM) FOR THE OPERATING YEAR OF 2009, ASPEN INSURANCE UK LIMITED, GREAT LAKES REINSURANCE (UK) PLC, LEXINGTON INSURANCE COMPANY, AIG INSURANCE COMPANY OF CANADA (FORMERLY KNOWN AS AIG COMMERCIAL INSURANCE COMPANY OF CANADA), AIG COMMERCIAL INSURANCE COMPANY OF CANADA, CHARTIS EXCESS LIMITED (FORMERLY KNOWN AS AIG EXCESS LIABILITY INSURANCE INTERNATIONAL LIMITED), ALLIED WORLD ASSURANCE COMPANY LTD., ARCH INSURANCE COMPANY, AXIS SPECIALTY INSURANCE COMPANY, AXIS SPECIALTY LIMITED, CHUBB INSURANCE COMPANY OF CANADA, HOUSTON CASUALTY COMPANY, LIBERTY MUTUAL INSURANCE COMPANY, MARKEL BERMUDA LIMITED (FORMERLY KNOWN AS MAX BERMUDA LTD.) AND OR MAX BERMUDA LTD., XL INSURANCE COMPANY PLC (FORMERLY KNOWN AS XL INSURANCE COMPANY LIMITED) AND OR XL INSURANCE COMPANY LIMITED and ENDURANCE SPECIALTY INSURANCE LTD.

Footnote:

[1] Success on the second “productions” motion was divided and I ordered that no costs be payable by either side. This motion concerns costs on the first productions motion heard June 7, the directions motion heard May 12 and the motion for partial summary judgment heard December 6-7 all in 2016.