Court File and Parties

COURT FILE NO.: 04-CV-264018 DATE: 20170106

SUPERIOR COURT OF JUSTICE – ONTARIO COMMERCIAL LIST

RE: SYCOR TECHNOLOGY INCORPORATED, Plaintiff

AND:

JOHN KIAER, DUANE ASTRAUSKAS, PHOENIX/EDT INC., PHOENIX/EDT, A SOLE PROPRIETORSHIP CARRIED ON BY DUANE ASTRAUSKAS and PHOENIX/PMA INC., Defendants

BEFORE: Newbould J.

COUNSEL: Charles F. Scott and Andrew J. Winton, for the plaintiff Milton A. Davis and Robert B. Macdonald, for the defendant John Kiaer Michael R. Kestenberg and Thomas M. Slahta, for the Astrauskas defendants

Endorsement

[1] In these contempt proceedings, I ordered on November 28, 2016 that Sycor was entitled to its costs on a full indemnity basis. I have now received cost submissions.

[2] Sycor claims fees of $271,042.37 ($239,860.50 plus HST), $9,488.46 for disbursements including HST, for a total of $280,530.83. The defendants say an award of $216,843.46 all in would be appropriate.

[3] Full indemnity costs are intended to be complete indemnification for all fees and disbursements reasonably incurred but not costs of extra services judged not to be reasonably necessary. See Apotex Inc. v. Egis Pharmaceuticals (1991), 4 O.R. (3d) 321 and the cases cited; MacKinnon v. Ontario Municipal Employees Retirement Board, 2007 ONCA 874 at para. 92. In Apotex, Justice Henry in dealing with whether a service could be considered reasonably necessary stated:

For the sake of clarity I add a postscript. Whether a service is performed or engaged in contemplation of adversarial proceedings in court is essentially a matter of judgment. I have looked for the exercise of judgment, together with prudence, foresight and imagination, in assigning services to the motion in this case as the test of fairness, reasonableness and necessity in applying the guiding principles. It is not appropriate to apply the test of hindsight (20/20 vision) to determine whether a service charged for was an extra service or frill not reasonably necessary to defend the client's position. The time to view the decision to commit services to the project is before the hearing or trial -- not on the basis of hindsight which might indicate that as it turned out, the service was unnecessary. In the case at bar, I did not even call on counsel for the defendants yet it was essential that they be fully prepared in case I had done so.

[4] The defendants quarrel with the hourly rates claimed by Mr. Scott and Mr. Winton. Essentially they argue that while the hourly rates charged by the unsuccessful parties’ counsel is not determinative of the maximum hourly rate allowable to the successful party, the hourly rates charged by counsel for Mr. Astrauskas and for Mr. Kiaer “informs and should be a consideration in the unsuccessful party’s reasonable costs expectations.”

[5] The rates charged by Mr. Scott were $870 in 2013 and 2014 and $750 in 2015 and 2016. The rates charged by Mr. Winton were $520 for 2013/14 and $572.50 for 2015/16. The rates charged by Mr. Kestenberg ranged from $645 to $675 in 2014 to 2016 and by Mr. Slahta from $450 to $460 for the same period. The rates charged by Mr. Davis were $700 per hour in 2014 and 2015 and $750 per hour in 2016.

[6] The question is not what the unsuccessful party’s reasonable costs expectations are, which is an issue in setting partial indemnity costs. The issue in fixing full indemnity costs is whether they were reasonable incurred. I cannot conclude that just because the hourly fees charged by defence counsel were less, although not that much less than plaintiff’s counsel, makes the fees charged by plaintiff’s counsel unreasonable. The fees of Mr. Scott with his experience and of Mr. Winton with his experience are reasonable amounts in Toronto.

[7] The defendants refer to the recommendations of the Cost Subcommittee of the Civil Rules Committee. However, this is a case of full indemnity costs, not a case of substantial indemnity costs to be set based on a factor of 1.5 times partial indemnity costs. Moreover, in my view, those recommended rates are woefully out of date. See Stetson Oil & Gas Ltd. v. Stifel Nicolaus Canada Inc, 2013 ONSC 5213; Inter-Leasing, Inc. v. Ontario (Revenue), 2014 ONCA 683; Fairfield Sentry Limited v. Pricewaterhouse Coopers LLP, 2015 ONSC 4961. In the latter case I stated:

[5] I have previously on a number of occasions been critical of the use today of the Subcommittee’s cost guidance. In Stetson Oil & Gas Ltd v. Stifel Nicolaus Canada Inc. 2013 ONSC 5213 I stated:

22 Regarding the use of the rates recommended in the practice direction of the Costs Subcommittee of the Civil Rules Committee, I have considerable difficulty with the rates in that practice direction. They were the rates contained in the cost grid introduced in January, 2002. When the cost grid was abolished on July 1, 2005, they were continued in the practice direction. These rates are completely outdated and unrealistic for an action fought by two major downtown Toronto law firms.

23 The practice direction is not a binding rule enacted as a regulation. It states that it "may provide some guidance to the profession as these changes are implemented". It is apparent that other courts agree that the rates are not realistic. I agree with R.J. Smith in First Capital (Canholdings) Corp. v. North American Property Group 2012 ONSC 1359, [2012] O.J. No. 885 that the rates should be adjusted to account for inflation, but I would go further.

24 In Canadian National Railway v. Royal & Sun Alliance Insurance Co. of Canada, 2007 ONCA 531, the Court of Appeal awarded trial costs on a partial indemnity basis of 65% of the fees charged to the client. In Eastern Power v. Ontario Electricity Financial Corporation, 2012 ONCA 366, the Court of Appeal awarded trial costs on a partial indemnity basis at 60% of actual rates charged the client. The trial judge, , [2008] O.J. No. 3722, had included a substantial indemnity cost award as a result of an offer at 90% of actual rates charged, and while this was set aside as the offer was not better than the results of the appeal, the Court of Appeal made no suggestion that the 90% figure would not have been appropriate if the costs were awarded on a substantial indemnity basis.

25 I think it appropriate to award costs at 60% of the time charged for partial indemnity costs and 90% for substantial indemnity costs…

[6] The Court of Appeal has now said the same thing. In Inter-Leasing Inc. v. Ontario (Minister of Revenue) 2014 ONCA 683, Weiler J.A. for the Court stated:

5 I agree with the appellant that the cost rates set out in the Information for the Profession set out in the preamble to Rule 57 of the Rules of Civil Procedure are now out of date, and that amounts calculated at 55%-60% of a reasonable actual rate might more appropriately reflect partial indemnity, particularly in the context of two sophisticated litigants well aware of the stakes.

[8] The rates charged by Mr. Scott and Mr. Winton are well within the rates routinely allowed in the Commercial List in Toronto. The fact that defence counsel choose to charge lesser rates is not determinative in setting costs, particularly in an award on a full indemnity basis.

[9] The defendants take issue with time spent by counsel for the plaintiffs. In particular, they point out that a cost outline of July 9, 2015 claimed costs for the liability phase of the contempt proceeding certified time spent by Mr. Scott at 51.2 hours and by Mr. Winton at 130 hours. In the cost outline now filed, it is claimed that Mr. Scott spent 65.2 hours and Mr. Winton 144 hours on the liability phase. In the reply argument of Sycor, no response to this contention is made. I will assume that the earlier cost outline should be used and a deduction of 14 hours for Mr. Scott and 14 hours for Mr. Winton should be made, resulting in a deduction of $19,460 plus HST, or approximately $22,000.

[10] The defendants also take issue with a claim for time incurred in preparing for and attending a judicial settlement conference held by Justice Morawetz on November 7, 2013. That conference preceded the bringing of the contempt motion. At that conference, Justice Morawetz authorized Sycor to bring its motion to strike the defences for contempt. Sycor says in reply that the case conference memo laid out Sycor’s argument as to why a motion for contempt was a necessary next step in the proceeding and formed the building block of the contempt liability motion record and that the time to prepare the case conference materials is properly included as time spent on the motion; otherwise, Sycor would be penalized for carefully laying out its case for contempt prior to bringing the motion. I accept the position of Sycor and the judgment of counsel for Sycor in doing that work. The work done was reasonably done for the purpose of the contempt motion.

[11] The defendants say that Sycor has claimed costs thrown away for repeated adjournments of the penalty phase hearing. However there is nothing in the Sycor cost submissions that I can see that makes that assertion.

[12] In the result, I deduct $22,000 from the costs claimed by Sycor and order that the defendants on a joint and several basis pay to Sycor costs of $258,530.83 within 30 days.

Newbould J. Date: January 6, 2017