Court File and Parties

COURT FILE NO.: 12-55087 DATE: 2017 /03/10 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: TREATS INTERNATIONAL FRANCHISE CORPORATION and TREATS INTERNATIONAL DEVELOPMENT CORPORATION, Plaintiffs AND: 2247383 ONTARIO INC., ANAND SHUKLA and ANILKUMAR PATEL, Defendants

AND; 2247383 ONTARIO INC., ANAND SHUKLA and ANILKUMAR PATEL, Plaintiffs by Counterclaim AND: TREATS INTERNATIONAL FRANCHISE CORPORATION, TREATS INTERNATIONAL DEVELOPMENT CORPORATION, MICHAEL CROTTY, RYAN GIBSON and DOUG LIPPAY, Defendants to Counterclaim

BEFORE: Valin J.

COUNSEL: Martin Diegel, for the Plaintiffs, Defendants by Counterclaim Michael Kleinman, for the Defendants, Plaintiffs by Counterclaim

HEARD: March 9, 2017

Endorsement

Overview

[1] The plaintiff corporations carry on business in the specialty food service franchise sector. In July 2010, they entered into a franchise agreement and sublease with the personal defendants for a store location in the Toronto Dominion Centre in Toronto. The personal defendants assigned that franchise agreement and sublease to the defendant corporation.

[2] The defendants operated the store until July 2012, when they abandoned the premises and claimed rescission of the franchise agreement and sublease.

[3] The plaintiff corporations sued the defendants claiming payment for the sum of $77,104.01 for arrears of rent and damages for breach of the franchise agreement. The defendants filed a statement of defence and counterclaim.

[4] The defendants, plaintiffs by counterclaim, brought a motion for summary judgment in which they sought an order:

(a) dismissing the plaintiffs’ claim;

(b) granting judgment against the plaintiffs in the amount of $156,392 for money payable to them as a consequence of the rescission of the franchise agreement;

(c) granting a declaration that the franchise, sublease, and ancillary agreements the defendants entered into with the plaintiffs were validly rescinded by a notice of rescission delivered on July 20, 2012; and

(d) granting costs of the motion and the action on a substantial indemnity basis.

[5] I dismissed the motion for summary judgment on the grounds that the statement of defence and counterclaim was a nullity.

[6] On March 9, 2017, I received oral submissions on costs from counsel via long-distance telephone conference.

[7] The plaintiffs were successful in defending the motion for summary judgment. They are entitled to their costs. There are three issues relating to costs in these proceedings:

(i) the scale of costs to be awarded;

(ii) the quantum of costs awarded; and

(iii) whether this is an appropriate case to order that the costs be payable personally by the solicitors for the defendants, plaintiffs by counterclaim.

Law and Analysis

(i) The Appropriate Scale of Costs

[8] The usual rule in civil litigation is that costs should follow the event.

[9] Section 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43 provides, in part, that the costs incidental to a step in a proceeding are in the discretion of the court, and that the court may determine by whom and to what extent the costs shall be paid.

[10] There are two recognized scales of costs: partial indemnity costs and substantial indemnity costs. The general rule is that the successful party in a proceeding, or a step in a proceeding, is usually entitled to partial indemnity costs. An award of costs on the substantial indemnity scale is an exception to the general governing rule that requires the unsuccessful party to pay costs on the partial indemnity scale.

[11] Costs on the substantial indemnity scale are awarded where there is a form of reprehensible conduct, either in the circumstances giving rise to the cause of action or in the proceedings themselves, which makes an award of costs on that scale desirable as a form of punishment or to mark the court’s disapproval of the unsuccessful party’s conduct.

[12] A review of the jurisprudence on substantial indemnity costs suggests that the courts only exercise their discretion to make such an award in rare and exceptional cases where the unsuccessful party has engaged in reprehensible, scandalous or outrageous conduct such as fraud or misrepresentation, or in conduct amounting to an abuse of process. See Young v. Young, [1993] 4 S.C.R. 3, at p. 134; Foulis v. Robinson; Gore Mutual Ins. Co, Third Party (1979), 21 O.R. (2d) 769 (C.A.).

[13] Counsel for the plaintiffs argued that, by virtue of the fact that (a) the defendant Patel had made an assignment in bankruptcy four days before the statement of claim and counterclaim was filed, and (b) no order to continue had been obtained, that pleading was a nullity, and that the motion for summary judgment based on it was a waste of time and an abuse of process.

[14] With respect, I do not agree. It cannot be said that the defendants’ motion for summary judgment lacked any reasonable chance of success. I am unable to conclude that the defendants’ decision to proceed with the motion amounted to unconscionable, reprehensible, scandalous, outrageous, oppressive or contemptuous conduct that should attract an award of costs on the substantial indemnity scale.

[15] In addition, I am unable to conclude that the defendants acted unreasonably by bringing the motion for summary judgment, or that they acted in bad faith for the purpose of delay. See Rules of Civil Procedure, R.R.O 1990, Reg. 194, at Rule 20.06.

[16] Accordingly, I decline to exercise my discretion in the manner requested by the plaintiffs. I conclude that the plaintiffs are entitled to their costs of the motion on the partial indemnity scale.

(ii) The Quantum of Costs Awarded

[17] Both sides cross-examined on affidavits filed in support of and opposing the motion for summary judgment. Both sides agreed in advance that the cross-examinations would also serve as discoveries for the purpose of the trial. Counsel for the plaintiff conceded that the counsel fees claimed with respect to the cross-examinations should be apportioned equally between the costs of the summary judgment motion and the trial.

[18] Counsel for the plaintiffs was called to the bar in 1982. I find that the hourly rate claimed for his services on the partial indemnity scale at the rate of $300 per hour is fair and reasonable.

[19] Prior to the argument of the motion before me, which took approximately three hours, there were two previous attendances on the motion before Kershman J., both of which were adjourned. The defendants were not responsible for either of the adjournments. In those circumstances, I believe the counsel fee related to those two appearances should properly be attributable to the costs of the main proceeding, and not to the motion argued before me.

[20] The only other comment I have with respect to the counsel fee claimed is that the time docketed for preparation of affidavits and factum, and preparation of argument for use on motion, is higher than one might otherwise expect.

[21] I have considered the cost submissions filed by the parties, together with the costs outline filed by counsel for plaintiffs. I have taken into account the factors enumerated under Rule 57, including the time spent, the results achieved and the complexity of the matters, as well as the application of the principle of proportionality set out at Rule 1.04(1.1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. In addition, I have considered the principles set forth by the Court of Appeal in Boucher v. Public Accountants Council for the Province of Ontario, 2004 ONCA 14579, 71 O.R. (3d) 291 and Davies v. Clarington (Municipality), 2009 ONCA 722, 100 O.R. (3d) 66, specifically that the overall objective of fixing costs is to fix an amount that is fair and reasonable for an unsuccessful party to pay in the particular circumstances, rather than an amount fixed by actual costs incurred by the successful litigant.

[22] I conclude that an award of costs in the amount of $15,000, inclusive of disbursements and HST, is a fair and reasonable award in the circumstances.

(iii) Should the Costs be Payable by the Solicitor for the Defendants?

[23] Rule 57.07(1)(c) provides that where a lawyer for a party has caused costs to be incurred without reasonable cause or to be wasted by undue delay, negligence or other default, the court may make an order requiring the lawyer personally to pay the costs of any party.

[24] Counsel for the plaintiffs submitted that, from the time the statement of defence and counterclaim was filed, he took the position through the Reply and Defence to Counterclaim, his factum, and in conversations and emails with counsel for the defendants, that pursuing the motion for summary judgment was unreasonable, mistaken, negligent, abusive, and without authority.

[25] He relied on the decision of Best v. Ranking, 2016 ONCA 492, 351 O.A.C. 132 as authority for an order that costs are available against a solicitor whose actions are clearly either negligent, without authority, abusive or mistaken. However, I note that in that decision, Pardu J.A. observed at para. 50 that:

I agree with the submissions of the appellant that the fact that a lawyer starts an action that is unlikely to succeed is not, on its own, a basis to award costs personally against that lawyer.

[26] The decision of the Supreme Court of Canada in Young v. Young, [1993] 4 S.C.R. 3 sets out the governing principles related to awarding costs personally against a lawyer. The Supreme Court stated that courts must be extremely cautious in awarding costs personally against a lawyer.

[27] The jurisprudence is clear that an order should be made under Rule 57.07 only in rare circumstances. Resort should be had to the rule only when a lawyer pursues a goal which is clearly unattainable or is clearly derelict in his or her duties as an officer of the court.

[28] In applying the rule, the court must first determine whether the particular conduct complained of falls within the purview of the rule and secondly, whether the circumstances are such that the provisions of the rule should be invoked. See Marchand (Litigation Guardian of) v. Public General Hospital Society of Chatham, 1997 ONSC 12142, 16 C.P.C. (4th) 201.

[29] In Carleton v. Beaver Hotel, 2009 ONSC 92124, 96 O.R. (3d) 391, Hackland J. stated that extreme caution “means that these awards must only be made sparingly, with care and discretion, only in clear cases and not simply because the conduct of a solicitor may appear to fall within the circumstances described in rule 57.07(1).”

[30] I am unable to conclude that the counterclaim lacked any chance of success, or that the conduct of the solicitor for the defendants in filing that pleading and proceeding with a motion for summary judgment amounted to dereliction of his duties as an officer of the court. Applying the principle of extreme caution to this case, I am unable to conclude that the conduct of the solicitor for the defendants, in bringing and pursuing a motion for summary judgment which ultimately failed, should attract an order that the plaintiffs’ costs are payable by him.

[31] I therefore decline to exercise my discretion in the manner requested by the plaintiffs. This is not an appropriate case in which to make an order that the plaintiffs’ costs be payable by the defendants’ solicitor personally.

Result

[32] The costs I have fixed in the amount of $15,000 are payable by the defendants within 30 days.

The Honourable Mr. Justice G. Valin

Date Released: March 10, 2017