BROCKVILLE COURT FILE NO.: 16-0571 DATE: 20170501 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Kent Dowsley, Kelly Santini LLP and Clarke & Wright Professional Corporation, Plaintiffs AND: Rose Powell, Nancy Lee Powell and Nelson Nicholas Powell, Defendants
BEFORE: Mr. Justice Graeme Mew
COUNSEL: Colin Wright, for the Plaintiffs Lee Mullowney, for the Defendants
HEARD: in writing
Ruling on Costs
mew j.
[1] On 31 January 2017, I granted a motion for default judgment voiding the fraudulent conveyance of a property in Mallorytown from Rose Powell to Nancy Lee Powell and Nelson Nicholas Powell and granting other ancillary relief to give effect to the voiding of that transaction.
[2] Although in the run up to the return of the motion there was some discussion of the possibility of the defendants’ lawyer obtaining instructions to move to set aside the noting of default of the defendants, the defendants ultimately participated in, but did not oppose the motion for default judgment, save with respect to the issue of costs.
[3] In my handwritten endorsement, I indicated that if the parties were unable to agree on the costs of the motion and of the action, counsel were at liberty to make written submissions by 28 February 2017 (plaintiffs) and 14 March 2017 (defendants).
[4] No agreement on costs having been made, the parties have now provided me with their written submissions.
[5] At issue is whether the plaintiffs should be awarded costs at all and, if so, on what scale.
Background
[6] The plaintiffs in this action are Kent Dowsley and the two law firms that represented him in an action commenced against him by Rose Powell, Tanya Powell and Ian Powell claiming injunctive relief and damages in nuisance as a result of Kent Dowsley’s installation and use of an outdoor wood burning furnace at his farm. The Dowsley farm is located next door to another farm property which, at all times material to the lawsuit against Mr. Dowsley, was owned by Rose Powell. The other plaintiffs in that action, Nancy Lee Powell and Nelson Nicholas Powell are, respectively, the daughter and grandson of Rose Powell, and also lived at the Powell property.
[7] The Powell v. Dowsley action proceeded to trial. On 18 March 2016, Pedlar J. dismissed the Powells’ action (reasons reported at 2016 ONSC 1951).
[8] On 23 June 2016, Pedlar J. released a ruling on costs in which he awarded Kent Dowsley costs of $85,000 comprising of $65,000 (inclusive of disbursements and H.S.T.) for the services provided to Mr. Dowsley by Kelly Santini LLP and $20,000 (inclusive of H.S.T.) in relation to the services provided to Mr. Dowsley by Clarke & Wright Professional Corporation.
[9] In his ruling on costs, Pedlar J. noted that the defendants (the action was originally commenced against Kent Dowsley and Robert Dowsley, but the claim against Robert Dowsley was subsequently removed) were put into the position of having to retain additional lawyers to defend the claim for injunctive relief. It would appear from the bills of costs contained in the motion record and from the submissions made on behalf of the defendants, that the claim against Mr. Dowsley for damages was insured, whereas the claim for injunctive relief was not: Kelly Santini’s accounts were rendered to an insurer. Pedlar J. found that it was “not unreasonable” for Mr. Dowsley to have engaged two sets of lawyers in those circumstances.
[10] The lawyers then representing the Powells in the Powell v. Dowsley action were not cooperative when it came to approving the judgment arising from Pedlar J.’s decision.
[11] On 26 July 2016, Mr. Dowsley’s lawyers received correspondence from Racioppo Zuber Coetzee Dionne LLP (“RZCD”) advising that they had just been retained on behalf of the defendants with instructions to appeal Pedlar J.’s decision. That firm had not previously represented the Powells in the litigation. A Notice of Appeal and Appellant’s Certificate was enclosed.
[12] The following day, Mr. Dowsley’s solicitors wrote to RZCD enclosing a copy of the draft judgment and advising that they took the position that the Powells were out of time to appeal Pedlar J.’s decision. On the same day, Pedlar J., who had previously indicated on 13 July 2016, through the trial coordinator at Brockville, that if the draft judgment had not been approved by the plaintiffs’ lawyers within ten days, he would sign the judgment without the necessity of a motion pursuant to Rule 59.04, issued the formal judgment.
[13] The formal judgment, as signed by Pedlar J., orders, with respect to costs:
THIS COURT ORDERS AND ADJUDGES that the plaintiffs pay costs in the amount of $65,000, inclusive of H.S.T. and disbursements, to Kelly Santini LLP in trust.
THIS COURT ORDERS AND ADJUDGES that the plaintiffs pay costs in the amount of $20,000, inclusive of H.S.T. and disbursements to Clarke & Wright Professional Corporation in trust.
[14] Unbeknown to Mr. Dowsley and his lawyers, on 21 July 2016, Rose Powell conveyed the Powell property to her daughter, Nancy Lee Powell and her grandson, Nelson Nicholas Powell.
[15] Mr. Dowsley (or, more accurately, his lawyers) did not find out about the conveyance of the Powell property until 14 September 2016.
[16] In the meantime, inquiries had been made of the Court of Appeal, as a result of which, it was ascertained on 13 September 2016 that no appeal, in fact, been filed by the Powells.
[17] On 28 September 2016, Kelly Santini LLP commenced an action on behalf of itself, Kent Dowsley and Clarke & Wright Professional Corporation against Rose Powell, Nancy Lee Powell and Nelson Nicholas Powell, on the basis that the transfer of the property by Rose Powell was made with the intention of defeating, hindering, delaying or defrauding them. The statement of claim asserted that the conveyance of the Powell property was a fraudulent conveyance pursuant to s. 2 of the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29, as it was made to defeat, hinder, delay or defraud the judgment creditor, and sought relief including:
a. A certificate of pending litigation to be registered against the Powell property;
b. An order voiding the fraudulent conveyance of the Powell property; and
c. Costs on a full indemnity basis.
[18] The plaintiffs in this action obtained an order from Byers J. on 3 October 2016 granting leave to issue and register a certificate of pending litigation against the Powell property. The order of Byers J. further provided that costs of the motion would be in the cause.
[19] Copies of the statement of claim, the order of Byers J., the certificate of pending litigation and the motion record used to obtain it, were all duly served on the defendants soon after the order of Byers J. was made.
[20] On 3 November 2016, a letter was received from the Powells’ solicitors (RZCD) indicating that Rose Powell was making arrangements to pay the costs award in the Powell v. Dowsley action and requesting that no further steps be taken, provided that the costs (including costs of issuing the statement of claim and obtaining, filing and serving the certificate of pending litigation in the current proceeding) were paid in full by 5 December 2016.
[21] The plaintiffs agreed to that request and provided the Powells’ solicitor with particulars of the costs that had, to that date, been incurred in the present action, totalling $10,170.90 on a solicitor and own client basis.
[22] These costs not having been paid by 6 December 2016, the defendants were noted in default.
[23] On 8 December 2016, the plaintiffs’ lawyers were contacted by telephone by the lawyers currently representing the defendants. At that time, they had been approached by Rose Powell’s son David, and then by Nancy Powell, but had not yet been formally retained. They were made aware that the defendants had been noted in default and that the plaintiffs would not consent to the setting aside of the noting in default.
[24] By the time the 8 December 2016 telephone call from the current lawyers for the defendants was received, the plaintiffs’ lawyers had already starting drafting motion materials to obtain default judgment.
[25] On 5 January 2017, the plaintiffs’ lawyers received a letter from the defendants’ lawyers, advising that they had been formally retained by Rose and Nancy Powell and saying that they would like to canvass options to resolve the matter amicably. They said they would contact the plaintiffs’ lawyer the following week for the purposes of arranging a telephone call.
[26] An affidavit from a lawyer with the Clarke & Wright firm indicates that further “unproductive” communications then ensued between the lawyers for the parties. By 18 January 2017, the motion materials for the motion for default judgment had been completed and on 19 January 2017, a courtesy copy was sent by courier to the defendants’ lawyers. The return date for the motion was 31 January 2017.
[27] On 26 January 2017, the defendants’ lawyers wrote to the plaintiffs’ lawyers complaining that no attempt had been made to schedule the hearing on a mutually convenient date, that they were experiencing difficulty retrieving the file from the lawyer who had acted for the Powells in the Powell v. Dowsley litigation and that counsel for the defendants was not available on the unilaterally selected return date of the motion. A brief adjournment was requested to allow the defendants’ lawyers sufficient time to review the matter and, if necessary, prepare responding motion materials.
[28] A response from the plaintiffs’ solicitors the same day indicated that as the motion was one for default judgment, there was no requirement to provide a notice of motion or schedule that motion for a mutually convenient date. (I would observe that while that is a technically correct position, as a practical matter where the party in default is in communication, it is often prudent to give notice of a motion for judgment.).
[29] There was then a further letter, dated 27 January 2017, from the defendants’ solicitors. It advised that instructions had been received to consent to the relief sought, save with respect to costs. The letter pointed out that:
The defendants had been noted in default at a time when the plaintiffs knew full well that the defendants’ new lawyers were having difficulty obtaining materials from their former lawyer;
The defendants’ lawyers were in the process of being retained by all of the relevant parties and that a brief indulgence had been requested which, the defendants’ lawyers were under the mistaken assumption had been granted;
At least one of the parties against whom judgment was obtained was a minor, and not represented by a litigation guardian;
There were serious concerns regarding Rose Powell’s capacity and time would be needed to put a representative in place for her, if necessary; and
The plaintiffs had proceeded to bring the 31 January 2017 motion, without notice, while the defendants’ solicitors were in the process of negotiating the very relief sought.
[30] According to the letter, and the costs submissions subsequently made on behalf of the defendants, the motion for default judgment was wholly unnecessary and should have been withdrawn on a without costs basis.
[31] At the hearing of the unopposed motion on 31 January 2017, counsel for the defendants asserted that there had been nothing fraudulent about the alleged transfer. He advised that his clients had always intended to pay the costs awarded against the Powells by Pedlar J. in the prior action. The challenged transfer of the Powell property was merely meant to facilitate to obtain financing. He conceded that it had been naïve of his clients not to have notified the plaintiffs what they were doing and why.
Plaintiff’s Submissions on Costs
[32] The plaintiffs assert that they should be awarded the substantial indemnity costs claimed in their statement of claim. They note that they granted sufficient indulgences to the defendants to pay the costs from the previous action without the need for further steps to be taken in this action. It was only when those costs were not paid by a mutually agreed upon deadline that steps were taken to note the defendants in default and bring the current motion. Even then, there was a period of forbearance while communications went back and forth between the plaintiffs’ lawyers and the lawyers now representing the defendants.
[33] There was never an unequivocal indication by the defendants that they intended to move to set aside the default judgment. Furthermore, the plaintiffs had every reason to be skeptical about the defendants, given their experience with an appeal that was not really an appeal and two changes of lawyers since the judgment against the Powells.
[34] Substantial indemnity costs are appropriate in cases in which the losing parties’ conduct deserves sanction (Davies v. Clarrington (Municipality), 2009 ONCA 722).
[35] The plaintiffs argue that the costs claimed, $18,423.13 (being $10,663.63 for Kelly Santini LLP and $7,759.50 for Clarke & Wright Professional Corporation) are not excessive. They reflect the docketed time. As Pedlar J. recognized in the Powell v. Dowsley action, it was appropriate for there to be two sets of lawyers involved in the case: there has been little or no duplication in respect of the duties performed.
Defendants’ Submissions on Costs
[36] The defendants dispute the necessity for the motion for default judgment. Although they acknowledge that the transfer of title may have alarmed the plaintiffs, they would have known that Rose Powell owns additional property in the same jurisdiction.
[37] The defendants also criticise the plaintiffs for acting precipitously by forcing on a motion for judgment. Furthermore, they argue, such a step was at a time when the parties were in the process of negotiating the very relief that was sought in the motion.
[38] If costs are to be granted at all, such an award should be confined to fair and reasonable costs fixed on a partial indemnity scale.
[39] The defendants also point out that the lawyers of record in this action are also plaintiffs, and therefore, are acting as self-represented litigants. As such, they should not be entitled to recover their own firm’s fees as costs.
Discussion
[40] In my view, it is perfectly understandable that the plaintiffs would be distrustful of the defendants. Quite aside from the property transfer which gives rise to this action, the defendants strung the plaintiffs along, first through a failure to approve the formal judgment arising from the original action. Then the appeal that was served, but not filed. Then the discovery that the property had been transferred. Followed by a promise to pay the costs anyway. And, when that did not happen, another change of lawyers and another request for an indulgence.
[41] I do not accept the contention that the Powells’ actions were the result of naïveté or lack of sophistication, rather than an attempt to evade execution of the costs award made by Pedlar J. The very essence of a fraudulent conveyance is that it must be made with an intent to defeat, hinder, delay of defraud creditors. These are the very elements pleaded by the plaintiffs and deemed, by virtue of Rule 19.02(1)(a) of the Rules of Civil Procedure, to have been admitted by the defendants in this action when they were noted in default.
[42] I have no doubt that the defendants were challenging clients to the lawyers (RZCD and the Powells’ current lawyers) who represented them after the adverse decision at trial, and that those lawyers did their best, within the bounds of propriety, to avoid a motion for default judgment. But I can find no fault on the part of the plaintiffs’ lawyers in forcing the pace. Based on the record before me, they did not do so in an inappropriately aggressive or discourteous way.
[43] Further, if the defendants had unequivocally said that they were going to bring a motion to set aside the noting in default, I might have had concerns about the refusal of the plaintiffs to vacate the 31 January 2017 motion for judgment date. But that is not what occurred. Indeed, as already noted, there was nothing of any substance done by the defendants that would indicate that they would move to set aside the noting in default.
[44] I do find it surprising that the law firm plaintiffs would have interpreted the reasons of Pedlar J. and, indeed, even the formal judgment, as conferring on the lawyers enforceable claims for costs in their own right. It was Kent Dowsley who was awarded costs, such costs to be paid to the two law firms in trust in the amounts indicated in the judgment.
[45] That said, Pedlar J. made his ruling on costs and signed the draft judgment. I am not called upon to determine the enforceability of that judgment. My comments which follow concerning the ability of the law firm plaintiffs to enforce the award of costs made by Pedlar J. should, therefore, be regarded as obiter.
[46] For the purposes of the current action, however, I am not prepared to award costs in favour of the law firms. This is for two reasons.
[47] Firstly, it is trite law that it is the formal judgment that articulates what the court has ordered, not the reasons for judgment. As already alluded to, I interpret the judgment to have awarded costs to Mr. Dowsley, not his solicitors.
[48] Secondly, the fact that a default judgment is requested does not mean that the plaintiffs are entitled to everything that they claim entitlement to in the statement of claim. The relief sought must still be supportable based upon the application of the law and the facts that are deemed to have been established by reason of the noting in default. In that regard, there was no lis between the law firms and the Powells. No contract. No fiduciary relationship. No duty of care in the circumstances. And, therefore, no basis for the solicitors to be awarded costs.
[49] Accordingly, to the extent that there will be any award of costs, it will be in favour of Kent Dowsley only.
[50] As to the scale of costs, the statement of claim pleads that the conveyance of the Powell property was a fraudulent conveyance as it was made with the intent to defeat, hinder, delay or defraud the plaintiffs, who have valid claims against the assets of Rose Powell.
[51] As already indicated, a consequence of the Powells of being noted in default is that the allegations of fraud are deemed to have been proved.
[52] In certain circumstances, fraudulent conveyance claims will attract an award of substantial indemnity costs: Siegel v. Hibbert, 2012 ONSC 3513.
[53] Given the history of this matter, I do regard it as one where the conduct of the Powells is deserving of sanction, such that an award of substantial indemnity costs would be warranted. The Powells’ actions cannot reasonably be seen as accidental or unintentional. They strung the judgment creditors along with a phantom appeal, having in the meantime conveyed the Powell property to thwart execution of the costs award. They then further delayed the present action by obtaining the plaintiffs’ forbearance with an unfulfilled promise of payment of the costs. Time and resources were wasted as a result. Such conduct undermines the administration of justice.
[54] “Substantial indemnity” costs mean costs determined by applying a factor of 1.5 times partial indemnity costs: Rule 1.03. That said, fixing of costs is not merely a mechanical exercise in reviewing the receiving parties’ costs outlines or bills of costs: Agius v. Home Depot Holdings Inc., 2011 ONSC 5272, at para. 11. The amount of costs should reflect an amount that the court considers to be fair and reasonable in all of the circumstances, rather than an exact measure of the actual costs incurred by the successful litigant: Zesta Engineering Ltd. v. Cloutier (2002), 119 A.C.W.S. (3d) 341 (Ont. C.A.), at para. 4.
[55] Although two law firms were engaged in the current action on behalf of the plaintiffs, I do not see a great deal of overlap in what they did. Kelly Santini LLP acted, for the most part, as the instructing solicitors. Mr. Wright, of the Clarke & Wright firm, effectively fulfilled the role of counsel (using that term in its traditional sense, meaning “advocate”).
[56] I do accept however, that the principle of proportionality also has to come into play. Over $18,000 is said to have been spent over less than eight months in order to enforce a costs award of $85,000 in total. While the motion record in this matter is quite substantial, I do regard the total quantum of costs claimed, even on a substantial indemnity scale, to be sufficiently disproportionate to what is in dispute that it is necessary and appropriate to apply a modest downwards adjustment in order to fix an amount that is fair and reasonable.
[57] Having regard to the foregoing, I would fix costs payable by the defendants to the plaintiff, Kent Dowsley, in the amount of $15,000 (inclusive of H.S.T. and costs). It is up to Mr. Dowsley and his insurer to decide between themselves how that award should be divided between them.
Graeme Mew J.
Released: 1 May 2017
BROCKVILLE COURT FILE NO.: 16-0571 DATE: 20170501 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN: Kent Dowsley, Kelly Santini LLP and Clarke & Wright Professional Corporation Plaintiffs AND: Rose Powell, Nancy Lee Powell and Nelson Nicholas Powell Defendants
RULING ON COSTS Mew J. Released: 1 May 2017