2017 ONSC 2750

COURT FILE NO.: CV-04-279543 DATE: 20170511 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: CIT Financial Ltd. AND: Canadian Imperial Bank of Commerce, Orix Financial Corporation, The Canada Life Assurance Company and Ontario Teachers’ Pension Plan Board

BEFORE: Madam Justice J. T. Akbarali.

COUNSEL: John Chapman, Peter Wardle, Craig A. Mills, Baktash Waseil, for the Plaintiff David Byers, Daniel Murdoch, for the Defendant C.I.B.C, Kenneth A. Dekker, for the Defendant Orix Financial Corporation Myriam Seers, Vitali Berditchevski, for the Defendant The Canada Life Assurance Company George J. Karayannides, Daniel Zacks, for the Defendant Ontario Teachers’ Pension Plan Board

HEARD: By Written Submissions

ENDORSEMENT

Overview

[1] In 1997, under a share purchase agreement, Newcourt Credit Group Inc. purchased from the defendants [^1] all the shares of Commcorp Financial Services Inc. The plaintiff, CIT Financial Ltd., is the corporate successor to Newcourt and Commcorp.

[2] CIT brought this action seeking significant damages from the defendants – at times, up to $330 million and never lower than $100 million – alleging that it was entitled to indemnity under the share purchase agreement for breach of warranty and misrepresentation relating to an inaccurate and misleading tax representation given by the defendants.

[3] On January 3, 2017 I granted the defendants’ motion for summary judgment on the basis that CIT’s action was statute-barred. I found that CIT knew the material facts on which its claim was based by July 27, 1998, more than six years before the claim was commenced on November 24, 2004.

[4] I also granted partial summary judgment to the defendants, dismissing CIT’s claim for damages for loss of use of funds at anything other than the prime rate, which was the rate the parties contractually agreed would apply to damages or indemnification arising under the share purchase agreement: 2017 ONSC 38.

[5] The parties agreed on costs of the summary judgment motion but could not agree on costs of the action. These reasons address the costs of the action.

The Defendants’ Costs

[6] The defendants seek costs on a partial indemnity scale. Collectively, this amounts to $1,706,147.92 in legal fees and $1,262,668,68 in experts’ fees and disbursements, for a total of $2,968,816.60.

[7] Fixing costs is a discretionary decision under s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43. The discretion must be exercised in accordance with the factors set out in r. 57.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, including the principle of indemnity, the reasonable expectations of the unsuccessful party and the complexity and importance of the issues. Overall, costs must be fair and reasonable: Boucher v. Public Accountants Council (Ontario) at paras. 26 and 37, 71 O.R. (3d) 291.

[8] The defendants’ claims for legal fees represent 60% of the actual fees charged, consistent with the decision of the Court of Appeal in Inter-Leasing Inc. v. Ontario (Minister of Revenue), 2014 ONCA 683 at para. 5, 2014 CarswellOnt 13697. CIT agrees this is an appropriate measure by which to calculate partial indemnity costs.

[9] In support of their claim for costs, the defendants make the following arguments having regard to the factors set out in r. 57.01(1):

a. They were wholly successful in obtaining the dismissal of CIT’s action summarily; b. CIT reasonably would have expected a significant costs award in an amount comparable to what is sought; c. Although the defendants coordinated their efforts where possible, including by jointly preparing materials and jointly retaining experts, given the amounts at issue, each defendant reasonably expected the involvement of its own counsel on motions and examinations; d. The defendants handled the matter efficiently, avoiding duplication and allocating work between partners and associates based on experience; e. The proceeding was complex. It considered events that spanned nearly two decades and thus it took considerable time and effort to assemble and review productions and conduct discoveries. f. The tax issues involved in the proceeding were particularly complex and required experts to address. These complex tax issues included CIT’s claim for damages, and in particular, its claim for loss of use of funds that was summarily dismissed on the motion. The experts played an active role throughout the litigation, including attending at portions of the discoveries and assisting at mediation; g. The issues raised in the proceeding were important, given the substantial damages claimed; and h. The claim for loss of use of funds over and above the contractual rate of interest should never have been brought.

[10] CIT does not dispute these arguments, and it acknowledges the complexity of the litigation. It raises other issues with respect to costs which I address below. I accept that the defendants’ arguments support the costs they claim.

Should costs be reduced because the motion should have been brought earlier?

[11] CIT argues that the summary judgment motion based on the limitation period should have been brought long ago. It argues that it was advised in late 2013 that the defendants were considering amending their defences to assert a limitation argument, but nothing was done in furtherance of the issue until December 2015. CIT argues the defendants likely knew of the potential limitations argument earlier than 2013. CIT argues that had the motion been brought in a timely manner, the vast majority of the partial indemnity costs claimed would not have been incurred. It argues that it is not fair and reasonable that it should be required to pay these costs, which should never have been incurred.

[12] The defendants argue that CIT’s discovery evidence was key to determining whether to pursue summary judgment on both, the limitations defence and the loss of use of funds claim. They state that, while the threshold for summary judgment has changed in recent years, the requirement that parties lead trump or risk losing remains the same. In effect, they argue they were entitled to complete discoveries to ensure the court would have a full appreciation of the issues and evidence to make dispositive findings on the summary judgment motion.

[13] In my reasons on the merits, I noted that it would have been preferable for this motion to have been brought earlier. That statement was a reference to the timing of the motion in relation to the trial, then scheduled for May 2017. It was not a statement that the summary judgment motion should have been brought before examinations for discovery.

[14] CIT relies on case law in which successful defendants are denied costs where they have not been diligent in bringing forward their defences [^2]. In most of the cases on which CIT relies, the defendants did not advance clear statutory defences until late in the action, or during or after trial. While I accept that a court can deny costs on this basis, whether a defendant has been duly diligent must be considered in the context of the action at issue, both in terms of its stage at the time the defence is asserted or moved upon, and the claims that are alleged. In this case, I do not accept that the defendants were not duly diligent in advancing their limitation defence.

[15] This was complex, high-stakes litigation between sophisticated parties, all of whom were represented by capable counsel. The defendants raised the limitation period issue before CIT’s examination for discovery. In my view, the defendants were entitled to choose to advance their motion after the conclusion of oral discoveries, both to ensure that the record on the limitations issue was complete, and to bring the summary judgment motion on that issue together with the motion for summary dismissal of CIT’s claim for loss of use of funds, which also required discoveries and the involvement of experts in order to be brought on a complete record.

[16] The defendants relied on and referenced excerpts from written interrogatories, answers to undertakings and discovery transcripts in the motion, in respect of both the limitations argument and CIT’s claim for loss of use of funds. The defendants were entitled to develop their arguments on the issues through discoveries in order to bring their summary judgment motion on a record they could be confident was complete. In my view, CIT would have reasonably expected the defendants to defend the action thoroughly.

[17] It was also reasonable for the defendants to choose to bring one summary judgment motion that addressed both issues. The defendants could not have known they would be successful on the limitations argument. It would have been inefficient to bifurcate the summary judgment motion to bring a motion dealing with the loss of use of funds claim separately if the limitations argument did not succeed. I thus decline to reduce the defendants’ costs for failing to bring the motion earlier.

Should the experts’ fees be reduced?

[18] In the alternative, CIT argues that the defendants’ experts’ fees should be reduced. The defendants retained two experts: Zeifmans LLP, whose fees total $801,632.56, and Duff & Phelps, whose fees total $350,785.04.

[19] CIT argues that much of the fees charged by Zeifmans relate to going through calculations done by BDO, which I assume was CIT’s expert or advisor, after BDO had gone through a laborious and largely mechanical process to generate the calculations. CIT argues that it volunteered to have BDO meet with the defendants’ experts to go through these matters in detail to avoid reinventing the wheel, but those offers were rejected. CIT proposes, without greater specificity, that “the great bulk” of Zeifmans’ fees should be disallowed.

[20] Duff & Phelps was involved with the loss of use of funds issue. CIT agrees that was a complex issue and there would still have been significant fees even if Duff & Phelps had agreed to meet with BDO. As a result, it proposes the reduction of Duff & Phelps’ fees by 50%.

[21] In reply, the defendants rely on Smith Estate v. Rotstein to argue that, CIT having failed to file its own bill of costs, I can infer that the fees paid to its own expert approximate or exceed those incurred by the defendants. They also point to CIT’s claim in the action for $2.9 million for its costs of resolving the tax liabilities with Revenue Canada. They argue this is evidence as to the complexity of the tax and accounting issues raised in the action. They argue that the expert fees they incurred were only a fraction of CIT’s costs to address virtually the same issues.

[22] Notably, the defendants do not respond to the thrust of CIT’s complaint with their expert fees - that the fees could have been avoided in large measure through cooperation with BDO.

[23] On this argument, whether CIT’s own experts’ fees are similar to the defendants’ experts’ fees is irrelevant. Someone had to run the calculations. The point is that BDO and Zeifmans did not both need to run the calculations. I can see no reason, and the defendants have given no reason, why co-operation between the experts would not have been reasonable or feasible. Accordingly, I find that Zeifmans’ fees should be allowed on a substantially reduced rate to reflect its duplication of BDO’s work. I allow one third of the claimed fees, totaling $264,538.74, in respect of Zeifmans’ fees.

[24] Duff & Phelps was involved in the loss of use of funds claim, which was both complicated and changing. CIT has admitted that significant fees would still have resulted, even if Duff & Phelps had met with BDO. The defendants did not answer CIT’s proposed 50% discount of Duff & Phelps’ fees on the basis that the fees were unnecessary given BDO’s work. Accordingly, I allow Duff & Phelps’ fees to be recovered at the rate of 50%, totaling $175,392.52.

Conclusion

[25] The costs claimed in this action are significant, but they are less than 3% of the lowest of CIT’s claims for damages. They are reasonable in view of the stakes of this litigation.

[26] Accordingly, CIT owes the defendants the legal fees they have claimed as follows:

a. CIBC - $576,579.20 b. Orix Financial Corporation - $331,983.16 c. Ontario Teachers’ Pension Plan Board - $412,702.18 d. The Canada Life Assurance Company - $384,883.38

[27] In addition, CIT owes the defendants the disbursements they have claimed, subject to the reductions I have ordered in expert fees charged by Zeifmans and Duff & Phelps. The material filed does not allow me to identify how that fee reduction should be reflected in the disbursements claimed by the individual defendants. The total disbursements, including experts’ fees, for which CIT is responsible are $550,182.34. The defendants should be able to allocate those disbursements between them in accordance with the reductions in experts’ fees that I have ordered. If there is any issue, I may be spoken to.

Madam Justice J. T. Akbarali Date: May 11, 2017

Footnotes

[^1]: A small number of shares were purchased from individual management shareholders who are not defendants to this action. [^2]: McLellan v. Milne v. Kerr; Collins v. Haliburton, Kawartha; Hartford v. Langdon Coach; Babineau v. Babineau; Hanwell v. City of Regina.