2017 ONSC 5074

COURT FILE NO.: CV-01-210449

MOTION HEARD: 20170418

REASONS RELEASED: 20170427

COSTS ENDORSEMENT RELEASED: 20170824

SUPERIOR COURT OF JUSTICE – ONTARIO

BETWEEN:

WILLIAMS MEDICAL TECHNOLOGIES INC.

Plaintiff

• and-

SOURCE MEDICAL CORPORATION and BAXTER CORPORATION

Defendants

BEFORE: MASTER M.P. McGRAW

COUNSEL: Laurie L. Aitchison Email: laitchison@alolawyers.com -for the Plaintiff, Williams Medical Technologies Inc.

Ljiljana Stanic Email: lstanic@mccarthy.ca -for the Defendants, Source Medical Corporation and Baxter Corporation

COSTS ENDORSEMENT RELEASED: August 24, 2017

Costs Endorsement

I. Overview

[1] This was a motion by the plaintiff, Williams Medical Technologies Inc. (“Williams Medical” or the “Plaintiff”) for a status hearing under Rule 48.14 to avoid the administrative dismissal of this action on January 1, 2017. The Defendants, Source Medical Corporation (“Source”) and Baxter Corporation (“Baxter” collectively with Source, the “Defendants”) opposed this motion and brought a cross-motion to dismiss this action for delay under Rule 24.01. The Defendants were completely successful on both motions and the action was dismissed (see Williams Medical Technologies Inc. v. Source Medical Corp. et al, 2017 ONSC 2645).

[2] The Defendants seek costs of these motions and this action on a partial indemnity scale in the aggregate amount of $77,528.69 which includes $17,542.46 for the motions. The Defendants also submit that Williams Medical and its non-party principal, Michael Alexander Williams, should be joint and severally liable for the costs of both the action and the motions.

[3] The Defendants’ request for non-party costs against Mr. Williams is based on the disclosure by Plaintiff’s counsel on May 2, 2017, 5 days after the release of my Reasons For Endorsement, that Williams Medical had ceased operations “several years prior and had few if any assets, rendering it judgment-proof”. Although there is no affidavit evidence before me supporting these statements, Williams Medical does not dispute them and I therefore accept them as accurate for the purposes of this Costs Endorsement.

III. The Law and Analysis

[4] Section 131(1) of the Courts of Justice Act (Ontario) states:

“Subject to the provisions of an Act or rules of court, the costs of and incidental to a proceeding or a step in a proceeding are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid.”

[5] Rule 57.01(1) of the Rules of Civil Procedure provides as follows:

“In exercising its discretion under section 131 of the Courts of Justice Act to award costs, the court may consider, in addition to the result in the proceeding and any offer to settle or to contribute made in writing,

(0.a) the principle of indemnity, including, where applicable, the experience of the lawyer for the party entitled to the costs as well as the rates charged and the hours spent by that lawyer;

(0.b) the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed;

(a) the amount claimed and the amount recovered in the proceeding;

(b) the apportionment of liability;

(c) the complexity of the proceeding;

(d) the importance of the issues;

(e) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding;

(f) whether any step in the proceeding was,

(i) improper, vexatious or unnecessary, or

(ii) taken through negligence, mistake or excessive caution;

(g) a party’s denial of or refusal to admit anything that should have been admitted;

(h) whether it is appropriate to award any costs or more than one set of costs where a party,

(i) commenced separate proceedings for claims that should have been made in one proceeding, or

(ii) in defending a proceeding separated unnecessarily from another party in the same interest or defended by a different lawyer; and

(i) any other matter relevant to the question of costs.”

[6] Modern costs rules are designed to advance five purposes in the administration of justice: (1) to indemnify successful litigants for the costs of litigation, although not necessarily completely; (2) to facilitate access to justice, including access for impecunious litigants; (3) to discourage frivolous claims and defences; (4) to discourage the sanctioning of inappropriate behaviour by litigants in their conduct of the proceedings; and (5) to encourage settlements (394 Lakeshore Oakville Holdings Inc. v. Misek, 2010 ONSC 7238 at para. 10; Deonath v. Iqbal, 2017 ONSC 3672 at para. 20).

[7] The principle that costs follow the event should only be departed from for very good reasons such as misconduct of the party, miscarriage in procedure, or oppressive or vexatious conduct of proceedings: 1318706 Ontario Ltd. v. Niagara (Regional Municipality) (2005), 2005 CanLII 16071 (ON CA), 75 O.R. (3d) 405 (C.A.); 394 Lakeshore at para. 14). The most general rule is that costs on a partial indemnity scale should follow the event (394 Lakeshore at para. 12). In determining costs, the overriding principles are fairness and reasonableness (Boucher v. Public Accountants Council for the Province of Ontario, (2004) 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291 (C.A.); Deonath at para. 21).

[8] This exercise of the court’s discretion necessarily engages Rule 1.04(1) which provides that the Rules of Civil Procedure shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits. Further, Rule 1.04(1.1) requires the court to make orders and give directions, including costs awards, that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding (Deonath at para. 21).

[9] This was a 16-year old action in which Williams Medical claimed damages of $15,000,000 from Source and $484,924 from Baxter arising from agreements between Williams Medical and each of the Defendants for the supply of latex medical examination gloves (the “Supply Agreements”). Neither the Plaintiff nor its counsel made any contact with the Defendants or their counsel for approximately 10 years and 8 months. Counsel retained by LawPro finally contacted the Defendants’ counsel on or about December 5, 2016 to schedule a mediation and this motion in an attempt to avoid the impending administrative dismissal of this action on January 1, 2017.

[10] The Plaintiff’s own evidence demonstrated that, other than minimal efforts by Mr. Williams and his previous counsel to resolve a largely unexplained retainer dispute, no steps were taken to move this action forward which was largely ignored for the better part of a decade. This delay ultimately undermined the Defendants’ ability to defend this action leading to my finding that there was a substantial risk that a fair trial may not be possible.

[11] Having considered the factors under Rule 57.01(1) and related case law and reviewed the parties’ costs submissions, in my view, it is fair, reasonable and appropriate in the circumstances that the Plaintiff, Williams Medical pay costs of these motions and this action on a partial indemnity scale. Contrary to the Plaintiff’s submissions, the successful party on a motion for dismissal is entitled to both the costs of the motion and the action (Hercules Moulded Products Inc. v. Rogers, 2013 ONSC 5647 at para. 43). Further, the Defendants’ Notice of Cross-Motion dated December 19, 2016 states that the Defendants were seeking costs of both the motion and the action and the Plaintiff has had the opportunity to respond to the Defendants’ costs submissions.

[12] In some respects it is understandable that the Plaintiff would bring a motion in an attempt to avoid the administrative dismissal of an action in which it claimed over $15,000,000. However, in the face of the irrefutable evidence of inaction and largely unexplained delay of over 10 years, and the fact that the motion was a hurried last-minute attempt to avoid administrative dismissal, it is arguable whether or not it was reasonable to do so. This, together with the Defendants’ complete success on both motions, are primary considerations with respect to the costs of this matter.

[13] Having reviewed the Defendants’ Bill of Costs, I am satisfied that the quantum claimed for the action and the motions by the Defendants is reasonable and appropriate in the circumstances, especially considering the significant amount claimed by the Plaintiff and the requirement for the Defendants’ counsel to quickly ramp up for these motions after over 10 years of inaction. While the Plaintiff did not make any submissions with respect to the quantum of costs, in my view, the amount sought by the Defendants is within the reasonable expectations of an unsuccessful party. However, I would apply a reduction of $4,000.00 with respect to substantial photocopying charges and what appear to be some minor overlap in counsel’s fees.

[14] The Defendants submit that as a result of the Plaintiff’s failure to disclose its current operational and financial status until after these motions, the court should exercise its inherent jurisdiction to order non-party costs of both the motion and the action against Mr. Williams. The Defendants rely on the Court of Appeal’s decision in 1318847 Ontario Ltd. v. Laval Tool & Mould Ltd., 2017 ONCA 184. At paragraph 77 of Laval, Strathy C.J.O. states:

“Costs against non-parties who are directors, shareholders or principals of corporations may be ordered in exceptional circumstances if the non-party commits an abuse of process: see Harris Scientific Products Ltd. v. Araujo, 2005 ABQB 850, 382 A.R. 377, at para. 24; and Chapman Management & Consulting Services Ltd. v. Kernic Equipment Sales Ltd., 2006 ABQB 227, 400 A.R. 1, at para. 40. Such circumstances may include fraud or gross misconduct in the instigation or conduct of the litigation. But the injunction and authorities referred to in para. 63 of these reasons must be followed -- costs should not be awarded against corporate officers, directors or shareholders simply because they directed the operations of the company: see Kerr, at para. 14.”

[15] In Laval, the Court of Appeal exercised its inherent jurisdiction to award costs against a non-party principal where it found that the principal had committed an abuse of process by bringing a “fictitious” action in circumstances where there was no good reason for him to bring the action in the company’s name rather than his own. Further, the effect of the principal’s conduct was to waste the defendant’s and the court’s resources and force the defendant to “defend two equally fruitless proceedings and incur the costs of each by retaining separate counsel” (Laval at para. 86).

[16] The Defendants further submit that non-party costs should be awarded against Mr. Williams under Rule 31.09(3)(b) as a result of the Plaintiff’s failure to correct answers which Mr. Williams gave on his examination for discovery. At his examination on March 15, 2006, Mr. Williams deposed that Williams Medical was operational, had “lots of assets” and had no real liabilities. The Defendants argue that the Plaintiff’s failure to correct these answers until May 2, 2017 has rendered any costs award against Williams Medical unenforceable. Had the Plaintiff corrected this information before the motions, the Defendants state that they would have sought security for costs.

[17] Therefore, the Defendants submit that because the information subsequently discovered is not favourable to the Plaintiff, the court should exercise its jurisdiction pursuant to Rule 31.09(3)(b) to may make such order as is just and award costs personally against Mr. Williams. The Defendants further submit that Mr. Williams has breached his obligations under the Rules which constitutes an abuse of process.

[18] In my view, any consideration of non-party costs against Mr. Williams should be limited to the costs of these motions. The Defendants’ request for non-party costs is based on Mr. Williams’ conduct in causing the Plaintiff to bring its motion for a status hearing and opposing the Defendants’ dismissal for delay motion which did not occur until December 2016. The previous costs of this action were incurred more than a decade before this time, and there is no suggestion by the Defendants that these costs were incurred as a result of any conduct of Mr. Williams that should attract personal liability.

[19] In any event, I am not satisfied that the circumstances of the present case are sufficiently exceptional to satisfy the requirements set out by the Court of Appeal in Laval. There is no evidence that Mr. Williams has committed fraud or gross misconduct in the instigation or conduct of the litigation. Further, I am not convinced that the failure to disclose Williams Medical’s current operational and financial status constitutes an abuse of process by Mr. Williams as contemplated in Laval.

[20] The facts of the present case are distinguishable from Laval. There is no dispute that Williams Medical, not Mr. Williams, was the proper plaintiff in this action. Williams Medical’s alleged cause of action against the Defendants arose from the Supply Agreements. Mr. Williams was not a party to the Supply Agreements. There is also no suggestion that the action, the cause of action or the motion were “fictitious”. When Mr. Williams caused the Plaintiff to bring its motion for a status hearing, he was directing the corporate Plaintiff Williams Medical, the proper litigant, to seek this relief with respect to the corporate Plaintiff’s own cause of action. As the Court of Appeal stated in Laval, awarding non-party costs against corporate directors is exceptional relief which should not be granted simply because a principal was directing the corporation, in this case, to exercise its rights as a litigant. Therefore, it follows that the costs consequences of this action and motions should be visited on the Plaintiff, a corporation.

[21] The Defendants have provided no authorities with respect to the application of Rule 31.09(3)(b) including any that stand for the proposition that a failure to correct answers from examinations for discovery constitutes an abuse of process generally, or, in the case of an officer, director or principal, conduct that would justify a personal costs award as sanctions for such conduct. In what appears to be the most recent consideration of this provision, in Malka v. Vasiliadis, 2013 ONCA 239, the Court of Appeal held that where the failure to correct evidence did not affect the result at trial, the proper relief was costs against the non-disclosing parties both of whom were individual litigants.

[22] The Defendants will have the right to conduct an examination in aid of execution with respect to their judgment as to costs at which time they can examine Mr. Williams under oath with respect to the assets of Williams Medical available for execution and any transactions or conduct which may have depleted any assets which may give rise to further remedies.

[23] Having considered all of the factors and circumstances above, I conclude that it would be inappropriate to exercise the court’s inherent jurisdiction to award costs against Mr. Williams personally.

[24] The Plaintiff, Williams Medical shall pay the costs of this action and the motions to the Defendants fixed in the amount of $73,528.69 within 60 days.

Released: August 24, 2017

Master M.P. McGraw