CITATION: Twelve Gates Capital v. Eminence Living Inc., 2017 ONSC 5671
COURT FILE NO.: CV-17-568865
Date Heard: April 6, 2017
SUPERIOR COURT OF JUSTICE – ONTARIO
Re:
TWELVE GATES CAPITAL GROUP INC.
Plaintiff
v.
EMINENCE LIVING INC., 2399862 ONTARIO INC.,
HIGHER LIVING DEVELOPMENT INC. and AZZ BUILDERS LTD.
Defendants
BEFORE: Master Lou Ann M. Pope
APPEARANCES: Elliot Birnboim, Chitiz Pathak LLP, lawyers for plaintiff
Fax: 416-368-0300
Sarit E. Batner, McCarthy Tetrault LLP, lawyers for defendants
Fax: 416-868-0673
REASONS FOR ENDORSEMENT ON COSTS
[1] In my Reasons For Endorsement dated June 6, 2017, I disposed of the two motions as follows:
(a) the plaintiff’s motion to compel a representative of the defendants to answer a question he refused to answer on his cross-examination was dismissed with costs; and
(b) the defendants’ motion to discharge the certificates of pending litigation was granted on the basis of omissions and failure to establish that there is a triable issue on whether the plaintiff can obtain specific performance of the letter of intent and subsequent agreements.
[2] At the conclusion of my Reasons I indicated that if the parties were unable to agree on costs, they could file costs outlines and written submissions which I have received and reviewed.
[3] In addition to the costs of the two motions set out above, there is also the issue of costs of the hearing held on March 8, 2017. At which time the plaintiff sought an adjournment of the motions which the defendants opposed. On March 9, 2017, in my Reasons For Endorsement, I adjourned the motions as I found no evidence of urgency that could not be compensated by costs or an adjournment.
March 8, 2017 – Opposed Adjournment of Motions
[4] The plaintiff seeks its partial indemnity costs of the appearance on March 8, 2017 having been successful in its request to adjourn the motion. The defendants submit that no costs should be awarded for this hearing as it is a step in the proceeding of removing the improperly registered CPLs in which they were successful, albeit, the plaintiff was successful in having the motions adjourned.
[5] Having reviewed the plaintiff’s costs outline, it is my view that the claim of some 28 hours spent for preparation and attendance on March 8, 2017 is excessive. However, I am cognizant that the requested adjournment was strongly opposed by the defendants for reasons set out in my Reasons For Endorsement which required research and drafting of a factum by the plaintiff.
[6] In my view, a fair and reasonable amount of costs in these circumstances having considered the factors set out in Rule 57.01(1) is $3,500 plus HST of $525 and disbursements of $70, for a total of $4,095. The defendants shall pay these costs within 30 days.
April 6, 2017 – Plaintiff’s Refusals Motion
[7] There was one refusal in issue in which the plaintiff requested that Mr. Matas, the defendants’ representative, produce a lengthy list of documents. The defendants were successful on this motion.
[8] The defendants seek partial indemnity costs of $5,702 based on 12.9 hours spent which represents the fees for two lawyers. In my view, it is unreasonable to claim for two lawyers to prepare and attend the hearing for a simple straightforward motion such as this one. Therefore, in my view, a fair and reasonable amount of partial indemnity costs is $2,000 inclusive of taxes and disbursements. The plaintiff shall pay these costs within 30 days.
April 6, 2017 – Defendants’ Motion to Discharge CPLs
[9] The defendants were successful in obtaining an order discharging the CPLs. This was a vigorously contested motion with factums and briefs of authorities filed by all parties. Submissions lasted the majority of one day.
[10] The defendants seek substantial indemnity costs of $107,422 plus disbursements of $4,713 for a total of $112,135. The plaintiff’s partial indemnity costs were $29,897.76 inclusive of HST and disbursements. The plaintiff submits that the defendants ought to be entitled to partial indemnity costs in the amount of $25,000 inclusive.
[11] In fixing costs, the court must determine what is fair and reasonable having regard to the facts in Rule 57 of the Rules of Civil Procedure, R.R.O. 1990, Reg.194 (“the Rules”), including:
(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.
[12] The law regarding costs in general and substantial indemnity costs is as stated by the Court of Appeal in Clarington (Municipality) v. Blue Circle Canada Inc., 2009 ONCA 722, which is set out below.
[13] An award of costs is governed by s.131 of the Court of Justice Act, R.S.O. 1990, c. C.43, and by Rules 49 and 57.01. The general source of judicial discretion to award costs is found in s. 131 of the Courts of Justice Act as expanded by rule 57.01.
Section 131(1) 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.
[14] Rule 57.01(1) sets out the factors that a court may consider in exercising its discretion under section 131 of the Courts of Justice Act to award costs in addition to the result of the proceeding and any offer to settle or to contribute made in writing.
[15] Rule 57.01(4) allows for elevated levels of costs, as follows:
Nothing in this rule or rules 57.02 to 57.07 affects the authority of the court under section 131 of the Courts of Justice Act,
(a) To award or refuse costs in respect of a particular issue or part of a proceeding;
(b) To award a percentage of assessed costs or award assessed costs up to or from a particular stage of a proceeding;
(c) To award all or part of the costs on a substantial indemnity basis;
(d) To award costs in an amount that represents full indemnity; or
(e) To award costs to a party acting in person.
[16] Substantial indemnity costs is defined in rule 1.03 as “costs awarded in an amount that is 1.5 times what would otherwise be awarded in accordance with Part I of Tariff A”. The Court of Appeal stated that this part of Tariff A was once the prescribed grid for “partial indemnity costs”, but is no longer in effect. “Full indemnity costs” is not a defined term but is generally considered to be a complete reimbursement of all amounts a client has had to pay to his or her lawyer in relation to the litigation.
[17] Rule 49 deals with a specific aspect of costs which are not applicable to the facts herein.
[18] Thus, the court held that elevated costs are warranted in only two circumstances. The first involves the operation of an offer to settle under rule 49.10 where substantial indemnity costs are explicitly authorized. The second involves sanction-worthy behaviour by the losing party.
[19] With respect to sanction-worthy behaviour, in Conroy v. The College of Physicians and Surgeons of Ontario, 2011 ONSC 1664, at para. 8, the court held that a party may be entitled to substantial indemnify costs where a party makes an unproven allegation of fraud, bad faith or misconduct against another party or conducts itself improperly during the course of the litigation.
[20] A few years following the Court of Appeal’s decision in Clarington, that Court awarded partial indemnity costs at 60 per cent of actual fees. (Eastern Power Limited v. Ontario Electricity Financial Corporation, 2012 ONCA, 366, at para. 26)
[21] Then again in 2015, the Court of Appeal held that costs awarded on a substantial indemnity scale are to be determined on the basis of applying a factor of 1.5 to the amount of the partial indemnity costs as fixed in accordance with the Rules and Tariff A. (Akagi v. Synergy Group (2000) Inc., 2015 ONCA 771 at para. 57)
[22] In addition, the Court opined that it is well established that fixing costs of a proceeding or of a step within a proceeding on a partial indemnity basis pursuant to Part 1 of Tariff A of the Rules is not simply an exercise of multiplying hourly rates by the amount of time expended. Rather the court must balance the discretionary factors set out in Rule 57.01(1) to arrive at an amount that is reasonable and fair in the circumstances and that bears some relationship to the amount that an unsuccessful party could reasonably expect to pay. (Akagi, at para. 55, citing Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291 (C.A.), at paras 26, 37-38)
[23] The defendant submits that costs awards in the range sought by the defendants are appropriate for a one-day motion. They rely on several decisions including Longyear Canada, ULC v. 897173 Ontario Inc., (J.N. Precise), 2008 CanLII 3407 (Ont S.C.J.) where partial indemnity costs of $185,000 in total was awarded to four groups of defendants for a one-day injunction motion. Conway J. stated at paragraph 19 that he could not ignore the fact that despite the intense preparation and high stakes, the motion was only a one-day motion which must inform his costs decision.
[24] In Catalyst Capital Group Inc. v. Moyse, 2015 ONSC 5248, a total of $160,000 in costs were ordered for a one-day motion.
[25] In Ferrero S.p.A v. 218587 Ontario Ltd., 2016 ONSC 7036, F. L. Myers J. ordered a total of $150,000 in costs for a one-day motion, which amount was as agreed between the parties.
[26] In Degroote v. DC Entertainment Corp et al, 2014 ONSC 63, at paragraph 23, Newbould J. ordered partial indemnity costs of $180,000 plus HST for a one-day hearing. He opined on the issue of the length of the motion in stating:
The fact that the hearing of the motion took just under one day does not mean that the matter was a simple dispute. It took as little time as it did because of the exemplary way in which the material for the plaintiff was organized. A less well prepared plaintiff causing a longer hearing of a motion should not produce a higher award of costs. The opposite is the case.
[27] In addition, Newbould J. held that the rates set out as guidance in the practice note of the Costs Subcommittee of the Civil Rules Committee are “far too low and unrealistic for downtown Toronto matters”. (para. 24) Further, he held that “These rates are completely outdated and unrealistic for an action fought by two major downtown Toronto law firms.” (para. 24, citing Newbould J.’s decision in Stetson Oil & Gas Ltd. v. Stifel Nicolaus Canada Inc. 2013 ONSC 5213, [2013] O.J. No. 3702, para. 22)
The amount an unsuccessful party would reasonably expect to pay
[28] The plaintiff’s costs outline provides that its costs on a partial indemnity scale were approximately $30,000 for this motion, in contrast to the partial indemnity costs of the defendants of approximately $81,000 plus disbursements for both motions of $5,300.
[29] The plaintiffs assert that the issues were important to both parties given the value of the properties and “deals at stake”. It submits further that none of the factors identified in rule 57.01(1) militate in favour of an unusually high award of costs. I agree with the plaintiff’s statement that it was reasonable for the plaintiff to expect that the defendants would devote significant resources to seek to have the CPLs discharged given the value of the claims at issue are in the “tens of millions of dollars”.
[30] I accept the defendants’ submission that it had to bring this motion promptly upon being served with the CPL order and to pursue it vigorously given that the CPL order prevented the defendants from dealing freely with its properties.
[31] The plaintiff takes issue with the hourly rates sought two lawyers in their costs outline. The plaintiff states that it should not be unduly penalized by the defendant’s decision to retain counsel with rates of $875 and $670 per hour. This issue will be addressed later in this decision.
Complexity of the Motion
[32] This action involves a complex commercial transaction involving valuable properties in Mississauga and the letter of intent that frames the dispute contemplated payments in excess of $13,000,000 to start and additional costs, including construction costs.
[33] This motion was complex not only on the facts but additionally it was legally complex. As I noted in my Reasons For Endorsement at paragraph 124, the “facts relating to this transaction and the relationship between the parties are complicated” and the “facts from the time the parties entered into the LOI in August 2016 to January 2017 are lengthy and detailed.” Moreover, the plaintiff’s choice to move ex parte for the CPL order amplified the complexity. I found at paragraph 124 of my Reasons that the plaintiff ought to have brought its motion for a CPL on notice to the defendants as the motion was not urgent.
[34] The legal issues were complex as evidenced by the defendants’ factum which was exemplary in the way it was organized by issue. None of those issues were frivolous or minor. In fact, the defendant’s factum was reflective of the fact that the motion was able to be argued in one day.
Importance of the Issues
[35] The plaintiff obtained the CPL order which effectively prevented the defendants from dealing with property freely. It was critical to the defendants that the CPLs be removed from the properties as evidenced by the fact that they attempted to resolve the matter without the need for a motion. However, when their efforts failed, they brought the motion promptly.
Conduct of the Plaintiff
[36] The defendants contend that the plaintiff’s conduct unnecessarily lengthened the proceeding by seeking to examine a second representative of the defendants who had not sworn an affidavit, then asked him no questions. Further, the plaintiffs delivered a reply affidavit after conducting cross-examinations and made extensive document requests less than 36 hours before cross-examination which lead to its unsuccessful refusals motion.
Substantial Indemnity Costs
[37] The defendants submit that they should receive substantial indemnity costs as the plaintiff did not make full and frank disclosure when it moved ex parte. The defendants rely on my finding that the plaintiff put its position before Master Muir on the ex parte motion to the exclusion of the defendants’ position. (para. 120)
[38] Further, the defendants made an offer to settle this motion in writing on March 10, 2017 for a consent discharge of the CPLs plus partial indemnity costs of $65,000 including taxes and disbursements. The plaintiff did not accept this offer and the offer was not withdrawn by the defendants. The defendants obtained a better result on the motion than the terms of their offer to settle. I find that the offer to settle was a valid Rule 49 offer such that it attracts the costs consequences outlined in rule 49.10. Therefore, the defendants are entitled to substantial indemnity costs from March 10, 2017.
[39] The plaintiff submits that substantial indemnity costs are not appropriate in the circumstances herein where the defendants’ conduct is patently inconsistent with my key finding that the letter of intent and subsequent amending agreements lack all the essential terms of the agreements such that they will likely not be enforceable. Instead, the plaintiff contends that the defendant took the position that CPLs could not be registered because there is no agreement between the parties that could ground a reasonable claim to an interest in land, while at the same time retaining $350,000 in deposits on the basis that they have a contractual right to retain them. With respect, I reject this submission. It appears that the plaintiff is confusing two issues; firstly, whether or not the letter of intent and subsequent amending agreements granted the plaintiff an interest in the land and, secondly, whether or not the terms of the aforesaid agreements provided for refundable or non-refundable deposits. On that basis, I find that the defendant’s conduct as alleged by the plaintiff is not inconsistent.
[40] For the following reasons, I have concluded that the defendants are entitled to substantial indemnity costs of the motion firstly as a result of the plaintiff’s refusal to accept the defendant’s offer to settle and, secondly, as a result of what the Court of Appeal in Clarington referred to as “sanction-worthy behaviour” by the plaintiff.
(a) The defendants’ offer to settle in writing on March 10, 2017 and the fact that they obtained a better result.
(b) My finding that the plaintiff failed to make full and fair disclosure of all the material facts on the ex parte motion;
(c) My finding that the plaintiff omitted numerous documents from their ex parte motion material as enumerated at paragraph 119 of my Reasons For Endorsement. In particular, I found that a significant and highly relevant email was omitted, which was an email from the plaintiff to its interim lender that clearly stated the plaintiff’s intention to assign the mortgage from the defendants to the lender. I made further findings that the plaintiff failed to inform the court of the parties’ disagreement over the assignability of the mortgage, that it failed to disclose that the parties had not reached an agreement on the terms, and that it fell short of disclosing the full picture that not only had the parties not reached an agreement on the terms of a co-ownership agreement, they had not agreed on the basic terms of the mortgages. (para. 119(e))
(d) The failure to make full and fair disclosure involved the fact that the plaintiffs’ ex parte motion material contained no evidence of communications between the parties from October 15, 2016 to January 17, 2017. I found that those communications chronicled the steps taken by the parties not only regarding the reasons for the extensions to the due diligence period, but also regarding the efforts by the defendant to ensure the plaintiff was in a position to waive the due diligence condition. (para. 119(f))
(e) My finding that the plaintiff put its position before Master Muir to the exclusion of the defendants’ position. In particular, the plaintiff included an exhibit to the affidavit, as well as including an excerpt from the email in the body of the affidavit which I found emphasised the plaintiff’s position strongly whereas the balance of the evidence failed to disclose the defendants’ position. (para. 120)
(f) My findings that the plaintiff failed to fully and fairly present the defendants’ position regarding the terms of the mortgage, that the plaintiff failed to provide satisfactory proof of its ability to pay the subsequent deposit of $13,000,000 and the lack of agreement on the terms of the co-ownership agreement; (para. 123)
(g) The importance of providing full and fair disclosure at the ex parte motion given that at the time, only a notice of action had been issued such that Master Muir had to rely almost exclusively on the ex parte evidence in reaching his decision; (para. 121)
(h) My finding that the plaintiff failed to make full and fair disclosure of the relevant law on the ex parte motion. In particular, the plaintiff failed to produce to the court the case law relating to specific performance of letters of intent and agreements to agree or negotiate; (paras. 122 and 134)
(i) My finding that the plaintiff’s ex parte motion for CPLs was not urgent despite the plaintiff’s evidence to the contrary and as submitted to Master Muir. I found that the plaintiff’s concern that the defendants would mortgage the property was not realistic given the length of time it took the defendants to find an investor and the length of the plaintiff’s due diligence period and the fact that it ultimately was not waived.
(j) My finding that the plaintiff failed to satisfy its onus of establishing that it has a reasonable claim to an interest in the land. (paras. 128 and 133)
Quantum of Costs
[41] Having reviewed the respective costs outlines, several points are worthy of comment. I have set these out in chart form for comparison purposes.
[42]
Plaintiff Defendants
Time Spent: 80.4 hours - two lawyers 166.4 hours - two lawyers
Actual Hourly Rate: Birnboim $645 Batner $875
McNish $390 Rogers $670
Partial Indemnity Rate: Birnboim $350 Batner $525
NcNish $230 Rogers $422
Substantial Indemnity Batner $787
Rate Rogers $603
Years of Experience: Birnboim 24 years Batner 17 years
McNish 10 years Rogers 5 years
[43] It is obvious that defence counsels’ actual rates are significantly higher than plaintiff counsels’ actual rates given the years of experience. Notably, Ms. Batner has 17 years of experience and her actual hourly rate is $875 in comparison to Mr. Birnboim who has more years of experience at 24 years and his actual hourly rate is $645. I concur with Newbould J.’s comments in the DeGroote decision that the rates set out as guidance in the practice note of the Costs Subcommittee of the Civil Rules Committee are far too low and unrealistic for downtown Toronto matters and that these rates are completely outdated and unrealistic for an action fought by two major downtown Toronto law firms. However, I have difficulty in accepting the combined actual hourly rate for two defence counsel at $1,545, for a partial indemnity hourly rate of $947. In particular, it is my view that Mr. Rogers’ actual hourly rate of $670 based on five years’ experience is high. This is so considering Mr. McNish’s actual hourly rate is $390 based on 10 years’ experience. Therefore, in fixing costs, if have reduced the amount sought for Mr. Rogers’ time.
[44] Ms. Batner signed the Lawyer’s Certificate as part of the bill of costs and certified that the hours claimed were spent, the rates shown are correct and that each disbursement was incurred as claimed. As such, there is no basis to dispute the contents of the bill of costs. The issue is whether the amounts claimed are fair and reasonable considering the factors in rule 57.01(1).
[45] Having reviewed the defendants’ bill of costs, I make the following comments:
(a) the hours claimed for preparing the motion record is 56.5 for two lawyers for a total partial indemnity fees of $24,251. This would equate to about seven working days at eight hours a day. The motion record contained an extensive affidavit of the defendants’ representative including an abundance of exhibits. While I accept that drafting the motion record, revising and meeting with the client was onerous, in my view 56.5 hours is excessive. Therefore, in fixing costs, I have reduced the quantum of this claim.
(b) similarly, the hours claimed for research and drafting the factum for two lawyers plus 6.5 hours for Fraser Dickson (whose position is not identified in the bill of costs) is about 38 hours for a total partial indemnity fees of $14,467. As stated above, the factum was exemplary in its organization and quality and in my view reflected on the fact that the motion was able to be heard in one day. There were numerous issues that required research for inclusion in the factum. As such, I find that the hours claimed are reasonable.
(c) the defendants claim 3.8 hours and partial indemnity fees of $1,995 for attendance before Master Abrams on February 28, 2017. In my view that attendance was unnecessary as the motion was not scheduled that day and it was not the proper method to schedule a motion. The Practice Direction sets out the proper steps to obtain a date for an urgent motion. Therefore, this amount is not allowed.
(d) the hours claimed for their reply record is 19.2 hours for two lawyers for a total partial indemnity fees of $8,653. This equates to 2 ½ working days at eight hours a day. The reply record was not extensive; therefore, I find that this claim is excessive. In fixing costs, I have reduced the quantum of this claim.
(e) the defendants claim 22.6 hours and $10,402 for cross-examinations and examination of a witness for two lawyers. On the other hand, the plaintiff claims to have spent 11.7 hours for one lawyer. In my view, it was not unreasonable to have two lawyers working on this motion given the complexity; however, I feel there is some overlap of work on this claim. Therefore, in fixing costs I have reduced the quantum of this claim.
(f) The defendants claim two hours, being one hour each for two lawyers to participate in a telephone case conference on March 20, 2017 prior to the hearing. In my view, this is not a reasonable claim which I have reduced to one hour.
(g) the hours claimed for a reply factum is 8.4 hours for two lawyers. This is a reasonable claim considering it includes receiving and reviewing the plaintiff’s factum.
(h) the hours claimed for preparation for the hearing is four hours for two lawyers which I find to be excessive given that Ms. Batner made all the defendants’ submissions. However, it is accepted that Mr. Rogers would have had to spend some time preparing for the motion. Therefore, in fixing costs I have reduced the quantum of this claim.
(i) similarly, the hours claimed for attendance at the hearing is four hours for two lawyers which is reasonable.
(j) I have reduced the amount sought of $4,713 for disbursements as I find some items to be excessive. Further, no receipts were included to verify these items. In particular, $94.50 is being sought for “Tabs” and almost $2,000 for copies, binding and external service.
[46] Balancing the discretionary factors set out in Rule 57.01(1), and for the reasons above, I award the defendants costs on a substantial indemnity scale and fix them at $75,000 inclusive of taxes and disbursements, payable within 30 days of the date these reasons are released.
Conclusion
[47] The plaintiff shall pay the defendants’ costs of $72,905 within 30 days, being the difference between the three costs orders.
(original signed)____________
Released: September 25, 2017 Master Lou Ann M. Pope