XPG v. Royal Bank of Canada, 2017 ONSC 6345

COURT FILE NO.: 457/10

DATE: 20171024

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: XPG, a partnership and C & M Seeds Manufacturing Inc. (Plaintiffs)

AND:

Royal Bank of Canada

BEFORE: Justice R. Raikes

COUNSEL: Thomas J. Corbett, for the plaintiffs

Calie Adamson, for the defendant

HEARD: In Writing

ENDORSEMENT

[1] The plaintiffs’ claim for damages was dismissed after a 26 day trial. The defendant seeks its costs on a substantial indemnity basis for the action, trial and a motion on which costs were reserved to the trial judge. Failing that, the defendant seeks its costs on a partial indemnity basis.

[2] The defendant asks for $1,644,706.02 for fees for substantial indemnity costs or $1,096,484.18 for partial indemnity costs. Both amounts are inclusive of HST.

[3] In addition, the defendant seeks recovery of disbursements inclusive of applicable HST in the amount of $565,367.05.

[4] The plaintiffs submit that:

a. The findings made at trial that certain RBC witnesses were untruthful should attract a sanction – the defendant should be denied its costs and the unsuccessful plaintiffs should be awarded $250,000 for their costs;

b. The amounts claimed by RBC for costs are excessive and unreasonable.

[5] The issues are:

1. Should the successful defendant be deprived of its costs?

2. If not, what scale of costs should apply?

3. What is a fair and reasonable quantum for costs?

Should the successful defendant be deprived of its costs?

[6] The award of costs of a proceeding or a step in a proceeding is discretionary. The court may determine by whom and to what extent costs shall be paid: s. 131(1) Courts of Justice Act, R.S.O. 1990, c. C. 43 (“CJA”).

[7] Rule 57.01(1) sets out the factors the court may consider in the exercise of its discretion under s. 131 CJA. Rule 57.01(2) permits an award of costs against a successful party in “a proper case”. The case law under this Rule establishes that if appropriate, the court may discount the amount of costs awarded, refuse to award costs altogether or award costs to the unsuccessful party.

[8] The plaintiffs rely upon the findings at paras. 184-190 of the trial decision (2017 ONSC 2598). Two Bank employees, Ms. Paddock, a vice-president, and Ms. Lang a senior account manager, each gave answers to an undertaking from the examination for discovery of the representative of the Bank that they had a conference call with Mr. Wilson of Palmerston Grain on February 13, 2008 during which Palmerston Grain was advised that no further margin calls would be honoured. At trial, they were forced to acknowledge that the conference call never happened; it had been cancelled.

[9] In my reasons, I characterized Ms. Paddock’s answer to the undertaking as “a blatant falsehood” and indicated that her excuse offered for her misstatement “lacks any credibility”. With respect to Ms. Lang, I noted her cavalier attitude to being caught by her answer to the undertaking, which I found to be “false information”.

[10] This evidence was material to the Bank’s position in the action: if notice was required of the Bank, it was provided by Ms. Paddock and Ms. Lang. Their answers were not corrected before trial or in-chief. While they each conceded their answer to the undertaking was wrong when cross-examined, they did so only when confronted with the evidence that the call was cancelled. I was struck by the lack of apparent concern by either witness that they had provided answers that were clearly misleading.

[11] Counsel for the Bank urges me to find that their answers are the product of simple mistake, not a deliberate attempt to misstate the truth. It is difficult at the best of time to tell when someone is lying versus simply mistaken. In this case, however, I am satisfied that each of them either knowingly misstated the facts to advantage the Bank or did so recklessly without regard to the truth of their answers. If they could not recall whether the call went ahead and what was said, they should have so stated. They did not. Instead, they indicated that not only had the call proceeded but Palmerston Grain was told no further advances would be made for margin calls on a call that never happened.

[12] I decline the Bank’s invitation to minimize either the cause or import of the misstatements made by Ms. Paddock and Ms. Lang.

[13] The plaintiffs rely on cases where courts have declined to award costs to the successful party where the evidence at discovery and at trial was false: Mirembe v. Tarshis, [2003] O.J. No. 4753 (ON CA) at para. 8; Brown v. Lowe, 2002 BCCA 7 at paras. 145-150.

[14] I do not take those cases to apply a blanket principle that whenever the court finds false evidence has been tendered on discovery and/or at trial, there should be no costs if that party is ultimately successful. Rather, the court may decline to award costs.

[15] In this case, I do not believe that the evidence of Ms. Paddock and Ms. Lang is such that RBC should be entirely stripped of its costs. That strikes me as too draconian an outcome. Their impugned evidence related to but one of the issues in the action. Ultimately, the Bank was successful because, inter alia, there was no duty to provide notice.

[16] Therefore, I am not prepared to order no costs or to award costs to the plaintiffs. I will take this conduct into consideration in the determination of the quantum of costs recoverable by the Bank as the successful party.

What scale of costs should apply?

[17] The Bank seeks substantial indemnity costs because:

a. The plaintiffs made various allegations that impugned the Bank’s integrity, competency and reputation;

b. In doing so, the plaintiffs asserted that the Bank had acted in bad faith, had breached fiduciary duties owed and had failed to meet its obligations of honesty and fair dealing;

c. The plaintiffs insisted on comprehensive documentary discovery that was over-broad and unnecessary;

d. The plaintiffs unduly lengthened the trial; and

e. The plaintiffs were unreasonable in opposing the appointment of a case management judge.

[18] An award of substantial indemnity costs is the exception the rule the costs are typically awarded on a partial indemnity basis. Such an award requires conduct that is egregious: 1588444 Ontario Ltd. v. State Farm Fire and Casualty Co., 2017 ONCA 42 at para. 53. Egregious conduct may include pleadings that assert meritless allegations of fraud or other scandalous conduct that is highly prejudicial to a party’s reputation.

[19] The positions advanced by the plaintiffs in this action are summarized at paras. 280-288 of the trial decision. Those positions are consistent with the allegations pleaded.

[20] In my view, neither the allegations pleaded nor the positions advanced at trial constitute matters which would justify an award of substantial indemnity costs. At its core, the plaintiffs’ theory was the Bank was obligated to provide reasonable notice that it would no longer advance credit/funds for margin calls which were an integral part of the plaintiffs’ risk management strategy; it failed to do so and the plaintiffs suffered losses as a result. That theory of loss was creatively and forcefully advanced through various arguments and positions.

[21] Although unsuccessful, the claims made and positions advanced were far from outlandish or inappropriate in these circumstances.

[22] With respect to the length of the trial, the plaintiffs served summonses to call certain Bank employees which the Bank then called in-chief as a result. Although there was overlap in their evidence as one would expect given they were working across various Bank units on the plaintiffs’ credit facilities, the evidence was relevant and fleshed-out the inner workings at the Bank. Plaintiffs’ counsel was well-prepared, focused in his questions, and was efficient in the time spent. While the Bank may have wished for a less thorough canvassing of the evidence, I find nothing in the conduct of the trial inconsistent with exemplary advocacy by plaintiffs’ counsel.

[23] As for the scope of the documentary production, I observe that the Bank’s structure is in no small measure responsible for the breadth of inquiries needed. There were multiple Bank units/divisions involved during the events which give rise to the claim. The inner workings and deliberations of the Bank as the credit files progressed were not known or available to the plaintiffs. Even at trial, there remained some mystery as to who made the decision and why not to fund the margin calls for C & M Seeds. Given the issues involved and the amount at stake, the scope of documentary discovery is unsurprising.

[24] As for the plaintiffs’ opposition to the appointment of a case management judge, that was addressed by RSJ Heeney who did not make any costs award. The appointment of single judge to hear all motions has advantages but it also has drawbacks; most particularly, availability for scheduling motions depending on the judge appointed and their other court commitments. That was the basis of Mr. Corbett’s opposition.

[25] In summary, I find that there is no good reason to depart from the usual scale of costs: partial indemnity.

What is a fair and reasonable quantum for costs?

[26] I deal firstly with the quantum for fees before addressing disbursements.

[27] Having regard to the factors in r. 57.01(1), I note that:

a. The defendant was entirely successful at trial; the claim was dismissed.

b. The plaintiffs adduced expert evidence at trial that the damages were between $4 million and $9 million.

c. This was hard-fought high-stakes litigation between parties that engaged excellent counsel.

d. The issues engaged were complex.

e. The factual context was complicated.

f. The trial was long (26 days) and counsel were efficient.

g. While Mr. Corbett handled all of the evidence and argument for the plaintiffs, the defendants divided the evidence and argument between Mr. Koehnen and Ms. Adamson. To be fair, Mr. Koehnen carried most of that role.

h. Mr. Koehnen is a senior counsel with 29 years at the Bar.

i. Ms. Adamson is a junior lawyer with 5 years at the Bar.

j. Mr. Koehnen’s actual hour rate is an astounding $800-960/hour and Ms. Adamson’s actual hourly rate is $400-530/hour. Their respective partial indemnity rates are $300-350 for Mr. Koehnen and $225 for Ms. Adamson.

k. Mr. Koehnen and Ms. Adamson took over carriage of the action from other counsel at the firm prior to trial. The hourly rates of all counsel, law clerks and students who expended time are shown in the Bill of Costs submitted. The actual hourly rates charged to the Bank for students is mind-boggling. The partial indemnity rate is more modest.

l. Plaintiffs’ counsel has submitted a partial indemnity Bill of Costs for the action including the trial in the aggregate amount of $478,524 not including HST.

m. Mr. Corbett is a senior counsel and his partial indemnity rate is $350/hour. His associate, Paul Hendrikx, has 5 years at the Bar and has a partial indemnity rate of $200.

n. As noted above, there was extensive documentary discovery with thousands of documents produced. The oral discoveries were of modest length although there were many undertakings that required considerable effort to satisfy.

[28] I have carefully reviewed the respective Bills of Costs submitted. Both sides have provided a breakdown of costs in the usual stages: pleadings, documentary discovery, oral discovery, production motion (February 23, 2015), pre-trial conference, trial preparation and trial, and costs submissions. Costs of the February 23, 2015 motion were reserved to the trial judge.

[29] I find as follows:

a. For Pleadings - $25,000. As indicated above, the issues and factual context are complex.

b. Documentary discovery - $90,000. There were more than 7,000 documents produced combined, with more than 3,500 by the Bank.

c. Oral discovery - $65,000. The examinations for discovery took 4 days although there was work to prepare for same and then satisfy undertakings after.

d. Production Motion - $12,000. This was a one day motion that lasted approximately 2 hours. Although important to the parties, the issues were straightforward.

e. Pre-Trial Conference - $15,000. Given the issues and volume of evidence to be succinctly condensed, the amount should be somewhat higher than usual.

f. Trial Preparation and Trial - $325,000. See below.

g. Costs submissions - $5,000.

[30] I do not agree with Mr. Corbett’s submission that this case required only one counsel for the defendant. There was much at stake. The claim was one that had potential consequences beyond these parties. There were 197 exhibits some of which had multiple documents. There were multiple experts on each side. There were evidentiary issues on which rulings were required. While I admire Mr. Corbett’s ability to do the trial solo, I do not fault the defendant for having two counsel. That applies to the steps prior to trial as well.

[31] In arriving at the above figures, I am mindful of the principles in the seminal case of Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291 (ON CA). In Boucher, the Court held that the overall objective is to fix an amount that is fair and reasonable having regard to the broad range of factors in r. 57.01. In doing so, I have considered the reasonable expectations of the parties who surely knew from the outset that substantial costs would be incurred, and who could see that substantial costs were incurred in this litigation as it went along.

[32] The amounts in paragraph 29 above reflect a reasonable partial indemnity fee for the work done in the circumstances of this case. They are not derived by strict application of a formula of hours x hourly rate.

[33] The defendant seeks an inflation adjustment of 22% to compensate for inflation since the creation of the costs grid per First Capital (Cardholdings) Corporation v. North American Property Group, 2012 ONSC 1359 at para. 14. In my view, no such adjustment is warranted. The partial indemnity hourly rates applied by counsel for the defendant are appropriate rates in today’s dollars. Put simply, I would not increase the partial indemnity rates historically used because they are high enough already.

[34] The aggregate of the above fees is $537,000. That figure does not include HST nor does it include any reduction to account for the evidence of Ms. Paddock and Ms. Lang above. In my view, some reduction is merited. I fix that reduction at $53,700 (10%). A lesser amount would not adequately convey the approbation of this Court. A higher amount would overstate and over-punish the defendant for the conduct.

[35] Accordingly, I fix the fees for the action, trial and motion at $483,300 plus HST.

Disbursements

[36] The defendant’s Bill of Costs breaks down the disbursements claimed between those subject to HST and those which are not. Likewise, it separates disbursements for the motion on February 23, 2015 from those related to the action and trial.

[37] The disbursements not subject to HST are undisputed and are approved. The disbursements for the motion are approved as reasonable.

[38] For the action and trial, the defendant seeks recovery of $27,718.36 for meals, mileage and accommodations for trial. At trial, there were two counsel and at least one student present each day. The plaintiffs object to these expenses which average more than $1,000 per day of trial. Tariff A, item 30 allows for the recovery of travel and accommodation expenses as are “reasonable”.

[39] In my view, these expenses are reasonable for travel and accommodation when one considers the travel to and from London, hotel accommodation for three individuals and meals.

[40] The defendant seeks to recover a Database Hosting Fee” of $78,040. I observe that the plaintiffs’ Bill of Costs contains a similar item but at a cost of $15,709. I have insufficient information as to why such a high rate was incurred. The file had more than 7,000 documents. I presume this expense relates to having a separate server on which to hold and manipulate the documents for ease of handling for e-discovery and trial.

[41] The amount for this expense strikes me a very high but I lack a frame of reference beyond the plaintiffs’ Bill of Costs. In the circumstances, I find it was reasonable to incur this expense but the amount claimed is excessive. I reduce it to $35,000.

[42] The plaintiffs question the transcript costs of $10,615 as they already paid $4,461 to the defendant for transcripts. If the defendant has failed to give credit for the monies already paid for this expense, then an adjustment is warranted. If the figure provided is net of that advance, it is allowed. I trust that counsel will be able to resolve such a straightforward matter between them.

[43] The final issue is expert fees. The defendant seeks recovery of $90,979.20 for NERA (Mr. Berenblut) and $281,461.62 for Duff & Phelps.

[44] The recovery of expert fees on a partial indemnity basis is governed by Tariff A, items 26 and 28. Item 26 states:

26. For experts’ reports that were supplied to the other parties as required by the Evidence Act or these rules and that were reasonably necessary for the conduct of the proceeding, a reasonable amount.

[45] Item 28 states:

28. For an expert who gives opinion evidence at the hearing or whose attendance was reasonably necessary at the hearing, a reasonable amount not exceeding $350 a day, subject to increase in the discretion of the assessment officer.

[46] The principle of reasonableness applies equally to the costs of experts as it does to lawyers’ costs: Vester v. Boston Scientific Ltd., 2017 ONSC 2498, [2017] O.J. No. 2079 (Ont. S.C.J.) at para. 27; King Lofts Toronto v. Emmons, [2013] O.J. No. 5626 (Ont. S.C.J.) at paras. 8-10.

[47] The plaintiffs submit that preparation for trial by an expert is not recoverable under Tariff A, items 26 and 28. They rely upon the decision of Lane J. in Banihashem-Bahtiari v. Axes Investments Inc., 2003 CanLII 32527 (ON SC), [2003] O.J. No. 3071 (Ont. S.C.J.) at para. 62. However, Lane J. made clear that the limitations of items 26 and 28 do not end the issue; item 35 should be considered. Item 35 permits recovery of any other disbursement reasonably necessary for the conduct of the proceeding.

[48] In my view, preparation by an expert for the purpose of giving evidence at trial is both reasonable and expected. Just as lawyers prepare for court, so too do experts. Doing so ensures their efficacy and efficiency. The court depends on experts for both. It strikes me as passing odd that the reasonable cost to prepare for trial by an expert should be borne wholly by the party calling that expert when that preparation benefits all parties by ensuring the expert is ready and focused for his or her testimony.

[49] Therefore, I would allow a reasonable amount for expert preparation under the aegis of item 35.

[50] I turn now to the specific experts for the defendant in this case.

[51] Mr. Berenblut was an expert engaged by the Bank on the issue of standard of care. His evidence was intended to respond to the plaintiffs’ expert, Mr. Yonemitsu. Mr. Berenblut prepared an expert report which was served on the plaintiffs. He was on the defendant’s list of witnesses at trial but was not called. Defence counsel determined that his evidence was not needed in light of the answers obtained on cross-examination of Mr. Yonemitsu.

[52] The law is clear that a party should not be deprived of the cost of an expert report simply because the expert did not testify: Rochon v. MacDonald, 2014 ONSC 591 (S.C.J.) at para. 34; Lopresti v. Rosenthal, 2016 ONSC 7494 (S.C.J.) at para. 39. There is no doubt that it is more difficult to assess the reasonableness of the expenditure when the expert is not called, but that challenge does not eliminate recovery.

[53] The plaintiffs’ expert, Mr. Yonemitsu, did testify. He was a good witness. His testimony including cross-examination was less than a full day. According to the plaintiffs’ Bill of Costs, Mr. Yonemitsu’s invoice was $9,600. Mr. Berenblut’s invoice is $90,979.20, more than nine times as much as his counterpart. No doubt, Mr. Berenblut had to review considerable documentation to assess whether the Bank acted in accord with good commercial banking practices; however, that does not fully explain the disparity in the two experts’ invoices.

[54] Having sat for 26 days, most of which involved a review of the Bank’s documentation, I am at a loss to understand why Mr. Berenblut’s costs are so high. They are grossly excessive. I reduce them to $20,000 which is still greater than that of Mr. Yonemitsu. In doing so, I am taking into account the volume of material produced by the parties and the witness’ need to review documents as part of his engagement.

[55] The Duff & Phelps disbursement of $281,461is not broken down between the work of Mr. Warren and Mr. Carlucci. Mr. Warren testified on commodity hedging. Mr. Carlucci testified as to the plaintiffs’ damages claim. On that score, he was the counterpart to the plaintiffs’ damages expert, Mr. Hoare. The plaintiffs’ Bill of Costs shows Mr. Hoare’s costs are approximately $35,000.

[56] An objection was made to the proposed scope of Mr. Warren’s evidence and a ruling was made limiting his evidence as a result. Thus, part of the evidence he was to give per his expert report was not permitted. No apparent discount has been applied to the accounts for that limitation.

[57] The plaintiffs argue that Mr. Warren’s evidence was redundant and unnecessary; that the evidence as to how hedging worked was already adequately explained by earlier witnesses. I find that Mr. Warren’s evidence added to my understanding of hedging in the context of the plaintiffs’ businesses. By the time Mr. Warren testified, I had heard from multiple witnesses on hedging. Nevertheless, it was not unreasonable or unhelpful to receive the evidence.

[58] With respect to Mr. Carlucci, the plaintiffs submit that:

a. His expert reports required revision to fix mistakes. There is no indication that the accounts submitted have been discounted to reflect those efforts

b. He did not do a damages report per se - instead, he performed a simple cash-flow analysis; and

c. He admitted making mistakes in his calculations during cross-examination.

[59] As mentioned, the amount claimed for Messrs, Warren and Carlucci is a combined figure which makes assessment of reasonableness more difficult.

[60] Fortunately, the amount claimed is so grossly excessive, even for two experts combined, that I have little difficulty finding that the amount claimed for these experts is unreasonable. I have carefully considered the material filed at trial, the invoices submitted and the testimony of these witnesses. I can come to no other conclusion than the amount claimed is outrageous. I fix the amount recoverable for Duff & Phelps at $55,000.

[61] The remainder of the disbursements are approved.

Conclusion

[62] As a final check on reasonableness, I have considered the above costs in aggregate and find that they represent a significant but fair amount for costs having regard to the matters in issue, the length and complexity of the proceeding and the conduct of the parties in the proceeding.

[63] Therefore, I order the plaintiffs to pay to the defendant for costs of the action, motion heard February 23, 2015 and trial as follows:

a. For fees, $483,300 plus HST.

b. For non-HST disbursements, $293.

c. For HST applicable disbursements for the February 23, 2015 motion, $597.47 plus HST.

d. For HST applicable disbursements for the action and trial (except for transcripts and examination), $146,343.47 plus HST.

e. For transcripts and examinations, $12,643.77 plus HST, subject to reconciliation for monies already advanced for transcripts.

“Justice R. Raikes”

Justice R. Raikes

Date: October 24, 2017