CITATION: Kennelly v. Hashemi, 2017 ONSC 7214
COURT FILE NO.: 57288/17 & 57532/17 (St. Catharines)
DATE: 20171206
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: christopher Kennelly and jupiter equities, llc (Applicants) v. HASSAN HASHEMI (Respondent)
BEFORE: The Honourable Mr. Justice R.A. Lococo
COUNSEL: Scott W. Beattie, for the Applicants
Daniel Yudashkin, for the Respondent
HEARD: By written submissions dated October 10 to 30, 2017
E N D O R S E M E N T – C O S T S
[1] As set out in Reasons for Judgment dated September 26, 2017,[^1] I granted the application of Christopher Kennelly and Jupiter Equities, LLC (referred to in this endorsement as the Applicants), declaring Hassan Hashemi to be in breach of the obligation to convey real estate to the Applicants pursuant to an agreement of purchase and sale. I also ordered the release of the $40,000 deposit to the Applicants. As well, I dismissed Mr. Hashemi’s application seeking corresponding and other relief against the Applicants. The costs of the applications were left to be determined based on written submissions.
[2] As the successful parties, the Applicants seek their costs from Mr. Hashemi. In their submission, costs should be awarded on a substantial indemnity basis, citing a pre-litigation letter that Applicants’ counsel described as an unaccepted offer to settle.
[3] As part of the Applicants’ submissions, their counsel provided a bill of costs that calculated total actual fees, disbursements and tax as $24,615, and on a partial indemnity basis as $17,043. The Applicants requested that I fix substantial indemnity costs equal to the full indemnity amount. In their submission, relying on Geographic Resources Integrated Data Solution Ltd. v. Peterson, 2013 ONSC 1041 (Div. Ct.), the appropriate process to follow in the calculation of costs is to determine partial indemnity costs as a starting point. Once partial indemnity costs are determined, the Applicants say that substantial indemnity costs are calculated by multiplying that amount by 1.5, as contemplated by the definition of substantial indemnity costs in rule 1.03 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, provided that the latter amount does not exceed the Applicants’ actual legal costs. Applying those principles, Applicants’ counsel calculated the appropriate amount for the legal fee portion of partial indemnity costs in this case as being amount equal to two-thirds of the actual legal fees. When the 1.5 factor is applied, the substantial indemnity costs to be awarded would be equal to the actual legal costs incurred. Applicants’ counsel argued that this result was consistent with the direction of the Ontario Court of Appeal in Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291 (C.A.), at para. 26, which indicated that “the objective is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding, rather than an amount fixed by the actual costs incurred by the successful litigant.”
[4] On the contrary, I found the Applicants’ approach to calculation of substantial indemnity costs in this case to be to be inconsistent with the general thrust of the Boucher decision, in which the Court of Appeal also made it clear that the fixing of costs “is not simply a mechanical exercise” (at para. 26). I also consider it to be ultimately futile, given the discretionary nature of the cost fixing exercise and the appellate deference generally shown to the exercise of that discretion.
[5] The Applicants’ approach appears to be intended to address the nomenclature inconsistency that arises by taking the position that a substantial indemnity costs award should cover the full amount of their legal bill. In ordinary parlance, “substantial indemnity” would be something less than “full indemnity. That being said, I agree with the Applicants that based on previous authority, the amount of substantial indemnity costs awarded may be as much as the actual legal costs, but I would expect that result to occur only in exceptional circumstances.
[6] In any case, as indicated further below, while I agree with the Applicants that a costs award should be made in their favour, I do not agree with them that the costs should be awarded on a substantial indemnity basis.
[7] The successful party has a reasonable expectation of being awarded costs in the absence of special circumstances (see Bell Canada v. Olympia & York Developments Ltd. (1994), 1994 CanLII 239 (ON CA), 17 O.R. (3d) 135 (C.A.) at para. 21). As noted by the Ontario Court of Appeal in Foulis v. Robinson, (1978), 1978 CanLII 1307 (ON CA), 21 O.R. (2d) 769, Mortimer v. Cameron, (1994), 1994 CanLII 10998 (ON CA), 17 O.R. (3d) 1 and McBride Metal Fabricating Corp. v. H & W Sales Co. (2002), 2002 CanLII 41899 (ON CA), 59 O.R. (3d) 97, costs are usually awarded on a partial indemnity basis, but substantial or full indemnity costs may be awarded in the “rare and exceptional case”, based on egregious or reprehensible conduct that warrants sanction against the offending party (see in particular McBride at paras. 37-38).
[8] In addition, under rule 49.10 of the Rules of Civil Procedure, a successful applicant who obtains a judgment that is as or more favourable that the terms of an offer to settle is entitled to substantial indemnity costs from the date of the offer unless the court orders otherwise. As well, under rule 49.13, in determining costs, the court may take into account any offer to settle made in writing, whether or not the offer complies with rule 49.10.
[9] In this case, I am satisfied that a cost award should be made in the Applicants’ favour. In his written submissions, Mr. Hashemi’s counsel suggested, among other things, that costs should not be awarded or should be substantially reduced, arguing that the application involved a “relatively novel question of law” concerning who breached the purchase agreement, given all the surrounding circumstances.
[10] I do not agree that there should be no costs awarded or a substantial reduction in this case. While I appreciate that Mr. Hashemi has changed counsel since the applications were heard, there was no dispute between the parties at the hearing as to the legal principles to be applied in this case, as I indicated in my Reasons for Judgment (at para. 15). While the factual background of the applications may be considered somewhat unusual, I considered it appropriate for the parties to take a common approach to the well-settled law that applied in this case. In all the circumstances, I see no justification for failing to give effect to the usual expectation that the successful parties be awarded their costs.
[11] On the question of the appropriate scale of costs, I have concluded that costs should be awarded on a partial indemnity basis. The Applicants’ argument in favour of a substantial indemnity costs award was based on a pre-litigation letter dated March 30, 2017 that Applicants’ counsel sent to Mr. Hashemi, demanding return of the $40,000 deposit and enclosing a Notice of Application. That letter provided that unless Mr. Hashemi directed the return of the deposit by March 31, 2017, the Notice of Application would be issued and the Applicants would seek costs on a substantial indemnity basis. The letter also indicated that should the deposit be returned, no costs would be sought.
[12] In order for rule 49.10 to apply to an offer to settle, among other things, the offer must be made at least seven days before the hearing commences (rule 49.03) and the offer must not expire or be withdrawn before the hearing’s commencement (rules 49.04 and 49.10). According to the Applicants, the March 30 letter complied with those requirements.
[13] I disagree. Pursuant to rule 49.04(3), where an offer to settle specifies a time within which it may be accepted and it is not accepted or withdrawn within that time, it shall be deemed to have been withdrawn when the time expires. The Applicants argued that the one day deadline imposed by the March 30 letter was intended to advise Mr. Hashemi that if the offer was not accepted, litigation would commence and that substantial indemnity costs would be sought. According to the Applicants, it remained open to Mr. Hashemi to accept the offer even if the deposit was not returned by the deadline. I found that position to be without merit. If the Applicants intended the offer to remain open past the deadline stated in the letter, it was incumbent on them to use clear language to make their position known. Considered as a whole, the March 30 letter was in substance a demand letter with a one day fuse, sent to Mr. Hashemi just prior to launching litigation. I do not consider it appropriate to re-characterize it after the fact as a Rule 49 offer to settle. In my view, that was not the letter’s intended purpose, as indicated on its face.
[14] Having concluded that substantial indemnity costs should not be awarded in reliance on rule 49.10, I also considered whether to do so under rule 49.13. However, given the high bar for making a substantial indemnity costs award where rule 49.10 does not apply, as indicated by the case law referred to previously, I did not consider this matter to be a ”rare and exceptional case” that required such an award.
[15] Mr. Hashemi’s counsel also argued that in setting the amount of costs awarded, I should take into account the Applicants’ degree of success on the applications as being less than complete. In his submission, while the Applicants’ application was disposed of, Mr. Hashemi’s corresponding application, by agreement between the parties, was adjudicated only on the issues of breach of the purchase agreement and return of the deposit. In his submission, the additional relief claimed by Mr. Hashemi was left to be decided at a later time. To quote the written submissions of Mr. Hashemi’s counsel, “the balance of the Hashemi application was adjourned and not disposed of as yet.” In his submission, it was not appropriate to treat the Applicants as having been completely successful in circumstances in which the balance of the relief Mr. Hashemi claimed remains outstanding.
[16] I found those submissions to be without merit. As I indicated in my Reasons for Judgment, (at para. 8), in addition to alleging that the Applicants breached the purchase agreement and seeking payment to him of the deposit, Mr. Hashemi also claimed consequential damages arising from the Applicants’ breach and conversion of the application to an action to permit damages to be assessed. He also requested security for costs based on the Applicants’ non-resident status. As stated in para. 9 of my Reasons, by agreement between the parties, the two applications were heard together, “… with the hearing of Mr. Hashemi’s application being limited to the relief relating to breach of contract and the deposit. The balance of the relief Mr. Hashemi claimed would be dealt with at a later time to the extent required [emphasis added].” As indicated in para. 14 and explained elsewhere in my Reasons, I ultimately found that Mr. Hashemi had breached the purchase agreement, and that the Applicants had not, entitling the Applicants to return of the deposit. I considered the findings relating to breach of the purchase agreement to be dispositive of both applications. Accordingly, I granted the Applicants’ application and dismissed Mr. Hashemi’s, without adjourning any other relief Mr. Hashemi claimed to another date. Given my finding that the Applicants were not in breach of the purchase agreement, there was no longer any feasible basis for Mr. Hashemi’s additional claim for consequential damages. As well, there would there be no reason to convert his application to an action to allow damages to be assessed or to require the Applicants to post security for costs. Therefore, there are no issues that remain outstanding in relation to Mr. Hashemi’s application.
[17] In any case, Mr. Hashemi’s counsel argued that the Applicants’ claim for costs, involving 73 hours of lawyers’ time, was grossly excessive, given that the Applicants’ application was “relatively simple”, the materials were not “overly voluminous” and the hearing was not “overly lengthy”, having been completed in half a day. He also submitted that the costs claimed were disproportionate to the amount in issue at the hearing (being the $40,000 deposit), arguing that the amount awarded should be reduced to reflect the reasonable expectation of the responding party. However, as the Applicants noted, they were required to respond to Mr. Hashemi’s unsuccessful application, in which their financial exposure potentially went beyond forfeiting the $40,000 deposit, had I found them in breach of the purchase agreement. In addition, they appeared in court on two other occasions when their application was adjourned, allowing Mr. Hashemi to bring his application. As well, I did not have the benefit of a responding bill of costs in this case, which may have been useful to consider when determining the amount that it would be fair and reasonable for the unsuccessful party to pay.
[18] In all the circumstances, I consider it an overstatement to characterize the amount calculated by the Applicants for their partial indemnity costs (being $17,043) as being grossly excessive or clearly disproportionate to the amount in issue. However, I am also cognisant of the factors that it is appropriate for me to consider when determining costs, as set out in rule 57.01(1), keeping in mind the Court of Appeal’s observation in Boucher that the fixing of costs is not simply a mechanical exercise.
[19] Applying those principles, I am fixing the Applicants’ costs at $14,000, payable by Mr. Hashemi within 30 days. In doing so, I took into account the principle of indemnity as well as the reasonable expectation of the unsuccessful party to the extent determinable. Other relevant considerations included the relatively narrow issues to be determined, the half-day hearing and the fact that the application materials were not overly voluminous.
The Honourable Mr. Justice R.A. Lococo
Released: December 6, 2017
Kennelly v. Hashemi, 2017 ONSC 7214
COURT FILE NO.: 57288/17 & 57532/17 (St. Cath.)
DATE: 20171206
SUPERIOR COURT OF JUSTICE - ONTARIO
BETWEEN:
christopher Kennelly and jupiter equities, llc
Applicants
- and -
hassan hashemi
Respondent
AND BETWEEN:
hassan hashemi
Applicant
- and -
christoper Kennelly and jupiter equities, llc
Respondents
BEFORE: The Honourable Mr. Justice R.A. Lococo
COUNSEL: Scott W. Beattie, for the Applicants
Daniel Yudashkin, for the Respondent
ENDORSEMENT – COSTS
R.A. Lococo J.
Released: December 6, 2017
[^1]: Kennelly v. Hashemi, 2017 ONSC 5502.