COURT FILE NO.: CV-17-588190-00CL
DATE: 2018-03-09
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: Shajiraj Nadarajalingam AND Ideal Properties Inc., Plaintiffs
AND:
Jiajia Zhao, Onepiece Developments Inc., Ideal (Robinson Glen) Developments Inc. and Janet Lee, Defendants
BEFORE: S.F. Dunphy J.
COUNSEL: Melvyn Solmon and Malliha Wilson, for the Plaintiffs Shaun Laubman, James Renihan and Bradley Vermeersch, for the Defendants Zhao and Onepiece; Leigh Youd for the defendant Janet Lee
HEARD: In Writing
COSTS ENDORSEMENT
[1] On February 2, 2018, I released my ruling that a promissory note was enforceable in accordance with its terms and dissolved an interim injunction that had been put in place pending resolution of that issue. I reserved on the matter of costs pending receipt of submissions from the parties. I have now received those submissions and this is my ruling on the matter of costs.
Background
[2] The plaintiff in this case was the debtor and guarantor of a promissory note in the amount of $1.5 million given to the defendant Mr. Zhao (the note stood at $2.16 million inclusive of interest at the time of demand on December 1, 2017). Mr. Nadarajalingam was the debtor and his private holding company was the guarantor.
[3] The promissory note in turn funded the plaintiff’s equity investment in a joint venture company (the defendant Ideal (Robinson Glen) Developments Inc., the other equity holder being Onepiece Developments Inc. Onepiece is the private holding company of Mr. Zhao in whose favour the promissory note had been made. The defendant Ms. Lee was the lawyer acting for Mr. Zhao and his company. She also was corporate counsel for Ideal (Robinson Glen) once that company was organized.
[4] While the litigation primarily concerned the plaintiffs’ claim to rectify the promissory note and insert a different due date, the stakes were somewhat broader than the promissory note alone because the guarantee of that promissory note was secured by a pledge of the shares of Ideal (Robinson Glen), the joint venture development company of these two erstwhile business partners. To be clear, I use the phrases “joint venture” and “business partners” in their vernacular sense and am not intending thereby to comment upon the legal structures employed by the parties.
[5] The promissory note had come due on December 1 and a demand for payment was duly made along with the requisite notices under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 to permit the creditor to enforce security on December 11, 2017 if payment was not made. The plaintiffs reacted with the statement of claim herein (subsequently amended) and applied for an interim injunction that was ultimately settled on consent in favour of an early hearing of the main issue raised in the statement of claim being that of rectification of the due date of the promissory note.
[6] That early hearing was held and decided against the plaintiffs with the injunction being dissolved in consequence. The plaintiffs amended the statement of claim to add a number of additional claims beyond rectification and the other issues originally raised such that the hearing before me was not a full resolution of all matters raised in the claim. The plaintiffs may yet elect to pursue some or all of the others.
[7] The trial before me lasted two days.
Position of the Parties
[8] Mr. Zhao and his company Onepiece were represented by a single set of counsel from the Lax O’Sullivan Lisus Gottlieb LLP firm. Successful in resisting the claim brought against them and obtaining a dissolution of the injunction that prevented them from realizing upon their security, these defendants have asked for full indemnity costs of $269,807.98 (all inclusive).
[9] The claim of Mr. Zhao and Onepiece includes the fees of their trial counsel Lax O’Sullivan as well as the fees of Metcalfe, Blainey & Burns LLP, the firm that drafted the promissory note and that consulted with Lax O’Sullivan on the litigation and in trial preparation.
[10] The breakdown of the claimed fees is:
a. Lax O’Sullivan: $222,221.85;
b. Metcalfe, Blainey and Burns: $43,224.76
c. Combined disbursements: $4,360.47
d. Total: $269,807.98.
[11] The Zhao/Onepiece defendants rely upon the indemnity provision of the guarantee and the promissory note to claim full indemnity costs. The Guarantee contains the agreement of the Guarantor (Ideal Properties) to pay “all costs and expenses incurred by the Lender in connection with the negotiation, preparation, execution and enforcement of its rights” under the Guarantee as well as an indemnity agreeing to save the Lender (Mr. Zhao) harmless “from any and all …expenses…as a result or consequence of, any inability of the Lender to recover the ultimate balance due or remaining unpaid in respect of the Guaranteed Obligations, including without limitation legal fees incurred by or on behalf of the Lender resulting from any action instituted on the basis of the Guarantee and Indemnity”. The promissory note similarly contains the undertaking of Mr. Nadarajalingam as maker of that note to pay all costs of collection including legal fees.
[12] Ms. Lee, having been sued personally, was required to retain separate counsel. She did so and submitted a full indemnity Outline of Costs claiming Fees of $8,661.45 or $6,805.43 on a partial indemnity basis.
[13] Ms. Lee’s position is that her counsel was required to be present at the trial even if she was not a party to the promissory note. The claims of misconduct and impropriety against her that were advanced (but not proved) at trial also required that she be present to protect her interests. The plaintiff’s affidavit evidence impugned her integrity and she was a party defendant.
[14] The plaintiffs take issue with the quantum and reasonableness of the amounts claimed, in particular by the Zhao/Onepiece defendants. They dispute that the wording of the guarantee or the promissory note entitles those parties to full indemnity costs and submit that the plaintiffs co-operated fully in ensuring a streamlined, efficient trial that was heard expeditiously.
Issues to be decided
[15] Is either defendant group entitled to full indemnity costs as claimed?
[16] What amount of costs is reasonable having regard to the factors in Rule 57.01 of the Rules of Civil Procedure?
Analysis and Discussion
(i) Is either defendant group entitled to full indemnity costs as claimed?
[17] The Zhao/Onepiece defendants rely upon the contractual language of the guarantee (including the indemnity) and the promissory note to ground their claim for full indemnity costs. They cite the case of Millerson Group Inc. v Huntington Properties Ottawa Inc., 2017 ONSC 3794 as an instance where the court enforced the contractual agreement of the unsuccessful party in its promissory note to pay the costs.
[18] For their part, the plaintiffs rely upon the strict reading of the wording of the contractual provisions and the fact that none of them mention “full indemnity” or “substantial indemnity” costs. They submit that Millerson contained specific language referencing the standard of “solicitor-client” costs, language absent in this case. They submit that the subject-matter of the action was the due date of the note and not its collection. They refer to the Divisional Court decision in Brownhall v. Canada (Ministry of Defence), (2007) 2007 CanLII 31749 (ON SCDC), 87 O.R. (3d) 130 (Div. Crt.) and the Court of Appeal decision in Clarington Municipality v. Blue Circle Canada Inc., 2009 ONCA 772 and submit that none of the hallmarks of abuse of process, unfounded fraud allegations or reprehensible, scandalous or outrageous” conduct is present here.
[19] In my view the intent of the wording of the documents is straightforward and the failure to use “litigation-speak” is not determinative. The subject of the action cannot be so narrowly construed as the plaintiffs propose. It was brought in reaction to the demand on the note and guarantee and the related notice of intention to enforce. The ultimate object of the litigation was to delay or prevent that enforcement of the note and guarantee from occurring and the Zhao/Onepiece defendants had to overcome that obstacle in order to enforce payment on both.
[20] The Indemnity attached to the guarantee applies to “all costs, losses, expenses…including legal fees”. The costs claimed here arose in consequence of the inability of the Lender to recover the balance due as demanded on December 1, 2017. This straightforward and purposive reading of the contractual language is reinforced by s. 7.5 of the Guarantee which similarly includes an undertaking of the Guarantor to pay “all costs and expenses incurred by the Lender in connection with the…enforcement of its rights under this Guarantee”.
[21] I have no hesitation in concluding that the plain meaning of the contractual provisions of the promissory note and the Guarantee both provide that the plaintiffs will indemnify Mr. Zhao and Onepiece respectively for all of the costs as claimed and not simply to some lesser tariff specified in the Rules of Civil Procedure that would be applicable even in the absence of any contractual undertaking. Whether those claimed costs were reasonably incurred or whether there is any reason for me to exercise my discretion in a way that does not give effect to these contractual provisions is a different matter and one that I shall consider in connection my general review of the Rule 57.01 factors below.
[22] No such contractual provision exists in favour of Ms. Lee personally and I have found no behaviour amounting to abuse or process or similarly reprehensible behaviour that might warrant application of a higher than normal scale in respect of her legal costs.
[23] I conclude that the Zhao/Onepiece defendants have a contractual entitlement to full indemnity costs. There is no basis for departing from the partial indemnity scale in the case of Ms. Lee’s own legal costs.
(ii) What amount of costs is reasonable having regard to the factors in Rule 57.01 of the Rules of Civil Procedure?
General Principles
[24] I can find no more succinct and accurate a statement of the general approach to fixing costs than the summary set forth by Sheard J. in Millerson which I have set forth below:
[27] The award of costs is governed by s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43 (the “CJA”) and by rr. 49 and 57.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. Rule 57.01 expands the judicial discretion regarding costs award found in s. 131 of the CJA.
[28] In Fong et al v. Chan et al, (1999), 1999 CanLII 2052 (ON CA), 46 O.R. (3d) 330, the Ontario Court of Appeal set out three fundamental purposes of modern cost rules:
(i) to indemnify successful litigants for the cost of litigation;
(ii) to encourage settlements; and
(iii) to discourage and sanction inappropriate behaviour by litigants.
[29] Rule 57.01 contains a non-exhaustive list of factors to be applied by the Court in fixing costs and confirms the authority of the Court under s.131 of the CJA to award all or part of the costs on a substantial indemnity basis and in an amount that represents full indemnity.
Reasonable expectations of the parties
[25] In my view, the reasonable expectations of the unsuccessful party (i.e. the plaintiffs) are necessarily conditioned in part by a consideration of the agreements between the parties. I have already found that those contractual provisions favour the Zhao/Onepiece defendants claiming their full indemnity costs. That is a persuasive data point in assessing the expectations of the unsuccessful plaintiff here. It strongly favours giving effect to the contractual undertaking made.
[26] Forming a view of the reasonable expectations of the costs the unsuccessful party could expect to pay requires an assessment of context. The plaintiffs triggered an injunction proceeding that they thought necessary to protect their interests. Injunctions are, by their nature time consuming and expensive proceedings. They did so in the context of a note that they knew was considerably overdue and in the face of legal standards applicable to rectification claims that made the claim a difficult one. They did so in respect of a promissory note with interest accruing at a rate of more than $36,000 per month that was being neither serviced nor paid.
[27] While the amount of the note was then just over $2.1 million, it was clear from the manner in which the trial unfolded that this dispute was, to a degree, a prelude to a brewing dispute regarding another, much larger promissory note coming due imminently.
[28] It is also clear that the stakes here went beyond the amount of the note and included the equity of the plaintiffs in the Ideal RG development itself since a successful outcome of the trial would have prevented action being taken on the pledge as well.
[29] The plaintiffs pursued Mr. Zhao, Onepiece and their lawyer Ms. Lee personally. The plaintiff has amended the claim rather radically since the short trial was ordered to be held with the result that not all issues were able to be resolved at the trial. Nevertheless, to the extent they were relevant to the issues before me, none of the allegations against Ms. Lee were sustained at the trial and her counsel’s attendance at trial was necessary. The plaintiffs could not reasonably expect to avoid bearing those costs if unsuccessful.
[30] Finally, I have no evidence from the plaintiffs as to their own level of costs. While not determinative, it can be instructive to compare the expenses incurred by the unsuccessful party who complains that the successful party spent too much.
Reasonableness of costs claimed
[31] The plaintiffs have taken issue with the number of hours spent by some lawyers on some issues. They take issue with one senior lawyer spending 6 hours on research (at a high rate).
[32] I have reviewed all of the dockets and do not propose to take issue with the reasonableness of any of them. Hindsight might have permitted a more cost-effective allocation of research time, for example, but the pressures of time in the context of an injunction brought on very short notice do not always permit an ideally efficient allocation of resources.
[33] I am satisfied that the costs claimed by the defendants are reasonable. I make one exception to this in the case of Ms. Lee’s costs for attending at trial. She was a witness or a spectator over those two days. She was not at the counsel table and, while I am sure that she may have been consulted from time to time during breaks, I do not find that having a $500 per hour senior counsel attend as a spectator on stand-by in the audience of the courtroom can be characterized as a reasonable expense for which indemnity may be claimed. I am disallowing all of her time at trial.
Complexity of the Proceeding
[34] The plaintiffs submit that his proceeding was a simple one. The plaintiff unsuccessfully raised a large number of “simple” issues and cannot complain that, given the stakes, the responding parties invested the time and resources they thought necessary to respond. They were successful.
[35] Further, the fact that this was “only” a two day hearing is not a testament to the simplicity of the proceeding or the issues raised so much as it is a testament to the extensive effort both sides put in to streamlining and simplifying. I was the beneficiary of that effort and the trial could not have been done on these short time lines (and in this short a period of time) without it.
[36] There was no overkill here.
Conduct of the parties lengthening proceeding
[37] On this point, credit must be given where due. Once the injunction was resolved by ordering the expedited trial that was held before me, all sides (plaintiffs included) put their shoulders to the wheel to do the considerable amount of work required to make that happen.
[38] I do not fault the plaintiffs for amending their claim as profoundly as they did in January. The claim and injunction were all brought in a very compressed time line. Given more time to craft their legal theories, the plaintiffs chose to advance additional theories and facts. Those issues have yet to be tried fully and I have no intention of commenting upon them. It was their right to do so but they made no effort to upset the process of getting the trial ready to be heard on the issues that were placed before me and it was heard on schedule and finished on time.
[39] There is no conduct in the proceeding that I would identify as an aggravating factor from the perspective of costs.
Disposition
[40] Having regard to the observations and findings made above, I am making the following determinations:
a. The “Zhao/Onepiece” defendants are entitled to their full indemnity costs as claimed after deducting the claim for Ms. Lee’s time attending in the body of the court during the trial proper (whether before or after she was called as a witness); and
b. Ms. Lee’s separate bill of costs (i.e. Mr. Youd’s) is allowed at the partial indemnity rate of $6,805.43 as claimed.
[41] Order accordingly.
S.F. Dunphy J.
Date: March 9, 2018