Paulus v. Fleury, 2018 ONSC 3322

COURT FILE NO.: #10-CV-14939CM

DATE: 2018-05-28

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

BASSMAN PAULUS, BASMA PAULUS, and RITA PAULUS and AYAD PAULUS both minors by their Litigation Guardian, BASSMAN PAULUS

Plaintiffs

– and –

MICHAEL W. FLEURY

Defendant

Raymond Colautti, for the Plaintiffs

Alex R. Szalkai, Q.C., for David G. Greenaway

Alicia Tymec, for the Defendant

HEARD: December 13 and 14, 2017 at Windsor

HEENEY J.:

Introduction

1I have now received and reviewed the submissions of Mr. Szalkai, counsel for David Greenaway, as well as the defendant’s reply thereto, all of which was filed pursuant to my Preliminary Costs Endorsement released April 16, 2018. I have considered these submissions along with those already filed before release of my Preliminary Costs Endorsement.

2The first issue to be determined is whether the defendant is entitled to costs of the motion, and the quantum thereof. The second issue is whether an order should go pursuant to r. 57.07(1) that those costs be payable jointly and severally by the plaintiffs and plaintiffs’ counsel David Greenaway.

Entitlement to Costs and Quantum

3The defendant’s entitlement to an award of costs is not challenged by the plaintiffs. The plaintiffs’ motion sought to enforce the settlement of the motor vehicle litigation for the all-inclusive figure of $850,000. The defendant opposed that motion on the basis that the settlement was precipitated by false and misleading statements by Mr. Greenaway as to the independence and other attributes of Mr. and Mrs. Eftimov, who were the only non-party witnesses to the accident and were intended to be called by the plaintiffs as witnesses at trial. The defendant was wholly successful. In my reasons dated February 20, 2018 I declined to enforce the settlement, and directed that the matter be returned to the trial list for a trial on the merits.

4Costs should normally follow the event, and there is no reason to do otherwise here. The defendant is not guilty of any misconduct that might disentitle him to his costs incurred in successfully defending the plaintiffs’ motion.

5Rule 57.01 sets out a number of factors to be considered by the court in exercising its discretion to award costs. The first is the principle of indemnity, including a consideration of the experience of counsel, the rates charged and the hours spent. The defendant seeks costs of $122,826.71, which consists of fees of $118,691.81 plus disbursements and HST of $4,134.90. Although this is referred to as “Partial Indemnity Costs”, it would actually amount here to full indemnity, because it represents the actual rates charged by counsel. It is “partial” only in the sense that it is much less than would have been allowed under the former Tariff.

6In arriving at that figure, the defendant’s dockets disclose that Peter Festeryga, who was called in 1986, spent 283.2 hours on the file, at an hourly rate of $285. Alicia Tymec, who was called in 2002, spent 97.3 hours on the file, at an hourly rate of $250. This amounts to a total expenditure of time by counsel of 380.5 hours.

7The plaintiffs argue that this expenditure of time is excessive. In their own Costs Outline, filed at the conclusion of argument on the motion, but before the motion was decided, they disclosed that their counsel spent a total of 325.4 hours on the file. However, the amount of costs that they intended to claim, had they been successful, was $117,485.86, which is very close to the amount claimed by the defendant. The reason for this is that, while plaintiffs’ counsel spent less time on the file, their billing rates were considerably higher. Mr. Colautti and Mr. Greenaway both billed out their time at $550 per hour, and Mr. Pickard’s hourly rate was $325.

8While the time expended by defendant’s counsel is somewhat lavish, it is not unduly so. The defendant had the challenging onus of proving that an admittedly concluded settlement should not be enforced by the court. It is not surprising that they spent more time than opposing counsel in discharging that onus.

9Mr. Szalkai submitted that the defendant’s docket entries were lacking in necessary detail and did not disclose whether the entries were related to the motion or were for general carriage of the file. I accept the assertion of counsel for the defendant that all of the docketed entries relate solely to the motion. Indeed, nothing else was happening on the file other than the motion. Nobody was preparing for trial, because the plaintiffs believed that they had an enforceable settlement, and were bringing a motion for judgment in accordance with the settlement. The defendant was not preparing for trial either, since no trial would be taking place unless and until the plaintiffs’ motion was dismissed.

10The next factor to be considered is the amount of costs that an unsuccessful party could reasonably expect to pay in relation to this motion. Here, the plaintiffs’ Costs Outline provides the best illustration of their reasonable expectations. If they planned to claim costs of $117,485.86 in the event that they were successful on the motion, they must have been of the view that this was a reasonable amount for the unsuccessful party to pay for costs.

11The next factor is the amount claimed and the amount recovered. Here, the amount claimed by the plaintiffs was $850,000, and the amount recovered was nil.

12The complexity of the proceedings is the next factor to be considered. The defendant characterizes this as a complex motion, which required the exchange of numerous affidavits, cross-examinations, and multi-jurisdictional legal research. The plaintiffs’ Costs Outline similarly characterized it as involving “considerable complexity: the motion to enforce concerned issues such as fraudulent misrepresentations, civil fraud and deceit – alleged to have perpetrated by plaintiffs’ counsel”.

13I agree that the matter was of considerable complexity. It required substantial legal research because there was very little, if any, caselaw directly on point. Extensive affidavits and cross-examinations were entirely necessary.

14The next factor is the importance of the issues. The sum at stake, in and of itself, made the motion an important one. There were other important issues at play, however, involving the degree to which counsel is entitled to rely on representations of fact made by opposing counsel at a judicial pretrial, and whether counsel owes a duty both to the court and to opposing counsel not to intentionally or recklessly make false or misleading representations during such a proceeding.

15The remaining factors enumerated under r. 57.01(1) are not relevant.

16A consideration of all of the above factors leads to the preliminary conclusion that the amount of costs claimed by the defendant is justifiable. It is an amount that is within the reasonable expectations of the plaintiffs, and is proportionate to the amount in dispute of $850,000. However, as noted above, it amounts to an award of full indemnity costs. Is the defendant entitled to such an award, or should it be discounted to a sum representing partial indemnity costs?

17Full indemnity costs will be awarded only in exceptional circumstances, such as where there is an offer to settle pursuant to r. 49.10, or where there is a finding of reprehensible conduct on the part of the party against whom the costs award is made: see Mark M. Orkin, The Law of Costs, loose-leaf (2016-Rel. 65) 2^nd Ed., (Toronto: Thompson Reuters Canada), p. 2-213. Here, there were no r. 49.10 offers. As to whether there was a finding of reprehensible conduct, there was nothing in the manner in which the motion was conducted by plaintiffs’ counsel, nor in the allegations made therein, that was “reprehensible, scandalous or outrageous”, which is the threshold established for solicitor/client costs in Young v. Young, 1993 CanLII 34 (SCC), [1993] 4 S.C.R. 3, 1993 CarswellBC 264 at para. 260. Cases where full indemnity costs have been awarded usually feature unfounded allegations of fraud and deceit (see, for example, Tingas-Demetriou v. Dublin, 2016 ONSC 3414), or an unfounded attack on the integrity and honesty of the defendants (see Baryluk v. Campbell, [2009] O.J. No. 2772 (S.C.J.) and cases cited therein).

18This was a motion for judgment based on a concluded settlement, which involved no attack on the integrity or honesty of the defendant or his counsel. While I declined to enforce the settlement due to the misleading statements made by counsel for the plaintiffs during the pretrial, and while such conduct should be discouraged, it cannot be characterized as reprehensible, scandalous our outrageous. It would be more accurate to say that counsel was overzealous in his pursuit of a favourable settlement for his clients. Moreover, it cannot be said that it was the statements made by counsel that actually caused the expenditure of costs that are being claimed. This will point will be discussed more fully below.

19I conclude that the defendant is entitled to partial indemnity costs. Given the low hourly rates that counsel have charged, however, the discount from full indemnity costs should be lower than the usual amount.

20Taking everything into account, I am of the view that a fair and reasonable amount for the unsuccessful plaintiffs to pay for this motion is $100,000 all inclusive. Costs are fixed in that amount.

Costs Against Counsel Personally

21The remaining issue is whether those costs should be borne by the plaintiffs or, as requested by the defendant, an order should go under r. 57.07(1), that the plaintiffs (except the minor plaintiffs) and David Greenaway, be jointly and severally liable to pay.

22Rule 57.07(1) provides as follows:

57.07 (1) Where a lawyer for a party has caused costs to be incurred without reasonable cause or to be wasted by undue delay, negligence or other default, the court may make an order,

(a) disallowing costs between the lawyer and client or directing the lawyer to repay to the client money paid on account of costs;

(b) directing the lawyer to reimburse the client for any costs that the client has been ordered to pay to any other party; and

(c) requiring the lawyer personally to pay the costs of any party.

23In Galganov v. Russell (Township), 2012 ONCA 410 at paras. 17 - 22, Weiler J.A., speaking for the court, provided the following summary of the manner in which the court should approach a request for an order under r. 57.07(1):

The court in Carleton, at para. 21, approved a two-part test to determine the liability of a lawyer for costs under rule 57.07(1).

The first step is to inquire whether the lawyer’s conduct falls within rule 57.07(1) in the sense that it caused costs to be incurred unnecessarily. Rule 57.07(1) refers specifically to conduct that “caused costs to be incurred without reasonable cause or to be wasted by undue delay, negligence or other default”. The court in Marchand held that mere negligence can attract costs consequences in addition to actions or omissions which fall short of negligence. The court confirmed that “bad faith” is not a requirement for imposing the costs consequences of rule 57.07(1) and concluded, at para. 122, that “[i]t is only when a lawyer pursues a goal which is clearly unattainable or is clearly derelict in his or her duties as an officer of the court that resort should be had to [r]. 57.07.”

In determining whether a lawyer’s conduct falls within rule 57.07(1), the court must consider the facts of the case and the particular conduct which has been attributed to the lawyer: see Marchand, at para. 115.

In Rand Estate v. Lenton, 2009 ONCA 251, [2009] O.J. No. 1173 (Ont. C.A.), at para. 5, this court noted that rule 57.07(1) requires an examination of “the entire course of litigation that went on before the application judge so that the application judge can put in proper context the specific actions and conduct of counsel.” This holistic examination of the lawyer’s conduct produces an accurate tempered assessment.

Although the conduct as a whole must be considered, a court must consider specific incidents of conduct in determining whether the conduct falls within rule 57.07(1). In Carleton, the court confirmed, at para. 20, that a general observation “does not permit identification of what conduct may have contributed to delay and unnecessary costs.” Further, the absence of specific evidence or circumstances considered in making a general observation precludes meaningful appellate review of the criteria of rule 57.07(1). Above all, the legal test under rule 57.07(1) is not concerned with a lawyer’s professional conduct generally, but whether such conduct, including the conduct of the litigation, caused unreasonable costs to be incurred: Carleton, at para. 18.

The second step is to consider, as a matter of discretion and applying the extreme caution principle enunciated in Young, whether, in the circumstances, the imposition of costs against the lawyer personally is warranted. The “extreme caution” principle, as stated in Young, means that “these awards must only be made sparingly, with care and discretion, only in clear cases, and not simply because the conduct of a lawyer may appear to fall within the circumstances described in [r]ule 57.07(1)”: Carleton, at para. 15.

24At para. 13 of the same decision, Weiler J.A. quoted from Young (supra at pp. 135 – 136), to make the point that the basic principle upon which such costs are awarded is as compensation for the successful party, not in order to punish a barrister. The lawyer must not be placed in a situation where his fear of an order for costs payable by him personally may conflict with the fundamental duties of his calling.

25In Carleton v. Beaverton Hotel, [2009] O.J. No. 2409 (Div. Ct.), Hackland R.S.J., speaking for the court, also emphasized that an order under r. 57.07(1) is intended as compensation, not as punishment for professional misconduct. He said this, at para. 25:

There is in my opinion a danger to applying Rule 57.07 and awarding costs personally against counsel for professional misconduct as opposed to conduct which creates unnecessary costs. Counsel’s conduct of an action can and often should be resolute and issues of client instructions and solicitor and client privilege are often engaged. Caution and certainly careful reasons are required from a court entering into these issues, whether or not on a compensatory basis.

26So the first step in the analysis mandated by Galganov is to determine whether the lawyer’s conduct caused costs to be incurred unnecessarily. I have found that the lawyer’s representations led to the settlement being reached, and once it was discovered that those representations were not correct, it led to the defendant resiling from the settlement the following day. At that point in time, no costs had been incurred unnecessarily. The case could have proceeded to trial as scheduled, two weeks later.

27The substantial costs that have been incurred subsequent to that date all relate to the decision not to proceed to trial, but instead to bring a motion to enforce the settlement, which was ultimately unsuccessful. Those costs were incurred not by reason of Mr. Greenaway’s misleading representations, but by the tactical decision to proceed with the motion for judgment. While one might label those costs as having been incurred unnecessarily, the same can be said, with the benefit of hindsight, to almost any motion that is brought and is ultimately dismissed.

28While this analysis may seem like splitting hairs, it deals with precisely the dangers discussed in Carleton. It is tempting to conclude that the representations made by Mr. Greenaway amount to professional misconduct, and to impose a costs order against him because of such misconduct, but an order under r. 57.07(1) is not intended to address such matters. There are other forums better equipped to do so.

29R.S.J. Hackland’s observation, that issues of client instructions and solicitor and client privilege are often engaged, is precisely on point. The decision to proceed with the motion for judgment was ultimately one that the plaintiffs made, since I must presume that counsel proceeded with this motion based on the instructions of their clients. The true facts were all known by that point in time, and the decision to bring that motion was a tactical one, arrived at as a result of privileged solicitor/client discussions. We have no way of knowing why the decision to proceed with the motion for judgment was made, but it was that decision that led to the defendant incurring $122,826.71 in costs. Suppose that Mr. Greenaway had strongly recommended to the plaintiffs that they accept the defendant’s repudiation of the settlement and proceed to trial, but the plaintiffs insisted on moving to enforce the settlement despite counsel’s advice? The injustice of imposing a costs award on counsel in those circumstances is obvious.

30I find, therefore, that the defendant’s request fails at the first step. It cannot be said that it was Mr. Greenaway’s conduct that resulted in the expenditure of costs on this motion. Accordingly, no order will be made under r. 57.07(1).

Disposition

31While the defendant has been unsuccessful on the r. 57.07(1) issue, I decline Mr. Szalkai’s request that costs related to that issue be awarded to Mr. Greenaway. While his conduct did not, technically, result in the costs that were wasted on this motion, it was, at least, at the root of it.

32An order will go that costs of the motion are fixed at $100,000, payable by the plaintiffs to the defendant.