Court File and Parties

Court File No.: CV-11-417931 Date: 2018-06-05 Superior Court of Justice - Ontario

Re: 1741347 Ontario Inc., and Samirali Ladha, Plaintiffs And: 1572482 Ontario Inc., Alex Marion, Lilia Marion and Revin Bailiffs Inc., Defendants

Before: Cavanagh J.

Counsel: Patrick Di Monte, for the Plaintiffs David Morawetz, for the Defendants Ontario Inc., Alex Marion and Lilia Marion Gerald Sternberg, for the Defendant Revin Bailiffs Inc.

Heard: By Written Submissions

Costs Endorsement

[1] 1741347 Ontario Inc. (“174”) and its principal and sole shareholder, Samirali Ladha, commenced this action under the simplified rules against the defendants 1572482 Ontario Inc. (“157”) and Revin Bailiffs Inc. (“Revin”) for trespass against goods. The claim arose from the exercise by 157, with the assistance of Revin, of a right of distress for unpaid rent against 157’s tenant, another company. 174 claimed that it was the owner of the goods that were seized and sold for a sale price of $9,000. 174 claimed that it purchased the goods and equipment (as part of a proposed purchase of an ongoing business) for a price of $80,000 and that the goods had this value. 174 claimed damages in this amount against 157 and Revin.

[2] At the opening of trial, the action was discontinued against the defendants Alex Marion and Lilia Marion who were principals of 157.

[3] Following a two day trial, I granted judgment in favour of 174 against 157 and Revin, jointly, for the sum of $9,000 together with prejudgment interest in accordance with the Courts of Justice Act. I dismissed the crossclaim of 157 against Revin. I allowed the crossclaim of Revin against 157 and ordered that 157 fully indemnify Revin for its liability for payment of the sum of $9,000 to 174.

[4] The following issues arise in relation to costs of this action:

a. What award of costs should be made as a result of the discontinuance of the action as against Alex Marion and Lilia Marion?

b. Given that 174 recovered an award of damages within the monetary jurisdiction of the Small Claims Court, should an order be made under r. 57.05(1) that the plaintiffs shall not recover any costs? If costs are to be awarded in favour of 174 against 157 and Revin, in what amount should costs be fixed?

c. What order as to costs should be made in relation to the crossclaim by 157 against Revin and the crossclaim of Revin against 157?

What award of costs should be made as a result of the discontinuance of the action as against Alex Marion and Lilia Marion?

[5] The plaintiffs submit that there should be a reduction in the amount of costs to be paid by 157 of a “modest amount”. They submit that the allegations against Alex Marion and Lilia Marion were well-founded since 157 did not act alone but rather under the direction of Alex Marion and Lilia Marion. The plaintiffs submit that there was not any additional expenditure of time on the issue of the liability of Alex Marion and Lilia Marion at discovery, mediation or the pre-trial conference. They submit that these parties would have had to spend the time that they did in all steps in the litigation whether they were named personally or not. The plaintiffs submit that a $2,500 reduction in costs is appropriate.

[6] Alex Marion and Lilia Marion were represented by the same lawyers as those representing 157. Alex Marion and Lilia Marion submit that they should never have been parties to this action. They seek costs in the amount of $9,000 from the plaintiffs.

[7] There was no legal basis for the inclusion of Alex Marion and Lilia Marion as defendants. A corporation is a distinct person from its shareholders. The fact that Alex Marion and Lilia Marion may have been the directing minds of 157 does not make the allegations against them well-founded, as the plaintiffs submit.

[8] Counsel for the Marions submits that an order that has the effect of piercing a corporate veil is an exceptional remedy that occurs typically in instances where the corporation was incorporated for an illegal, fraudulent or improper purpose. Counsel for Alex Marion and Lilia Marion submits that the claim against them was, in essence, a claim of improper conduct, akin to fraud or an illegal purpose. Counsel submits that costs of $2,500, as proposed by the plaintiffs, is woefully inadequate.

[9] The action was discontinued by the plaintiffs against Alex Marion and Lilia Marion. I do not agree that the costs that ordinarily follow from a discontinuance of an action should be a reduction in costs, if any, to be paid by 157 to the plaintiffs. The costs resulting from the discontinuance of the action against Alex Marion and Lilia Marion should be paid by the plaintiffs to them.

[10] I do not agree that the amount proposed by the plaintiffs is reasonable. It may be true that there was not a significant amount of additional work that was performed for legal services because Alex Marion and Lilia Marion were named as defendants. Nevertheless, the plaintiffs claimed damages against the defendants jointly, and all of the defendants were exposed to the plaintiffs’ claim. The fact that at the opening of trial the plaintiffs discontinued the action as against two of the defendants and the action proceeded against the remaining defendants does not mean that Alex Marion and Lilia Marion should be awarded only a modest amount for costs.

[11] In my view, the amount suggested by counsel for Alex Marion and Lilia Marion, $9,000, is a reasonable and proportionate amount to be paid by the plaintiffs to Alex Marion and Lilia Marion in costs. I fix costs in this amount to be paid jointly by the plaintiffs to Alex Marion and Lilia Marion within 30 days.

Given that 174 recovered an award of damages within the monetary jurisdiction of the Small Claims Court, should an order be made under r. 57.05(1) that the plaintiffs shall not recover any costs? If costs are to be awarded in favour of 174 against 157 and Revin, in what amount should costs be fixed?

[12] The plaintiffs claim costs from 157 and Revin in the amount of $51,797.50 plus HST and disbursements, for a grand total of $65,504.31. This amount is calculated based upon fees on a partial indemnity scale to March 19, 2018 when a written offer to settle was made, together with fees from March 20, 2018 on a substantial indemnity scale. The plaintiffs had made an offer on March 19, 2018 to settle their claims based upon a payment in the amount of $39,900 inclusive of principal, interest and costs.

[13] The defendants 157 and Revin, in separate submissions, ask that an order be made denying costs to the plaintiffs because 174 recovered an amount, $9,000, which is within the monetary jurisdiction of the Small Claims Court. 157 and Revin rely upon r. 57.05(1) of the Rules of Civil Procedure which provides that “[i]f a plaintiff recovers an amount within the monetary jurisdiction of the Small Claims Court, the court may order that the plaintiff shall not recover any costs”.

[14] In this case, counsel for the plaintiffs has admitted that the plaintiffs did not have the proper evidence to substantiate the $80,000 claim for damages. The plaintiffs claim that, nevertheless, the bulk of the trial was spent on the issue of ownership of the goods and equipment that were seized and sold by the defendants. They claim they should not be denied costs because the amount recovered was within the jurisdiction of the Small Claims Court.

[15] At the trial, the plaintiffs introduced evidence that 174 had purchased the goods and equipment for a price of $80,000 as part of a proposed purchase of the business that was operating at the premises owned by 157. The price was supported by an appraisal that was based upon the “in-place” use of the equipment, and it stated that “[d]isposal of these contents in a bulk sale would be reflected by a lower price”. The plaintiffs called no other evidence to support their claim that the goods had a value of $80,000 when they were sold. The evidence at trial was that 157 and Revin had obtained two appraisals of the goods showing values of $10,500 and $8,100, respectively. The goods and equipment were sold to an arm’s length purchaser for $9,000. Although the appraisers were not called to testify, the parties agreed that the appraisal reports could be treated as properly in evidence and given appropriate weight.

[16] During closing submissions at the trial, counsel for the plaintiffs acknowledged that no evidence had been called to prove the value of the goods when they were seized and sold. He asked that I make a finding in respect of liability, and order that the amount to be awarded for damages proceed to a separate assessment with evidence to be tendered at this assessment with respect to the value of the goods and equipment at the time of the sale by Revin. Given that the plaintiffs had proceeded to trial on the issues of liability and damages, and this request was only made in closing submissions, I declined to grant the request.

[17] In Ridwan v. Eichenberg, 2017 ONSC 1380, Akhtar J. addressed r. 57.05(1) in his award of costs relating to an action where the plaintiff was awarded damages within the monetary jurisdiction of the Small Claims Court. Akhtar J. observed that denial of costs to a successful plaintiff under this rule is not mandatory and that the court retains discretion to make an award of costs. In relation to the exercise of discretion in such cases, Akhtar J. wrote at paras. 8-10:

8 The policy rationale for the existence of the rule can be found in the words of Nolan J., at para. 17, in Lore v. Tortola, [2008] O.J. No. 769 (Ont. S.C.J.):

The Superior Court of Justice is currently overburdened with cases. Parties should not be rewarded with costs in matters that should have been properly brought in another forum designed to handle claims of a specific magnitude or monetary value, such as the Ontario Small Claims Court.

9 In Toronto Dominion Bank v. Thind, 2010 ONSC 6974 (Ont. S.C.J.), Gray J. remarked that”[I]f the plaintiff, as here, has made a deliberate decision to bring the proceedings in the Superior Court when it is clear that the Small Claims Court has jurisdiction, then, save in exceptional circumstances, the plaintiff should recover no costs.”

10 There is no doubt that in cases where the issues are complex, an award of costs may be made despite the award of damages falling within the jurisdiction of the Small Claims Court: Burton Meats Retail, at para. 3.

[18] In this case, it was clear that the plaintiffs would need to prove the value of the goods and equipment (through a sale that was not of an ongoing business) in order to receive an award of damages exceeding the amount of $9,000 that was paid by the purchaser on the sale by Revin on behalf of 157. Absent such evidence of the value of the goods, there would be no evidentiary basis to award damages for an amount exceeding $9,000. The plaintiffs proceeded to trial and did not tender any evidence to support a claim for damages that exceeded $9,000. In my view, it would have been clear to the plaintiffs that, if they succeeded on the issue of liability, the amount of damages would not exceed $9,000, an amount that is well within the monetary jurisdiction of the Small Claims Court.

[19] The plaintiffs made a deliberate decision to bring this action in the Superior Court of Justice in circumstances where, given the evidence that they proposed to tender (or not to tender) on damages at trial, it was clear that the amount that would be recovered would not exceed $9,000, an amount within the monetary jurisdiction of the Small Claims Court. This action should have been brought in the Small Claims Court. This case does not involve circumstances that are exceptional, such that I should exercise my discretion to award costs in favour of the plaintiffs on the scale that applies to an action properly brought in the Superior Court of Justice.

[20] Section 29 of the Courts of Justice Act provides that “[a]n award of costs in the Small Claims Court, other than disbursements, shall not exceed 15% of the amount claimed or the value of the property sought to be recovered unless the court considers it necessary in the interests of justice to penalize a party or a party’s representative for unreasonable behaviour in the proceeding”. I do not consider that 157 engaged in unreasonable behaviour in the action that would make it necessary in the interests of justice to penalize 157 by awarding costs in an amount that exceeds fees calculated as 15% of $9,000.

[21] I exercise my discretion and fix costs on the Small Claims Court scale to be paid by 157 and Revin, jointly, to 174 within 30 days in the amount of $6,098.64 comprised of the aggregate of fees of $1,350 (15% of $9,000), HST on fees of $175.50, and disbursements (including HST) of $4,573.14.

What order as to costs should be made in relation to the crossclaim by 157 against Revin and the crossclaim of Revin against 157?

[22] Revin succeeded in its crossclaim against 157 and my judgment provides that 157 shall fully indemnify Revin for its liability for payment of the sum of $9,000 to 174. The crossclaim of 157 against Revin was dismissed.

[23] Revin is entitled to be indemnified by 157 for its liability to 174 for costs, and I so order.

[24] Revin seeks costs of its successful defence of the crossclaim against it and of its successful crossclaim against 157.

[25] Revin submits that costs should be paid by the defendants on the Small Claims Court scale, with the balance paid by the plaintiffs. 157 also submits that if it is found liable to Revin for costs, its liability should be limited to the amount of costs that Revin would have recovered had this action been properly brought in the Small Claims Court (estimated to be $7,000), and that there should be joint liability with the plaintiffs for costs which exceed this amount.

[26] It was clear from the evidence at trial that Revin acted as agent for 157 in levying distress on behalf of 157 and in selling the goods and equipment. 157 agreed that Revin properly followed the instructions that were given. The Notice of Authorization and Indemnification Agreement made between Revin and 157 in relation to the distress in December 2008 also applied, expressly or impliedly, to the distress in January 2009 and, under this agreement, 157 agreed to indemnify Revin against any and all losses, claims, damages, and costs which may be made against Revin by reason of acting under the direction of 157, and 157 agreed to reimburse Revin for legal costs incurred in defence of any claims. Notwithstanding these clear arrangements, 157 chose to advance a crossclaim against Revin and to defend Revin’s crossclaim for indemnification. As a result of this decision, Revin was required to defend the plaintiffs’ action and the crossclaim by 157, and to advance its own crossclaim against 157 and, in so doing, incur legal costs.

[27] The decision by 157 to crossclaim against Revin and to dispute its liability to indemnify Revin, even while agreeing that Revin acted properly and in accordance with the instructions that were given by 157, is one that involved a clear exposure to costs. 157 accepted this exposure to costs when it refused to indemnify Revin. In my view, this decision by 157 is not one that should visit an award of costs against the plaintiffs.

[28] Revin provided a Bill of Costs showing fees on a partial indemnity scale in the amount of $28,800 (using an hourly rate of $400) and on a full indemnity scale in the amount of $35,000 (using an hourly rate of $500). I conclude that Revin is entitled to an award of costs in respect of the crossclaims against 157 on a partial indemnity scale. In my view, an award of partial indemnity fees based upon an hourly rate of $250 is reasonable and proportionate for this case. Using this rate (and the time expended as shown in Revin’s Bill of Costs), Revin is entitled to an award of partial indemnity costs in the amount of $17,775 which, together with HST, amounts to $20,085.75.

[29] I fix costs in the amount of $20,085.75 to be paid by 157 to Revin within 30 days.

Cavanagh J.

Date: June 5, 2018