Court File and Parties
COURT FILE NO.: CV-16-0351-SR DATE: 2018-08-21
ONTARIO SUPERIOR COURT OF JUSTICE
B E T W E E N:
GRAHAM MACKENZIE Plaintiff
Mr. W.A. Mouck, for the Plaintiff
- and -
1785863 ONTARIO LTD, Operating as ALEX WILSON COLDSTREAM LTD. Defendant
Mr. I. A. Wilson, for the Defendant
HEARD: Via written submissions
Madam Justice H. M Pierce
Reasons On Costs
Introduction
[1] The plaintiff sued the defendant for wrongful dismissal under the simplified rules and obtained a judgment in the amount of $56,249.94 including exemplary damages. On December 5, 2016, the plaintiff served an offer to settle pursuant to Rule 49.10 of the Rules of Civil Procedure . The offer was for $43,333.28.
[2] On March 27, 2018, the defendant served an offer to settle for $20,000.00 plus costs to be agreed or assessed. That offer was not accepted.
[3] Ultimately, the plaintiff got a better result at trial held on May 31, 2018, than his offer. In accordance with Rule 49.109 (1), the plaintiff seeks costs against the defendant on a substantial indemnity basis.
[4] The plaintiff contends that the defendant’s solicitor is the controlling mind of the defendant corporation in the litigation. He also submits that his costs should be paid by the solicitor personally because of his conduct of the litigation.
[5] The defendant’s solicitor submits that since the defendant corporation is insolvent, the prudent thing for him to do was not to appear at trial. After defending the case throughout, he wrote to advise the plaintiff on May 9, 2018 that any judgment would be uncollectable and that he did not intend “to occupy my time defending Mr. MacKenzie’s action further.” He asked plaintiff’s counsel to advise the trial judge accordingly, which Mr. Mouck did at the opening of trial.
[6] Despite the solicitor’s failure to attend at trial or to call evidence, Mr. Wilson attempts to give evidence in his costs submissions that was not given at trial, justifying the plaintiff’s dismissal and describing the defendant corporation’s financial circumstances.
[7] Mr. Wilson also criticizes the court for giving insufficient weight to the defendant’s evidence even though the defendant did not appear to call evidence at trial. His costs submissions object to the amount of the judgment and disclose the recommendation of the pretrial judge for settlement, a recommendation that was incidentally greater than the defendant’s offer.
[8] Mr. Wilson asserts that although he appears as solicitor of record, he was only acting in his capacity as estate trustee for his late father and did so pro bono. Perhaps not surprisingly, he did not file a bill of costs which would have helped to establish the reasonable expectations of the losing party.
[9] Mr. Wilson contends that his decision not to appear at trial facilitated the plaintiff’s recovery, such that no unnecessary steps were taken in the litigation. Accordingly, he submits that costs should not be awarded against him personally. In any event, the defendant challenges the quantum of costs claimed by the plaintiff.
The Scale and Quantum of Costs
[10] What is the appropriate scale of costs in this case? What is the appropriate quantum of costs?
[11] The plaintiff claims substantial indemnity costs of $26,325.11 inclusive of fees, disbursements, and HST. The defendant submits that partial indemnity costs should be ordered, in the amount of $6,000.00 or, if substantial indemnity costs are ordered, they should not exceed $10,000.00.
[12] The trial was originally scheduled to be heard on April 4, 2018 for half a day. However, because the plaintiff had not filed a trial record and because of judicial unavailability, the trial was cancelled and rescheduled. Mr. Wilson was alerted to this fact before he travelled from his home in Peterborough to Thunder Bay.
[13] In view of the plaintiff’s Rule 49.10 offer, and his better recovery at trial, the costs ramifications of Rule 49.10 apply. The plaintiff is therefore entitled to partial indemnity costs until the date of the offer, December 5, 2016, and substantial indemnity costs thereafter. What, then, is the proper amount to be paid?
[14] The defendant submits that the bill of costs is excessive. Specifically, it submits that:
- the time spent prior to preparing the statement of claim, 5.8 hours, is not payable as costs;
- the time claimed in preparation for and argument of a motion at which the defendant was successful and was awarded costs, some 34.6 hours, is not claimable;
- the hourly rates of the law clerks, billed at $175.00 per hour, are excessive, and should be half that amount;
- the amount claimed for photocopying, $903.00, is excessive in view of the simplified proceeding and should be reduced to $175.00.
[15] In addition to these itemized objections, the defendant submits that the $500.00 claimed as a disbursement represents the payment of the defendant’s costs ordered on motion, which are improperly claimed. I agree with this submission. The payment of a costs order, while it may be included in a client’s account for bookkeeping purposes, does not amount to a disbursement claimable in the action. It, together with the associated claim for HST, is disallowed.
[16] The plaintiff also claims a flat 13% for HST on all disbursements except court filing fees, which are exempt. There is no evidence that disbursements claimed are, in fact, subject to HST. For example, payments made to the Minister of Finance, the Law Society transaction levy for the statement of claim, and costs for filing a trial record are payable in the face amount only. There is no indication that charges for a courier or a corporate search are net of HST. The claim for HST on disbursements is therefore disallowed, leaving a balance of $1,296.63, for disbursements.
[17] I will next deal with the itemized objections in order.
[18] The defendant submitted no authorities for the proposition that time spent in advance of preparation of the statement of claim is not claimable as costs. This is not the current state of the law. In The Law of Costs, loose leaf (2017-Rel.73), vol. 1 (Toronto: Thompson Reuters Canada, 2017), at para. 203.2, Mark M. Orkin, deals with pre-action costs. He observed:
An early decision in Ontario held that an award of party-and-party costs on the solicitor-and-client scale did not include the cost of anything done before the action was commenced. Later case law held that, at least as regards solicitor-and-client, i.e. substantial indemnity costs, they included any services reasonably necessary for the prosecution of the action and were not limited to services rendered after the action commenced. The principle has also been extended to an award of costs on the party-and-party, i.e. partial indemnity scale. [citations omitted]
[19] However, I agree with the defendant that the plaintiff’s claim for time spent in preparation for and argument of a motion at which the defendant was awarded costs is not claimable. Otherwise, the indemnity for costs awarded to a successful party on motion but who loses in the action is defeated. The costs awarded to the defendant which was successful on the motion were in any event of the cause.
[20] What is the appropriate hourly rate for law clerks?
[21] At Rule 57 of the Rules of Civil Procedure, the Rules Committee published a guide to the profession as to the scale of costs applicable on a partial indemnity basis. The rates cited were set as of July 1, 2005 and the authors comment that they should be adjusted for inflation. There is no evidence before me as to what the rates should be when adjusted for inflation. Nevertheless, the Rules Committee determined that the maximum rate for law clerks at that time on a partial indemnity basis was $80.00 per hour. If the rule that substantial indemnity costs are equivalent to 1.5 times the partial indemnity rate, then the maximum hourly rate applicable for law clerks is $120.00 for substantial indemnity.
[22] In the bill of costs submitted by the plaintiff, the hourly rate claimed for law clerks is $175.50, well above the maximum rate as established in the advisory, “Information for the Profession.” One clerk has one year of experience, one clerk, five years, and the third clerk, 35 years.
[23] In addition, the clerks’ dockets show claims for “maintaining file currency” and “ensuring accuracy of correspondence or pleadings.” Another entry is for “reviewing rules re: how an action is set down for trial or summary trial.”
[24] Even on a substantial indemnity basis, the opposing party is not obliged to pay law clerk fees for what is, in effect, secretarial time – filing work that does not advance the case. Secretarial time is encompassed in the overhead of a law office, and is compensable as part of the lawyer’s fees, not as a separate item.
[25] As well, when a rate of $120.00 per hour for clerk time is allowed, the opposing party is not expected to pay for the law clerk’s education. In addition to the reduction in the hourly fee claimed for the law clerks, there will be a further reduction on costs claimed for these activities.
[26] Both lawyers whose time is claimed in the bill of costs were called to the bar less than 10 years ago: Mr. Mouck, two years ago and Mr. Lester, five years ago.
[27] The advisory also lists a partial indemnity rate for lawyers called to the bar less than 10 years of $225.00 per hour. When multiplied by 1.5 to reflect a substantial indemnity scale, the hourly rate is $337.50.
[28] Mr. Mouck claims a substantial indemnity rate of $198.00 per hour while Mr. Lester claims $261.00 per hour. Mr. Lester’s partial indemnity rate is $174.00 per hour, a rate which applies to time docketed before delivery of the offer to settle. All rates are below the scales set out in the advisory at Rule 57.
[29] The claim for Mr. Mouck’s time is reduced to account for the time spent on the motion for which the defendant was awarded costs.
[30] Mr. Lester’s claim is likewise reduced to account for time not claimable on the motion for which the defendant was awarded costs.
[31] In addition, on September 15, 2017, Mr. Lester docketed unspecified time for travelling to and from the court house to attend the pretrial. Mr. Lester practices law within the City of Thunder Bay. This is not an allowable claim.
[32] In addition to lawyers’ time claimed for an unsuccessful motion, clerk time was also claimed which is disallowed.
[33] What is a reasonable amount for photocopying? There is no estimate of the number of copies filed in the case. Part II, clause 31 of Tariff A of the Rules of Civil Procedure provides that the reasonable cost of copies of any documents or authorities prepared for or by a party for the use of the court and supplied to the other side are claimable. Clause 32 also allows a reasonable amount for copies of records, appeal books, compendiums and factums.
[34] This case is a simplified rules proceeding. Apart from materials filed on a motion at which the plaintiff was ordered to pay the defendant’s costs, the plaintiff filed a statement of claim and reply, affidavit of documents, a trial record, an affidavit of the plaintiff’s evidence, a bill of costs, a costs submission, a submission re: notice damages, case law, a pretrial memorandum, statement of issues, and miscellaneous filings. I agree that $175.00 is a reasonable amount to allow for copying.
[35] Having regard for these objections, and adjusting the applicable HST, the defendant shall pay to the plaintiff costs of $13,525.94 within 30 days calculated as follows:
Mr. Lester 11.8 hours (partial indemnity) $2,053.20 Mr. Lester 6 hours (substantial indemnity) $1,566.00
Mr. Mouck 22.4 hours (substantial indemnity) $4,435.20
Law Clerk 10 hours (partial indemnity) $800.00 Law Clerk 16.4 hours (substantial indemnity) $1,968.00
Subtotal fees $10,822.40
HST on fees $1,406.91
Total fees $12,229.31
Disbursements $1,296.63
Total Fees, Disbursements and HST $13,525.94
Should Costs be Paid by the Defendant’s Solicitor Personally?
[36] Should costs be paid personally by the defendant’s solicitor, Mr. Wilson?
[37] Rule 57.07 of the Rules of Civil Procedure gives the court jurisdiction, on notice to the lawyer, to order a lawyer to pay costs personally. It provides:
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 to personally pay the costs of any party.
[38] In Young v. Young, [1993] 4 S.C.R. 3 (S.C.C.) at pp. 135-136 the court held that costs awarded personally against a lawyer were intended as compensation for the successful party and not as punishment of the lawyer. Examples of instances in which such costs would be ordered included proceedings that were cluttered by repetitive and irrelevant material, or excessive motions and applications, when the lawyer had acted in bad faith in encouraging such abuse and delay.
[39] However, in Young, the Supreme Court of Canada cautioned that because lawyers were under a duty to guard a client’s instructions as confidential, and to fearlessly represent unpopular causes, courts should be extremely cautious in making such costs orders.
[40] The parties agree that the principles governing when an award of costs should be paid by the solicitor personally are set out in Galganov v. Russell (Township), 2012 ONCA 410. Of note is the court’s comment at para. 16:
Rule 57.07 is therefore not concerned with the discipline or punishment of a lawyer, but only with compensation for conduct which has caused unreasonable costs to be incurred.
[41] The legal test in Galganov is set out at paras. 18-22. The court must first determine whether the lawyer’s conduct caused costs to be incurred unnecessarily. Costs consequences can be triggered by either professional negligence or by actions or omissions which fall short of negligence. Bad faith on the part of the lawyer is not a necessary factor triggering cost consequences. Rather, the court, looking at the lawyer’s conduct holistically, must determine whether the 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.
[42] Secondly, the court must consider whether, applying the “extreme caution” principle identified in the Young case, that is, that such awards should only be made in clear cases, an award of costs against the lawyer personally should be made.
[43] In this case, the solicitor is the controlling mind of the defendant corporation. Mr. Wilson conducted the litigation as though he and the corporation were one and the same, with the same interests. Therefore the risk that solicitors will be deterred from fearlessly representing clients enunciated in Young is not in play.
[44] The defendant filed a statement of defence that implied that the plaintiff was dismissed for cause. The litigation was conducted on that footing. Then, on the eve of trial, counsel for the defendant wrote to the plaintiff announcing that the defendant was insolvent, such that any judgment would be uncollectable, and advising that he would not appear at trial. He asked plaintiff’s counsel to advise the trial judge accordingly. Mr. Mouck did so.
[45] Mr. Wilson abandoned his client and its defence that had previously been pleaded. He brought no motion to be removed as solicitor of record, at any stage in the proceeding, which would have been the proper course. Mr. Wilson justified his failure to appear at trial in his costs submissions by declaring that he was representing the defendant corporation pro bono.
[46] Mr. Wilson’s conduct toward opposing counsel and the court was dismissive. In his costs submissions he described plaintiff’s counsel disparagingly, calling him “2 years out of law school.”
[47] In his costs submissions, despite having abandoned the case and called no evidence, Mr. Wilson also criticized the court for failing to consider the defendant’s evidence – evidence that was not called at trial. He resurrected the grounds for dismissing the plaintiff, unwisely calling him careless, irresponsible, dishonest, and accusing him of theft, even after exemplary damages were awarded.
[48] Mr. Wilson submits that he should not be ordered to pay costs personally because the defendant simply allowed the plaintiff to prove his case.
[49] In my view, Mr. Wilson was derelict in his duty as an officer of the court when he conducted litigation on the premise that the plaintiff’s dismissal was made for cause and then abandoned that defence at trial, later reviving it in his costs submissions. In so doing, he continues to disparage the plaintiff’s reputation. One is left to wonder whether there even was evidence that the plaintiff was dismissed for cause.
[50] Mr. Wilson was also derelict in his duty by abandoning his client at trial without seeking a timely order removing him as solicitor of record. It is not an answer to say that the solicitor is acting pro bono. The solicitor, having accepted the retainer, and appearing as solicitor of record, is obliged to conduct himself in accordance with the rules of court, cognizant of the duty that he owes to both the client and the court. He did not do so and was derelict in his duty to the client and to the court.
[51] Had Mr. Wilson’s client decided to concede the plaintiff’s claim, it could have filed no statement of defence saving considerable costs; alternatively, having defended the action, it could have made further efforts to settle the claim, rather than putting the plaintiff to the expense and inconvenience of a trial.
[52] Ultimately, Mr. Wilson’s abandonment of his client triggered the application by the plaintiff to have Mr. Wilson pay costs personally. Instead of speaking to costs at the conclusion of the trial, the matter of costs was necessarily delayed while Mr. Wilson was put on notice of the claim against him personally. The plaintiff then made submissions and filed case law in support of his request for an order against the solicitor personally, to which Mr. Wilson responded with a 7-page brief. Decision was reserved.
[53] In all the circumstances, I conclude that this is an exceptional case for which a solicitor should pay costs personally. However, I am not persuaded that the solicitor should pay the entire burden of costs given that the objectionable conduct occurred when the litigation was underway. The plaintiff would have been required to draft and serve a statement of claim and put evidence before the court even if the defendant failed to file a statement of defence.
[54] Of the costs ordered to be paid by the defendant to the plaintiff in the sum of $13,525.94, the defendant’s solicitor, Ian A. Wilson, is ordered to pay personally the sum of $4,500.00 to the plaintiff within 30 days. The defendant’s costs obligation to the plaintiff will be credited by the amount of Mr. Wilson’s personal payment of costs.
“original signed by”
The Hon. Madam Justice H.M. Pierce
Released: August 21, 2018