COURT FILE NO.: CV-530451-00CP
DATE: 20181113
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: PETER NOBLE, Plaintiff
AND:
NORTH HALTON GOLF AND COUNTRY CLUB LIMITED, Defendant
BEFORE: Glustein J.
COUNSEL: Morris Cooper, for the Plaintiff
Wendy R. Berman, Lara Jackson, and John M. Picone, for the Defendant
COSTS ENDORSEMENT
Overview and positions of the parties
[1] By Reasons for Decision, dated June 21, 2018 (the “Reasons”),[^1] (i) I dismissed the motion for summary judgment brought by the Class;[^2] and (ii) I granted the relief sought by the Company and dismissed the class action. In brief, I held:
(i) The Share Sale Programs were not oppressive and did not unfairly prejudice or unfairly disregard the interests of the Class under s. 241(2) of the CBCA; and
(ii) The North Halton directors did not breach their obligation under s. 122 of the CBCA to act honestly and in good faith with a view to the best interests of the corporation and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
[2] In my Reasons, I further noted that Class counsel advised the court at the hearing that:
(i) The only reasonable expectations advanced by the Class were (a) there would be no equity sale of Class G shares by the Company from Treasury at an amount less than $22,000 per share;[^3] and (b) the Class would be treated fairly in share pricing decisions; and
(ii) The Class was not pursuing a buy-out order[^4] requiring North Halton to repurchase (a) the Class G shares held by the Class at a “buy-out value” of $88,000 per share and (b) the Class A shares held by the Class at a “buy-out value” of $98,000 per share since:
The Class had no reasonable expectation of a buy-out or that its shares would be liquid; and
A buy-out would not be necessary to rectify the alleged diminution of equity.
[3] I did not address the admissibility of the Dey opinion as I did not rely on it at the hearing. The Company does not seek any costs or legal fees in respect of the report.
[4] Pursuant to my Reasons, costs submissions were addressed in writing.
[5] I reviewed the initial written costs submissions of the parties received between August 3 and 24, 2018, following the Reasons.
[6] In his initial responding costs submissions, Noble argued that costs sought by the Company for the present summary judgment motion were duplicative of costs incurred by the Company in the earlier contested motion before Belobaba J. in which he granted Noble’s motion for certification and dismissed the Company’s motion for summary judgment based on a limitations defence (the “initial motion”).
[7] In its initial reply costs submissions, the Company denied that it sought any duplicative costs.
[8] I was not the case management judge in this matter and did not hear the initial motion. Consequently, at a telephone case conference on September 20, 2018, I asked counsel to provide brief additional written submissions on the duplication issue. I received those additional costs submissions from Noble on October 11, 2018 and from the Company on November 1, 2018.
[9] The Company seeks partial indemnity costs in the all-inclusive amount of $275,000. Noble submits that the amount sought is unreasonable, and that “a rough total of $50,000 would have been considered by the Plaintiff as a fair partial indemnity costs recovery”.
The applicable law
[10] I first address the general principles concerning the court’s discretion to award costs and then the application of those principles in the context of class actions.
i) General principles on assessment of costs
[11] In Yip v. HSBC Holdings plc, 2017 ONSC 6848 (“Yip”), varied on other grounds 2018 ONCA 626, Perell J. conducted a thorough review of the factors relevant to a costs determination by the court, both in general and in the context of the particular class action motion before him. At para. 26, Perell J. summarized the purposes of the costs rules:
Modern costs rules are designed to advance five purposes in the administration of justice: (1) to indemnify successful litigants for the costs of litigation, although not necessarily completely; (2) to facilitate access to justice, including access for impecunious litigants; (3) to discourage frivolous claims and defences; (4) to discourage and sanction inappropriate behaviour by litigants in their conduct of the proceedings; and (5) to encourage settlements.
[12] The “usual rule [is] that costs follow the event” (Verch Estate v. Weckwerth, 2014 ONCA 338, at para. 11). In Yip, at para. 29, Perell J. summarized the principle:
The most general rule about costs, not to be departed from without good reason, is that costs at a partial indemnity scale follow the event, which is to say that normally costs are ordered to be paid by the unsuccessful party to the successful party on a partial indemnity scale. This is the ‘loser-pays’ principle.
[13] The “reasonableness” principle ensures that costs are ordered in a manner consistent with the reasonable expectations of an unsuccessful party. In Basandra v. Sforza, 2015 ONSC 5059 (“Basandra”), at para. 7, Matheson J. summarized the general principle:
The general principles applicable to costs are not disputed. Costs are discretionary. Rule 57.01 of the Rules of Civil Procedure sets out factors I may consider in exercising my discretion, in addition to the result of the proceeding and any written offers to settle. Overall, the objective is to fix an amount that is fair and reasonable, having regard for, among other things, the expectations of the parties concerning the quantum of costs: Boucher v. Public Accountants Council for the Province of Ontario, 2004 14579 (ON CA) , [2004] O.J. No. 2634, 71 O.R. (3d) 291 (C.A.) at paras. 26, 38.
[14] There should be fairness and consistency in the amount that can be charged for lawyer’s time across similar pieces of litigation involving similar conduct and counsel (The Manufacturers Life Insurance Company v. Ward, 2007 ONCA 881, at para. 69).
[15] In Yip, Perell J. noted that reasonableness is dependent on the circumstances of the case. He held, at para. 31:
The assessment of reasonableness is discretionary and very much dependent upon the circumstances of each case. In some cases, it may be reasonable for the successful party to make exhaustive efforts and to commit enormous legal resources, and in those cases, it might be said that the unsuccessful party could reasonably expect to pay those costs. In other cases, however, the successful party may have been well served by giving his or her lawyer instructions to make exhaustive efforts, but it might be disproportionate and unreasonable to expect the unsuccessful party to pay those costs, even if he or she would have expected or anticipated that his or her foe would have marshalled those legal resources.
[16] The costs of a voluntary mediation process to find a suitable out-of-court resolution should be borne equally by the parties engaging in it (Saltsov v. Rolnick, 2010 ONSC 6645 (Div. Ct.), at paras. 9 and 16, citing Blair J. (as he then was) in Naneff v. Con-Crete Holdings Ltd., [1993] O.J. No. 1756).
[17] If a party attacks another’s costs as excessive without tendering its own costs outline, the attack “is no more than an attack in the air”. While it is not required for a party to do so under Rule 57, the failure to produce its own costs outline deprives the court of “useful context” and is “a relevant consideration where there is an allegation of excess in respect of a particular matter” (Risorto v. State Farm Mutual Automobile Insurance Co., 2003 ONSC 43566, at para. 10, per Winkler J. (as he then was), as cited in TMS Lighting Ltd. v. KJS Transport Inc., 2014 ONSC 7148 at para. 57).
[18] In Yip, Perell J. summarized the effect of a failure of a party to tender its own costs outline on the determination of costs. Perell J. held, at para. 32:
Although the unsuccessful party is not obliged to disclose what he or she expended on costs, where the unsuccessful party submits that the costs claimed by the successful party are excessive, evidence of what he or she expended is relevant to the determination of what is reasonable and of what the unsuccessful party might reasonably have expected to pay.
[19] The duration of a cross-examination may not necessarily reflect the simplicity of a matter but instead that lawyers were professional, diligent, focused and properly prepared (Yip, at para. 54).
[20] Claims for disbursements, including expert's reports, must be reviewed with careful scrutiny, and the principle that cost awards must be fair and reasonable applies to disbursements, including expert fees (Yip, at para. 34).
ii) Particular principles relevant to determination of costs in class actions
[21] I set out the following passages from Perell J. in Yip, at paras. 40-45, and rely upon them to state principles relevant to costs in class actions:
In Pearson v. Inco Ltd., the Court of Appeal identified the following principles for fixing costs on a certification motion: (a) Ontario, unlike other class proceedings jurisdictions such as British Columbia, has not sought to interfere with the normal rule that costs will ordinarily follow the event; (b) the costs must reflect what is fair and reasonable; (c) the costs should, if possible, reflect costs awards made in closely comparable cases, recognizing that comparisons will rarely provide firm guidance; (d) a motion for certification is a vital step in the proceeding and the parties expect to devote substantial resources to prosecuting and defending the motion; (e) the costs expectations of the parties can be determined by the amount of costs that an unsuccessful party could reasonably expect to pay; (f) the complexity of the issues; (g) whether the case raises an issue of public importance; and (h) a fundamental objective of the Class Proceedings Act, 1992 is to provide enhanced access to justice.
In exercising its discretion with respect to costs in class proceedings, the court may consider such factors as: (a) conduct or poor judgment that unduly prolonged the preparation or argument of the motion for certification; (b) failure to follow the schedule; (c) improper case-splitting; (d) delays in abandoning causes of action and issues that were ultimately dropped; (e) failing to communicate the revised list of common issues; and (f) refusing to acknowledge the significance of submissions and concessions. Where a successful plaintiff substantially recasts his or her case for certification, the defendant's liability for costs may be reduced to compensate the defendant for the prejudice it suffered in wasting time responding to a case that was improperly formulated at the certification motion.
Another important factor in awarding costs in class actions is the principle that the court should have regard to the underlying goals of the Class Proceedings Act, 1992; namely: (a) access to justice; (b) behaviour modification; and (c) judicial economy.
A class proceeding should not become a means for either defendants or plaintiffs to overspend on legal expenses simply because the economies of scale of a class proceeding makes it worthwhile to enlarge the investment in the defence or prosecution of the case. A defendant should rein in any tendency to commit more resources than are necessary to fairly test and challenge the propriety of certifying the class proceeding.
An important factor in awarding costs in class actions is s. 31 of the Class Proceedings Act, 1992, which provides that:
In exercising its discretion with respect to costs under subsection 131(1) of the Courts of Justice Act, the court may consider whether the class proceeding was a test case, raised a novel point of law or involved a matter of public interest.
Under s. 31 of the Act, in class proceedings, the approach to fixing costs is the same as in ordinary actions, but the court should give special weight to whether the class proceeding was a test case, raised a novel point of law, or involved a matter of public interest. However, if a plaintiff's claim is not certified or fails on its merits but is novel, a test case, or a matter of public interest, it does not automatically follow that the defendant should receive no costs from the plaintiff. [Footnotes omitted]
Analysis
[22] There is no dispute in the present case that the Company is entitled to costs as the successful party on the summary judgment motion. The only issue is as to quantum.
[23] I first address the issue of quantum under the general principles applicable to costs assessments and in the context of class actions, in relation to the summary judgment motion before the court.
[24] I then address the issue of whether any duplication of costs was incurred, and, if so, the appropriate adjustment to costs as a result of the duplication.
i) Application of relevant cost principles to the present motion
[25] On a partial indemnity scale, the Company seeks $275,000 (inclusive of taxes and disbursements). The amount reflects a reduction of approximately $50,000 (exclusive of HST) in fees from the total partial indemnity fees incurred of $289,325.70 (exclusive of HST).[^5]
[26] Noble submits that $50,000 (inclusive of taxes and disbursements) would be appropriate.
[27] Under Rule 57.01, the court must consider the costs an unsuccessful party would reasonably expect to pay in setting an amount. I consider the following factors:
(i) Until the hearing, Noble sought a “buy-out” order that could have resulted in the liquidation of the Company. This “bet the company” litigation, confirmed as the primary remedy by Noble in his cross-examination two months before the hearing (and still sought in Noble’s factum), yields a reasonable expectation of a higher quantum of costs given the importance of the litigation;
(ii) The allegations against the Board were serious, alleging breach of fiduciary duty which impugned the integrity of volunteer directors within their own community, and alleging a “Tontine” style pyramid scheme, with “diversionary tactics” in “an attempt to distort and divert the Court’s attention”. Given the serious nature of these allegations, there is a reasonable expectation of a higher quantum of costs;
(iii) The factual issues in the motion were not complex. While there were 15 affidavits filed by various shareholders, those affidavits were brief, straight-forward, and did not require an individual response. Since the issue before the court was the reasonableness of shareholder expectations, individual expectations were not determinative;
(iv) Consequently, extensive cross-examination of the shareholders would not be expected or reasonable. Only two of the Class’ affiants were examined, for a total of a half day. Lengthy preparation for those cross-examinations would also not be anticipated;
(v) However, it would be reasonably expected that the Company would need to set out in much detail the necessary corporate and factual background, including prior sales, so that the court could consider whether the Share Sale Programs were oppressive. It would be reasonably expected that preparation (a) of the Company’s affidavits and (b) for cross-examination of its representative would result in significant costs;
(vi) The legal issues concerning the oppression remedy, both as to reasonable expectations and remedy, were complex. While both parties relied primarily on BCE, many other authorities were provided to the court and were relevant to the legal issues to be considered. The extensive research on the oppression remedy and the thorough written legal argument would reasonably be expected, particularly as different shareholders expressed different pricing expectations;
(vii) The monetary remedy claimed by Noble of $615,817 was based on an alleged fair market value of the shares at $105,118, which was not pursued at the hearing. This monetary value was dramatically reduced by the submission at the hearing that the reasonable expectation was that the shares would not be sold for less than $22,000, resulting in a maximum repayment order of $61,100. In any event, the “primary” relief of the buy-out order which the Company could not afford generated reasonable expectations of significant costs;
(viii) Noble did not provide a costs outline to the court with his costs submissions, despite stating in his costs submissions that “[c]ounsel for the Moving Party Plaintiff had prepared a Costs Outline on a partial indemnity basis” for “a rough total of $50,000”. Consequently, Noble deprived the court of “useful context” and a “relevant consideration where there is an allegation of excess in respect of a particular matter”;
(ix) A costs determination must consider that the motion was only heard for a half day, and effectively replaced what could have been a lengthy trial; and
(x) Costs of the judicial mediation should not be included.
[28] The importance of the litigation to the Company is the primary factor leading to a higher quantum of costs than might typically be expected for a half day summary judgment motion. The Company’s existence was at stake, requiring the most thorough review of the law, evidence, and preparation for the hearing. If a shareholder initiates “bet the company” litigation, significant costs should be expected. Noble took that approach in this case and was unsuccessful.
[29] Noble did not assist the court with a costs outline of his own to compare it against the impugned costs sought by the Company. However, the failure to produce a responding costs outline does not mean that the court must accept as reasonable all fees claimed by the successful party.
[30] On a partial indemnity basis, the Company incurred fees of $289,325.70, comprised of:
(i) $93,796.20 for “matters relating to the action generally”, including attendance at judicial mediation,
(ii) $104,709 for “preparing summary judgment motion materials”,
(iii) $25,979.40 for “cross-examinations for summary judgment motion”, and
(iv) $64,841.10 to “prepare argument and attend at summary judgment motion”.
[31] With disbursements and HST added, the total partial indemnity costs incurred were $332,211.31, with the Company seeking a total of $275,000. These costs must be assessed in the context of fairness and consistency in the amount that can be charged for lawyer’s time across similar pieces of litigation involving similar conduct and counsel.
[32] I reduce the total partial indemnity fees sought by approximately $100,000 (exclusive of HST) from the $289,325.70 in partial indemnity fees incurred, rather than the $50,000 (exclusive of HST) deduction proposed by the Company.
[33] I do not accept Noble’s position that a costs award of $50,000 (inclusive of costs and disbursements) is fair and reasonable.
[34] I rely on the factors I discuss above, as well as the following:
(i) A reduction is appropriate for fees sought for “matters relating to the action generally” since only pleadings were prepared and no affidavits of documents were exchanged. There were no examinations for discovery or prior motions which were not already addressed by costs orders. Also, costs of the judicial mediation should not be included;
(ii) A reduction is appropriate for fees sought for “preparing summary judgment motion materials”. While extensive materials were required for the reasons I discuss above, the amount sought reflects almost 500 hours claimed. Again, while the importance of the matter to the Company is evident, reasonableness of costs in the context of similar motions by similar counsel merits a reduction to those amounts;
(iii) A reduction is appropriate for fees sought for “cross-examination for summary judgment motion”. While there is no direct correlation between time spent on a cross-examination and preparation time (in fact, an effective cross-examination may be very brief because of proper preparation), the affidavits in the present matter were not complicated and the brief cross-examinations of the affiants for the Class were focused on issues of reasonable expectations which were not complex. More time would have been required to prepare Butcher for his cross-examination, as the Company’s conduct and livelihood were at stake. Consequently, the total time incurred of almost 75 hours is not reasonable; and
(iv) A reduction is appropriate for fees sought to “prepare argument & attend at summary judgment motion”. Again, while extensive time would be expected on “bet the company” litigation, the 181.2 hours sought to prepare argument and attend at the half day motion appear excessive.
[35] For the above reasons, I reduce the amount of partial indemnity fees incurred of $289,325.70 by approximately $100,000 (exclusive of HST), which results in an approximate total of $215,000 inclusive of taxes and disbursements.
ii) The issue of duplication
[36] I do not accept Noble’s submissions that a further deduction to costs should be ordered as a result of duplication.
[37] Noble’s costs submissions are based on a review of the material filed in respect of the initial motion, including motion records, the cross-examination of Noble, and factums on that motion. Noble attempts to set out (without any specific references) a percentage of alleged common issues from the record before Belobaba J. and the record before me on the summary judgment motion.
[38] However, Noble’s premise is flawed. Just because there were some common elements about the corporate history or knowledge of a shareholder in both motions does not mean that the work was “duplicated” for the motion before me. In order to establish “duplication”, Noble would need to demonstrate that the same work was redone for this motion. No such evidence is before the court.
[39] To the contrary, the only evidence before me is a bill of costs for those costs incurred for the summary judgment motion. I adopt the Company’s submission that:
The fact that the same or similar background information was included in the affidavits relating to the 2016 Motions and the motion for summary judgment does not mean that North Halton is seeking costs for previous time or that any work was duplicative. North Halton agrees with the plaintiff’s submission that ‘no substantive additional cost or effort was required to re-assemble and provide’ such similar background information on the current motion, and indeed no such additional work was done and no such fees were included in North Halton’s bill of costs. Using similar background information did not duplicate costs, it saved costs.
[40] The costs incurred on the summary judgment motion before me were incurred only in relation to this motion. The issues of liability for oppression and the remedies sought by Noble were not the same as the certification or limitation issues before the court on the initial motion, even if similar background information was relevant to both motions.
[41] Finally, the approach taken by Noble, even if duplication could be established (which I do not accept), does not assist the court. A comparison of the number of pages of exhibits in the material for both motions or the number of similar paragraphs in an affidavit or factum does not mean that duplication occurred. It may take only a few minutes to “cut and paste” 20 paragraphs from background information in a prior affidavit on limitations and certification issues, but it may take 15 hours to conduct the necessary factual and legal research and draft five paragraphs which address the heart of the oppression issue. Under Noble’s approach, Noble would submit that 80% of the time (i.e. 20 of the 25 paragraphs) is duplicative and should not be deducted from the costs assessment.
[42] While I recognize that exact precision as to how much duplication would be difficult to establish without a line by line assessment of all docket entries, I would not follow the approach submitted by Noble even if I had found duplication to exist.
Costs order
[43] For the above reasons, I exercise my discretion under Rule 57.01 and fix costs at $215,000 (inclusive of taxes and disbursements). I order Noble to pay those costs to the Company within 30 days of this order.
GLUSTEIN J.
Date: 20181113
[^1]: Noble v. North Halton Golf and Country Club Limited, 2018 ONSC 3565
[^2]: All terms used in this Costs Endorsement are as defined in the Reasons.
[^3]: $22,000 per share was the initial value set out at the Equity Restructuring.
[^4]: (nor a potential winding-up order if North Halton did not have sufficient assets to buy-out the shares held by the Class)
[^5]: The total partial indemnity costs incurred by the Company (inclusive of HST and disbursements) were $332,211.31. After deducting $56,500 ($50,000 from partial indemnity fees and $6,500 in applicable HST), the total is $275,711.31, or approximately the $275,000 claimed.