Court File and Parties

Court File No.: 13-57031 Date: 2018-11-19 Ontario Superior Court of Justice

Between: Shaver-Kudell Manufacturing Inc., Plaintiff – and – Knight Manufacturing Inc., Lucy Shaver, Dusko Ballmer and Alexander Knecht, Defendants

Counsel: Todd J. Burke and Kaisha Thompson, for the Plaintiff Marc A.J. Huneault, for the Defendants

Heard: In writing

Decision Regarding Costs

R. Smith J.

Positions of Parties

[1] The plaintiff seeks costs of $102,579.21 on a substantial indemnity basis for responding to the defendants’ motion for summary judgment, which was never heard, plus partial indemnity costs of $332,584.57 for the 13 day trial for a total of $435,163.72. Alternatively, the plaintiff seeks costs of $92,895.52 for the summary judgment motion based on a Rule 49.10 offer to settle.

[2] The defendants submit that the determination of the costs for the liability portion of the trial should be deferred until after the amount of the damages is determined in order to assess proportionality. The defendants further submit that they acted reasonably in bringing a motion for summary judgment in the circumstances. They also submit that the plaintiff’s offer to settle the summary judgment motion does not entitle it to substantial indemnity costs. Finally they argue that the amount claimed exceeds what is a fair and reasonable amount for the unsuccessful defendants to pay in costs.

Factors

[3] The factors to be considered when fixing costs are set out in Rule 57 of the Rules of Civil Procedure and include in addition to success, the amount claimed and recovered, the complexity and importance of the matter, unreasonable conduct of any party which unduly lengthened the proceeding, scale of costs and any offer to settle, the principle of indemnity, hourly rate claimed the time spent and the principle of proportionality, and the amount that a losing party would reasonably expect to pay.

Success

[4] In this case the plaintiff was completely successful obtaining a finding that it had a trade secret and that its trade secret was wrongly appropriated by the defendants. Finally Lucy Shaver was found to have wrongfully taken confidential customer information from the plaintiff and the defendants used this wrongfully obtained information to compete with the plaintiff.

Complexity and Importance

[5] The issues of whether the plaintiff had a trade secret was technically complex. Extensive written materials were filed and two expert witnesses testified and took opposing views on this issue. The issue of whether the plaintiff had a trade secret and whether it was wrongfully taken by the defendants was very important to both parties. The issue of whether a long term employee can take and use knowledge of her employer’s confidential customer information, acquired in the course of her employment, to compete with her former employer was also an important issue to be decided.

Should The Determination of Costs be Deferred?

[6] The defendants submit that it is necessary to assess the damages caused by the defendants misappropriating the plaintiff’s trade secret in order to assess the proportionality of the costs. The plaintiff seeks to have their costs for the trial on liability determined following completion of this stage.

[7] Section 131(1) of the Courts of Justice Act states that “…the costs of and incidental to a proceeding or a step in a proceeding are in the discretion of the court, …”.

[8] The trial on the issue of whether the plaintiff had a trade secret and whether the defendants misappropriated its trade secret was a separate and discrete issue and a major part of the dispute between the parties. I am satisfied that in the circumstances, costs should be determined following the hearing on the issue of liability as it was a distinct legal proceeding. Furthermore, there is no rule that in a bifurcated proceeding costs should not be determined following the liability hearing. As a result I will proceed to determine costs at this point after the liability portion of the bifurcated trial.

Scale of Costs on Summary Judgment Motion

[9] The plaintiff seeks costs on a substantial indemnity basis for the time it spent cross-examining on affidavits and preparing for a summary motion which the defendants ultimately abandoned. The plaintiff says that the defendants acted unreasonably in bringing the motion for summary judgment in the circumstances. Alternatively the plaintiff seeks costs for the summary motion on a substantial indemnity basis following its Rule 49 offer to settle, plus costs on a partial indemnity basis before the offer to settle was served.

[10] The defendants argue that the reasonableness of bringing the summary motion must be assessed when it was filed, namely on September 16, 2016. The case had moved slowly as discoveries were held in 2013 and early 2014. Significantly the summary motion was commenced before Mr. Campion’s expert report was received on March 31, 2017 which disclosed that there were conflicting expert reports on whether the plaintiff had a trade secret.

[11] The defendants ultimately agreed to forgo their summary judgment motion and consented to proceeding with a bifurcated trial. Their conduct in this regard was reasonable.

[12] Based on the fact that the conflicting expert reports had not been received and the defendants’ consented to abandon the summary motion and consented to a bifurcated trial, I find that their conduct was reasonable at the time the summary motion was brought. However, after the conflicting expert report from Mr. Campion was received it was clear that there were credibility issues to be resolved and complex technical issues to be resolved which required a trial. In addition, the positions of the parties were in conflict and were set out in more than 800 pages of affidavits and 1,301 pages of cross-examination transcripts. In these circumstances the defendants’ decision to continue to pursue the summary judgment motion became unreasonable. This is especially so when an offer to settle was made by the plaintiff on July 11, 2017.

Plaintiff’s Offer to Settle Summary Judgment Motion

[13] The summary judgment motion was initially scheduled for 1 day on October 5, 2017 but counsel agreed that two days were required and it was rescheduled to be heard in November of 2017. This date was cancelled by the court due to a lack of judicial resources.

[14] On July 11, 2017, the plaintiff advised the defendants that it believed there were genuine issues requiring a trial and served a second offer to settle the summary motion, by offering to agree to a dismissal of the plaintiff’s summary motion provided it paid its partial indemnity costs less $1,000.00 to the date of the offer. The offer was made more than 7 days before the motion was to be heard and was open until 1 minute after the start of the motion.

[15] The defendants submit that the offer to settle was not sufficiently clear as the exact amount of the partial indemnity costs was not specified. The defendants also submit that this was an escalating offer. The plaintiff disagrees that the offer to settle was an escalating offer because it did not seek substantial indemnity costs after the offer to settle was served, but only sought partial indemnity costs less $1,000.00 until the offer was served.

[16] In Rooney (Litigation Guardian of) v. Graham at paragraph 27 Carthy J. held that an offer to settle which sought partial indemnity costs to the date of the offer and substantial costs thereafter was an escalating offer that did not meet the requirements of a Rule 49.10 offer. At paragraph 27 Carthy J. stated as follows:

“If an offer can include an escalating amount for solicitor and client costs, the simplicity is lost. Not only must the opposite party consider accepting an offer with an unquantified feature, the trial judge would have to conduct a double assessment of costs from October 1999 to October 2000 in order to determine how much the excess is over party and party costs. That is because party and party costs are not part of the equation under rule 49.10 and only the increment would be added to the offer to obtain its overall value. I cannot believe that the rule was drafted with the intention of throwing this burden on the trial judge.”

[17] Rule 49.07(5)(b) provides that if an offer does not deal with costs then costs are recoverable to the date of acceptance. As a result an offer that contains a term that partial indemnity costs are payable to the date of the offer is made, is not inconsistent with Rule 49.07(5)(b).

[18] The defendants abandoned their motion for summary judgment in November of 2017 and as a result the plaintiff achieved a result which exceeded their offer to settle. As a result in accordance with the Schwark v. Cutting, 2010 ONCA 299 para 4-5 decision of the Court of Appeal, I find that the plaintiff made a valid Rule 49 offer to settle. In addition by July 11, 2017 the defendants had received the conflicting expert reports and it was no longer reasonable for them to continue with the summary judgment motion when the offer was received. Their conduct of continuing with the summary motion became reasonable only after the offer to settle was received on July 11, 2017.

Disposition of Scale of Costs for The Summary Judgment Motion

[19] For the above reasons the plaintiff is awarded partial indemnity costs for the abandoned summary motion to the date of the offer to settle on July 11, 2017 and on a substantial indemnity basis thereafter. Costs for the summary motion of $69,000.00 ($29,000.00 on a partial indemnity basis and $40,000.00 on a substantial indemnity basis) plus disbursements of $14,493.00 inclusive of HST shall be payable by the defendants which I find reflects an amount that the defendants would reasonably expect to pay in the circumstances.

Hourly Rates, Time Spent, Proportionality and Indemnity

[20] The defendants submit that the amount claimed by the predecessor firm of Perley Robertson was excessive as they included time to prepare a motion for an injunction that was not brought as well as for the granting of a sealing order which was obtained on consent. I agree with these two submissions. The amount claimed for the time spent by Perley Robertson on a partial indemnity basis is reduced from $25,355.84 to $15,000.00 inclusive of HST.

[21] The defendants do not object to the hourly rates charged for counsel but submit that the amounts claimed should be reduced to reflect the duplication of effort, having two lawyers attend discoveries, the time spent by two lawyers, an articling student and law clerks assisting in trial preparation, the time spent by senior counsel reviewing junior lawyers, articling students, or law clerks work, and that the hourly rate of the junior counsel at trial should be reduced due to her limited participation.

[22] With regards to the disbursements, the defendants seek confirmation that the copying charges were apportioned and charged at $0.25 per page. The defendants also submit that Mr. Cashion’s expert fees charged at $60.00 per hour, totalling $41,301.53, is excessive. The defendants also object to the legal research of $3,564.67 and submit that is part of overhead along with photocopying and postage charges.

Partial Indemnity Rate of 60%

[23] I agree with the plaintiff’s submission that 60% of counsel’s full indemnity rate is a reasonable percentage on which to calculate the partial indemnity rate in the circumstances and not 50% as submitted by the defendants. A number of decisions have awarded costs in excess of 60% of the full indemnity rate and so I find that 60% to be very reasonable.

Discount for Change of Lawyers and Division of Work Between Senior and Junior Counsel

[24] The plaintiff submits that there was little duplication of time as a result of the change of law firms. The change occurred early in the proceeding before the exchange of documents and examinations for discoveries. I have already reduced the amount claimed on behalf of the previous law firm and I find little duplication in any event.

[25] In Romspen Investment Corporation v. 6711162 Canada Inc., 2014 ONSC 3480 at para 4 the court stated as follows:

[t]he principle of indemnification for reasonable costs requires the appropriate delegation to less expensive time-keepers of legal tasks which do not require the skill and experience of a senior counsel, such as the applicant’s counsel in this case. Where, because of the size the firm, delegation may not be possible, then a party can only seek recovery for the less skilled work performed by senior counsel at a lower rate commensurate with the nature of the work.

[26] Given the complexity of the proceeding, the expertise of senior counsel was required. However, it would have been inappropriate for senior counsel to undertake substantial work on the file where associates, students and/or law clerks were able to assist. The plaintiff highlights that no student time was billed despite their contribution of more than 400 hours over the litigation’s lifespan.

[27] The plaintiff submits that it was appropriate to use a team approach in a complex case such as this and to delegate work between senior counsel, junior counsel, students and law clerks. I agree that this was an appropriate case to adopt a team approach. The issues in this proceeding were very complex and involved determining if the plaintiff had a valid trade secret and determining if the defendants’ had appropriated the plaintiff’s trade secret. The case involved conflicting expert witnesses on the above issues: In these circumstances I find that it was reasonable for senior counsel to delegate substantial work to junior counsel, students and law clerks.

[28] In Hartwick v. Simser Roccamo J held that “the assistance of junior counsel at trial navigating the volumes of documentary evidence, researching the law with respect to rulings on evidence, tracking, noting and commenting on the trial evidence, would have been invaluable to senior counsel in conducting the trial at a more efficient and cost effective pace. Justice Tuscamo Roccamo did not deny a counsel fee to junior counsel at trial because she did not examine any witnesses or make submissions. This is similar to the situation of junior counsel who attended trial but did not examine witnesses or make submissions. I agree with the approach taken in Hartwick v Simser and will not reduce junior counsel’s fee at trial by 50% as requested by the defendants.

[29] The defendants did not request the details of dockets or disbursements from Gowlings and sought only the dockets and disbursements of the predecessor firm. I therefore discount the defendants’ challenge in this area as they could have reviewed the underlying dockets if they had wished.

[30] The amount charged by Gowlings for copying and scanning was $0.25 per page or 12.5 or 14.5 cents per page copied by Printing House which is reasonable.

[31] The amount paid for reporting services and transcript fees was corrected in the plaintiff’s submissions and they claimed $105 less than they actually paid.

[32] In Moon v. Sher at para 39, the Court of Appeal held that amounts paid for Quicklaw services were recoverable as a disbursement if reasonably incurred and stated:

[a]mounts disbursed for Quicklaw services, courier services, stationary and postage may be recoverable under Tariff item 35 if the service or expense is “reasonably necessary for the conduct of the proceeding”, the amount is reasonable and has been charged to the client, and the disbursement does not fall within standard office overhead. Indeed, as Quicklaw and similar search vehicles have become convenient aids to research, although not found in the Tariff, their costs should be recoverable as disbursements provided they are not excessive and have been charged to the client.

[33] As a result, I find that the Westlaw research charges and postage are not overhead charges but may be claimed as disbursements.

Mr. Cashion’s Expert Fees

[34] The cost of preparing Mr. Cashion’s report is set out in invoices #6-8 and amount to $16,680.00. When the time spent for site visits and preparation of the report is added the total is $21,454.81. I agree that Mr. Campion’s assistance was necessary to assist counsel during Mr. Coles’ evidence and during Mr. Shaver’s evidence and when he testified over 2.5 days. In total I fix the amount to be paid for his expert fees at $35,000.00 based on what a losing party would reasonably expect to pay.

Protective Order

[35] The plaintiff agrees with a deduction of $4,208.00 for the protective order which was obtained on consent.

Disposition and Amount Unsuccessful Party Would Expect to Pay

[36] The amount of the plaintiff’s costs for the summary motion are fixed at $69,000.00 plus disbursement of $14,493.00 (inclusive of HST). They were fixed on a partial indemnity basis to July 11, 2017 and on a substantial indemnity basis until the abandonment of the summary motion.

[37] The plaintiff claimed total fees of $353,189.03 for the trial and summary motion on a partial indemnity basis inclusive of HST. From this amount, I must deduct the amount of fees claimed for the summary motion on a partial indemnity basis based on alternative (b) of $66,063.00 [$29,051.00 + $37,012.80 [60% of $61,688.00]. The total fees claimed by the plaintiff for the trial on a partial indemnity basis is therefore $287,126.00 ($353,189.03 - $66,063.00) inclusive of HST. From this amount there will be a reduction of $4,208.00 for the protective order, a reduction of $10,355.00 for the Perley Robertson fees, and a further reduction to $35,000.00 as an adjustment to account with the reasonable expectation of the losing party for a technically and legally complex trial for a total of $237,563.00. The plaintiffs claimed $75,766.53 of disbursements for the trial and summary motion inclusive of HST. This amount is reduced by $6,301.53 for the reduction of Mr. Cashion’s expert fees. Disbursements are fixed at $69,465.00 inclusive of HST for the trial.

[38] The Defendants are therefore ordered to pay costs of $83,493.00 inclusive of disbursements and HST for the summary motion plus $237,563.00 for fees inclusive of HST plus $69,465.00 for disbursements for the trial.

Justice Robert J. Smith Released: November 19, 2018