Court File and Parties

Court File No.: CV-13-483510-00A1 Date: 2018-11-21 Superior Court of Justice - Ontario

Re: Canadian National Railway Company, Plaintiff And: Crosslink Bridge Corp., Andrew Penuvchev, Zoran Cocovski also known as Zoran Cocov and the law firm Thompson Dymond, Defendants And: McMillan LLP, Philip Thompson and Marssa Giahi, Third Parties

Before: Dietrich J.

Counsel: Milton A. Davis and Samantha Green, for the Defendants, Andrew Penuvchev and Crosslink Bridge Corp. Michael Kestenberg and David Lipkus, for the Defendant Thompson Dymond and the Third Parties, Philip Thompson and Marssa Giahi Peter J. Osborne, for the Third Party, McMillan LLP

Heard: By written submissions

Endorsement on Costs

[1] The third parties were granted summary judgment in the action for solicitors’ negligence brought against them by the defendants Crosslink Bridge Corp. and Andrew Penuvchev. I delivered written reasons for judgment on September 25, 2018. I invited counsel to make written submissions if they were unable to agree on costs. Counsel for each of the parties has done so and I have considered all of the written submissions.

Overview

[2] The third parties provided legal advice to the defendants with respect to the acquisition of real property that had been used by the Canadian National Railway Company (CN) as a railway yard. The lands were contaminated and the subject of an order of the Director of the Ministry of the Environment. A Certificate of Requirement, referring to the Director’s order, was registered on title. It required CN to disclose the contamination to potential purchasers. CN made this disclosure to the defendants. The defendants allege that the third parties did not properly advise them with respect to the contamination and that if they had been properly advised, they would not have purchased the lands. The defendants brought an action against the third parties for damages arising from the acquisition of the lands.

[3] I found that the third parties were not negligent in their advice to the defendants. In the case of McMillan, I found that the action brought against it was statute-barred.

Position of the Third Parties

McMillan LLP

[4] McMillan submits that it met with complete success on the motion for summary judgment and is therefore entitled to its costs. Further, it submits that the result it achieved on the motion was more favourable than the result it sought in its written offer to settle made on January 30, 2017. That offer was made pursuant to rule 49 of Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the Rules). As such it seeks partial indemnity costs to January 30, 2017 and substantial indemnity costs thereafter. Based on its Bill of Costs, the total “actual” costs billed is $274,904.37 and its claim for costs on a partial/substantial indemnity basis is $209,897.73 [1]. McMillan notes that the hourly rates approved and paid by LawPRO, as reflected in the Bill of Costs, reflect a significant discount to its counsel’s regular hourly rates. Accordingly, the application of the substantial indemnity scale following January 30, 2017 is much less significant than would have been the case had McMillan’s counsel been billing at its regular non-discounted hourly rates.

[5] With reference to the factors listed in rule 57.01 of the Rules, McMillan submits that the court should consider the amount of costs that an unsuccessful party could reasonably expect to pay (rule 57.01(1) (0.b)), the amount claimed and the amount recovered in the proceeding (subrule (a)) and the apportionment of liability (subrule (b)).

[6] McMillan submits that its costs are reasonable and that an adverse inference should be drawn from the defendants’ refusal to deliver a Bill of Costs. McMillan’s motion record included one affidavit. The defendants filed three affidavits, which led to lengthy examinations and eight days of cross-examination. The defendants’ motion record contained thousands of pages and a compendium which exceeded 1,000 pages.

[7] McMillan submits that it contributed to the efficiency of the trial by preparing a Joint Brief of Authorities, which effort included locating and copying the cases the defendants would rely on and identifying the relevant excerpts highlighted in the factum to assist the court. McMillan had one counsel at the motion as compared to the defendants who had two. McMillan claims no expert fee disbursements because it decided that expert evidence was not necessary. The defendants incurred the expenses of an expert whose evidence was not of assistance to the court.

Marssa Giahi and Philip Thompson

[8] Ms. Giahi and Mr. Thompson submit that they too met with complete success on the motion for summary judgment and that there is no reason to depart from the general principle that would entitle them to their costs. They seek costs of $256,604.64, on a partial indemnity basis, from the commencement of the proceedings, as set out in their Costs Outline.

[9] Considering what an unsuccessful party could reasonably expect to pay, these third parties urge the court to consider that their motion record contained two affidavits (102 paragraphs in length) as compared to the defendants’ motion record that contained three affidavits containing 346 paragraphs and an expert report (the latter of which did not assist the defendants). The third parties conducted a rule 39.03 examination of Mr. Cocov and eight days of cross-examination. These third parties submit that they were forced to consider and respond to a voluminous record, the result of which was significant cost, which the defendants could reasonably expect to pay if they were unsuccessful. Ms. Giahi and Mr. Thompson speculate that the defendants own costs would have been more than those of Ms. Giahi and Mr. Thompson, but this determination cannot be made in the absence of a Costs Outline from the defendants.

[10] Ms. Giahi and Mr. Thompson also urge the court to consider the seriousness of the allegations made against Ms. Giahi and Mr. Thompson in this action, which were not proven.

Position of the Defendants

[11] The defendants are now represented by Ross Barristers, having been represented at trial by Fogler Rubinoff. Ross Barristers made cost submissions on behalf of the defendants. The defendants’ principal objection to the costs sought by the third parties is based on access to justice. They submit that having lost a three-day summary judgment motion, Dr. Penuvchev, a dentist, and his spouse are now facing nearly half a million dollars in costs. Crosslink Bridge Corp. is their investment vehicle.

[12] The defendants acknowledge their loss and understand that costs should follow the event. However, they ask that the costs be proportional to the proceeding and proportional to the reality that any costs award will create a significant financial burden on top of their failed investment in contaminated lands. They ask the court to be mindful of the public interest in not rendering access to justice impossible to all but the very wealthy.

[13] The defendants submit that an appropriate all-inclusive award would be $100,000 for McMillan and $100,000 for Ms. Giahi and Mr. Thompson. In the defendants’ view a total award of $200,000 would be fair compensation and would not create an excessive chilling effect on access to justice.

[14] In making this submission, the defendants refer to leading pronouncements in the Ontario Court of Appeal cases of Boucher v. Public Accountants Council for the Province of Ontario, (2004), 71 O.R. (3d) 291 (C.A.) and Moon v. Sher, (2004), 246 D.L.R. (4th) 440 (Ont. C.A.) (Boucher). They cite these cases as authority for establishing reasonableness as the governing principle in fixing costs and access to justice being a key consideration.

[15] The defendants object to the number of hours claimed to have been spent by McMillan (1,122.6) and by Ms. Giahi and Mr. Thompson (1,173.3). The voluminous record notwithstanding, they find this expenditure “staggering” and not reasonable. The defendants explain that they have not produced their own bill of costs as they are in the process of assessing the fees of the lawyers who represented them on the motion.

Analysis

[16] The court is granted a wide discretion when determining the appropriate quantum of costs. Section 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43 provides as follows:

Subject to the provisions of an Act or rules of court, the costs of and incidental to a proceeding or a step in a proceeding are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid.

[17] Rule 57.01(1) of the Rules identifies the factors a court may consider when exercising its discretion to award costs:

(1) In exercising its discretion under section 131 of the Courts of Justice Act to award costs, the court may consider, in addition to the result in the proceeding and any offer to settle or to contribute made in writing,

(0.a) the principle of indemnity, including, where applicable, the experience of the lawyer for the party entitled to the costs as well as the rates charged and the hours spent by that lawyer;

(0.b) the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed;

(a) the amount claimed and the amount recovered in the proceeding;

(b) the apportionment of liability;

(c) the complexity of the proceeding;

(d) the importance of the issues;

(e) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding;

(f) whether any step in the proceeding was,

(i) improper, vexatious or unnecessary, or

(ii) taken through negligence, mistake or excessive caution;

(g) a party’s denial of or refusal to admit anything that should have been admitted;

(h) whether it is appropriate to award any costs or more than one set of costs where a party,

(i) commenced separate proceedings for claims that should have been made in one proceeding, or

(ii) in defending a proceeding separated unnecessarily from another party in the same interest or defended by a different lawyer; and

(i) any other matter relevant to the question of costs.

[18] In determining the appropriate quantum of costs to which the third parties are entitled, I am guided by the following principles set forth by the court in Andersen v. St. Jude Medical, Inc. (2006), 264 D.L.R. (4th) 557 (Ont. Div. Ct.), leave to appeal refused, 2006 CarswellOnt 7749 (C.A.), at para. 22:

1. The discretion of the court must be exercised in light of the specific facts and circumstances of the case in relation to the factors set out in rule 57.01(1): Boucher; and Coldmatic Refrigeration of Canada Ltd. v. Leveltek Processing LLC (2005), 75 O.R. (3d) 638 (C.A.).
2. A consideration of experience, rates charged and hours spent (formerly a costs grid calculation) is appropriate, but is subject to the overriding principle of reasonableness as applied to the factual matrix of the particular case: Boucher. The quantum should reflect an amount the court considers to be fair and reasonable rather than any exact measure of the actual costs to the successful litigant: Zesta Engineering Ltd. v. Cloutier (2002), 21 C.C.E.L. (3d) 161 (Ont. C.A.), at para. 4.
3. The reasonable expectation of the unsuccessful party is one of the factors to be considered in determining an amount that is fair and reasonable: rule 57.01(1)(0.b).
4. The court should seek to avoid inconsistency with comparable awards in other cases. “Like cases, [if they can be found], should conclude with like substantive results”: Murano v. Bank of Montreal (1998), 41 O.R. (3d) 222 (C.A.) at p. 249.
5. The court should seek to balance the indemnity principle with the fundamental objective of access to justice: Boucher.

[19] The Court of Appeal has made it clear that the overriding principle when fixing costs is that the amount of costs awarded be reasonable in the circumstances: Davies v. Corporation of the Municipality of Clarington, 2009 ONCA 722, 100 O.R. (3d) 66, at para. 52.

[20] In Boucher, at para. 26, the Court of Appeal noted specifically that the overall objective of fixing costs “is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding, rather than an amount fixed by the actual costs incurred by the successful litigant.” At para. 37, the Court of Appeal states: “The failure to refer, in assessing costs, to the overriding principle of reasonableness is contrary to the fundamental objective of access to justice.”

[21] I will address the rule 57.01(1) factors that are relevant to this costs determination as well as the application of the principle of proportionality: rule 1.04(1.1).

[22] The first factor under rule 57.01(1) is the principle of indemnity, including the rates charged. Mr. Osborne, of Lenczner Slaght Royce Smith Griffin LLP, who had carriage of the file on behalf of McMillan, has 26 years of experience and his rates (prescribed by LawPRO) range from $195 to $210 per hour on a partial indemnity basis and $293 to $315 on a substantial indemnity basis. His associate’s rates range from $72 per hour on a partial indemnity basis to $108 per hour on a substantial indemnity basis.

[23] Mr. Kestenberg, of Kestenberg Siegal Lipkis LLP, who had carriage of the file on behalf of Ms. Giahi and Mr. Thompson, has 38 years of experience. His partial indemnity rate is $231 per hour. His partner, Mr. Lipkus, has nine years of experience. His partial indemnity rate is $135 per hour.

[24] The defendants do not suggest that the hourly rates are unreasonable. They dispute the amount of time spent. The defendants also submit that McMillan should not be entitled to substantial indemnity costs because their offer was not an offer of compromise, but only an offer to consent to a dismissal without costs.

[25] The goal, as stated in Boucher, is to fix costs in a reasonable amount: a sum that the losing party could reasonably expect to pay, as opposed to doing a precise mathematical calculation of the costs incurred. It is doubtful that the defendants would expect to pay costs of $466,502.37 in costs for a three-day summary judgment motion notwithstanding the number of affidavits and voluminous materials they filed. The volume of material inevitably led to the third parties expending considerable time reviewing the materials and examining and cross-examining the affiants. Even so, I find that the time spent by counsel for the third parties to be disproportionate to the result.

[26] The issues relating to the negligence claims were not overly complex, especially for seasoned lawyers like Mr. Osborne and Mr. Kestenberg. Novel arguments were not required.

[27] Based on a review of the dockets submitted by the third parties’ counsel, I find that the number of hours spent by Mr. Osborne (244.2), his associate (125.3) and an articling student (123.3) on the summary judgment motion to be high. Similarly, I find the time spent by Mr. Osborne, his associate and a law clerk on the cross-examinations (220) to be excessive. However, McMillan did make an offer to settle, relatively early in the proceedings, and McMillan was awarded a judgment more favourable than the terms of its offer to settle. This result should be factored into their entitlement to costs notwithstanding that it did not offer the type of compromise the defendants would have hoped for.

[28] Similarly, I find that the number of hours spent by Mr. Kestenberg on correspondence and file review (189.8) and the hours spent by Mr. Kestenberg (158.2), Mr. Lipkus (226) and an associate, James Parker, (62.8) on the summary judgment motion to be high. Mr. Kestenberg and Mr. Lipkus also spent 303.8 hours on the cross-examinations, which I find to be excessive.

Disposition

[29] Accordingly, taking into account the relevant factors enumerated in rule 57, the principle of proportionality applied to the facts of this case, and the fundamental objective of access to justice, I would reduce the overall costs of McMillan from $209,897.73 to $140,000, inclusive of fees, disbursements and HST; and I would reduce the overall costs of Ms. Giahi and Mr. Thompson from $256,604.64 to $110,000, inclusive of fees, disbursements and HST. I fix the costs of the respective third parties in these amounts, which I find to be reasonable in the circumstances of this case.

Dietrich J. Date: November 21, 2018

[1] At paragraph 4 of McMillan’s Submission Re: Costs, reference is made to the “actual” $274,904.37 as the amount it seeks, but I believe that this is a typographical error and in fact the amount it seeks is $209,897.73.