Court File and Parties
REASONS RELEASED: December 5, 2018
SUPERIOR COURT OF JUSTICE - ONTARIO
BETWEEN:
BAYWOOD HOMES PARTNERSHIP, 2131059 ONTARIO LIMITED, 2206659 ONTARIO LIMITED, 2147789 ONTARIO LIMITED, 1367169 ONTARIO LIMITED and RALPH CANONACO
Plaintiffs, Defendants by Counterclaim
-and-
ALEX HADITAGHI, also known as ALEX VAHID HADITAGHI also known as VAHID HADITAGHI, MAJID HADTAGHI also known as MICHAEL HADITAGHI also known as MARK HADITAGHI, MONEYLOGIX GROUP INC., MORTGAGEBROKERS.COM INC., MONEYLOGIX GROUP, INC., MORTGAGEBROKERS.COM FINANCIAL GROUP OF COMPANIES INC., GARY CILEVITZ, MICHAEL KNARR also known as MIKE KNARR, FARIDEH RONHBAKHSH also known as FARIDEH ROUHBAKHSH
Defendants, Plaintiffs by Counterclaim
-and-
BETWEEN:
LAWRENCE COGAN, TRANSFER REALTY INC., and TRANSBAY DEVELOPMENTS INC.
Defendants to the Counterclaim
-and-
SCHWARTZ & SCHWARTZ PROFESSIONAL CORPORATION and JEFFREY SCHWARTZ
Third Parties
BEFORE: Master Donald Short
COUNSEL: George J. Karayannides & Barry Stork, fax:416-366-6110 for “the Primary Defendants”, Plaintiffs by Counterclaim
Shawn Tock, fax: 416-221-8928 for the Plaintiffs, Defendants by Counterclaim
Arnie Herschorn, fax: 416-864-9223 for the Third Parties, Schwartz & Schwartz
Julian Binavince, fax: 416-477-2847 for MoneyLogix Group Inc. [U.S.A.]
REASONS RELEASED: December 5, 2018
Endorsement re Costs of Action
I Background
1While Isaac Newton clearly did not have Ontario in mind in 1837, his postulation that for “every action there is an equal and opposite reaction” suggests that a prudent litigant has little choice but to aim to mount, a relatively equally strong defence to any multi-million dollar claim brought by way of a Superior Court action against it.
2In major commercial litigation in Ontario, where a claim for very substantial damages is made, only the very brave or foolhardy may see fit to take lightly the defence of such a claim against them.
3Now, more than a century and a half after Newton’s Third Law, Justice Karakatsanis observed with respect to Canada’s law, in Hyrniak v. Mauldin, (2014 SCC 7, 2014 CarswellOnt 641, 2014 CarswellOnt at para. 59) that:
What is fair and just turns on the nature of the issues, the nature and strength of the evidence and what is the proportional procedure.
4Our Rules contemplate proportionality of various kinds. A key component flows from the direction of Rule 1.04.1, which provides:
1.04 (1) These rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.
(1.1) In applying these rules, the court shall make orders and give directions that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding.
5With these principles in mind I turn to the issues presently before me.
II. The Motion
6The Primary Defendants and Plaintiffs by Counterclaim, Alex Haditaghi, Majid Haditaghi, Moneylogix Group, Inc. [Ontario], Mortgagebrokers.com Inc., Mortgagebrokers.com Financial Group of Companies Inc., Gary Cilevitz, Michael Knarr and Farideh Ronhbakhsh (collectively, the "Primary Defendants") seek payments toward their costs of the action and motion on a substantial indemnity basis which total $505,768.19; or in the alternative, their partial indemnity costs which total $346,343.72.
7The Third Parties Schwartz & Schwartz Professional Corporation and Jeffrey Schwartz seek partial Indemnity costs of $102,980.59.
III. The Action
8The underlying action involved inherently complex issues and has been ongoing since 2010. The pleadings, documentary production and examinations for discovery were extensive in nature. Furthermore, numerous motions were brought throughout the course of the matter including a motion for summary judgment, a motion to strike, a consolidation motion, a motion to set aside a dismissal order, a motion to amend pleadings, a motion to dismiss for breach of a timetable, and the unopposed motion to dismiss which was previously granted by me.
9Throughout the course of the matter, the plaintiffs presented a factual record and a legal argument which raised numerous issues, each of which had to be addressed.
10Importantly, in their Statement of Claim, the Plaintiffs sought damages of $35 million dollars for inter alia, fraud, fraudulent misrepresentation and conspiracy against the Primary Defendants.
11Fraud was repeatedly alleged against the Defendants in the Amended Statement of Claim. Furthermore, damages were sought against Alex Haditaghi and Mortgagebrokers.com Inc. for breach of trust and misappropriation of trust funds. These allegations, though part of a public record, were never substantiated in court.
12Against that background I am now required to consider the applicable jurisprudence, in establishing an appropriate approach to the review the cost claims asserted by the various categories of now successful Defendants and Third Parties.
IV. Case Law
13In Agius v. Home Depot Holdings Inc., 2011 ONSC 5272 (appeal dismissed 2011 ONCA 686) Ricchetti J. reviewed the general principles to be applied in fixing costs:
- Cumming J. in DUCA Financial Services Credit Union Ltd. v. Bozzo, 2010 ONSC 4601, [2010] O.J. No. 3758 at para. 5, described the "normative approach" to an application for costs:
Costs are in the discretion of the Court: s. 131, Courts of Justice Act, R.S.O. 1990, c. C.43 and Rule 57.01 of the Rules of Civil Procedure. In Ontario, the normative approach is first, that costs follow the event, premised upon a two-way, or loser pay, costs approach; second, that costs are awarded on a partial indemnity basis; and third, that costs are payable forthwith, i.e. within 30 days. Discretion can, of course, be exercised in exceptional circumstances to depart from any one or more of these norms.
14Justice Ricchetti went on to observe that fixing of costs is not merely a mechanical exercise in reviewing the receiving party's Cost Outline. In Andersen v. St. Jude Medical Inc., (2006), 2006 85158 (ON SCDC), 264 D.L.R. (4th) 557, the Divisional Court set out several principles to be considered in making an award of costs:
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, Moon,, 2004 39005 (ON CA), [2004] O.J. No. 4651, and Coldmatic Refrigeration of Canada Ltd. v. Leveltek Processing LLC (2005), 2005 1042 (ON CA), 75 O.R. (3d) 638 (C.A.).
A consideration of experience, rates charged and hours spent 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), 119 A.C.W.S. (3d) 341 (Ont. C.A.), at para. 4.
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).
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), 1998 5633 (ON CA), 41 O.R. (3d) 222 (C.A.), at p. 249.
The court should seek to balance the indemnity principle with the fundamental objective of access to justice: Boucher.
15The Court of Appeal has identified the overriding principal to be that the amount of costs awarded be reasonable in the circumstances. In Davies v. Clarington (Municipality), (2009), 2009 ONCA 722, 100 O.R. (3d) 66, Epstein J.A. observed at para 52:
[52] As can be seen, the overriding principle is reasonableness. If the judge fails to consider the reasonableness of the costs award, then the result can be contrary to the fundamental objective of access to justice. Rather than engage in a purely mathematical exercise, the judge awarding costs should reflect on what the court views as a reasonable amount that should be paid by the unsuccessful party rather than any exact measure of the actual costs of the successful litigant. In Boucher, this court emphasized the importance of fixing costs in an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding, at para. 37, where Armstrong J.A. said “[t]he failure to refer, in assessing costs, to the overriding principle of reasonableness, can produce a result that is contrary to the fundamental objective of access to justice”.
16Access to justice is to a degree a circumstantial test. Here commercial entities launched a significant claim against numerous individuals and companies of substance. This does not appear to me to be a situation of a litigant not knowing what they were in for and rather brought an action seeking a very substantial amount if their claims were proven to the court’s satisfaction.
17I have carefully reflected on this analysis by Justice Epstein, particularly with regard to the guidance found in Boucher v. Public Accountants Council for the Province of Ontario, (2004), 2004 14579 (ON CA), 71 O.R. (3d) 291, [2004] O.J. No. 2634 (C.A.):
[53] Here, while the trial judge identified the importance of a reasonableness assessment, with respect, in arriving at a costs award of $509,452.18 her reasons do not indicate that she conducted an assessment, or at least a sufficient one, in accordance the requirements set out in Boucher. Furthermore, although the trial judge did find that the parties would have reasonably expected Blue Circle to have claimed costs of this magnitude, she was, according to Boucher, at para. 38, obliged to consider the expectations of the parties concerning the quantum of the costs award.
18Based upon my experience as a litigator, I would feel that in this case each side could, and would likely, anticipate that the quantum sought by the victorious side would roughly approximate to that hoped for and anticipated by their opponents had they been the victors.
V. Application of Rule 57.01
19In addition to the result achieved, the Court may consider the factors enumerated in Rule 57.01 (1) when exercising its discretion under Section 131 of the Courts of Justice Act. In the more recent case of Yelda v. Vu, 2013 ONSC 5903 (leave to appeal denied, 2014 ONCA 353) at para. 11, H.S.Arrell, J. confirmed that:
"The principle that costs follow the event should only be departed from for very good reasons such as misconduct of the party, miscarriage in procedure, or oppressive or vexatious conduct of proceedings ... "
20Based upon the admittedly one sided evidence before me’ no such reasons are present in this case. The Defendants were wholly successful in their motion and are entitled to expect that they will be compensated for their costs of the action and on the motion. The plaintiffs did not contest this motion. There is nothing before me to refute the moving parties’ position that no “step in the proceeding” by the Defendants was "improper, vexatious or unnecessary".
21I find that in this case the plaintiffs should have reasonably expected to pay the Defendants' costs of this proceeding if unsuccessful, as against them.
22The remaining question turns upon appropriate credits or offsets and what scale of costs the Primary Defendants are entitled to recover.
VI. Costs Adjustments
23Counsel submits that this action involved inherently complex issues and has been ongoing since 2010. The pleadings, documentary production and examinations for discovery were extensive in nature. Furthermore, numerous motions were brought throughout the course of the matter including a motion for summary judgment, a motion to strike, a consolidation motion, a motion to set aside a dismissal order, a motion to amend pleadings, a motion to dismiss for breach of a timetable, and the motion to dismiss brought before me.
24It is asserted that:
“Throughout the course of the matter, the plaintiffs presented a factual record and a legal argument which raised numerous issues, each of which had to be addressed.
25I am further advised he Defendants' Bill of Costs excludes all fees related to the Defendants' counterclaim (“actual cost in excess of $25,000”) and excludes all fees related to work which was the subject of prior cost awards (such as the appeal of the summary judgment motion).
26“Furthermore, the Defendants' Bill of Costs excludes all fees related to time required for lawyers to get up to speed on the matter as a result of the Defendants transferring carriage of the file from Cassels Brock & Blackwell LLP to Heenan Blaikie LLP, and thereafter to Clyde & Co Canada LLP.”
VIII. Is Substantial Indemnity Justified?
27The Defendants submit that they are entitled to their costs on a substantial indemnity basis in the circumstances of this case.
28In Enerworks Inc. v. Glenbarra Energy Solutions Inc., 2016 ONSC 4291, my former colleague Master Dash reviewed the general principles to be applied in fixing costs in matters involving unsubstantiated allegations of fraud at paras.47-50 [citations omitted]:
"The starting point for determining whether costs should be awarded on a substantial indemnity scale is the Supreme Court of Canada decision in Young v. Young where the court stated that solicitor-client costs (the predecessor name for substantial indemnity costs) "are generally awarded only where there has been reprehensible, scandalous or outrageous conduct on the part of one of the parties."
As stated by the Supreme Court of Canada in Hamilton v. Open Window Bakery Ltd., "an unsuccessful attempt to prove fraud or dishonestly on a balance of probabilities does not lead inexorably to the conclusion that the unsuccessful party should be held liable for solicitor-and-client costs, since not all such attempts will be correctly considered to amount to 'reprehensible, scandalous or outrageous conduct"'. A party, "believing itself to be wronged, has a right to litigate vigorously, even if ultimately unsuccessful, so long as its behaviour does not rise to the reprehensible, scandalous or outrageous threshold". Nonetheless, “allegations of fraud and dishonesty are serious and potentially very damaging to those accused of deception.”
Although it is not inexorably the result, "unfounded allegations of fraud typically attract an award of costs on a substantial indemnity scale". If a plaintiff makes “unfounded allegations of fraud or improper conduct seriously prejudicial to the character or reputation of a party” the court may award costs on a substantial indemnity scale and "a plaintiff who proceeds in this manner must be prepared for these cost consequences if the allegations turn out to be unfounded."
Clearly, if the plaintiff makes allegations of fraud at trial with access to information sufficient to conclude that the behaviour was merely negligent and neither fraudulent nor dishonest, substantial indemnity costs are appropriate. On the other hand, “potential litigants should not be penalized for failing to meet their onus of proof where they have alleged facts responsibly based on credible evidence that could support an inference of such facts.” In determining whether to award substantial indemnity costs, “all the circumstances must be considered ... Of particular importance in such a case is whether the allegations were advanced recklessly or with an improper motive.” [my emphasis]"
29Also in Enerworks, at paras. 51-53, Master Dash reviewed the general principles to be applied in fixing costs in matters involving unsubstantiated allegations of fraud in which the action concluded before the Court could determine if the allegations of fraud were unfounded:
"If the plaintiff discontinues the action before a court can determine if the allegations of fraud are unfounded, the inference is that the allegations were unfounded:
A dilemma arises when the plaintiff commences an action in which it alleges fraud, and later withdraws the allegations or discontinues the action before a judgment is rendered. It can be inferred from the withdrawal of the allegations or discontinuance of the action that the allegations of fraud were unfounded. Because of this, the action rightly attracts an award of costs on a substantial indemnity scale until the allegations are withdrawn or the plaintiff discontinues the action.
A primary rationale for this conclusion is that a defendant, against whom allegations of fraud have come to an end by reason of a notice of discontinuance, has been deprived of the opportunity of being absolved at trial.
30I accept and agree with Master Dash’s conclusion that the primary consideration in determining whether to award costs on a substantial indemnity scale in the circumstances of this case is whether the unfounded and unproven allegations of fraud were advanced recklessly or whether they were based on credible evidence that could support an inference of fraud.
31Here the Defendants submit that the aforementioned allegations of fraud were advanced recklessly and were not based on any credible evidence that could support an inference of fraud. In particular they assert:
“It is also noteworthy that Justice Penny granted judgment against Ralph Canonaco on two promissory notes which are part of the factual matrix of both the main action and counterclaim. The statement of claim alleged that these promissory notes were obtained under duress caused by the improper conduct of the Defendants.
Furthermore, the plaintiffs knew, or ought to have known, that alleging fraud without credible evidence in support of same could be particularly damaging to the Defendants' reputations. Many of the Defendants, and in particular the focus of the claim, Alex Haditaghi, are in a publicly regulated industry and the unfounded fraud allegations have caused the Defendants business and personal harm.”
32Based upon the foregoing analysis and my understanding of the uncontested evidence I am satisfied that the Primary defendants are entitled to costs on a scale higher than Partial Indemnity.
33I turn therefore to the claims of the Third parties Schwartz & Schwartz Professional Corporation and Jeffrey Schwartz who were added to this action by the Plaintiffs as a result of the counterclaim asserted against them by the Defendants in the main action.
IX. Third Party Claim
34In the third party action, the plaintiffs alleged that the third party Jeffrey Schwartz was in a conflict of interest when he represented the plaintiffs in numerous transactions in which Schwartz’s client or former client Haditaghi was opposed in interest to the plaintiffs. The plaintiffs alleged that Schwartz consistently preferred Haditaghi’s interest to the interest of the plaintiffs.
35The uncontested information before me was that in order to defend against the allegation that Schwartz was involved in a conflict of interest, it became necessary for counsel to review every file in which Schwartz had acted for either the plaintiffs or Haditaghi. This required a review of 3 boxes of documents containing many files from Schwartz. A litigation clerk spent 186 hours preparing a draft affidavit of documents.
36In addition, both the plaintiffs and the defendant Haditaghi submitted numerous documents of their own and motion records delivered in connection with Haditaghi’s motion for summary judgment. It was necessary to review these documents and to check them against the documents produced on behalf of Schwartz. As Justice Belobaba noted in his decision of Haditaghi’s motion for summary judgment:
“[2] Here. At first glance, the volume of material that was filed by the parties was overwhelming: the motion record was almost 1900 pages long, with 11 affidavits and more than 500 pages of cross-examination transcripts. The materials also included a 45-page index of correspondence between counsel and lengthy factums from both sides, well in excess of the 30-page limit. The moving parties’ supplementary factum provided a two-page “cast of characters” summary and a 16-page chart describing the “chronology of events and transactions.” The responding parties’ factum contained an 18-page chart listing more than 90 examples of alleged “factual disputes” in the affidavit evidence.”
37In accordance with various timetable orders from the Court, Schwartz’s counsel prepared Schwartz for examinations for discovery, including a review of all files and documents that might be taken to indicate a possible conflict of interest. Schwartz’s counsel met with Schwartz six times and spoke to him many more times.
38The real estate transactions in which the plaintiffs used Schwartz as their lawyer were numerous and complex. As the Court commented during the course of Haditaghi’s motion for summary judgment, the transactions were not what they appeared to be. Simply to understand the documents required a major effort.
39As Justice Belobaba observed:
“[10] I pause at this point to note the following. Both sides agree that some of the documents and agreements that were executed by the two protagonists over the course of their business relationship did not accurately reflect what was really going on. This was particularly obvious with regard to the $500,000 PN and its related documentation, as I will explain in more detail below. Even Ralph’s lawyer, who was directed to draft these documents, was unable to fully explain on cross-examination why they were needed or wgat the parties intended to do with them. In other words, both Ralph and Alex fabricated and executed documents that did not reflect the true state of affairs but were used to advance a transaction or otherwise assist the other party for some other reason.
40In the result, Schwartz and his counsel prepared for examinations for discovery in accordance with the timetable. However, the plaintiffs did not ultimately proceed in accordance with the timetable.
41In the result I am satisfied that an award of Partial Indemnity costs is appropriate in these circumstances.
X. Third Party Bills of Costs
42The Bill of Cost submitted on behalf of the Third parties included Pleadings, Motions, preparing for and conducting Discoveries and dealing with Undertakings and Refusals. As well aMediation was held in 2012 and the Motion for Summary Judgment before Justice Belobaba and the subsequent Appeal were addressed as well as the ultimately the successful motion to dismiss the third party claim.
43Overall roughly a total of 475 hours of lawyer and law clerk time were spent defending a claim that exceeded 35 million dollars.
44The total amount sought was $79,322.50 for fees and $10,399.02 for related HST, together with $12,343.53 for disbursements plus HST of $245.54.
45I am allowing the Disbursements, for the full amount claimed.
46This was a 2010 action claiming millions of dollars resolved in 2018, involving such a very broad range of issues and proceedings. I am satisfied, applying proportionality, that the amount claimed for the defence of a multi-million dollar third party claim, meets the tests discussed earlier in these reasons, and is clearly reasonable.
47The amounts claimed on behalf of the Third Parties Schwartz & Schwartz Professional Corporation and Jeffrey Schwartz are therefore awarded for the full amount sought on their behalf being $102,980.59.
XI. Primary Defendants’ Bill of Costs
48The Bill of Costs of the Defendants reflects more than a thousand docketed hours. The Defendants seek $423,250.79 with respect to time spent on a Substantial Indemnity basis.
49On a Partial Indemnity basis their claim is for $282,167.19.
50In my view where fraud is only one of a number of heads of damage claimed by the plaintiff it is somewhat unfair to bring the hourly rate, for every hour spent up, to the substantial indemnity level.
51As well, while the parties have sought to remove hours spent when this file moved from Cassels Brock to Heenan Blaikie and thereafter to Clyde & Co., I still feel that the time spent might well have been somewhat less than what is now claimed, if the file had had the same counsel throughout.
52Applying what I regard as admittedly “rough justice”, I have split the difference between the two “Cost Basis” amounts sought on behave of the Primary Defendants. I calculate the mid point between Substantial Indemnity at $423,250.79 and Partial at $282,167.19 as being $352,708.99.
53I am therefore awarding the Primary Defendants, the sum of $352,708.99 plus HST of $45,852.1687 being a total amount on account of fees of $398,561.16.
54I am allowing the Disbursements, for the full amount claimed by these defendants being $24,026.37 plus HST of $3123.43 for a total sum of $27,494.40.
55The total therefore awarded is the all-inclusive sum of $426,055.56 to the Primary Defendants.
56I am obliged to all counsel for their assistance in this matter.
Master D. E. Short
Released: December 5, 2018
DS/ R.265