Court File and Parties

COURT FILE NO.: CV-18-00603728-00CL DATE: 20190220 SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)

RE: Healthcare holdings inc and kmh cardiology centres incorporated, Applicants/Responding Parties AND: Phoenix holdings limited, Respondent/Moving Party

BEFORE: S.F. Dunphy J.

COUNSEL: Clifton P. Prophet, for the Applicant Jeffrey A. Kaufman, for the Respondent

HEARD at Toronto: December 14, 2018

REASONS FOR DECISION - COSTS

[1] On December 14, 2018, I heard the respondent’s motion for an interlocutory injunctions in the context of a pending application. I dismissed the injunction motion without calling upon the applicants (respondents on the motion) and reserved the matter of costs to be dealt with following receipt of written submissions if not resolved.

[2] Costs were not able to be resolved and the parties have each filed their written submissions with me for consideration. The following is my decision regarding costs.

[3] For the reasons that follow, I am ordering the respondent to pay the applicants’ costs on a partial indemnity scale fixed by me in the amount of $20,000 all inclusive.

Background to the motion

[4] The applicant Healthcare Holdings purchased the shares of KMH Cardiology Centres from the respondent Phoenix pursuant to an Investment Agreement that was completed on June 19, 2017.

[5] Among the assets owned by KMH at the time it was acquired by Healthcare Holdings was a clinic known as the “Edward Street Clinic”. The Investment Agreement had contemplated that Phoenix would have caused KMH to divest itself of the Edward Street Clinic prior to closing. It was losing substantial amounts of money and was liable as tenant on a lease with a considerable term to run (eight years). The monthly operating losses slightly exceeded the rent on the lease.

[6] Phoenix did not succeed in disposing of the Edward Street Clinic prior to closing or afterwards. After a time, the parties agreed to the appointment by the court of a receiver – KPMG Inc. – to attempt to sell the Edward Street Clinic in a process paid for by the applicants. KPMG was unable to find a buyer either.

[7] The operating losses continued unabated and Phoenix believed that the applicants were on the verge of disposing of the Edward Street Clinic for nominal consideration. Their reason for fearing this was a letter of December 5, 2018 giving Phoenix 10 days to produce a reasonable offer to purchase the Edward Street Clinic failing which the applicants would sell it themselves. Phoenix brought a motion for an injunction to attempt to block that action.

[8] Phoenix confirmed its intention to bring the injunction motion in the course of a 9:30 hearing scheduling another motion in relation to the winding-up of the receivership on December 7, 2018. The urgent injunction application was set for the following week on December 14, 2018.

[9] Phoenix served its materials for the injunction after 4:30 p.m. on the eve of the hearing, although its principal affidavit had been sworn the day prior. This was clearly too late to permit the responding parties any reasonable opportunity to respond in time to permit the court to review any responding materials. The applicants were required to scramble to produce responding materials that were handed up in open court at the outset of the motion through no fault of their own.

[10] As it turned out, the prejudice was comparatively minor as the injunction was dismissed without calling upon the responding parties.

[11] I dismissed the injunction as failing on its face to satisfy any of the R.J.R. Macdonald v. Canada (Attorney General), [1994] 1 S.C.R. 311 tests. The Edward St. Clinic was an asset of KMH, not of Phoenix. Phoenix had no proprietary interest in its assets. There was at all events no dispute that the Edward Street Clinic was required to be sold – the only question was the price. Damages are quintessentially an adequate remedy where the only harm is monetary. The balance of convenience clearly did not favour continuing with a cash-flow negative business that there was no dispute should have been disposed of more than a year previously and had not been able to be sold by a court-appointed receiver. There was no undertaking as to damages in the record before me either.

Position of the parties

[12] The responding party applicants seek their costs on a partial indemnity basis. They have submitted an outline of costs detailing $20,340 in costs and $1,108.71 in disbursements for a total amount claimed of $21,448.71.

[13] They highlight the following factors that I am asked to take into account:

(a) Conduct tending to lengthen the duration: the applicants point to the additional costs incurred in being required to respond late on the evening prior to the motion. The principal affidavit of the moving party respondent was ready the day prior – the moving party’s conduct resulted in unnecessary time pressures and added costs being imposed upon the responding parties.

(b) Unnecessary steps in the proceeding: the applicants submit that the entire injunction motion was misguided and ought not to have been brought particularly when the relief sought – a sale of the clinic and an accounting between the parties – amounted to an admission that damages were an adequate remedy.

[14] The moving party submits that costs ought to be reserved to the judge hearing the application on its substantive merits. Phoenix cites the decision of Ferguson J. in Earhart v. Bath Institution (Warden), 2017 ONSC 6489 as authority for the proposition that costs should be reserved to the judge hearing the case on its merits.

[15] The moving party also submits that the costs claimed are unreasonable and excessive or not properly documented. The moving party challenges the reasonableness of the amounts claimed, making particular note of the hourly rate of a paralegal (claimed at $198/hr on a partial indemnity basis) and an overall challenge related to the number of hours spent by Mr. Murray – a lawyer called in 2012 who spent 43 hours in total in responding to the motion, attending upon it and preparing the bill of costs in addition to the 7 hours spent by Senior Counsel on the file, Mr. Prophet.

[16] The moving party respondent provided no outline of its own costs from which a comparison of claimed costs might have been made to gain some insight into the reasonable expectations of the losing party.

Analysis and discussion

[17] I am not persuaded that this is a case where costs ought to be reserved to the applications judge hearing the final issue between the parties. While it is common to defer assessing costs in favour of the party who successfully seeks an injunction to preserve the status quo pending trial, this is not such a case.

[18] The parties have been in agreement for some time that KMH is to sell the Edward Street Clinic the court previously appointed a receiver to attempt to do just that. The damages if any that Phoenix may be ordered to pay as a result of its failure to cause KMH to divest itself of the Edward Street Clinic prior to selling the shares of KMH to Healthcare Holdings is a matter to be decided another day. Phoenix may or may not be successful in challenging the reasonableness of steps taken by the applicants to mitigate their damages. There never was a status quo to preserve – everyone wanted the Edward Street Clinic to be sold. Their disagreement was as to how it was to be sold, not whether.

[19] In my view, this injunction motion ought never to have been brought. It had no reasonable chance of success from the outset and resulted in the wasting of considerable time and resources to respond to what was never more than a dispute about mitigation of damages and the proper accounting thereof.

[20] Costs ought to follow the event in this case and I decline to order otherwise.

[21] The applicants have not asked for costs beyond the partial indemnity scale. However, the overall weakness of this motion coupled with the failure to adhere to the “three C’s” of the Commercial Court when it came to co-operating in the preparation and delivery of materials both might have given me serious grounds to consider a higher scale of costs. The moving party affidavit was sworn on the 12th, but the materials for the injunction were not served until late afternoon on the 13th with a hearing the following morning. That is utterly unacceptable behaviour.

[22] Counsel have a responsibility to the court and to opposing counsel to co-operate and ensure that a motion – even an urgent one – is brought forward as fairly and efficiently as reasonably possible. Exchanging drafts of materials via email – even without prejudice – is quite common in this sort of situation. At a MINIMUM, materials should be served AS SOON AS POSSIBLE after being sworn. The tactics employed in this case certainly resulted in extra costs being imposed upon the responding parties. Given the weakness in the overall motion, little harm beyond costs can be pointed to, but costs were certainly driven higher as a result.

[23] I am satisfied that the hours and rates claimed are reasonable in the context of responding to a short-notice injunction. I am making a small reduction in the total ($1,500) reflecting that fact that (a) the paralegal time (only 2 hours) is charged out at a rate higher than will be permitted on a partial indemnity assessment; and (b) at least some of Mr. Murray’s time can be fairly attributed to the attendance at the 9:30 appointment and the hearing both of which involved other business as well. I am reducing the claim to $20,000 all inclusive from the $21,448.71 claimed.

Disposition

[24] The Moving Party Phoenix is ordered to pay the applicants costs on a partial indemnity basis fixed by me at $20,000 inclusive of disbursements and HST.

S.F. Dunphy J. Date: February 20, 2019