COURT FILE NO.: CV-13-489226
MOTION HEARD: 20180314
REASONS RELEASED: 20190124
SUPERIOR COURT OF JUSTICE – ONTARIO
BETWEEN:
FINE CHEMICALS INC.
Plaintiff
- and -
ALAN PALMER and SPECIALTY CHEMICAL INDUSTRIES INC.
Defendants
AND BETWEEN:
ALAN PALMER and SPECIALTY CHEMICAL INDUSTRIES INC.
Plaintiffs by Counterclaim
- and -
FINE CHEMICALS INC. and YANI DOGANOGLU
Defendants by Counterclaim (Responding Parties)
BEFORE: MASTER D. E. SHORT
COUNSEL: Paul S. Schwartzman fax: 416-362-9680 Allyson M. Fischer for the Plaintiff
Michael Stitz fax: 647-693-8655 for Defendants/
REASONS RELEASED: January 28, 2019
Endorsement
[1] This action relates to the sale of four chemicals which are required to make automobile airbags and the relationships amongst the parties.
[2] I dealt with a continuation of an earlier set of motions addressing undertakings and refusals in this action (that was commenced in 2013) arising out from the departure of the defendant Alan Palmer from his employment Fine Chemicals Inc. (“FCI”)
[3] Following that departure Mr. Palmer started a new business (the defendant Specialty Chemical Industries Inc.) acting as a broker and selling the same products as those for which he was responsible during his years of employment with the plaintiff company.
[4] What follows is an example of the arguments before me, with regard to the motion costs claims of the parties:
Preparation times claimed by the Plaintiff are generally excessive, duplicated and reflect an over utilization of resources and legal counsel, which is not to be compensated by the other party, even when successful. To say the lease, this is not within the reasonable expectations of the parties.
This is a case where $32,500,000.00 is being claimed and in excess of 6 days of discovery took place between the parties. The refusals maintained and sustained were reasonable in the circumstances. SCI and Palmer maintain no costs in FCl's favour and/or costs in SCI/Palmer's favour on a partial indemnity basis should be awarded in relation to the motion from which this submission originates.
[5] In response to the plaintiff company’s action for misappropriation Mr Palmer counterclaims against Fine Chemical and its principal Yani Doganoglu, for wrongful dismissal and interference with his company’s contractual relations.
[6] Each party filed an extensive undertakings and refusals charts and I made rulings that were recorded as dispositions on the charts. In addition, following my indication of my approach to a number of issues, the parties were able to agree on a written a form of components of a procedural order. Those agreements were based upon my indication at the end of the first day of argument, that I was not prepared, at that stage, to grant the degree of access and information requested by the expert retained by Mr. Palmer.
Cost Claims
[7] These reasons relate to three segments of the discovery process relating to this action. Counsel have made fulsome written submissions regarding the appropriate cost awards on each of the motions, and I intend to address each set of submissions separately.
Motion A
[8] This motion was heard on March 14, 2018. It was brought by the plaintiff, FCI with respect to refusals and undertakings arising on the examination for discovery of the defendants. They seek substantial indemnity costs of $12,349.78 on the basis that they were substantially successful in having the majority of refusals by the witness, not upheld. Three days of discovery were followed by 15 months of partial answers being provided.
[9] The motion to obtain answers was adjourned numerous times and there appears to have been numerous exchanges between counsel over that time not seem to accomplish very much.
[10] FCI asserts that it incurred unnecessary costs. Any letters, preparing arguments and arguing quote the motion on issues which ought not to have been opposed.”
[11] For the most part, I agree with this submission. Nevertheless, I am not satisfied that the history of this matter, to that point, justifies an award on a substantial indemnity basis, as sought.
[12] The requested repeated preparation time for the same motion as a result of “Unexpected Adjournments”, in my view, at least in part, justifies the award for being on the more usual, partial indemnity scale.
[13] In an action where over $30 million is sought it is understandable that (when there was any doubt as to the appropriateness of a line of enquiry) the defendant would want to limit the information provided on specific issues to that which was determined to be necessary by the court.
[14] In the result, costs to the plaintiff, fixed at $8581.10 payable in 30 days.
Motion B
[15] This motion was argued March 14 and 15, 2018.
[16] Specialty Chemical Industries Inc. ("SCI") and Alan Palmer ("Palmer") seek their costs with respect to the interim endorsement dated May 18, 2017, the original date for the commencement of the refusals motions. They assert those matters were adjourned /delayed due to FCl's conduct, abandoned appeal of that endorsement and subsequent negotiation until in and around September/October 2017. In addition, one day of costs throw away for the refusals motion preparation. This is in addition to costs for their March 2018 refusals motion (continued from May 2017) and their expert retainer relating thereto.
[17] This amounts to no less than $36,699.34, as detailed in their costs outline.
[18] At one point I determined that an affidavit of now former counsel was not overly controversial and directed that it be treated as a notional factum to endeavour to keep the matter moving, rather than striking it.
[19] I did not take issue with SCI/Palmer utilizing an accounting expert to justify and highlight what was required in more technical detail than some discovery questions. However, I did not address the potential liability for those costs, at that point in time.
[20] SCI and Palmer maintain they had a significant amount of success with respect to their refusals motion. Their cost submissions note that valuable information was obtained om matters such as :
i. Sales and Expense related data/summaries for the 4 chemicals implicated in this claim AND the remainder of the business of the operating company Plaintiff, FCI, for which consolidated financials of all business lines are being relied upon.
ii. Information relating to other FCI entities
iii. Increase in the Plaintiff (FCl's) gross profit / mitigation –
iv. Allegations of Palmer diverting business (re: sodium azide)
v. Offshore banking record / dealings / transfer pricing
vi. Fiduciary duty - Inquiries related to the seniority/salaries of the most high-ranking FCI employees were asked and largely refused
vii. Solicitation - further particularization was ordered in relation to phone records and documents produced.
viii. Palmer's laptop and portable hard drive in possession of FCI/Doganoglu's counsel.
ix. Particularization of damages/loss claim - serving it as an expert's report in March 2018.
[21] Counsel submitted:
You cannot simply add up the number of question put before Master Short at the motion and break it down accordingly, as the quality of the questions all differ and those ordered to be answered were significant, encapsulate many other smaller requests, were pursued for years, and interrelated such that not every question need be dealt at the motion depending on the disposition of certain questions.
[22] Somewhat surprisingly in the Response of Plaintiff to the Defendant’s cost claim, denies any liability and rather seeks substantial costs payable to the plaintiff:
FCI is seeking its costs on a substantial indemnity in the amount of $79,408.17 (inclusive of HST) for the Defendants' refusals motion on March 14 and 15, 2018.
This motion was unduly complicated due to the Defendants' conduct. Not only did the Defendants seek voluminous and irrelevant documents at discoveries, they repeatedly expanded the scope of these documents first through their expert then on cross examination of Dr. Doganoglu.
Further, the Defendants refused to cooperate to streamline the motion. They did not provide their expert with the wealth of financial documents FCI produced in September of 2017 so that she had sufficient time to review them before being cross-examined. They also failed to comply with the undertaking given to update the chart in advance of the motion.
[23] It seems to me, on a claim of this magnitude, that significant latitude needs to be given to the examining defendant.
[24] While I agree with the plaintiff’s submission that, in general, the objective is to make an award of costs that is fair and reasonable in the circumstances for an unsuccessful party to pay in the particular proceeding.
[25] They assert that FCI was the largely successful party on this motion, having refuted 85% of the Defendants' requests.
[26] I do not accept however their assertion the conduct should also be sanctioned. In any event my feeling that any sanction should not be attached at this stage. I reserve those elements to the trial judge once the pith and substance of the claims have been addressed in a trial environment.
[27] The Defendant’s Reply asserts that the Plaintiff, Fine Chemicals Inc. along with Yani Doganoglu are not entitled to costs as it pertains to SCI/Palmer's refusals motion heard March 14/15, 2018. SCI/Palmer seeks partial indemnity costs and maintain FCI should bear its own costs. “In the alternative, if this honourable Court were to find FCI/Doganoglu are entitled to costs, those sought go far beyond the reasonable expectations of any party, are not justified, are over stated, and there are no significant aggravating factors justifying such an elevated scale/award.”
[28] Having considered the submissions of both parties, I am satisfied that the fairest and most appropriate award is to accept the quantum claimed by the defendants in the total sum of $36,699.34.
[29] However I am not satisfied that in the particular circumstances of this case is appropriate to award at this stage, the Disbursement sought with respect to the expert evidence of Ms. Chilakos. That amount alone, inclusive of HST totals $21,710.47.
[30] Deferring the appropriateness of that charge to the trial judge, leaves a net balance of $14,988.87.
[31] I see no justification to reduce or erase this award by the responding party’s claim for substantial indemnity costs totalling $79,408.17.
[32] Rather I am satisfied that a fair resolution of this Motion is to award the amount $14,988.87, payable by the plaintiff corporation to the Defendants, and so order.
Motion C
[33] Lastly, I deal with a motion that was argued on October 27, 2016 and aborted discoveries scheduled for July 2016.
[34] These claims asserted by both sides for additional funds demonstrate problems that exist when an action of this complexity and intensity come before the Masters court, which is primarily designed to process “more normal” litigation. Here because of the amount involved, it seems that neither side felt constrained to avoid expense and, rather contested almost every issue vigorously.
[35] It is impossible years after the motions, to assess which side is to be believed on what issues, as well as the appropriate compensation.
[36] The parties sought case management at an early stage and, apparently that was not granted.
[37] Recent rule changes and practice directions suggest that it may now be possible to have a judge case manage this case, and I commend that option to the parties.
[38] Both parties have raised important issues that they identified as justifying compensation to them.
[39] I am charged with establishing a just and expeditious resolution.
[40] Put simply, I do not believe that it is fair to either side to find against them at this stage. This is not a trial and the determination of costs is normally based upon what happened in court, on the motion or application and not the minutiae of elements relating to the case. Nevertheless, those elements may be very important to the ultimate result at trial.
[41] I have determined that the appropriate approach in this case, which I regard as an equitable result is that each party be granted the costs they sought on a partial indemnity basis.
[42] The plaintiff’s actual fees are reported as totally $78,994.50 and that on a partial indemnity basis, they are seeking $44,157.17
[43] The partial indemnity amount sought by the defendants is $13,578.75.
[44] Their submission commences:
“Specialty Chemical Industries Inc. ("SCI") and Alan Palmer ("Palmer"), seek costs of no less than $13,578.75, as detailed in their Outline, for the October 27, 2016 motion (Tab A). At the very least, costs in the cause, given a decision has not been made on several issues and their determination was/is intertwined with SCl's successful refusals motion on similar subject matter, ongoing interim case management by Master Short and eventual trial. They are also seeking one (1) day of costs thrown away for repeated discovery preparation. The impetus for this motion was rooted in the fact that the Court did not agree to case manage in 2016 and leading up to the original July 2016 discovery the Plaintiff's ongoing inadequate disclosure, disregard of orders and withholding of some of the most crucial documentation for the Defence to discover upon came to a head.”
[45] In particular the defendants assert:
“This is in addition to years of needlessly resisting requests for clarity on what is now undoubtedly a relevant offshore banking record, multiple FCI entities/business lines and related relevant accounting disclosure required to generate an expert's report…
- SCI and Palmer have been forced to seek judicial intervention for the most basic disclosure from a Plaintiff. The productions in Volume 2 of Palmer/SCl's moving record for the Oct, 2016 motion detail requests for further disclosure well before discoveries in July 2016 as well as the questionable conduct of the Plaintiff, which resulted in the motion. It reflects the most relevant mitigation and liability disclosure being withheld and disclosure from 2013 or earlier conveniently being disclosed in 2016/2017 only after the Defendant sought to adjourn discoveries and raised concerns about litigation tactics. Similarly, the Sept 15, 2015, Order of Master McAfee compelled the Plaintiff to compile any undisclosed documents by way of a supplementary affidavit of documents. Nevertheless, it was only on April 4, 2016, after SCI and Palmer served a notice of cross-motion, that FCI for the first time produced historical and current unaudited financial statements, and then refused the production of income tax returns until compelled by Master Brott in another motion on April 15, 2016.”
[46] It is also argued that:
- The propensity for intentional withholding by the Plaintiff was detailed throughout SCI/Palmer's factum for this motion and is more than probable. Doganoglu/the Plaintiff stated when crossed in 2016 that the correspondence by Autoliv denying meetings for the purpose of regaining the chemical business does not shed any light on mitigation but it allows SCI and Palmer to increase their price and posture toward Autoliv (Q 150-161/p.42-45). This contempt for producing documents is relevant, beyond troubling and Palmer, outside of the 1 aforementioned document, was never provided all unproduced alleged documents before discovery or in a timely and proper manner. The excuse of inadvertence becomes even more perplexing Given the June 2016 Affidavit of Docs contain only 36 entries and the Plaintiff met with counsel three times in June and remarking at answer 201 that he was spending a "considerable amount of time on this lawsuit ... met with our legal counsel very often".
[47] I am simply not in a position to assess at this point in time which, if any of these allegations are valid. Very serious assertions are made which will require a trier of fact to make determinations on a full record. In my view it is premature in this case to order any payments to be made with regard to this motion.
[48] Similarly the plaintiff makes a number of claims calculating its costs on a substantial indemnity basis totalling $65,787.63
[49] Their costs submissions ask for two components of $35,619.45 in respect of the October 27, 2016 motion and assert a further entitlement to costs thrown away for the adjournment of the discoveries scheduled for July 2016 in the amount of $17,859.00. These two items total $53,478.45.
[50] The legal fees component of their costs outline reflects a difference of $9,428.50 between amounts claimed on a substantial and partial basis, relating to time spent. Applying that reduction I calculate an allowed portion of the total claimed by the plaintiff’s counsel now established at $44,049.95.
[51] Their fulsome submission ,for example has assertions such as:
As set out below, there was no basis for refusing to attend at discoveries and relitigating production issues which had been previously dealt with by the Court. The Defendants' motion was wholly unsuccessful with no relief being granted. This alone warrants costs on a substantial indemnity basis. However, the Defendants went further, making unsubstantiated allegations of fraud and attempting to schedule a contempt motion. This too warrants costs on a substantial indemnity basis particularly given that the Defendants consciously accepted the costs sanctions of their conduct.
On the eve of the July 2016 discoveries, the Defendants advised that they would not be attending discoveries claiming that FCI intentionally failed to disclose one document they characterized as a "mitigation" document. This failure to disclose was inadvertent and, in any event, there was no prejudice to the Defendants as this could have been explored at discoveries. Further, they must have had a copy of it otherwise how would they have known it existed? When asked about this at discoveries, the Defendants refused. Master Short ordered this be answered by May 14, 2018.2
FCI made every attempt to proceed with the July discoveries and avoid costs thrown away. FCI wrote to Master Brott seeking assistance so that discoveries would proceed. Master Brott declined on the basis that she was not seized. However, in their submissions to Master Brott, the Defendants consciously accepted any cost sanctions of refusing to attend at discoveries, "My clients will accept a cost sanction if incorrect in suggesting discoveries be adjourned and a motion be convened."
The Defendants' conduct was unreasonable and should be sanctioned. At a minimum, FCI should not have to bear the burden of costs thrown away due to the Defendants' unreasonable but conscious conduct.
Re-Litigation of Previous Motions
On October 27, 2016, the Defendants' production motion was heard for a full day. Many of the productions had been dealt with on previous motions or could have been sought earlier. The Defendants relitigated previous motions and, as such, the October 27, 2016 motion was for the most part res judicata.
For example, the Defendants sought "off-shore information". This issue was put squarely before Master Brott on the April 15, 2016 motion. In her endorsement, she stated that the Defendants " ... agreed to defer that request to the discovery stage and if necessary, it will be revisited after discoveries".
[52] I do agree with the general proposition by plaintiff’s counsel:
“This type of conduct does nothing to move litigation forward, increases both parties' costs and needlessly burdens the courts.”
[53] In the defendants’ reply submissions they assert
- Specialty Chemical Industries Inc. ("SCI") and Alan Palmer ("Palmer") submit that the Plaintiff, Defendants by Counterclaim, Fine Chemicals Inc. ("FCI") and Yani Doganoglu, are not entitled to costs with respect to the October 27, 2016 motion and rely on their initial cost submission. SCI/Palmer provide the following reply submission and maintain if costs are awarded to FCI/Doganoglu they should be on a partial indemnity scale with costs in the cause given the bearing trial will have on a number of issues raised within that and the subsequent March 2018 refusals motions. SCI/Palmer maintain the October motion needs to be viewed in conjunction with the disclosure ordered of the Plaintiff in March of 2018, the historical conduct and correspondence in the motion records throughout 2016, as well as some of the admissions on cross-examination of the Plaintiff/Defendant by Counterclaim Yani Doganoglu, owner of FCI the Plaintiff, in October 2016 and February 2018 in relation to his affidavit in response to Palmer/SCl's motions.
[54] How am I to evaluate such positions at this stage of the proceeding? Without a fulsome inquisition endeavouring to fix an appropriate costs allocation on such diverse allegations is virtually impossible.
[55] I am charged with liberally construing the Rules to secure the just, most expedious and least expensive result.
[56] In my view that goal is best served on this third Costs motion determination by awarding:
- To the defendants the sum of $13,578.75
- To the plaintiff the sum of $44,049.95
BOTH awards are only payable in the cause of the main action.
[57] I regret the delay in addressing these determinations and thank counsel for their carefully thought-out and professionally presented submissions.
_(original signed) ___
Master D. Short
Released: January 24, 2019
DS/ R208 C