Court File and Parties

Court File No.: CV-18-189 Date: 2019-12-18 Superior Court of Justice – Ontario

Re: Paul McKercher, Mark McKercher, McKercher Bros. Ltd., McKercher Bros. (Brockville) Ltd., 956375 Ontario Ltd., and 1034382 Ontario Inc., Plaintiffs And: Chris McKercher, McKercher Holdings Limited, McKercher Brockville Limited, McKercher Kingston Limited, 2626927 Ontario Inc., and CBHM Ltd., Defendants

Before: Mr. Justice Graeme Mew

Counsel: Alistair Crawley, Dana Carson and Mitchell Fournie, for the Plaintiffs R. Steven Baldwin, for the Defendants

Heard: in writing

Costs Endorsement

[1] The defendants unsuccessfully moved to set aside ex parte orders which I made on 14 June 2018 granting the plaintiffs leave to register certificates of pending litigation in respect of certain properties and appointing a monitor to monitor the business and financial affairs of Leon’s Furniture Store franchises located in Kingston and Brockville: reasons for decision dated 7 October 2019 reported at 2019 ONSC 5797.

[2] At the end of my decision, I indicated that I was provisionally of the view that the costs of the motion should be to the plaintiffs in the cause on a partial indemnity basis. However, I offered the parties the opportunity to persuade me that a different disposition should be made in respect of costs of the motion. The plaintiffs have taken me up on that invitation, arguing that I should fix partial indemnity costs payable within 30 days fixed in the total amount (inclusive of taxes and disbursements) of $70,993.95.

[3] The defendants respond that in light of the as yet unproven allegations of civil fraud made by the plaintiffs, the appropriate disposition of costs would be to provide that costs of the motion should be paid to the successful party in the action, as fixed by the trial judge or as the trial judge may otherwise direct.

[4] The general rule in Ontario is that costs of an interlocutory motion are awarded to the successful party, fixed by the motion judge, and paid within 30 days: Rules of Civil Procedure, Rule 57.03(1)(a); 1250264 Ontario Inc. v. Pet Valu Canada Inc., 2014 ONSC 251 at para. 17.

[5] It nevertheless remains open to the court to depart from the general rule if the court is satisfied that a different order would be more just.

[6] It has been said that the policy objective of Rule 57.03 for immediate payment of the costs of a contested motion is to bring home to litigants the expense of motions, and that the practice is one that should be departed from only in special circumstances: Theodrou v. Bruno, 2007 CanLII 49491 (ON SC) at para. 3.

[7] The defendants’ argument is that there are, in effect, special circumstances in this case which warrant a departure from the usual practice.

[8] The orders granting leave to register certificates of pending litigation and appointing a monitor were obtained without notice. As I observed in my reasons for decision, while motions for a certificate of pending litigation are typically brought without notice, my original decision to permit the appointment of a monitor without any further notice to the defendants was a marginal one (para. 36). Applying ex parte for that relief could be regarded as an aggressive move by the plaintiffs, which was almost bound to generate opposition to the continuation of the order.

[9] The justification for the appointment of the monitor can be found principally in the plaintiffs’ assertion that there had been fraud on the part of Chris McKercher which had induced them to sell their interests in the Leon’s franchises to the defendants. In my original endorsement granting the ex parte orders on 14 June 2018, I summarised the evidentiary basis put forward by the plaintiffs at that time:

There have, they say, been serious misrepresentations which may rise to the level of fraudulent misrepresentations which, in the context of an intra-family transaction, where normal commercial standards of due diligence were subordinated to trust between family members, have led to an improvident sale of a business and what the plaintiffs represent is a very real risk that the future wellbeing of the franchises are in serious jeopardy.

[10] Whether or not the allegations of fraud are ultimately successful will therefore depend, to some, and possibly a significant, degree, upon the oral testimony of the individuals who are parties to this action.

[11] The plaintiffs point out that there are other cases in which inspectors or monitors have been appointed where the costs of the motions seeking such appointments have been awarded to the (successful) moving parties: Millership v. Hyperblock Inc. 2019 ONSC 5128; Theodrou v. Bruno, supra; General Electric Canada Real Estate Financing Holding Co. v. Liberty Assisted Living Inc. (2011), 80 C.B.R. (5th) 259, 2011 ONSC 4136 (leave to appeal refused, 2011 ONSC 4704 (Div. Ct.).

[12] However, I agree with the following paragraph taken from the costs submissions of the defendants:

The seriousness of allegations of civil fraud on the reputation and livelihood of the defendants cannot be overstated. It is reasonable that the defendants would seek each and every opportunity to rebut such allegations including the efforts to set aside the ex parte orders.

[13] That having been said, there is a distinction between the relief sought in relation to the certificates of pending litigation and the appointment of the monitor, respectively.

[14] Certificates of pending litigation are typically applied for on an ex parte basis. All that is necessary is to establish a propriety interest in land as required by Rule 42 of the Rules of Civil Procedure. There was nothing “special” about the circumstances relating to the certificates of pending litigation. The defendants failed to persuade me that there had been material non-disclosure which had resulted in the certificates of pending litigation being granted. Furthermore, the issues relating to the certificates of pending litigation do not engage the reputational issues raised by the defendants in relation to the allegations of fraud which have been made against them.

[15] I am, accordingly, of the view that the normal disposition of costs should be made with respect to the unsuccessful motion to set aside those parts of my order relating to the certificates of pending litigation.

[16] The motion relating to the appointment of the monitor is, however, another matter. Virtually all of the argument at the hearing of the motion as well as substantial portions of the written submissions, addressed that issue.

[17] The defendants, in resisting the payment of costs forthwith, emphasise what they perceive to be the injustice of a situation where they could be ordered to pay the costs of this motion forthwith, and then either succeed in defeating the plaintiffs’ claims of fraud or see the plaintiffs abandon their claims. They point to my observation at para. 40 of my reasons, that it may well be that the evidence of Paul McKercher does not hold up at trial or on a summary judgment motion. Indeed, it is clear that there is a genuine evidentiary contest.

[18] In Mittal v. Jindal, 2012 ONSC 4297, Perrell J. held that an award of costs in the cause would be appropriate where the technical winners of two motions might ultimately be the losers at trial (the technical winners’ success on the motion being described as “so modest”).

[19] I would not go so far as to describe the success of the plaintiffs on the motion to set aside the appointment of the monitor as “modest”. Rather, they were able to maintain the appointment of the monitor by satisfying me that the initial ex parte order had been properly obtained and that such evidence as the defendants were able to place before the court on the motion to set aside was not sufficient to displace my initial finding of the existence of a strong prima facie case.

[20] Taking into account the guidance provided in other judicial decisions as well as the circumstances of this case, I am satisfied that it would not be just to require the defendants to pay the plaintiffs’ costs of the motion to set aside the appointment of the monitor, if the plaintiffs do not succeed in the litigation. The plaintiffs’ case is anchored on allegations of civil fraud which are, as yet, unproven. The parties had the benefit of legal advice in relation to the impugned transaction and to succeed in the litigation, the plaintiffs will have to persuade the court that the transactional documents should not be given effect. While it would be inappropriate to predict whether the plaintiffs will ultimately be able to discharge that burden, it does seem to me fair that the plaintiffs’ recovery of costs of the motion should be conditional upon success in the litigation as a whole.

[21] The defendants go further and say that if they are successful, they should recover costs of the motion. In other words, that the costs of the motion should be “in the cause”, that is, payable to which ever party ultimately prevails in the litigation.

[22] In my view, that would go a step too far. The defendants lost the motion. While I understand why they brought the motion, and do not criticise them for doing so, the general rule remains that parties who lose bear responsibility for paying at least a portion of the costs of the successful party. Although I have concluded that it would be unjust, in the circumstances, for the defendants to have to pay the plaintiffs’ costs of the motion to set aside the ex parte order if the plaintiffs’ claims are ultimately defeated or abandoned, the defendants would have been alert to the usual costs consequences of failing to have that order set aside, and I am not persuaded that the circumstances of this case are so “special” that it would justify a “costs in the cause” disposition.

Quantam

[23] The plaintiffs’ costs outline contains a number of generic descriptions that make it difficult to determine whether all of the time expended was in relation to the motion. Two counsel were principally engaged on the motion. Both attended in court. Senior counsel, Mr. Nesathurai, a 1996 call to the Bar, claims an actual hourly rate of $770 per hour. Junior counsel, Mr. Oddy, was called to the Bar in 2018. His actual hourly rate is $325 per hour.

[24] The defendants suggest that the hourly rates claimed by the plaintiffs are excessive. While I find that to be less so in the case of senior counsel, even by Toronto standards, an hourly rate of $325 per hour for a first year lawyer seems generous.

[25] In my view, this is not a case which justifies me imposing on the defendants the potential burden of paying for the attendance of two counsel in court. And although I have no doubt that a lot of the legwork was done by Mr. Oddy, the likelihood of overlap seems to me to be high. Further, as already mentioned, it is difficult to be certain that all of the time claimed relates to the motion.

[26] As previously indicated, the plaintiffs claim $57,445.00 by way of fees, plus H.S.T., plus unspecified disbursements of $5,549.35 plus an amount of $471.75 for “Process Server” (again, not particularised).

[27] The defendants, if successful, would claim partial indemnity fees of $41,082.30, of which the majority ($32,767.50) relates to time spent by senior counsel (Mr. Baldwin) with the remainder representing the time of a senior paralegal and clerks. There are also disbursements and taxes, appropriately particularised, of $7,323.17.

[28] Having regard to the concerns that I have expressed about the number of hours (duplication and two counsel where one would suffice) and hourly rates claimed, and in the absence of adequate particulars of the disbursements claimed or their purpose, I order that the defendants will pay the plaintiffs costs of the motion as follows:

a. $5,000.00, inclusive of taxes and disbursements, in relation to the motion to set aside the certificates of pending litigation, payable within 30 days;

b. $35,000.00, inclusive of taxes and disbursements, in relation to the motion to set aside the appointment of the monitor.

Graeme Mew J.

Released: 18 December 2019