COURT FILES NO.: 13-59444 and 14-60166
DATE: 2019/01/03
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
POOLE et al Court File 13-59444 Plaintiffs
McGRAIL et al Court File 14-60166 Plaintiffs
– and –
PHILLIPS et al Court File 13-59444 and 14-60166 Defendants
MICHAEL S. HEBERT and CHERYL G. McLUCKIE, for all Plaintiffs
JOHN FABELLO and IRFAN KARA, for the Defendants Douglas Hyatt, Leo De Bever, Robert Gauld, and John Cook
DAVID S. STEINBERG, for the Defendants Marina Ushycky, Steven Brockhouse and Terence Fisk
BRUCE O’TOOLE, for the Defendant Margaret Davis
PATHIK BAXI, for the Defendant Robin Pullen
Heard: Written Submissions
Tausendfreund, J.
COSTS ENDORSEMENT
Overview
[1] Nine of the sixteen Defendants in these two actions (“the moving Defendants”), brought four Summary Judgment Motions between them. They each sought to have the action pertaining to them dismissed.
[2] The Plaintiffs were investors in limited partnerships, trusts and preferred shares. They lost a substantial amount of their investments.
[3] The moving Defendants were directors of corporations which acted as general partners for the limited partnerships in which the Plaintiffs had invested. The Plaintiffs asserted in these actions that these Defendants, as directors, owed them a duty of care. They further stated that these Defendants were negligent and breached their fiduciary and statutory obligations to them.
[4] The moving Defendants sought to have these actions dismissed on the basis that they, as the directors of general partnerships, did not owe a duty of care to the Plaintiffs as investors in the limited partnerships.
[5] In my reasons released January 31, 2017, I held for the Plaintiffs on some of their claims.
[6] On appeal, the Divisional Court set aside my findings, dismissed the Plaintiffs’ action against all but one of these moving Defendants and returned the issue of costs of these four motions to me for determination.
[7] These moving Defendants, collectively seek costs of $533,055 on a substantial indemnity basis and $361,810 on a partial indemnity basis for the four motions which I heard over three days on October 25, 26 and 27, 2016.
General Principles
[8] Costs decisions are in the discretion of the Court: s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C. 43.
[9] Rule 57.01(1) of the Rules of Civil Procedure provides guidance to the Court as to the manner in which its discretion on costs should be exercised.
Analysis
[10] The moving Defendants assert that they should be entitled to costs based on the enhanced substantial indemnity scale, rather than at the partial indemnity rate. They do so for two reasons. Firstly, they state that the Plaintiffs alleged fraud and a breach of trust. Secondly, they point to an offer that these moving Defendants are said to have made to have the action dismissed against them.
[11] The Court of Appeal in Davies v. Clarington (Municipality), 2009 ONCA 722 at paras. 30 and 31 stated that there are only two circumstances which attract an award of costs on a substantial indemnity basis. The first is the operation of Rule 49 of the Rules of Civil Procedure, which is designed to promote settlement offers. The second is where there is conduct of a reprehensible nature.
[12] These moving Defendants assert that the Plaintiffs made allegations of fraud and breach of trust as against them. The Plaintiffs respond that while the Statement of Claim contains allegations of fraud against certain of the non-moving Defendants in their personal capacity, no allegations of fraud were specifically pleaded as against these moving Defendants. The Plaintiffs note that no particulars were either requested or provided in respect of any allegation against these moving Defendants, as would have been required pursuant to Rule 25.06(8) of the Rules of Civil Procedure, had the Plaintiffs alleged fraud in their pleadings as against these moving parties.
[13] The Divisional Court in its Reasons of the Appeal brought by these moving Defendants, stated at para. 23:
“In his reasons, the motions’ judge found that there was no evidence that any of the moving directors acted in a manner that had “a separate entity or interest from that of the Corporations so as to make the act or conduct complained of their own”, and noted that the plaintiffs did not plead fraud, dishonesty, want of authority or conduct by the moving defendants in the nature of a separate identity or interest from the subject corporations.”
[14] I find that the Plaintiffs’ pleadings, as it affected these moving Defendants, would not engage consideration of a sanction imposition by way of an elevated scale of costs.
[15] As to the purported Offer to Settle, the moving Defendants state that during a meeting of all counsel on August 27, 2014, these Defendants verbally offered to settle the actions on a “walk-away” basis without costs. On August 5, 2015, counsel for four of these moving Defendants wrote to counsel for the Plaintiffs :
Further to the meeting held among counsel in August, 2014, we write to provide reasons for our position that your clients’ claims … have no reasonable chance of success. Accordingly, we ask that your clients agree to dismiss the claims against our clients.”
This letter did not contain an offer that remained open for acceptance, nor was it a compromise of any kind. It was a request to consider capitulation. I find that this was not an Offer to Settle as contemplated by Rule 49.13 of the Rules of Civil Procedure.
[16] The moving Defendants will be entitled to costs on a partial indemnity basis.
[17] The Plaintiffs in their factum raise, for the first time, the allegation that the Defendants Hyatt, De Bever and Gauld were beneficiaries of a legal defence fund established in the course of the receivership of First Leaside Wealth Management Inc. (“First Leaside”). This was not disputed by these moving Defendants. If that is so, the costs award to Hyatt, De Bever and Gauld will be subject to further written submissions to me by counsel within 30 days of the release of this costs decision.
[18] I note that counsel agree that these motions were complex and that the issues were important to all parties.
[19] There were four separate Summary Judgment motions and separate counsel for the moving Defendants named in each motion. Although the moving parties have the right to retain counsel of their choice and to proceed in the manner they did, it resulted in at least some duplication. These moving Defendants collectively claim costs of $361,810 on a partial indemnity basis. These motions were heard over three days. I note the contrast to the manner in which counsel resolved the costs issue of the appeal which was heard in one day. The Divisional Court in its Appeal Reasons stated at para. 69:
“In accordance with the agreement of the parties, the Respondents shall pay costs of the appeal, on a joint and several basis, fixed in the sum of $35,000 including the lead motion.”
[20] I accept that counsel for the moving Defendants sought to reduce duplication and that, to a degree, they did. One such example is that submissions by counsel on two of the four motions was limited to a total of one hour. However, in the face of the amount of costs these moving Defendants seek, I am not satisfied that counsel went “the extra mile” in that regard.
[21] Counsel for the Plaintiffs state that following the hearing of these motions, these moving Defendants prepared joint materials with respect to their leave to appeal to the Divisional Court, their appeal to the Divisional Court, their response to the Plaintiffs’ motion for leave to the Court of Appeal, and their costs submissions. I expect that if this approach had been “the order of the day” in the first instance, the quantum of costs at issue would likely have been substantially reduced.
[22] That takes to me to the decision of Boucher v. Public Accountants Council for the Province of Ontario, 2004 CanLII 14579 (ON CA), 71 O.R. (3d 291) (“Boucher”). The Court, at para. 24, referred with approval to its comments in Zesta Engineering Ltd. v. Cloutier, 2002 CanLII 25577 (ON CA), [2002] O.J. No. 4495 at para. 4 where it said:
“In our view, the costs awarded should reflect more what the court views as a fair and reasonable amount that should be paid by the unsuccessful parties rather than any exact measure of the actual costs to the successful litigant.”
[23] The Court in Boucher agreed with Nordheimer, J (as he then was) in Basedo v. University Health Network, [2002] O.J. No. 597 that “it is not the role of the court to second-guess the time spent by counsel, unless it is manifestly unreasonable in the sense that the total time spent is clearly excessive or the matter has been overly lawyered”: see para. 27.
[24] Rule 57.01(3) makes it clear that the fixing of costs does not begin and end with the calculation of hours times rates: see para. 26 in Boucher.
[25] In assessing costs, the failure to consider the overriding principle of reasonableness, can produce a result which is contrary to the fundamental objective of access to justice: see para. 37 in Boucher.
[26] I do not intend to refer specifically to the four costs requests. I applied R. 57.01(01) of the Rules of Civil Procedure and determined what I thought to be fair and reasonable, based on the amounts sought and the application of 60% of the actual partial indemnity costs claimed.
[27] These moving Defendants are entitled to receive from the Plaintiffs, on a joint and several basis, partial indemnity costs including disbursements and HST, as follows:
a) The defendants, Hyatt, De Bever and Gauld, the sum of $90,000.
b) The defendants, Ushycky, Brockhouse and Fisk, the sum of $70,000.
c) The defendant, Margaret Davis, the sum of $50,000.
d) The defendant, Robin Pullen, the sum of $25,000.
Total: $235,000
Tausendfreund, J.
Released: January 3, 2019
POOLE et al v. PHILLIPS et al, 2019 ONSC 75
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
POOLE et al Court File 13-59444 Plaintiffs
McGRAIL et al Court File 14-60166 Plaintiffs
– and –
PHILLIPS et al Court File 13-59444 and 14-60166 Defendants
Costs endorsement
Tausendfreund, J.
Released: January 3, 2019