Court File and Parties

COURT FILE NO.: CV-17-00579640-00CL DATE: 2020-03-10

SUPERIOR COURT OF JUSTICE – ONTARIO COMMERCIAL LIST

RE: Alliance H. Inc. and Michel Hart, Plaintiffs AND: Gardiner Roberts LLP and Ash Baker, Defendants

BEFORE: Conway J.

COUNSEL: Geoff R. Hall, Anu Koshal and Caroline H. Humphrey, for the Plaintiffs J. Thomas Curry, Rebecca Jones, Brendan F. Morrison and Sarah Bittman, for the Defendants

HEARD: In writing

Reasons for decision (RE: COSTS)

[1] In this professional liability claim, the plaintiffs, Alliance H. Inc. and Michel Hart, sued Gardiner Roberts and Ash Baker for breach of their fiduciary and professional duties. My reasons for judgment are set out in Alliance v. Gardiner Roberts, 2020 ONSC 68 (the "Reasons"). All terms used herein shall have the meanings ascribed to them in the Reasons.

[2] In the Reasons, I concluded that:

(a) Mr. Baker breached his fiduciary duty by acting in a conflict of interest. However, I found that there was no link between his conduct and the plaintiffs' claimed losses and, that in any event, the plaintiffs did not suffer any losses by settling at mediation and not proceeding to arbitration. I awarded the plaintiffs nominal damages for Mr. Baker's breach in the amount of $1,000.

(b) Gardiner Roberts fell below the standard of care in failing to warn the plaintiffs of Mr. Baker's conflict. However, I found that the plaintiffs failed to prove that this breach caused them any damages. I dismissed the plaintiffs' negligence claim for failure to warn.

(c) Gardiner Roberts did not fall below the standard of care in drafting the New Supply Agreement. I dismissed the plaintiffs' negligence claim with respect to the New Supply Agreement.

(d) Gardiner Roberts breached its fiduciary duty by acting for both the plaintiffs and Henry Schein without obtaining Mr. Hart's informed consent. However, the plaintiffs conceded that no damages resulted from this breach. I awarded the plaintiffs nominal damages for Gardiner Roberts' breach in the amount of $1,000.

[3] I stated in the Reasons that if the parties were unable to agree on costs, I would receive written submissions. I have now received and reviewed those submissions.

Positions of the Parties

[4] The plaintiffs claim that they were successful at trial in light of the serious findings of breach of fiduciary duty by the defendants. The plaintiffs seek costs in the amount of $1,500,000 on a partial indemnity basis, inclusive of disbursements and taxes.[^1]

[5] The defendants submit that they were the successful parties since they resisted the plaintiffs' claim for over $16 million in damages.[^2] The defendants seek costs in the amount of $1,261,235 on partial indemnity basis, inclusive of disbursements and taxes.

The Result in the Proceeding - Who were the Successful Parties?

[6] In my view, considering the result in the proceeding, the defendants were the successful parties at trial and are entitled to a costs award in their favour.

[7] While it is true that the case involved allegations of breach of fiduciary duty and negligence, this case was first and foremost about money. In their statement of claim, the plaintiffs sought $15 million from the defendants for each of the various causes of action, plus $1 million from each defendant in punitive damages.[^3] The plaintiffs delivered an expert report valuing their claims at $16,570,000 and a second report at $12,700,000.

[8] Shortly before trial on October 2, 2019, the plaintiffs offered to settle the action for $10 million plus costs and interest. The defendants countered the next day with an all-inclusive offer of $560,000, to which the plaintiffs did not respond. Midway through trial after the plaintiffs had closed their case, the defendants offered to settle for a dismissal of the action without costs. The plaintiffs did not respond to the offer and continued with the trial.

[9] It is clear from the pleadings, the expert reports and the exchange of offers that the plaintiffs were pursuing this case for significant monetary recovery. They were not seeking the court's recognition of the defendants' breaches independent of a monetary award. Rather, the plaintiffs' claims were integrally tied to their pursuit of over $16 million in damages.

[10] In the end, while I found Mr. Baker breached his fiduciary duty by acting in a conflict at the mediation and working on the NSA, Mr. Baker successfully established that his conduct caused no harm to the plaintiffs. Likewise, while I found that Gardiner Roberts breached its fiduciary duty by representing the plaintiffs and Henry Schein without an effective waiver of conflict, the plaintiffs themselves conceded that no damages resulted from this conflict.

[11] In Eastern Power Ltd. v. Ontario Electricity Financial Corp., 2012 ONCA 366, Eastern Power's $121 million claim against OEFC was dismissed at trial, except for one claim for breach of contract for which the trial judge declined to award any damages. Eastern Power succeeded on appeal in obtaining a new trial on the narrow issue of damages. The Court of Appeal upheld the trial judge's costs award in favour of OEFC and held that OEFC was the successful party, even though Eastern Power succeeded on the one issue, stating at para. 16:

Eastern Power advanced six claims worth a total of approximately $121 million. Five of those six claims were dismissed, and its successful claim is worth, at most, $8.5 million [footnote omitted]. Despite Eastern Power's argument to the contrary, OEFC was the overwhelmingly successful party at trial.

[12] The court held that Eastern Power's limited success should be reflected in the quantum of the award to OEFC. It specifically noted that it was not making a distributive costs award (which applies only in the rarest of cases) and that "[i]ndividual issues can be dealt with more appropriately under the general discretion and explicit guidance set forth in rule 57.01(1)": at para. 18.

[13] While the facts of Eastern Power are distinguishable from those in this case, the principles are apposite. Despite the findings of breach of fiduciary duty, the plaintiffs recovered $2,000 in nominal damages rather than the millions they had sought in the litigation. They were unsuccessful in establishing the essence of their case – namely, that the defendants' breaches resulted in the plaintiffs' business losses for which they should be compensated. The plaintiffs' negligence claims were dismissed in their entirety. Viewing the litigation as a whole and the result in the proceeding, I conclude that the defendants were most certainly the successful parties at trial.

[14] However, this does not diminish my conclusion that the defendants – a law firm and a former in-house counsel – breached their fiduciary duties to their clients.[^4] A finding by this court that a lawyer or law firm breached its fiduciary duty to a client is not to be taken lightly, regardless of whether the client ultimately sustained any monetary losses.

[15] Therefore, while I regard the defendants as the successful parties in light of the result in the proceeding, I consider it appropriate to reduce the costs awarded to them to reflect this court's finding that the defendants breached their fiduciary duties to the plaintiffs.

Quantum of Costs

[16] The defendants claim costs of $1,261,235. The plaintiffs have produced their own bill of costs, claiming costs of $1,500,000.[^5] In my view, the costs incurred by the defendants are well within the reasonable expectations of the plaintiffs.

[17] In terms of the Rule 57 factors, the claim started in 2011 and lasted for eight years until the trial in 2019. The trial took 16 days. The claim was complex, with four separate causes of action. The professional liability issues had to be considered against the factual background of the plaintiffs' transactions with Henry Schein. The legal issues involved conflicts of interest and professional standards for lawyers drafting commercial agreements. Three experts were called on each side. The damages issues were detailed and significant. Taking the Rule 57 factors into account, I would have considered the $1,261,235 in costs claimed by the defendants to be fair and reasonable.

[18] However, as noted, I consider it appropriate to exercise my discretion to reduce the quantum of costs recoverable by the defendants to reflect this court's finding that the defendants' conduct amounted to a breach of fiduciary duty. The defendants vigorously contested this issue throughout the litigation. They raised numerous defences at trial. Both sides tendered expert evidence on this issue. The parties made lengthy closing submissions on whether a breach of fiduciary duty had occurred. Ultimately, I accepted the plaintiffs' position that the defendants had breached their fiduciary duties (even though these breaches did not cause any damage to the plaintiffs).

[19] I am therefore reducing the defendants' costs by just over 25%, for a costs award of $925,000. In my view, this reduction fairly accounts for the trial time and the legal and expert fees spent on these issues, and reflects this court's finding that the defendants breached their fiduciary duties to the plaintiffs.

Decision on Costs

[20] The overriding principle in awarding costs is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding, rather than an amount fixed by the actual costs incurred by the successful litigant: Boucher et al. v. Public Accountants Council for the Province of Ontario et al. (2004), 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291 (C.A.).

[21] Overall, considering the result in the proceeding and taking into account the factors in Rule 57.01(1), I consider that a fair and reasonable costs award for the action is $925,000 on a partial indemnity basis, inclusive of disbursements and taxes. I exercise my discretion under s. 131 of the *Courts of Justice Act*, R.S.O. 1990, c. C.43 accordingly.

[22] The plaintiffs shall pay the sum of $925,000 to the defendants within 30 days.

Conway J.

Date: March 10, 2020

[^1]: Although the plaintiffs' bill of costs was for $1,526,159, they claimed the all-inclusive amount of $1,500,000 in their written submissions. [^2]: The defendants also argue that they are entitled to costs as (i) the plaintiffs should have proceeded under the Simplified Procedure rules given the size of the award; and (ii) the plaintiffs received less than the defendants' settlement offer of $560,000. Since I have determined that the defendants were the successful parties in the action, there is no need to address the defendants' alternative submissions on their entitlement to costs. [^3]: In the statement of claim, the plaintiffs claimed $15 million in damages for Gardiner Roberts' breach of fiduciary duty in acting for the plaintiffs and Henry Schein without obtaining an effective waiver of conflict. The plaintiffs conceded at trial that they were no longer seeking any damages from Gardiner Roberts as a result of this breach. [^4]: I also found that Gardiner Roberts fell below the standard of care in failing to warn the plaintiffs of Mr. Baker's conflict of interest at the mediation, although I dismissed the plaintiffs' claim in negligence for failure to warn as they did not establish causation. [^5]: The fees claimed by the defendants are significantly less than those of the plaintiffs, although the defendants' disbursements (mainly for expert witnesses) are higher. The defendants' bill of costs consists of $376,701 in fees (the plaintiffs claimed fees of $884,651) and $739,199 in disbursements (the plaintiffs claimed disbursements of $465,932), plus taxes.