Court File and Parties

COURT FILE NO.: 15-65108 DATE: 2020/01/10 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Doyle Salewski Inc., in its capacity as Trustee in Bankruptcy of Golden Oaks Enterprises Inc. and Joseph Gilles Jean Claude Lacasse Plaintiff – and – Lorne Scott and others Defendants

COUNSEL: John D. Dempster and Robert J. De Toni for the Plaintiff Alyssa Tomkins and James Plotkin for the defendants

HEARD: In writing

COSTS ENDORSEMENT

GOMERY, J.

[1] On August 30, 2019, I issued judgment in seventeen lawsuits by the plaintiff Doyle Salewski Inc. (the “Trustee”) against individuals and companies who received payments from Golden Oaks Enterprises Inc. prior to its bankruptcy. See Doyle Salewski Inc. v. Scott, 2019 ONSC 5108. The Trustee was wholly or partially successful against almost all named defendants and was granted judgment for approximately $730,000 in total.

[2] The Trustee now seeks total costs in the range of $256,672 to $282,821. This reflects either partial indemnity costs throughout or partial indemnity costs to the date of settlement offers made in November 2018, and substantial indemnity costs thereafter. The Trustee proposes that costs be allocated such that defendants in each action or related actions each pay about $24,000 apiece, with two exceptions: (1) defendants who did not refuse a more advantageous settlement offer pay slightly less; and (2) defendants who did not participate in the trial pay a nominal amount.

[3] The defendants argue that the costs claimed by the plaintiff should be substantially reduced because:

(i) The fees claimed are unreasonable, and

(ii) Costs against some defendants should be limited to the caps in section 29 of the Courts of Justice Act and the Rules of the Small Claims Court;

What costs are reasonable?

[4] A court has wide discretion in making a cost award. See Section 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43. It must be guided by what is fair and reasonable in the circumstances of the case. See Boucher v. Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 291 (C.A.). Costs should be proportionate to the amounts claimed and what a defendant is ordered to pay. See Elbakhiet v. Palmer, 2014 ONCA 544, at para. 36. The successful litigant’s actual costs are but one factor to be considered.

[5] This litigation was challenging. Although most of the lawsuits were for relatively modest amounts, the underlying legal and factual issues were complex. The parties benefitted from excellent and experienced counsel. The summary trial of the actions took place over six days in December 2019. Trying seventeen actions in just over a week was only possible because counsel proceeded on a summary basis and largely agreed on a common statement of facts prior to trial.

[6] The Trustee was largely successful and is entitled to costs. The ability of a trustee in bankruptcy to recover from individuals who have profited from a Ponzi scheme is not entirely novel, but counsel (and the court) had to consider areas of law that are not yet settled. The parties indicated that they considered this to be an important case.

[7] The Trustee served offers to settle on some defendants that were better than the results that these defendants achieved at trial. This justifies a higher cost award in those actions.

[8] The defendants advance various reasons why the costs claimed by the Trustee are excessive.

[9] First, the defendants argue, correctly, that the costs must be discounted to reflect the settlement of lawsuits on the eve of trial.

[10] When I was first succeeded Justice Kershman as case management judge in this matter in May 2018, there were thirty so-called “Schedule D claims”. Less than two weeks before trial, the parties exchanged settlement offers, and almost half of the actions settled.

[11] The Trustee’s bill of costs does not account for the impact of the settlements. There is no indication that the fees for the period prior to November 2018 have been discounted to reflect that some of the effort up to that point must have been expended to prepare for actions that did not go to trial.

[12] In their cost submissions, the defendants calculate that about 50% of the paragraphs of the affidavits filed by the Trustee at trial dealt with defendants who settled before trial. They therefore argue that the Trustee’s costs should be cut in half.

[13] In my view, the assessment of the impact of the settlements is not as straightforward as this calculation suggests. Most of the evidence and argument at trial focused not on specific defendants but on legal and factual arguments common to all claims. The level of effort required to prepare for and prosecute the actions was therefore not strictly a function of the number of defendants.

[14] I nonetheless agree that some of the Trustee’s costs up to the date of settlement must have related solely to the defendants who settled, and that the non-settling defendants should not have to pay costs that were incurred for parties who settled out. The Trustee’s partial indemnity fees up to the date of the exchange of settlement offers will therefore be discounted by $50,000 or roughly a third.

[15] The defendants also argue that the fees claimed by the Trustee are excessive. On their reading of the Trustee’s bill of costs, almost all of the work was done by Mr. De Toni and Mr. Dempster, who have each practiced more than 20 years. Less than 60 hours of work was performed by junior counsel. Defence counsel further note that, in preparing cost submissions, the Trustee’s lawyers recorded twice the amount of time than they did.

[16] In my view, the defendants have misread the Trustee’s bill of costs. In the first part of the table detailing the hours incurred by each person on the file, the entries are misaligned. Correcting for this misalignment, a paralegal recorded 172.95 hours on document review and the like, in addition to 50 hours recorded by junior counsel. This brings the amount of time by non-senior level up to a more reasonable level. Perhaps more work could have been delegated. Considering the complexity of the litigation, however, I do not view the total fees claimed as disproportionate or unreasonable.

[17] While critical of the fees claimed by the Trustee, the defendants did not submit their own bill of costs. The failure to do so allows the court to infer that the defendants’ own costs are in the same range as those claimed by the plaintiff.

[18] Taking all relevant factors into account, I conclude that the Trustee is entitled to $122,000 in fees, inclusive of HST, to November 21, 2018, and a further $104,500 in fees thereafter, plus $6000 for disbursements, for a total of $232,500.

What cost rules apply?

[19] The defendants argue that the costs must be reduced as a result of the Rules of the Small Claims Court, O Reg 258/98 (the “SC Rules”) and s. 29 of the Courts of Justice Act. In my view, these provisions do not lessen the Trustee’s entitlement to costs. They do however affect the allocation of costs as between the defendants.

[20] Seven of the actions in this litigation were commenced in Superior Court. The remaining ten lawsuits were filed as Small Claims Court actions.

[21] When I became the case management judge in the matter, I assumed that all Schedule D claims had been consolidated in Superior Court file no. 15-65108. My assumption was incorrect. No motion had been made to transfer the Small Claims actions to the Superior Court, as required by s. 107(1) of the Courts of Justice Act. As a result, the Small Claims actions and the Superior Court actions were not formally consolidated. They were simply heard at the same time.

[22] The defendants argue that, since the Small Claims actions were never transferred to this Court, the costs’ awards for these actions should be capped. Rule 19.02 of the SC Rules states that the power to award costs in Small Claims actions is subject to the limit set in s. 29 of the Courts of Justice Act. Section 29 caps an award of costs in the Small Claims Court, other than disbursements, to 15% of the amount claimed, “unless the court considers it necessary in the interests of justice to penalize a party or a party’s representative for unreasonable behaviour in the proceeding”. Under rule 14.07 of the SC Rules, a litigant who refuses an offer to settle that is better than the result at trial may be required to pay double the costs that would otherwise be payable.

[23] Based on these provisions, unless I conclude that the defendants or their lawyer behaved unreasonably in the proceeding, the cost awards against the defendants in the Small Claims actions should be limited to 15% of the amount claimed or, where the Trustee made a pre-trial offer of settlement that was refused, 30% of the amount claimed. This would limit the costs payable by the defendants in the Small Claims actions to a range of between $2250 and $6000, rather than the range of $5000 to $24,347 proposed by the Trustee.

[24] I fault all counsel, to some extent, for failing to take steps to formalize the transfer of the Small Claims action or to bring this issue to my attention before now. In 2016, Justice Kershman awarded costs of $35,000 evenly against all defendants, including defendants in Small Claims actions, and no one objected at the time based on the presumptive $100 costs for motions is Small Claims actions. No-one challenged the statement in my May 2018 endorsement that the actions had been consolidated. Defence counsel served offers to settle in November 2018 in the Small Claims actions that purported to be Rule 49 offers. From a pre-trial and trial management perspective, no distinction was made between the Superior Court actions and the Small Claims actions.

[25] In my view, however, defence counsel’s failure to advert to this issue earlier does not amount to unreasonable conduct that give rise to special cost sanctions under s.29. It appears that no-one considered the practical implications of the failure to formally transfer the action until cost submissions were made. The defendants sued in Small Claims actions got a Cadillac defence because they shared counsel with other defendants sued for larger amounts in the Superior Court. They undoubtedly benefitted from this, but it does not follow that they reasonably expected to pay costs that greatly exceed the awards usually assessed in Small Claims actions. They should pay costs consistent with the caps in s. 29 and rule 14.07.

[26] Taking the caps and the impact of settlement offers into account, I allocate the total costs of $232,500 payable to the Trustee as follows:

Court file no(s).	Action(s)	Amount awarded	Rule 49 offer?	Costs each set of defendants must pay:
15-64770	Laframboise/MRL action	$95,451	No	$25,000
15-65108	Scott action	$72,575	Yes	$30,000
15-65109	Ho action	$244,476	No	$25,000
15-65110	Ho/Quang action	$53,042	No	$25,000
15-65115	Nguyen action	$41,500	Yes	$30,000
15-65116	Leduc action	$43,500	Yes	$30,000
15-65120	Lalonde action	$67,500	Yes	$30,000
15-SC-136371	Arsenault action	$17,458	Yes	$5200
15-SC-136391	Bouchard action	$20,000	Yes	$6000
15-SC-136415 & 15-SC-136483	McKillip actions	$18,000	No	$6450
15-SC-136417, 15-SC-136482 & 15-SC-136505	McKenna actions	$16,000	No	$7100
15-SC-136424	Toste/Messa action	$20,000	Yes	$6000
15-SC-136425	Mitchell action	$15,000	Yes	$4500
15-SC-136444	Nicholson action	$15,000	No	$2250

[27] Defendants in the Superior Court actions are required to assume a greater share of the costs than they would have if the Small Claims actions had been transferred. The costs they must pay are nonetheless proportionate and reasonable in the circumstances. A litigant in Ottawa should not be surprised by a cost award of up to $30,000 in lawsuit that takes three years to get to trial and culminates in a six-day hearing.

[28] I do not accept the submission that the three defendants who failed to defend at trial should bear a lesser share of the costs. The Trustee was required to prove the case against these defendants even in their absence. The action against Quang was in fact dismissed, even though she did not defend at trial. I am therefore not persuaded that the Trustee’s trial costs were reduced as a result of the absence of three defendants. It follows that they should have to bear their proportionate share of costs.

Justice Sally Gomery Released: January 10, 2020

COURT FILE NO.: 15-62998 DATE: September 5, 2019 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: Doyle Salewski Inc., in its capacity as Trustee in Bankruptcy of Golden Oaks Enterprises Inc. and Joseph Gilles Jean Claude Lacasse Plaintiff – and – Lorne Scott and others Defendant COUNSEL: John D. Dempster and Robert J. De Toni for the Plaintiff Alyssa Tomkins and James Plotkin for the defendants COSTS ENDORSEMENT Justice S. Gomery Released: January 10,2020