COURT FILE NO.: CV-13-472121 CV-12-466872
DATE: 20200909
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
KLARA KAZAKEVICH
Plaintiff
– and –
KONSTANTIN SYCHEV
Defendant
AND BETWEEN:
Bryan B. Skolnik, for Klara Kazakevich as Plaintiff in Action No. CV-13-427121 and Aaron Postelnik for Klara Kazakevich as Defendant in Action No. CV-12-466872
Ioulia Melekhovets, for Konstantin Sychev, in both actions as Defendant, Plaintiff by Counterclaim and Plaintiff
Harry Perlis, for Angelika Bekman, in both actions as Defendant by Counterclaim and Defendant, and for RE/MAX Vision Realty Group Inc. as Defendant in Action No. CV-12-466872
No one appearing for Century 21 Heritage Group Ltd., the claim against it having been previously dismissed against it on consent
KONSTANTIN SYCHEV
Plaintiff by Counterclaim
– and –
ANGELIKA BEKMAN
Defendant by Counterclaim
AND BETWEEN
KONSTANTIN SYCHEV
Plaintiff
– and –
KLARA KAZAKEVICH, ANGELIKA BEKMAN, RE/MAX VISION REALTY GROUP INC. and CENTURY 21 HERITAGE GROUP LTD.
Defendants
HEARD: February 10, 11, 12, 13, 14, 18, 19 and 21 (Supplemented by written cost submissions made July 7, 12 and 21, 2020)
Kimmel J.
COSTS ENDORSEMENT
[1] These two actions were tried together. They arise from a failed residential real estate transaction between Klara Kazakevich, the vendor under the subject APS[^1], and Konstantin Sychev, the purchaser under the subject APS.
[2] Kazakevich is a licensed real estate agent and she represented herself as the vendor’s agent on this transaction. Angelika Bekman, who at the time was a licensed real estate agent with RE/MAX Vision Realty Group Inc., acted for Sychev as the purchaser’s agent. Bekman was also initially retained by Sychev and his wife Zarema Sycheva as the selling agent for their home located at 191 Patricia Avenue in Toronto, Ontario.
[3] Sychev refused to close the purchase of 31 Saul Court on the scheduled closing date. Kazakevich eventually re-sold 31 Saul Court for a reduced purchase price of $230,000.00 less than what Sychev had agreed to pay and incurred additional commission, carrying and financing costs in the completion of that transaction, which eventually closed on March 28, 2013. Kazakevich was awarded damages in Action No. CV-13-427121 for the difference in the purchase price and her additional costs, totalling $345,057.12. In his reply cost submission it is pointed out by Kazakevich’s counsel that the total amount of the judgment, inclusive of pre-judgment interest, is approximately $380,000.00.
[4] Sychev made allegations of conspiracy and fraud (regarding the alleged backdating of a waiver of the Lawyer’s Approval Condition that he signed) and breaches of duties on the part of both real estate agents (Kazakevich and Bekman) as grounds to relieve him of any obligation to complete the APS (in support of his defence) and in support of his claim (as plaintiff in Action No. CV-12-466872 and as plaintiff by counterclaim in the Kazakevich Action) for the return of his deposit. I found that the alleged backdating was not established. I also found that Sychev failed to prove that either Kazakevich or Bekman owed duties to him that were breached and his claims in negligence were also wholly dismissed.
[5] In my reasons for decision dated June 4, 2020, I granted the relief sought by Kazakevich in her action against Sychev (CV-13-472121) and awarded Kazakevich $345,057.12 in damages, payable by Sychev. I dismissed Sychev’s action against Kazakevich, Bekman and RE/MAX (CV-12-466872). Sychev’s counterclaim against Bekman in the Kazakevich action was also dismissed.
[6] There were many points of disagreement in the evidence of the party witnesses. Some were resolved by common sense, some by the evidence of non-party witnesses and others by my findings of credibility against the Sychevs and in favour of Kazakevich and Bekman.
[7] The parties asked to defer their costs submissions until after the outcome of the trial was known. They were directed to exchange their bills of costs with each other by the end of March 2020 and I understand that this exchange took place.
[8] I encouraged the parties to try to reach an agreement on costs after the outcome was known. They were unable to do so.
The Parties Positions on Costs
(i) Ms. Kazakevich
[9] Kazakevich was wholly successful as the plaintiff in the Kazakevich Action and also as the defendant in the Sychev Action. She had two different lawyers representing her in her different capacities: Mr. Skolnik represented her as plaintiff and in some aspects of her defences, and Mr. Postelnik represented her as defendant, retained by the insurance company to defend the allegations of professional misconduct that Sychev made against her.
[10] Kazakevich seeks her substantial indemnity costs throughout because of the allegations of fraud and conspiracy that Sychev made against her, which were not proven. These allegations were made in the pleadings and were pursued by Sychev all the way through the trial. In support of this, she relies on the cases of Enerworks Inc. v. Glenbarra Energy Solutions Inc., 2016 ONSC 4291, at paras. 53, 59 and 61. Kazakevich also argues that the unfounded attacks on her professional integrity similarly attract a higher scale of costs, relying on Joy Estate v. 1156653 Ontario Ltd., 2007 CarswellOnt 7323 (S.C.), at paras. 35 and 44.
[11] The all-inclusive[^2] substantial indemnity costs claimed on behalf of Kazakevich are as follows:
a. By Mr. Skolnik and his firm, the sum of $162,645.98, for a total of approximately 350 legal professional-hours; and
b. By Mr. Postelnik and his firm, the sum of $69,943.75, for a total of approximately 166 legal professional-hours.
[12] This amounts to a total all-inclusive claim for substantial indemnity costs of $232,589.73 including fees for approximately 416 legal professional-hours across both firms.[^3]
[13] Alternatively, Kazakevich relies on a Rule 49 offer to settle that she made on January 27, 2020. At that time, as plaintiff in respect of her claims in the Kazakevich Action, she offered to accept $230,000.00, which represented the difference in the purchase price that Sychev agreed to pay for 31 Saul Court under the APS and the purchase price that she received in the eventual mitigating transaction by which that property was later sold.
[14] By this offer, Kazakevich effectively agreed to compromise on her claims for interest and additional costs associated with the re-sale of the subject property, all of which she was awarded at trial. She achieved a judgment that was more favourable than this offer at trial and claims that it, therefore, attracts the cost consequences of Rule 49.10 entitling her to partial indemnity costs up to the date of the offer and substantial indemnity costs thereafter. The hybrid costs claimed pursuant to the Rule 49 offer for the work of Mr. Skolnik and his firm are $140,768.05, all-inclusive. If only partial indemnity costs are awarded throughout for the work of Mr. Skolnik and his firm, the all-inclusive amount of $111,868.87 is claimed.
[15] There was no Rule 49 offer and there is no hybrid costs amount claimed for the defence of the claims of professional negligence and the work of Mr. Postelnik and his firm. The alternative claim for partial indemnity costs of the defence of the claims against Kazakevich for professional negligence is $52,611.75, all-inclusive.
[16] The combined all-inclusive totals for costs claimed on behalf of Kazakevich are:
a. Substantial indemnity costs throughout, $232,589.73;
b. Substantial indemnity and partial indemnity costs combination (accounting for the Rule 49 offer), $193,379.80; or
c. Partial indemnity costs throughout, $164,480.62.
(ii) Ms. Bekman
[17] Bekman relies similarly on the unproven allegations of conspiracy and fraud made by Sychev as against her and Ms. Kazakevich to seek an award of substantial indemnity costs for her successful defence of Sychev’s claims against her, including claims of professional negligence and breach of fiduciary duty as well. Bekman also argues that the credibility findings against Sychev, including that he was found to have changed his testimony under oath, are another reason for the enhanced scale of substantial indemnity costs.
[18] The all-inclusive amount of substantial indemnity costs claimed by Bekman are $129,166.48 (this has been calculated at 90% of the actual fees, disbursements and HST and includes the additional fees claimed for the preparation of cost submissions as well). This is in respect of approximately 350 legal professional-hours.
[19] Bekman made an offer to contribute to the settlement proposed by Kazakevich dated February 4, 2020, which would have resulted in her paying $47,000.00 in damages and $25,000.00 in costs to Kazakevich if Sychev had accepted the Kazakevich Rule 49 offer. Bekman asks the court to view this as an offer that she “beat” by the dismissal of all claims made by Sychev against her (in both the Sychev Action and the in the counterclaim in the Kazakevich action). If the Rule 49.10 cost consequences were to be applied by analogy, Bekman claims the all-inclusive amount of $116,122.95 (including the additional fees claimed for the preparation of cost submissions) under this hybrid of partial indemnity costs up to the date of her offer to contribute and substantial indemnity costs thereafter.
[20] In the further alternative, Bekman claims partial indemnity costs in the all-inclusive amount of $97,167.68 (including the additional fees claimed for the preparation of cost submissions).
(iii) Mr. Sychev
[21] Sychev argues that the allegations of conspiracy in this case against Kazakevich and Bekman were not tantamount to allegations of fraud and were not seriously pursued at the trial, but rather were “downplayed,” relying upon Bimman v. Neiman, 2017 ONCA 264. He further argues that the allegations in this case were not of the sort that attract substantial indemnity costs in that they were not “reprehensible, scandalous or outrageous,” relying on Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303, at para. 26.
[22] Sychev made no submissions on the Rule 49 offers and their impacts on costs.
[23] Sychev asks the court to award partial indemnity costs to the defendants, and asks that the court consider the overall amounts claimed on the basis that this was not a complex case and the amounts claimed, in the aggregate, approach the amount at issue in a partial indemnity scale and exceed it on a substantial indemnity scale, which is not proportionate.
[24] The bill of costs delivered by Sychev after the trial and prior to the release of my reasons for decision indicate that his all-inclusive costs were:
a. $94,881.74 on a substantial indemnity scale; and
b. $65,226.23 on a partial indemnity scale.
[25] The total legal professional-hours for Sychev’s counsel cannot be calculated because only the fee amounts (totalling approximately $34,000.00 for his former counsel Mr. Landy (now deceased) are indicated. Approximately 200 legal professional-hours are indicated for his trial counsel.
Analysis and Decision on Costs
(i) Guiding Principles
[26] Costs are within the discretion of the court to award under Courts of Justice Act, R.S.O. 1990, c. C. 43 (“CJA”). The factors to consider in the exercise of that discretion are set out in Rule 57.01 and include:
a. The principle of indemnity under 57.01(0.a), including the experience of the lawyer for the party entitled to costs as well as the rates charged and the hours spent by that lawyer;
b. Under Rule 57.01(0.b), the amount of costs that the unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed;
c. The amount at issue in the proceeding (Rule 57.01(a));
d. The complexity of the proceeding (Rule 57.01(c));
e. The importance of the issues (Rule 57.01(d));
f. The conduct of a party that unduly lengthened or complicated a proceeding (Rule 57.01(e), (f) and (g);
g. Any other matter relevant to the question of costs (Rule 57.01(i)).
[27] Partial indemnity costs are typically awarded in favour of a successful party, absent compelling reasons for a higher scale of costs. The Court of Appeal has conveniently summarized the applicable principles to consider in determining whether an enhanced scale of costs is appropriate (outside of Rule 49), in the case of Mars Canada Inc. v. Bemco Cash & Carry Inc., 2018 ONCA 239, 140 OR (3d) 81, at para. 43, as follows:
b. costs on a substantial indemnity basis should only be awarded “where there has been reprehensible, scandalous or outrageous conduct on the part of one of the parties”: Young v. Young, 1993 CanLII 34 (SCC), [1993] 4 S.C.R. 3, at p. 134; and
c. the kind of conduct that will justify an elevated level of costs is not limited to conduct in the proceedings and can include the circumstances that gave rise to the litigation: Mortimer v. Cameron (1994), 1994 CanLII 10998 (ON CA), 17 O.R. (3d) 1 (C.A.), at p. 23; Clarington (Municipality) v. Blue Circle Canada Inc., 2009 ONCA 722, 100 O.R. (3d) 66, at para. 30.
[28] Rule 49 also prescribes a higher scale of costs in circumstances where a plaintiff makes an offer and achieves a more favourable result at trial, in which case the plaintiff is presumptively entitled under Rule 49.10 to substantial indemnity costs after the offer was made unless the court orders otherwise.
[29] Rule 49.12 gives the court discretion to take into account, in considering an award of a higher scale of costs, an offer to contribute made by one defendant in a case of alleged joint and several liability against multiple defendants. The court also has a residual discretion under Rule 49.13 to consider offers to settle made prior to the hearing, even if they were not made in a form that attracts the prescribed consequences of an offer to settle made pursuant to Rule 49, particularly where there has been reprehensible conduct on the part of the party against which the cost award is being made.
(ii) Scale of Costs
[30] I am not satisfied that the nature of the allegations of conspiracy and backdating (which carry with them a suggestion of fraud), nor that the manner in which they were pursued in this case, are of such a “reprehensible, scandalous and outrageous” nature that they would, on their own, justify an award of the higher scale of substantial indemnity costs. As the Supreme Court of Canada re-affirmed in Open Window Bakery, at para. 26, quoting from Young v. Young, 1993 CanLII 34 (SCC), [1993] 4 S.C.R. 3, at p. 134:
[S]olicitor-and-client costs “are generally awarded only where there has been reprehensible, scandalous or outrageous conduct on the part of one of the parties”. An unsuccessful attempt to prove fraud or dishonesty on a balance of probabilities does not lead inexorably to the conclusion that the unsuccessful party should be held liable for solicitor-and-client costs, since not all such attempts will be correctly considered to amount to “reprehensible, scandalous or outrageous conduct”. However, allegations of fraud and dishonesty are serious and potentially very damaging to those accused of deception. When, as here, a party makes such allegations unsuccessfully at trial and with access to information sufficient to conclude that the other party was merely negligent and neither dishonest nor fraudulent (as Wilkins J. found), costs on a solicitor-and-client scale are appropriate: see, generally, M. M. Orkin, The Law of Costs (2nd ed. (loose-leaf)), at para. 219.
[31] In this case, the allegations of conspiracy and fraud originated from an email exchange between Bekman and Kazakevich about the timing of the signing of a waiver of the Lawyer’s Approval Condition, which was mis-interpreted by Mr. and Mrs. Sychev. While they were not successful in proving their interpretation of this email, there were some unanswered questions about the circumstances under which this waiver was signed. The person who signed as the witness was never called to testify at trial by either Kazakevich or Bekman (or Sychev, although I think it is fair to assume that it would be one of Kazakevich or Bekman who would have known who signed in the place of the witness since they had control of the document).
[32] In that sense, the Sychevs may not have had all of the information necessary to conclude that the more serious allegations of conspiracy and backdating should not have been pursued. These circumstances also distinguish this case from the cases of Enerworks and Joy Estate relied upon by Kazakevich, where the court found that there was absolutely no evidentiary foundation or basis for the careless and reckless attacks on the individual defendants in those cases.
[33] I do not come to this decision lightly as I recognize that allegations of this nature against professionals are serious, and must be taken seriously and defended in order to protect their reputations. This is not akin to the situation in the Bimman case relied on by Sychev, where the allegations were downplayed at trial. The alleged backdating of the waiver in this case was an issue that remained front and centre during the trial. I will take this into account when considering the quantum of costs to award.
[34] However, the Rule 49 offer of Kazakevich presumptively entitles her to her substantial indemnity costs (in her capacity as plaintiff) after the offer was served. No argument has been made, and none is apparent to me, that would justify an order to the contrary and I will, therefore, give effect to that offer and its consequences under Rule 49.10.
[35] I find that, in her capacity as plaintiff, Kazakevich is entitled to her claimed hybrid all-inclusive costs of Mr. Skolnik and his firm. Kazakevich is also entitled to her non-duplicative partial indemnity costs of defending the allegations of professional negligence made by Sychev against her in his counterclaim and in the Sychev Action. Bekman too is entitled to her partial indemnity costs of her defence of the counterclaim against her in the Kazakevich Action and claims against her in the Sychev Action.
(iii) Quantum of Costs – Factors Considered
[36] This is not a costs assessment and it is not the role of the court to parse through the parties’ respective bills of costs to ascertain whether each line item and hour billed is reasonable. I commend counsel for Sychev for not approaching the cost submissions in this manner.
[37] Two main Rule 57.01 factors are relied upon in support of the argument to reduce the overall amount of costs: that this was not a complex matter and that the individual and overall amounts of costs claimed are not proportionate to the amount at issue. I have taken the latter argument to also include the consideration of what Sychev might have reasonably expected to pay, which in turn results in a comparison of the amounts reflected in his bill of costs and total legal professional-hours compared to those reflected in the bills of costs of Kazakevich and Bekman.
[38] The first of these factors does not favour Sychev’s position in this case, where the matter was made factually and legally complex because of the many arguments that were raised by Sychev against both Kazakevich and Bekman to avoid the consequences of his failure to close his purchase of 31 Saul Court under the APS, none of which were successful. These many and varied allegations also had the effect of lengthening the trial.
[39] Proportionality is more complicated. Although not argued by Sychev, there would inevitably have been some duplication of efforts as a result of the two different law firms engaged on behalf of Kazakevich. While it might be nice to neatly divide them as plaintiff’s counsel and counsel for her as defendant, the issues significantly overlapped. I appreciate that counsel made efforts not to duplicate their witness examinations and legal submissions at trial but I am nonetheless concerned about saddling Sychev with the full cost of two lawyers on record for Kazakevich. That said, if Sychev had dropped his own action and/or curtailed his allegations so as not to allege professional negligence by Kazakevich, and only pursued the arguments raised by way of defence, that might have alleviated the necessity of the involvement of two counsel so he is not entirely innocent in this and it is not a reason to discount the costs of Kazakevich having two lawyers on record entirely.
[40] This ties into another consideration applicable to both Kazakevich and Bekman. Proportionality also has to be considered not only with regard to the amount in issue, but also in light of the nature of the allegations made by Sychev and what was at stake. He made attacks on professionals that had the potential to seriously damage their professional reputations and were justifiably defended with full vigour. Kazakevich’s lawyers and Bekman’s lawyer have indicated in their respective bills of costs significantly higher legal professional-hours (approximately 416 and 350 hours, respectively) than what is indicated in the plaintiff’s lawyer’s bill of costs (approximately 200 + hours, some of which are indeterminate but are estimated to be less than 100 hours).
[41] It is objectively reasonable that Sychev would have expected a significant effort and time to be spent by opposing counsel. The fees to be charged by his lawyers are not the only relevant consideration in the assessment of what Sychev would reasonably have expected to pay if unsuccessful.
[42] Other Rule 57.01 factors that are relevant in this case include the principle of indemnity which leads me to consider the actual amount of legal fees and expenses incurred by Kazakevich and Bekman, which exceeds both the partial and substantial indemnity costs claimed.
[43] There is no formula to arrive at the precise number of costs to fix in a case like this. I have considered these factors and looked at the roles of counsel and the amounts claimed holistically in arriving at the specific cost amounts to award each of Kazakevich and Bekman.
Award of Costs and Implementation
[44] In the exercise of my discretion under s. 31 of the CJA and having regard to the relevant Rule 57.01 factors in this case, I am ordering Sychev to pay to Kazakevich and Bekman the following costs:
a. Kazakevich’s hybrid partial indemnity/substantial indemnity costs as plaintiff for the work of Mr. Skolnik and his firm in the all-inclusive amount of $130,000.00. While giving effect to the Rule 49 offer, I have decided to slightly reduce this from the amount claimed to reflect that Mr. Skolnik’s firm had a number of legal professionals involved and a total number of legal professional-hours for trial preparation and trial (where the substantial indemnity costs are in effect) that was considerably more than the other law firms;
b. Kazakevich’s partial indemnity costs for defending the allegations of professional misconduct and negligence against her for the work of Mr. Postelnik and his firm, in the all-inclusive amount of $30,000.00. This is reduced from the amount claimed to reflect that there inevitably was some duplication of efforts between the two firms representing Kazakevich, even after discounting some of the time of co-counsel[^4], and Sychev should not bear that extra cost;
c. Bekman’s partial indemnity costs of $105,000.00, which is a number in between the hybrid costs requested on account of the offer to contribute and the partial indemnity costs indicated in the bill of costs. While not technically a Rule 49.12 offer to contribute because of the complicated manner in which the allegations in this case arose, it is an offer worthy of some consideration in the costs analysis because it would have benefited Sychev if he had accepted the combined effect of the two offers, and the result at trial was less favourable to him.
[45] These all-inclusive costs are payable by Sychev to Kazakevich ($160,000.00 in the aggregate, to her two lawyers) and to Bekman ($105,000.00) forthwith. I consider these costs to be fair and reasonable in the circumstances of this case.
[46] Notwithstanding Rule 59.05, this endorsement is effective from and after the date indicated below and it is enforceable without any need for the entry and filing of a formal judgment. In accordance with Rule 1.04, no formal judgment is required unless an appeal or a motion for leave to appeal is brought to an appellate court. Any party may nonetheless submit a formal judgment for original signing, entry and filing when the Court returns to regular operations.
Kimmel J.
Released: September 9, 2020
[^1]: All capitalized terms not otherwise defined herein shall have the meaning ascribed to them in my reasons for decision dated June 4, 2020.
[^2]: This is inclusive of all fees, disbursements, and applicable taxes.
[^3]: [3] Legal professional-hours referenced throughout include the time indicated for lawyers, clerks and students.
[^4]: This is a rough assessment as I do not have the detailed time entries of both firms, nor would I be inclined to entertain a line by line review of their time entries, even if I did. It is intended to roughly account for the inevitable duplication and make a reasonable adjustment for proportionality considerations. It is not intended to reflect a specific calculation of the relative value of the work of each lawyer. It does reflect that Mr. Skolnik and his firm took the lead on most issues involving Mrs. Kazakevich.