COURT FILE NO.: CV-18-596320
DATE: 2020/01/29
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
AVIVA CANADA INC.
Plaintiff
- and -
LYONS AUTO BODY LIMITED, JOHN C. LYONS, BRIAN MAJOCHA, FRED ZABALET, and RALEIGH APPRAISAL SERVICE
Defendants
Richard H. Shekter and Karina Wong for the Plaintiff
Richard A. Tapp for the Defendants
HEARD: In writing
PERELL, J.
REASONS FOR DECISION - COSTS
[1] In this action, Aviva Canada Inc. sues Lyons Auto Body Limited, Mr. Lyons, Mr. Majocha, Mr. Zabalet, and Raleigh Appraisal Service for: (a) damages for fraudulent misrepresentation; (b) breach of the duty of honest performance of a contract; (c) unjust enrichment; (d) trespass to property; and (e) conspiracy to commit fraud.
[2] Pursuant to rules 21.01 (1)(b), 25.06, and 25.11 of the Rules of Civil Procedure,[^1] Lyons Auto Body Limited and Mr. Lyons brought a motion for: (a) an order striking out the claim against Mr. Lyons in the Amended Statement of Claim as alleged at paragraphs 1, 4, 11, 12, 14, 17- 26, 28 and 29, without leave to amend; (b) an order striking out the trespass claim against Lyons Auto Body Limited; and (c) an order striking out paragraph 9 and a portion of paragraph 10 of the Amended Statement of Claim without leave to amend.
[3] I dismissed the request to strike paragraph 9 and a part of paragraph 10 from the Amended Statement of Claim. I granted the request for an order striking out the claims against Mr. Lyons in the Amended Statement of Claim without leave to amend. I granted the request for an order striking out the trespass claim against Lyons Auto Body Limited but with leave to amend. With these claims removed, I granted Aviva leave to deliver a Fresh as Amended Statement of Claim with Mr. Lyons deleted from the style of cause.[^2]
[4] Mr. Lyons, who is now no longer a party to the action, seeks substantial indemnity costs of $28,475.38, all inclusive. The claim for substantial indemnity costs is based on the principle that costs on a punitive scale are appropriate when a litigant makes but fails to substantiate allegations of fraud or dishonesty.[^3] The costs claim for Mr. Lyons is for the costs of the action, but the claim does not include the costs of the pleadings motion. Mr. Lyon’s costs claim represents his 50% share of the fees and disbursements incurred by him and his co-defendant Lyons’ Auto Body Limited in defending the action to date.
[5] With respect to the motion, Mr. Lyons and Lyons’ Auto Body Limited, against whom the action continues, seek costs of $36,018.34, all inclusive. Once again, the scale of costs is on a substantial indemnity basis because of the alleged but unproven allegations of fraud made against Mr. Lyons. The costs claim on a partial indemnity basis is $24,285.55, all inclusive.
[6] The co-defendants also support their claim for substantial indemnity costs because of the circumstance that Aviva had in the immediate case attempted to reprise what had been an unsuccessful attempt to ensnare the principal of an auto repair business in a fraud claim similar to the claim made in the immediate case. In other words, the co-defendants submit that it was egregious in the immediate case to attempt a pleadings tactic that had failed in Aviva v. Assessment Direct et al.[^4] I can say immediately, that I do not regard this circumstance as justifying a punitive costs award.
[7] Aviva submits that Mr. Lyons should not be awarded costs for the action. It submits that no significant costs were incurred for him in defending the action that differed from the costs incurred to defend Lyons Auto Body Limited, against whom the action is continuing. Relying on JSM Corp. (Ontario) Ltd. v. Brick Furniture Warehouse Ltd.,[^5] where the Court concluded that no significant real costs were incurred in defending the directors who were let out of the action, it submits that Mr. Lyons, should receive no costs.
[8] Further, Aviva submits that, in any event, it should not be ordered to pay costs on a punitive scale. It submits that Mr. Lyons has been removed from the action only as a matter of deficient pleadings. It submits that the Order dismissing the action against Mr. Lyons is not a finding of fact, and it is still open to Aviva in the action against Lyons Auto Body Limited to introduce evidence of Mr. Lyons’ wrongdoing as evidence against the corporate defendant.
[9] Aviva concedes that it failed to property plead against Mr. Lyons as an individual, but it submits that if it had properly pleaded the elements required to pierce the corporate veil, it would have had the opportunity to prove the allegations of fraud and serious misconduct as against Mr. Lyons at trial. Moving forward, Aviva states the it may still prove the allegations of fraudulent misconduct at trial.
[10] Further, Aviva submits that since no evidence is permitted on a Rule 21 motion, it would be improper to consider whether it could prove the allegations as against Mr. Lyons.
[11] In any event, Aviva submits the co-defendants claim for costs is excessive. It submits that the co-defendants’ lawyers’ hours should be reduced to 90.7 hours to match the time billed by the Plaintiff. Additionally, Aviva states that considerations include potential hourly rate adjustments and the divided success of the motion. After a consideration of these factors, Aviva submits that an appropriate costs award would be $2,500.
[12] In my opinion, the appropriate awards in the immediate case is: (a) to award Mr. Lyons $24,000, all inclusive, on a substantial indemnity scale for his costs payable forthwith for successfully defending the action as against him; and (b) to award Mr. Lyons and Lyons Auto Body $20,000, all inclusive, payable forthwith for the costs of the pleadings motion.
[13] In my opinion, Mr. Lyons is entitled to costs on a substantial indemnity basis for defending the action against him. In the action that is being dismissed as against Mr. Lyons, Aviva alleged that Mr. Lyons was the party to a scheme to defraud Aviva, and, notwithstanding, that Aviva pleaded an investigation and a sting operation, the only fact it pleaded against Mr. Lyons to support the allegation of wrongdoing was that he was an owner of Lyons Auto Body Limited. In the circumstances of the immediate case, this is not a mere technical failure to plead the facts necessary to pierce the corporate veil, the pleading rather exposes that Aviva had nothing more to plead than a bare allegation that Mr. Lyons was a fraudster because he was the owner of an investigated and exposed fraudster.
[14] While, in the action continuing against Lyons Auto Body Limited, Aviva is free to make allegations of wrongdoing against Mr. Lyons that go beyond guilt simply by association, the costs consequences of doing so will be dealt with in that action. It is, however, appropriate to deal with the costs consequences of the pleading of guilt simply by association now. In this regard, in my opinion, the costs claimed of $28,475.38, all inclusive, are somewhat excessive and beyond the reasonable expectations of the unsuccessful party. I, therefore, award Mr. Lyons costs of $24,000, all inclusive.
[15] I, however, see no reason to apply a punitive costs award concurrently with respect to the pleadings motion, which I would treat as a normal interlocutory motion in which the co-defendants were the successful party with costs following the event on a partial indemnity scale. Once again, I think the claim for costs of $24,285.55, all inclusive, on a partial indemnity basis is somewhat excessive. I, therefore, award, Mr. Lyons and Lyons Auto Body Limited costs of $20,000, all inclusive, for the motion.
[16] Orders accordingly.
Perell, J.
Released: January 29, 2020
COURT FILE NO.: CV-18-596320
DATE: 20209/01/29
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
AVIVA CANADA iNC.
Plaintiff
- and -
LYONS AUTO BODY LIMITED, JOHN C. LYONS, BRIAN MAJOCHA, FRED ZABALET, and RALEIGH APPRAISAL SERVICE
Defendants
REASONS FOR DECISION
PERELL J.
Released: January 29, 2020
[^1]: R.R.O. 1990, Reg. 194. [^2]: Aviva Canada Inc. v. Lyons Auto Body Limited, 2019 ONSC 6778 [^3]: 1623242 Ontario Inc. v. Great Lakes Copper Inc., 2016 ONSC 1002; Royal Bank of Canada v. Boussoulas, 2010 ONSC 5744; Hamilton v. Open Window Bakery, Hamilton v. Open Window Bakery Ltd., 2004 SCC 9; Mele v. Thorne Riddell (1997) 1997 12124 (ON SC), 32 O.R. (3d) 674 (C.A.); Goulin v. Goulin (1995), 1995 7236 (ON SC), 26 OR. (3d) 472 (Gen. Div.). [^4]: Court File No. CV-13-473179 (S.C.J.) endorsement Justice Glustein, September 25, 2015. [^5]: [2006] O.J. No. 4272 (S.C.J.)