Overview

[1] On January 20, 2020, I granted judgment in favour of the Plaintiff, McFlow Capital Corp., against the Defendants, Kenneth James, Rosemary Cremer, Eveline Holdings Ltd., and Sterling Capital Corporation (the “Defendants”): McFlow Capital Corp. v. James, 2020 ONSC 374. I dismissed the claims against the Defendants, Laura McClenaghan, Dorothy Short, 1303678 Ontario Inc., and G.A.C. Investments Limited. I also dismissed the counterclaims against McFlow, Premium Properties Limited and Milton Winberg.

[2] The parties subsequently made submissions in writing on the quantification of prejudgment interest and costs.

[3] McFlow seeks to have costs of the action fixed at $705,746.11 on a substantial indemnity basis. In the alternative, McFlow seeks partial indemnity costs of $514,451.61. Both amounts include disbursements and HST.

[4] The Defendants submit that McFlow is not entitled to substantial indemnity costs and that its costs are excessive. The Defendants submit that reasonable costs would be $363,018.11 on a partial indemnity basis or $432,078.16 on a substantial indemnity basis.

[5] As was the case at trial, the parties have raised numerous arguments of varying degrees of merit. While I have considered all of them, not all will be addressed in this endorsement.

Preliminary Matters

[6] In their costs submissions, the Defendants took the position that costs of the Plaintiff’s abandoned contempt motion were reserved by Corbett J., who was the case management judge. The parties were requested to write to Corbett J. to seek his directions on the costs of that motion.

[7] In his endorsement dated August 31, 2020, Corbett J. directed that all outstanding issues of costs be determined by the trial judge. In my endorsement dated September 4, 2020, I requested brief submissions on the costs of the abandoned contempt motion.

Analysis

At What Rate Should Prejudgment Interest Be Calculated?

[8] In my reasons, I rejected McFlow’s position that prejudgment interest ought to be calculated at 6.5 percent, the interest rate applicable to McFlow’s mortgage, and held that the prejudgment interest rate under the Courts of Justice Act [CJA] should apply: McFlow Capital Corp. v. James, 2020 ONSC 374, at paras. 399-403. Because McFlow received payments toward the principal at various times, which would impact the interest calculation, I requested that the parties calculate the total amount of interest.

[9] McFlow calculates prejudgment interest using a rate of 2.5 percent, for a total of $271,536.80. The Defendants accept McFlow’s calculation, but submit that the appropriate interest rate is 1.2 percent, for a total of $130,337.66.

[10] The prejudgment interest rate when McFlow commenced the action in April 2009 was 1.3 percent. McFlow seeks interest at a rate of 2.5 percent, which was the interest rate in the preceding quarter. McFlow submits that the court should exercise its discretion to award the higher interest rate because the interest rate decreased significantly in a short period of time, and McFlow commenced the action 16 days into the second quarter of 2009. McFlow further relies on the length of time it took to obtain a judgment and the fact that it could not take any steps to recover any amount sooner than it did.

[11] The Defendants submit that the court should average prejudgment interest rates under the CJA over the course of the proceeding, which it calculates at 1.2 percent.

[12] I am not satisfied that either party has raised a sufficient basis for departing from the applicable prejudgment interest rate under the CJA, which is the interest rate when the action was commenced, or 1.3 percent. The total amount of prejudgment interest is $141,199.14.

Are Substantial Indemnity Costs Warranted?

[13] McFlow submits that a finding of oppression can provide a foundation for an award of substantial indemnity costs. McFlow also argues that the Defendants’ conduct throughout this litigation warrants an award of substantial indemnity costs. McFlow acknowledges that while it made an offer to settle in March 2019, Rule 49 of the Rules of Civil Procedure does not apply because the damages awarded at trial do not exceed its offer to settle, even after prejudgment interest is included. However, McFlow submits that the offer was a reasonable attempt to resolve the action without a trial.

[14] Substantial indemnity costs may be warranted where a party has engaged in reprehensible, scandalous or outrageous conduct in the proceeding: Davies v. Clarington (Municipality), 2009 ONCA 722, 100 O.R. (3d) 66 (C.A.), at paras. 28-29.

[15] Substantial indemnity costs have been awarded where a party: adopts a “kitchen sink approach,” making the litigation lengthier and more expensive than it ought to have been; fails to meaningfully respond to a plaintiff’s request to admit, thereby prolonging the trial; makes unfounded allegations of improper conduct prejudicial to the character or reputation of a party; and attempts to mislead the court and obfuscate the truth.

[16] As argued by McFlow, substantial indemnity costs have been awarded in oppression cases: Ford Motor Co. of Canada v. Ontario (Municipal Employees Retirement Board), 2004 53391 (ON SC), [2005] O.J. No. 1377 (S.C.J.), aff’d [2006] O.J. No. 990 (C.A.); Piller Sausages & Delicatessens Ltd. v. Cobb International Corp., [2003] O.J. No. 2866 (S.C.J.); Naneff v. Con-Crete Holdings Ltd., [1993] O.J. No. 1756 (Gen. Div.), aff’d 1995 959 (ON CA), [1995] O.J. No. 1377 (C.A.).

[17] In Pirani v. Esmail, 2014 ONCA 145 at para. 76, the Court of Appeal upheld a trial judge’s order of substantial indemnity costs where the Defendants were found liable for breach of trust, and for their egregious conduct during the trial, including lying under oath.

[18] I am satisfied that, based both on the Defendants’ oppressive conduct over a lengthy period of time and on the Defendants’ conduct in this proceeding, this is one of the exceptional circumstances in which an award of substantial indemnity costs is justified.

[19] In the context of McFlow’s oppression claim, I made numerous findings of egregious conduct by the Defendants that will not be repeated here. They engaged in a deceitful, wrongful and opaque course of conduct, using the condominium corporation to further their personal interests with little regard for the Complex, the minority mortgagees, or anyone else.

[20] Even after this proceeding was commenced, the Defendants were not forthright, which impeded this court’s process. Most significantly, Mr. James wired $2 million to the Turks & Caicos Islands when a motion relating to those funds was pending before the court. Mr. James, who was a lawyer at the time, then misled the court about the location of those funds, and disregarded a court order requiring that the funds be paid to the Administrator. Such conduct, from a party who is also an officer of the court, is scandalous, outrageous and worthy of sanction.

[21] Moreover, in respect of their conduct in this proceeding, the Defendants significantly lengthened the proceedings by raising every possible argument, including limitation periods, laches, election, waiver and unclean hands; failing to make reasonable admissions and serving a blanket denial in response to McFlow’s detailed chronology served before trial; and filing lengthy affidavit evidence rife with self-serving editorializing, speculation and rationalization.

[22] The award of $100,000 in punitive damages does not preclude an award of substantial indemnity costs: Leenen v. Canadian Broadcasting Corp., (2001) 54 O.R. (3d) 612 (C.A.), at para. 38. The Defendants rely on the Court of Appeal’s decision in Sliwinski v. Marks, 2006 18348 (Ont. C.A.), at para. 29, to argue that an award of substantial indemnity costs would be an “unnecessary double judicial admonishment.” In that case, however, the Court of Appeal makes clear that “in this case the award of punitive damages rendered an award of substantial indemnity costs unnecessary[.]” Moreover, the punitive damages award and substantial indemnity costs were in relation to the same conduct; no issue was raised about the defendant’s conduct in the litigation.

[23] In this case, even if the Defendants’ oppressive conduct is sufficiently compensated by the punitive damages award, I would nonetheless find that substantial indemnity costs are warranted based on the Defendants’ conduct in the litigation.

To What Costs Is McFlow Entitled?

[24] Pursuant to the Courts of Justice Act, s. 131(1), the Court has broad discretion when determining the issue of costs. The overall objective of fixing costs is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the circumstances, rather than an amount fixed by actual costs incurred by the successful litigant: Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 14579 (ON CA), 71 O.R. (3d) 291 (C.A.).

[25] Rule 57.01(1) of the Rules of Civil Procedure sets out the factors to be considered by the court when determining the issue of costs:

(1) In exercising its discretion under section 131 of the Courts of Justice Act to award costs, the court may consider, in addition to the result in the proceeding and any offer to settle or to contribute made in writing,

(0.a) the principle of indemnity, including, where applicable, the experience of the lawyer for the party entitled to the costs as well as the rates charged and the hours spent by that lawyer;

(0.b) the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed;

(a) the amount claimed and the amount recovered in the proceeding;

(b) the apportionment of liability;

(d) the importance of the issues;

(e) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding;

(f) whether any step in the proceeding was,

(i) improper, vexatious or unnecessary, or

(ii) taken through negligence, mistake or excessive caution;

(g) a party’s denial of or refusal to admit anything that should have been admitted;

(h) whether it is appropriate to award any costs or more than one set of costs where a party,

(i) commenced separate proceedings for claims that should have been made in one proceeding, or

(ii) in defending a proceeding separated unnecessarily from another party in the same interest or defended by a different lawyer; and

(i) any other matter relevant to the question of costs.

Costs for Certain Steps in the Proceeding

[26] The following costs of the Plaintiff were either fixed by a previous court order or are not disputed by the Defendants: preparation of pleadings, the motion for payment of $2 million into court; case management conferences; examinations for discovery; and the pretrial conference. Those costs total $118,317.69 on a substantial indemnity basis.

[27] For other steps in the proceeding, the Defendants dispute McFlow’s entitlement to costs and/or challenge the amounts claimed by McFlow. All of these arguments are dealt with below.

[28] As noted above, McFlow’s costs total $705,743.58 on a substantial indemnity basis. If all of the Defendants’ arguments are accepted, McFlow’s substantial indemnity costs would be reduced to $492,078.16.

McFlow’s Motion for the Appointment of an Administrator

[29] I accept the Defendants’ position that the costs of the motion, which was heard in 2009, should not be determined at present-day rates, but rather should be based on the rates applicable at the relevant time. McFlow has not provided any authority to support its position that the costs should be awarded at its present-day rates.

[30] McFlow’s substantial indemnity costs on the motion total $33,282.90.

The Administrator’s Motion for the Preservation of the GIC

[31] The motion was heard by Wilton-Siegel J. in 2009 and no costs order was made. As directed by Corbett J., the costs of the motion are also to be determined by me as trial judge.

[32] I accept the Defendants’ argument that the amount should be that claimed by McFlow at the time, or $19,609 on a substantial indemnity basis.[^1]

McFlow’s Costs Relating to Tax Liens and Other Matters

[33] McFlow’s Bill of Costs shows $9,442.85 in relation to the costs incurred by McFlow in opposing tax liens levied by the City of Orillia. I accept the Defendants’ position that these costs are not recoverable against them in this proceeding. I reject McFlow’s arguments that the legal costs are damages recoverable against the Defendants as costs incurred in enforcing its mortgage.

Motion to Quash Summons to the RCMP

[34] McFlow’s Bill of Costs shows $41,306.59 in costs to oppose the RCMP’s motion to quash McFlow’s summons. The motion was dismissed.

[35] In the context of the motion to quash, Corbett J. held that no costs were payable to or by the RCMP and that “[t]he costs of all other persons respecting the motion to strike the summons shall be in the cause of the contempt motion, in the discretion of the court deciding that motion”: McFlow Capital Corp. v. James, 2017 ONSC 1049, at para. 101(c). Corbett J. further stated that the parties’ costs of the motion “ought to be considered as part of the costs of the overall proceeding, to be in the discretion of the trial judge”: at para. 102(c).

[36] I accept McFlow’s position that it had to oppose the motion because the Defendants refused to provide the disclosure that McFlow was seeking. Moreover, the Defendants sought to protect the documents on a dubious claim of solicitor-client privilege. However, McFlow’s costs on the motion are excessive.

[37] McFlow is entitled to its costs of the motion to quash on a substantial indemnity basis, which are fixed at $30,000.

McFlow’s Rule 21 Motion to Strike the Counterclaim

[38] After Corbett J. dismissed McFlow’s motion to strike the Defendants’ counterclaim, he fixed costs at $10,000 on a partial indemnity basis, “payable at the conclusion of this action, payable in the discretion of the motions judge hearing the contempt motion or, at the discretion of the motions judge, in the discretion of the judge deciding the counterclaim”: 2017 ONSC 1049, at para. 101(b). Corbett J. recognized that if Mr. James was found in contempt, the motion judge would have discretion to deprive him of the costs.

[39] As noted above, McFlow abandoned the contempt motion. As no judge heard the contempt motion, the matter is left to me as the judge deciding the counterclaim.

[40] While the Defendants were successful on the motion to strike, it was not clear that the counterclaim had any merit: 2017 ONSC 1049, at para. 102(b). In my reasons, I dismissed the counterclaim. The Defendants engaged in the same conduct that they alleged to be oppressive; that is, McFlow’s failure to pay special assessments. The Defendants are not entitled to the $10,000 in costs on the motion to strike.

Motion to Consolidate

[41] The motion to consolidate proceeded on consent and the order is silent as to costs.

[42] No costs are ordered in relation to the motion.

McFlow’s Motion for Contempt

[43] The Defendants seek approximately $17,036 in partial indemnity costs on McFlow’s abandoned motion for contempt. The alleged contempt was Mr. James’ failure to pay into court $2 million in breach of the order of Wilton-Siegel J. At trial, I found that Mr. James had in fact breached the order.

[44] The Defendants’ position is that it is entitled to costs because, after bringing the motion in June 2015, McFlow did not abandon it until February 2018. The Defendants argue that McFlow would not have been successful on the motion because it was based entirely on the hearsay evidence of an RCMP officer.

[45] McFlow submits that the contempt motion helped to streamline the case because it was able to obtain evidence from the court file in the criminal proceeding against Mr. James and dispense with the need for examination for discovery. McFlow’s position is that it was both reasonable to bring the motion and to abandon it.

[46] In my view, there ought to be some cost consequence to McFlow’s abandonment of the motion after such a lengthy period of time. The Defendants’ costs, however, are excessive in view of the fact that no responding materials were delivered. The materials that were prepared by the Defendants related to the motion to quash the summons to the RCMP. I also accept that some efficiency may have been gained because the motion was brought. I fix the Defendants’ costs of the abandoned contempt motion at $5,000.

[47] McFlow seeks $6,430.27 in costs for the preparation of its costs submissions on the motion for contempt. Since McFlow abandoned the motion, I do not believe that it is appropriate to award costs for the preparation of costs submissions on the abandoned motion.

Mediation Costs

[48] The Defendants submit that they should not be required to pay the costs of the second day of mediation, when only 30 minutes were spent on this dispute and the bulk of the time was taken up by discussions regarding the Carter/Sussman Litigation.

[49] McFlow attributes the discrepancy in hours between the parties to preparation time, as opposed to time spent at the mediation. It is not possible to determine whether this is the case, based on the descriptions provided. The total costs are $41,669.88.

[50] Under the circumstances, since some of the mediation and the preparation related to a separate proceeding and because it is not possible to distinguish the two based on the bill of costs provided by McFlow, I find it appropriate to fix McFlow’s costs on the mediation to $33,000.

Trial Preparation and Trial Costs

[51] McFlow’s costs relating to documentary production, trial preparation and trial costs are $329,833.78 on a substantial indemnity basis. The Defendants submit that this amount is excessive, especially since the Defendants’ affidavit evidence was lengthier and significantly more detailed. The Defendants argue that their trial preparation costs of $263,867.03 are closer to an appropriate range.

[52] Given the multitude of issues raised by the Defendants and the lengthy affidavits to support them, the time spent by McFlow’s counsel on trial preparation is not disproportionate. The proceeding did not involve complex legal issues but was rendered complex because of how Mr. James conducted his affairs. In fact, the total time spent by lawyers (380.7 hours) and law clerks (53.8 hours) on trial prepearaton is less than the total hours spent by the Defendants’ lawyers (454.95 hours).

[53] McFlow’s trial time (241.7 hours) is higher than the Defendants’ (190.55 hours). While McFlow’s time includes preparation of a bill of costs, this alone does not account for the difference.

[54] As McFlow notes, the Defendants’ bill of costs is not a reliable indicator because counsel appears not to have docketed all of their time. For example, the total includes only four hours of Mr. Das’ time, which appears to be understated given his role at trial. The Defendants did not allocate any time to document production but included this in the total hours for trial preparation. In addition, Defendants’ counsel reduced their hourly rates by 40 percent in 2018, which also accounts for the difference in the parties’ costs.

[55] The amounts are reduced somewhat because the lack of specificity in the summary provided by McFlow makes it more difficult to determine if the amounts billed are reasonable. In addition, there are items under “miscellaneous” for which costs should not be awarded such as an appeal of an order that was not pursued.

[56] Based on the time spent and the steps involved, reasonable costs on a substantial indemnity basis for document production, trial preparation and trial costs would be $300,000.

Summary

[57] The total substantial indemnity costs for the steps addressed above are $415,891.90. The undisputed amounts total $118,317.69. McFlow’s substantial indemnity costs thus total $534,209.59.

[58] McFlow is also entitled to $39,082.46 in disbursements, which the Defendants did not dispute.

[59] The Defendants are credited $5,000 for the abandoned contempt motion.

[60] Therefore, the total amount of substantial indemnity costs owing to McFlow is $568,292.05, including disbursements and HST.

Conclusion

[61] Based on the foregoing, the Defendants shall pay pre-judgment interest in the amount of $141,199.14 and substantial indemnity costs of $568,292.05.

Nishikawa J.

Date: October 9, 2020

[^1]: McFlow’s Bill of Costs shows a higher amount for this motion ($41,060.78). While McFlow requested access to its working papers to be able to address the discrepancy, it is not necessary in the circumstances where this would result in further delay and the court has discretion to fix costs at a fair and reasonable amount.

McFlow Capital Corp. v. James, 2020 ONSC 6167

Case Summary

Overview

Preliminary Matters

Analysis

At What Rate Should Prejudgment Interest Be Calculated?

Are Substantial Indemnity Costs Warranted?

To What Costs Is McFlow Entitled?

Costs for Certain Steps in the Proceeding

McFlow’s Motion for the Appointment of an Administrator

The Administrator’s Motion for the Preservation of the GIC

McFlow’s Costs Relating to Tax Liens and Other Matters

Motion to Quash Summons to the RCMP

McFlow’s Rule 21 Motion to Strike the Counterclaim

Motion to Consolidate

McFlow’s Motion for Contempt

Mediation Costs

Trial Preparation and Trial Costs

Summary

Conclusion

Judge

Counsel

Parties

Areas of Law

Fact Patterns

Financial Outcomes

Issues

Statutory Provisions 3

Legal Tests 1