COURT FILE NO.: CV-19-928

DATE: 20201207

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: THERESA BAIRD, Plaintiff

AND:

RALPH JAMES KEMP, KATHRYN ANNE LEGEAR and 2075716 ONTARIO INC., Defendants

AND BETWEEN:

2075716 ONTARIO INC, Plaintiff by Counterclaim

AND:

RALPH JAMES KEMP, KATHRYN ANNE LEGEAR and Theresa Baird, Defendants by Counterclaim

BEFORE: The Honourable Justice M.E. Vallee

COUNSEL: Brian P Pilley, Counsel for the Plaintiff/Defendant by Counterclaim

Brendan Monahan, Counsel, for the Defendant/Plaintiff by Counterclaim

HEARD: In Writing

COSTS RULING

The Plaintiff’s Position

[1] The plaintiff was the successful party on a motion for summary judgment. Although no rule 49 offers were made, the plaintiff alleges that she is entitled to substantial indemnity costs totaling $32,657.80 because the defendant alleged fraud. She was examined for discovery on December 17, 2019. Subsequently, the plaintiff and the defendant exchanged three emails about the fraud allegation. On December 17, 2019, the plaintiff requested that the defendant withdraw its fraud allegations in light of the evidence at examinations. On January 12, 2020, the defendant offered to withdraw the fraud allegations and provide new amended pleadings on the condition that the plaintiff would agree to forego costs. On January 15, 2020, the plaintiff stated that she would not agree to forego costs. In that email, the plaintiff stated that the motion for summary judgment documents would be served shortly. The defendant did not pursue the fraud allegation in submissions on the motion for summary judgment.

[2] The plaintiff relies on Goulin et al. v. Goulin, 26 O.R. (3d) 472. In that case, the plaintiff beneficiaries brought an action against the deceased’s widow, which among other things, contained an allegation that she had fraudulently misrepresented assets. An investigation disclosed that one of the plaintiffs, the executor, had improperly removed $2,000,000 from the estate. The plaintiffs consented to a dismissal of their action. In its ruling on costs, the court concluded that solicitor and client costs (now called substantial indemnity costs) could be awarded even though the action had not proceeded to trial.

[3] In Goulin, the relevant issue was whether there had been reprehensible, scandalous or outrageous conduct. There was no basis for the fraud allegation. On the last page of the decision[^1], the court asked a rhetorical question: “If a discontinuance after defence [is filed] were held to disentitle the offended party to full costs, would it not send a message that outrageous and unfounded allegations could be made in pleadings with relative impunity?”

[4] The plaintiff provided a detailed Bill of Costs. Her counsel has 49 years of experience. His partial indemnity rate is $225 per hour. His actual rate is $350. His itemized dockets show that he spent 130.1 hours on the matter. Disbursements including HST total $2,518.88.

The Defendant’s Position

[5] The defendant states that it offered to withdraw its fraud allegation after examination for discoveries based on the lack of evidence. After the defendant received the plaintiff’s factum for the motion, the defendant sent an email dated July 10, 2020 expressing surprise that the factum had addressed the fraud allegations. It states, “We wrote to you on January 12, 2020 confirming that our client was prepared to discontinue fraud allegations with prejudice subject to costs…based on your reply dated January 15, it appeared that we disagreed only on the matter of costs…you can’t claim any costs in responding to fraud allegations in your factum, given that we had advised you well over a month previously of our intention to discontinue them.”

[6] The defendant denies that the plaintiff is entitled to substantial indemnity costs. In the alternative, the defendant states she is entitled to costs on an increased scale only up to the date “before 207 discontinued its fraud allegations.” The defendant states that nearly half of the costs claimed by the plaintiff relate to time spent after this date. At the most, she is entitled to partial indemnity costs after this date.

[7] In the further alternative, the defendant states that no costs should be awarded because the issue was novel. The defendant relies on Baldwin v. Daubney, 2006 CarswellOnt 5899 in which the court considered whether the issue raised was novel and whether that ought to relieve the unsuccessful plaintiff from a costs award. The defendant relies on this case for the court’s comments on novelty.[^2]

[8] The defendant states that Baird was the first reported decision in Ontario dealing with a dispute between an execution creditor and a vendor-take-back mortgagee since the decision in Lang and Lang v. MacMillan, 1958 CarswellOnt 182. The fact that this issue has not been litigated in the 62 year interim militates against imposing a costs award, or alternatively imposing costs on a reduced scale.

[9] The defendant takes issue with plaintiff’s counsel’s rate. It states that his substantial indemnity rate is his full hourly rate, $350 per hour. His partial indemnity rate is $225, approximately 64%.

Analysis

[10] Section 131 of the Courts of Justice Act[^3] states that the costs of a proceeding are in the discretion of the court. Rule 57.01(1) sets out a number of factors that the court may consider in awarding costs in addition to the result in the proceeding and any written offers to settle or contribute. They are considered below.

[11] The defendant offered to withdraw its fraud allegation on a condition. The plaintiff did not accept the condition. The defendant did not subsequently offer to withdraw the allegation unconditionally or state that the costs issue would be left to the court to decide. The defence was not amended to remove the allegation. Accordingly, the fraud allegation was not withdrawn. The court was advised before the motion was argued that the defendant would not be making submissions on the fraud allegation. Fraud allegations are serious because they allege unlawful conduct. If not proven or withdrawn, they are considered scandalous and reprehensible. They can expose an unsuccessful party to substantial indemnity costs. For this reason, parties who consider making fraud allegations ought to be reasonably confident that they can be proved.

[12] Regarding the defendant’s submission that the issue was novel, in paras. 19 – 22 of Baldwin, the court set out a helpful analysis:

…in novel cases, the plaintiff is “proceeding along a path which is not encumbered by a precedent which would warn him not to proceed further”. For an issue to be novel in a way that is legally significant, it might be argued that the issue should not only be one which has not been decided in the factual context in which it now arises in the instant case, but is also one on which the law in the decided cases does to [sic “does not”] provide adequate guidance as to its resolution (whether that is so because of conflicts among the cases or a limitation on the appropriate scope of their application or some other factor). Such an issue could properly be regarded as “open”.

However, if the law provides adequate guidance for the resolution of the issue, then even though the issue might well not have been previously decided, it would not properly be regarded as “open”.

…In the costs context, the purpose of the enquiry must be to decide whether there is good reason for an unsuccessful party to be relieved from the costs rule.

…the element of novelty goes to the reasonable expectations of the party about the litigation. If the issue is truly open in the sense considered above, the litigant could reasonably say that he or she had no proper reason to expect to fail. But if all that the litigant can say is there was no decided case directly on the point, that begs the question about reasonable expectations….

[13] In this matter, even though Lang is an old case, it was directly on point. When the principles set out in Baldwin are applied, it cannot be said that the issue had not been decided in the same factual context nor was it one on which the law in decided cases does not provide adequate guidance as to its resolution. Nevertheless, given the length of time that had passed since the court considered the issue, it was not unreasonable for the defendant to defend the motion for summary judgment and request its own relief.

[14] The defendant did not provide a bill of costs. Therefore, the court cannot use it to compare the parties’ fees to determine what the defendant might have expected to pay if it was unsuccessful.

[15] The matter was somewhat complex. It was very important to the parties because it involved recovery of a substantial amount of money.

[16] Plaintiff’s counsel’s full rate, $350 per hour, is very reasonable, considering that he has 49 years’ experience. The plaintiff states that 130.1 hours were spent on this matter which included examinations for discovery, preparing the motion for summary judgment and defending the defendant’s cross-motion. The disbursements total $2,518.88. When the disbursements are subtracted from $32,657.38, the result is $30,138.50. After dividing that by the hours spent, the hourly rate used to calculate costs is $231.66, only 3% higher than counsel’s partial indemnity rate of $225. Accordingly, even though the plaintiff requests substantial indemnity costs, the amount claimed is based on a partial indemnity rate. The hours spent are reasonable, considering the work required. The disbursements are in order.

[17] A costs award should reflect what the court views as a fair and reasonable amount to be paid by the unsuccessful party rather than an exact measure of the actual costs incurred by the successful litigant.[^4]

Conclusion

[18] Ultimately, in fixing an amount for costs, the overriding principles are fairness and reasonableness.[^5] After balancing the factors set out in r. 57.01(1), determining that the fraud allegation was not withdrawn and considering the fact that the defendant did not take an unreasonable position, in my view, a fair, reasonable and proportionate costs award for this motion is $29,000.00, all inclusive, which the defendant shall pay to the plaintiff within 30 days.

Vallee J.

Date: December 7, 2020

[^1]: There are no paragraph or page numbers. [^2]: In Baldwin, the plaintiffs borrowed money to invest. The value of the investments declined but they were forced to repay parts of the loan as required in a margin call feature in the agreement. They alleged that the lender had an obligation to advise them of this specific loan risk. The plaintiffs were unsuccessful in their novelty argument. Costs were awarded against them. [^3]: Courts of Justice Act, R.S.O. 1990, c. C.43 [^4]: See Zesta Engineering Ltd. v. Cloutier, [2002] O.J. No. 4495 (C.A.). [^5]: See Boucher v. Public Accountants, 71 O.R. (3d) 291.