COURT FILE NO.: CV-19-00630069-00CL
DATE: 20210326
ONTARIO
SUPERIOR COURT OF JUSTICE
(COMMERCIAL LIST)
BETWEEN:
Scotia Capital Inc.
Plaintiff/Defendant by Counterclaim
– and –
Aphria Inc.
Defendant/Plaintiff by Counterclaim
Andrew Gray, Emily Sherkey and Henry Federer, for the Plaintiff/Defendant by Counterclaim
Tanya Pagliaroli, Jessica Silverman and Bethany McKoy, for the Defendant/Plaintiff by Counterclaim
HEARD: In Writing
RULING ON COSTS
C. Gilmore, J.
overview
[1] This trial was heard by me over six days in November 2020 with oral argument in February 2021. The claim related to the interpretation of an Engagement Letter between the Plaintiff (“Scotia”) and the Defendant (“Aphria”) dated January 21, 2019. Scotia claimed the balance of the Opinion Fee in the Engagement Letter which Aphria refused to pay. By way of counterclaim, Aphria sought damages for defamation.
[2] Scotia was entirely successful. I ordered that the Independence Fee of $1.5M be paid to Scotia plus the permitted contract expenses of $50,000 and HST where applicable. Aphria’s counterclaim was dismissed.
[3] I invited written costs submissions which have now been received.
THE POSITIONS OF THE PARTIES
Scotia
[4] Scotia seeks total costs of $680,152.55 inclusive of disbursements and HST. This amount reflects partial indemnity costs to the date of Scotia’s Offer to Settle and substantial indemnity costs thereafter.
[5] The basis for Scotia’s position on costs is as follows:
a. Scotia served two Offers, one before the commencement of litigation for $1.2M and another before trial for $1.3M. The result for Scotia was better than both of their Offers and it should be fully compensated based on Rule 49.10.
b. Aphria’s refusal to pay the contracted fee was a surprise with no advance notice to Scotia.
c. Aphria’s defences were ever-changing, after the fact and caused increased costs for Scotia.
d. Scotia originally sought to bring the matter forward by way of Application but Aphria insisted on converting it to an action with discoveries and a trial. The associated increased costs of that procedure should be paid by Aphria.
e. Aphria’s expert’s generalized evidence was not accepted by the Court.
f. Aphria’s counterclaim was tactical and overstated. The claim was originally $50M but was reduced to $500,000 on the eve of trial. Aphria failed to produce any documents to support its claim.
Aphria’s Position
[6] Aphria argues that the costs sought by Scotia are unreasonable and that Scotia is not entitled to a higher scale of costs either because of its Offer or because of Aphria’s conduct.
[7] Aphria submits that its conduct was not worthy of sanction and was neither malicious nor counterproductive. The fact that Aphria’s defence was not successful does not mean that it was “tactical.” Further, it is inaccurate that Aphria changed its damages claim from $50M to $500,000 at trial. The reduction in damages was confirmed in Aphria’s pre-trial brief delivered on October 13, 2020. Such a reduction is not sufficient to award substantial indemnity costs.
[8] Aphria denies that it engaged in any form of “scorched earth” defence. The qualifications of its expert were not challenged nor was his evidence. Further, Aphria agreed that all of Scotia’s documents were authentic. None of Aphria’s conduct can be attributable to anything more than hard fought litigation and cannot form the basis for an elevated award of costs.
[9] On the issue of Scotia’s Offer, Aphria argues that the cost consequences of Rule 49.10 do not apply as the Offer must be served seven days before trial. The Offer was served at 5:33 p.m. on November 12, 2020 which is deemed to have been made on November 13, 2021. This was less than seven days before the commencement of trial on November 28, 2021. The Rule is clear and while the Court has discretion to consider any written Offer, there can be no automatic award of elevated costs if the Offer does not comply with the Rules unless there is some form of reprehensible conduct. Aphria denies it engaged in any such conduct.
[10] Aphria made the first Offer to Settle on November 11, 2020 for $750,000 all in, in exchange for a dismissal of the action and the counterclaim. This was a genuine attempt to settle by Aphria and far from simply tactical as alleged by Scotia.
[11] In terms of fairness and reasonable expectations, Aphria’s partial indemnity costs for the entire proceeding were $267,460.50. Scotia’s were $431,635.80. Therefore, Aphria’s reasonable expectations were to pay within the same range as its own partial indemnity costs if unsuccessful given the similar size of legal teams and seniority of counsel.
ANALYSIS
[12] The factors under Rule 57.01 that apply to this case are Scotia’s Offer, the importance of the issues, Aphria’s conduct, and its reasonable expectations in terms of costs.
[13] Scotia’s Offer of $1.3M was less than the trial award in its favour. Aphria was aware that the consequences of rejecting that Offer risked a higher level of costs if it was not successful at trial.
[14] Dealing with the timing of Scotia’s Offer, both parties referred to Konig v. Hobza, 2015 ONCA 885. In that case, the trial judge awarded substantial indemnity costs following trial even though the Offer was served only four days prior to trial. He considered the Offer to be a valid one under Rule 49. The Respondents appealed the costs Order. On appeal, the damages award was reduced, and the Court remitted the costs issue back to the trial judge to re-consider the costs award in light of the reduced damages.
[15] The Court of Appeal found that the Offer was not a valid Rule 49 Offer but commented as follows at paras 34 and 35:
Given my conclusion that the Offer was not a valid r. 49 offer, on a plain reading of r. 49, the mandatory cost implications found in r. 49.10 are not applicable. This takes me to the trial judge’s residual discretion to make an appropriate costs determination under r. 49.13.
[35] Rule 49.13 calls for a holistic approach to the determination of costs having regard to factors including any offers to settle – regardless of whether they meet the requirements of r. 49 – where appropriate to do justice between the parties. Rosenberg J.A. addressed the role of r. 49.13 in Elbakhiet, at para. 33:
As this court pointed out in Lawson v. Viersen, 2012 ONCA 25, at para. 46, rule 49.13 is not concerned with technical compliance with the requirements of rule 49.10. Rather, it “calls on the judge to take a more holistic approach.” The appellants complied with the spirit of Rule 49 even if they failed for technical reasons to provide an offer that exceeded the Judgment. As held in Lawson, at para. 49, this was the type of offer that ought to have been given “considerable weight in arriving at a costs award.”
[16] The purpose of Rule 49.03 is intended to provide for adequate time to the responding party to review and consider their position with respect to risk. I would point out that this was not a case in which a complex damages assessment was in issue whereby there would be some margin as to any final award. This was an all or nothing proposition for Scotia. Aphria was able to assess its litigation risk accordingly.
[17] As Scotia’s Offer to Settle was served out of time by only 1.5 hours there is no reason for this Court not to use the “holistic approach” endorsed in Konig and as per Lawson v. Viersen, 2012 ONCA 25 (as cited in Konig), “this was the type of Offer that ought to have been given serious consideration” with respect to the discretion afforded to the Court under Rule 49.13.
[18] Regarding the fee claim, Scotia’s reputation with respect to Investment Banking was challenged and I accept that significant time and effort was required to defend those allegations given what was at stake for Scotia.
[19] While I agree with Scotia that this case did not involve complex legal issues, it did require a six day trial, thousands of pages of productions, examinations, a compendium for each witness’ examination in chief and cross examination, the evidence of two experts and written as a well as oral argument. This was high stakes litigation and while Aphria had the right to vigorously defend Scotia’s claim, it did so with the risks well in mind.
[20] Further, the factual matrix of this matter cannot be ignored. As I found in my reasons, Scotia was never given any indication that it would not be paid. The lunch in July 2019 at which Scotia was suddenly advised that they were not being paid and then the letter from Aphria’s in house counsel with a litany of previously unheard-of complaint were all a rather disingenuous way of avoiding payment.
[21] In terms of Aphria’s reasonable expectations with respect to costs, I find that Aphria’s legal team must have been aware that the rates charged by Scotia’s team would be higher than theirs. I do not take any issue with the time spent by the Scotia team or their disbursements. Their defence was organized and efficient.
[22] Given all of the above, it is reasonable for this Court to exercise its residual discretion and adopt a holistic approach to Scotia’s Offer. As such I order Aphria to pay Scotia’s trial costs of $680,152.55 plus disbursements, plus HST.
C. Gilmore, J.
Released: March 26, 2021
COURT FILE NO.: CV-19-00630069-00CL
DATE: 20210326
ONTARIO
SUPERIOR COURT OF JUSTICE
(COMMERCIAL LIST)
BETWEEN:
Scotia Capital Inc.
Plaintiff/Defendant by Counterclaim
– and –
Aphria Inc.
Defendant/Plaintiff by Counterclaim
RULING ON COSTS
C. Gilmore, J.
Released: March 26, 2021