Court File and Parties

Court File No.: C-434-17 (Kitchener) Date: 2021-05-13 Superior Court of Justice - Ontario

Re: Claire Ross and Ryan Campbell, Plaintiffs And: Andrej Filip, Elena Filipova, et al, Defendants

Before: The Honourable Mr. Justice R. A. Lococo

Counsel: Patrick J. Kraemer, for the Plaintiffs (responding parties) David Silver, for the Defendants (moving parties)

Heard: By written submissions received March 24 to April 7, 2021

Endorsement – Costs

[1] Upon the motion of the defendants Andrej Filip and Elena Filipova, I set aside the default judgment against them and granted other related relief: see Reasons for Decision dated March 3, 2021, reported at 2021 ONSC 1496. This endorsement relates to the costs of that motion and should be read in conjunction with the motion decision.

[2] As noted in the motion decision, I set aside the default judgment on two bases. I found that the plaintiffs did not make full and frank disclosure in their ex parte motion for judgment by failing to disclose material facts within their knowledge on the issue of damages. I also found that it was otherwise in the interests of justice to set aside the default judgment, applying the criteria set out by the Court of Appeal in Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, 119 O.R. (3d) 561.

[3] On the issue of costs (motion decision, para. 123), I noted that the defendants were successful in receiving an indulgence from the court that would have been unnecessary had they exercised the diligence they should have. I also noted that the plaintiffs obtained the default judgment based on incomplete disclosure and then, once steps were being taken to set it aside, sought to enforce the judgment without notice, contrary to prior assurances. Without deciding the issue, I expressed the preliminary view that the parties should bear their own costs of the motion, but I made provision for written submissions if costs were sought and not settled.

[4] In their written submissions, the defendants seek substantial indemnity costs against the plaintiffs in the amount of $84,948.42. They say a costs award in their favour is consistent with their reasonable expectation as the successful parties on the motion. They also argue that setting aside a default judgment as an indulgence does not displace the general rule that costs follow the event: see JPW Niagara Limited v. Sullivan Mahoney Lawyers, 2020 ONSC 6762, at para. 6.

[5] The defence also submits that an elevated costs award should be made where an ex parte order is obtained based on misleading or incomplete disclosure: see United States of America v. Yemec (2007), 85 O.R. (3d) 751, at paras. 9 and 31-32 (Div. Ct.); Kings v. Gagne, [2000] O.J. No. 1689 (S.C.), at para. 19. They also say that elevated costs against the plaintiffs are justified by other untoward conduct of the plaintiffs and their counsel, referred to further below.

[6] For the reasons set out below, I have concluded that the appropriate order in this case is that the parties should bear their own costs of the motion.

[7] The determination of costs is in the court’s discretion: Courts of Justice Act, R.S.O. 1990, c. C.43, s. 131. Consistent with previous case law, the successful party has a reasonable expectation of being awarded costs in the absence of special circumstances: see Bell Canada v. Olympia & York Developments Ltd. (1994), 17 O.R. (3d) 135 (C.A.), at p. 142. In determining whether circumstances exist that would justify denying costs to the successful parties, the court has the discretion to consider the conduct of both sides, including the successful parties’ conduct prior to the default judgment being entered against them.

[8] As noted in the motion decision, had the defendants and their previous counsel properly engaged in the litigation process, there would have been no default judgment to set aside. While I found that fault lay primarily with previous defence counsel, the defendants’ apparent lack of engagement in the litigation process was also a contributing factor.

[9] In the period leading up to the default judgment, defence counsel failed to respond (for the second time) to a motion on notice to strike the defendants’ pleadings. Plaintiffs’ counsel again reached out to defence counsel the day before the motion was returnable, in an unsuccessful attempt to provide a further opportunity to respond. Once the statement of defence was struck, the plaintiffs subsequently noted the defendants in default and brought a motion for default judgment without notice, as they were entitled to do under the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[10] To that point, I see no basis for impugning the conduct of the plaintiffs and their counsel. Unlike the defence, they were following procedural rules that are intended to secure the just and expeditious determination of civil proceedings. However, once the plaintiffs brought the motion for default judgment, they ran afoul of those requirements by failing to provide full and fair disclosure relevant to the calculation of damages. I set aside the default judgment not only on that basis, but also in the interests of justice applying the criteria in Mountain View Farms, at paras. 48-49. Therefore, even if the plaintiffs had obtained default judgment based on proper disclosure, the judgment still would have been set aside.

[11] In these circumstances, I agree with plaintiffs’ counsel that it is fair to characterize the setting aside of the default judgment as an indulgence granted by the court (as I did on a preliminary basis in the motion decision, at para. 123). As noted in JPW Niagara, at para. 6, Ontario courts (including the Court of Appeal in two recent decisions) have made ‘no costs’ orders where the successful party “is granted an indulgence to overcome a problem the [party] themselves created”: see Scaini v. Prochnicki, 2007 ONCA 63, 85 O.R. (3d) 179, at para. 30; Aguas v. Rivard Estate, 2011 ONCA 494, 107 O.R. (3d) 142, at para. 22; see also Jabalee v. Abalmark Inc., [1996] O.J. No. 2326 (C.A.); Bayerische Landesbank Gironzentrale v. Sieber (Trustee of) (2008), 50 C.B.R (5th) 155 (Ont. S.C. Master), at para. 2. In other cases, courts have gone further, awarding costs against the successful moving party (as permitted by r. 57.01(2)) on the basis that “the price of a granted indulgence is the payment of the costs of those who have sought, unsuccessfully, to prevent its being granted”: see Fox v. Bourget (1987), 17 C.P.C (2d) 94 (Ont. Dist. Ct.), at para. 1, aff’d 9 W.D.C.P. 142 (Ont. H.C.); Evans v. Revenue Properties Co., 2011 ONSC 2132, at para. 31.

[12] Defence counsel relies on JPW Niagara to support the defence position that an alleged “indulgence” does not justify denying costs to the successful parties in this case, suggesting that the fact that an indulgence is granted should not be a relevant factor when considering whether costs should be awarded. However, I do not agree that the reasoning in JPW Niagara goes that far. What Sweeny J. found in JPW Niagara, at para. 10, is as follows: “There is no general rule that a party seeking an indulgence is not entitled to costs; nor should there be. The issue of costs is an exercise of discretion” (emphasis added). What Sweeny J. rejects is the “blanket assertion” that the party seeking the court’s indulgence is not entitled to costs.

[13] Based on previous appellate-level (and other) case law, I agree with plaintiffs’ counsel that the granting of an indulgence to the successful moving party is a factor that the court may properly take into account in exercising its discretion in the awarding of costs, with negative costs implications for the successful moving party. I do not consider the result in JPW Niagara to be inconsistent with that conclusion.

[14] As I have already indicated, had it not been for the previous defence counsel’s default and the defendants’ apparent lack of engagement in the litigation process, there would have been no default judgment to set aside. That consideration militates against a costs award in the defendants’ favour (or may provide the basis for a reduced costs award), consistent with previous case law.

[15] As previously noted, the defence argued that when considering costs, I should also take into account other untoward conduct of the plaintiffs and their counsel that support the defendants’ position that the defendants should be awarded elevated costs. In addition to the plaintiffs’ incomplete disclosure on the default judgment motion (which is addressed above), the defence says that conduct also includes (i) seeking to enforce the default judgment without prior notice, contrary to prior assurances, with knowledge that steps were being taken to set it aside, (ii) the plaintiffs’ continued opposition to setting aside the default judgment, including their failure to accept written offers to settle that would have resulted in the judgment being set aside on consent and (iii) the plaintiffs’ counsel’s assertions on this motion that the defendants failed to provide an affidavit of documents to the plaintiffs, despite clear evidence to the contrary in the motion record.

[16] I agree with defence counsel that it would be appropriate to consider those aspects of the conduct of the plaintiffs and their counsel when determining whether a costs award should be made in the defendants’ favour. In particular, I considered the following:

a. In addition to providing incomplete disclosure on the motion for default judgment, the most serious aspect of the plaintiffs’ conduct was seeking to enforce the default judgment without notice, contrary to prior assurances. As indicated in the motion decision, I consider it improper to do so, with negative implications for the plaintiffs from a costs perspective.

b. I also agree there is merit to the defence position that the resolution of this matter was unnecessarily prolonged by the plaintiffs’ continued opposition to setting aside the default judgment, again with negative costs implications: see r. 57.01(1) (the opening words), r. 57.01(1)(e) and r. 49.13. However, it is worth noting in this context that the defendants’ offers to settle would not have met the requirements of r. 49.10 (relating to the awarding of substantial indemnity costs), had that rule otherwise applied. While the offers to settle would have imposed obligations upon the defendants that I did not impose in my decision, they would have also required the plaintiffs to take specific steps relating to withdrawal of enforcement mechanisms that are not addressed in the order I ultimately made.

c. As noted in the motion decision at some length (see footnote 4), plaintiffs’ counsel persisted in taking the position that the defendants failed to provide an affidavit of documents to the plaintiffs. The defendants’ affidavit of documents was not included in the motion record, but correspondence between the parties clearly indicates that previous defence counsel had provided the affidavit of documents to plaintiffs’ counsel, after some delay. I was incredulous in the circumstances that plaintiffs’ counsel would take the position he did. But in partial mitigation, I was not actually misled and the motion hearing was not unduly prolonged as a result.

[17] As a countervailing consideration, it is also relevant that prior to filing a statement of defence in this action, the defendants took steps (subsequently set aside as a fraudulent conveyance) that would have placed their other real property beyond the reach of creditors. Defence counsel argued that the defendants should not suffer a further penalty arising out of the fraudulent conveyance judgment against them, since the plaintiffs’ costs of the default judgment motion setting aside the conveyances have already been paid. Nonetheless, in my view, that aspect of the defendants’ conduct provides further support for denying them costs in the current motion.

[18] Weighing the parties’ conduct on both sides, I concluded that the parties should bear their own costs of the motion. As I stated in the motion decision, at para. 123, nobody emerged from this situation covered with glory. While the defendants succeeded in having the default judgment set aside, they should not reasonably expect in all the circumstances (including the prior fraudulent conveyance) to have their costs paid by the plaintiffs. Until the plaintiffs brought their non-compliant default judgment motion, they were following procedural rules and making allowances for defence counsel, who was chronically missing in action. While I have serious concerns about certain aspects of the plaintiffs’ (and their counsel’s) conduct since that time, I am not persuaded that on balance those concerns justify making a costs award in the defendants’ favour.

[19] Accordingly, as a supplemental order, the parties shall bear their own costs of the motion.

The Honourable Mr. Justice R.A. Lococo

Date: May 13, 2021