ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
ANDREW LOCKE and 1833340 ONTARIO LTD.
Applicants
- and -
UWE QUAST and LAKEHEAD IRONWORKS INC.
Respondents
J. Clark, for the Applicants
Self-represented
HEARD: In Writing
Mr. Justice F. Bruce Fitzpatrick
Judgment on Costs Following Trial
1On June 1, 2021 I released my decision following a trial of issues. The trial had been ordered further to a disposition of an oppression remedy application in March 2016. Pierce J. reserved costs of the application to the “disposing judge”.
2The trial of issues led to an order that the respondent Lakehead Ironworks Inc. (“LII”) pay the applicant 1833340 Ontario Ltd. (“1833340”) the sum of $459,200 plus interest for the 20 common shares of LII owned by 1833340. I asked for submissions regarding costs in writing. I have now received and reviewed those submissions.
3Central to the submissions are offers to settle made by both parties. 1833340 made an offer to settle on July 22, 2019. The offer had two components. 1833340 offered to accept an all-inclusive payment of $350,000 from LII for the 20 shares at issue if payment was made by on or before July 31, 2019. If the offer was not accepted by that date, an offer to accept $400,000 for the shares, plus costs on a partial indemnity basis to be agreed or assessed was left open to the commencement of trial.
4LII made an offer to settle on October 30, 2019. It was for $320,000 in the aggregate. The monies were to be paid in two equal annual installments the last of which was to be made on or before December 31, 2020. It sought to allocate the funds as 50% of each payment as return of capital and 50% of each payment as damages related to oppression and contribution to legal fees.
5The written submissions of LII on the issue of the July 22, 2019 offer to settle and its own offer of October 30, 2019 were not persuasive. LII argues that the 1833340 offer should have been crafted taking in to account that any payment for the shares would be subject to capital gains tax and therefore worth less to 1833340 than the face amount of the offer. 1833340’s offer made no mention of tax consequences. LII is not responsible for collecting capital gains tax that might be payable when it purchased the shares at issue in the litigation.
6There was nothing in the submission of LII that would allow me to find that its offer of October 2019 was more favourable to 1833340 than the result 1833340 received at trial. As of October 30, 2019, there had been a finding by Pierce J. that 1833340 had not been subject to oppressive conduct. That finding cannot be undone by an offer to settle or even an agreement to an offer to settle that says otherwise. Further, I have the trial evidence that Mr. Locke paid one dollar for his shares which in turn were transferred to 1833340. The attempt by the offer to settle to characterize a large payment for the shares that would objectively appear to be a capital gain as a “return of capital” creates an uncertainty that tax authorities might actually agree with that disposition. This uncertainty eliminates any possibility that the LII offer could be assessed as “better” than what was obtained at trial.
7In my view, 1833340’s tax position arising from sale of the shares, either by consent or following a trial, is irrelevant to the issue of whether LII should or should not have accepted the 1833340 offer or whether 1833340 should have accepted LII’s offer. The 1833340 offer was in plain terms. LII simply did not agree to accept the amount that 1833340 was offering to sell the shares prior to having the matter adjudicated. There are consequences to such decisions made in litigation.
8Referencing its October 2019 offer, LII states, “Though the Applicants technically beat this offer on a gross scale, it was unreasonable to decline the offer as the net recovery of the applicant will be less”. I agree that 1833340 “beat” the LII offer at trial. I also agree that 1833340 “beat” their own offer in that the amount awarded at trial was greater than the amount 1833340 was willing to settle for prior to the trial. I do not agree that it was unreasonable for 1833340 to decline to accept the LII offer. The offer was too uncertain and makes a number of assumptions that were irrelevant to the consideration of the offer through the lens of Rule 49.10
9LII argues that no costs should be awarded for the application before Pierce J.. This argument relies on a submission that success was divided on this portion of the litigation. I disagree. While the applicants were not successful in obtaining a finding of oppression, they were successful in obtaining a direction of the court that led to an order whereby 1833340’s shares would be purchased. In my view, this was the essence of the litigation and the most important remedy sought by the applicants. Success was therefore not divided on the disposition made by Pierce J.. In my view, 1833340 was successful in obtaining an order for a trial process that lead to its shares being purchased. The lack of a finding of oppression did not drive the applicants from the judgement seat. Pierce J. made the order she did and reserved costs to me. Pierce J. could have made a direction regarding costs but did not do so. Therefore, I see it as open to me to make a disposition on costs that includes the application and that takes in to account the entirety of the litigation.
10The trial judgment was in excess of the amount which 1833340 offered to settle the matter prior to the hearing in May 2021. The offer was open at the commencement of the trial. It was not accepted. I agree with the submission of 1833340 that the provisions of Rule 49.10(1) are engaged in this matter. The LII offer does not engage the provisions of Rule 49.10(1).
11I find 833340 made an offer to settle on July 22, 2019 that was made at least seven days before the commencement of the hearing. I find the offer was not withdrawn and did not expire prior to the commencement of the hearing. I find the offer was not accepted by the respondents. I find it was open to either of the respondents to accept. I find the applicant 1833340 has obtained a judgment more favourable than the terms of the offer to settle. I see no reason to depart from the provisions of Rule 49.10(1) in this matter regarding the disposition of costs.
12Therefore, I find that 183340 is entitled to an order for costs jointly and severally against both LII and Uwe Quast. The order for costs will be payable on a partial indemnity basis for the period September 30, 2014 to July 31, 2019 and on a substantial indemnity basis from August 1, 2019 to the end of the hearing.
13183340 seeks partial indemnity costs of $15,170 inclusive of HST and disbursements for the period September 30, 2014 to July 31, 2019 and substantial indemnity costs of $74,503.59 for the period August 1, 2019 to the date the trial was completed on May 14, 2021. 183340 also seeks payment of disbursements of $26,477.41 inclusive of taxes. In total, 1833340 seeks $116,151.00 for costs.
14A number of lawyers, in two different law firms, have worked on this matter on behalf of 1833340. Despite my award of costs, some of which are on a substantial indemnity basis, I do not see this as a vehicle to have LII pay for each and every lawyer or timekeeper who touched this file at any time. An overarching principle governing costs requires a court to fix an amount that is fair and reasonable for the unsuccessful party to pay rather than an amount tied to the actual costs incurred by the successful litigant.
151833340 initially retained the services of the Larson Lawyers firm in Thunder Bay. Solicitor Evan Juurakko had carriage of the file from September 2014 to March 2018. Mr. Juurakko argued the application before Pierce J.. Mr. Juurakko’s hourly rate increased from $150 an hour to $175 an hour over the term of his retainer. While Mr. Juurakko’s year of call was not noted on the bill of costs provided, it did note his years of experience as 7. As I am familiar with the relatively small litigation bar in Thunder Bay, I believe this number of 7 may be Mr. Juurakko’s years of experience as of 2021. He was a new call when he spent four years on this file from 2014 to 2018.
16The bill of costs notes Mr. Juurakko spent over 100 hours on this file. Having reviewed the time dockets there was a good deal of time spent on “preparation” of various materials. While there was a significant history to this matter because the relationship between Mr. Quast and Mr. Locke spanned a number of years, I detect an aspect of “learning” in this matter for which LII should not have to pay. I am looking at fixing an amount for which it is reasonable for the unsuccessful party to pay. Accordingly, I fix partial indemnity fee costs for the work performed by the Larson firm at $7,000 inclusive of taxes.
17The Weiler Maloney Nelson firm took over the file in April 2018. As noted, a portion of this time will be allowed on a partial indemnity basis. The bill of costs submitted segregated the time spent before and after July 31, 2019.
18With respect to the period before July 31, 2019, 1833340 has included it its bill of costs dockets for eight separate timekeepers; five lawyers, two legal assistants and one law student. I only considered the work of two lawyers to be reasonably assessed to the costs award given the complexity of this matter. Mr. Clark expended the majority of time on the file for the period prior to July 31, 2019, some 66 hours. He was a relatively new call at that time. I detect in the dockets of Mr. Clark an aspect of “learning” given the nature of the entries; review of documents, case law, instructing staff and the like. I note Mr. Clark’s rate was higher than that of Mr. Juurakko despite being of an earlier call. At the same time, a counsel of much more experience, Brian Babcock performed services for 1833340 for the period prior to July 31, 2019. Mr. Babcock’s time spent for this period was 19.2 hours albeit at a higher hourly rate.
19In my view, by the time the Weiler firm became involved, a good deal of the necessary background facts had been fleshed out by the process leading to the decision of Pierce J.. As corporate matters go, where a joint valuation expert was directed to be retained, I see the file as being relatively straight forward after March 2016. No doubt the conduct of Mr. Quast following the Pierce J. decision complicated conduct of the file for 1833340. I reference the delays caused by Mr. Quast in retaining the joint expert directed by Pierce J.. He did not act expeditiously to retain the joint expert. Further I see the decision by Mr. Quast to retain an additional expert as unnecessarily complicating the matter and being contrary to the spirit of a jointly retained expert ordered by the court. This necessitated a response by 1833340 including retaining its own expert.
20I see the level of complexity of this matter calling for an unsuccessful party to only have to pay for one opposing counsel, when it comes to fixing costs. I am assessing this matter on a global basis. This decision is not meant to dismiss or diminish the work of any of the lawyers of the Weiler firm. I just do not think LII has to pay for all of it.
21Overall, looking at the work performed by Mr. Clark and Mr. Babcock during the partial indemnity costs period, I assess reasonable fee costs to be $8,000 inclusive of taxes.
22Therefore, for the fee portion of the costs of the period awarded at a partial indemnity rate for both the Larson and Weiler firms, I fix an amount of $15,000 inclusive of taxes.
23For the period of substantial indemnity costs, the bill of costs includes time for twelve timekeepers; four lawyers, four law students, three legal assistants and one law clerk. As noted above, even on a substantial indemnity basis, a fair and reasonable amount of costs calls for payment for only one lawyer.
24Including time for persons in a bill of costs who reasonably could not be expected to be considered by a court for costs purposes is not a persuasive advocacy technique.
25Mr. Clark conducted the trial. I have focused on his docket entries in coming to a fair and reasonable quantum to fix costs for the substantial indemnity basis period. Mr. Clark spent 262 hours on the matter including four days of trial by ZOOM. His rate changed during the retainer commencing at $200 an hour and concluding at $250 an hour. The rate is reasonable on a full indemnity basis for a five-year call in the Northwest Region.
26As stated in many decisions of this court concerning costs, the fixing of costs is not simply a matter of rigidly applying an hourly rate to the hours spent by the solicitor for the successful party. In this case, a straight mathematical calculation of Mr. Clark’s time yields a substantial indemnity award of approximately $54,000 for fees. In my view, this is not appropriate for the purposes of this judgment for the period of August 1, 2019 to the trial in May 2021. I appreciate Mr. Clark was of great assistance to the court in cooperating with Mr. Quast to conduct a trial during the time of the pandemic. Both gentlemen acted in a courteous and helpful manner in the pretrial process and during the trial. However, Mr. Quast did not decide to accept what turned out to be a very reasonable offer to settle in July 2019. Matters were therefore prolonged. LII will be paying something for that.
27In my view, a reasonable fee portion for the period awarded at a substantial indemnity rate is $45,000 inclusive of HST.
281833340 seeks disbursements of $26,477.41 inclusive of taxes. $20,945 of this amount is in respect of the account of the expert called by 1833340 at trial.
29LII’s submissions did not speak to the question of disbursements other than to argue the decision by 1833340 to retain its own expert was unreasonable. I do not agree with this submission.
30In light of Mr. Quast’s decision to retain his own expert, in the face of a clear court direction that a joint expert was to be retained, I see the decision of 1833340 to retain its own expert as reasonable. The parties declined to include the actual amounts paid to the other two experts in their costs submissions which would have been helpful for a comparison basis. Expert fees are a hotly contested matter if push comes to shove and actual disbursements are contested by parties. I assume the amount sought for the Davis Martindale report is the actual amount paid to that firm for the report. I note that Mr. Martindale had the benefit of the other two expert’s report when preparing his report. He used all the same basic economic information in coming to his opinion. He did give his evidence in a forthright and useful manner. As the matter was conducted by ZOOM, the usual travel expense for a Southern Ontario expert appearing in the Northwest Region would have been absent from his account. I appreciate valuation experts are themselves very valuable and in high demand these days. However, assessing the legal work expended in this matter and comparing it to the account of the valuation expert, I am not prepared to award the expert report disbursement requested by 1833340 on a dollar for dollar basis.
31The proportionality and fairness principle leads me to assess reasonable disbursements to be payable by LII on a global basis. I include the disbursements expended by the Larson firm as well in coming to this amount. Accordingly, I award 1833340 disbursements in this matter of $17,000 inclusive of HST.
32Therefore, it is ordered that LII and Ewe Quast jointly and severally forthwith pay costs to 1833340 of:
-$15,000 for fees on a partial indemnity basis inclusive of taxes;
-$45,000 for fees on a substantial indemnity basis inclusive of taxes;
-$17,000 for disbursements inclusive of taxes;
For a total of $77,000.
33Further, pursuant to paragraph 80(2) of the judgment of Pierce J. of March 16, 2016, I direct that any outstanding invoices for trial of the joint expert Grant Thorton LLP be paid by Ewe Quast and LII on a joint and several basis.
“original signed by” The Hon. Mr. Justice F.B. Fitzpatrick
DATE: June 30, 2021
COURT FILE NO.: CV-14-0520-00
DATE: 2021-06-30
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Andrew Locke and 1833340 Ontario Ltd. v. UWE Quast and Lakehead Ironworks Inc.
HEARD: In Writing
BEFORE: Fitzpatrick J.
COUNSEL: Jonathan Clark for Applicants
Respondents self represented
JUDGMENT ON COSTS FOLLOWING TRIAL
Fitzpatrick J.
DATE: June 30, 2021
/lvp