ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Henry Hill & Associates Inc., Henry Hill, Laura Beaton and Chetan Phull
Plaintiffs
- and -
Manuel Santos, 7683839 Canada Corp. “Per Ingenium”, Parthiv D’Souza and Ernesto Santos
Defendants
Chetan Phull, self-represented A. Honickman, counsel for HHAI, Henry Hill and Laura Beaton Brian Radnoff and David Seifer, counsel for Manuel Santos and Per Ingenium Gil Zvulony, counsel for Ernesto Santos Parthiv D’Souza not appearing
HEARD: June 24 and 25, 2021
RULING ON SUMMARY JUDGMENT MOTION AND COSTS
Justice C. Petersen
INTRODUCTION
Motions Before the Court
1There are two motions before me: (1) the plaintiffs’ motion for summary judgment against all defendants except Ernesto Santos, and (2) Ernesto Santos’ motion for costs against the plaintiffs. In response to the plaintiffs’ motion for summary judgment, the defendants ask for a “boomerang” order of judgment against the plaintiff, Chetan Phull.
2The underlying action includes claims by the plaintiffs for defamation (vis-à-vis all defendants) and breach of the terms of a non-disclosure agreement (vis-à-vis Per Ingenium). The action has been discontinued as against the defendant Ernesto Santos.
Background Facts
3Henry Hill & Associates Inc. (HHAI) is a small family-run human resources business. Henry Hill and Laura Beaton are the principals of HHAI. For approximately six years, Manuel Santos provided information technology services to HHAI through his business, Per Ingenium. Manuel Santos is the principal of Per Ingenium. Among other things, Manuel worked on customizing open-source software for HHAI.
4Ernesto Santos is Manuel’s father. To avoid confusion, I will refer to the Santos defendants by their first names, Manuel and Ernesto.
5The working relationship between HHAI and Per Ingenium (and between Mr. Hill, Ms. Beaton and Manuel) started to break down in or about 2017. By 2018, HHAI was looking for another information technology service provider. Manuel claims that HHAI refused to pay him for work he had completed and stole the customizations he created.
6Per Ingenium commenced a Small Claims Court action against HHAI, Mr. Hill and Ms. Beaton in March 2018, in respect of invoices that Manuel delivered for services that he claimed to have rendered and for which he was not paid. In the action, Per Ingenium claimed over $20,000 in damages.
7The parties settled the Small Claims Court litigation prior to trial. The action was dismissed, on consent, with a payment of $14,500 by HHIA to Per Ingenium. The terms of settlement included a full release containing a confidentiality clause.
8The plaintiff Chetan Phull is a lawyer who was acting for HHAI, Mr. Hill and Ms. Beaton during the material time.
9Commencing in June 2018, the plaintiffs were the subject of a series of derogatory articles posted on an internet website called RipOff Report. The posts refer to the parties’ commercial litigation. Among other statements contained in the posts, the author calls Mr. Hill and Ms. Beaton liars and thieves, and accuses them of stealing the work of an unnamed developer (presumably Manuel). The author accuses Mr. Phull of extortion of the same developer.
10The posts were authored by an individual who identified as “Parthiv D’Souza”. The plaintiffs believe that this is an alias used by Manuel. They allege that Manuel is the true author of the posts.
11After the third derogatory post was published, and after sending several cease-and-desist letters, the plaintiffs commenced this action. They named Manuel, Per Ingenium, “Parthiv D’Souza” and Ernesto as Defendants. Ernesto had been a director of Per Ingenium. As mentioned above, the action as against Ernesto has been discontinued. Ernesto’s motion for costs against the plaintiffs is addressed in Part B below.
12Parthiv D’Souva initially defended the action but went completely silent after the court ordered him to produce his identity. The Statement of Defence filed by Parthiv D’Souza has been struck and s/he has been noted in default.
13Manuel denies using the pseudonym “Parthiv D’Souza” and denies writing the posts. Although he denies making the posts, he argues that they are not defamatory. He asserts that the statements in the posts are true or are comments based on fact. He and the plaintiffs have very different narratives about what transpired in the course of their business relationship.
14Per Ingenium denies breaching the confidentiality provisions of the parties’ settlement. Manuel and Per Ingenium argue that Parthiv D’Souza learned about the parties’ prior commercial litigation from publicly available court documents.
PART A - SUMMARY JUDGMENT MOTION
15The plaintiffs move for summary judgment. They seek declaratory and injunctive relief, as well as general damages and aggravated damages. The defendants argue that this is not an appropriate case to be determined by summary judgment, except that they seek a “boomerang” order for summary judgment against the plaintiff Chetan Phull.
Analytical Framework
16The framework for deciding summary judgment motions is established by Rule 20.04 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. Subrule 20.04(2)(a) states: “The court shall grant summary judgment if the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence.” The moving party bears the onus of proving that there is no genuine issue requiring a trial.
17Subrules 20.04(2.1) and (2.2) stipulate:
(2.1) In determining under clause (2)(a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:
Weighing the evidence.
Evaluating the credibility of a deponent.
Drawing any reasonable inference from the evidence.
(2.2) A judge may, for the purposes of exercising any of the powers set out in subrule (2.1), order that oral evidence be presented by one or more parties, with or without time limits on its presentation.
18In Carmichael v. GlaxoSmithKline Inc., 2020 ONCA 447, the Court of Appeal for Ontario provided the following helpful summary of Supreme Court of Canada jurisprudence regarding the analytical approach to summary judgment motions:
140Hryniak [v. Mauldin, 2014 SCC 7] and the companion case of Bruno Appliance and Furniture, Inc. v. Hryniak, 2014 SCC 8, [2014] 1 S.C.R. 126, established a two-step process on a summary judgment motion:
First, the motion judge asks whether there is a genuine issue requiring a trial, based only on the evidence before the court, and without using the new fact-finding powers under rr.20.04(2.1) and (2.2.), to weigh the evidence, evaluate the credibility of a deponent, and draw any reasonable inference from the evidence. There will be no genuine issue requiring a trial when the evidence on the motion allows the judge to make the necessary findings of fact and to apply the law to the facts, and where granting summary judgment is a proportionate, more expeditious, and less expensive means to achieve a just result: Hryniak, at para. 66; Bruno, at para. 22.
Second, if there is a genuine issue requiring a trial, the motion judge should then ask whether a trial can be avoided by using the new fact-finding powers to weigh the evidence, evaluate the credibility of a deponent, and draw any reasonable inference from the evidence. The motion judge has a discretion to use these powers where it would lead to a fair and just result and would serve the goals of timeliness, affordability, and proportionality in light of the litigation as a whole: Hryniak, at para. 66; Bruno, at para. 22.
19The Supreme Court of Canada in Hryniak made the following observations about assessing the “interest of justice”:
57On a summary judgment motion, the evidence need not be equivalent to that at trial, but must be such that the judge is confident that she can fairly resolve the dispute. A documentary record, particularly when supplemented by the new fact-finding tools, including ordering oral testimony, is often sufficient to resolve material issues fairly and justly. The powers provided in Rules 20.04(2.1) and (2.2) can provide an equally valid, if less extensive, manner of fact finding.
58This inquiry into the interest of justice is, by its nature, comparative. Proportionality is assessed in relation to the full trial. It may require the motion judge to assess the relative efficiencies of proceeding by way of summary judgment, as opposed to trial. …
59In practice, whether it is against the “interest of justice” to use the new fact-finding powers will often coincide with whether there is a “genuine issue requiring a trial”. It is logical that, when the use of the new powers would enable a judge to fairly and justly adjudicate a claim, it will generally not be against the interest of justice to do so. What is fair and just turns on the nature of the issues, the nature and strength of the evidence and what is the proportional procedure.
Analysis
Step 1: Is there a genuine issue requiring a trial?
20For the reasons set out below, I have concluded that there are several genuine issues requiring a trial.
21A threshold issue is whether Manuel authored the impugned internet posts under the name “Partiv D’Souza”. Manuel denies that he created or assumed this on-line pseudonymous identity and denies that he authored the posts. The plaintiffs argue that circumstantial evidence establishes his identify as the author. A key component of that circumstantial evidence relates to an IP address linked to Manuel that was associated with the creation of a Gmail account used by “Partiv D’Souza”.
22Manuel acknowledges that his IP address was used to create the Parthiv Gmail account, but he submits this is insufficient to establish that he is Parthiv or that he authored the impugned posts. He notes that the motion record does not contain evidence from the RipOff Report website of the IP address used to make the posts. He relies on the fact that there were six additional IP addresses associated with logins to the Parthiv Gmail account.
23Manuel has adduced evidence of hacking of his computer network to cast doubt on the probative value of the plaintiffs’ circumstantial evidence. He has also adduced evidence of an alibi for the period of time when one of the impugned posts was apparently made. The probative value of the hacking evidence is challenged by the plaintiffs’ expert witness. The accuracy and reliability of the evidence regarding the timing of the posts is also challenged by the plaintiffs.
24The plaintiffs allege that Manuel lied under oath both in his sworn affidavit evidence and during his cross-examination. The plaintiffs also allege that Manuel deliberately mislead the court by filing a Statement of Defence under the pseudonym Parthiv D’Souza. Clearly, Manuel’s credibility is a central issue in this case.
25Other witnesses’ credibility and reliability are also at issue. The IP addresses and the hacking issue are the subject of expert evidence called by the plaintiffs. The expert’s qualifications are admitted by the defendants, but his objectivity and the reliability of his evidence are in dispute.
26Furthermore, the defamatory nature of the impugned statements contained in the internet posts is not admitted by the defendants. Among other defences, they raise the defence of truth, which will ultimately require the court to assess the credibility of Mr. Hill and Ms. Beaton. For example, there is conflicting evidence in the motion record regarding whether Mr. Hill and Ms. Beaton used Manuel’s work without his permission. This issue (and others) will need to be resolved in order to determine whether some of the statements in the impugned posts are true. Contrary to the plaintiff’s submission, the court will be required to make some factual findings relating to the parties’ commercial dispute (i.e., the prior Small Claims Court litigation) in order to determine whether the posts are defamatory. There is conflicting evidence about that dispute. I am not confident that the motion record is sufficient for those facts to be determined.
27The Court of Appeal for Ontario has recognized that the more important credibility disputes are to determining key issues, the harder it will be to fairly adjudicate those issues solely on a paper record: A.C. v. Joyce, 2017 ONCA 49, at para. 92, and 2212886 Ontario Inc. v. Obsidian Group Inc., 2018 ONCA 670, at para.40.
28Given the multiplicity of credibility issues in this case, I conclude that there are genuine issues requiring a trial.
Step 2: Should the enhanced fact-finding powers be used, or is it in the interest of justice for those powers to be exercised only at a Trial?
29The motion record is voluminous (thousands of pages). There are numerous affidavits from the parties, except for the plaintiff Chetan Phull. There are expert reports. There are transcripts of cross-examinations of witnesses. Still, in my view, the record is insufficient to enable the court to make credibility findings with confidence, and the enhanced powers under Rule 20.04 will not correct this insufficiency. In the interest of justice, the appropriate procedure is to order a trial.
30The plaintiffs are not only accusing Manuel of defamation, and of lying under oath, they are also alleging that he intentionally misled the court by filing pleadings and a factum under a false name (i.e., Parthiv D’Souza). This is conduct of the most egregious sort. The litigation therefore implicates more than significant monetary consequences. The parties’ mutual reputations are at stake. The plaintiffs’ reputations will be impacted by the court’s findings with respect to the purported truth of the impugned posts, and Manuel’s integrity and reputation will be impacted by the court’s determination of whether he is the pseudonymous Parthiv D’Souza. Given the importance of the issues at stake, it is not disproportionate to devote the resources of a trial to the resolution of the issues.
31It is unclear whether there will be any additional or different witnesses called by the parties at trial, but there will certainly be a better opportunity for the trial judge to evaluate the evidence: Hryniak, at para.58. As Justice Myers noted in RNC Corp. v. Johnstone, 2020 ONSC 7751, at para.6, summary judgment motions are not supposed to be a “trial in a box”. Where a judge is called upon to make detailed findings on contested evidence about complex facts, “the process of counsel leading evidence through live witnesses over several days gives order and context to the complexities and nuances of the interactions”: RNC Corp., at para.17. That context is lost when a judge roots through bankers’ boxes – or, in this case, a multitude of electronic files – to review documents on their own in chambers, even with the benefit of able submissions from counsel.
32The judge’s ability to fully appreciate the evidence is not only enhanced by the narrative that unfolds during a trial, but also by the opportunity for the judge to ask their own questions of witnesses. This opportunity is particularly important in this case, where expert evidence has been tendered to assist the court in making key factual findings, but the objectivity and reliability of the expert witness is being challenged. The weight to be accorded to the expert’s evidence cannot be fairly determined when the cross-examination occurred out of court, and the interest of justice requires that the trial judge have the ability to ask the expert questions for clarification, as needed.
33In Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764, at paras. 47-55, the Court of Appeal for Ontario explained the value of trial dynamics. It also set out the analysis to be adopted in determining whether a trial can be avoided, on a summary judgment motion, by exercising the enhanced powers outlined in Rule 20.04 (2.1):
47As these passages reflect, the trial judge is a trier of fact who participates in the dynamic of a trial, sees witnesses testify, follows the trial narrative, asks questions when in doubt as to the substance of the evidence, monitors the cut and thrust of the adversaries, and hears the evidence in the words of the witnesses. As expressed by the majority in Housen, at para. 25, the trial judge is in a "privileged position". The trial judge's role as a participant in the unfolding of the evidence at trial provides a greater assurance of fairness in the process for resolving the dispute. The nature of the process is such that it is unlikely that the judge will overlook evidence as it is adduced into the record in his or her presence.
48The trial dynamic also affords the parties the opportunity to present their case in the manner of their choice. Advocates acknowledge that the order in which witnesses are called, the manner in which they are examined and cross- examined, and how the introduction of documents is interspersed with and explained by the oral evidence, is of significance. This "trial narrative" may have an impact on the outcome.
49In contrast, a summary judgment motion is decided primarily on a written record. The deponents swear to affidavits typically drafted by counsel and do not speak in their own words. Although they are cross-examined and transcripts of these examinations are before the court, the motion judge is not present to observe the witnesses during their testimony. Rather, the motion judge is working from transcripts. The record does not take the form of a trial narrative. The parties do not review the entire record with the motion judge. Any fulsome review of the record by the motion judge takes place in chambers.
50We find that the passages set out above from Housen, at paras. 14 and 18, such as "total familiarity with the evidence", "extensive exposure to the evidence" and "familiarity with the case as a whole", provide guidance as to when it is appropriate for the motion judge to exercise the powers in rule 20.04(2.1). In deciding if these powers should be used to weed out a claim as having no chance of success or be used to resolve all or part of an action, the motion judge must ask the following question: can the full appreciation of the evidence and issues that is required to make dispositive findings be achieved by way of summary judgment, or can this full appreciation only be achieved by way of a trial?
51We think this "full appreciation test" provides a useful benchmark for deciding whether or not a trial is required in the interest of justice. In cases that call for multiple findings of fact on the basis of conflicting evidence emanating from a number of witnesses and found in a voluminous record, a summary judgment motion cannot serve as an adequate substitute for the trial process. Generally speaking, in those cases, the motion judge simply cannot achieve the full appreciation of the evidence and issues that is required to make dispositive findings. Accordingly, the full appreciation test is not met and the "interest of justice" requires a trial.
53We wish to emphasize the very important distinction between "full appreciation", in the sense we intend here, and achieving familiarity with the total body of evidence in the motion record. Simply being knowledgeable about the entire content of the motion record is not the same as fully appreciating the evidence and issues in a way that permits a fair and just adjudication of the dispute. The full appreciation test requires motion judges to do more than simply assess if they are capable of reading and interpreting all of the evidence that has been put before them.
54The point we are making is that a motion judge is required to assess whether the attributes of the trial process are necessary to enable him or her to fully appreciate the evidence and the issues posed by the case. In making this determination, the motion judge is to consider, for example, whether he or she can accurately weigh and draw inferences from the evidence without the benefit of the trial narrative, without the ability to hear the witnesses speak in their own words and without the assistance of counsel as the judge examines the record in chambers.
55Thus, in deciding whether to use the powers in rule 20.04(2.1), the motion judge must consider if this is a case where meeting the full appreciation test requires an opportunity to hear and observe witnesses, to have the evidence presented by way of a trial narrative and to experience the fact-finding process first-hand. Unless full appreciation of the evidence and issues that is required to make dispositive findings is attainable on the motion record -- as may be supplemented by the presentation of oral evidence under rule 20.04(2.2) -- the judge cannot be "satisfied" that the issues are appropriately resolved on a motion for summary judgment.
34I am of the view that the attributes of the trial process are necessary to enable a full appreciation of the evidence in this case. The paper record, albeit voluminous, does not give me confidence that I can make dispositive findings of fact and resolve the dispute fairly and justly, even with the enhanced powers set out in Subrules 20.04(2.1) and (2.2). The plaintiffs’ motion for summary judgment is, on that basis, dismissed.
Should the court order summary judgment against Chetan Phull?
35The defendants’ request for a “boomerang” order of summary judgment against Chetan Phull is denied.
36The defendants argue that Mr. Phull adduced no evidence on the motion, despite having the burden to prove that there is no genuine issue requiring a trial of the issues raised by his claims. Mr. Phull did not submit his own affidavit, but that does not mean there is no evidence before the court to support his motion. He relies on the evidence adduced by his co-plaintiffs, which he is entitled to do. That evidence includes, among other things, copies of his correspondence with “Parthiv D’Souza” and Manuel.
37As indicated above, I have concluded that there are genuine issues requiring a trial, and that includes issues raised by Mr. Phull’s claims. In particular, with respect to Mr. Phull’s claims, the identify of the author of the impugned posts is an issue that requires a trial.
Costs
38The issue of the parties’ costs of the plaintiffs’ motion for summary judgment (and of the defendants’ counter-request for summary judgment against Chetan Phull) is reserved to the trial judge.
PART B – ERNESTO SANTOS’ MOTION FOR COSTS
Overview of Parties’ Positions
39The defendant Ernesto Santos is seeking an order requiring the plaintiffs to jointly and severally pay his costs of the discontinued action against him on a substantial indemnity basis, in the amount of $30,000.
40Ernesto submitted two Bills of Costs. The first is from his former lawyer, José Rodrigues. It covers the period from October 30, 2018 to June 24, 2019 and shows disbursements in the amount of $341 (inclusive of HST) and substantial indemnity fees in the amount of $12,008, plus $1,561 HST. The second is from his current lawyer, Gil Zvulony. It covers the period from July 31, 2019 to October 28, 2020 and shows a total of $16,950 in actual fees and disbursements, inclusive of HST ($15,093 on a substantial indemnity basis).
41Ernesto submits that the plaintiffs’ action against him included serious allegations of impropriety and significant claims for damages, yet it was completely without foundation. He argues that the plaintiffs pursued the litigation against him for two years, despite his repeated protests that he was incorrectly named as a defendant, and his presentation of exculpatory evidence.
42The plaintiffs submit that they were justified in commencing the action against Ernesto based on the information available to them at the time. They argue that no steps, apart from filing pleadings, were required by Ernesto, and that his lawyers took unnecessary steps and incurred unnecessary costs, when they should have simply held their file in abeyance until such time as the plaintiffs could confirm whether they would discontinue the action against him. They argue that, in these circumstances, Ernesto is not entitled to costs.
Summary of Background Facts
43In October 2018, the plaintiffs named Ernesto as one of several defendants in a lawsuit for over $35 million in damages, including punitive, exemplary, and aggravated damages. In their Statement of Claim, they accused him of acting in bad faith, of breach of confidence and breach of trust, of intentional infliction of emotional distress (i.e., making an intimidating phone call to Ms. Beaton), of defamation (i.e., maliciously engaging in a smear campaign against the plaintiffs on the internet while hiding behind common cyber-defamation enforcement barriers) and of breach of contract (i.e., breach of the non-disclosure agreement executed by Per Ingenium as part of the Small Claims Court settlement).
44Ernesto was not a party to the non-disclosure agreement that he was accused of breaching. He had been a director of Per Ingenium years earlier but had no material involvement in the company at the relevant times. However, the corporate records for Per Ingenium were not updated in a timely fashion and he therefore continued to be listed as a director until March 2018, even though he had no role in the corporation.
45The record before me establishes that Ernesto had no personal or business relationship with the plaintiffs, who dealt exclusively with his son Manuel. He therefore owed no duty of confidence to them. He was effectively a stranger to them, with no known motive to defame them and no connection to the underlying dispute between them and his son. He had no involvement in the prior commercial litigation between the parties in Small Claims Court.
46Ernesto retained counsel and defended the action. He delivered a Statement of Defence on November 23, 2018, denying any involvement in the alleged tortious activities and pleading facts with respect to his advanced age, limited English fluency, and lack of technical ability.
47His first lawyer, José Rodrigues, wrote to Mr. Phull on May 2, 2019, asserting that Ernesto was “the wrong defendant” and cautioning about the potentially serious cost consequences of continuing a claim against an incorrect party. Mr. Rodrigues stated (among other things),
The claims you have brought against Ernesto are not supported by the facts or the law and may result in your client being responsible for paying a significant amount of Mr. Santos’s legal costs. The claims against Ernesto should be discontinued, as it is absurd and irresponsible to continue this action concerning English internet postings, against an 83-year old, technologically illiterate, non-English speaker.
48On May 2, 2019, Ernesto made an Offer to Settle the action if the plaintiffs discontinued their claims against him and paid his costs in the amount of $16,950. In my view, this was not a reasonable offer because the costs were excessive, considering how little work had been completed on the file up to that point.
49Mr. Phull responded to Mr. Rodrigues’ correspondence and to Ernesto’s Offer on behalf of all the plaintiffs. He invited Mr. Rodrigues to send him the authorities upon which Ernesto was relying. He noted that the plaintiffs had “no evidence of [Ernesto’s] age, English fluency or technical ability” and that the claims against him “extend beyond his direct authorship of the internet postings”. He further noted that discoveries might implicate Ernesto in the matters at issue. He queried the amount of costs claimed to have been incurred by Ernesto up to that point ($16,950), asserting that the defendants could have been represented by the same counsel under the same retainer. The plaintiffs continue to assert that the fees billed by Mr. Rodrigues are excessive relative to the work that he performed. I agree.
50The litigation continued. Ernesto changed lawyers and retained his current counsel, Gil Zvulony, in late July 2019. On August 19, 2019, Mr. Phull advised Mr. Zvulony that the plaintiffs intended to bring a motion for summary judgment against all defendants, jointly and severally.
51On August 23, 2019, Ernesto withdrew his previous Offer and made a new Offer to Settle the action on a without-costs basis, if accepted by September 3, 2019, provided that the plaintiffs released him from the action. The Offer specified that, should it be accepted after September 3, 2019, the plaintiffs would be required to pay Ernesto’s costs on a partial indemnity basis up to the date of acceptance. The plaintiffs declined the new Offer and the litigation continued.
52The plaintiffs served a Request to Admit; Ernesto denied all the asserted facts. Expert reports were obtained and delivered by the plaintiffs. The plaintiffs brought several motions, mostly in an effort to ascertain the true identity of “Parthiv D’Souza”. Ernesto was served with voluminous motion records, even though no relief was being sought against him. The plaintiffs amended their Statement of Claim more than once. Ernesto was also served with those documents, although most of the amendments did not impact his interests. The plaintiffs copied Ernesto on all correspondence and motion materials in the action, but no steps were required to be taken by Ernesto or his counsel.
53On or about October 10, 2019, the plaintiffs served a Notice of Motion for Summary Judgment motion on all the defendants, including Ernesto. The motion was returnable in June 2020.
54Since Mr. Phull had noted that the plaintiffs had no evidence to support Ernesto’s pleadings, Ernesto swore an affidavit on October 16, 2019 (in Portuguese), attesting to the fact that he is an 84-year old immigrant from Portugal, with little formal education, limited English literacy and no internet savvy. Mr. Zvulony had the affidavit translated to English and delivered the translation to the plaintiffs in December 2019, with a request for them to discontinue the action against Ernesto, failing which he would bring his own motion for summary judgment.
55In his sworn affidavit, Ernesto asserted that he is a retired maintenance worker who does not know how to use a computer or smartphone. He explained that, prior to his retirement in 2012, he worked as superintendent for a condominium and provided his custodial services through Per Ingenium, a corporation set up by his son Manuel. He provided a copy of his contract for services, which clearly shows that the services were custodial in nature and did not involve any information technology services. He confirmed that he had no involvement with Per Ingenium after the summer of 2012.
56Ernesto deposed that he did not know the plaintiffs and had never heard of them until he was accused of wrongdoing by them. He stated that he never published anything about them directly or indirectly on the internet, and he would not know how to do so even if he wanted to. He confirmed that he was not a director of Per Ingenium at the time that the Small Claims Court action by Per Ingenium against HHAI was commenced, or when the non-disclosure agreement was subsequently executed. He provided the plaintiffs with documentation showing that he ceased being a director in 2010, even though he continued to be (incorrectly) listed as a director until March 2018.
57The plaintiffs continued to refuse to release Ernesto from the litigation. In an email dated January 2, 2020, Mr. Phull advised Mr. Zvulony that removal of Ernesto from the action would be premature as “[t]he extent of [his] involvement in the facts giving rise to this action must still be determined, notwithstanding his affidavit.” However, Mr. Phull also stated that “the plaintiffs acknowledge that further facts may justify a discontinuation against Ernesto Santos. In particular, further insight into TekSavvy’s customer details … would help to determine whether Ernesto should be removed from the action.” He explained that the plaintiffs would be bringing a motion for TekSavvy (a non-party) to disclose customer information associated with certain IP addresses. He added, “While we acknowledge your entitlement to notice of the motion against TekSavvy, you need not participate in that motion. That is, Ernesto Santos need not incur legal fees while we pursue TekSavvy.”
58Mr. Zvulony promptly responded to this correspondence in January 2020. He noted that Mr. Phull appeared to have acknowledged that the plaintiffs had no proof of Ernesto’s involvement in the impugned publications. He stated, “You should not have started this action without any proof. My client should not have to have this frivolous lawsuit hanging over his head while you hopelessly try to prove something that never happened.”
59Mr. Zvulony also addressed the impending TekSavvy disclosure motion by asserting that, even if the plaintiffs could obtain evidence linking Ernesto to the IP address used by Parthiv D’Souza, such a link would not be sufficient evidence to prove that Ernesto was the publisher. He cited case law to support his position on that point.
60Mr. Zvulony advised Mr. Phull that he had instructions to proceed with a summary judgment motion. He said Ernesto would be seeking an order for his costs on a substantial indemnity basis, based on his still-open Offer to Settle. He added,
To date, my client's substantial indemnity costs are around $5,000. They are increasing. Obviously, should we be required to argue the motion, with several attendances, factums, cross examinations, etc, the costs ultimately payable by you and your clients for suing Mr. Ernesto Santos will be in the tens of thousands of dollars.
I hope, for the sake of everyone involved, that you cut your losses now and dismiss the claim against my client before we gear up for the summary judgment motion and seek substantial costs for this overzealous action.
61In the foregoing email message, Mr. Zvulony neglected to mention the costs incurred by Ernesto for his previous counsel’s fees and disbursements. This was an inadvertent oversight on his part.
62The matter did not settle. On January 22, 2020, Ernesto filed a summary judgment motion to have the action dismissed as against him. He proposed to have his motion heard at the same time as the plaintiffs’ summary judgment motion in June 2020.
63Mr. Zvulony invited the plaintiffs to cross-examine Ernesto. They declined the offer, advising that they first wanted to complete the disclosure motion against TekSavvy and submit a motion record in support of their motion for summary judgment.
64The TekSavvy motion was commenced on January 24, 2020, but was not heard until August 2020, primarily because of delays caused by the COVID-19 pandemic. Mr. Zvulony indicated to Mr. Phull that his client would oppose the motion, but later advised that Ernesto was withdrawing his opposition. The motion hearing proceeded unopposed. Mr. Zvulony attended (briefly) for the motion hearing, even though his client, Ernesto, took no position on the motion.
65The parties’ motions for summary judgment were not argued in June 2020 because of the suspension of regular court operations due to COVID-19 commencing in mid-March 2020. To the extent that work was done to prepare evidence in support of Ernesto’s motion, the plaintiffs argue that this work was completely unnecessary. The plaintiffs maintain that Mr. Zvulony ought to have set the file aside until after the TekSavvy motion was heard. It is notable that, on July 22, 2020, Mr. Zvulony wrote to Mr. Phull, once again pleading with him to discontinue the action against Ernesto. Mr. Phull responded to Mr. Zvulony that the plaintiffs would revisit whether Ernesto should be kept as a defendant in the action after the TekSavvy motion was argued.
66The Court ordered the requested disclosure from TekSavvy in early August 2020. Shortly after the plaintiffs received the relevant information, on September 16, 2020, they offered to discontinue the action against Ernesto on a no-costs basis.
67Ernesto responded with an Offer to Settle for $20,000 in costs and a dismissal. Mr. Zvulony advised that, to date, Ernesto’s actual costs were in excess of $32,000.
68The plaintiffs could not understand how Ernesto’s costs had dramatically increased from $5,000 in January 2020, to $32,000 in September 2020, since nothing had happened in the litigation in the interim, apart from the unopposed disclosure motion against TekSavvy. The plaintiffs’ confusion was caused by Mr. Zvulony’s oversight in not mentioning previous counsel’s costs when he corresponded with Mr. Phull in January 2020. At that time, he incorrectly represented that Ernesto’s substantial indemnity costs were approximately $5,000. He did not correct that error until a few days prior to the motion before me in the summer of 2021.
69I note, however, that the first Offer to Settle made by Ernesto in May 2019 included costs in the approximate amount of $17,000, so the plaintiffs ought reasonably to have known that Ernesto had incurred additional costs (with his former counsel, prior to June 2019) that he might seek if the matter were not resolved by way of settlement.
70On October 13, 2020, the plaintiffs countered with an offer to discontinue the action against Ernesto and pay him $3,000 in costs. This offer was influenced by the earlier (incorrect) representation made by Mr. Zvulony in January 2020, to the effect that Ernesto had incurred approximately $5,000 in costs on a substantial indemnity basis up to that point. Ernesto viewed the offer as unreasonably low and did not accept it.
71The plaintiffs then unilaterally abandoned the claims against Ernesto by serving him with Notices of Discontinuance on October 29, 2020, without prejudice to any costs claimed by either party. The parties agreed to deal with Ernesto’s motion for costs at the same time as the plaintiffs’ motion for summary judgment against the remaining defendants.
72Ernesto experienced significant stress due to the litigation and he incurred considerable costs. He argues that the plaintiffs engaged in heavy-handed behaviour by commencing an action against him without any cogent evidence to support their serious allegations, and they persisted with the litigation for two years, despite exculpatory evidence presented by him. He submits that the plaintiffs’ conduct was reprehensible and should be sanctioned with an award of costs on a substantial indemnity scale.
73The plaintiffs take the position that Ernesto is not entitled to any costs. They argue that, at the time they commenced the action, they reasonably suspected that Ernesto may have been Manuel’s “accomplice” in the impugned posts made under the pseudonym “Parthiv D’Souza”. They rely on the facts that Manuel and Ernesto live next door to each other; that the Parthiv Gmail account (used to email the plaintiffs) was linked to an IP address that was traced to several domains, including PerIngenium.com, a domain linked to Ernesto’s home address; and that some invoices issued by Per Ingenium to HHAI referenced Ernesto’s home address. They also rely on the fact that Ernesto remained listed as a director of Per Ingenium until March 23, 2018, despite no longer being involved with the corporation.
74The plaintiffs argue that the exculpatory evidence presented by Ernesto – namely, that he was functionally illiterate in English and lacked knowledge of computers and the internet – was not delivered to them until December 2019, and moreover was incapable of being tested at an early stage of the litigation. The plaintiffs were pursuing various non-party investigations, including the TekSavvy motion for disclosure. Had they examined Ernesto on his affidavit prior to completing those investigations, they would have been prevented (by the Rules of Civil Procedure) from submitting further affidavits without the other parties’ consent. This would have prejudiced their rights in respect of a motion for summary judgment.
75The plaintiffs further argue that Ernesto’s fluency in English is of limited relevance since he could have assisted Manuel in making the impugned posts while speaking Portuguese with Manuel.
76The plaintiffs’ central argument is that Ernesto ought to have “sat on the sidelines until the investigations were completed”, but instead he “overly involved himself in the process”, and needlessly began preparing for a summary judgment motion. They submit that none of their other motions sought any relief against Ernesto, so he was not required to take any positions on those motions and was not even required to review the materials with which he was served. The plaintiffs argue that his decision to insert himself into these steps in the proceeding (particularly the disclosure motion against TekSavvy) needlessly increased his own costs, as well as the plaintiffs’ costs.
Analysis
77The court’s general authority to award costs is found in subsection 131(1) of the Courts of Justice Act, RSO 1990, c C.43, which provides that costs are in the discretion of the court. In exercising its discretion, the court may consider the result achieved in the motion, any offers to settle made in writing, as well as several other relevant factors listed in Rule 57.01 of the Rules of Civil Procedure.
78Usually, the judge awarding costs determines an amount that is fair and reasonable for the unsuccessful party to pay, rather than calculating the exact amount of the successful litigant’s actual costs. There are, however, circumstances in which it is fair and reasonable to deny a successful party their costs, or to award costs against the unsuccessful party on an elevated scale. The latter circumstances include when Rule 49.10 applies and when there is a finding of reprehensible conduct by the unsuccessful litigant: Bank of Nova Scotia v Pappas, 2019 ONSC 840 at paras.8-10.
79Where an action is discontinued, the defendant who is released from the litigation may seek their costs under Rule 23.05(1). There is no prima facie entitlement to costs in these circumstances. The court must consider the claim for costs pursuant to its general discretion, taking into consideration the factors set out in Rule 57: Pappas, at paras.11-15.
80Having reviewed the motion record with respect to costs and after considering the parties’ submissions on the issue, I have concluded that Ernesto is entitled to a portion of his costs. He was brought into this litigation by the plaintiffs, who must have known the risk that, if they did not succeed in their claims against him, they would likely be ordered to pay his costs. They have not been successful. They discontinued the action against Ernesto before trial and before a summary judgment motion was argued, but after Ernesto incurred costs defending himself against the serious allegations they made. There is nothing in Ernesto’s conduct that would justify denying him a portion of his costs. The real issue, in my view, is the appropriate scale and quantum of costs to be awarded.
81Although it appears that Ernesto was an innocent party who was dragged into complex litigation, I accept the plaintiffs’ arguments that they did not act recklessly and that they had reason to believe he may have been involved, in consort with his son, in the alleged impugned actions of Per Ingenium. Had the plaintiffs not named Ernesto as a defendant initially and sought to add him after completing their non-party investigations, he could have taken the position that the limitation period had expired, since the plaintiffs knew of their potential claim against him at the time that the allegedly defamatory statements were discovered. Given these circumstances, I reject Ernesto’s submission that the plaintiffs’ decision to name him as a defendant was reckless.
82I also reject Ernesto’s submission that the plaintiffs’ refusal to dismiss the claims against him at an earlier stage was reprehensible and heavy handed. The record establishes that Ernesto failed to provide the necessary consent that would have permitted the plaintiffs to test his evidence at the pre-discovery stage. I therefore accept the plaintiffs’ argument that they cannot be faulted in the circumstances for acting in a manner to preserve their rights and interests.
83For the foregoing reasons, I conclude that there is no basis upon which to order the plaintiffs to pay Ernesto’s costs of the action on a substantial indemnity basis. The relevant factors for consideration under Rule 57.01 support a finding that Ernesto should recover his reasonable costs on a partial indemnity basis up until his Offer to Settle dated August 23, 2019, and on a substantial indemnity basis after that Offer was made.
84The plaintiffs sued Ernesto for damages in excess of $35,000,000 and ultimately discontinued the action against him, without recovering any amount from him. On the evidence before me, Ernesto can be considered successful in the action even though there was no adjudication of the claims against him on the merits.
85The claims against him were multiple and complex. The Statement of Claim was lengthy and included allegations of serious wrongdoing that impugned his integrity and his character. The plaintiffs must have known that he would defend the action vigorously in these circumstances, and that he would therefore incur legal costs.
86Ernesto is, however, only entitled to recover his reasonable costs. The fees charged by his first counsel are excessive relative to the work performed and taking into consideration the experience of the lawyers involved. Mr. Rodrigues was required to review the plaintiffs’ pleadings, meet with Ernesto and obtain instructions, then draft and deliver a Statement of Defence. He appropriately delegated some of this work to junior associates and law clerks. He also communicated with opposing counsel and made an Offer to Settle in May 2019. For these services, he billed almost $17,000, which is not justifiable.
87Mr. Rodrigues’ hourly rate was reasonable relative to his years of experience, but the number of hours that he docketed (19.5) was excessive. The hourly rates of the two junior associates who assisted him on the file were high relative to their limited years of experience. The hours docketed by the associates (18.2) and by the law clerks (9.9) were also unjustifiably high.
88In my view, a fair and proportionate amount that the plaintiffs could reasonably have expected to pay in the circumstances for Ernesto’s defence of the claims against him would entail 2 hours of work by Mr. Rodrigues, 8 by a junior associate, and 2 by a law clerk. According to the relevant Bill of Costs, the partial indemnity hourly rate for Mr. Rodrigues at that time was $210. A reasonable partial indemnity rate for his associate would have been $135. A reasonable partial indemnity rate for his law clerk would have been $80. I therefore conclude that a reasonable amount of fees for the work performed during the first phase of the litigation (on a partial indemnity scale) would be $1,660,1 plus $216 in HST, for a total of $1,876.
89Ernesto was also billed $341 (inclusive of HST) for reasonable disbursements incurred by Mr. Rodrigues, for which he is entitled to be indemnified by the plaintiffs. The total costs recoverable by Ernesto in respect of Mr. Rodrigues’ account is therefore $2,217 ($1,876 + $341).
90When Mr. Zvulony assumed carriage of the file at the end of July 2019, he docketed reasonable hours for reviewing the file, including the lengthy pleadings and prior motion materials, but the plaintiffs should not be responsible for costs incurred as result of duplication of effort arising from a change in counsel. Mr. Zvulony also interviewed Ernesto, corresponded with the plaintiffs’ counsel (who was, at that time, threatening a summary judgment motion), obtained instructions and prepared a new Offer to Settle. According to the Bill of Costs, Mr. Zvulony’s fees during this second phase of the litigation amounted to $2,512 on a partial indemnity scale, plus HST. Ernesto is entitled to be indemnified for a portion of these costs (excluding the costs resulting from the change in counsel). I find that $1,800 is a reasonable amount, inclusive of HST.
91After delivering Ernesto’s new Offer the Settle on a without costs basis and learning that the plaintiffs were declining the offer, Mr. Zvulony performed a considerable amount of work. He prepared Ernesto’s affidavit, had it translated, prepared a supporting affidavit and drafted motion materials for Ernesto’s summary judgment motion. He also corresponded at length with counsel for the plaintiffs in an effort to have the action discontinued without resort to a motion.
92The plaintiffs had served Ernesto with a Notice of Summary Judgment Motion and were asserting that they lacked evidence to support Ernesto’s exculpatory pleadings, so the preparation of affidavit material was reasonable in the circumstances. When the delivery of Ernesto’s affidavit did not persuade the plaintiffs to release him from the litigation, his decision to bring his own motion for summary judgment was not unreasonable.
93It was not until late January 2020 that the plaintiffs acknowledged there might be cause to discontinue the action against Ernesto. In these circumstances, he cannot be faulted for the prior steps that his counsel took to attempt to have the claims against him dismissed. His conduct from the date of his August 2019 Offer to Settle until late January 2020 was appropriate and resulted in significant legal costs to him, which should reasonably have been anticipated by the plaintiffs.
94Given the no-costs Offer to Settle that he had made, and the ultimate discontinuance of the action against him without a waiver of his costs, he is entitled to recover his costs for this third phase of the litigation on a substantial indemnity basis. According to Mr. Zvulony’s Bill of Costs, the substantial indemnity fees for the period from August 26, 2019 to January 24, 2020 amount to $4,122, plus HST, for a total of $4,658.
95Ernesto was also billed $6,800 in fees for work performed by Mr. Zvulony between January 24, 2020 and October 28, 2020, the fourth and final phase of the litigation. The Bill of Costs indicates that these fees were in relation to the TekSavvy motion and an Amended Statement of Defence filed by Manuel (Ernesto’s son).
96I accept the plaintiffs’ submissions that most of the work performed during this period was unnecessary. Fees billed in relation to the TekSavvy motion, which did not implicate Ernesto’s interests, and which was not opposed by him, constitute unreasonable costs. The plaintiffs should not be required to indemnify those costs, particularly since Mr. Phull clearly suggested to Mr. Zvulony (on more than one occasion) that he hold the file in abeyance until the TekSavvy materials were disclosed because the action might then be discontinued against Ernesto.
97However, some work to defend Ernesto’s interests was required during the fourth phase of the litigation. It is not reasonable to expect that Mr. Zvulony would simply ignore correspondence from opposing counsel or motion materials served upon him in a lawsuit against his client for millions of dollars. At minimum, a review of the materials would be required to ensure that no relief was being sought against Ernesto and that no evidence was being adduced that could prejudice Ernesto’s interests. Moreover, Mr. Zvulony needed to stay apprised of the status of the proceeding. He would have been required to review any amended pleadings. He would have been required to report to his client. There were ongoing discussions between counsel about potential resolution of the action. None of these steps were unnecessary. The plaintiffs therefore ought reasonably to have known that Ernesto’s costs were escalating.
98Ernesto is entitled to recover that portion of his costs on a substantial indemnity basis because of the outstanding offer that he had made to settle for his partial indemnity costs. In my view, an amount of $2,500, inclusive of HST, is reasonable.
99I therefore conclude that, with respect to the second, third and fourth phases of the litigation, Ernesto is entitled to be indemnified by the plaintiffs for fees in the total amount of $8,958,2 inclusive of HST.
100Ernesto was also billed $685 (inclusive of HST) for reasonable disbursements incurred by Mr. Zvulony, for which he is entitled to be indemnified. The total costs recoverable by Ernesto in respect of Mr. Zvulony’s account is therefore $9,643 ($8,958 + $685).
101For the foregoing reasons, I order the plaintiffs, jointly and severally, to pay Ernesto Santos a total of $11,860 in costs, inclusive of fees, disbursements and HST.
Costs
102I remain seized with respect to the issue of costs of the motion before me. If the parties are unable to resolve that issue, they may make brief written submissions (maximum of 2 pages, excluding any Offers to Settle and Bills of Costs) and I will decide the issue. Ernesto shall have until October 1, 2021 to deliver his submissions (via email to my judicial assistant) and the plaintiffs shall have until October 15 to deliver responding submissions. There will be no reply submissions unless requested by me.
NOTE: If either party believes that I have made a mathematical error in any of my calculations in this costs decision, they may bring the issue to my attention by email to my judicial assistant within the next 30 days, and I will address it (and conduct a telephone conference with counsel, if necessary).
Petersen, J.
Released: September 10, 2021
COURT FILE NO.: CV-18-4527
DATE: 2021 09 10
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Henry Hill & Associates Inc., Henry Hill, Laura Beaton and Chetan Phull
Plaintiffs
– and –
Manuel Santos, 7683839 Canada Corp. “Per Ingenium”, Parthiv D’Souza and Ernesto Santos
Defendants
RULING ON SUMMARY JUDGMENT AND COSTS
Petersen J.
Released: September 10, 2021