Court File and Parties
COURT FILE NO.: 16-67606
DATE: 2021/01/26
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: S.I. Systems Partnership, Plaintiff
AND:
Li Geng, Xin Xu a.k.a. Jimmy Xu, Quarksys Consulting Inc. and X & C Hi-Tech Inc., Defendants
BEFORE: Mr. Justice C. MacLeod
COUNSEL: Jason M. Berall & Andrew Sahai, for the Plaintiff
Melinda Layton, for the Defendants
HEARD: In writing
COSTS DECISION
[1] On December 23, 2020, I gave judgment following a trial that took place on the Zoom videoconference platform in October and November. (See 2020 ONSC 8086). I have now received written costs submissions.
[2] The defendants were successful in defending against the plaintiff’s claim and are presumptively entitled to costs. There is no suggestion that the defendants should not be entitled to a reasonable amount. The only issues are the scale and quantum.
[3] Counsel for the defendants submits that the actual cost of defending this action inclusive of fees, disbursements and HST was $163,328.87. She submits that the defendants should recover that amount due to the fact that the litigation was more complex than it needed to be, that the plaintiff pursued claims that it subsequently abandoned, that the plaintiff failed to proceed under Rule 76 of the Rules of Civil Procedure and the defendants made an offer to settle that would have been more advantageous than the result at trial.
[4] The plaintiff concedes that costs are appropriate but argues that partial indemnity or 60% of the actual costs would be the normal award. The plaintiff calculates that $106,250.00 is the proper calculation (inclusive of fees, disbursements and HST) but asks that this be reduced to $53,191.82 primarily because part of the defence was an allegation of fraudulent misrepresentation; an allegation that was not accepted by the court. The plaintiff argues that the allegation of fraud made a viva voce trial essential and ruled out proceeding by affidavit.
[5] It is unfortunate that the defendant chose to use the word “fraudulent” in its pleading particularly in circumstances that at least, in my view, were not circumstances giving rise to a misrepresentation. The issue was not whether the written agreement contained a non-competition agreement, but whether someone on behalf of S.I. made a promise not to enforce it. Nevertheless, I do not consider this to have been the primary driver of the litigation and I do not consider it an allegation which should give rise to a punitive reduction of costs otherwise payable by 50%. The unproven fraud allegation might be a factor in refusing to award costs to the plaintiff on a higher scale had I been inclined to do so.
[6] I do not think that the plaintiff can be shown to have acted unreasonably in pursuing this litigation simply because it was unsuccessful at trial. The enforcement of the non-competition clause was important to the plaintiff as it forms part of its business model. I do not consider that pursuing this litigation was either frivolous or outrageous or that there are other circumstances giving rise to the extraordinary remedy of complete indemnity costs or substantial indemnity costs.
[7] It is true that the action was pursued over several years and took several wrong turns and that in turn drove up costs, but the consequence of that was either reflected in costs awards made at the time or is reflected in the costs claimed at trial. The nominal offer to settle was served late in the day and is not strictly Rule 49 compliant (due to the need to deduct costs after a certain point in time) and in any event I agree with the plaintiff that the rule does not strictly apply when the plaintiff is completely unsuccessful at trial. Finally, Rule 49 only raises a presumption and I do not consider that substantial indemnity costs of this trial would be appropriate.
[8] The reason that partial indemnity is the default scale of recovery is so that both parties have some “skin in the game”. That is both parties have a mutual interest in keeping costs down. They both seem to have lost sight of this. At the end of the day, this was a five-day trial and the issues were not complex. I consider the costs incurred in this case to be extraordinary. Balance and fairness are required in fixing costs along with all of the factors set out in the Rules. The question always centres around what amount of the costs actually incurred can be reasonably visited upon the losing party.
[9] Despite my view that the costs actually incurred were extraordinary, the plaintiff does not seriously challenge how much was spent. There is a minor argument about using an average hourly rate when defence counsel hiked her hourly rate from $250.00 per hour to $500.00 over a period of four years. One could question whether a paralegal student should be billed at an hourly rate or should be part of office overhead and whether the preparation of costs submissions should be part of the costs of the action. I would not allow the costs of reviewing the trial decision and following up with clients as costs of the action. In the end, however, this is not an assessment of costs but an exercise in fixing costs.
[10] In this case, the plaintiff did not provide its own costs outline or disclose what S.I. has paid to pursue the litigation. As noted earlier, the plaintiff concedes that $106,000 is 60% of what the defendants actually incurred.
[11] In a case such as this, the principle of indemnity is important. The defendants were in an employment-like relationship with the plaintiff. It would be unjust for them to be at the mercy of their former “employer” if the plaintiff is allowed to engage in expensive litigation without assuming the risk of substantial costs. I have found the restrictive covenant to be unenforceable. It would be unjust to leave the defendants to bear an expense for legal fees which is as large as any judgment might have been.
[12] I decline to award substantial indemnity costs, but I am not bound by a strict 60% calculation. That is a starting point. This is not a mathematical exercise. The objective is fairness.
[13] I fix the costs at $110,000.00 inclusive of fees, disbursements and HST. That amount is to be paid within 90 days.
Mr. Justice C. MacLeod
Date: January 26, 2021
COURT FILE NO.: 16-67606
DATE: 2021/01/26
ONTARIO
SUPERIOR COURT OF JUSTICE
RE: S.I. Systems Partnership, Plaintiff
AND:
Li Geng, Xin Xu a.k.a. Jimmy Xu, Quarksys Consulting Inc. and X & C Hi-Tech Inc., Defendants
BEFORE: Mr. Justice C. MacLeod
COUNSEL: Jason M. Berall & Andrew Sahai, for the Plaintiff
Melinda Layton, for the Defendants
COSTS DECISION
Mr. Justice C. MacLeod
Released: January 26, 2021