Court File and Parties

COURT FILE NO.: CV-20-00000732-0000

DATE: 2021-11-24

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: NDRIVE, NAVIGATION SYSTEMS S.A., Plaintiff

AND:

SI ZHOU (aka SI (SILAS) ZHOU aka SILAS ZHOU), AGUAZION, INC., HAKEMI & RIDGEDALE LLP and THOM HAKEMI, Defendants

AND BETWEEN:

SI ZHOU (aka SI (SILAS) ZHOU aka SILAS ZHOU), AGUAZION, INC., and AQUA LATITUDE INTERNATIONAL LIMITED, Plaintiffs by Counterclaim

AND:

NDRIVE, NAVIGATION SYSTEMS S.A., JOAO FILIPE DOS SANTOS TEIXERA NETO, ANDREIA SUSANA DIAS and EDUARDO AUGUSTO DE SOUSA CARQUEJA, Defendants by Counterclaim

BEFORE: THE HON. MADAM JUSTICE S.E. HEALEY

COUNSEL: R. Gilliland and C. Groper, counsel for NDrive, Navigation Systems S.A, Joao Filipe Dos Santos Teixera Neto, Andreia Susana Dias and Eduardo Augusto De Sousa Carqueja

N. Emblem, counsel for Si Zhou, Aguazion, Inc. and Aqua Latitude International Limited (moving parties)

G. McGuire, counsel for Tom Hakemi and Hakemi & Ridgedale LLP

HEARD: By written submissions

COSTS ENDORSEMENT

[1] The terms used for the parties are the same as those set out in my judgment following a motion for summary judgment (NDrive, Navigation Systems v. Zhou et al., 2021 ONSC 7366).

[2] The moving parties, NDrive and its directors, were successful in obtaining summary judgment against the Zhou parties for all claims in the action, and a dismissal of the Zhou parties’ counterclaim.

[3] I have reviewed the written submissions of the parties, and their cost outlines.

[4] The moving parties seek costs on a full indemnity basis in the total amount of $247,781.88 inclusive of disbursements or, alternatively, substantial indemnity costs, for the motion and action. In their notice of motion, the moving parties put the Zhou parties on notice that they would be seeking their costs “on the highest allowable scale” if successful.

[5] The Zhou parties submit that only partial indemnity costs are warranted given the orders made in the proceeding, which included an award of punitive damages. They submit that Silas Zhou has already been amply penalized between the punitive damage award and the dismissal of his claims. They submit that a fair and reasonable amount to pay is $80,000.

[6] Counsel exchanged cost outlines prior to the motion. The moving parties’ original cost outline was less than that now submitted for the court’s consideration because it did not calculate costs on a full indemnity scale, nor did not include time for dealing with the issue of costs. That of the Zhou parties showed costs for the motion alone, on a full indemnity basis including disbursements, in the amount of $124,496.17. As pointed out by the moving parties in their submissions, the cost outlines show that the parties incurred comparable costs in bringing and defending against the summary judgment motion.

[7] The court has broad discretion in deciding whether to award costs, to whom, and in what amount: s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43. However, that discretion is to be exercised in accordance with the provisions of an act or the Rules of Civil Procedure, O. Reg. 194: 1465778 Ontario Inc. v. 1122077 Ontario Ltd., 2006 35819 (ON CA), [2006] O.J. No. 4248 (Ont. C.A.), at para. 25; Andersen v. St. Jude Medical Inc., 2006 85158 (ON SCDC), [2006] O.J. No. 508 (Div. Ct.), at para. 20; leave to appeal refused, 2006 CarswellOnt 7749 (Ont. C.A.).

[8] Rule 57.01 sets out the factors a court may consider when deciding costs, and the court must adhere to the principle of proportionality set out in r. 1.04(1.1). Despite those factors, the court’s authority under r. 57.01(1) remains discretionary: Ontario v. Rothmans Inc., 2013 ONCA 353, [2013] O.J. No. 2367, at para. 134.

[9] The overarching principle when fixing costs is that the amount of costs awarded be reasonable in the circumstances: Davies v. Clarington (Municipality), 2009 ONCA 722, [2009] O.J. No. 4236, at para. 52.

[10] In determining the appropriate amount of costs to which the plaintiff is entitled, the principles that guide my decision are those articulated in Andersen, at para. 22:

(1) The discretion of the court must be exercised in light of the specific facts and circumstances of the case in relation to the factors set out in Rule 57.01(1): [Boucher v. Public Accountants Council for the Province of Ontario, 2004 14579 (ON CA), [2004] O.J. No. 2634 (Ont. C.A.); [Moon v. Sher, 2004 39005 (ON CA), [2004] O.J. No. 4651 (Ont. C.A.); and [Coldmatic Refrigeration of Canada Ltd. v. Leveltek Processing LLC, 2005 1042 (ON CA), [2005] O.J. No. 160 (Ont. C.A.)].

(2) A consideration of experience, rates charged and hours spent is appropriate, but is subject to the overriding principle of reasonableness as applied to the factual matrix of the particular case: Boucher. The quantum should reflect an amount the court considers to be fair and reasonable rather than any exact measure of the actual costs to the successful litigant: Zesta Engineering Ltd. v. Cloutier, [2002 25577 (ON CA)](https://www.canlii.org/en/on/onca/doc/2002/2002canlii25577/2002canlii25577.html), [2002] O.J. No. 4495 (Ont. C.A.), at para. [4].

(3) The reasonable expectation of the unsuccessful party is one of the factors to be considered in determining an amount that is fair and reasonable: Rule 57.01(1)(0.b).

(4) The court should seek to avoid inconsistency with comparable awards in other cases. “Like cases, [if they can be found], should conclude with like substantive results”: [Murano v. Bank of Montreal, 1998 5633 (ON CA), [1998] O.J. No. 2897 (Ont. C.A.)] at p. 249.

(5) The court should seek to balance the indemnity principle with the fundamental objective of access to justice: Boucher.

[11] Costs rules are designed to foster three fundamental purposes: (1) to indemnify successful litigants for the cost of litigation; (2) to encourage settlements; and (3) to discourage and sanction inappropriate behavior by litigants: Fong v Chan, 1999 2052 (ON CA), [1999] O.J. No. 4600 (Ont. C.A.), at para. 22.

[12] In arriving at this decision on costs, I have fully considered the r. 57.01(1) factors and weighted them accordingly:

• The NDrive parties spent many months trying to get this motion scheduled and heard, which involved writing to opposing counsel, communicating with the court, and conferences with the case management judge. Their efforts were resisted by the Zhou parties, as demonstrated by their refusal to agree to a timetable, their motion to vacate the summary judgment date and appeal of the decision of this court to keep the scheduled date. The exercise of those appeal rights are not in issue, but the Zhou parties are now faced with the consequences of the additional time incurred by NDrive in having to keep pushing to have this motion heard.

• The NDrive parties were wholly successful in their claims against the Zhou parties and the dismissal of the counterclaim, and so are presumptively entitled to costs.

• The costs now being sought had to have been within the Zhou parties’ reasonable expectations. They have retained experienced counsel whose hourly rates are $935 and $550 per hour. The Zhou parties are sophisticated litigants and several sizeable cost awards had already been made against them during their interlocutory steps. Those cost awards would have given an advance warning of the amount and scale of costs that would be sought if this motion was successful. Zhou was ordered to pay costs on a substantial indemnity basis in July 2020 for making false statements in the affidavits that he filed with the court. Further, in their counterclaim the Zhou parties sought costs on a full indemnity scale, indicating that this scale of costs was not something that should take them by surprise.

• The result ended what has been very expensive litigation for the moving parties, and which was on track to be even more costly because of the conduct of the Zhou parties.

• The amounts in dispute were sizeable. The moving parties sought damages in the amount of Canadian dollars equivalent to $958,449.75 USD, and punitive damages of $1M. In their counterclaim the Zhou parties sought damages in the amount of $5M, as well as punitive, aggravated and exemplary damages of $1M.

• The claim was not overly factually or legally complex, but the same cannot be said of the defence and counterclaim. The preparation of a defence to the counterclaim would understandably take considerable effort and time.

• The summary judgment motion was complicated and unnecessarily complex because of the various causes of action raised by the Zhou parties, the scope and nature of the evidence advanced by them—which required a careful sifting to determine, first, relevance, and second, reliability—and the plethora of baseless allegations made against NDrive and its directors. In their factum and argument, the Zhou parties raised new issues and arguments that had not been pleaded. Their fabricated allegations and dishonesty were solely to blame for the significant cost of the motion. In their own costs outline, the Zhou parties addressed the complexity of the proceeding by acknowledging that this was a complex motion “on a litany of issues, including whether partial summary judgment is appropriate, whether this proceeding is amenable to summary judgment, and whether there is a genuine issue for trial for, inter alia, fraud, breach of contract, fraudulent concealment and other causes of action.”

• The Zhou parties admitted the truth of nothing that was material to the issues in dispute.

• The Zhou parties sued the directors personally, in what was found by this court to be an abuse of process.

• The Zhou parties filed a 57-volume brief on the motion, yet made reference to only a small portion of that material during argument and in their factum. I can only infer that this was an attempt to convince the court that this motion was a “trial in a box” and not appropriate for summary judgment simply by virtue of sheer volume.

• Zhou provided sworn evidence that was false for the purpose of the Mareva orders, and attempted to mislead this court again with respect to various evidence in his affidavits on key issues before the court. It is one thing for parties to have different perspectives about past occurrences; the court is regularly called on to make credibility and reliability assessments as a result. It is entirely another for a litigant to attempt to invent a narrative by putting his own spin on disparate items of evidence in the hope that something might raise an issue requiring a trial. That is what occurred here. Again, this is conduct that led to increased time to the moving parties in having to rebut the various allegations.

• The Zhou parties served a 104-paragraph request to admit. Fortunately for them, the NDrive parties did not answer it, as that would have increased costs even more. The majority of the request to admit dealt with the arbitration-related allegations which this court found to be statute barred and/or irrelevant. Nonetheless, the Zhou parties cannot now complain that the other side incurred costs in having to review it and correspond in respect of it.

• The Zhou parties were found to have committed fraud and breach of fiduciary duty, and to have engaged in an abuse of process by adding the individual directors to the action for the purpose of pressuring a settlement

• All steps taken by the moving parties were necessary and reasonable

• The court made findings that Zhou: 1) provided false evidence in his affidavits sworn May 14, 2020, and May 17, 2020, about not dissipating the arbitral award and the extent of his assets; 2) deliberately hid or altered evidence; 3) provided false and misleading evidence in his affidavits, repeatedly, about the matters that went to the core of the dispute; and 4) commenced a counterclaim containing spurious claims against the directors personally, which was an abuse of process.

• the Zhou parties made false and highly improper accusations against counsel for NDrive, including that they had deliberately concealed material evidence from the court.

• the Zhou parties filed a reply to the defence to counterclaim that included allegations of improper conduct involving both NDrive and their counsel despite earlier findings by the court to the contrary on the exact same issue. All of this demonstrates a disrespect for the court and its orders.

• Zhou has paid less than half of the $368,113 security payment that he was ordered to pay on June 19, 2020, with no explanation for his failure to do so.

• Zhou had not paid all cost awards as of the date of argument of the motion, and in the past did not pay them until threatened with a motion to have his defence and counterclaim dismissed.

[13] Enhanced costs should be awarded only on a clear finding of reprehensible conduct on the part of the party against whom the costs order is being made: Young v. Young, 1993 34 (SCC), [1993] 4 S.C.R. 3, at p. 17; Smith v. Inco Ltd., 2013 ONCA 724, [2013] O.J. No. 5449, at para. 61; Davies, at paras. 28-31.

[14] Cases in which a punitive damages award has been made can also involve a substantial or full indemnity costs award: Pate Estate v. Galway-Cavendish and Harvey (Township), 2013 ONCA 669, [2013] O.J. No. 5017, at paras. 160-164 and 217, and Ottawa Community Housing Corp. v. Foustanellas, 2013 ONSC 5443, 2013 CarswellOnt 11716, affirmed 2015 ONCA 276.

[15] At para. 161 of Pate Estate, Lauwers J. cited M.M. Orkin in the The Law of Costs, looseleaf, 2d ed. (Aurora: Canada Law Books Inc., 2011) at 2-248.2: to explain the overlap between punitive damages and substantial indemnity costs:

The better view appears to be that the two issues are legally distinct or, putting it another way, the issue of indemnifying a plaintiff for legal costs is sufficiently distinct from punishing a defendant for misconduct that an award of punitive damages should not automatically preclude the awarding of solicitor-and-client costs. As has been said in this context, the awarding of costs is a discretionary matter which by definition is not governed by a rigid set of rules. Consequently, depending on the circumstances, courts have not hesitated to award solicitor-and-client costs in addition to an award of exemplary, or aggravated, or punitive damages.

[16] The Zhou parties assert that where a party’s conduct has already been sanctioned, the courts have declined to award the plaintiff a “windfall of enhanced costs”, relying on Navrab Investments Inc. v. Vaidyan, 2013 ONSC 1381, at para. 5. In that case the defendant had been charged criminally, convicted and sentenced. Where the criminal court had already punished the behavior, punitive damages in the civil suit were not warranted. Navrab is distinguishable from this case.

[17] The Zhou parties’ argument is that the award of punitive damages in addition to full or substantial indemnity costs would be double punishment for the same conduct. But the Court of Appeal has made clear, in both Pate Estate and the decisions reviewed therein by Lauwers J., that the same conduct can give rise to both punitive damages and enhanced costs. Specifically, in Leenen v. Canadian Broadcasting Corp., 2001 4874 (ON CA), [2001] O.J. No. 2229 (Ont. C.A.), at para. 38, Austin J.A. stated:

The impact on the appellants may be the same but the fact is that the conduct in question may quite properly be the origin of both an award of aggravated and/or punitive damages and an award of solicitor and client costs. The intent of the trial judge was that Leenen be fully indemnified with respect to his legal costs. In the circumstances, that intention was properly founded and the accepted way to give effect to it is by an award of solicitor and client costs.

[18] In Envoy Relocation Services Inc. v. Canada (Attorney General), 2013 ONSC 2622, [2013] O.J. No. 1999, at para. 71, after reviewing the law Annis J. concluded that “an elevated award of costs may be based upon reprehensible conduct either preceding the litigation or during the litigation, but cannot be based solely upon pre-litigation conduct that was the foundation for an award of punitive (or other) damages, as this would be tantamount to double indemnification for the same conduct.” At the time that he wrote that Pate Estate had not been released.

[19] In Hampton Securities Limited v Dean, 2018 ONSC, 2018 CarswellOnt 4561, affirmed 2018 ONCA 901, the court awarded both punitive damages and full indemnity costs, explaining, at para. 24, that “a legitimate public purpose of cost orders is to discourage inappropriate conduct. A cost award based on the principle of full indemnity does that.”

[20] Additional appellate authority for an award of both punitive damages and elevated costs, in this case full indemnity, can be found in Pillar Resource Services Inc. v. PrimeWest Energy Inc., 2017 ABCA 19, [2017] A.J. No. 41. In Pillar, at paras. 127 and 129, the court stated “it is an error to equate an indemnity costs order with punitive damages. The latter are penal in nature and have nothing to do with the amount of the successful party’s legal obligations to its counsel”, and “[t]here is probably a strong likelihood that a party who is the beneficiary of a punitive damages order will also be the payee under a full-indemnity costs award. A party that has engaged in misconduct of a nature that justifies a punitive damages sanction has most likely acted in a sufficiently offensive manner to warrant a full-indemnity costs order”.

[21] Costs on the highest scale being sought by the NDrive parties requires particularly egregious conduct that goes beyond that which would merit an award of substantial indemnity costs: Net Connect v. Mobile Zone, 2017 ONCA 766, at para. 8. Full indemnity costs are to be awarded rarely and with great caution. In cases in which full indemnity costs have been ordered, the “overriding common thread … is the strong sentiment that the matter, or the issue at least, should never have been brought before the court in the first place, leading to a reaction that the innocent party should not have had to pay a penny toward the cost of litigation”: Envoy, at para. 116.

[22] The moving parties have provided several other cases in which litigation conduct, including an intention to mislead the court, have resulted in full indemnity costs: GasTOPS Ltd. v. Forsyth, 2012 ONCA 134, [2012] O.J. No. 909; Net Connect v. Mobile Zone, 2017 ONSC 1097, 2017 CarswellOnt 1866; Pirbhai v Singh, 2011 ONSC 1366, [2011] O.J. No. 910; Tsymbalarou v. Gordon, 2013 ONSC 6406, 2013 CarswellOnt 11575. Additionally, in Canadian Premier Life Insurance Co. v. Ho, 2016 ONSC 496, 2016 CarswellOnt 652, full indemnity costs were ordered where the plaintiff had incurred substantial costs in investigating a fraud and in tracing its proceeds.

[23] The type of considerations that have attracted full indemnity costs are summarized at para. 125 of Envoy, as follows:

(a) “grave positive misconduct” on the part of the blameworthy party;

(b) but for the blameworthy party’s misconduct, the matter, or at least a significant component of the litigation, should never have reached the courts;

(c) the non-offending party did nothing to hinder, delay or confuse the litigation;

(d) the blameworthy party’s conduct was contemptuous, enforcing the “aggrieved party to exhaust legal proceedings to obtain that which was obviously his”;

(e) the matter involved a scurrilous attack on the administration of justice or waste of scarce judicial resources.

[24] The conclusion that all of these factors exist here is an easy one to reach. Zhou breached and abused his fiduciary position for his own self interest and personal gain. He committed a substantial, calculated and sustained fraud and then used this litigation to attempt to justify and obfuscate his behaviour. Only when he was caught did he attempt to put NDrive’s money back into an account, and thereafter began his baseless attempt to justify keeping it. This was NDrive’s money and should have been returned to them in full immediately upon demand. Had he returned it immediately in response to the demand letter, this action would have been avoided. Zhou’s refusal to return it unless he was permitted to retain a large amount of it, after committing fraud, necessitated the action.

[25] I found that there was a concerted effort on the part of the moving parties to deal with the litigation expeditiously and in a cost-effective manner in the face of delay tactics and “strategic nonsense.” The Zhou parties showed an intention to undertake a long and drawn out process, raising issues that were clearly statute barred and/or irrelevant. They wasted scarce court resources. They made serious and unsubstantiated allegations against opposing counsel, even in a pleading. Their litigation conduct was shocking and reprehensible. This conduct was detailed in my reasons for judgment, but the worst of it was an intention to hide relevant evidence and to mislead the court. The Zhou defendants were litigants who displayed not just one type of behavior that should be sanctioned by costs, but a wide array of the worst types of such conduct. Full indemnity costs are warranted in such circumstances.

[26] Many of these same factors were part of the consideration for awarding punitive damages. Although a significant award at $200,000, it was less than some awards that have been made in the face of fraud and breach of fiduciary duty: Carmen Alfano Family Trust v. Piersanti, 2012 ONCA 297, [2012] O.J. No. 2042 ($250,000); Ward v. Manufacturers Life Insurance Co., 2007 ONCA 881, [2007] O.J. No. 4882 ($250,000). While heightened costs will obviously add to his financial burden, all of this could have been avoided by Zhou if he had just returned the money when NDrive asked that he do so.

[27] In summary, full indemnity costs are being ordered because: 1) this litigation should never have had to be commenced; 2) the moving parties should be fully indemnified for the costs of this litigation; 3) the Zhou parties’ frivolous defences and claims should be discouraged; 4) the Zhou parties’ inappropriate behavior in the conduct of the proceedings should be discouraged and sanctioned; and 5) early settlements, without having to resort to summary judgment motions, should be encouraged.

[28] In determining the amount of costs, I have ensured that there is no duplication of costs that were already ordered against the Zhou parties for interlocutory steps in the proceeding. I do agree with the submission by the Zhou parties that the fees incurred for drafting and issuing the statement of claim should not be attributed to these parties alone.

[29] I have taken into account that McCarthy J. ordered that costs of the first motion for a Mareva order were to be paid by the Zhou parties in the cause. He fixed them at $31,000 on a partial indemnity scale.

[30] The disbursements incurred by the moving parties are reasonable and allowable in the amount of $2,854.59.

[31] Mr. Gilliland was admitted to the Ontario Bar in 2002, and Mr. Groper in 2010. Their hourly rates are appropriate to their experience. It was clear from the argument of the motion that they had divided the topics to be addressed. This is a case that in my view required more than one experienced lawyer, and was appropriately staffed.

[32] Despite reaching the conclusion that full indemnity costs should be paid, courts have made clear that a calculation of hourly rates and time is not the object of the exercise. As Farley J. stated in BNY Financial Corp.-Canada v. National Automotive Warehousing Inc., [1999] O.J. No. 1273, (Ont. C.J.), at p. 4: “Rather essentially the question to be considered is what is the case reasonably worth in the circumstances.”

[33] Having regard to all of the above, I find that a fair and reasonable cost order in this case is $230,000, including disbursements.

[34] This court orders that Si Zhou, Aguazion Inc. and Aqua Latitude International Limited shall pay costs of the action to NDrive, Navigation Systems S.A fixed in the amount of $230,000.

HEALEY J.

Date: November 24, 2021