DCR Strategies Inc. v. Gomez et al.

COURT FILE NO.: CV-19-626941-CL (Toronto)

DATE: 20211221

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: DCR Strategies Inc., Plaintiff

AND: Rounault “Roy” Gomez, 2420286 Ontario Inc. and XTM, Inc., Defendants

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

COUNSEL: Eli S. Lederman, Jonathan D. Langley and Sahar Talebi, for the plaintiff

Michael O’Brien and Judith Manger, for the defendants Rounault “Roy” Gomez and 2420286 Ontario Inc. (amicus curiae)

David T. Woodfield, for the defendant XTM, Inc.

HEARD: By written submissions dated September 2 to 9, 2021

ENDORSEMENT – costs

I. Introduction

[1] This endorsement provides my decision with respect to the costs arising from two motions heard together in the action by the plaintiff DCR Strategies Inc. against the defendants Rounault “Roy” Gomez, 2420286 Ontario Inc. and XTM, Inc. In the action, DCR seeks damages and other relief against its former Chief Technology Officer (Mr. Gomez), his numbered company (242), and a competitor who retained Mr. Gomez’s services (XTM).

[2] As set out in Reasons for Judgment dated August 12, 2021 (reported at 2021 ONSC 5404, leave to appeal to Div. Ct. refused, 2021 ONSC 7415), I dismissed DCR’s motion for an interlocutory injunction against the defendants, relating to the alleged disclosure and use of DCR’s confidential information. I also dismissed XTM’s cross motion for summary judgment, seeking dismissal of the action against XTM. Costs were left to be determined following written submissions.

[3] In their costs submissions, DCR and XTM each seeks substantial indemnity costs against the other in their successful response to the other’s motion. Through amicus curiae appointed pursuant to Hainey J.’s order dated February 12, 2020, the unrepresented defendants Mr. Gomez and 242 (the “Gomez defendants”) seek partial indemnity costs against DCR in their successful response to DCR’s injunction motion.

[4] The parties’ positions are set out in greater detail below.

II. Parties’ positions

A. DCR’s injunction motion

[5] Given the defendants’ success in resisting DCR’s injunction motion, the defendants are seeking costs of that motion from DCR.

[6] XTM is seeking costs on a substantial indemnity basis, totalling $122,992.27 (including disbursements and tax). If costs are awarded on a partial indemnity basis, XTM calculates its recoverable costs at $82,641.42. XTM says it was required to incur significant costs responding to the injunction motion, given (among other things) the broad relief DCR initially sought (narrowed only shortly before the motion hearing), DCR’s extensive supporting material (and XTM’s need to respond in kind), and DCR’s delay in pursuing a hearing of the motion, resulting in multiple court appearances. XTM also relies on an offer to settle it made shortly before the hearing, under which DCR would have been required to withdraw its injunction motion and pay XTM’s partial indemnity costs.

[7] The self-represented Gomez defendants, through amicus curiae, seek partial indemnity costs, totalling $84,113.41. Of that amount, $77,010.72 would be for time and disbursements attributable to work performed by amicus curiae and would be payable to their law firm under a direction from the Gomez defendants. The balance of $7,102.69 would be payable to the Gomez defendants for tasks performed themselves by Mr. Gomez and Paula Lopes (a director and shareholder of 242) in the amount of $3,120 and disbursements they incurred directly totalling $3,982.69 including tax.

[8] Amicus curiae was appointed by court order as part of the Commercial List amicus curiae program “to assist the Court in ensuring that the position of the self-represented [Gomez defendants] are advanced before the Court in a fair and efficient manner.” The Gomez defendants say that it is appropriate and within the parties’ expectations that costs be awarded for the benefit of amicus curiae appointed under court order, applying the principles that apply with respect to awarding costs in the context of a traditional pro bono retainer. They also say that it is appropriate to award costs to the Gomez defendants directly for the work Mr. Gomez and Ms. Lopes performed that is typically undertaken by counsel as well as for disbursements they incurred directly.

[9] In response, DCR submits that the appropriate costs order in this case is costs in the cause, thereby deferring the determination of costs for the injunction motion. According to DCR, there are a number of factual issues having a bearing on costs that remain to be determined. DCR says that it is appropriate that those factual issues be determined at the trial, based on a full evidentiary record.

[10] In the alternative, DCR submits that the scale and quantum of costs being sought are disproportionate and unreasonable. DCR says that there is no justification for ordering substantial indemnity costs and that the amount of costs awarded for the injunction motion should not exceed $20,000, reflecting the parties’ reasonable expectations. DCR also disputes the Gomez defendants’ entitlement to costs for work attributable to them that would be performed by any litigant.

B. XTM’s summary judgment motion

[11] Given DCR's success in resisting XTM’s cross motion for summary judgment, DCR is seeking costs of the cross motion from XTM. DCR seeks costs on a substantial indemnity basis, totalling $105,966.30 (including disbursements and tax). If awarded on a partial indemnity basis, DCR calculates its recoverable costs at $72,504.97.

[12] DCR submits that awarding substantial indemnity costs is appropriate given that DCR repeatedly encouraged XTM to abandon its ill-conceived summary judgment motion and avoid the associated costs and delay. According to DCR, given that it incurred additional expenses responding to the cross motion (including preparing a supplemental motion record and attending cross-examinations), the amount of costs sought is not disproportionate nor beyond the parties’ reasonable expectations.

[13] In response, XTM disputes that there is any basis for awarding substantial indemnity costs to DCR. XTM also submits the costs claimed are inflated and inappropriate. Among other things, some of DCR’s time charges relate to services in 2020, prior to the bringing of the cross motion for summary judgment in February 2021. In addition, essentially the same evidence was relied on for both XTM’s summary judgment motion and DCR’s injunction motion. The only additional evidence DCR provided was a five-page affidavit that stated that it was filed in relation to both motions. Cross-examinations on affidavits and attendance at the motion hearing would have occurred in any event in relation to DCR’s unsuccessful injunction motion, even if the summary judgment motion had not been brought.

C. Allocation of costs between the motions

[14] The fact that two substantively different motions were considered together based on the same evidentiary record provides a challenge in determining appropriate costs orders in this case.

[15] The submissions in XTM’s costs outline acknowledges that issue. XTM’s counsel provides a separate calculation of actual (full indemnity) costs for each motion and explains that where counsel found it impossible to allocate with precision the portion of an entry spent on the injunction motion or the summary judgment motion, half was allocated to each motion. XTM also takes the latter approach (half for each motion) in allocating the relatively modest amount of disbursements claimed. The costs outline calculates actual costs at over $136,400 for the injunction motion and over $96,500 for the summary judgment motion, for a total of over $232,900 (including disbursements and tax). Consistent with the other parties’ costs outlines, XTM calculates partial indemnity legal fees at 60 per cent of actual legal fees and substantial indemnity legal fees at 90 per cent of actual legal fees.

[16] DCR’s costs outline takes a different approach than XTM on the issue of allocation of costs between the motions. DCR calculates its actual costs at over $117,000 for XTM’s unsuccessful summary judgment motion, without providing a calculation for DCR’s unsuccessful injunction motion. DCR’s costs outline therefore leaves unaddressed the extent to which charges were allocated between the two motions as well as the extent of any charges beyond those covered on the costs outline.

[17] For the Gomez defendants, the issue of allocation of costs between the motions does not arise since they filed no material, took no position and made no submissions with respect to the summary judgment motion. Therefore, their costs outline appropriately addresses costs for the injunction motion only. The costs outline calculates their actual costs at over $137,300, which includes $5,200 (on a full indemnity basis) for time attributable to the work of Mr. Gomez and Ms. Lopes.

III. General legal principles on determining costs

[18] The determination of costs is in the court’s discretion: Courts of Justice Act, R.S.O. 1990, c. C.43, s. 131. Consistent with previous case law, the successful party has a reasonable expectation of being awarded costs in the absence of special circumstances: see Bell Canada v. Olympia & York Developments Ltd. (1994), 1994 239 (ON CA), 17 O.R. (3d) 135 (C.A.), at p. 142. The general principle that a successful party is entitled to costs should not be departed from except for very good reasons: see Ehsaan v. Zare, 2018 ONCA 453, at para. 10.

[19] Costs are normally awarded on a partial indemnity basis, with two limited exceptions when “elevated costs” are warranted, as set out in Davies v. Clarington (Municipality), 2009 ONCA 722, 100 O.R. (3d) 66, at para. 28:

This court … has repeatedly said that elevated costs are warranted in only two circumstances. The first involves the operation of an offer to settle under rule 49.10, where substantial indemnity costs are explicitly authorized. The second is where the losing party has engaged in behaviour worthy of sanction.

[20] In Young v. Young, 1993 34 (SCC), [1993] 4 S.C.R. 3, at p. 134, McLachlin J. describes the circumstances in which elevated costs are warranted as "only where there has been reprehensible, scandalous or outrageous conduct on the part of one of the parties.” In a similar vein, except where r. 49.10(1) applies, the Ontario Court of Appeal has indicated that elevated costs based on a party’s conduct should be awarded only in a “rare and exceptional case”, based on “egregious or reprehensible conduct that warrants sanction”: see Foulis v. Robinson (1978), 1978 1307 (ON CA), 21 O.R. (2d) 769 (C.A.), at p. 776; Mortimer v. Cameron (1994), 1994 10998 (ON CA), 17 O.R. (3d) 1 (C.A.), at pp. 22-23; and McBride Metal Fabricating Corp. v. H & W Sales Co. (2002), 2002 41899 (ON CA), 59 O.R. (3d) 97 (C.A.), at paras. 37-38.

IV. Analysis and conclusion

[21] Putting aside initially the issue of allocation of costs between the two motions, I have concluded that each of the parties would be entitled to partial indemnity costs with respect to the motion that they successfully defended. For the injunction motion, DCR would be liable for the partial indemnity costs of XTM and the Gomez defendants. For the summary judgment motion, XTM would be liable for the partial indemnity costs of DCR.

[22] I see no sufficient justification for awarding substantial indemnity costs to either XTM or DCR. Nothing in the parties’ conduct rose to the level of “reprehensible, scandalous or outrageous conduct” that would make it a “rare and exceptional case” justifying substantial indemnity costs. As well, while those parties exchanged letters prior to the motion hearing proposing resolution of the motions to avoid a hearing (which generally indicated little evidence of compromise), neither party argued in their written submissions that their correspondence constituted offers that met the requirements of r. 49.10. Therefore, applying the criteria in Davies, at para. 28, awarding costs beyond the scale of partial indemnity costs is not warranted in this case.

[23] I also see no justification for deferring a costs decision for the injunction motion pending determination of disputed factual issues at trial, as DCR suggests. DCR’s failure to pursue its injunction motion on a timely basis was effectively fatal to its success on the motion, given the requirement to establish irreparable harm and a favourable balance of convenience, the second and third elements of the test for granting an interlocutory injunction: see RJR-MacDonald Inc. v. Canada (Attorney General), 1994 117 (SCC), [1994] 1 S.C.R. 311, at p. 334. The first element of the test relating to the merits of the action was not the determining factor: see Reasons for Decision, at paras. 34 and 38. In these circumstances, there is no basis for departing from the presumptive result that the costs of a contested motion be addressed (and ordered payable) at time the motion is decided: see r. 57.03(1)(a).

[24] Returning to the issue of allocation of costs between the motions, I have concluded that in the circumstances of this case, I should make a costs award as between DCR and XTM on a net basis covering both motions, as indicated further below.

[25] The allocation of costs between these motions is a matter of judgment that provides an additional challenge in determining appropriate costs awards, as noted above. In this case, both motions were heard based on the same evidentiary record. The results of cross-examinations on the affidavits were relied on for both motions, also serving the function of examinations for discovery for the action. Both motions were heard at the same hearing over a two-day period. In these circumstances, it appears appropriate to make a global determination of costs as between DCR and XTM, rather than deal with each motion individually.

[26] As noted in the parties’ costs outlines, the parties filed extensive motion material that was used for both motions, followed by cross-examinations in the period leading up to the motion hearing. DCR and XTM each claims a significant level of costs from the other with respect to the motion that they successfully defended. In these circumstances, it is reasonable to conclude that it was within their reasonable expectation that each of them would potentially face a significant costs award against them if unsuccessful on the motion they advanced.

[27] Given that each of DCR and XTM was the successful party on one motion and the unsuccessful party on the other, one costs outcome I considered was to order each of them to bear their own costs of both motions (effectively a net zero costs award), based on the mixed results they achieved on a global basis. However, I do not consider such an order to be appropriate in this case. DCR’s injunction motion was brought in September 2019. The hearing of the motion was rescheduled at least twice through no fault of XTM. Most of the affidavit evidence relied on for both motions was originally provided in support of the injunction motion alone. It was only in February 2021 that XTM brought its cross motion for summary judgment, which appeared to act as a catalyst in advancing the long-dormant injunction motion.

[28] While I consider it appropriate to allocate to both motions at least some of the time and expense incurred prior to bringing the summary judgment motion, I do not consider a net zero costs award as between DCR and XTM to be appropriate in this case on the material before me, taking into account the considerations set out in r. 57.01(1). While counsel’s costs submissions focused on docketed time and hourly rates, as noted by the Court of Appeal in Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 14579 (ON CA), 71 O.R. (3d) 291 (C.A.), at para. 26, when fixing costs, the calculation of hours and time rates is only one factor to be taken into account. The overall objective is “to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding, rather than an amount fixed by the actual costs incurred by the successful litigant.” In doing so, the reasonable expectation of the unsuccessful party is a relevant factor, consistent with Boucher, at paras. 37-38, and r. 57.01(1)(0.b).

[29] Taking into account the above considerations, I am fixing XTM’s net costs at $25,000, payable by DCR within 30 days. To be clear, by “net costs” I mean the excess of XTM’s costs successfully defending against the injunction motion over DCR’s costs successfully defending against the summary judgment motion.

[30] Turning now to the Gomez defendants’ costs of the summary judgment motion, I agree with them that a partial indemnity costs award should be made in their favour, given their successful defence against the injunction motion advanced through amicus curiae at the motion hearing. I have concluded that the Gomez defendants should be awarded partial indemnity costs, payable by DCR within 30 days, of which $15,000 will be payable to Tyr LLP for time and disbursements attributable to the work of amicus curiae and $3,982.69 will be payable jointly to Mr. Gomez and 242 for disbursements they incurred directly.

[31] The amount payable directly to the unrepresented Gomez defendants covers their disbursements only. Through amicus curiae, they claim an additional $3,120 in partial indemnity costs for tasks performed by Mr. Gomez and Ms. Lopes themselves. However, I am not satisfied that those tasks extended to any significant extent beyond those that any litigant would perform or otherwise met the requirements necessary to recover costs for their time and effort in the litigation: see Fong v. Chan (1999), 1999 2052 (ON CA), 181 D.L.R. (4th) 614 (Ont. C.A.),[^1] at pp. 624-25.

[32] With respect to the amount payable to Tyr LLP, I agree with amicus curiae that it is appropriate to make a costs award payable to them (as directed by the Gomez defendants) for their time and expense on the injunction motion. Doing so is consistent with the court order appointing them to that role and previous case law relating to awarding costs to pro bono counsel: see 1465778 Ontario Inc. v. 1122077 Ontario Ltd. (2006), 2006 35819 (ON CA), 82 OR (3d) 757 (C.A.), at paras. 34-35.

[33] In this case, amicus curiae clearly made a positive contribution to the conduct of the injunction motion, advancing the position of the Gomez defendants and supplementing the submissions of XTM’s counsel in opposition to DCR’s motion. However, while it is fitting that amicus curiae receive some compensation for the role they undertook, I do not consider it appropriate to make a significantly greater costs award (as the Gomez defendants requested), which would have effectively treated them as if they were counsel retained by a party to the action.

[34] As Hainey J.’s order appointing amicus curiae makes clear, their role was to assist the court, not to act as counsel to any party. That order protected them from liability or obligation to any party (including the Gomez defendants), including liability for the costs of any party. In these circumstances, I considerate it appropriate that amicus curiae receive compensation for their efforts commensurate with the role they undertook and the contribution they made. However, the fact that the amount awarded in this case is less than they would have received as counsel retained by a party should not be taken as an adverse indication of the quality of the amicus curiae’s contribution.

V. Disposition

[35] Accordingly, an order will issue, requiring DCR to pay the following amounts as costs within 30 days:

a. For DCR’s injunction motion and XTM’s summary judgment motion, XTM’s costs are fixed at $25,000 on a net basis, payable to XTM.

b. For DCR’s injunction motion, the Gomez defendants’ costs are fixed at (i) $15,000 in relation to time and disbursements of amicus curiae, payable to Tyr LLP, and (ii) $3,982.69 for disbursements incurred by the Gomez defendants, payable jointly to the Gomez defendants.

R.A. Lococo J.

Date: December 21, 2021

[^1]: Also reported at 1999 2052 (ON CA), 46 O.R. (3d) 330.