COURT FILE NO. : CV-12-461099-00A1 DATE : 20220531

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: De Cerigo Properties Inc., Studio Pyramid Inc. and Milosh Pavlovicz Plaintiffs AND: CHRISTINE RAFFAN Defendant AND: DAVID CORAZZA, KAREN CARADONNA and ROBERT ROURKE Third Parties

BEFORE: Madam Justice Ferguson

COUNSEL: C. Mark Hogan for the Plaintiffs Deborah Berlach and Nabil Mahmood, for the Defendant Leon J. Melconian, for the Third-Party, Karen Caradonna Christopher L. Hluchan, for the Third-Party, David Corazza

HEARD: In writing

ENDORSEMENT ON COSTS

Overview

[1] On February 15, 2022 I dismissed the plaintiffs’ motion for a mistrial and dismissed the action and third-party claim.

Law of Costs

[2] In Chandra v. CBC, 2015 ONSC 6519, the court set out the following applicable principles for dealing with costs at paras. 15-17 which generally apply to awarding costs in all cases:

15. The general principles to be applied in fixing costs are conveniently articulated in Agius v. Home Depot Holdings Inc., 2011 ONSC 5272, at paras. 10‑12, as follows:

    Cumming J. in DUCA Financial Services Credit Union Ltd. v. Bozzo, 2010 ONSC 4601 at para. 5, described the “normative approach” to an application for costs:

    Costs are in the discretion of the Court: s. 131, Courts of Justice Act, R.S.O. 1990, c. C.43 and Rule 57.01 of the Rules of Civil Procedure. In Ontario, the normative approach is first, that costs follow the event, premised upon a two-way, or loser pay, costs approach; second, that costs are awarded on a partial indemnity basis; and third, that costs are payable forthwith, i.e. within 30 days. Discretion can, of course, be exercised in exceptional circumstances to depart from any one or more of these norms.

    Fixing of costs is not merely a mechanical exercise in reviewing the receiving party’s Cost Outline. In Andersen v. St. Jude Medical Inc. (2006), 264 D.L.R. (4th) 557, the Divisional Court set out several principles to be considered in making an award of costs:

    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), 71 O.R. (3d) 291], Moon v. Sher (2004), 246 D.L.R. (4th) 440], and Coldmatic Refrigeration of Canada Ltd. v. Leveltek Processing LLC (2005), 75 O.R. (3d) 638 (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), 119 A.C.W.S. (3d) 341 (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), 41 O.R. (3d) 222 (C.A.), at p. 249.

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

    The Court of Appeal has identified the overriding principle to be that the amount of costs awarded be reasonable in the circumstances. In Davies v. Clarington (Municipality) (2009), 2009 ONCA 722, 100 O.R. (3d) 66 Epstein J.A. stated at paras. 51-52:

    As can be seen, the overriding principle is reasonableness. If the judge fails to consider the reasonableness of the costs award, then the result can be contrary to the fundamental objective of access to justice. Rather than engage in a purely mathematical exercise, the judge awarding costs should reflect on what the court views as a reasonable amount that should be paid by the unsuccessful party rather than any exact measure of the actual costs of the successful litigant. In Boucher, this court emphasized the importance of fixing costs in an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding at para. 37, where Armstrong J.A. said “[t]he failure to refer, in assessing costs, to the overriding principle of reasonableness, can produce a result that is contrary to the fundamental objective of access to justice.”

16. As Mark Orkin in The Law of Costs, 2nd ed., loose-leaf (Aurora, Ont.: Canada Law Book, 2010) reminds us (at para. 201) awarding costs is an exercise in balancing two principles:

    …One, that a successful party to litigation who is free of blame should not be required to bear the costs of either prosecuting or defending the action, and two, that citizens will be unduly hesitant to assert or defend their rights in court if an unsuccessful party is required to bear all of the costs of a successful one.

17. The principle of indemnification is no longer the only purpose of costs awards. There is recognition that modern costs awards may encourage settlement, prevent (or at least discourage) frivolous or vexatious litigation, or sanction behaviour that increases the expense of litigation.

The issues before the court regarding costs are as follows:

(i) The quantum of costs to which the defendant, Christine Raffan (Ms. Raffan) is entitled; and

(ii) Whether Ms. Raffan or the plaintiffs should pay the third-party costs.

The parties’ positions

[3] Ms. Raffan seeks costs of the action from the plaintiffs in the amount of $490,958.26, inclusive of disbursements and HST (costs of $355,000 and disbursements of $135,958.26). She submits that she is entitled to costs on a scale somewhere between partial and substantial indemnity in view of the plaintiffs’ claims for fraud, intentional torts, and their conduct of the action and the trial.

[4] Ms. Raffan also submits that the third-party costs (or some of them) should be borne by the plaintiffs. She submits that the nature of the accounting issues raised by the plaintiffs and their expert support the conclusion that the third party proceedings follow naturally and inevitably from the plaintiffs’ action. The plaintiffs’ submit that Ms. Raffan’s costs claimed are excessive, disproportionate and outside of any reasonable range. They also submit that Ms. Raffan’s submission that they should pay some of the costs of the third parties is manifestly unreasonable. The third parties, Karen Caradonna (“Ms. Caradonna”) and David Corazza (“Mr. Corazza”) submit that there is no reason to depart from the general practice that costs of a successful third party are paid by the defendant who commenced the third-party claim.

Ms. Raffan’s submissions

[5] The submissions made by Ms. Raffan include the following considerations:

(a) She was entirely successful and the action against her was dismissed;

(b) She is entitled to costs on a scale approaching substantial indemnity, or at a minimum, on a scale higher than partial indemnity due to serious allegations of fraud, fraudulent misrepresentation and intentional interference with economic relations which were vigorously pursued throughout the action and at trial;

(c) The plaintiffs’ conduct throughout these proceedings, and in particular, during the trial, support a higher scale of costs;

(d) The amount claimed is reasonable considering the nature and complexity of the matter and the reasonable expectations of the parties; and

(e) The significance of the plaintiffs’ inappropriate conduct; the relevant Rule 57 considerations and the nature of the allegations support costs in excess of partial indemnity.

Unproven allegations of fraud, fraudulent misrepresentation & intentional interference with economic relations

[6] The plaintiffs allege fraud, fraudulent misrepresentation and intentional interference with economic relations, which damages they allege occurred as a result of Ms. Raffan altering and manipulating the accounting and financial records of Hippo Properties Inc. (“Hippo”) to the detriment of the plaintiffs.”

[7] The statement of claim and amended statement of claim make detailed allegations of serious wrongdoing and illegal activity by Ms. Raffan.

[8] The plaintiffs’ theory was that Ms. Raffan fraudulently, illegally, and purposefully falsified accounting records, deleted entries favourable to the plaintiffs, and made other changes in order to reduce the tax liability of the non-party Kenneth Whyte (“Mr. Whyte”) which resulted in the winding-up of Hippo and the plaintiffs being deprived of amounts they were owed from Hippo.

[9] The fraud allegations were maintained through all aspects of the trial and motion for mistrial and there was no evidence offered to support these serious allegations.

[10] The case law establishes that the court has the discretion to award costs on a higher scale where allegations of fraud are made and not proven at trial. The Court of Appeal decision in Murano v. Bank of Montreal relies on 131843 Canada Inc. v. Double “R” (Toronto) Ltd. (1992), 7 C.P.C. (3d) 15 (Ont. Gen. Div.) in which the trial judge was dealing with when solicitor-and-client costs should be ordered and found that such discretionary costs should be ordered only in special and rare cases. Such cases include claims where allegations of fraud are made but are found to be totally unfounded and cases involving other allegations of improper conduct prejudicial to the character or reputation of a party, which are found to be totally unfounded.

[11] The action was dismissed, inter alia, because the plaintiffs did not make out any of the constituent elements of civil fraud and arguably did not even adduce evidence on the issue.

[12] There is a body of case law that recognizes the distinct nature of allegations of fraud in the professional liability context because of the adverse impact that such allegations have on a litigants professional ethics and integrity in the public’s view which supports costs on a solicitor‑client basis.

• 117577 Ontario Ltd. v. Magna International Inc.
• Mele v. Thorne Riddell

[13] There was no evidence offered by the plaintiffs on the standard of care to support their claim in negligence. While the plaintiffs served multiple reports authored by Dr. Rosen, no report outlines the standard of care of a Certified General Accountant (CGA), or if and how the standard was breached. Similarly, while Dr. Rosen opines on the flow of money through De Cerigo Properties Inc. (“De Cerigo”) and Studio Pyramid Inc. (“Studio”), he did not conclude that the records made by Ms. Raffan were fraudulent.

Conduct of the plaintiffs throughout these proceedings

[14] Ms. Raffan submits that the plaintiffs’ conduct throughout these proceedings unnecessarily delayed the trial and ultimately the final determination of the issues which supports greater than partial indemnity costs. The particulars of such conduct include:

(a) Initially refusing to produce Alexander Josipovicz (“Mr. Josipovicz”) for discovery when Milosh Pavlovicz (“Mr. Pavlovicz”), the directing mind of the plaintiff corporations, advised that Mr. Josipovicz was the individual with the best and direct knowledge of the allegations and the plaintiffs’ claim;

(b) From the time the action was commenced and the trial the plaintiffs changed counsel three times thereby delaying the matter;

(c) Commencing a separate action against her, alleging fraudulent conveyance of property, which action has been stayed pending the disposition of this action; and

(d) Producing documents for the first time during the trial, including documents that had been refused at discovery and other damage documents that had not been produced.

Who should pay the third party costs?

[15] Ms. Raffan’s position is that the plaintiff’s ought to pay the third-party costs.

[16] In Ontario, unsuccessful plaintiffs are not generally held liable for costs incurred by third parties. However, the court has discretion to order the plaintiff to pay costs to a third party, which discretion is to be exercised judicially. The Court in Sanofi Pasteur Ltd. v. UPS SCS, Inc., 2015 ONCA 88 endorsed a non-exhaustive list of factors to consider in determining whether to impose costs of a third party on an unsuccessful plaintiff:

(a) where the main issue litigated was between the plaintiff and the third party;

(b) where the third party was brought or kept in in the matter by reason of the act or neglect of the plaintiff;

(c) where the case involves a string of contracts in substantially the same terms for the sale of goods; or

(d) where the third party proceedings follow naturally and inevitably upon the institution of the plaintiff’s action, in that sense, that the defendant had no real alternative but to join the third party.

[17] In Milina v. Bartsch, the court held that where a defendant “is compelled to add the third parties to protect [its] position”, costs against the plaintiff may be appropriate.

[18] In Emmot v. Your Community Realty Inc., 2016 ONSC 7446 the court found that the defendant was a middleman through which the money flowed and the third party proceedings followed naturally and inevitably upon the institution of the plaintiff’s action.

[19] In Hawkshaw v. Bachly Investments Inc., 2017 ONSC 1364, the court ordered the plaintiffs to pay the third party costs after finding that the plaintiffs had pleaded faulty inspections at a construction dispute. The defendant contractor third partied the municipality responsible for the inspections. The court found that the third party proceedings flowed naturally and inevitably from the plaintiffs’ allegation that the inspection was faulty, as the third party performed the inspection.

[20] Ms. Raffan submits that this is a case where the third party proceedings follow naturally and inevitably from the plaintiffs’ action, and in that sense, she had no real alternative but to join the third party bookkeeper and accountant, whose work she relied upon in performing her duties at Hippo. The evidence adduced by the plaintiffs revolved around the intercorporate accounts of Hippo, De Cerigo and Studio. Mr. Corazza was the only accountant to file financial statements and tax returns for Hippo, and was at all material times, up to and including trial, the accountant for De Cerigo and Studio. The plaintiffs claimed losses as a result of errors/fraud with respect to the intercorporate accounts. Ms. Caradonna was the bookkeeper for De Cerigo and Studio from the time they were incorporated until approximately at least 2016. She was also the bookkeeper for Hippo from September 2006 until approximately August of 2007. Mr. Corazza’s evidence was that he relied on the bookkeeper in preparing his financial statements. The Dr. Rosen reports and the plaintiffs’ evidence focused on mortgage transactions between Mr. Whyte and Mr. Pavlovicz, registered against property owned by De Cerigo, being 176 Davenport. The theory of the case, advanced by the plaintiffs was that those mortgages should never have been recorded in the books and records of De Cerigo. If they had not been recorded, De Cerigo would not have had a debt to Hippo. The evidence at trial confirmed that the De Cerigo books and records disclosed the debt to Hippo, and if there was an issue with how that transaction was recorded, Mr. Corazza and Ms. Caradonna were necessary parties in this litigation.

[21] In the alternative, Ms. Raffan submits that this is a case where the court ought to use its discretion to find the plaintiffs liable for third party costs in any event and as outlined by the court in Guarantee Co. of North America v. Resource Funding Ltd. [2009] O.J. No. 3279 where the court found that it has discretion to order costs of a third party action against a plaintiff even if none of the factors in Milina v. Bartsch are met.

[22] Ms. Raffan also submits that a finding of negligence as against her would have inevitably resulted in a finding of negligence as against the third parties. The plaintiffs’ evidence at trial outlined that the third parties made various errors in recording transactions and that these errors gave rise to the circumstances in which Ms. Raffan became ‘involved’ with the plaintiffs, and it follows, that the third parties would have caused or contributed to the plaintiffs’ claimed damages, if so proved.

Rule 57.01 factors favour the quantum of costs sought

[23] Ms. Raffan was entirely successful.

[24] The action was commenced in 2012, and as such, various lawyers have assisted in various capacities. The experience and role of Ms. Raffan’s lawyers is as follows:

(a) Deborah Berlach (“Ms. Berlach”) is a 1984 call. She was counsel to Ms. Raffan from the action’s inception through to the end of trial. She was engaged in the extensive discovery process and day-to-day file management, including litigation strategy. Ms. Berlach was first chair at trial and argued all motions, examined all witnesses, and made all submissions.

(b) Nabil Mahmood (“Mr. Mahmood”) is a 2021 call. Mr. Mahmood performed a range of services expected of a junior at trial: trial management, research, witness interviews, and organization.

[25] This case raised complex factual matters due to the extensive time period covered as well as the significant involvement of experts in order to understand the issues in dispute. The law of civil fraud and negligence of a CGA gave rise to complex legal issues.

[26] The amount at issue ($2 million plus $0.5 million in punitive damages) was significant and Ms. Raffan needed to defend herself against allegations which were highly destructive to her personal and professional reputation.

[27] The importance to Ms. Raffan of successfully defending the action was heightened due to the efforts that the plaintiffs went to malign her professional reputation by complaining to the Toronto Police Service and to the regulatory body for CGA’s in respect of the subject matter covered in this litigation and by commencing a separate and additional action for fraudulent conveyance and by writing to Ms. Raffan’s professional indemnity insurer.

[28] The parties knew that the unsuccessful party would be responsible for a very substantial costs award in favour of the successful party. The following factors helped form these expectations:

(a) The nature of the allegations and the need for experts – the parties understood that expert evidence and/or, at a minimum, expert assistance ought to have been required considering the allegations and facts in the matter, relating to accounting. The parties are aware that retaining such experts results in substantial disbursements. The plaintiffs served 4 reports from their expert, Dr. Rosen, who attended the trial every day.

(b) The length of the proceedings – the parties understood that after almost 10 years of litigation and a 5-week trial, costs to the unsuccessful party would be substantial.

[29] The amount claimed in Ms. Raffan’s bill of costs is reasonable in the context of:

(a) Voluminous production - The parties produced a substantial number of documents. The joint book of documents at trial contained 1075 tabs totalling almost 8,000 pages.

(b) Extensive examinations for discovery:

(i) Ms. Raffan was examined over the course of two days;

(ii) Mr. Pavlovicz and Mr. Josipovicz were both examined on behalf of the plaintiffs;

(iii) Mr. Corazza was examined on two occasions; and

(iv) Ms. Caradonna and Robert Rourke, (“Mr. Rourke”) were also examined. (Mr. Rourke was released from the action)

(c) Complex areas of law including professional negligence and civil fraud;

(d) Complex witness testimony spanning multiple days at trial;

(e) Ms. Raffan’s expert, Mark Gain (“Mr. Gain”), was not called at trial given the trial decision which took place at the end of the plaintiffs’ case, and as such, his evidence was not required. Mr. Gain’s retainer included:

(i) responding to the plaintiffs’ expert damages report, and as such, the retainer was not only reasonable but expected Mr. Gain was also retained to assist counsel in understanding the Dr. Rosen liability reports; and

(ii) The disbursements for Mr. Gain represent reasonable expert fees and his expert report responding to the plaintiffs’ damages report was reasonably necessary for the conduct of the proceedings. Mr. Gain’s fees are less than the fees charged by Dr. Rosen for his affidavit and first report in the winding up proceedings.

The plaintiffs’ submissions

[30] The amount of costs being sought by Ms. Raffan is excessive, disproportionate and outside of any reasonable range that should be ordered by this court.

[31] Ms. Raffan’s submission that the plaintiffs should pay some of the costs of the third parties is manifestly unreasonable.

[32] Ms. Raffan’s proposed costs should be reduced to $100,000, inclusive of disbursements and HST, calculated on a partial indemnity basis in accordance with the rates set out by the Law Society of Ontario, and further reduced to account for unnecessary actions taken by Ms. Raffan that resulted in unnecessary prolixity of proceedings and undue complexity.

[33] The plaintiffs agree that the successful party is presumptively entitled to costs. That said, the fact that a party is successful in a proceeding does not prevent the court from reducing the amount of costs otherwise payable to, or awarding costs against, a party in a proper case. Cases in which courts will award costs against a successful party include cases where there was misconduct by the successful party.

[34] The plaintiffs submit that Ms. Raffan’s conduct needlessly drove up the time and cost of these proceedings (for all parties, including Ms. Raffan and the third parties). As a result, this is a proper case for the court to admonish such conduct by reducing the amount of costs that would otherwise be recoverable by Ms. Raffan.

[35] The plaintiffs and the third parties delivered offers to settle. At no point did Ms. Raffan deliver an offer to settle, counteroffer or a response to the offers. In the absence of an offer to settle, costs on a substantial indemnity basis should be reserved for exceptional cases.

[36] Unsuccessful allegations of fraud or dishonesty do not lead inexorably to the conclusion that substantial indemnity costs are warranted. Enhanced costs should be awarded only on a clear finding of “reprehensible, scandalous or outrageous conduct” on the part of the party against whom the costs order is being made or where there were specific acts or a series of acts that clearly indicated an abuse of process. In this case, there was no such behaviour.

[37] Although the plaintiffs were unsuccessful in the action, the following facts should be noted:

(a) The liquidator found that over 350 accounting entries made by Ms. Raffan were wrong, the reversal of which resulted in a swing of approximately $500,000 in favour of the plaintiffs and approximately $500,000 against the shareholder account for Ms. Raffan’s primary client Mr. Whyte;

(b) The CGAO found that Ms. Raffan was guilty of breaches of Rules 304 and 305 of the CGAO’s Code of Ethical Principles and Rules of Conduct, and that Ms. Raffan’s conduct amounted to professional misconduct;

(c) The Toronto Police Financial Crimes Unit found sufficient evidence to open a fraud investigation into Ms. Raffan’s accounting for Hippo and they did not formally close their investigation or arrive at a conclusion that Ms. Raffan did not commit fraud;

(d) Dr. Rosen found that “Raffan’s accounting for Whyte and Hippo was improper, and would be labelled as being “materially misleading”, over multiple years.” and opined that “extensive evidence indicates that Ms. Raffan, over time, prepared accounts for Hippo that did not reflect what original source documents from independent third parties were showing”. Ms. Raffan did not file any expert report or produce any evidence that contradicted such findings;

(e) In the related case involving an allegation of fraudulent conveyance against Ms. Raffan and her ex-common law spouse, the court denied the defendant’s motion for summary judgment on the basis that there was conflicting evidence on key issues that could not be resolved without the benefit of further evidence and the opportunity to hear the viva voce evidence. The court found deficiencies, including discrepancies in documentation provided to the court and discrepancies in the defendants’ explanations regarding key evidence.

[38] The actions taken by the plaintiffs in connection with these proceedings were reasonable and, in some cases, resulted in corroboration of wrongdoing on the part of Ms. Raffan.

[39] Ms. Raffan has failed to establish reprehensible, scandalous or outrageous conduct on the part of the plaintiffs or point to any specific act or acts that clearly indicated an abuse of process on the part of the plaintiffs.

[40] The plaintiffs submit that an order for substantial costs on the mere fact that they pursued allegations of fraud and misconduct against Ms. Raffan is not warranted in this case.

The Rule 57.01 factors

[41] The plaintiffs acted appropriately throughout these proceedings.

[42] Ms. Raffan’s allegations that the plaintiffs “harassed” her is baseless. Other than file complaints against Ms. Raffan in appropriate fora, at no point have any of the plaintiffs or their representatives engaged in any behaviour against Ms. Raffan that could remotely be characterized as harassment.

[43] It is noteworthy that in all forums, other than this action, the plaintiffs’ allegations were corroborated or unresolved. At no point prior to this trial was it determined that the plaintiffs’ allegations were without merit.

[44] In terms of conduct throughout these proceedings, the plaintiffs provided their documentation and completed their examinations in a timely fashion. They did not cause delay in these proceedings. The plaintiffs conducted the trial in an appropriate and professional manner.

[45] Ms. Raffan’s conduct throughout these proceedings unnecessarily delayed and complicated the proceedings and diverted attention from the primary issues at bar.

[46] Rather than simply defend her actions, Ms. Raffan unnecessarily dragged in three additional parties who clearly had no connection whatsoever to the plaintiffs’ allegations, sought to divert attention from the primary issues at bar and consistently delayed the proceedings.

[47] The unnecessary addition of three parties to these proceedings complicated the coordination of mutually agreeable dates at each step of the proceedings, including examinations for discovery, motions and mediation.

[48] In addition, Ms. Raffan caused unnecessary delay at various stages of the proceedings. Ms. Raffan did not attend at the first scheduled date for her examination for discovery and no explanation was provided. Given the conflicting schedules of counsel, Ms. Raffan’s examination for discovery was not able to be rescheduled until September of 2016.

[49] Ms. Raffan did not comply with the timelines set out by the parties in the agreed upon timeline. Consequently, the plaintiffs agreed to extend the timetable and were required to bring a motion to extend the timelines which was eventually granted on consent.

[50] These actions by Ms. Raffan unnecessarily and unreasonably increased the plaintiffs’ costs, and the plaintiffs submit that this court ought to admonish such behaviour.

[51] The plaintiffs agree with the third parties (submissions set out below) that Ms. Raffan ought to be responsible for the costs of the third parties as the third parties were inappropriately added to these proceedings as their inclusion did not flow naturally from the plaintiffs’ action.

[52] The action commenced by the plaintiffs did not need to be as complex as made by Ms. Raffan. The initial allegations were of explicit wrongdoing by Ms. Raffan and were based on specific and identifiable actions. There was no allegation that any of the alleged wrongful actions had been committed by any of the third parties.

[53] Ms. Raffan’s summary of the plaintiffs’ theory is that Ms. Raffan fraudulently, illegally, and purposefully falsified accounting records, deleted entries favourable to the plaintiffs, and made other changes in order to reduce the tax liability of non-party Mr. Whyte which resulted in the eventual winding-up of Hippo and the plaintiffs being deprived of amounts they were owed from Hippo. The third parties were not part of these allegations.

[54] The plaintiffs were well aware that none of the third parties were involved in any wrongdoing and the nature of the allegations laid out in the statement of claim make this clear. They submit that it is clear that the third parties never should have been added. Accordingly, Ms. Raffan ought to bear the costs of the third parties.

[55] Ms. Raffan’s bill of costs is excessive, and in some cases, disproportionate to experience.

[56] Ms. Raffan’s bill of costs outlines the work of 11 legal professionals, including six lawyers, three law clerks and two students. There is a significant overlap of work among many legal professionals and some of the work should have been done by a more junior lawyer and reviewed by a senior partner. The multitude of legal professionals involved in documentary discovery and time spent was excessive as was time spent at examinations for discovery and most flowing from the third party action other claimed disbursements are as well not appropriate. 35 hours of time claimed for the approximate 2-hour mediation and 64 hours to prepare the bill of costs were excessive. The expert fees claimed are excessive considering that he did not file a report on liability. In contrast, the plaintiffs only utilized one lawyer at a time with assistance from staff.

[57] Students and law clerks were billed at an hourly rate of a new call/first year lawyer.

[58] Ms. Raffan seeks excessive disbursements for photocopies, for a trial that proceeded virtually, and the plaintiffs should not be responsible for such costs.

[59] Although Ms. Raffan was the successful party, the plaintiffs submit that her costs ought to be calculated on a partial indemnity basis and reduced to account for unnecessary steps taken and time spent by her and her colleagues that resulted in prolixity of proceedings and undue complexity.

[60] The plaintiffs submit that they acted co-operatively at all times, and that there is no reason to award costs on a substantial indemnity basis. Ms. Raffan has failed to articulate a basis for substantial indemnity costs and has failed to articulate a basis for the plaintiffs to pay the costs of the third parties.

[61] The plaintiffs submit that the costs recoverable by Ms. Raffan ought to be set at $100,000, inclusive of all disbursements and HST. This amount would include $149,807.49 of reasonable fees (incl. HST) calculated on a 50% partial indemnity basis, plus $35,000 of disbursements, but would be reduced by approximately $85,000 to account for the additional costs and delay incurred by all parties as a result of the unnecessary complication and prolixity of these proceedings caused solely by the actions and strategy of Ms. Raffan.

Mr. Corazza’s submissions

[62] The main action was dismissed against Ms. Raffan and, in turn, the third party claim against him was also dismissed.

[63] The plaintiffs did not sue him notwithstanding that he was their accountant throughout the relevant period and the accountant for Hippo for its fiscal years ending May 31, 2003 to 2007. Instead, they sued Ms. Raffan based on allegations they she altered the books and records of Hippo and the plaintiffs after being granted access to them in the summer of 2007. The plaintiffs’ claim was based solely on actions taken by Ms. Raffan in respect of these books and records. If their claim related in any way to his actions or omissions (which it did not), they would have added him as a defendant.

[64] Given the theory of the plaintiffs’ case, they could not have sued Mr. Corazza because he was not responsible for accounting entries that were made in the books and records by Ms. Raffan.

[65] There is a clear disconnect between the allegations in the main action (which focus solely on the acts and omissions of Ms. Raffan, including allegations of fraud and intentional conduct) and the claims that Ms. Raffan sought to pass onto Mr. Corazza via the third party claim. In short, the third party claim had no chance of success from the start regardless of the outcome of the main action.

[66] The allegations advanced in the third party claim were an attempt to re-characterize the claims advanced by the plaintiffs. However, when the actual allegations are examined in detail, it is clear that the third party claim did not actually flow from the main action. Ms. Raffan alone is responsible for paying Mr. Corazza’s costs.

[67] The claims related to (i) changes made to the books and records of corporations and individuals over several years; and (ii) the significant efforts made to reconcile those books and records that spanned approximately 10 years. As a result, both documentary disclosure and examinations for discovery were significant and required a lot of preparation time.

[68] Numerous expert reports were served in the main action by both the plaintiffs and Ms. Raffan. Although these expert reports did not directly address Mr. Corazza’s conduct, they needed to be reviewed and understood in detail given that Ms. Raffan was effectively seeking to pass on these allegations to the third parties.

[69] The trial took place between January 10 and February 4, 2022. Accordingly, a significant amount of time was spent preparing for and attending at the trial.

[70] The allegations involved claims of professional negligence and, accordingly, had a detrimental impact on Mr. Corazza’s professional reputation. Accordingly, a vigorous defence was required.

[71] Ms. Raffan’s conduct made the defence of Mr. Corazza more difficult. The third party claim made a vague allegation that the books and records of Hippo were disorganized and inaccurate and that the third parties fell below the requisite standard of care. No particulars of those allegations were ever provided. In addition, Mr. Corazza was not the bookkeeper for Hippo, but was its external accountant. The allegations of the plaintiffs were that their losses arose from the changes Ms. Raffan made to the books and records. Mr. Corazza had no involvement in the original bookkeeping nor with respect to Ms. Raffan’s detailed review. Further, Ms. Raffan never delivered an expert report to provide an opinion on (i) the requisite standard of care of an external accountant; (ii) how Mr. Corazza allegedly breached that standard of care; or (iii) how his conduct was causally connected to the plaintiffs’ alleged damages. Without a standard of care report, the third party claim against him, like the main action had no chance of success.

[72] On November 25, 2021, Mr. Corazza made a formal offer to settle in which he agreed to accept payment of a portion of his costs – fixed at $35,000 - in return for a dismissal of the third party claim against him. At that time, Mr. Corazza’s actual costs were approximately $103,000 so this offer represented a significant compromise.

[73] The offer was open for acceptance until five minutes after the commencement of the trial of the main action. Ms. Raffan did not deliver a response to Mr. Corazza’s offer and as a result, it expired 5 minutes after the commencement of trial, which spanned 4 to 5 weeks.

[74] The court is entitled to take the terms of any offer made into account in exercising its discretion in awarding costs. Mr. Corazza submits that it would be appropriate for him to recover his costs up to the date of the offer on a partial indemnity basis and his costs thereafter on a substantial indemnity basis. Based on the costs outline, this would result in a costs award of $149,032 plus HST.

[75] Mr. Corazza as well submits that Ms. Raffan and not the plaintiffs should pay his costs.

[76] It is the accepted general rule that a successful third party’s costs should not be ordered to be paid by the plaintiff, but by the party who added them.

[77] Ms. Raffan relies on an early report of Dr. Rosen, that was not in evidence, to submit that the alleged problems in the books of Hippo were caused by Mr. Corazza, Ms. Caradonna and Mr. Rourke. There was no evidence of this at trial. All of the plaintiffs’ evidence was directed to allegations of Ms. Raffan’s errors and conduct. Further, if the plaintiffs’ allegations of fraud and intentional wrongdoing by Ms. Raffan had been proven, the state of the books and records inherited by Ms. Raffan would have been irrelevant since the wrongdoing related to the changes that Ms. Raffan made based on her review of the actual source documents.

[78] Christopher Hluchan (“Mr. Hluchan”) is a 1994 call to bar and has extensive experience practising in the area of civil litigation and, in particular, defending cases against Chartered Professional Accountants. He had carriage of this matter from inception to the end of trial and performed approximately 90% of the work. During this period, his hourly rate has increased from $260 to $315.

[79] Where appropriate, a law clerk was utilized to review and organize documents and the rate charged was $90 per hour.

[80] Mr. Corazza’s bill of costs was $207,378.73 for fees (inclusive of H.S.T.) and disbursements of $11,321.93 totalling $218,700.66. He submits that, in view of all of the circumstances, Ms. Raffan should be ordered to pay his costs of the action fixed in the amount of $149,032 plus HST: (fees prior to offer - $61,800, fees after the offer - $77,216, and disbursements of $10,016).

[81] In the alternative, Mr. Corazza submits his costs of the action should be awarded on a partial indemnity basis throughout and fixed in the amount of $120,128 plus HST.

Ms. Caradonna’s submissions

[82] It is also Ms. Caradonna’s position that Ms. Raffan should pay her costs and not the plaintiffs.

[83] Ms. Caradonna’s responsibilities to De Cerigo, Studio and Hippo, as part-time bookkeeper included effecting bank reconciliations, GST remittances and related bookkeeping input as provided by the principals of the three companies. Her responsibilities did not include banking, invoicing or writing cheques.

[84] During her tenure, Ms. Caradonna worked approximately 10-15 hours per month in total for the three companies combined.

[85] Ms. Caradonna’s position as bookkeeper for Hippo was terminated in or about September, 2007, when Ms. Raffan took over those duties.

The Rule 57 factors

[86] Ms. Caradonna was entirely successful in this proceeding when the action was dismissed against Ms. Raffan. Ms. Caradonna delivered a written offer to settle on December 22, 2021 including that the third party claim be dismissed as against her; that the crossclaim of Mr. Corazza be dismissed as against her; and that Ms. Raffan pay her costs on a partial indemnity scale.

[87] Ms. Caradonna’s offer to settle was not accepted and it remained open through to the commencement of trial.

[88] Leon Melconian (“Mr. Melconian”) was called to the bar in 1995 and has been practising commercial litigation exclusively and continuously for all 27 years. He is a sole practitioner. When this proceeding commenced, Mr. Melconian’s hourly rate was $425.00 and when it ended approximately 9 years later, his hourly rate was $495.00.

[89] This action was commenced in 2012 and the third party claim was issued in March of 2013. After 10 years of litigation, the trial took place over the course of 5 weeks. There were over 1,000 documents and over 7,500 pages of evidence uploaded to Caselines.

[90] All counsel involved in this litigation are senior and experienced lawyers. The parties certainly understood the cost of litigation having gone through 10 years of this proceeding and no doubt having received interim bills throughout the process.

[91] Ms. Raffan’s insurer incurred fees and disbursements of $592,228.53. Being an insurance company who defends professional liability claims, it certainly is well aware of the costs of litigation and would reasonably expect significant costs to be awarded at the end of the day to the successful parties.

[92] Although the legal issues were not overly complex, the sheer number of documents and accounting minutia required a substantial amount of time to review and understand.

[93] This third party claim has been important to Ms. Caradonna and has weighed extremely heavily on her for the past 9 years. Ms. Caradonna is not a professional and accordingly, she did not have the benefit of an insurance company to fund the defence of the third party claim. Ms. Caradonna is not a person of means and lives in a rented apartment. Her hourly rate for the services she provided to the plaintiffs was $35.00. She has advised counsel that she exhausted her life savings and RRSP’s in order to defend this third party claim.

[94] The gist of the basis for the amended statement of claim is that Ms. Raffan removed, deleted, modified and forged accounting entries in order to eliminate Mr. Whyte’s tax liability; gained illegal and unauthorized access to De Cerigo and Studio’s books and records; made hundreds of changes to the accounting and financial records of Hippo (approximately $500,000), which effectively erased the financial entries supporting the debts owed by Hippo to the plaintiffs.

[95] The allegations are that Ms. Raffan, altered, forged and manipulated the books and records of Hippo, made false representations of fact with respect to the debts and obligations of Hippo vis-à-vis the plaintiffs and that Ms. Raffan knew that through her alterations, forgeries and manipulation of Hippo’s books and records, that the recorded debts and obligations of Hippo would be false.

[96] The alleged cause of action in fraud/fraudulent misrepresentation cannot in any way be affected by the actions of Ms. Caradonna nor can the allegations.

[97] The allegation of negligence states that Ms. Raffan breached her duty of care owed to the plaintiffs when she altered the books and financial records of Hippo. Ms. Caradonna was not involved in directing or effecting Ms. Raffan’s changes and therefore cannot be negligent or contributorily negligent.

[98] The allegation that Ms. Raffan interfered with economic relations is that Ms. Raffan, by ‘cooking the books’ of Hippo erased debts owed to Studio and Mr. Pavlovicz by Hippo and, created false debts owed by De Cerigo and intentionally interfered with the …business relationship of the plaintiffs and Hippo. This claim of “cooking the books” to favour Hippo relates solely to the intentional actions of Ms. Raffan and cannot in any way be affected by the actions of Ms. Caradonna.

[99] At her examination for discovery, Ms. Raffan admitted that she was not aware of any instance where Ms. Caradonna made a bookkeeping entry without supporting documentation. After her review of certain Hippo books and records she found no issues with the work done by Ms. Caradonna and she did not present further evidence of negligence by Ms. Caradonna.

[100] Based on all of the circumstances, it would not have been possible for the third party claim against Ms. Caradonna to succeed. Costs of a successful third party are generally to be paid by the defendant who commenced the third party claim. As well as the law relied on by the plaintiffs and Mr. Corazza, Ms. Caradonna submits that the court in Sanofi Pasteur Limited v. UPS SCS, Inc., 2015 ONCA 88 at para. 77 established the following:

… generally an unsuccessful plaintiff will not be held liable for costs incurred by third parties: the plaintiff does not sue the third party, does not want it in the action and is not responsible for it being brought into the action. But there are cases where costs to third parties are warranted -- particularly where ‘the third party proceedings followed naturally and inevitably upon the institution of the [plaintiff's] claim.’…

Whether an unsuccessful plaintiff should be ordered to pay a third party’s costs depends on the circumstances of the particular case and the discretion to order such costs must be exercised judicially.

[101] The claim against Ms. Raffan was dismissed and therefore the third party claim was also dismissed. Ms. Caradonna was entirely successful in this proceeding.

[102] It is Ms. Caradonna’s position that her costs should be paid by Ms. Raffan. She relies on the same law provided by Mr. Corazza.

[103] In Lichtenstein v. Bathurst Towers Inc., 2011 ONSC 6754, the court awarded a successful third party costs of the third party claim on a substantial indemnity basis. The court found that the third party claim should not have been commenced and that it should have been plain and obvious to the defendant from the evidence given on the examinations for discovery that there was no duty of care and that there was no evidence to support the third party claim.

[104] In this case, it similarly should have been plain and obvious to Ms. Raffan at the time of examinations for discovery that the third party claim could not succeed. The third party claim was doomed to fail in any event as there was no expert evidence available setting out the standard of care or the particulars of any alleged failure to meet that standard by Ms. Caradonna.

[105] Ms. Caradonna submits that in the circumstances, an award of substantial indemnity costs is appropriate that Ms. Raffan pay to Ms. Caradonna her costs of this action on a substantial indemnity basis, fixed in the amount of $178,253.20 inclusive of H.S.T.

[106] Ms. Caradonna alternatively claims partial indemnity costs to the date of the offer to settle and substantial indemnity costs thereafter in the total amount of $151,968.32 inclusive of H.S.T. or in the further alternative, costs on a partial indemnity scale throughout the proceeding in the amount of $119,258.72 plus H.S.T.

Conclusion

(i) The plaintiffs are to pay Ms. Raffan costs in the amount of $300,000 inclusive of fees, disbursements and H.S.T. That amount takes into account all of the factors set out above and is a reasonable amount. I do not find where this is a case that the plaintiffs should pay any of the third-party costs. Ms. Raffan shall pay those costs. There was no issue between the plaintiffs and the third parties. The third parties were not kept in the action by reason of the act or neglect of the plaintiffs. There is not a string of contracts between them. This action is with respect to the steps/actions taken by Ms. Raffan who had no reason to join the third parties. I do not exercise my discretion and make an order that the plaintiffs pay any of the third party costs.

(ii) Ms. Raffan is to pay the costs of Ms. Caradonna and Mr. Corazza each in the amount of $125,000.

(iii) I exercise my discretion in making these costs awards. These amounts are reasonable in view of the factual matrix of the case.

Date: May 31, 2022