COURT FILE NO.: CV-20-84922 DATE: 20220307 SUPERIOR COURT OF JUSTICE - ONTARIO

BETWEEN: O Cannabis We Stand On Guard For Thee Corporation and Morgan Toombs, Plaintiffs -and- Ronald Flom, Defendant

BEFORE: Justice Heather J. Williams

COUNSEL: Michael Swinwood, for the Plaintiffs Robert W. Trifts, for the Defendant

HEARD: January 18, 2022

ENDORSEMENT

Background

[1] The plaintiffs started their action against Ronald Flom in Ottawa in November 2020. Mr. Flom, a Toronto lawyer, had started an action against the plaintiffs in Toronto to collect fees two years earlier. In May 2019, Kimmel J. stayed the Toronto action pending the outcome of an assessment hearing that was derailed by the COVID-19 pandemic but is now scheduled for August 2022.

The relief sought

[2] In his notice of motion, Mr. Flom requested an order dismissing or staying the action of the corporate plaintiff, O Cannabis We Stand On Guard for Thee Corporation (“O Cannabis”), under Rule 15 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, on the basis that it had been commenced without proper authority.

[3] Mr. Flom also requested an order consolidating the Ottawa action with his Toronto action or an order that the two actions be heard together. Mr. Flom argues that the two actions involve the same parties and that the relief claimed arises from the same transaction or occurrence. Mr. Flom also argues that the Ottawa action has no connection with Ottawa, other than the location of the office of the plaintiffs’ lawyer of record, Michael Swinwood.

The issues

[4] Less than one week before the hearing of the motion, O Cannabis served a notice of discontinuance. The issues that remained to be decided were the following:

(1) Should the Ottawa action be consolidated with the Toronto action, or should there be an order that the actions be heard at the same time or one immediately after the other?

(2) Costs, including whether costs should be awarded against the plaintiffs’ counsel, Mr. Swinwood, under Rule 15.02(2)(c) and/or Rule 15.02(4).

Analysis

Issue #1: Should the Ottawa action be consolidated with the Toronto action, or should there be an order that the actions be heard at the same time or one immediately after the other?

The position of the plaintiff, Morgan Toombs

[5] As the O Cannabis action was discontinued, the Ottawa action had one plaintiff when the motion was heard, Morgan Toombs. Ms. Toombs argued that the Ottawa action should proceed, in Ottawa, and, for the following reasons, should not be consolidated or ordered to be heard with the Toronto action:

(1) The Toronto action has been stayed;

(2) Even if it were not stayed, the Toronto action could not proceed because Mr. Flom did not obtain leave of the court to start the action, as required by s. 6(4) of the Solicitors Act, R.S.O., c. S. 15; and

(3) The Ottawa and Toronto actions do not offend the rule against multiplicity of proceedings or arise from the same transaction or occurrence because the Toronto action relates to Mr. Flom’s fees, while the Ottawa action relates to Mr. Flom’s conduct.

Analysis of Issue #1:

[6] The Courts of Justice Act, R.S.O. 1990, c. C. 43 requires that, to the extent possible, multiplicity of legal proceedings shall be avoided: s. 138. Rule 6 of the Rules of Civil Procedure permits the court to order consolidation or hearing together of proceedings, where the proceedings have a question of law or fact in common, the relief claimed arises from the same transaction(s) or occurrence(s) or it appears that the order ought to be made for any other reason.

[7] I am satisfied that the Toronto and Ottawa actions arise from the same transaction or occurrence. The two actions have parties in common: Mr. Flom is the plaintiff in the Toronto action and the defendant in the Ottawa action; Ms. Toombs is the plaintiff in the Ottawa action and one of two defendants in the Toronto action, O Cannabis being the other. Both actions arise from Mr. Flom’s retainer by O Cannabis and Ms. Toombs [1] to perform legal services and their failure to pay Mr. Flom in full. In the now-stayed Toronto action, In the Ottawa action, Ms. Toombs pleads that Mr. Flom breached duties owed to her by serving the directors of O Cannabis with the statement of claim in the Toronto action and through certain steps he took in relation to Ms. Toombs’ assessment of his accounts. That there is a significant overlap in the subject matter of the two actions is obvious and underscored by the reproduction in the statement of claim in the Ottawa action of 10 paragraphs from the statement of defence in the Toronto action, most of them verbatim.

[8] I do not accept Ms. Toombs’ arguments that the Ottawa action cannot be consolidated or heard with the Toronto action because the Toronto action has been stayed and that the Toronto action could not proceed even if the stay were lifted because Mr. Flom failed to obtain the required leave under the Solicitors Act. Kimmel J.’s endorsement was clear: The Toronto action is stayed only until the assessment has been finally determined. Once the assessment has been finally determined, the stay will be lifted in respect of the relief sought in the Toronto action that is outside the jurisdiction of the assessment officer, which Mr. Flom did not require leave to pursue.

[9] If the Ottawa and the Toronto actions are permitted to proceed independently, there will be a duplication of effort by the parties, their counsel and the courts and the potential for inconsistent findings. Such an outcome would be contrary to the aim of the Rules of Civil Procedure, which is to facilitate the just, most expeditious and least expensive determination of proceedings on their merits.

[10] Further, although Mr. Swinwood insisted that the Ottawa action does not relate to Mr. Flom’s fees and that it is just a coincidence that the $35,000 in damages for breach of fiduciary duty and breach of confidence and the $13,500 in special damages sought by Ms. Toombs in the Ottawa action add up to the approximate amount of the $48,035.95 plus interest sought by Mr. Flom in the Toronto action, I find it difficult to imagine that the outcome of the August 2022 assessment hearing will not have a bearing on the parties’ appetite for advancing one or both of the actions. For this reason, it is practical for the assessment to be heard and determined on a final basis before either action proceeds. Kimmel J. has, of course, already put the Toronto action temporarily on hold.

[11] For these reasons, I am satisfied that the Ottawa action should not proceed before the Toronto action and that the two should proceed together. Neither action has moved beyond the pleadings stage. Given the factual overlap between the two actions and the similarity between the statement of defence in the Toronto action and the statement of claim in the Ottawa action, I consider the most expeditious approach to be to stay the Ottawa action until it can be consolidated with the Toronto action and for the Ottawa action then to be continued, in Toronto, as a counterclaim in the Toronto action.

[12] This raises the question of whether I may transfer the Ottawa action to Toronto. Although Mr. Flom did not specifically refer to Rule 13.1.02 in his notice of motion, he is clearly seeking to have the Ottawa action transferred to another jurisdiction. Rule 13.1.02 and an associated practice direction govern my ability to do so.

[13] The Consolidated Provincial Practice Direction, (https://www.ontariocourts.ca/scj/practice/practice-directions/provincial/), which applies to proceedings in the Ontario Superior Court of Justice, deals specifically with transfers of civil proceedings. It provides that a motion to transfer an action must be brought, in writing, at the court location to which the moving party seeks to have the proceeding transferred. The Regional Senior Judge or their designate hears all motions to transfer actions to the jurisdiction. This means that a motion to transfer, in writing, must be brought in Toronto.

Issue #1: Disposition

[14] I make the following orders:

(1) The Ottawa action, like the Toronto action, shall be stayed until the assessment hearing has been determined on a final basis;

(2) Subject to the approval of the Regional Senior Judge for Toronto, the Ottawa action and the Toronto action shall then be consolidated, and the Ottawa action shall proceed as a counterclaim in the Toronto action; and

(3) The stay of the Ottawa action shall not be lifted until: (1) the stay of the Toronto action has been lifted; and (2) the Regional Senior Judge for Toronto has approved the transfer of the Ottawa action to Toronto.

[15] I make these orders under s. 138 of the Courts of Justice Act, Rules 1.04(1), 1.05, 2.01(1) and 13.1.02 of the Rules of Civil Procedure and the provincial practice direction to which I referred above.

[16] Either party may bring the motion in writing to transfer the Ottawa action to Toronto.

[17] In his factum and oral submissions, Mr. Flom invited me to dismiss the Ottawa action on my own motion under Rule 20 or Rule 51.06(c), based on admissions made by Ms. Toombs on her cross-examination. Mr. Flom’s request is denied. Mr. Flom did not request a dismissal of the entire action in his notice of motion. I do not consider the merits of the action to have been before me.

Issue #2: Costs, including whether costs should be awarded against counsel for the plaintiffs under Rule 15.02(2)(c) or Rule 15.02(4).

Mr. Flom’s position

[18] Mr. Flom seeks substantial indemnity costs of $18,788.20, inclusive of fees, disbursements and HST. He seeks some of these costs from Mr. Swinwood personally.

[19] Mr. Flom relies on Rule 15.02(2)(c), which provides for costs against a lawyer who is asked for a notice confirming that a proceeding was authorized and fails to provide it. Mr. Flom also relies on Rule 15.02(4), which provides that if a proceeding was started without a client’s authority, the proceeding may be stayed or dismissed and the lawyer who started the proceeding may be ordered to pay costs.

[20] Mr. Flom says he gave Mr. Swinwood ample opportunity to determine whether the O Cannabis action was authorized and to discontinue the action. Mr. Flom says Mr. Swinwood’s ultimate response was to tell him to proceed with this motion. Mr. Swinwood eventually served a notice of discontinuance in respect of O Cannabis, but not before Mr. Flom’s counsel had prepared and delivered a motion record, Mr. Flom and Ms. Toombs were both cross-examined and Mr. Flom had delivered a factum.

Mr. Swinwood’s position

[21] Mr. Swinwood said that costs should not be awarded against him because he responded to Mr. Flom’s counsel’s request for proof the O Cannabis action had been authorized, by serving directors’ resolutions signed by Ms. Toombs and her mother. Mr. Swinwood also argued that the requirements for corporate authorization of the action were unclear.

[22] Mr. Swinwood argued that Mr. Flom’s request for $18,788.20 in costs is excessive. Mr. Swinwood said the motion was straight-forward. He noted that when Kimmel J. stayed the Toronto action, she awarded costs of only $2,500.

Analysis of Issue #2

[23] I am satisfied that Mr. Flom is entitled to costs. As a result of the motion, the O Cannabis action was discontinued and Ms. Toombs’ action has been stayed, at least temporarily. Mr. Flom is entitled to costs of the discontinuance under Rule 23.05 and as the successful party on the motion.

[24] Mr. Flom recognizes that Mr. Swinwood’s potential personal exposure to costs relates only to the discontinuance of the O Cannabis action. Mr. Flom seeks costs from the plaintiffs, and not from Mr. Swinwood, in respect of his request to consolidate the Ottawa and Toronto actions.

[25] Based on a review of the parties’ written materials and considering that the O Cannabis action was discontinued after Mr. Flom served his factum and before Mr. Swinwood served his, I estimate that about 2/3 of Mr. Flom’s costs were related to the O Cannabis issue and about 1/3 to the consolidation issue.

Should Mr. Swinwood be personally liable for any costs?

[26] Mr. Flom was put to significant and unnecessary expense because of the failure of Ms. Toombs and/or Mr. Swinwood to turn their mind(s) to whether the O Cannabis action against Mr. Flom was properly authorized.

[27] It is evident from a review of the October 4, 2018 Shareholders’ Agreement and the excerpt from General By-law #1 of O Cannabis attached as Exhibit F to Mr. Flom’s affidavit that the O Cannabis action was not properly authorized. It also appears that legal actions by or against O Cannabis were prohibited or stayed under orders dated March 31, 2020, April 9, 2020 and October 28, 2020 of Hainey J. under the Companies Creditors’ Arrangement Act, R.S.C. 1985, c. C-36, as amended.

[28] On cross-examination, Ms. Toombs insisted that she could not remember whether she or Mr. Swinwood had drafted the directors’ resolutions Mr. Swinwood sent to Mr. Flom. However, it is clear that after those resolutions were given to Mr. Flom’s counsel, in the face of a clear warning that the resolutions did not authorize the action and that Mr. Flom would bring a motion to dismiss the O Cannabis action and seek costs from Mr. Swinwood personally, Mr. Swinwood told Mr. Flom to bring the motion. Mr. Swinwood later told Mr. Flom that he would discontinue the O Cannabis action but then waited a further nine months to do so and did so only after Mr. Flom’s factum had been delivered.

[29] A lawyer warrants his authority to commence an action on behalf of a client. (Unical Properties v. 784688 Ontario Ltd. (1990), 75 O.R. (2d) 284 (C.J. (Gen. Div.)), at p. 288 per Steele J.). Mr. Swinwood had an obligation to ensure that O Cannabis had authorized the action before the statement of claim was issued. Ms. Toombs may have drafted the directors’ resolutions that purported to authorize the action but after Mr. Swinwood received Mr. Flom’s counsel’s letter of November 27, 2020 informing him that the resolutions did not properly authorize the action, Mr. Swinwood was obliged to make further inquiries. Instead, Mr. Swinwood told Mr. Flom to proceed with his motion and left Mr. Flom with no option but to do so.

[30] Mr. Flom seeks costs against Mr. Swinwood under Rule 15.02, which, as noted above, specifically provides for costs orders to be made against lawyers. Although Rule 57.07(2) provides that an order for costs against a lawyer under that rule shall not be made unless the lawyer is given a reasonable opportunity to make representations to the court, the same protection is not specifically provided to a lawyer under Rule 15.02. This issue was not raised by Mr. Swinwood; I raised it. Mr. Flom’s counsel argued the protection in Rule 57.07 is unnecessary in a case such as this because, under Rule 15.02, the circumstances in which a costs order may be made against a lawyer are narrow and unambiguous. Mr. Swinwood said that if I was inclined to award costs against him, he would like an opportunity to make further submissions in writing. Mr. Flom’s counsel replied that further written submissions would only add cost and delay.

[31] It seems to me that even though Rule 15.02, unlike Rule 57.07, does not specifically provide a lawyer facing a personal costs order a reasonable opportunity to make representations, a lawyer facing such an order under Rule 15.02 should be permitted to seek advice or make further representations if it would be unfair for the lawyer to be deprived of such an opportunity. In this case, however, I see no potential for unfairness. More than one year before the motion was heard, in a letter dated November 23, 2020, Mr. Flom’s counsel informed Mr. Swinwood that if he had started the O Cannabis action without proper authority, he should put his professional liability insurer on notice. Mr. Flom’s intention to seek costs against Mr. Swinwood personally was then clearly spelled out in Mr. Flom’s counsel’s letter of November 27, 2020. It was after receiving that letter that Mr. Swinwood told Mr. Flom’s counsel to bring his motion. Mr. Flom’s intention to seek costs against Mr. Swinwood personally was again clearly set out in Mr. Flom’s motion record of December 8, 2020. Mr. Flom’s factum also referred to his intention to seek costs against Mr. Swinwood personally. In his written materials and at the hearing of the motion, Mr. Swinwood had an opportunity to explain why costs should not be awarded against him. His answers are set out under the heading “Mr. Swinwood’s position”, above. It was only when I asked counsel about Rule 57.07 that Mr. Swinwood asked to make further submissions in writing.

[32] I am satisfied that Mr. Swinwood had clear notice of Mr. Flom’s intention to seek costs against him personally and ample opportunity to take steps to avoid such a costs order. It would not be unfair in these circumstances not to give Mr. Swinwood an opportunity to make further submissions in writing. Further submissions would increase the cost of the motion, at least marginally, and would also cause delay.

[33] I am also satisfied that, on these facts, a costs order against Mr. Swinwood under Rule 15.02 is warranted: Mr. Swinwood started an action on behalf of O Cannabis that was not authorized by the corporation; Mr. Swinwood responded to Mr. Flom’s request for proof that the action was authorized but served directors’ resolutions which were deficient for the purpose.

[34] In Unical, Steele J. ordered costs against the client which had instructed the lawyers to start the action and against the lawyers under their warranty in the event the client did not pay. In the case before me, it is evident that Ms. Toombs instructed Mr. Swinwood to start the O Cannabis action. Ms. Toombs may also have prepared the directors’ resolutions she and her mother signed. I consider both Ms. Toombs and Mr. Swinwood to be responsible for Mr. Flom’s costs in respect of the O Cannabis action. However, Mr. Swinwood continues to represent Ms. Toombs and an order similar to the one in Unical would pit Ms. Toombs and Mr. Swinwood against each other. A more appropriate disposition in this case would be to clearly apportion their respective obligations to pay Mr. Flom’s costs.

[35] I have already found that approximately 2/3 of the total costs of the motion are attributable to the O Cannabis issue. Ms. Toombs and Mr. Swinwood each shall be responsible for 50 per cent of these costs. Ms. Toombs shall also be responsible for the costs attributable to Mr. Flom’s request to consolidate the Ottawa and the Toronto actions.

[36] Ms. Toombs shall, therefore, be responsible for 2/3 of the total costs I award to Mr. Flom and Mr. Swinwood shall be responsible for 1/3.

The scale and amount of costs

[37] Section 131(1) of the Courts of Justice Act, provides that the costs of and incidental to a proceeding or a step in a proceeding are in the discretion of the court. Although discretionary, a court must fix costs on a principled basis. (Davies v. Clarington, 2009 ONCA 722, 100 O.R. (3d) 66, at para. 40).

[38] Rule 57.01(1) of the Rules of Civil Procedure sets out the factors the court may consider, in addition to the result in the proceeding and any offer to settle or to contribute made in writing, in exercising its discretion under s. 131 of the Courts of Justice Act to award costs:

(0.a) the principle of indemnity, including, where applicable, the experience of the lawyer for the party entitled to the costs as well as the rates charged and the hours spent by that lawyer;

(0.b) the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed;

(a) the amount claimed and the amount recovered in the proceeding;

(b) the apportionment of liability;

(c) the complexity of the proceeding;

(d) the importance of the issues;

(e) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding;

(f) whether any step in the proceeding was,

(i) improper, vexatious or unnecessary, or

(ii) taken through negligence, mistake or excessive caution;

(g) a party’s denial of or refusal to admit anything that should have been admitted;

(h) whether it is appropriate to award any costs or more than one set of costs where a party,

(i) commenced separate proceedings for claims that should have been made in one proceeding, or

(ii) in defending a proceeding separated unnecessarily from another party in the same interest or defended by a different lawyer;

(h.1) whether a party unreasonably objected to proceeding by telephone conference or video conference under r. 1.08;

(i) any other matter relevant to the question of costs.

[39] The fixing of costs does not begin and end with a calculation of hours times rates. The objective is to fix an amount that is fair and reasonable for the unsuccessful party to pay rather than an amount fixed by the actual costs incurred by the successful litigant. (Boucher v. Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 291 (C.A.), at para. 26).

[40] The overriding principle is reasonableness. Otherwise, the result could be contrary to the fundamental objective of access to justice. (Davies, at para. 52).

[41] Mr. Flom seeks costs on a substantial indemnity basis. Elevated (substantial or full indemnity costs) should only be awarded if Rule 49.10 is triggered by an offer to settle or if there is a clear finding of reprehensible conduct on the part of the party against which the costs order is being made. (Davies, at para. 40).

[42] Rule 49.13 permits the court to take into account any offer to settle made in writing and the date and terms of the offer. In his November 27, 2020 letter, Mr. Flom’s counsel gave the plaintiffs an opportunity to: (a) discontinue the O Cannabis action on a without-costs basis; and (b) consent to an order consolidating the Ottawa and Toronto actions or providing that the two actions would be heard together or one immediately after the other. In his letter, Mr. Flom’s counsel said that if the motion was necessary, Mr. Flom would “be claiming the appropriate costs.”

[43] The outcome of the motion reflected the offer in Mr. Flom’s counsel’s November 27, 2020 letter. Had the offer been accepted, the motion could have been avoided, Mr. Flom would not have incurred any motion-related costs and the parties would have ended up in the same place.

[44] I find that because of the plaintiffs’ failure to accept the offer in Mr. Flom’s counsel’s letter of November 27, 2020, substantial indemnity costs are warranted in this case.

[45] Mr. Flom seeks what he describes as substantial indemnity fees of $15,580, comprised of fees on an hourly basis of $14,080 plus a counsel fee of $1,500. It is evident from Mr. Flom’s bill of costs, however, that this amount reflects his actual or full indemnity fees, not substantial indemnity fees.

[46] Mindful that there is more to fixing costs than simply multiplying hours times rates, I must consider the factors listed in Rule 57.01(1) and decide what amount would be a fair and reasonable amount for the unsuccessful party to pay. I consider the hourly rate of Mr. Flom’s counsel, Robert Trifts ($350/hour on a partial indemnity basis), to be reasonable for a Toronto-based commercial lawyer with his years of experience. The time Mr. Trifts devoted to the motion (25.6 hours) is also reasonable. I have already referred in some detail to the choices made and steps taken by the plaintiffs and/or their counsel which lengthened the proceeding and forced Mr. Flom to incur fees he should not have been required to incur. I note that in the statement of claim in the Ottawa action, one of the claims is for $13,500 in special damages, described as the amount Ms. Toombs paid the lawyer she retained for the motion before Kimmel J. This amount is not significantly less than the full indemnity amount requested by Mr. Flom. Although Mr. Swinwood said the amount requested by Mr. Flom was “ridiculous”, unfortunately, he did not deliver a bill of costs himself and has, therefore, deprived me of any ability to compare his fees for the motion with those of Mr. Flom.

[47] I conclude that, in all of the circumstances, $13,500 in substantial indemnity fees would be a fair and reasonable amount for the plaintiffs to pay.

Issue #2: Disposition

[48] For the reasons above, I conclude that Mr. Flom is entitled to costs on a substantial indemnity basis in the amount of $16,000, representing fees of $13,500, HST on fees of $1,755, plus disbursements, inclusive of HST, of $1,052.80. I have rounded down the total slightly.

[49] Of the $16,000, Ms. Toombs shall pay $10,666.67 and Mr. Swinwood shall pay $5,333.33.

[50] These costs shall be paid within 30 days.

Date: March 7, 2022

COURT FILE NO.: CV-20-84922 DATE: 20220307 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: O Cannabis we Stand on Guard for Thee Corporation and Morgan Toombs, Plaintiffs -and- Ronald Flom, Defendant COUNSEL: Michael Swinwood, for the Plaintiffs Robert W. Trifts, for the Defendant endorsement Justice Heather J. Williams

Released: March 7, 2022

[1] In an endorsement dated September 23, 2021, Cavanagh J. concluded that both O Cannabis and Ms. Toombs were clients of Mr. Flom’s law firm.