COURT FILE NO.: CV-11-437362 DATE: 20220311
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
2287913 ONTARIO INC., TREBAR HOLDING INC., 2234406 ONTARIO INC. and ARCTIC SPAS OAKVILLE INC. Plaintiffs/ Defendants by Counterclaim – and – ERSP INTERNATIONAL ENTERPRISES LTD., BREAK THROUGH ENTERPRISES LTD., KELLNER CONSULTING LTD., LIQUID LOGIC LTD., ECHO SOLUTIONS INCORPORATED, PARADISE BAY SPA & TUB WAREHOUSE INC., SPA LOGIC INC., BLUE FALLS MANUFACTURING LTD., ARCTIC SPAS INC., JOHN KEIRSTEAD, JAMES KEIRSTEAD, DARCY AMENDT, DENNIS KELLNER and BRENT MACKLIN Defendants/ Plaintiffs by Counterclaim
Counsel: Joseph Figliomeni, for the Plaintiffs/ Defendants by Counterclaim Leslie Dizgun and Allyson M. Fischer, for the Defendants/ Plaintiffs by Counterclaim
HEARD IN WRITING: March 11, 2022
ENDORSEMENT ON COSTS
A.A. SANFILIPPO, J.
Overview
[1] In my Reasons for Judgment dated October 12, 2021, I provided that if the parties were unable to agree on the issue of costs, they could request a chambers appointment by November 12, 2021 to set a timetable for the delivery of written submissions on costs: 2287913 Ontario Inc. v. ERSP International Enterprises Ltd., 2021 ONSC 6756, at para. 372. The parties could not agree on the issue of costs, with the result that a chambers appointment was conducted and a timetable was established for the delivery of written submissions on the issue of costs, consistent with Rule 57.01(7) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. The timetable called for the completion of the exchange of written cost submissions by February 11, 2022.
[2] I have now received and considered the parties’ written submissions. [1] For the reasons that follow, I award the Plaintiff, Arctic Spas Oakville Inc., costs of this action, on a partial indemnity basis, payable by the Defendant Blue Falls Manufacturing Ltd., fixed in the amount of $450,000, all inclusive. There shall be no order of costs payable in favour of, or payable by the other Plaintiffs/ Defendants by Counterclaim and the other Defendants/ Plaintiffs by Counterclaim.
I. The Parties’ Positions
A. The Plaintiffs’ Position
[3] The Plaintiffs/ Defendants by Counterclaim, 2287913 Ontario Inc. (“2287913 Inc.”), Trebar Holdings Inc. (“Trebar Inc.”), 2234406 Ontario Inc. (“2234406 Inc.”), and Arctic Spas Oakville Inc. (“ASOI”) (collectively the “Plaintiffs”) claimed that they are entitled to an award of costs by reason of their success in this action. ASOI was awarded judgment against Blue Falls Manufacturing Ltd. (“Blue Falls”) in the amount of $565,365, plus pre-judgment and post-judgment interest, and the Plaintiffs were successful in defending the Counterclaim brought not only by Blue Falls but also by the Defendants/ Plaintiffs by Counterclaim ERSP International Enterprises Ltd., Break Through Enterprises Ltd., Kellner Consulting Ltd., Liquid Logic Ltd., Echo Solutions Incorporated, Paradise Bay Spa & Tub Warehouse Inc., Spa Logic Inc., Arctic Spas Inc., John Keirstead, James Keirstead, Darcy Amendt, Dennis Kellner and Brent Macklin (collectively the “Defendants”).
[4] The Plaintiffs contended that an analysis of the “result in the proceeding” in accordance with Rule 57.01(1) of the Rules of Civil Procedure, supports an award of costs in their favour. The Plaintiffs submitted, further, that there were “compelling reasons to award ASOI their costs on a substantial indemnity basis, due to the general conduct of the Defendants throughout the course of these proceedings”.
[5] The Plaintiffs quantified their costs on a substantial indemnity basis, in the amount of $800,486.80, all inclusive of legal fees, disbursements and applicable taxes. On a partial indemnity basis, the Plaintiffs claimed costs in the amount of $674,683.80, all inclusive.
[6] The Plaintiffs submitted that the amount of their costs was reasonable in that their costs are less than those sought by the Defendants in their Costs Outline delivered prior to trial in accordance with the s. 2(j) of the Trial Management Endorsement issued on March 18, 2021. [2] The Plaintiffs submitted that when considering what the Defendants would “reasonably expect to pay” in costs, a factor in cost assessment in accordance with Rule 57.01(1)(0.b), the amount sought by the Plaintiffs in costs is below the amount incurred in costs by the Defendants.
[7] The Plaintiffs submitted that the Defendants’ conduct “tended to lengthen unnecessarily the duration of the proceeding”, a relevant factor under Rule 57.01(1)(e). The Plaintiffs relied on the following: (i) the Defendants’ pursuit of damages for false warranty claims vacillated in size from the initial number of 18 allegedly false warranty claims (Answers to Undertakings, December 6, 2016) to 4,000 allegedly false warranty claims having a value of $1,080,552.53 (October 2019) to a mid-trial reduction to 1,860 false warranty claims having a value of $506,560.08 (April 3, 2021); (ii) the ten-year pursuit of counterclaims for broad trademark and copyright remedies that were abandoned at the start of trial; (iii) excessively complex and protracted pre-trial steps in documentary and oral discovery that were disproportionate to the matters in issue, including electronic data base searches that produced thousands of documents, an examination of Mr. Trevor Wasney, the principal of ASOI, that took 4.5 days and produced 4,650 questions; (iv) delivering an Amended Amended Statement of Defence and Counterclaim some 2 years after this action was set down for trial.
B. The Defendants’ Position
[8] The Defendants submitted that they delivered an Offer to Settle on January 12, 2021 wherein they offered to settle all issues in the action and counterclaim through payment of “the amount of $1,000,000 inclusive of costs, interests and taxes and all deductions required by law” (the “Defendants’ Offer to Settle”). The Defendants submitted that the Plaintiffs’ recovery at trial was “as favourable as or less favourable” than the Defendants’ Offer to Settle, with the result, according to Rule 49.10(2), that the Plaintiffs’ entitlement to partial indemnity costs is limited to the date that the Offer to Settle was made and that the Defendants are entitled to partial indemnity costs incurred from that date onward. The Defendants contend that this twenty-one-day trial was unnecessary as the Plaintiffs could have achieved as good a result by accepting the Defendants’ Offer to Settle. The Defendants quantified their partial indemnity costs from the date of their Offer to Settle to the conclusion of trial - being the 4.5-month period from January 12, 2021 to May 26, 2021 - as $457,269.73, all inclusive.
[9] The Defendants submitted that there is no basis on which the Plaintiffs would be entitled to costs on a substantial indemnity basis, but that their costs entitlement must be on a partial indemnity basis. The Defendants submitted that the grounds alleged by the Plaintiffs for an award of substantial indemnity costs fall well short of the principle that costs on a substantial indemnity level are to be awarded in only “rare and exceptional” cases.
[10] The Defendants contended that the Plaintiffs’ cost demand must be reduced by at least 40% in recognition of the following factors: (i) an analysis of the “result in the proceeding” shows that the Plaintiffs realized only divided success, in that the claims pleaded and advanced for ten years by Trebar Inc. and 2234406 Inc. were abandoned at trial, the claims brought by 2287913 Inc. were dismissed, and the claims brought by ASOI against the thirteen Defendants apart from Blue Falls were dismissed; (ii) the conduct of ASOI and 2287913 Inc. caused the proceeding to be more complex than necessary in pleading some twelve causes of action and abandoning seven at trial; (iii) the Plaintiffs caused unnecessary costs, delay and inefficiencies in insisting on seeking the scheduling of a summary judgment motion, which was denied by the Case Management Judge.
II. Analysis
[11] Section 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43, provides the court with discretion in the determination of costs. The exercise of this discretion is guided by the principles set out in Rule 57.01, and applicable jurisprudence, having regard for the overriding principles of reasonableness, fairness and proportionality: Barbour v. Bailey, 2016 ONCA 334, at para. 9; Beaver v. Hill, 2018 ONCA 840, 143 O.R. (3d) 519, at para. 12, leave to appeal refused, [2019] S.C.C.A. No. 82; Boucher v. Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 291 (C.A.), at para. 38; Zesta Engineering Ltd. v. Cloutier, [2002] O.J. No. 4495 (C.A.), at para. 4.
[12] Absent special circumstances, “costs follow the event”: Bell Canada v. Olympia & York Developments Ltd. (1994), 111 D.L.R. (4th) 589 (Ont. C.A.); Yelda v. Vu, 2013 ONSC 5903, at para. 11, leave to appeal refused, 2014 ONCA 353; St. Jean v. Cheung, 2009 ONCA 9, at para. 4. Although there is no absolute entitlement to costs, the successful party is entitled to a reasonable expectation of an award of costs in the absence of special circumstances: Bell Canada, at p. 596; 1318706 Ontario Ltd. v. Niagara (Municipality) (2005), 75 OR (3d) 405 (C.A.), at paras. 48-52.
A. The Divided Success
[13] The Plaintiffs submitted that it would be “unreasonable to conclude that success in this case was divided”, stating that: “The Defendants lost. ASOI won.” The analysis of “success” in this trial does not allow for the categorical conclusion urged by the Plaintiffs.
[14] The four Plaintiffs in this action asserted some twelve causes of action against fourteen Defendants. The claims by two of the Plaintiffs, Trebar Inc. and 2234406 Inc. were abandoned at trial. The claims by 2287913 Inc. were dismissed. The claims advanced by ASOI in defamation, unjust enrichment, obtaining money by false pretences, breach of fiduciary duty, inducing breach of contract, wrongful appropriation and trespass to property and injunctive relief were all abandoned. The claims by ASOI against thirteen of the fourteen Defendants were dismissed. ASOI established an entitlement to judgment against a single Defendant out of fourteen, Blue Falls, on a single cause of action out of twelve pleaded. In my view, this constitutes divided success.
[15] The Defendants submitted as follows: “Finally, if the non-Blue Falls Defendants had been separately represented, they would be entitled to their partial indemnity costs of the action as they were entirely successful”. I do not accept this submission. While it is true that the claims brought by the Plaintiffs were dismissed against all Defendants except Blue Falls, it is equally true that the Counterclaims brought by all Defendants against all Plaintiffs were also dismissed. Accordingly, the Defendants apart from Blue Falls were not “entirely successful”, as they have submitted, as they failed to establish their Counterclaims.
[16] All Plaintiffs except ASOI failed in their claims and all Plaintiffs succeeded in their defence of the Counterclaims. All Defendants except Blue Falls succeeded in their defence of the claims and all Defendants failed in their Counterclaims. For all Plaintiffs except ASOI, and for all Defendants except Blue Falls, there is evenly divided success with the result that each of the non-ASOI Plaintiffs and each of the non-Blue Falls Defendants shall bear their own costs: Lowndes v. Summit Ford Sales Ltd. (2006), 48 C.C.E.L. (3d) 194 (Ont. C.A.), at para. 3; Isaacs v. MHG International Ltd. (1984), 7 D.L.R. (4th) 570 (Ont. C.A.), at p. 573. All Plaintiffs except ASOI and all Defendants except Blue Falls shall neither receive an award of costs nor be required to pay costs.
[17] ASOI was successful in obtaining judgment against Blue Falls and in defeating the Counterclaims. ASOI was more successful than Blue Falls. To use the terminology expressed by the Court of Appeal in Mihaylov v. 1165996 Ontario Inc., 2017 ONCA 218, at para. 8, ASOI succeeded on the dispute that “drove” the proceeding. But this success was divided considering that numerous claims advanced by ASOI against Blue Falls were either abandoned or dismissed.
[18] I thereby conclude that ASOI has established an entitlement to an award of costs against Blue Falls. In accordance with Rules 57.01(1) and 57.01(4)(a), I conclude that ASOI’s success against Blue Falls was divided. By reason of ASOI’s divided success, in the exercise of my discretion and in accordance with Rule 57.01(4)(b), I will apply a deduction of twenty percent to the costs established by ASOI.
B. ASOI’s Claim for Costs on a Substantial Indemnity Basis
[19] ASOI’s claim for costs on a substantial indemnity basis was based on the following: (i) the Defendants “recklessly” pursued a claim for false warranty submissions, at times referred to as fraudulent claims, resulting in disproportionate and expensive pre-trial production and inordinate consumption of trial time and resources; (ii) the Defendants pleaded complex causes of action in copyright and trademark that extended the time for this action to be prepared for trial, only to abandon them at the start of trial; (iii) the Defendants delivered an Amended Amended Statement of Defence and Counterclaim 2.5 years after the action was set down for trial; (iv) the Defendants raised evidentiary objections at trial that were unsubstantiated; (v) Blue Falls delivered two expert reports on the issue of damages; (vi) the Defendants failed to obtain trial transcripts on a timely basis, resulting in an adjournment of the closing submissions.
[20] While I accept that certain of these factors may be taken into consideration in my assessment of conduct of the Defendants that “tended to lengthen unnecessarily the duration of the proceeding” under Rule 57.01(1)(e), they are not, in my view, even taken collectively, sufficient to give rise to an elevated award of costs on a substantial indemnity basis.
[21] The Supreme Court has stated that costs on a substantial indemnity or full indemnity level are reserved for rare and exceptional cases, where the conduct of the party against whom costs are ordered is reprehensible, or where there are other special circumstances that justify an elevated award of costs. In Young v. Young, 1993 SCC 3, [1993] 4 S.C.R. 3, at p. 134, the Supreme Court stated that solicitor and client costs, as were then in use, “are generally awarded only where there has been reprehensible, scandalous or outrageous conduct on the part of one of the parties”.
[22] In Net Connect Installation Inc. v. Mobile Zone Inc., 2017 ONCA 766, 140 O.R. (3d) 77, at para. 8, the Ontario Court of Appeal affirmed that costs on an elevated scale are justified in only very narrow circumstances, applying their decision in Davies v. Clarington (Municipality), 2009 ONCA 722, 100 O.R. (3d) 66, at para. 28, that substantial indemnity costs are only warranted in two circumstances: by the operation of an offer to settle under Rule 49.10, and “where the losing party has engaged in conduct that is worthy of sanction”. See also, Alguire v. The Manufacturers Life Insurance Company (Manulife Financial), 2018 ONCA 202, 419 D.L.R. (4th) 356, at paras. 41-43; Whitfield v. Whitfield, 2016 ONCA 720, 133 O.R. (3d) 753, at paras. 22-25; Akagi v. Synergy Group (2000) Inc., 2015 ONCA 771, 128 O.R. 64, at paras. 31-33; Laczko v. Alexander, 2012 ONCA 872, at para. 2; St. Elizabeth Home Society v. Hamilton (City), 2010 ONCA 280, 319 D.L.R. (4th) 74, at para. 92; Davies, at paras. 29-31, 45-46; McBride Metal Fabricating Corp. v. H & W Sales Company Inc. (2002), 59 O.R. (3d) 97 (C.A.), at paras. 37-38.
[23] I do not see any basis for an elevated award of costs on a substantial indemnity basis. The Defendants advanced claims that were abandoned or dismissed, as did the Plaintiffs. Neither party did so, in my assessment, for the purpose of “malicious counter-productive conduct” meant tactically to extend or delay adjudication, as referred to by the Court of Appeal in Davies, at para. 45, as necessary to justify an elevated award of costs. Neither party acted in a manner that was reprehensible or frivolous, or, in my determination, deserving of sanction.
[24] I deny ASOI’s claim for costs on a substantial indemnity basis as unfounded in law and unestablished in the conduct of this trial.
C. The Defendants’ Offer to Settle
[25] Although I referred to it earlier, I will set out, for ease of reference, the Defendants’ Offer to Settle which provided as follows:
- The Defendants/ Plaintiffs by Counterclaim shall pay to the Plaintiffs/ Defendants by Counterclaim, the amount of $1,000,000 inclusive of costs, interest and taxes and all deductions required by law.
- In exchange for the consideration referred to in paragraph 1 herein, all parties to this action and counterclaim shall execute a Mutual Full and Final Release of all claims raised in the action and counterclaim and consent to an Order dismissing this action and counterclaim without costs.
[26] The Plaintiff, ASOI, was awarded damages in the amount of $565,365 payable by Blue Falls, together with pre-judgment interest and post-judgment interest, in accordance with ss. 128 and 129 of the Courts of Justice Act.
[27] The Defendants rely on Rule 49.10(2), which provides as follows:
Where an offer to settle, (a) is made by a defendant at least seven days before the commencement of the hearing; (b) is not withdrawn and does not expire before the commencement of the hearing; and (c) is not accepted by the plaintiff, and the plaintiff obtains a judgment as favourable as or less favourable than the terms of the offer to settle, the plaintiff is entitled to partial indemnity costs to the date the offer was served and the defendant is entitled to partial indemnity costs from that date, unless the court orders otherwise.
[28] The Defendants’ reliance on Rule 49.10(2) then depends on whether the Defendants can establish that the judgment obtained by the Plaintiffs is “as favourable as or less favourable than” the terms of the Defendants’ Offer to Settle.
(a) Governing Principles
[29] In Davies, at para. 16, the Court of Appeal stated that Rule 49 contains a “self-contained scheme that addresses the manner in which offers to settle are brought into play”. The Court of Appeal explained that the objective of Rule 49 is to “promote an offer of compromise and visit a cost consequence upon an offeree who rejects an offer that turns out to be as favourable as or more favourable than the judgment awarded to the plaintiff at trial”. The Court of Appeal has affirmed that the presumptive cost entitlement in Rule 49.10 should be applied in the “vast majority of cases” to help “ensure that the rule is applied in a reasonably predictable fashion, and thereby avoids blunting the rule’s incentives ‘to induce settlements and avoid trials’”: Barresi v. Jones Lang Lasalle Real Estate Services Inc., 2019 ONCA 884, at para. 17, relying on Jarbeau v. McLean, 2017 ONCA 115, 410 D.L.R. (4th) 246, at para. 82; Cimmaster v. Piccione (Manufacturing Technologies Company), 2011 ONCA 486, 336 D.L.R. (4th) 506, at para. 32.
[30] The Defendants’ Offer to Settle was an “all-inclusive” offer that proposed a lump sum for claim, pre-judgment interest and costs. In evaluating an offer to settle that is inclusive of interest and costs, the proper test is to analyse the amount recovered at trial plus interest and costs up to the date of the offer to settle: Kalogon Spar Ltd. v. Papageorge, 2020 ONSC 3234, 6 C.L.R. (5th) 319, at para. 21, relying on Roy v. Regent Autobody Inc. (c.o.b. Regent Carstar Collision), [2006] O.J. No. 1144 (S.C.), at para. 14; Merrill Lynch Canada Inc. v. Cassina, [1992] O.J. No. 2230 (Gen. Div.), at para. 5; Mathur v. Commercial Union Assurance Co. of Canada (1988), 28 O.A.C. 55 (Div. Ct.); Rushton v. Lake Ontario Steel Co. (1980), 29 O.R. (2d) 68 (H.C.).
[31] This is because the Defendants’ Offer to Settle can only activate Rule 49.10(2) if the Plaintiffs would, on the date of the offer to settle, have been at least as well off, if not better off to have accepted the Defendants’ Offer to Settle than the eventual judgment granted at trial: Whitford v. Agrium Inc., 2007 ABCA 109, 409 A.R. 304, at para. 3.
[32] As part of this analysis in the case of an all-inclusive offer to settle, the Court should consider the amount of pre-judgment interest on the amount awarded in judgment: Wilson v. Cranley, 2014 ONCA 844, 325 O.A.C. 396, at paras. 15, 17; Emery v. Royal Oaks (1995), 26 O.R. (3d) 216, [1995] O.J. No. 2885 (Gen. Div.), at para. 22.
(b) The Parties’ Positions
[33] The Plaintiffs submitted that the amount of pre-judgment interest calculated in accordance with s. 128 of the Courts of Justice Act is $68,285, meaning that the total amount of the judgment awarded to ASOI would be $633,650 ($565,365+$68,285=$633,650). The Defendants submitted that the pre-judgment interest calculation was $325.03 less, $67,959.97, with the result that the total amount of the judgment awarded to ASOI would be $633,324.97.
[34] In order to come within Rule 49.10(2), the costs component of the Defendants’ Offer to Settle have to be at or below the amount of $366,675.03 as of January 12, 2021, being the date of the offer to settle: $565,365+$67,959.97+366,675.03=$1,000,000). On the Plaintiffs’ calculation of pre-judgment interest, the inflection point on the applicability of Rule 49.10(2) is $325.03 less: specifically, costs as of January 12, 2021 totaling $366,350.
[35] To analyse the amount of costs to which the Plaintiffs would have been entitled as of January 12, 2021, had they accepted the Defendants’ Offer to Settle, the parties applied the values set out in two sources: (i) the Plaintiffs’ Costs Outline, provided to the Defendants pre-trial, dated March 23, 2021; (ii) the Plaintiffs’ Bill of Costs, delivered post-trial, dated January 24, 2022.
[36] As explained earlier, the Plaintiffs’ Costs Outline was provided to the Defendants at the start of trial in accordance with s. 2(j) of the Trial Management Endorsement dated March 18, 2021. The Plaintiffs’ Costs Outline set out both actual fees and disbursements incurred by the Plaintiffs to the start of trial, and their projected, estimated fees for the 16-days scheduled for trial applying a per diem estimate of anticipated fees. The Plaintiffs quantified these costs on a partial indemnity basis as $491,246.99, comprised of fees of $395,175.40 plus HST of $51,372.80 and disbursements of $44,698.79.
[37] In their Bill of Costs, the Plaintiffs claim that they incurred actual fees of $980,205.41, comprised of fees of $795,215.00 plus HST of $103,378.95 and disbursements of $81,612.46. On a partial indemnity basis, calculating 66% of actual fees, the Plaintiffs claim costs in the amount of $674,683.80, consisting of partial indemnity fees of $524,841.90 plus HST of $68,229.45 and disbursements of $81,612.46.
[38] The Defendants analysed the Plaintiffs’ Costs Outline for the purpose of assessing the amount of costs to which the Plaintiffs were entitled at the date of the Defendants’ Offer to Settle. The Defendants made the following adjustments: (i) remove the amount entered for a motion for security for costs; (ii) remove the amount claimed for a motion for summary judgment; (iii) reduce the pre-trial preparation from $49,154.40 to $10,000 on the basis that the bulk of the Plaintiffs’ pre-trial preparation was conducted after January 12, 2021. With these adjustments, the Defendants submitted that the Plaintiffs’ Costs Outline comprised total costs on a partial indemnity basis, up to January 12, 2021, of $314,447.71, consisting of partial indemnity fees of $239,237 plus HST of $31,100.81 and disbursements of $44,109.90. The Defendants submitted that the Plaintiffs’ judgment is less favourable than the Defendants’ Offer to Settle because the Defendants offered to pay the amount of $1,000,000, all inclusive, on January 12, 2021 when the Plaintiffs’ recovery at trial was $633,324.97 (judgment plus pre-judgment interest) and the amount of costs they could have assessed as at January 12, 2021 was $314,447.71 for a total of $947,772.68.
[39] The Defendants concede that making the same adjustments to the values set out in the Plaintiffs’ Bill of Costs as were made to the Plaintiffs’ Costs Outline will not produce a result that engages Rule 49.10(2). This is because the Plaintiffs’ Bill of Costs contains higher values for certain categories of costs than the Plaintiffs’ Costs Outline. The Defendants’ analysis of the Plaintiffs’ Bill of Costs shows that – even with the same adjustments as the Defendants’ proposed to the Plaintiffs’ Costs Outline - the Plaintiffs’ total costs, on a partial indemnity basis, at January 12, 2021 were $403,048.57, consisting of $301,234.32 in fees plus HST of $39,160.46 plus disbursements of $62,653.79. The Plaintiffs’ recovery at trial was thereby higher than the Defendants’ Offer to Settle because the Defendants offered to pay the amount of $1,000,000, all inclusive, on January 12, 2021 when the Plaintiffs’ recovery at trial was $633,324.97 (judgment plus pre-judgment interest) and the amount of costs they could have assessed as at January 12, 2021 was $403,048.57 for a total of $1,036,373.54.
[40] The Plaintiffs submitted that the Plaintiffs’ Costs Outline was prepared on short notice – three days prior to trial – “by a law clerk with little knowledge or involvement in the file”. The Plaintiffs submitted that the “Bill of Costs is detailed, comprehensive and complete” and captures the accounts rendered by the three law firms that acted for the Plaintiffs in the ten-year course of this action. The Plaintiffs thereby submitted that the Bill of Costs more accurately represents the costs incurred by the Plaintiffs.
[41] Regarding the computation of their costs to January 12, 2021, the Plaintiffs submitted that their Bill of Costs establishes partial indemnity costs to the date of the Defendants’ Offer to Settle of $523,467, consisting of $403,704 in fees, $52,481 in HST and disbursements of $67,282, well-above the $403,048.57 calculated by the Defendants. The Plaintiffs thereby submitted that the amount they recovered at trial was some $150,000 above the Defendants’ Offer to Settle of $1,000,000, consisting of judgment and pre-judgment interest of $633,650 plus costs of $523,467 for a total of $1,157,117.
(c) Analysis – Is Rule 49.10(2) Engaged?
[42] To accept the Defendants’ submission that the presumptive cost entitlement set out in Rule 49.10(2) is engaged, I would have to: (i) restrict the Plaintiffs’ claim for costs to those contained in their Costs Outline and disregard the higher costs claimed by the Plaintiffs in their Bill of Costs; and (ii) accept the Defendants’ reduction of the amount of fees and disbursements quantified in the Plaintiffs’ Costs Outline; or (iii) accept the Plaintiffs’ Bill of Costs but reduce the amounts claimed by the Plaintiffs by some 30-40%. I do not accept the Defendants’ submissions on the application of Rule 49.10(2) for reasons that I will now explain.
[43] First, I accept the Plaintiffs’ submission that their claim for costs is not restricted to those set out in the Costs Outline but rather may be considered together with their Bill of Costs. The Bill of Costs was prepared retrospectively, accounting for all disbursements incurred and legal fees by then realized, as opposed to the Costs Outline which contained estimates for some values not yet realized or fully accounted for. This action had a ten-year history and therefore a ten-year history of costs and disbursements.
[44] I acknowledge the important role of a Costs Outline, as set out by Justice Beaudoin in Wallace v. Campbell, 2017 ONSC 2767, at para. 5, and concur with his statement that in fixing the costs of a motion, “a costs outline delivered after the fact is simply not as reliable as one delivered in accordance with the rule”. Also, in Kossay El-Khodr v. Northbridge Commercial Insurance Company, 2020 ONSC 3160, at para. 15, Justice H.J. Williams emphasized the importance of holding parties to the values stated in their Costs Outlines for the purpose of fixing costs on a motion. In my view, these principles clearly apply to determination of costs of a motion.
[45] After a trial, parties are required, under Rule 57.01(5), to deliver a Bill of Costs for determination of the issue of costs. The Costs Outline was directed, in the days leading to the trial, to be delivered by the start of trial and served the purpose of alerting the parties to the scope of costs that would be claimed. The Costs Outlines informed an assessment of “the amount of costs that an unsuccessful party could reasonably expect to pay”, a factor in the determination of costs: Rule 57.01(1)(0.b). The Costs Outlines contained estimates of costs not yet incurred. In my view, the Costs Outlines did not displace the Bills of Costs in this case, but rather both written cost submissions may be considered in the determination of costs.
[46] The Plaintiffs’ Bill of Costs captures higher values both for fees and disbursements incurred in the pre-trial stage than set out in the Plaintiffs’ Costs Outline. In my view, the differential is not sufficient to infer, as the Defendants submitted, that the increased quantification of costs in the Plaintiffs’ Bill of Costs reflects ASOI’s position after it knew Blue Fall’s position on the Defendants’ Offer to Settle, to defeat application of Rule 49.10(2). The Defendants have not identified or raised a concern of the reasonableness of any individual value contained in the Bill of Costs. Accordingly, I am not prepared to foreclose the Plaintiffs from tendering in their Bill of Costs the additional fees and disbursements that were not reflected in the Costs Outline. In applying the amount of fees and disbursements set out in the Plaintiffs’ Bill of Costs for the period leading to January 12, 2021, even with the adjustments proposed by the Defendants, Rule 49.10(2) is not engaged because the Plaintiffs’ recovery at trial exceeded the Defendants’ Offer to Settle.
[47] Second, even if I were to accept the Defendants’ position that I should apply the Plaintiffs’ Costs Outline and disregard the Plaintiffs’ Bill of Costs - and accepting that the claims made by the Plaintiffs in their Costs Outline for a motion for security for costs and a summary judgment motion should be disallowed - the resultant cost quantification would yield a result that would engage Rule 49.10(2) only if I accepted two adjustments urged by the Defendants: (i) reduce the Plaintiffs’ pre-trial preparation from the amount of $49,154.50 to the amount of $10,000; (ii) deny the Plaintiffs any entitlement to increase the amount of their disbursements incurred pre-January 12, 2021 ($62,653.79 in the Plaintiffs’ Bill of Costs as opposed to the amount of $44,109.90 set out in the Plaintiffs’ Costs Outline). Regarding the adjustment to the pre-trial preparation, the Defendants did not provide any basis for the reduction of pre-trial preparation from $49,154.50 to the notional amount of $10,000 other than the general submission that trial preparation would have escalated after January 12, 2021 as the trial date approached. I accept the Plaintiffs’ submission that they had significant trial preparation leading to mid-January 2021, including Requests to Admit, document briefs, aide memoires and chronology. And, in fairness, I see no reason why the Plaintiffs should be disallowed from claiming disbursements additional to those set out in the Costs Outline where no issue has been raised by the Defendants regarding the quantification of the Plaintiffs’ disbursements.
[48] Third, I do not accept the Defendants’ alternative submission that if I apply the Plaintiffs’ Bill of Costs to a Rule 49.10(2) analysis, the Defendants’ Offer to Settle would still have provided a higher recovery by the Plaintiffs “if the partial indemnity costs in the [Plaintiffs’ Bill of Costs] to the date of the [Defendants’ Offer to Settle] is significantly reduced (30% to 40%)”. The only basis for this degree of reduction to the Plaintiffs’ Bill of Costs would be on the basis of divided success. The issue of divided success is not material to my determination of whether Rule 49.10(2) is engaged: Barresi, at para. 20.
D. Fixing the Amount of Partial Indemnity Costs Based on Divided Success
[49] Having determined that ASOI is entitled to an award of partial indemnity costs against Blue Falls, based on its divided success, and having found that Rule 49.10(2) is not engaged, I will now explain my determination of the amount of costs to be awarded to ASOI.
[50] As explained, the Plaintiffs’ Bill of Costs quantified the Plaintiffs’ costs on a partial indemnity basis at the amount of $674,683.80, consisting of fees of $524,841.90, HST of $68,229.45 and disbursements of $81,612.46.
[51] The lawyers, clerks and law student fees claimed by the Plaintiffs are calculated on a partial indemnity basis at 66% of the actual fees. This is only slightly higher than the range set out by the Court of Appeal and this Court for partial indemnity fees: Canadian National Railway Company v. Royal and Sun Alliance Insurance Company of Canada, 2007 ONCA 531, 44 C.B.R. (5th) 169, at para. 6; Eastern Power Limited v. Ontario Electricity Financial Corporation, 2012 ONCA 366, at paras. 11, 26; Inter-Leasing, Inc. v. Ontario (Revenue), 2014 ONCA 683, at para. 5; Bain v. UBS Securities Canada Inc., 2018 ONCA 190, 46 C.C.E.L. (4th) 50, at para. 32; Stetson Oil & Gas Ltd. v. Stifel Nicolaus Canada Inc., 2013 ONSC 5213, at paras. 24-25; GB/Plasman v. APP Holdings, 2013 ONSC 6401, at paras. 13-14. The Defendants did not raise an objection to this, and did not contest the amount of fees incurred by the Plaintiffs on the delineated steps in the litigation. The legal fees incurred by the Plaintiffs are generally at or below the levels claimed by the Defendants in their Bill of Costs, which totals $733,624 on a partial indemnity basis.
[52] The Plaintiffs did not parse out the legal costs specific to the claims advanced by ASOI from those advanced on behalf of all Plaintiffs, and did not carve out the costs that arose from the defence of the Counterclaim from those that were incurred in the prosecution of the action. Considering that all the Plaintiffs’ claims were advanced collectively by the same law firm by all Plaintiffs against all Defendants - without analytical refinement of which claims by which Plaintiff was asserted against which Defendant - and considering that all Counterclaims were likewise asserted by a single law firm on behalf of all Defendants against all Plaintiffs, it may not have been possible or practical to do so. And I note that the lawyers for the parties did not even attempt to draw such distinctions in their written cost submissions. The Plaintiffs’ costs were presented as “ASOI’s” costs – even though incurred on behalf of the collective of Plaintiffs – and the Defendants’ costs were similarly framed as having been incurred on behalf of the collective of Defendants.
[53] I will therefore apply a discount of ten percent to the overall partial indemnity costs claimed ($674,683.80) on the basis that a percentage of the costs incurred by the Plaintiffs were on behalf of 2287913 Inc., Trebar Inc. and 2234406 Inc. To that net amount of ASOI’s costs, I will apply a discount of twenty percent due to ASOI’s divided success.
[54] In determining the amount of partial indemnity costs to be awarded to ASOI against Blue Falls resulting from its divided success in this action, I am guided by the factors set out in Rule 57.01, including the following:
(a) Reasonable Expectation of the Unsuccessful Party: Rule 57.01(1)(0.b) provides that in determining costs, the reasonable expectation of the unsuccessful party concerning the amount of a cost award is a relevant factor. Blue Falls could reasonably have expected a cost award in the amount sought by ASOI both from the Plaintiffs’ Costs Outline and based on the costs that they incurred through their own counsel. (b) Amount Claimed and Amount Recovered: Rule 57.01(1)(a) provides that an assessment of the amount claimed as contrasted with the amount recovered in the action is a relevant factor in fixing the amount of a cost award. Here, the damage amount proven by ASOI ($565,365) was much less than sought in closing submissions ($5,150,000). This factor would ordinarily support a discount in the amount of costs awarded to ASOI but, in this case, without overlapping the analysis of divided success. (c) The Importance of the Issues: Rule 57.01(1)(d) provides that the importance of the issues to the parties is a relevant factor in fixing an award of costs. In my view, this litigation was important to all parties. This is thereby a neutral factor in my consideration of the amount of the cost award. (d) Conduct of the Parties: Rule 57.01(1)(e) provides that the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding is a relevant factor in determining an appropriate amount of costs. Here, the conduct of all parties served to unnecessarily lengthen this proceeding. The Plaintiffs pleaded 13 causes of action in paragraph 1(c) of its Amended Statement of Claim, advanced them for a decade and then abandoned several at trial. The Defendants advanced a broad Counterclaim, seeking for a decade declaratory and injunctive relief, and damages for trademark infringement and copyright only to abandon these claims at trial. This conduct, by all parties, unnecessarily lengthened the duration of this proceeding. (e) Denial or Refusal to Admit: Rule 57.01(1)(g) provides that a party’s denial or refusal to admit anything that should have been admitted is a relevant factor in fixing an award of costs. ASOI refused to admit the authenticity of the document tendered into evidence by Corey Holton and referred to as the “Evosus Report”, even though this report had its genesis in a production order made against ASOI, as explained in the Reasons for Judgment at paras. 221-222. Trial time was unnecessarily consumed in argument by ASOI over the admission of the Evosus Report. This will be taken into consideration against ASOI in my determination of costs.
[55] Last, I will turn to the costs thrown away by the Plaintiffs’ insistence in bringing a motion for summary judgment. The Plaintiffs requested, at Civil Practice Court and at three Case Conferences, the scheduling of a motion for summary judgment. Justice Myers refused to schedule the motion on the basis that it contravened the principles set out in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, and Baywood Homes Partnership v. Haditaghi, 2014 ONCA 450, 120 O.R. (3d) 438. [3] The Defendants sought costs of over $20,000 for having successfully obtained directions to defer the proposed summary judgment motion. Justice Myers denied costs for the three Case Conferences but reserved the costs of the summary judgment motion to the trial judge. [4]
[56] Having heard the parties during this 21-day trial, in my view, there was no reasonable basis for the Plaintiffs to insist that the issues in this trial could be adjudicated in a summary judgment motion. The costs expended during this process were wasted. Blue Falls submitted that the costs thrown away are in the amount of $13,771.88, on a partial indemnity basis. In fixing costs to ASOI in this action, I will deduct the amount of $10,000 as costs thrown away by Blue Falls in defending ASOI’s pursuit of a summary judgment motion.
E. Conclusions
[57] I have concluded that ASOI was successful against Blue Falls and is thereby entitled to an award in costs payable by Blue Falls.
[58] All Plaintiffs except ASOI failed in their claims and succeeded in their defence of the Counterclaims. All Defendants except Blue Falls succeeded in their defence of the claims and failed in their Counterclaims. For all Plaintiffs except ASOI, and for all Defendants except Blue Falls, there is evenly divided success with the result that each of the non-ASOI Plaintiffs and each of the non-Blue Falls Defendants shall bear their own costs.
[59] The objective of quantification of costs is to determine an amount that is fair, reasonable, and proportionate, understanding that the mathematical quantification of what the successful litigant has spent in legal fees is pertinent but not dispositive. In Zesta, at para. 4, the Court of Appeal stated: “In our view, the costs award should reflect more what the court views as a fair and reasonable amount that should be paid by the unsuccessful parties rather than any exact measure of the actual costs to the successful litigant.” The quantification of costs is not a mere mathematical exercise in as much as a determination of what is fair and reasonable: Boucher, at para. 38.
[60] I have reduced the amount of partial indemnity costs sought by ASOI, specifically $674,683.80, due to the following factors: (i) costs claimed for legal services provided to Plaintiffs other than ASOI; (ii) divided success; (iii) the amount claimed by ASOI compared to the amount recovered at trial; (iv) ASOI’s conduct that lengthened unnecessarily the proceeding; (iv) costs thrown away by Blue Falls in defending the Plaintiffs’ summary judgment initiative.
[61] Considering all the factors set out in Rule 57.01, and applicable case law, and in the exercise of my discretion under s. 131 of the Courts of Justice Act, I conclude that it is fair, reasonable and proportionate to fix ASOI’s costs of this action, on a partial indemnity basis, payable by Blue Falls, in the amount of $450,000, all inclusive of legal fees, disbursements and applicable taxes.
III. Disposition
[62] For the reasons set out herein, I order as follows:
(a) The Plaintiff, Arctic Spas Oakville Inc., is awarded costs of this action, on a partial indemnity basis, payable by Blue Falls Manufacturing Ltd., fixed in the amount of $450,000, all inclusive of legal fees, disbursements, and applicable taxes. (b) There shall be no order of costs payable in favour of, or payable by, the Plaintiffs/ Defendants by Counterclaim, 2287913 Ontario Inc., Trebar Holding Inc. and 2234406 Ontario Inc., and the Defendants/ Plaintiffs by Counterclaim, ERSP International Enterprises Ltd., Break Through Enterprises Ltd., Kellner Consulting Ltd., Liquid Logic Ltd., Echo Solutions Incorporated, Paradise Bay Spa & Tub Warehouse Inc., Spa Logic Inc., Arctic Spas Inc., John Keirstead, James Keirstead, Darcy Amendt, Dennis Kellner and Brent Macklin.
A.A. Sanfilippo J. Date: March 11, 2022
ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: 2287913 ONTARIO INC., TREBAR HOLDING INC., 2234406 ONTARIO INC. and ARCTIC SPAS OAKVILLE INC. Plaintiffs/ Defendants by Counterclaim – and – ERSP INTERNATIONAL ENTERPRISES LTD., BREAK THROUGH ENTERPRISES LTD., KELLNER CONSULTING LTD., LIQUID LOGIC LTD., ECHO SOLUTIONS INCORPORATED, PARADISE BAY SPA & TUB WAREHOUSE INC., SPA LOGIC INC., BLUE FALLS MANUFACTURING LTD., ARCTIC SPAS INC., JOHN KEIRSTEAD, JAMES KEIRSTEAD, DARCY AMENDT, DENNIS KELLNER and BRENT MACKLIN Defendants/ Plaintiffs by Counterclaim
ENDORSEMENT ON COSTS A.A. Sanfilippo J. Date: March 11, 2022
[1] Cost Submissions of the Plaintiffs/ Defendants by Counterclaim, dated January 24, 2022 (CL A6378 to A6432); Cost Submissions of the Defendants/ Plaintiffs by Counterclaim, dated February 7, 2022 (CL B-1-2930 to B-1-2990); Reply Cost Submissions of the Plaintiffs/ Defendants by Counterclaim, dated February 11, 2022 (CL A6433-A6447).
[2] Trial Management Endorsement dated March 18, 2021, s. 2(j), Trial Exhibit “B”: “The parties shall exchange cost outlines, prior to the start of trial. The cost outlines shall not be provided to the Court until the argument of costs at the conclusion of the trial. The cost outlines may contain per diem estimates of the cost of anticipated trial days not yet incurred.”
[3] 2287913 Ontario Inc. v. ERSP International Enterprises Ltd., 2015 ONSC 7982; 2287913 Ontario Inc. v. ERSP International Enterprises Ltd., unreported endorsement of January 22, 2015; 2287913 Ontario Inc. v. ERSP International Enterprises Ltd., 2016 ONSC 1714.
[4] 2287913 Ontario Inc. v. ERSP International Enterprises Ltd., 2016 ONSC 1714, at para. 4.