COURT FILE NO.: CV-21-00663529-00CL
DATE: 20220519
SUPERIOR COURT OF JUSTICE – ONTARIO
COMMERCIAL LIST
APPLICATION UNDER Rule 14.05(3)(d), and (h) of the Rules of Civil Procedure, RRO 1990, Reg. 194.
RE: IMRAN KHAN, Applicant
AND
SHAHEEN INVESTMENT INC., Respondent
AND BETWEEN
SHAHEEN INVESTMENT INC., Counter-Applicant
AND
IMRAN KHAN, Counter-Respondent
BEFORE: Kimmel J.
COUNSEL: Scott McGrath / James P. E. Hardy, for Imran Khan Email: smcgrath@tgf.ca / jhardy@tgf.ca
Rory McGovern, for Shaheen Investment Inc. Email: rory@rorymcgovernpc.com
HEARD: March 21, 2022
ENDORSEMENT
[1] This application seeks the court’s interpretation of two promissory notes (the “promissory notes”) representing $900,000 in funds loaned by the respondent, Shaheen Investment Inc. (“Shaheen”), to the applicant, Imran Khan (“Khan”). Funds were advanced by Shaheen in 2016 and 2017 in respect of a proposed development in Bowmanville, Ontario known as Ace Developments, Scugog Village, in which Khan planned to build 83 townhouses and 32 single family homes (the “project”). Khan purchased the land for the project in January 2015.
[2] The principal of Shaheen is Janaid Razvi (“Razvi”), a former personal acquaintance and business associate of Khan’s. In April 2021, a dispute arose about the security that had been pledged for the promissory notes. This eventually brought to light that the parties disagreed about how to calculate what remained owing under the promissory notes.
[3] This litigation ensued and the parties consented to an interim without prejudice order dated July 12, 2021 (the “Interim Order”), pursuant to which Khan paid $1,853,201.11 to Shaheen and paid the sum of $484,481.82 into Khan’s lawyer’s trust account (the “Trust Funds”) pending the resolution of this application, in exchange for which Shaheen released all of the security that it held in connection with the promissory notes. Khan had previously paid $100,000 to Shaheen on May 1, 2018 to reduce the principal indebtedness.
[4] According to Shaheen, the amount paid to it under the Interim Order reflected what was undisputed to be owing as of April 30, 2021 under the promissory notes. The court’s interpretation of the promissory notes will determine the remaining amount owing, if any, or any overpayments.
[5] The applicant asserts that he has already overpaid Shaheen $17,763.91 and seeks repayment of that amount and the return of the Trust Funds. The respondent asserts that, based on its interpretation of the promissory notes, it is entitled to the entirety of the Trust Funds plus an additional sum of $541,411 that it claims is owed.
[6] The points of contention regarding the interpretation of the promissory notes are as follows:
a. Should interest be compounded?
b. Was the Interest Escalation Clause (defined below) triggered?
c. Was the 20% base interest rate specified in the second promissory note written down in error and should that rate be rectified? Or was the inclusion of the Interest Escalation Clause in that second promissory note a mistake that should be rectified?
[7] For the reasons that follow, the court’s findings on these three points of contract interpretation are as follows:
a. Interest should not be compounded;
b. The Interest Escalation Clause under the first promissory note was not triggered; and
c. The agreed upon base interest rate under the second promissory note was 20%. The Interest Escalation Clause was left in by mistake and the second promissory note shall be rectified to remove it.
[8] The result of these determinations is that it appears approximately $100,000 remains owing by Khan to Shaheen under the promissory notes, after taking into consideration amounts already paid. The precise calculation is subject to confirmation by the parties after receipt of this decision.
The Promissory Notes and Positions of the Parties
[9] The first promissory note dated November 1, 2016 was for a loan in the principal amount of $350,000 with a maturity date of December 1, 2021 (the “first note”). A lawyer was engaged to draft this promissory note. Interest was to accrue on the principal at a specified rate of 12% per annum, to be calculated annually and not in advance, but could potentially increase to 20% if the following condition (the "Interest Escalation Clause") was met:
Provided that if the 83 townhouse units and 32 detached single family home components of the project owned by Ace Developments (Scugog Village) Ltd. are constructed prior to the Maturity date, the Interest Rate herein shall be deleted and replaced with 20% per annum.
[10] The second promissory note dated April 2, 2017 was for a loan in the principal amount of $550,000 with the same maturity date as the first note, December 1, 2021 (the “second note”). Razvi drafted this second note using the first note as a template. The specified interest rate in this note was changed by Shaheen to 20% per annum, to be calculated annually and not in advance. The Interest Escalation Clause was not deleted from the template.
[11] The parties agree that the specified interest rate was to be higher in the second note than the first note. However, Khan says it was to be increased to 15% per annum (up from 12%) and that it was recorded to be 20% in error. He says that is the only way to make sense of the Interest Escalation Clause that was not deleted from the second note. Shaheen says the agreement was that the interest rate under the second note would be increased to 20% per annum, as was written, and that the mistake was that the Interest Escalation Clause was thus redundant and should have been omitted.
[12] Both notes gave Khan a right of prepayment at any time, without notice or bonus. Neither the first nor the second note make express reference to compound interest. The parties’ positions on the compounding of interest and whether the Interest Escalation Clause was triggered are dependent upon the factual matrix, as will be elaborated upon in the analysis that follows.
Analysis
Principles of Contract Interpretation
[13] The goal of contract interpretation is to determine the objective intent of the parties and the scope of their understanding at the time the contract was made. To do this, legal principles are applied to the words of the contract, considered in light of the factual matrix or circumstances: see Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 47 and 50.
[14] The Supreme Court cautioned in Sattva, at para. 58, that:
The nature of the evidence that can be relied upon under the rubric of ‘surrounding circumstances’ will necessarily vary from case to case. It does, however, have its limits. It should consist only of objective evidence of the background facts at the time of the execution of the contract, that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting. [Citations omitted.]
[15] The applicant has set out a list of considerations, repeated by the respondent, that the court should have in mind in considering the factual matrix in a given case. The parties agree that:
a. A decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract: see Sattva, at para. 47.
b. To the extent that it is possible to do so, effect should be given to all of a contract's provisions, and interpretations that render a contractual term ineffective ought to be rejected: see Scanlon v. Castlepoint Development Corp., 1992 CanLII 7745 (ON CA), [1992] O.J. No. 2692 (C.A.), at para. 89, quoting from National Trust Co. v. Mead, 1990 CanLII 73 (SCC), [1990] 2 S.C.R. 410, at p. 425, endorsed in Austin v. Bell Canada et. al., 2020 ONCA 142, 150 O.R. (3d) 21, at para. 26.
c. No contracts are made in a vacuum: there is always a setting in which they must be placed. The court should know the commercial purpose of the contract, the genesis of the transaction, the background, the context, and the market in which the parties are operating: see Sattva, at para. 47.
d. While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement. The goal of examining the surrounding circumstances is to deepen a decision-maker's understanding of the mutual and objective intentions of the parties as expressed in the words of the contract: see Sattva, at para. 57.
e. The interpretation of a written contractual provision must always be grounded in the text and read considering the entire contract. While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement: see Sattva, at para. 57.
[16] Evidence of subsequent conduct may be admissible to resolve any ambiguity, but only if a contract remains ambiguous after considering its text and its factual matrix. Intentional acts of both parties that are consistent over time are considered the most reliable: see Shewchuk v. Blackmont Capital Inc., 2016 ONCA 912, 404 D.L.R. (4th) 512, at paras. 46, 52 – 53, and 56. Unequivocal conduct (being consistent with only one of two possible interpretations that generated the ambiguity) and conduct proximate to the execution of the contract may be given more weight: see Shewchuk at paras. 54 – 55.
[17] In addition to understanding the background and genesis of the contract, it is important to ensure that any interpretation of a commercial contract leads to a result that gives business efficacy to the contract and avoids absurd results: see Old Navy (Canada) Inc. v. The Eglinton Town Centre Inc., 2019 ONSC 3740, at paras. 67, aff’d 2020 ONCA 679.
Compound or Simple Interest?
[18] The promissory notes do not specify compound interest. An express agreement is required for the payment of compound interest: see McDiarmid Lumber Ltd. v. Shoal Lake Band #40, 2004 CanLII 16326 (Ont. S.C,), at para. 24.
[19] Shaheen claims that compound interest was always intended and understood by Razvi to be payable, even if not specified. Shaheen refers to evidence about Khan’s promises to Razvi of “upside” in the context of the agreement to loan monies so that the project could be built, rather than the land being sold vacant. However, there is no contemporaneous evidence or record linking this alleged promise specifically to the concept of compound interest. In the context of the promissory notes, the concept of “upside” would more logically have been reflected, to the extent it is relevant, in the Interest Escalation Clause, discussed below.
[20] The first evidence of any express communication between the parties about the compounding of interest was after Shaheen presented an interest calculation in or about December 2019 that included compound interest. The parties were discussing at that time the repayment of the promissory notes, among other things. Khan questioned whether “interest on profit” was halal or haram (permitted or forbidden under Islamic law).
[21] On December 6, 2019, Khan wrote to Razvi: "I spoke to my dad he said. It is not halal or haram because there is no loss it is only profit. If u think it is halal. Then we will take as compounded. My relationship with you and your family is important. Thank you for you and your family trusting me."
[22] Shaheen maintains that the text messages confirm Razvi’s understanding to be correct, and that compounding of interest is what had been agreed from the outset. Alternatively, he says this further exchange constituted a valid amendment to the promissory notes to provide for retroactive and continuing compounding of interest.
[23] There is no reference to compound interest in the promissory notes or in any contemporaneous objective records from the time that the promissory notes were executed about an agreement for interest to be compounded. There is no contemporaneous corroborative evidence that this is what had been agreed from the outset, and it was initially questioned by Khan when compound interest was first indicated in a calculation prepared by Shaheen. The business justification offered by Shaheen is not logically applicable to the interest rate, and more likely applicable to the Interest Escalation Clause (as noted above).
[24] There is simply insufficient evidentiary support for Shaheen’s contention that there was an agreement from the outset for interest to be compounded. Thus, for Shaheen’s claim for compound interest to prevail, the court would have to find that the parties agreed in December 2019 to amend or vary the promissory notes to provide for compound interest to be charged both retroactively and until maturity.
[25] Khan argues that an amendment to an existing contract requires consideration.: see: Ballestin and Ballestin v. 1304478 Ontario Inc., 2018 ONSC 2969, at para. 14, following Gilbert Steel Ltd. v. University Construction Ltd. (1976), 1976 CanLII 672 (ON CA), 12 O.R. (2d) 19 (Ont. C.A.).
[26] Shaheen submits that parties can agree to vary an agreement without fresh consideration, based on a line of authority adopted by the British Columbia Court of Appeal in Rosas v. Toca, 2018 BCCA 191, at para. 183:
When parties to a contract agree to vary its terms, the variation should be enforceable without fresh consideration, absent duress, unconscionability, or other public policy concerns, which would render an otherwise valid term unenforceable.
[27] As far as I have been able to determine, the reasoning in Rosas has never been adopted in Ontario. The decided cases in Ontario, such as Ballestin cited by the applicant, appear to still require fresh consideration for an amendment to an existing contract, although what constitutes such consideration remains flexible and open to interpretation.
[28] For example, in King Road Paving and Landscaping Inc. v. Plati, 2017 ONSC 557, Charney J. acknowledged the unsettled law as follows at para. 66:
I recognize that the holding in Gilbert Steel has been the subject of some controversy and commentary in the ensuing years (see: Richcraft Homes Ltd. v. Urbandale Corporation, 2016 ONCA 622, at paras. 26 – 37 and 43), such that amendments or variations to contracts, unsupported by consideration, that are willingly accepted and not procured under economic duress, may be enforceable.
[29] Charney J. does not cite in King Road Paving any Ontario cases allowing amendments unsupported by consideration. Further, in King Road, the issue was decided based on the fact that the price increase proposed in the contracts was never agreed to by the defendants.
[30] In Richcraft Homes, the Ontario Court of Appeal signaled that Gilbert Steel is still the law in Ontario. At para. 43, the Court of Appeal stated:
While the developing case law outside Ontario suggests that the time might be ripe for this court to re-consider the role that consideration plays in the enforceability of contractual variations, in my view, Gilbert Steel was a fundamentally different case on the facts and its holding has no application to this case.
The Court of Appeal approached this issue in Richcraft Homes by its finding that clarifying an unclear term in a long-term contract, in order to create certainty and to avoid future costly disputes, is something of value and is a functional form of consideration (at para 47). The decided cases since Richcraft Homes have followed Gilbert Steel.
[31] In this case, there is no ambiguity about compound interest in the promissory notes that required clarification. The only basis for charging compound interest would be if the court finds that there was a subsequent oral “agreement”, confirmed in text messages, to take interest as compounded, if Razvi believed it to be halal. This would be a variation or amendment to the promissory notes that, under the Ontario law as I understand it, would require consideration to be valid and enforceable.
[32] Razvi admitted on cross-examination that no consideration was provided for the introduction of compounding of interest in or about December 2019 when the discussions and text messages about this took place. For example, this was not a situation where the maturity date had passed or was imminent and Khan was asking for forbearance. Khan asserts that the admission of no new consideration is fatal to Shaheen’s claim for compound interest.
[33] Even if the court were to stretch to find that the preservation of Khan’s relationship with Razvi and his family and having the benefit of their continued trust (that Khan references in his text message when he says he is prepared to agree to take the interest as compounded) could amount to sufficient consideration to support an amendment such as has been suggested, the alleged agreement to pay compound interest was not absolute. First, it was arguably only up to that point in time if the parties reach an agreement for the repayment (based on the wording of the text message in the context of calculations that were being prepared for a possible repayment of the loans at that time that did not occur).
[34] Further, it was stated by Khan in his text message to be conditional: “If u think it is halal. Then we will take as compounded.” The difficulty I have in this case is there is no evidence as to whether Razvi did in fact believe compound interest to be halal. He acknowledges that he did not respond to the text message from Khan. He now says (in his cross-examination) that it should be obvious that he believed it to be halal because that is what he was asking for, but that in and of itself does not make it obvious to me that he believed compound interest to be halal just because he asked for it at the time. Nor can I accept, without some independent evidentiary proof, Razvi’s rationalization that unless something is shown to be haram, it is halal.
[35] These are evidentiary points that ought to have been definitely pinned down rather than left to the court to infer. These challenges further reinforce the rational for requiring parties to document their agreements, and amendments to agreements, in writing and sign them. The added uncertainty of what was even agreed to, on top of the lack of consideration, makes it very difficult for the court to give effect to what appears from the text messages might have been an intention to agree to some compounding of interest.
[36] No agreement for the payment of compound interest under the promissory notes has been proven: not from the outset nor by way of amendment or variation.
Has the Interest Escalation Clause Been Triggered?
[37] The Interest Escalation Clause reads as follows:
Provided that if the 83 townhouse units and 32 detached single family home components of the project owned by Ace Developments (Scugog Village) Ltd. are constructed prior to the Maturity date, the Interest Rate herein shall be deleted and replaced with 20% per annum.
[38] In 2018, the portion of the land that was to be used for the construction of the 32 single family homes was sold. Ace Developments no longer owns that part of the project and did not construct any of those homes.
[39] What remains of the project is still not complete. For some of the lots, no construction has even commenced. None of the 41 units in Phase 2 have been completed. In his cross-examination, Khan gave evidence that the project was still incomplete, not all units have been sold, and he does not expect the project to be complete until May or June 2022.
[40] Khan had not constructed 82 town houses and 32 single family homes prior to the specified Maturity Date of December 1, 2021. Leaving aside what has or has not been fully completed and sold, the evidence is uncontroverted that the remaining townhouse units have not all been built. To the contrary, there are four lots upon which construction has not even started.
[41] That should put an end to this issue, except that Shaheen asks the court to interpret the word “constructed” to mean something other than the existence of structures representing physical buildings on the lots. I find that to be a strained interpretation that is not commercially reasonable in the circumstances.
[42] The Interest Escalation Clause was based on these townhouses and homes having been constructed, not upon substantial completion of the overall project or upon some level of profitability having been achieved, as Shaheen now suggests. If that was what had been intended, then those concepts and words could have been included in the first promissory note. They were not.
[43] No persuasive justification (based on the factual matrix, business purpose of the promissory notes, or any other principles of contract interpretation) has been advanced for the court to imply or read into the meaning of the word “constructed” anything other than its plain meaning: of physical structures having been built. Since they were not all built, there is no need to delve deeper into the question of whether each townhouse or home would have to be completely finished inside for the Interest Escalation Clause to have been triggered.
[44] Shaheen’s return on its investment in this project is reflected in the already high base interest rate of the first promissory note (12%), with the upside potential of the Interest Escalation Clause once all of the townhouses and homes had been constructed and were ready to be sold, and the even higher base interest rate reflected in the second promissory note. This is not inconsistent with the affirmation from Khan in December 2019, relied upon by Shaheen, that the sale of the family home lands would not detract from Shaheen’s upside of 20% interest under the Interest Escalation Clause. Those 32 family dwellings were never constructed because Khan sold the land and took them out of the project completely, but that does not mean that the townhouses did not all have to be constructed for the Interest Escalation Clause to be triggered.
[45] Shaheen refers to pre-execution emails to suggest a different interpretation of the word “constructed.” Shaheen says that the emails suggest that “constructed” should be read to mean “developed” or “being developed for sale.” These emails are probably not admissible, but even if they are admitted, I find them to be consistent with Khan’s position. Khan wrote on October 31, 2016: “…12% if I sell the property or 20% if I build the project.” Building the project and constructing the intended townhouses and homes have similar meanings. Neither of them mean substantial completion or the sale of most of the lots upon completion. Nor do I agree with Shaheen’s assertion that the word “developed,” if that word (albeit potentially ambiguous) had been used, would lead to the interpretation Shaheen contends for, which is suggested to be based on the decision to build the project rather than sell the land to another developer.
[46] Shaheen’s proposed interpretation does not align with the words of the contract, or the pre- and post-execution communications between the parties. It is, at best, revisionist history that the court is not prepared to adopt. The mere fact that both parties agreed that it would be more profitable for Khan to develop the project rather than sell the land and that the loaned funds could be used to further that objective does not translate into the strained interpretation of the Interest Escalation Clause that is sought by Shaheen.
[47] I find that the Interest Escalation Clause was not triggered under the first promissory note. For reasons discussed in the next section, the Interest Escalation Clause is not relevant to the second promissory note.
Rectification of the Second Promissory Note: Interest Rate vs. Interest Escalation Clause?
[48] The second promissory note contains an internal inconsistency. It says that the base interest rate is 20% but then also includes the Interest Escalation Clause that would result in the interest rate being deleted and replaced with an interest rate of 20% per annum if triggered. It is agreed by the parties that there is a mistake in the second promissory note that needs to be rectified, but they do not agree on what the mistake is:
a. Khan says that the base rate should have been written as 15% per annum so that it makes sense to have left the Interest Escalation Clause in;
b. Shaheen says that the base rate was correct as written at 20% per annum and that the Interest Escalation Clause should have been deleted.
[49] Where there is an error in an instrument recording an agreement, a court can remedy that instrument by way of rectification: see Canada (Attorney General) v. Fairmont Hotels Inc., 2016 SCC 56, [2016] 2 S.C.R. 720, at para. 13. The content of the underlying agreement is of central importance: a party seeking rectification must show complete agreement on the terms of a contract, but that they were written down incorrectly: see H. F. Clarke Ltd. v. Thermidaire Corp. Ltd. (1973), 1973 CanLII 41 (ON CA), 33 D.L.R. (3d) 13 (Ont. C.A.), rev'd on other grounds 1974 CanLII 30 (SCC), [1976] 1 S.C.R. 319.
[50] The parties exchanged emails on March 9 and 10, 2017 about the interest rate to be included under the second promissory note. These emails essentially reflect their respective positions today:
a. Khan says: “Everything is the same accept [sic’ instead of 12% its 15%. And if I complete the project its 20%.”
b. Razvi responds: “You end up selling everything. Keep this 20% and if you don't make your numbers when you sell, we can revise it accordingly.”
[51] Khan claims not to have seen or read the email from Razvi in which he says to keep the rate at 20%. On cross-examination, Razvi confirmed that the revisions he had anticipated making if Khan did not make his numbers on the project would only reduce the interest rate. There was no evidence or argument presented on this application about whether or not Khan made his numbers or about any further agreed revisions to the second promissory note to reduce the interest rate from 20%.
[52] The second promissory note was prepared a few weeks later by Razvi using the template from the first promissory note, into which he inserted 20% to replace the 12% interest rate under the first note. It was signed by Khan, who claims not to have noticed that the new rate was 20% instead of 15%.
[53] The sequence of the exchange of emails (the last one being from Razvi indicating that the interest rate would be 20%) and the subsequent inclusion of the 20% rate in the second promissory note that was signed by Khan without objection, leads me to determine that the agreement was that the interest rate under the second promissory note was to be 20% as written and that there would be no further escalation of the rate. Thus, the Interest Escalation Clause should have been deleted and it was left in the second promissory note by mistake. Accordingly, the document should be rectified and read with that clause omitted.
[54] This is consistent with the subsequent communications between the parties in December 2019, wherein Khan objected to the compounding of interest, but not to the 20% interest rate noted in respect of the second promissory note.
[55] In reaching this conclusion, I place no weight on the contra proferentem argument advanced by Shaheen with reference to the Old Navy case, at paras. 62 – 72, based on the fact that the first promissory note template used had been prepared by Khan’s lawyers. The mistakes contained in the second promissory note were as a result of the parties trying to save money by not involving lawyers and instead using a template prepared by Khan’s lawyers and changing it (unfortunately, without the lawyers their changes resulted in an ambiguity and mistake that has now been resolved by the court).
What Remains Owing Under the Promissory Notes Based on the Court’s Determinations?
[56] The respondent has included a chart at Schedule C to its factum that provides the calculations of what is owing under the different promissory notes in the event of different determinations by the court.
[57] The calculations in Schedule C indicate that under the first promissory note, calculated at simple interest at the rate of 12% per annum throughout (no interest escalation), and the second promissory note, calculated at simple interest at the rate of 20% per annum (no interest escalation), $99,778 is owing over and above what has been paid. The notes indicate that this takes into account the earlier payment of $100,000 in 2018 and the amount already paid pursuant to the Interim Order. The Trust Funds are more than sufficient to satisfy these additional amounts owing.
[58] There were no specific objections raised by the applicant to the respondent’s assumptions or approach for the calculations contained in Schedule C, but it was noted that these calculations had not been vetted or agreed to. Counsel were confident that they would be able to determine the amounts owing with the benefit of the court’s determinations. If there is any dispute about the amounts owing under the two promissory notes, I would encourage counsel to try to work it out. If they are unable to do so, counsel may request a 9:30 appointment with me through the scheduling office.
Final Disposition and Costs
[59] The following declarations and orders are made:
a. No agreement, or variation, for compounding of interest has been established.
b. The Interest Escalation Clause was not triggered.
c. The parties’ agreed that the interest rate under the second promissory note was to be 20% and that there would be no further escalation of the rate. Accordingly, the second promissory note shall be rectified and be read with the Interest Escalation Clause omitted.
d. Khan owes $99,778 to Shaheen under the promissory notes (assuming I have correctly interpreted the calculations at Schedule C to the respondent’s factum and they are agreed to), or such other amount as the preceding declarations and orders dictate. The amounts owing shall be paid from the Trust Funds, and Khan is entitled to the remaining Trust Funds.
[60] Once the amounts determined to be owing pursuant to this decision have been paid, the promissory notes shall be deemed to have been paid in full and of no further force or effect.
[61] The applicant was successful on two of the three issues (no compound interest payable and no interest escalation on the first promissory note). He was not successful on the third issue (the interest rate payable under the second promissory note). There was divided success, although the applicant was more successful from an economic perspective, given what was at stake. The court was advised that there were no Rule 49 offers exchanged.
[62] I find that the applicant is entitled to some costs of this application on a partial indemnity scale.
[63] The applicant’s certified all-inclusive partial indemnity costs of this application are in the amount of $53,575.41. This entails approximately 102 hours of lawyers’ time and includes disbursements of $4,278.03.
[64] The respondent submitted a costs outline certifying full indemnity costs of the application in the amount of $40,448.78, including disbursements of $4,700.68. Approximately 94 lawyer hours were included in this bill, which translated into partial indemnity legal fees (inclusive of HST) in the amount of $22,353.66. The primary driver of the difference between the two costs outlines (in which the applicant’s partial indemnity costs exceed the full indemnity costs of the respondent), aside from the few hours of difference, appears to be the hourly rates used.
[65] The partial indemnity rates used by applicant’s senior and junior counsel was $450 and $330 per hour respectively, whereas the partial indemnity rate used by respondent’s counsel was $210 per hour (compared to their actual rate of $350). While parties are entitled to retain their counsel of choice and that may result in a higher costs bill, these rate discrepancies on a partial indemnity scale are more significant than I would expect and the partial indemnity rates indicated for applicant’s counsel appear high having regard to the usual tariffs.
[66] Having regard to the divided success, the principles of indemnity and proportionality, the importance of the issues and the objectively reasonable expectations that the parties ought to have had regarding their potential exposure for costs, among the other relevant factors that the court is to consider under r. 57, in the exercise of my discretion under s. 131 of the Courts of Justice Act to determine the costs of a proceeding, I find that the applicant is entitled to partial indemnity costs of this application fixed in the amount of $25,000 and payable by the respondent within 30 days of this endorsement.
[67] This endorsement and the orders and directions contained in it shall have immediate effect as a court order without the necessity of the formal issuance and entry of a court order. However, any party may take out a formal order if so advised by following the procedure under r. 59.
Kimmel J.
Date: May 19, 2022