COURT FILE NO.: 17-73224
GARNISHMENT NO.: 04700cv20a010320-46
DATE: 2022-06-07
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 1770650 Ontario Inc. and 1062484 Ontario Inc., Creditors
AND
Paul McEnery, Debtor
AND
Lawyers’ Professional Indemnity Company, Garnishee
BEFORE: The Honourable Mr. Justice Marc Smith
COUNSEL: Justin Papazian, Counsel for the Creditors No appearance for the Debtor Valerie A. Edwards, Counsel for the Garnishee
HEARD: In writing
COSTS DECISION
M. Smith J
Overview
[1] 1770650 Ontario Inc. (“177 Ontario”) and 1062484 Ontario Inc. (“106 Ontario”) (collectively referred to as the “Creditors”) moved pursuant to r. 60.08 (16) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”) for a determination of their entitlement to the proceeds of a policy of insurance issued by the Lawyers’ Professional Indemnity Company (“LawPro” or “Garnishee”) in favour of Mr. Paul McEnery (“McEnery” or “Debtor”). The Creditors sought an order that the Garnishee pays out the proceeds of the policy in satisfaction of the debt owed.
[2] On February 24, 2022, I released my decision (2022 ONSC 1230) finding that policy limits were reduced to one sublimit of $500,000 and because the sublimit had been exhausted through defence costs, as well as an indemnity payment to the Creditors in the amount of $27,123.63, there were no more insurance proceeds payable under the policy. The Creditors’ motions were dismissed.
[3] The parties were invited to resolve the issue of costs. The parties were unable to do so.
[4] LawPro seeks $82,017.14 in partial indemnity costs against the Creditors, or $41,008.57 against each Creditor, inclusive of HST and disbursements.
[5] The Creditors argue that they are the successful parties to these motions because they recovered the sum of $27,123.63 only after they brought the motions. Alternatively, the Creditors submit that each party should bear their own costs.
Legal principles
[6] Costs are at the discretion of the court: Courts of Justice Act, R.S.O. 1990, c. C.43, s. 131(1).
[7] Rule 57.01(1) of the Rules sets out the factors that a court may consider when deciding on a cost award.
[8] The overriding principles of fairness and reasonableness must be applied to each individual case: Boucher v. Public Accountants Council (Ontario) (2004), 2004 14579 (ON CA), 71 O.R. (3d) 291 (C.A.).
The position of the parties
LawPro’s position
[9] LawPro says that the motions were complex because it engaged numerous legal issues, including the test on a garnishment motion, the policy purposes, the duty of care and the duty of good faith regarding the erosion of policy limits.
[10] The issues on these motions were very important because, had the Creditors been successful, the implications for LawPro would have potentially affected large areas of its insurance program and the manner in which it handles claims. In other words, a loss on these motions could have carried significant underwriting risk that could have impacted premiums across the profession.
[11] Regarding the Creditors’ conduct, LawPro submits that the Creditors’ initial position was essentially a bald affidavit, leaving LawPro to wonder what arguments were being advanced. In their reply affidavit, the Creditors asserted that they did not accept that LawPro spent approximately $475,000 in defence and investigation costs. It is only in the factum that the Creditors advanced a position that LawPro acted in bad faith for failing to settle the $500,000 sublimit at an early stage. Then, it is not until the Creditors served their reply factum that they accepted that McEnery had stolen from his clients and they abandoned their position on why the debt exclusion did not apply. Because of the Creditors’ changing of strategies, LawPro says that it was never clear to them as to what case they would have to meet on these motions.
[12] LawPro acknowledges that when it first responded to the Notices of Garnishment, they mistakenly advised the Creditors that the entire $500,000 sublimit was exhausted, because they included invoices in the amount of $26,098.84 which pertained to coverage matters. A further amount of $1,024.79 was also paid by LawPro to the Creditors, totalling $27,123.63. LawPro states that these errors were corrected. None of the time spent on this process is claimed by LawPro in its Bill of Costs.
The Creditors’ position
[13] The Creditors argue that because they recovered an indemnity payment of $27,123.63 only after they brought the motions, they are the successful parties to the motions, and as such, they are seeking costs in the amount of $25,227.25, inclusive of HST and disbursements.
[14] The Notices of Garnishment were served on November 20, 2020. On January 7, 2021, LawPro responded that the Creditors had no entitlement to indemnity under any policy of insurance issued by LawPro. No explanation was given for LawPro’s denial of indebtedness. No payments were received as a result of serving the Notices of Garnishment.
[15] An Examination in Aid of Execution of McEnery had been scheduled to proceed on January 18, 2021, for the purposes of asking questions about his entitlement under the policy of insurance. McEnery failed to attend. A Certificate of Non-Attendance was delivered. Because of McEnery’s non-compliance and LawPro’s lack of information and/or explanation in its denial, the Creditors were forced to bring their motions on May 4, 2021.
[16] The Creditors submit that LawPro’s statement on January 7, 2021 was false because on June 3, 2021, LawPro made a payment of $26,098.84 to the Creditors. Furthermore, in its responding affidavit materials, LawPro stated that no further monies are owing. However, LawPro realized that a further error had been committed and made an additional payment of $1,024.79 to the Creditors.
[17] The Creditors argue that LawPro’s Bill of Costs is grossly excessive, containing duplication and the involvement of too many lawyers and clerks. The Creditors point out that these motions lasted one day and there was one single half day of cross-examinations. In comparison, for the summary judgment motions that were held before R.M.R. Bell J., which involved multiple physical appearances in Ottawa, examinations for discovery, cross-examinations of four parties, LawPro was awarded approximately $56,000 in costs for the entire underlying action on the summary judgment motions.
[18] The Creditors say that if the court is not prepared to award them costs, they ask that each party bear their own costs, on the basis that it is the most fair and equitable result because of the false statement and the false affidavit and the miscarriage of justice that would result in the re-victimizing the victims of the McEnery fraud who are unable to recover any funds from the debtor.
Analysis
[19] LawPro is correct in stating that the issues addressed in these motions were important and complex. However, given its complexities, I do not find it surprising or unreasonable that the Creditors’ positions may have changed since the filing of the motions. Also, in fairness to the Creditors, LawPro’s position significantly changed from a blanket denial to an eventual payment of $27,123.63.
[20] There is no doubt that the Creditors were forced to bring their motions. LawPro only discovered its error because they were responding to the motions. LawPro was adamant that no funds were payable, which explains their steadfast denial on January 7, 2021. Had the Creditors not brought the motions, there would have been no reason for LawPro to review its internal accounting, meaning that it is doubtful that the Creditors would have recovered any funds. In my view, the Creditors acted appropriately and reasonably in bringing the motions. The Creditors should be entitled to some of their costs.
[21] I was impressed with the quality of the written and oral presentations of both parties. LawPro spent a total of 401.2 hours on these motions together with 36.5 hours for submissions on costs. Conversely, the Creditors spent a total of 62.5 hours on these motions and did not charge any fees for the preparation of costs submissions. The time spent by the party bringing the motion is usually higher because that party bears the onus on the motion. Here, the hours spent by LawPro is approximately seven times more than the Creditors’ hours, which I find to be excessive.
[22] To determine if LawPro’s costs are fair, reasonable, and proportional, I find it a useful benchmark to consider the amount paid by the Creditors. According to the Bill of Costs, the partial indemnity fees charged to the Creditors are $23,023.75 (inclusive of HST) and $2,253.50 in disbursements (inclusive of HST). In comparison, LawPro’s partial indemnity fees are $79,900.94 (inclusive of HST) and $2,116.20 in disbursements (inclusive of HST). I find LawPro’s legal fees to be disproportionally high.
[23] LawPro’s disproportionality is not due to the hourly rates because they are comparable and reasonable. It is entirely due to the amount of time spent. As noted above, while I recognize that the issues were complex, it did not, in my view, warrant the time spent by LawPro. I note that there were eight individuals (six lawyers, one student, and one senior law clerk) that worked on the file, which in my opinion, invariably caused duplication of effort.
[24] Another useful comparison to determine if the costs being sought are fair, reasonable, and proportional, is the costs award that LawPro received for the summary judgment motions. R.M.R. Bell J. awarded approximately $56,000 on the summary judgments motions, for the time and effort spent for both actions, including the preparation and argument of the summary judgment motions. Acceding to LawPro’s request of a costs award that significantly exceeds R.M.R. Bell J’s costs order, would, in my view, be unfair and disproportionate.
[25] A cost award must be within the reasonable expectation of the parties. Considering the time spent by the Creditors on these motions and the previous costs award rendered by R.M.R. Bell J. disposing of two actions in its entirety, I find that LawPro’s costs demands do not fall within the reasonable expectation of the parties.
[26] I believe that a reasonable and proportionate baseline of partial indemnity costs for these motions should be in the range of $30,000, all inclusive.
[27] While the Creditors should be entitled to receive some of their costs, it is undeniable that LawPro was the successful party in these motions. LawPro was required to spend time in responding to the Creditors’ motions. In the circumstances, I believe that a fair and equitable costs award is $20,000, all inclusive.
Conclusion
[28] The Creditors shall pay LawPro the total costs of $20,000, all inclusive, within 60 days of the date of this Costs Decision.
M. Smith J
Released: June 7, 2022
COURT FILE NO.: 17-73224
GARNISHMENT NO.: 04700cv20a010320-46
DATE: 2022-06-07
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
RE: 1770650 Ontario Inc. and 1062484 Ontario Inc., Creditors
AND
Paul McEnery, Debtor
AND
Lawyers’ Professional Indemnity Company, Garnishee
BEFORE: The Honourable Mr. Justice Marc Smith
COUNSEL: Justin Papazian, Counsel for the Creditors No appearance for the Debtor Valerie A. Edwards, Counsel for the Garnishee
COSTS DECISION
M. Smith J
Released: June 7, 2022