Court File and Parties

COURT FILE NO.: CV-19-622271 DATE: 2022-09-01 ONTARIO SUPERIOR COURT OF JUSTICE

RE: ERWIN SUI, Plaintiff - AND - DANIEL CHITIZ, MANOJ PUNDIT, SUMESH PAUL PATHAK and RISA SOKOLOFF, Defendants

BEFORE: Justice Mohan D. Sharma

COUNSEL: Angela Assuras, for the Plaintiff Hugh M. DesBrisay, for the Defendants

HEARD: In writing

ENDORSEMENT

[1] On May 17, 2022, I issued Judgment following this trial: Sui v Chitiz, 2022 ONSC 2989. In my Judgment, I remarked on the history of this proceeding which started over two decades ago in 2001.

[2] I invited parties to deliver cost submissions. Rights of reply and sur-reply were sought and granted. I reserved decision on whether those submissions were properly made. The last cost submissions were received on July 21, 2022.

[3] The plaintiff was partially successful at trial. In my Judgment, I organized his claims into five issues.

[4] His first claim related to the circumstances around the plaintiff’s departure from a law firm in which all parties were partners, whether there was an agreement around his departure, and if not, whether damages flowed and the quantification of those damages. There was much evidence surrounding this claim, including reports and testimony from accounting and expert business valuators. This consumed a significant portion of the trial. The plaintiff was not successful in obtaining damages related to his departure from the law firm.

[5] The plaintiff’s next claim was whether he was entitled to damages for the torts of detinue and conversion because of the defendants’ retention of shares owned by him and his wife. On this issue, the plaintiff was successful in obtaining judgment in the amount of $65,226.15, with prejudgment interest at rates fixed under the Courts of Justice Act (“CJA”), R.S.O. 1990, c. C.43, calculated as of January 1, 2006.

[6] The plaintiff’s next claim was whether he was entitled to damages arising from a breach of fiduciary duties owed by his former partners. I found that the defendants breached their fiduciary duties for failing to disclose draws taken by the defendants and for failing to deliver financial statements to the plaintiff on a timely basis. I ordered $50,000 in damages be paid to the plaintiff for these breaches.

[7] The plaintiff also argued that the defendants’ breach of fiduciary duties resulted in the plaintiff suffering significant interest and tax penalties imposed by the Canada Revenue Agency (“CRA”), as well as legal and accounting fees. Again, there was expert evidence on this issue. I was not satisfied that any breach of the defendants’ fiduciary obligations to the plaintiff caused the plaintiff to incur the significant interest and penalties imposed by the CRA or the legal and accounting fees he incurred. I declined to award equitable compensation for these breaches.

Plaintiff’s Position

[8] The plaintiff argues he was successful in his action, and as such, costs should follow the event. He argues that while he did not recover an amount for all his claims, it should not diminish his recovery of costs in any significant way.

[9] In his cost submissions, the plaintiff says he made a Rule 49 Offer to Settle in the amount of $200,000. That offer also included a requirement that the defendants indemnify the plaintiff for all interest and penalties levied against the plaintiff by CRA. He acknowledges he did not beat his offer. I agree.

[10] The plaintiff argues that the defendants took unreasonable positions throughout this litigation and at trial, including a motion at trial to admit a Minute Book to prove certain share transactions, which evidence would have been contrary to a prior admission given by the defendants.

[11] The defendants launched an appeal when their motion to dismiss for delay was dismissed. This appeal was settled. The Court of Appeal reserved costs of that appeal to the trial judge, and the plaintiff seeks $5,000 for that appeal.

[12] The plaintiff’s Bill of Costs identifies partial indemnity costs of $466,381.78, and substantial indemnity costs of $577,616.61, both inclusive of HST and disbursements.

Defendants’ Position

[13] The defendants seek their partial indemnity costs incurred from December 20, 2001 (the date of commencement of the proceedings) to February 11, 2007 (the date the plaintiff amended his notice of application), and their substantial indemnity costs in the period from March 4, 2020 (the date of service of their offer to settle) to October 18, 2021 (the last day of trial). The total amount in costs sought is $265,334.91.

[14] The defendants argue that the plaintiff’s original claims in his Notice of Application, before it was amended to add new claims in February 2007, dealt with claims over which the defendants were entirely successful resisting at trial. The plaintiff’s success was limited to the two new claims made in 2007. He was granted compensatory damages for the conversion of the shares, and he was granted non-compensatory damages for breaches of fiduciary duties. He was unsuccessful in obtaining damages for hundreds of thousands of dollars in tax penalties and interest charges levied by the CRA. This issue consumed a significant portion of trial time with expert evidence led by both sides.

[15] On March 3, 2020, the defendants made a formal Rule 49 settlement offer, which the defendants say they beat. Pursuant to this offer,

a. The defendants would pay the plaintiff $125,000.

b. The defendants would pay interest, from December 20, 2001, at rates under the CJA.

c. The defendants would pay the plaintiff’s costs of the action on a partial indemnity basis.

[16] The defendants’ reasoning for the costs they seek is explained through three phases of this litigation that they defined:

a. First Stage (2001 to 2007). During this period, the claims before the Court were the original claims in the Notice of Application before the application was amended. The defendants seek $15,271,52 in partial indemnity costs (including disbursements and HST). This is slightly less than the partial indemnity amount claimed by the plaintiff for the same period.

b. Second Stage (2007 to March 2020). This period captures the newly amended claims to the date of the defendants’ Offer to Settle. If there were no Rule 49 Offers, costs would follow the event. But because the defendants were substantially successful at trial, they argue that costs should be awarded to the defendants. They rely on Eastern Power Limited v. Ontario Electricity Financial Corporation, 2012 ONCA 366, at paras. 16 to 19. In that case, the Court of Appeal upheld the trial judge’s award of costs to the defendants even though the plaintiff was successful in prosecuting one of its claims. The defendants state that “on balance”, they were “substantially more successful”. For this second stage, and notwithstanding their substantial success, the defendants are not seeking costs. They argue no costs should be awarded for this stage.

c. Third Stage (March 2020 to October 2021). This period is from the date of the defendants’ Offer to Settle to the conclusion of trial. The defendants argue that the pre-conditions of r. 49.10 have been met: (i) their Offer was more favourable than the result obtained by the plaintiff; (ii) it was served more than 7 days before trial; and (iii) it was not withdrawn. Therefore, by operation of r. 49.10(2), they are seeking partial indemnity costs in the amount of $178,829.32 from March 2020 onwards.

They argue, however, that substantial indemnity costs for this period are warranted for this third stage, in the amount of $250,063.39. Like the plaintiff, they argue that the unusual procedural history of this case with its over 20 years to reach trial is a factor entitling them to substantial indemnity costs.

[17] In his reply submissions, the plaintiff argues that while he was not successful in his original claims which consumed the First Stage of litigation, those claims set the factual foundation for the claims on which he was successful. Therefore, he should be entitled to costs. With respect to the defendants’ Second Stage of litigation, he argued that to do as the defendants suggest would amount to a distributive costs award, which the Court of Appeal in Eastern Power ruled ought to be rarely made. It would be an error for a trial judge to focus on individual issues in the litigation: OrthoArm v. GAC International, 2017 ONCA 418, para. 42. The plaintiff denies that the defendants were more successful.

[18] And finally, the plaintiff asserts that the defendants did not achieve a result as favourable or more favourable than their March 3, 2020 Offer. Therefore, the cost consequences of r. 49.10(2) are not engaged. The plaintiff attaches the following chart to demonstrate.

Trial Judgment

Defendants’ Offer Dated March 3, 2020

Claim

$115,226.15

$125,000.00

Pre-judgment Interest

$27,538.47

$96,824.56

Costs to the plaintiff (assume on partial indemnity)

$466,331.78

$353,004.20

TOTAL:

$609,096.40

$574,828.76

[19] However, the defendants say that the above chart is wrong to assess success. It includes under the column “Trial Judgment”, the plaintiff’s costs through to the end of trial and not to the date of the offer. To compare the success of the plaintiff, the costs should be limited to the costs up to the date of the defendants’ offer. To assign costs up to trial (rather than the date of the offer) is inconsistent with the principles that the Rules establish. Citing the reasons of Nordheimer J. (as he then was) in Rosero v. Huang, [1999] O.J. No. 1964 (ON SC), 44 OR (3d) 669, the defendants state that it is necessary to look at the plaintiff’s costs as of the date of the offer because:

a. “Any interpretation of the plaintiff’s entitlement to costs should be consonant with the provision in Rule 49.07(5). Rule 49.07(5) expressly provides that, in the case of an offer by a defendant, the operative date for the recovery of costs by the plaintiff should be the date that the offer was served;

b. It is not logical or consistent with the underlying purpose of a settlement offer (which is to bring litigation to an early conclusion without incurring further costs) to interpret the offer to settle as giving a "costs holiday" to the plaintiff – i.e., giving the plaintiff time to mull over the offer while at the same time continuing to incur costs, all of which would be to the account of the defendant; and

c. To hold otherwise would be to discourage the making of offers to settle and their acceptance at an early stage rather than promoting the opposite, and the more desirable objective of having settlements occur as early as possible and with the least expense to the parties.”

Analysis

[20] I agree with the reasoning in Rosero and the defendants’ argument that they beat their March 3, 2020 Offer. When measuring and comparing costs incurred by a party in an Offer to Settle where the offer includes for payment of costs, the parties’ costs must be measured from the date the offer was made, and not from the date of trial. The defendants’ offer included payment of partial indemnity costs to the plaintiff. Therefore, in this case, the costs of $353,004.20 incurred by the plaintiff up to the date of the Offer are the same when assessing if the plaintiff fared better or worse at trial as compared to the Offer. In other words, it becomes a neutral factor. Therefore, the defendants achieved a result that was more favourable than their Offer.

[21] Pursuant to s. 131(1) of the CJA, the court has a broad discretion when determining the issue of costs. Rule 57.01(1) sets out the factors to be considered by the court when fixing costs.

[22] The overall objective of fixing costs is to determine an amount that is fair and reasonable for the unsuccessful party to pay in the particular circumstances, rather than an amount fixed by actual costs incurred by the successful litigant: Boucher v. Public Accountants Counsel for Ontario, [2004] OJ. No. 2634 (C.A.). In determining costs, I consider the factors set out in Rule 57.01(1), as well as the principle of proportionality set out in Rule 1.04(1.1). I keep in mind the Court should seek to balance the indemnity principle with the fundamental objective of access to justice.

[23] I accept the authorities for the proposition that the use of distributive cost awards must be limited to the rarest of cases; however, a party’s limited success at trial should be reflected in the quantum of costs awarded: Eastern Power Limited, at paras. 16 to 19. I decline to award distributive costs on an issue-by-issue basis. However, I do consider whether the plaintiff or the defendants were substantially successful at trial.

[24] Traditionally, costs are awarded to the successful party. Among the claims alleged, the damages sought, and the time spent at trial arguing the respective claims, the defendants were the “substantially more successful” party, notwithstanding the judgment awarded in favour of the plaintiff.

[25] For reasons explained, I am satisfied that the defendants achieved a more favourable result than their March 20, 2020 Offer to Settle, and the cost consequences of Rule 49.10(2) should flow.

[26] Under Rule 49.10(2), the plaintiff is entitled to his partial indemnity costs up to the date the Offer was served, which amount is $353,004.20. I have considered whether I should reduce this amount given that the defendants were substantially successful at trial. I decline to do so for three principal reasons:

a. It would ignore the incentive built in to Rule 49 for parties to make offers early. This Rule 49 offer was made by the defendants in March 2020, 19 years after this proceeding commenced. To reduce the plaintiff’s entitlement would ignore the lengthy delay on the part of the defendants in making this offer to settle. The rules are intended to encourage early settlement. If the defendants hoped to reduce their exposure to costs, they ought to have made this formal offer to settle much earlier. I decline to reward the defendants for their delay.

b. I decline to reduce the plaintiff’s entitlement to costs because the defendants were more successful at trial. The defendants took steps or positions in this proceeding that were unreasonable, improper and contrary to their fiduciary duties as partners. They failed to acknowledge the plaintiff’s interest in shares at trial, even though they had written to the plaintiff in 1999 to say that the shares were being held as security for the plaintiff’s lease obligations, and even though they had admitted in 2006 (in response to a Request to Admit) that a Register of Shareholders was authentic which showed the plaintiff owned the shares. Also, it was only at trial that a Minute Book and the working papers of the partnership’s accountant were produced. This resulted in more accusations and a threatened mid-trial motion that was, ultimately, not argued. These are steps that ought to have occurred well before trial. There were also findings that the defendants acted contrary to their fiduciary duties. To reduce the plaintiff’s entitlement to costs would reward this behaviour on the part of the defendants and would result in unfairness to the plaintiff.

c. There was inordinate delay in this case for which both sides shared responsibility. The delay was disgraceful. No litigant should have to wait more than two decades for resolution of their case. There was a judicial finding by Associate Justice Abrams that both sides were responsible for its staggeringly slow pace. To reduce the plaintiff’s entitlement to costs would ignore the role the defendants played in the delay in this case.

[27] Under Rule 49.10(2), the defendants are entitled to their partial indemnity costs from the date the Offer was served, which amount is $178,829.32. I would reduce this amount by $5,000, representing the costs thrown away from the aborted appeal of the motion to dismiss. Therefore, the defendants are entitled to $173,829.32.

[28] I considered whether I should reduce this amount further because of the defendants’ conduct in this proceeding. I decline to do so. To reduce it would ignore the defendants’ substantial success at trial and would reward the plaintiff. In all of the plaintiff’s offers to settle, he demanded the defendants indemnify the plaintiff for his tax liabilities. He was unsuccessful on this issue, and it was unreasonable for him to demand this of the defendants throughout this litigation.

[29] For these reasons, I order the defendants to pay the plaintiff costs fixed in the amount of $179,174.88, inclusive of HST and disbursements. This amount represents the plaintiff’s entitlement to costs ($353,004.20) less the defendants’ entitlement to costs ($173,829.32).

M. D. Sharma J.

Date: September 1, 2022