COURT FILE NO.: 14-61439
DATE: 2022-09-16
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Melonie Higashi, Plaintiff AND Andrea Chiarot and Guy Chiarot, Defendants
BEFORE: The Honourable Mr. Justice Marc Smith
COUNSEL: Joseph Y. Obagi and Adam J. Aldersley, Counsel for the Plaintiff Pasquale Santini and Mitchell Kitigawa, Counsel for the Defendants
HEARD: May 24, 2022, by video conferencing and in writing
REASONS FOR DECISION
M. Smith J
[1] This personal injury trial concluded in June 2021, with Reasons for Judgment released on December 15, 2021 (2021 ONSC 8201).
[2] The Plaintiff was awarded the total sum of $1,101,568.55, as follows:
a. General non-pecuniary damages: $225,000
b. Out-of-pocket expenses: $58,866.35
c. Past loss of income: $47,359.20
d. Future loss of income: $281,043
e. Future care costs: $489,300
[3] In addition to the above, I found that the Plaintiff was entitled to a management fee regarding the claims for loss of income and future care costs.
[4] On May 24, 2022, the parties appeared before me regarding two outstanding issues: (i) costs of the trial, and (ii) calculation of the management fee.
[5] On June 6, 2022, I released a brief Endorsement regarding the management fee, which included the following: “For detailed reasons to be provided, I agree with the Plaintiff’s position that the management fee should not be a one-time fixed fee at 5%.” The Defendants were given the opportunity to provide additional affidavit evidence with respect to the calculation of the management fee.
[6] On August 4, 2022, the Defendants submitted their responding materials, and the Plaintiff submitted her reply materials on August 19, 2022.
Issues
[7] The two issues to be determined are:
a. The costs of the trial; and
b. The calculation of the management fee awarded to the Plaintiff.
Analysis
Issue #1 – Costs of the trial
Legal principles
[8] Costs are at the discretion of the court: s. 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43.
[9] Rule 57.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”) sets out the factors to be considered by the court in the exercise of its discretion.
[10] Rule 49.10(1) of the Rules provides for costs consequences if a party obtains a judgment as favourable or more favourable than the terms of an offer to settle.
[11] Rule 49.13 of the Rules allows the court to consider any offers to settle made in writing, when exercising its discretion with respect to costs.
[12] In exercising the discretionary powers under r. 49.13 of the Rules, the court must adopt a holistic approach and not be concerned with the technical requirements of r. 49.10 of the Rules: Elbakhiet v. Palmer, 2014 ONCA 544, at para. 33.
[13] The costs incurred by a plaintiff are expected to be higher than a defendant’s costs because the plaintiff bears the burden of proof at trial: Cheesman v. Credit Valley Hospital, 2020 ONSC 1729
[14] The assignment of collateral benefits should not be considered when determining if the judgment is more favourable than the offers to settle: Nemchin v. Green, 2019 ONSC 6245, at paras. 33-34.
[15] Disbursements must be fair and reasonable, just as costs need to be fair and reasonable: Hamfler v. Mink, 2011 ONSC 3331, at para. 7.
[16] A party should be entitled to recover the disbursements for: (a) expert advice, regardless of whether the expert reports were introduced at trial or relied on by the trial judge; (b) expert reports reasonably necessary for the conduct of the proceeding, despite the expert not being called to give evidence. The reasonableness of retaining the expert is to be considered at the time the expense is incurred and not in hindsight: MDS Inc. v. Factory Mutual Insurance Company, 2021 ONCA 837, at paras. 16, 19, 20 and 21.
Position of the Plaintiff
[17] The Plaintiff seeks substantial indemnity costs in the amount of $893,331.98, calculated in the following manner:
a. Fees: $677,260.13
b. H.S.T. on Fees: $88,043.82
c. Disbursements plus H.S.T.: $101,217.07
d. Disbursements (H.S.T. exempt): $26,810.96
[18] The Plaintiff says that she repeatedly attempted to settle the case by making four offers to settle. She states that the judgment was more favourable to the Plaintiff than each and every one of the four offers to settle made to the Defendants. The four offers to settle are summarized below:
a. On September 19, 2019, the Plaintiff offered to settle the action for the sum of $975,000 for damages and her costs in the amount of $215,262.50, to be accepted by no later than October 18, 2019. Afterwards, the offer increased to $1,000,000 in damages, costs on a substantial indemnity basis and costs for the hearing before the Licence Appeal Tribunal in relation to the accident benefits claim.
b. On December 23, 2019, the Plaintiff offered to settle the action for the sum of $990,000 in damages and her costs in the amount of $232,500, to be accepted by no later than January 17, 2020. Afterwards, the offer increased to $1,000,000 in damages, costs on a substantial indemnity basis and costs for the hearing before the Licence Appeal Tribunal, as well as the Divisional Court appeal, in relation to the accident benefits claim.
c. On September 11, 2020, the Plaintiff offered to settle the action for the sum of $990,000 in damages and her costs in the amount of $262,750. The Plaintiff credited the sum of $50,000, for an advance payment made by the Defendants, leaving a balance of $940,000 due for damages. This offer to settle expired on September 25, 2020.
d. On February 2, 2021, the Plaintiff offered to settle the action for the sum of $950,000 in damages and her costs in the amount of $232,500, to be accepted by no later than February 16, 2021. Afterwards, the offer increased to $975,000 in damages, to be accepted by no later than February 16, 2021, and then the offer increased to $1,000,000 in damages, to be accepted by no later than March 15, 2021. If the offer to settle was accepted after February 16, 2021, the Plaintiff was seeking her costs on a substantial indemnity basis and costs for the hearing before the Licence Appeal Tribunal, as well as the Divisional Court appeal, in relation to the accident benefits claim.
[19] The Plaintiff submits that she attempted to settle the action within the limits of the Defendants’ insurance policy. She argues that she has met and surpassed the intent and spirit of r. 49 of the Rules, and as such, she should be awarded substantial indemnity costs from the date of her first offer on September 13, 2019.
[20] The assignment of accident benefits, which have an unknown and uncertain value, should not undermine the Plaintiff’s reasonable offers to settle. The amount of accident benefits to be recovered is speculative and should not be considered by the court in its determination if the judgment was more favourable than the Plaintiff’s offers to settle.
[21] The Plaintiff submits that the Defendants do not challenge the hours docketed or the hourly rates claimed by Plaintiff’s counsel. The Defendants’ main argument is that the time spent by counsel for the Plaintiff is too much. The Plaintiff responds that the Defendants should not be surprised that the Plaintiff’s team has spent more time in preparation for the trial. In fact, it should have been reasonably expected.
[22] The Plaintiff maintains that all disbursements claimed are reasonable and recoverable. The costs incurred vis-à-vis the experts were reasonably incurred at the time they were and the court should not second guess the incurring of these costs based on whether an expert was called to give evidence or the impact of an expert’s evidence.
Position of the Defendants
[23] The Defendants submit that the general rule is that costs will be awarded on a partial indemnity basis. Substantial indemnity costs should only be awarded in rare and exceptional circumstances.
[24] The Defendants suggest that a fair and reasonable fee is between the approximate sum of $345,000 and $432,000 plus disbursements and the applicable taxes.
[25] The Defendants argue that there should be no cost consequences under r. 49.10 of the Rules because it cannot yet be determined that the judgment is as favourable or more favourable than the terms of the offer. The assignment of the Plaintiff’s accident benefits claim has yet to be finalized.
[26] The Defendants submit that the first three offers to settle are not compliant with the Rules. None of the offers made prior to the last offer were available for acceptance as the subsequent ones replaced them, meaning that each of the offers implicitly withdrew the previous ones.
[27] Regarding the last offer to settle, the Defendants say that it did not take into account the $50,000 advance payment made by them. The offer to settle was staggered as it dealt with her costs, not in compliance with the Rules. The Defendants say that the last offer to settle failed to assign the Plaintiff’s accident benefits in the event of catastrophic impairment determination, meaning that the Plaintiff’s offer would have the Plaintiff keep her accident benefits, potentially valued at approximately $489,000.
[28] It is further argued that if the Plaintiff is successful in receiving a catastrophic impairment determination before the Licence Appeal Tribunal, the judgment obtained by the Plaintiff will be reduced to $645,932.10 because the Defendants are entitled to an assignment of the accident benefits. As such, the judgment obtained by the Plaintiff would be far less than her last offer to settle.
[29] The Defendants’ counsel docketed approximately 1,207 hours, while the Plaintiff’s counsel docketed 2,246 hours. The Defendants accept that Plaintiff’s counsel will normally docket more time than counsel for the defence because they bear the onus of proof. However, in this case, it is almost double the time, which the Defendants say is excessive. The Defendants suggest that the pandemic may have contributed to the excessive time because the trial was adjourned in March of 2020, meaning that counsel for the Plaintiff had to prepare a second time for the trial in March of 2021. This additional time should not be borne by the Defendants. It is proposed by the Defendants that the time incurred by counsel for the Plaintiff should be reduced by 25%.
[30] In terms of disbursements, the Defendants take issue with some of the costs incurred by the experts. Relying upon Hamfler, they argue that several of the expenses incurred by the Plaintiff’s experts, who testified at trial, should be discounted because their evidence and/or reports were of little value and assistance to the court. In regard to the costs associated to experts that did not testify, it is submitted that their costs should be disallowed.
[31] Amongst the largest disbursements, these include the report and evidence of Mr. Sherman, as well as the trial preparation and attendance of the Plaintiff’s family physician, Dr. Mankal. The Defendants propose that Mr. Sherman’s costs of $41,743.22 be reduced to $15,000. As for Dr. Mankal, he charged $11,287.45, which the Defendants say is excessive, and no details of the time spent or hourly rate was provided.
Discussion on legal fees
[32] Time and time again, I am reminded that litigation is expensive. Trials are even more expensive. This case is no different.
[33] It is undisputed that the Plaintiff is the successful party and as such, she is entitled to her costs.
[34] Before addressing the offers to settle, it is worth considering some of the relevant factors listed under r. 57 of the Rules:
a. I have no difficulty in finding that the claim was an important one for all parties, but especially for the Plaintiff. The motor vehicle accident seriously impacted her life. She sustained a mild traumatic brain injury, she suffered from post-concussion syndrome, post-traumatic syndrome disorder, depressed mood, and chronic pain.
b. The claim had some complexities, requiring a five-week trial. While the parties agreed that the Plaintiff was injured, they disagreed as to the nature and extent of her injuries, necessitating the expertise of several medical professionals.
c. Although the Plaintiff did not obtain a judgment in the amount claimed, she did receive a substantial award.
d. The rates charged by counsel for the Plaintiff are not disputed by the Defendants.
e. In a personal injury case of this nature, it is undeniable that the hours spent by the Plaintiff’s legal team will be higher than the hours spent by the Defendants’ legal team. Was double the time spent excessive? Should it have only been 25% or 30% more, as suggested by the Defendants? Was there duplication of work as between the timekeepers? Answering these questions would require me to dissect the hundreds or thousands of time docket entries since the involvement of counsel. That is not my role. Rather, the proper question to ask is whether it is reasonable. Based on my observations at trial, it was reasonable. As stated at the end of my Reasons for Judgment, I found the conduct of the trial to be exemplary in all respects and counsel’s presentations were excellent. Achieving this level of excellence requires skill and time. While these comments apply to both legal teams, the Plaintiff’s team was leading the charge, meaning that more time was needed because she had the burden to bear.
f. Neither of the party’s conduct unnecessarily lengthened the proceeding. For example, the parties were scheduled to proceed to trial in 2020 but were delayed by over one year because of the pandemic. This delay resulted in increase time preparation for both parties, but through no fault of either party.
g. It is worth repeating that personal injury trials are expensive. If a defendant is covered by an insurance policy, the insurer is acutely aware that these types of trial are expensive to run. In this case, the Defendants’ insurer defended the action. It is reasonable to assume that if the Plaintiff succeeded at trial, the Defendants’ insurer was fully expected to pay a costs award in the hundreds of thousands of dollars.
[35] Turning to the offers to settle, it is not disputed that the Plaintiff’s first three offers to settle the action are not compliant with r. 49.10 of the Rules. But the fourth offer to settle is compliant and it was made prior to the Plaintiff’s legal team incurring approximately 60% of the time spent on the file.
[36] I disagree with the Defendants’ position that the costs consequences of r. 49.10 of the Rules does not apply to the Plaintiff’s last offer to settle. First, I find that the judgment obtained by the Plaintiff is as favourable or more favourable than the Plaintiff’s last offer to settle. I reject the Defendants’ proposition that the offer to settle needed to consider the assignment of the Plaintiff’s Accident Benefits. In this regard, I adopt the reasoning of Corthorn J. in Nemchin where she found that it would be unfair to a plaintiff to fix the costs on the basis of an assumption that the plaintiff remains entitled to a collateral benefit. Second, I disagree with the Defendants that the Plaintiff’s last offer to settle is not compliant with the Rules because it provides that costs are payable on a substantial indemnity basis. The Court of Appeal has considered this argument and rejected it: Cobb v. Long Estate, 2017 ONCA 717, at paras. 146-151.
[37] I find it noteworthy that since 2019, the Plaintiff has unsuccessfully and repeatedly attempted to resolve the action within the Defendants’ policy limits. The Plaintiff attempted to do so on four occasions.
[38] The Defendants made no formal offers to settle. I am mindful that the Defendants were under no obligation to make one. However, in the situation of this case, where the Plaintiff’s injuries were significant, and where liability was not being hotly contested, I believe that it was not unreasonable to expect the Defendants to make offers to settle. The Defendants’ advance of $50,000 should be applauded, but it was clearly insufficient.
[39] Offers to settle are important, even those that are not fully compliant with r. 49.10 of the Rules because r. 49.13 of the Rules provides a discretion to the court to consider any offers that are made in writing.
[40] I am impressed with the Plaintiff’s tenacity in trying to resolve the action since 2019. Even if the first three offers to settle are not fully compliant with r. 49.10 of the Rules, considerable weight must be given to these offers to settle. Otherwise, the Plaintiff’s efforts of settling her claim before trial were in vain.
[41] Litigation is fluid. Delays are sadly inevitable. And, over time, things may change, new events may occur, often forcing parties to continuously update their offers to settle. Parties that are legitimately trying to avoid trial by making reasonable offers to settle, should not be penalized. Rather, these parties should be encouraged, commended, and rewarded.
[42] The Plaintiff tried to avoid trial. The Defendants did not. The Plaintiff had no choice but to bring this matter to trial and incur significant legal costs. The Plaintiff should be awarded costs on an elevated basis.
[43] In these circumstances, I find that a reasonable and proportionate amount of costs is $650,000 plus $84,500 in H.S.T., for a total sum of $734,500.
Discussion on disbursements
[44] The MDS decision makes it clear that: (1) even if an expert report was not introduced at trial, the costs associated with that report may be payable to a successful party if it was reasonably incurred to respond to the issues raised at trial; (2) expert fees for expert reports may be recoverable if they were reasonably necessary for the conduct of the proceeding, even if the expert was not called to give evidence. If the expert is not called to give evidence, it is a factor to consider in determining the reasonableness of the overall fees charged; (3) disbursements for expert advice may be recoverable even if not relied upon by the trial judge; (4) the reasonableness of retaining an expert is to be considered at the time the expense is incurred and not in hindsight.
[45] Simply put, the guiding principle to assess a claim for disbursements is reasonableness.
[46] The Defendants challenge the following disbursements:
a. Darrell Sherman, the forensic accountant from ADS, charged $41,743.22 for his expert reports, preparation, and attendance at trial. The Defendants say that it is excessive because it was not of significant value to the court. Mr. Sherman’s analysis was not required and as such, it should be significantly discounted, namely to $15,000.
b. Dr. Mendella was retained as a consultant. He charged $3,075 for his consultation. The Defendants state that this expense is not reasonable because Dr. Mendella was not called as a witness, nor did he prepare a report.
c. The Plaintiff incurred expenses for retaining the services of Ms. Doyle Shaver and Ms. Smith Bradley. Reports were drafted and they both spent time in trial preparation. Neither of them was called as witnesses. The Defendants say that these individuals were not called to give evidence because of my ruling on limiting the number of experts. As such, these expenses incurred by the Plaintiff were of no value to the court and not proper disbursements.
d. Dr. Mankal charged $11,287.45 for trial preparation and attendance. The Defendants argue that this amount is excessive, considering that the other experts charged between $5,000 and $7,500 for their services.
[47] It is true that I rejected Mr. Sherman’s calculations regarding his assumptions that the Plaintiff was going to return to the workforce and abandon her business. He did, however, provide some limited, but helpful evidence on the Plaintiff’s actual earnings, her projected earning capacity, her net income derived from the business, and the present value of future costs. That said, I find the amount charged by ADS to be slightly high, considering that the Plaintiff’s financial issues were not overly complex.
[48] The expense incurred for Dr. Mendella is reasonable. Retaining an expert consultant to assist counsel in understanding the science and preparing a cross-examination is entirely appropriate. In this case, the cross-examination of the Defendant’s expert, Dr. Comper, was effective.
[49] The expenses incurred for Ms. Doyle Shaver and Ms. Smith Bradley were also reasonable.
[50] Dr. Mankal’s invoice is slightly elevated, in comparison to the other experts. This was Dr. Mankal’s first experience as a participant expert giving testimony at trial. While it is understandable that more preparation time was required for Dr. Mankal, I do not find it reasonable to expect that the Defendants pay for portions of Dr. Mankal’s training.
[51] I would therefore reduce the disbursements by $10,000, thereby awarding the Plaintiff total disbursements in the amount of $118,028.03, inclusive of taxes.
Issue #2 – The calculation of the management fee awarded to the Plaintiff
[52] In my Reasons for Judgment, dated December 15, 2021, I made the following findings and conclusions:
[309] In Melonie’s case, she has suffered a mild TBI and has demonstrated ongoing cognitive impairments. While Melonie admitted in cross-examination that she looks after her own banking, I do not believe that it would be appropriate or reasonable to interpret this to mean that she would be able to manage a significant financial portfolio. Melonie’s medical condition warrants the use of a professional to manage her award.
[310] Melonie should not be burdened with an expense incurred to manage her investment or whether such investment attracts tax liability. Melonie finds herself in this situation because of the Defendants’ negligence.
[311] In sum, I accept Mr. Sherman’s recommendation of adding a 5 percent management fee to her loss of income and future care costs awards, as well as a tax gross-up amount for the future care costs award.
[53] After hearing submissions from counsel on May 24, 2022, and reading their written materials, I realized that I made an error in accepting Mr. Sherman’s recommendation of adding a five percent management fee. At trial, Mr. Sherman testified that, when drafting his report in February 2020, he initially used a straight fixed five percent management fee. However, he subsequently learned of another method, namely a sliding scale percentage, which he testified was more reflective of reality in the investment field. Mr. Sherman explained that, in his experience, a sliding scale range would be between .85 to 1.5 percent.
[54] The recommendation that I meant to accept is an annualized sliding scale because, in my view, it is more reflective of the true market costs to manage an investment portfolio. As I noted in paragraph 310 of my Reasons to Judgment, I found that the Plaintiff should not be burdened with an expense to manage her investment. A straight fixed five percent management fee would not, in my opinion, accomplish that goal.
[55] The Defendants argue that I am functus officio because I made a ruling that the management fee was five percent. I disagree. First, the reference to five percent was made in error and there was no reference to whether it was fixed or annualized. Second, at paragraph 313 of my Reasons for Judgment, it was noted that Mr. Sherman was to calculate the management fee but in the event of a disagreement, the parties were to re-appear before me to address this issue, leaving the door open to deal with this issue after the delivery of my Reasons for Judgment. Third, in order to determine this issue, additional evidence has been submitted by both parties.
Quantum of the management fee
[56] Mr. Sherman filed an affidavit dated May 9, 2022, for the purposes of demonstrating his calculation of the management fee. Mr. Sherman concludes that the management fee is $169,976, based upon a 1.5 percent annualized sliding scale. He uses 1.5 percent because the investment portfolio (i.e. loss of income and future care costs awards) is below $1,000,000.
[57] At my request, the Defendants filed responding affidavit evidence. Mr. Connor Paxton, a Chartered Professional Account with Matson Driscoll and Damico Ltd. confirmed that he found no material arithmetical errors in Mr. Sherman’s calculations. Mr. Paxton opined that a 1.5 percent management fee overstates the present value of management fees charged in the marketplace. Mr. Paxton suggests that a one percent management fee is more appropriate, totalling $107,001. Mr. Paxton’s conclusion is based upon several articles that he appended to his affidavits, including articles contained in Advisory HQ, Camber, and McKinsey & Company.
[58] In reply, the Plaintiff objects to the opinion evidence of Mr. Paxton because the Defendants are seeking to circumvent the law of evidence and the Rules. More particularly, the Plaintiff argues that the Defendants have failed to comply with r. 53.03 of the Rules, failed to comply with the rule in Browne v. Dunn, and attempted to pass off the opinion evidence of others that are referenced in the articles.
[59] In exercising my inherent jurisdiction, I am admitting the evidence proffered by Mr. Paxton. However, I am not attributing significant weight to the opinion evidence presented by Mr. Paxton on the management fee because it is primarily based on opinions expressed by various authors in Canadian and American articles published online, as opposed to his own professional opinion.
[60] Regarding Mr. Sherman’s evidence at trial, he was not specific as to the exact sliding percentage rate to be used. His evidence was general in nature: “So you pay a certain percentage based on the first X dollars and then the percentage will vary depending on the, as the amount that the investment manager is, is handling and would, would be calculated on the, on the full amount of the award. So the, so that was, that’s essentially the, the change that we, we used in the later report, the one from March 2021.”
[61] Mr. Sherman uses 1.5 percent because the asset value is less than $1,000,000. At Exhibit “A” of his affidavit dated May 9, 2022, Mr. Sherman inserts the following note #4 to his calculations:
4] Calculated based on the following fee rates by asset value (Starting Balance) each year:
Fees as Percentage of Asset Value
Asset Value From
Asset Value To
1.5%
$1 000,000
1.25%
$1,000,001
$2,000,000
1.00%
$2,000,001
$5,000,000
0.85%
$5,000,001
[62] While the 0.85 to 1.5 percent range provided by Mr. Sherman is consistent with his trial testimony, I find that there is no reliable evidence before me regarding the specific variations presented in above-noted chart. Mr. Sherman’s testimony at trial did not include any specific references to asset values.
[63] Theoretically, it is reasonable to conclude that a management fee begins to decline on a sliding scale as the amount of the investment increases. However, there is an absence of expert evidence before me describing the specific factors that impact the amount of management fees charged by financial advisors. It would have been helpful to hear expert testimony from a wealth manager regarding investment strategies, the types of services offered by a financial advisor and the corresponding fee models that are available in today’s market.
[64] The Defendants argue that because the Plaintiff did not provide evidence as to what she intends to do with the funds, the court should make a conventional management fee award by using a straight one-time rate of five percent. I disagree. I do not find that the conventional method used in the past is reflective of today’s market. I am of the opinion that the proposed conventional management fee award is too low and would not cover all of the Plaintiff’s investment expenses.
[65] In my view, a management fee falls within the range of 0.85 to 1.5 percent. In the absence of specific evidence as to the exact percentage that should be applied in this case, I find that a management fee of $125,000 is reasonable and appropriate in the circumstances. Regardless of the investment strategy to be used by the Plaintiff, I believe that with this amount, the Plaintiff will not be burdened by an additional investment expense.
Conclusion
[66] For the foregoing reasons, I make the following orders:
a. The Plaintiff’s costs are fixed at $852,528.03, inclusive of taxes and disbursements.
b. The Management fee is fixed at $125,000, all-inclusive.
[67] At the conclusion of the hearing on May 24, 2022, counsel for the Plaintiff indicated that costs for the appearance may be an issue. I strongly encourage the parties to resolve this issue. If they are unable to do so, both parties are to file and serve written submissions, limited to three pages each, excluding their Bill of Costs and Offers to Settle, within 60 days of these Reasons for Decision.
M. Smith J
Released: September 16, 2022
COURT FILE NO.: 14-61439 DATE: 2022-09-16
ONTARIO SUPERIOR COURT OF JUSTICE
B E T W E E N:
MELONIE HIGASHI Plaintiff
– and –
ANDREA CHIAROT and GUY CHIAROT Defendants
REASONS FOR DECISION
M. Smith J
Released: September 16, 2022