COURT FILE NO.: CV-10-406761

DATE: 20221019

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Roy Maiero, Maria Pia Maiero and 1426505 Ontario Inc., Plaintiffs

AND:

Jovian Capital Corporation, Jovfunds Management Inc. and Jovian Asset Management Inc., Defendants

BEFORE: D.A. Wilson J.

COUNSEL: Patrice A.J. Cote, for the Plaintiffs

Lawrence Thacker and Zachary Rosen, for the Defendants

HEARD: By Written Submissions

ENDORSEMENT

Background

[1] The Plaintiffs brought this claim in July 2010 seeking $50 million in damages allegedly owed pursuant to a Royalty Agreement (“the Agreement”) relating to the sale of a mutual fund, Accumulus North American Momentum Fund (“the Fund”). The Defendants did not dispute that the Plaintiffs were entitled to a royalty, but they did not agree with the manner in which the Plaintiffs alleged the royalty was to be calculated or the quantum the Plaintiffs alleged they were owed. At trial, the Plaintiffs reduced their claim for damages to $15 million.

[2] In August 2012, the Plaintiffs launched a Summary Judgment motion on the promissory note that had been executed. That motion was resolved on a consent basis and the Defendants paid the sum of $118,000 pursuant to that note.

[3] The action proceeded to trial before Justice Arthur Gans for 20 days in 2019. His Honour identified four issues to be determined at trial. Expert evidence was called by both parties on the issues of standard of care and damages. Justice Gans delivered his Reasons for Judgment on July 18, 2019; the Plaintiffs were awarded damages of $87,917 and counsel were directed to contact him on the issues of interest and costs.

[4] Following the delivery of the Reasons for Judgment, there was radio silence from counsel. No Judgment was submitted to Justice Gans for his signature; no submissions were made on the issue of interest or costs. Justice Gans retired from the Bench in July 2021, two years after his Judgment was delivered.

[5] Instead, the Plaintiffs delivered a Notice of Appeal on August 15, 2019 but failed to proceed with it. That appeal was dismissed as abandoned by the Court of Appeal on January 6, 2021. On December 2, 2021, Mr. Cote, new counsel for the Plaintiffs, wrote to Regional Senior Justice Firestone inquiring about the signing of the Judgment and other issues. In my capacity as co-team lead of the civil team in Toronto, and pursuant to the provisions of the Judges Act, RSJ Firestone delegated to me the signing of the Judgment and dealing with any outstanding issues.

[6] I convened a case conference with counsel and requested their written submissions on costs; I signed the Judgment so that it could be entered with the Court. I have received voluminous submissions on the issues of costs and interest, which I have reviewed.

Positions of the Parties

[7] The Plaintiffs argue they were successful at trial and presumptively are entitled to costs of the action on a substantial indemnity basis. The Defendants would not concede anything, so the trial proceeded on all issues. Advancing this lawsuit was difficult and expensive for the Plaintiffs; it was necessary to retain two sets of lawyers and the Defendants required all issues to be adjudicated, forcing the case to a four-week trial.

[8] The Plaintiffs seek costs of $455,567.25 plus HST of $51,500.39 for a total fee of $507,0657.64 on a substantial indemnity basis. Disbursements of $187,677.67 are claimed. Mr. Cote also requests costs of his involvement in the sum of $6,780.

[9] On a partial indemnity scale, fees and HST of $527,271.72 are claimed. Alternatively, and in response to the submissions of the Defendants concerning the divided success at trial, Mr. Cote submits that costs fixed at $328,545.77 for fees and disbursements would be fair.

[10] On the issue of prejudgment interest, it is the position of the Plaintiffs that the entire sum of $87,917 attracts interest. If interest is calculated pursuant to the Courts of Justice Act, prejudgment interest of $9,434.98 is claimed with a further $11,511.25 of post-judgment interest.

[11] If interest is calculated pursuant to the Royalty Agreement at prime plus 2%, interest of $49,953.04 is sought.

Defendants

[12] The Defendants submit that the Plaintiffs should not be awarded costs, and instead, the Defendants should recover costs on a substantial indemnity basis. Counsel points to the fact that the sum that was recovered by way of Judgment is within the jurisdiction of the Simplified Rules and as a result, the Plaintiffs are presumptively disentitled to their costs.

[13] Furthermore, counsel submits that the Defendants attempted to resolve the action on a reasonable basis both in 2013 ($100,000) and again in 2019 by way of a formal Offer to Settle prior to trial ($400,000). Because the Plaintiffs insisted on advancing baseless allegations, the trial was protracted and many issues had to be litigated.

[14] The Defendants request their costs on a substantial indemnity basis fixed in the sum of $1,213,087.93. Alternatively, counsel requests costs on a substantial indemnity basis from the date of their offer to settle in April 2019, in the sum of $644,198.

[15] Mr. Thacker submits that prejudgment interest ought not to be awarded given the manner in which the Plaintiffs conducted the litigation.

Analysis

[16] From the costs submissions that I reviewed, it does not appear that the Plaintiffs ever served an Offer to Settle pursuant to Rule 49 or put forth a number for settlement. The Defendants made two Offers to Settle: a verbal one during a settlement meeting in 2013 in the sum of $100,000 all-inclusive; and one shortly before the trial in the amount of $400,000. I assume that figure was also an all-inclusive sum.

[17] The evidence in the case commenced on April 8, 2019; the Offer to Settle of the Defendants was made April 5, 2019. As a result, this Offer does not meet the requirements of Rule 49.10(2) that it be made at least seven days prior to the commencement of trial in order to attract the cost consequences of partial indemnity costs from the date of the offer.

[18] However, section 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43 confers on the Court a broad discretion when determining costs. Rule 57.01 sets out the factors a Court may consider when dealing with the issue of costs. For my purposes, the factors that bear consideration in this case include the principle of indemnity, the amount claimed, and the amount recovered in the proceeding, complexity, the importance of the issues and the conduct of any party that shortened or lengthened the duration of the proceeding.

[19] The general principle governing costs is that absent special circumstances, costs follow the event: Bell Canada v. Olympia & York Developments Ltd. (1994), 1994 CanLII 239 (ON CA), 111 D.L.R. (4th) 589 (Ont. C.A.).

[20] In Henry v. Dr. Zaitlen, 2022 ONSC 3050, the Court identified the three principle purposes of costs decisions: to indemnify successful litigants; to encourage settlement; and to discourage inappropriate behaviour by litigants.

[21] In his Reasons for Judgment, Justice Gans made certain findings of importance. First, he found that the language of the Momentum Fund permitted reorganization during the currency of the Royalty Agreement, including a winding-up. Second, he determined that the Defendants were obliged to continue with the quarterly payments under the Royalty Agreement until the conclusion of its term. He found that the Defendants were in breach of the Royalty Agreement as of February 2009, giving rise to a claim for damages. Third, he rejected the argument of the Plaintiffs that the Defendants breached the duty of good faith in the performance of the contract. Finally, he rejected the submission of the Plaintiffs that the wind-up of the Fund was made without contractual or legislative authority and was undertaken to avoid the obligations and payments. He found that the winding-up of the Fund need not have been referred to the IRC.

[22] On the issue of damages, Justice Gans was critical of the methodology employed by the expert called by the Plaintiffs. In the main, he accepted the evidence of the valuator called by the Defendants in arriving at his damages figure of $87,917.

[23] His Honour noted “I will leave it to counsel to contact me on the issue of whether or not there should be a further adjustment to reflect the question of prejudgment interest on some or all of the total damages set out above.”

[24] The trial judge commented that the Plaintiffs “mounted a frontal attack on the actions of Jovian in the manner in which the Momentum Fund was operated after the SPA was signed to its ultimate winding-up. Because these issues occupied significant trial time…” Of the 4 issues identified by the trial judge, the Plaintiffs were unsuccessful on 3 of them. I would describe this case as one with mixed success, with the Defendants being the more successful party.

[25] The issues that require adjudication by the Court should be focused and clearly delineated. The broadbrush approach of requiring every issue be determined in the hopes that some will meet with success is inappropriate and is to be discouraged. This practice results in protracted trials that are far too long and expensive. In the instant case, the Plaintiffs chose to challenge everything at trial, and, on balance, they were unsuccessful. A party claiming $15 million at trial who recovers less than $100,000 cannot claim a victory.

[26] Counsel for the Plaintiffs submits that the Court ought to consider the results of the Summary Judgment motion on the promissory note when dealing with the costs of the action. I reject that submission. The motion is separate and apart from the issues that were adjudicated at trial; any costs associated with the motion would have been dealt with at the time the motion was resolved, either through an agreement between counsel or by decision of the motion judge.

[27] Following the resolution of the Summary Judgment motion, it was up to the Plaintiffs to decide if they wished to proceed to trial on the remaining issues; they chose to do so. The Plaintiffs knew the quantum of the liquidated damages they recovered from the promissory note; that amount was $118,000. They decided to proceed to trial seeking additional damages arising from the royalty claims. While they had claimed $50 million in their Statement of Claim, the Plaintiffs reduced the quantum of damages to $15 million prior to trial. There was a large disparity between the expert opinions of the valuators who testified at trial.

[28] I agree with the submission of counsel for the Defendants that had the Plaintiffs been realistic in their assessment of the potential findings at trial on damages, this case in all likelihood would have resolved prior to trial. Even if it did not settle, the trial should have been much shorter than the 20 days of trial time that it occupied.

[29] Counsel agree that the bulk of the trial time was taken up by the examinations and cross-examinations on the damages issues. The trial judge was critical of the expert called by the Plaintiffs on damages. An expert witness’s duty is to assist the Court with matters outside the realm of knowledge of a lay person. Justice Gans noted that Mr. Conte, the expert called by the Plaintiffs on damages, used a damages model which was mostly irrelevant, given the historical performance of the Fund. He commented that the evidence of Mr. Conte was “hypothetical” and at the end of the day, he wondered about its “cogency and overall value”.

[30] It is clear the trial judge preferred the approach on damages that the expert witness called by the defence, Mr. Cohen, provided in his testimony. The damages figure that the trial judge arrived at was based on the evidence of the defence expert.

[31] The Plaintiffs chose to proceed with allegations of conspiracy, bad faith and misrepresentation; those are serious allegations which the trial judge did not accept. He commented on the lack of evidence called at trial to support these allegations, leaving him to “guess and speculate upon whom the fault ultimately lay…” (paragraph 31).

[32] The Plaintiffs argued at trial that the Fund could not be reorganized during the term of the Royalty Agreement and thus, the winding up was prohibited. Justice Gans rejected this submission. He did find that the Defendants were obliged to continue with the payments each quarter until the Agreement was concluded. Since the Defendants ceased the payments in February 2009, the trial judge found they breached the Agreement and as a result, the Plaintiffs were entitled to damages. However, the Plaintiffs continued to argue at trial that the Defendants breached the duty of good faith. Justice Gans did not accept this submission and stated he was not persuaded on the facts that there was any breach of the duty. He commented that as a matter of courtesy, the Defendants could have advised the Plaintiffs of their intention to wind-up the Fund. However, the trial judge was clear that the actions of the Defendants did not constitute bad faith as argued by the Plaintiffs.

[33] The Plaintiffs also argued at trial that the Defendants decided to wind-up the Fund simply to avoid the obligations and payments created by the Agreement and promissory note. The trial judge did not accept this argument and found that the winding up was proper and need not have been referred to the IRC.

[34] On the issue of damages, the trial judge commented “I am not persuaded that the Plaintiffs’ theory of damages, which would yield a net present value that mathematically would exceed several million dollars, accords with the ‘expectation damages’ …would place the Plaintiff in the same position had the contract been performed…”

[35] Overall, the Plaintiffs were clearly unsuccessful in the majority of the allegations advanced at trial against the Defendants. The sole issue the Plaintiffs were successful on was the failure of the Defendants to continue the payments pursuant to the Agreement was finished; that is what gave rise to the damages claim. However, the Plaintiffs were not successful on the quantum of damages sought and the theory espoused by their expert was not accepted by the trial judge.

[36] The Plaintiffs obviously believed the damages arising from the actions of the Defendants were in the millions of dollars. That theory was not accepted by the trial judge and the damages were assessed at less than $100,000. The Plaintiffs would have been in a much more favourable position had they accepted the $400,000 Offer to Settle made by the Defendants just before the trial began. It was a reasonable offer which reflected compromise and a desire to resolve the case without the need of embarking on a long trial. The Plaintiffs chose to “have their day in Court”, which of course any litigant is entitled to do. However, such a decision is not without consequences when the issue of costs is considered.

[37] In my opinion, the approach of the Defendants was a reasonable one. They made a verbal offer to settle in 2013, some 6 years before the trial and before the expenses of litigation were incurred. In retrospect, the amount offered, $100,000, was a reasonable amount but it was rejected by the Plaintiffs. Instead, the usual steps associated with a litigation file were undertaken: document production, examinations for discovery, retaining and instructing experts, and attending mediation and pretrial.

[38] The Defendants made a further effort to resolve the case before the trial commenced; that too was a reasonable offer to settle. The Plaintiffs did not accept it, and quite surprisingly, failed to serve their own Offer to Settle. In those circumstances, there was nothing further the Defendants could have done to resolve this case short of trial. It was the conduct of the Plaintiffs that forced this case on to a 4-week trial.

[39] There is an obligation on parties and their counsel prior to trial to evaluate the evidence, including the opinions of the experts who will testify at trial, and assess the chances of success at trial. Slavishly adhering to a view of a case which is not supported by the evidence makes no sense, particularly in a long trial which is going to be expensive.

[40] I have reviewed the Costs Outline submitted by both counsel. I have considered the factors enumerated under Rule 57, including the time spent, the results achieved, and the complexity of the matter, as well as the application of the principle of proportionality: Rule 1.04(1).

[41] Furthermore, I have taken into account the principles set forth by the Court of Appeal in Boucher v. Public Accountants Council for the Province of Ontario, 2004 CanLII 14579 (ON C.A.), (2004), 71 O.R. (3rd) 291 (C.A.), specifically that the overall objective of fixing costs is to fix an amount that is fair and reasonable for the party required to pay in the particular circumstances, rather than an amount fixed by actual costs incurred by the successful litigant.

[42] On the facts of this case, including the nature of the claims advanced, the quantum of damages sought, the outcome at trial and the conduct of the Plaintiffs concerning offers to settle persuade me that this is a case where it would be inappropriate to make an award of costs of the entire action to the Plaintiffs.

[43] Both parties submitted requests for costs on a substantial indemnity scale. There is no basis for awarding substantial indemnity cost to either party in this case. Consequently, I will deal only with costs on a partial indemnity scale.

[44] The defence offer made just before trial did not comply with the timing requirements of Rule 49, it was open for acceptance by the Plaintiffs prior to the evidence starting at trial on April 9, but was not made 7 days in advance of the trial. The offer was more than 4 times the amount of damages that was awarded to the Plaintiffs in the Judgment. The Plaintiffs should have accepted the offer, as it was a reasonable compromise and reflected the risks on both sides of proceeding to trial.

[45] Rule 49.13 states that in exercising its discretion concerning costs, the Court may take into account any offer to settle made in writing, the date the offer was made and the terms of the offer. In this case, the defence offer was made just prior to the commencement of trial. The Plaintiffs did not accept it, but did not provide a counter offer, so the case proceeded to trial. The Plaintiffs knew that if they were not successful at trial, the Court could take into consideration the offer made by the Defendants when determining costs. This was not a short trial; it was 4 weeks and both sides called expert evidence; that was expensive.

[46] Although the defence offer was not made 7 days prior to trial, it was made in writing the Friday before the trial started. The Court can take any offer into consideration when fixing the quantum of costs. The Plaintiffs had the weekend to consider it and accept it. They did not, nor did they provide a counter offer. They did not demonstrate a willingness to compromise but instead chose to embark on what they knew would be a long and expensive trial. At its conclusion, they were successful on one issue but the damages flowing from that were modest, far less than the Offer to Settle of the Defendants. Pursuant to Rule 49.13, I view the Offer to Settle of the Defendants in the sum of $400,000 as a bone fide final attempt to settle the case short of trial. I consider it in the same manner as I would if the offer had been made 7 days prior to trial, pursuant to Rule 49.10. I am of the view that the Defendants are entitled to their costs on a partial indemnity scale from the date of their Offer to Settle onwards.

[47] The Summary Judgment motion proceeded on consent and the settlement and the costs associated with it are not for my determination. Those matters were dealt with at the time the motion was resolved.

[48] The Plaintiffs claim fees on a partial indemnity scale for the action in the sum of $296,118.71 plus HST of $38,495.43 for a total sum of $339,594.05. There is no separation of the fees incurred up to the date of the defence offer and after. The total is $527,271.72. It is unfortunate that I was not provided with a breakdown of time spent before the trial commenced and after. The Defendants’ partial indemnity fees before their settlement offer are $227,600; after their offer the fees are $274,221.78 plus HST of $35,648.83 for a total sum of $309,870.61.

[49] Looking at the defence fees, slightly more time was spent at trial than for the preceding steps. Using this as a reasonable guideline, I will approximate that for the counsel for the Plaintiffs, fees of $130,000 were incurred prior to trial and $166,000 from the time of the defence offer to settle until completion. Therefore, I fix the amount of the Plaintiff fees on a partial indemnity scale to the date of the defence offer at $130,000 plus HST of $16,900 for a total sum of $146,900 which I round up to $147,000, which in my view is a fair amount. The disbursements of $187,677.67 shall be added to the fees of for a total figure of $334,677.67 and I fix that amount as the partial indemnity fees and disbursements of the Plaintiffs to the date of the defence offer.

[50] Since I have decided the Defendants are entitled to costs on a partial indemnity scale, I have reviewed the hourly rates claimed as well as the quantum of time. I am satisfied that the hourly rates are reasonable, the partial indemnity rate is 60% of the fees actually billed.

[51] The preparation time for trial after the settlement offer was made is $15,466.02 and the time for attendance at trial for the evidence is $161,149.56. There is a further $88,032.36 for the closing submissions and $9,573.84 for the costs submissions. The total time of defence counsel for work done after the settlement offer was made just prior to trial is therefore $274,221.78. I therefore fix the fees of the defence in the sum of $274,221.78 plus HST. In my opinion, this is an amount that is fair and reasonable in all of the circumstances. It is a sum that the Plaintiffs cannot be surprised at, given the trial was four weeks in length, involving the testimony of several expert witnesses. This is an amount the Plaintiffs could well have contemplated when they were considering the offer to settle of the Defendants made just prior to trial. They would have been advised by their counsel that if they proceeded to trial and the result was less than the offer, they could expect to pay the costs of the defence in a reasonable amount.

[52] Turning to the issue of the disbursements claimed by the Defendants, the expert fees comprise almost $149,000 of the total of $162,108.33 in disbursements before trial. I was not provided with an invoice from the experts, so I am assuming this is for preparation of the reports. There is a further charge by the experts of $135,107.06 which is for attendance at trial and preparation for trial by counsel. The expert evidence was necessary in a case of this nature and the trial judge preferred the opinions of defence experts over those of the Plaintiffs. The Defendants had to retain the experts and secure reports in order to defend the case. Had the Plaintiffs accepted the offer before trial the disbursements of $158,786.41 plus HST of $20,605.67 would not have been incurred. Thus, I fix the disbursements of the Defendants in the sum of $179,392.08 inclusive of HST.

[53] I order that the Plaintiff is entitled to costs on a partial indemnity scale to the date of the defence offer, which I fix in the sum of $334,677.67 inclusive of fees, disbursements and taxes. The Defendants are entitled to their costs from the date of their offer, which I fix in the sum of $512,583.66. The Plaintiffs are to pay to the Defendants the sum of $177,906 forthwith.

Prejudgment interest issue

[54] The Plaintiffs seek prejudgment interest on the damages awarded, at the rate of prime plus 2%, as specified in the Agreement, in the sum of $49,953.04. Alternatively, the Plaintiffs seek interest calculated pursuant to the Courts of Justice Act in the sum of $11,511.25.

[55] In his decision, the trial judge invited counsel to contact him on the issue of prejudgment interest, if any, as well as on the costs issue. That invitation was extended 3 years ago and counsel for the Plaintiffs did not take that opportunity. The Plaintiffs recovered a judgment of $87,917 despite claiming millions of dollars in damages. That award was made because essentially the operating agreement required the Defendants to continue making payments until the Fund was finished, and they failed to do so. Instead, it appears that a Notice of Appeal was delivered, and then nothing happened; the Appeal was dismissed for delay. The Plaintiffs are entitled to interest on the amount of the Judgment in the usual manner, pursuant to the provisions of the Courts of Justice Act.

[56] The onus was on the Plaintiffs to finalize the outstanding issues and have the trial judge deal with them. That did not occur for reasons which are not clear to me. Given the inordinate delay in finalizing the Judgment and approaching the Court to deal with the issue of costs, there will be no post-judgment interest.

Order

[57] For the reasons given, the Plaintiffs are to pay to the Defendants the sum of $177,905.99 in costs payable forthwith. Pre-judgment interest on the judgment is to be calculated in accordance with the provisions of the Courts of Justice Act. The Defendants are to pay to the Plaintiffs the sum of the Judgment plus the appropriate prejudgment interest.

Date: October 19, 2022