Court File and Parties

Court File No.: 23-91717 Date: 2023/05/09 Superior Court of Justice - Ontario

Re: DIGITAL BUSINESS SYSTEMS INC., Plaintiff And: DOCUMENTS XMA INC., JEAN-FRANCOIS ROBERGE, and CYNTHIA MARTIN, Defendants

Before: Madam Justice Sylvia Corthorn

Counsel: Geoffrey Cullwick and Eric Dwyer, counsel for the plaintiff Carole McAfee Wallace, counsel for the defendants

Heard: April 11, 2023

Costs Endorsement

[1] This endorsement addresses the costs of a motion for injunctive relief. The motion was resolved in the days prior to the date on which the motion was scheduled to be heard.

Background

[2] In December 2022, the plaintiff corporation (“DBS”) and the defendant corporation (“XMA”) enter into an asset purchase agreement (“the APA”). Pursuant to that agreement, DBS sells to XMA the right to carry on business as a Xerox “agency” within the greater Ottawa area. The term “agency” is a defined term, regarding the relationship between XMA and Xerox.

[3] DBS and XMA remain competitive following the transaction, with both corporations offering products within the greater Ottawa area and throughout Ontario. Because the two corporations remain competitors, in December 2022 they also enter into a mutual non-solicitation agreement (“the MNSA”). Pursuant to the MNSA, the two corporations agree that they will each not (a) hire or solicit employees from the other corporation, or (b) interfere with any of the other corporation’s existing clients.

[4] The individual defendant, Jean-Francois Roberge (“Roberge”), is the President and Secretary of XMA. Until early 2023, the individual defendant, Cynthia Martin (“Martin”), was an employee of DBS. In early 2023, Martin ends her employment with DBS. She does so after accepting an offer, from Roberge, of employment with XMA.

[5] As of early 2023, Martin has been employed by DBS for slightly more than four years. DBS’ position is that from the time Martin was hired as a Client Care Representative, she had progressed to the manager level, reporting directly to DBS’ principal, Daniel Thomas (“Thomas”). Martin acknowledges that over the years, including as of early 2023, she fulfilled a significant role at DBS. Martin and Thomas do not, however, agree as to the significance of Martin’s role at DBS.

[6] Immediately following Martin’s departure from DBS, Thomas becomes concerned that Martin has downloaded and/or copied proprietary and confidential information about DBS’ business and clients. That concern is expressed (a) by Thomas to Roberge in a telephone call on March 2, 2023, and (b) in a March 6, 2023 letter from DBS’ lawyers to Martin (“the Letter”).

[7] In the Letter, DBS’ lawyers inform Martin that DBS considers her to be in breach of her employment agreement – including the non-competition, non-solicitation, confidential information, and invention provisions of the employment agreement. The Letter includes a demand for the return, by March 10, 2023, of all DBS property in Martin’s possession.

[8] The Letter includes a detailed draft order. DBS’ lawyers inform Martin that, if she does not consent to the terms of the draft order, DBS intends to commence an action for recovery of damages suffered as a result of Martin’s conduct and, possibly, bring a motion for injunctive relief.

[9] Over time, DBS also becomes concerned that XMA is interfering with DBS’ existing clients.

[10] DBS hires a computer forensics analyst to carry out an analysis of two computers in DBS’ possession used by Martin when she was employed with DBS. Following receipt of a report from the computer forensics analyst, DBS commences this action.

The Motion for Injunctive Relief

[11] On notice to the defendants, DBS brings a motion for injunctive and related relief. The affidavits in support of the motion are sworn on April 3, 2023. The return date for the motion is April 11, 2023.

[12] The defendants serve a responding motion record; it includes three affidavits, each of which is sworn on April 6, 2023.

[13] The Easter Weekend commences on Friday, April 7, 2023 and continues through Monday, April 10, 2023. Prior to the return of the motion on April 11, 2023, the parties negotiate a settlement of the motion. A consent order is prepared, addressing the following subjects:

• A protocol for the removal of Martin’s personal information, documents, and images from seven USB keys to be returned to DBS;
• The use which may be made of the files and documents remaining on the USB keys;
• Compliance with the MNSA; and
• DBS refraining from informing its clients and/or potential clients that Xerox is no longer represented in and no longer services the relevant geographic area.

[14] The parties do not reach an agreement regarding costs of the motion. On the return of the motion, a substantive order is made in accordance with the terms of the consent order (“the Order”) and submissions are made on the issue of costs of the motion.

The Positions of the Parties

[15] DBS’ position is that, because of obvious breaches by the defendants of the governing agreements, DBS is entitled to its costs of the motion on the substantial indemnity scale. DBS seeks costs on that scale in the amount of $40,422.16. In the bill of costs filed by DBS, that amount is broken down as follows:

Fees $ 27,661.50 Appearance fee (3 hours) $ 1,350.00 HST on fees $ 3,595.99 Disbursements (incl. HST) $ 7,814.67

[16] DBS asks that costs be payable forthwith or, in the alternative, in the cause. In support of its primary position, DBS relies on the decision of Faieta J. in Amphenol Canada Corp. v. Sundaram, 2019 ONSC 2226. DBS submits that the factors upon which Faieta J. relies in Amphenol, when ordering costs payable forthwith, are present in this matter.

[17] The defendants concede that DBS is entitled to an award of costs in its favour. The defendants’ position is that costs awarded should be payable on the partial indemnity scale and in the cause.

[18] The defendants’ position is that the quantum of costs claimed by DBS is excessive. The defendants submit that DBS incurred unnecessary costs by reason of its haste both in commencing this action and in bringing the motion for injunctive relief.

[19] The defendants did not file a bill of costs. The defendants ask the court to fix DBS’ costs on the partial indemnity scale in the amount of $5,000.

The Law of Costs Generally

[20] Fixing costs is governed by s. 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43 and by the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. Rule 57.01 sets out factors to be considered when costs are fixed. Those factors include the principle of indemnity (r. 57.01(1)(0.a)) and the reasonable expectations of the unsuccessful party (r. 57.01(1)(0.b)). In addition, the principle of proportionality applies to fixing costs (r. 1.04).

[21] Ultimately, the amount of costs awarded must reflect “an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding, rather than an amount fixed by the actual costs incurred by the successful litigant”: Boucher v. Public Accountants (Council) for the Province of Ontario (2004), 71 O.R. (3d) 291 (C.A.), at para. 26.

[22] I will first deal with the time frame within which costs are payable, followed by the scale on which costs are payable, and conclude with the quantum of costs.

Analysis

a) The Time Frame Within Which Costs are Payable

[23] In Amphenol, Faieta J. identifies five factors relevant to determining whether costs awarded to the successful party on an injunction motion are payable forthwith or in the cause. At para. 9, Faieta J. concludes that costs should be payable forthwith where,

(1) a trial on the issue of liability is not highly probable; (2) the plaintiff has established a strong prima facie case against the defendants; (3) the conduct of the defendant was egregious; (4) the plaintiff had to engage in lengthy and expensive investigations and litigation procedures in order to expose the defendant’s misconduct; (5) the plaintiff was substantially successful on the most important issues[.]

[24] When listing the five factors, Faieta J. does not include “and” or “or” between the fourth and fifth factors. Those same five factors are considered by Broad J. in Hydro One Networks Inc. v. Haudenosaunee Confederacy Chiefs Council et al., 2019 ONSC 4316. Justice Broad places “and” between the fourth and fifth factors.

[25] In both Amphenol and Hydro One Networks, the 2008 decision of Strathy J. (as he then was) in Precision Fine Papers Inc. v. Durkin et al. is cited. At para. 19, Strathy J. considers the likelihood of a trial as a factor in determining the timing of payment of costs awarded to the plaintiff corporation following its success on a motion for an interlocutory injunction. Strathy J. then considers four “other factors”, and is satisfied that costs should be payable forthwith: at para. 20. Strathy J. places “and” between the final two “other factors” he considers. The four “other factors” are essentially factors two through five listed by Faieta J. in Amphenol and summarized by Broad J. in Hydro One Networks.

[26] There is, however, nothing in the decision of Strathy J. in Precision Fire Papers which causes me to conclude that, for costs to be ordered payable forthwith, the successful party must establish that all five of the factors are present.

[27] The Divisional Court decision in Intercontinental Forest Products SA v. Rugo (2004), 191 O.A.C. 24 is also cited in both Amphenol and Hydro One Networks. I find nothing in Intercontinental Forest Products to cause me to conclude that costs are payable forthwith only if all five of the factors listed by Faieta J. in Amphenol are established.

[28] For those reasons, I weigh and assess the five factors, in the balance, to determine whether DBS is entitled to costs payable forthwith or in the cause.

i) The Likelihood of Trial

[29] The terms of the Order provide interlocutory – not interim – injunctive relief. The Order is intended to remain in force until the proceeding is concluded. The primary issues which remain to be determined, if the matter proceeds to trial, are whether DBS is entitled to damages and, if so, assessment of those damages.

[30] As noted by Faieta J. at para. 10 of Amphenol, “Most actions do not proceed to trial.” There is no evidence to support a finding that a trial of the matter before this court is either a virtual certainty or even highly probable.

[31] The defendants rely on the concluding sentence of para. 3 of the Order. That paragraph prohibits the defendants from using, accessing, or copying files or documents on the seven USB keys, other than in accordance with the protocol to be agreed upon (as provided for in para. 1 of the Order). Paragraph 3 concludes with the following sentence: “This term shall be without prejudice to DBS seeking further injunctive relief against the Defendants after obtaining and investigation [of] the USB Keys.”

[32] The defendants submit that the potential for further injunctive relief makes it less likely that the costs of this motion are distinct from other costs DBS may incur in the future. I disagree.

[33] First, the potential for additional injunctive relief to be sought is not an indicator of the likelihood that such a motion will be pursued. Second, even if additional injunctive relief is pursued, the issue of entitlement to costs after a further motion can be addressed distinct from and unrelated to the costs of either this first motion or a trial.

[34] Third, the issue of DBS’ entitlement to damages is discreet from the issue of its entitlement to injunctive relief. It appears that there will not be significant overlap between the work done in an effort to obtain injunctive relief and the work to be done in marshalling and presenting evidence in support of a claim for damages.

ii) A Strong Prima Facie Case

[35] Subsequent to the commencement of the action, Roberge acknowledged that (a) he offered a position at XMA to Martin, and (b) making that offer contravenes the terms of the MNSA. At para. 11 of his April 6, 2023 affidavit, Roberge says that he “was under the impression that [XMA] could hire former DBS employees”. He adds that he now understands the two-year prohibition regarding hiring existing or former DBS employees. Roberge concludes para. 14 of his affidavit with an undertaking to comply with that prohibition.

[36] At para. 7 of her responding affidavit, Martin acknowledges that, when she initially met with Roberge in early February 2023, she learned from him that XMA had purchased “the Xerox Agency” from DBS. Martin does not address in any way the terms of her employment agreement with DBS, or the possibility that she would, by moving to XMA, be breaching the terms of that agreement. Nor does Martin assert that she did not understand that XMA and DBS were and would remain competitors. Last, Martin does not deny having possession of DBS property. To the contrary, she details the circumstances in which she maintained possession of that property.

[37] In the absence of cross-examination of the affiants – including the parties’ respective computer forensic analysts – I assess the strength of DBS’ case on the basis of the conduct which each of Roberge and Martin acknowledge in their respective affidavits. I find that DBS has established it has a strong prima facie case.

iii) “Egregious” Pre-Litigation Conduct by the Unsuccessful Party

[38] As noted above, Roberge acknowledges that, in hiring Martin as he did, XMA did not act in accordance with the MNSA. Roberge’s explanation for XMA’s conduct in that regard is his misunderstanding of the contents of the MNSA. Without making any specific finding, it is difficult to accept that, within only two months of being involved in the negotiation and execution of the APA and the MNSA, Roberge did not fully understand XMA’s obligations pursuant to those agreements.

[39] Once again, without making a specific finding, based on Martin’s pre-litigation conduct, it appears that she was naïve as to, cavalier about, and/or lacking in her regard for her obligations to DBS.

[40] The online Oxford dictionary defines “egregious” as “outstandingly bad; shocking”. The same online dictionary identifies words with a similar meaning to “egregious” as including the following words: “shocking”; “appalling”; “horrible”; “terrible”; and “awful”.

[41] For the purpose of determining the timing of payment of costs only, and without intending to bind any judge who may be called upon to determine substantive issues at a later stage, I find that the defendants’ conduct was egregious.

iv) The Length of and Expense Incurred for Investigations and Litigation Procedures

[42] Less than two weeks following Martin’s departure, DBS began to communicate its concerns to one or more of the defendants. That communication commenced with Thomas’ phone call to Roberge on March 2, 2023 and continued with the Letter four days later.

[43] It is undisputed that the defendants did not respond to DBS’ concerns, as expressed, until after the motion record and factum were served. The defendants are critical of DBS for engaging a computer forensics analysis at the pre-litigation stage. That criticism overlooks the importance to DBS’ decision, about whether or not to begin this proceeding, of a sense of the nature and magnitude of the information, documents, and files that were at risk.

[44] DBS acknowledges that it is not possible, based on the information available as of the return date for the motion, to estimate the quantum of damages to which it may be entitled if ultimately successful with that aspect of its claim. The fact that information related to an assessment of damages is not available at this stage of the proceeding does not detract from the significance to DBS of taking steps to protect its business and existing client relationships.

[45] It was reasonable for DBS to carry out a timely investigation and move forward expeditiously with both the action and a motion for injunctive relief.

v) The Level of Success on the Substantive Issues

[46] DBS submits that every term included in the draft order sent to Martin with the Letter can be found in the Order. The defendants take a significant degree of credit for the contents of the Order.

[47] To measure the level of DBS’ success on the motion, I compare the terms of the Order to the relief listed in the notice of motion. Based on that comparison, DBS achieved a significant level of success on the motion.

▪ Conclusion – Time Frame for Payment of Costs

[48] Weighing and assessing the five factors, I conclude that costs shall be payable forthwith.

2) The Scale Upon Which Costs are Payable

[49] The analysis set out above regarding the five factors listed in Amphenol is also relevant to the scale upon which costs are payable. For the reasons set out above, I find that DBS is entitled to its costs of the motion on the substantial indemnity scale.

3) The Quantum of Costs

[50] What amount is fair and reasonable for the defendants to pay in the circumstances of the case?

[51] One of the factors to be considered is the reasonable expectations of the unsuccessful party. The defendants chose not to file a bill of costs. As a result, it is not possible to consider the costs they incurred, as the responding parties, as a measure of their reasonable expectations as to what DBS, as the moving party, would incur.

[52] Without that measure available, I consider the quantum of costs requested in light of the requirement that costs awarded “reflect some form of proportionality to the actual issues argued”: see Hydro One Networks, at para. 21.

[53] In determining the quantum of costs, I note the following from my review of DBS’ bill of costs. First, both at the initial stage of work done (including drafting DBS’ pleading) and on the motion, both senior and associate counsel worked on the file. For the former category of work the total hours are 30; for the latter category, the total is 50 hours. At least some of the work done at the pre-litigation stage and on the DBS pleading are properly considered as costs in the proceeding and not as costs of the motion.

[54] Second, I find that the total of 50 hours for work in preparing the motion materials is slightly excessive both generally and specifically. Senior and associate counsel have at least 15 additional hours collectively in preparation for the motion (i.e., other than preparing the materials).

[55] In addition to reviewing the bill of costs, I have considered the quality of the written and oral advocacy on behalf of all parties. Understandably, the DBS materials are more extensive than the defendants’ materials. Only DBS filed a factum.

[56] DBS’ written materials are well-prepared, detailed without being excessive in content, and easily understood. The preparation of materials of that quality in support of or response to a motion for injunctive relief is helpful to the presiding judge to understand the issues and make a timely decision.

[57] I fix the fees on the substantial indemnity scale at $21,500, with HST over and above that amount.

[58] The major disbursement is $7,415.62, including HST, for the work done and the report prepared by the computer forensic analyst. At paras. 74 to 80 of his affidavit, Thomas addresses the potential harm suffered by DBS as a result of the nature and extent of the DBS proprietary and confidential information that the analyst reports was in Martin’s possession.

[59] I find that some of the analyst’s evidence is relevant to the issue of assessment of damages. For that reason, I allow 50 per cent of the disbursement for the computer forensic analyst at the motion stage. I do so without prejudice to DBS pursuing the remaining 50 per cent of that disbursement at a later stage of the proceeding.

[60] I fix disbursements at $4,100.

[61] In summary, DBS’ costs on the substantial indemnity scale are fixed in the amount of $28,395 ($21,500 + $2,795 + $4,100).

Disposition

[62] The defendants shall, within 30 days of the date of this endorsement, pay to the plaintiff corporation its costs of the motion on the substantial indemnity scale in the amount of $28,395.

[63] I thank counsel for the professionalism and civility with which they made their respective costs submissions.

Released: May 9, 2023 Sylvia Corthorn J.