Court File and Parties

COURT FILE NO.: CV-22-00688496-00CL DATE: 20231123 SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)

RE: VAULTOSE DIGITAL ASSET SERVICES INC., Plaintiff AND: TILO KUNZ, 1946077 ONTARIO INC., WILLIAM (BILL) YAKAMOVICH, IOT CONSULTING, ATLANTIC TRUST COMPANY and QUANTUM SAFE DATA SYSTEMS INC., Defendants

BEFORE: KIMMEL J.

COUNSEL: Edward Babin and Michael Bookman, for the Plaintiff on Injunction Motion Michael Bookman and Daniel Babin, for the Plaintiff on the Motion for Security for Costs Ryan Evans and Malcolm Harvey, for the Defendants

HEARD: September 20, 2023 (Costs Outlines Provided October 20, 2023)

COSTS ENDORSEMENT – PLAINTIFF’S MOTION FOR INTERIM INJUNCTION

[1] On October 16, 2023 the court’s decision on the plaintiff’s motion for an interim/interlocutory injunction was released. See Vaultose Digital Asset Services Inc. v. Kunz, 2023 ONSC 5790. The motion was dismissed.

[2] The parties were directed to exchange their costs outlines and attempt to resolve costs. They advised on October 20, 2023 that they had been unable to do so, and they submitted their costs outlines to the court. The plaintiff’s costs outline is dated September 20, 2023 and the defendants’ costs outline is dated September 25, 2023.

[3] The parties were invited to work out a timetable for page-limited written cost submissions if either side was of the view that there was some basis for the costs to be fixed on a substantial indemnity scale, or any basis on which the normal rule that the successful defendants should be awarded their costs of the injunction motion might not apply. Neither side indicated a need for further submissions and none were provided, beyond the costs outlines, were provided.

[4] The court directed that the costs of the injunction motion would be determined after the court received the costs outlines of the parties (and, if deemed appropriate, their brief costs submissions on the questions of entitlement and/or scale and/or quantum of costs). They were advised in the injunction reasons that if there were no further cost submissions to be made then, after receipt and consideration of their costs outlines, they would be provided with a brief costs endorsement to fix the amount of partial indemnity costs payable by the plaintiff to the defendants as the successful parties on the injunction motion. This is the costs endorsement.

[5] In their costs outlines (prepared before the outcome of the injunction motion was known) both sides asked to be awarded their partial indemnity costs, if successful.

[6] The plaintiff sought a broad worldwide injunction against the defendants that was scaled back in a few respects by the time the motion was argued but still sufficiently broad so as to threaten to prevent the continued development of the QDS Platform by the defendants.

[7] The plaintiff had to meet the higher standard of demonstrating a strong prima facie case that it would succeed in establishing that there has been a breach of confidence or misuse of Confidential Information by the defendants and failed to do so. That was the primary basis on which the requested injunction was not granted. However, the court also found that the balance of convenience would have favoured the defendants.

[8] The plaintiff made various accusations about the defendants’ reluctance to make disclosure in the context of this proceeding. In the injunction endorsement, it was determined that, while the defendants could and should have been more forthcoming initially with some of their productions, they have now produced what they have. There was no basis for a finding that they had destroyed evidence about their activities.

[9] As the successful parties, the defendants are entitled to their costs of the injunction motion. Their costs outline certifies their partial indemnity costs to be $267,410.29 (all inclusive) at 60% of full indemnity. Three main counsel (plus other legal professionals) at varying levels of seniority spent over 720 hours collectively.

[10] The plaintiff’s costs outline certifies its partial indemnity costs to be $220,762.20 (all inclusive) at 50% of full indemnity. Three main counsel (plus other legal professionals) at varying levels of seniority spent almost 395 hours collectively.

[11] The all-inclusive partial indemnity costs claimed by both sides are within approximately $50,000 of each other.

[12] Roughly, it looks like the defendants’ lawyers spent more time but worked overall at lower hourly rates. The approximately $50,000 difference in the partial indemnity costs claimed can be attributed, at least in part, to the defendants’ calculation of partial indemnity costs at 60% of full indemnity whereas the plaintiff’s calculation of partial indemnity costs is at 50% of full indemnity (although the plaintiff also had higher disbursements so the overall fees of the defendants are higher). There is no hard and fast rule as to the appropriate percentage to apply to calculate partial indemnity costs. Both 50% and 60% are commonly used.

[13] The defendants attribute the higher total fees and hours spent to the importance of the issues to them, and to the individual scientist-defendants whose reputations are at stake in particular. They also attribute it to the fact that the defendants had to do the heavy lifting to put in the scientific evidence needed to explain the important nuances of the issues that the plaintiff approached from a high level and too simplistic a perspective.

[14] While an added burden was carried by the defendants to counter the broad generalized allegations of the defendants and that would justify them having to spend more time, it is not reasonable to attribute all of the approximately 325 additional lawyer hours spent to that. That said, there is no question that the issues to be dealt with on the injunction motion were complex and important to the case. The individual defendants in particular had a lot at stake reputationally and also professionally and remuneratively. The motion was hard fought and the successful defendants are entitled to some measure of indemnity for costs, even if imperfect. Given what the plaintiff sought in its costs outline, it would not have been outside the realm of the plaintiff’s reasonable expectations that it might have to pay costs in the hundreds of thousands of dollars to the defendants if the plaintiff was not successful.

[15] In exercise of my discretion under s. 131 of the Courts of Justice Act, and having regard to the applicable factors to be considered set out in r. 57.01 (above), I am fixing the defendants’ partial indemnity costs of the injunction motion in the all-inclusive amount of $230,000 and I order those costs to be paid by the plaintiff to the defendants forthwith. I consider this amount of partial indemnity costs to be fair and reasonable and proportionate in the circumstances.

[16] This endorsement and the orders and directions contained in it shall have the immediate effect of a court order without the necessity of formal issuance and entry.

KIMMEL J. Date: November 23, 2023