COURT FILE NO.: CV-22-687586-00A1 DATE: 20240319 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: NAQI AHSAN, KANITA ALAM, and L.F.O.C. GROUP INC., Defendants -and- MINDEN GROSS LLP, TAMARA MARKOVIC and ADAM SALAHUDEEN, Third Parties

BEFORE: FL Myers J

COUNSEL: R. Bruce Boyden and Edward L. Burlew, for the defendants Michael R. Kestenberg and Beverly C. Jusko, for the third parties

READ: March 18, 2024

Costs Endorsement

Background

[1] By endorsement dated March 1, 2023, reported at 2024 ONSC 1307, I struck out the third-party claim brought by the defendants against the plaintiff’s lawyers.

[2] The plaintiff’s lawyers seek substantial indemnity for their costs.

Breach of Settlement Privilege is not a Cause of Action

[3] The defendants sued the lawyers for the plaintiff for pleading allegations in the plaintiff’s statement of claim that the defendants say are protected by settlement privilege.

[4] Settlement privilege is a rule of evidence. As stated by Abella J. for the unanimous Supreme Court of Canada in Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37:

The privilege wraps a protective veil around the efforts parties make to settle their disputes by ensuring that communications made in the course of these negotiations are inadmissible.

[5] If a party to a lawsuit tries to use evidence that is subject to settlement privilege, the privilege can be relied upon to object or to strike the offending material from the court’s record.

[6] But violating a rule of evidence is not in itself a basis to sue a lawyer for the other side in litigation. If it were, a lawyer could be at risk of being sued every time she asks a question to which an objection is sustained.

[7] To sue someone, a plaintiff must state a “cause of action.” A cause of action is a set of facts that the law recognizes as entitling a person to legal relief. A statement of claim that commences a lawsuit is required to contain concise allegations of fact that amount to a recognized basis to sue at common law. If a statement of claim does not set out a reasonable cause of action, the defendant is entitled to ask the court to strike the pleading and to dismiss the action under Rule 21.01 (1) (b) of the Rules of Civil Procedure, RRO 1990, Reg 194.

[8] In my prior decision, I ruled that the third-party claim did not plead a reasonable cause of action.

[9] There was no contract pleaded between the defendants and the plaintiff’s lawyers. So the defendants did not plead a valid claim for breach of contract. There are no private law duties of care owed by a plaintiff’s lawyer to defendants except in exceptional circumstances that were not pleaded. So the defendants did not plead a valid claim for negligence. There is no right to sue a lawyer for breach of legal ethics or breach of the law of evidence per se. There was no plea of defamation, conspiracy, unjust enrichment, or any of the myriad of other known causes of action that fill pleadings texts.

[10] So the lawsuit failed for want of a reasonable cause of action before getting to any other issues.

Costs

[11] Normally in Ontario, the successful party in a lawsuit is entitled to partial indemnity for its legal costs from the unsuccessful party. Here, the successful third parties ask for more than partial indemnity. They seek substantial indemnity for their costs because the claim was plainly improper and the third parties told the defendants so repeatedly. Yet the defendants persisted and required a hearing that led to my ruling.

[12] The rule of thumb for calculating partial indemnity for a party’s costs is that it equates to about 60% of the party’s actual costs. Substantial indemnity is roughly 1.5 times the partial indemnity amount. It equates to around 90% of a party’s actual legal fees and disbursements incurred.

[13] As with all costs awards however, regardless of any rules of thumb, costs awarded in any given case must be fair, reasonable, and proportional. They should be within a range that the unsuccessful party ought reasonably to have expected to be at risk of paying if unsuccessful in the proceeding. Boucher v. Public Accountants Council for the Province of Ontario.

[14] In defending against the third parties’ request for costs, the defendants submit that they raised a novel question of law in their unsuccessful claim. They submit that the doctrine of absolute privilege that protects participants in litigation from being sued might yield to the protection of settlement privilege.

[15] The defendants submit that the issue of two legal privileges clashing could have created a triable issue. They submit this issue required resolution in the public interest so they should not be liable for costs or at least not for punitive costs.

Analysis

[16] There are two problems with defendants’ submission. First, if a plaintiff does not plead a cause of action, then one never gets to consider whether there may be an interesting clashing of policies in a lawsuit. The third parties did not need to rely on absolute privilege as a defence to the defendants’ claim. With no cause of action pleaded against the third parties, they did not need to defend themselves at all.

[17] Second, and in any event, the whole point of absolute privilege is that it protects parties in litigation from being sued for legal remedies and policies that might otherwise apply to acts carried out apart from litigation. Every cause of action has underlying legal policies. And absolute privilege protects litigation participants from them all. (I explained why Amato v. Welsh, 2013 ONCA 258, had no application in my prior decision.)

[18] I held in my prior decision that, “[t]his is not a novel case or a close call.”

[19] Rather, a lawsuit against the lawyers for the opposite parties is a nasty tactic to try to force the lawyers off the record. It tries to deny the opposite party of the lawyer of his choice and to make him incur the cost and duplication of retaining new lawyers and getting them up to speed.

[20] The fact that the defendants did not sue the plaintiff for the alleged misconduct allegedly committed by his lawyers on his behalf lays this tactic bare.

[21] Moreover, suing counsel opposite because one does not like how they litigate is generally an abuse of the court’s process. Hedary Hamilton PC v. Dil Muhammad, et al., 2013 ONSC 4938, at paras 22 and 23.

[22] This too is not new or novel or esoteric law.

[23] In this case, suing the lawyers did not do anything to try to remove the allegedly privileged allegations from the plaintiff’s pleading. A simple motion to strike could have addressed the defendants’ alleged concern with the content of the plaintiff’s pleading. That is the remedy for a violation of the rules of evidence.

[24] In my view, launching a lawsuit against counsel opposite in this case was an abuse of the court’s process. It is reprehensible litigation conduct deserving of censure by an award of costs on a substantial indemnity basis. Mars Canada Inc. v. Bemco Cash & Carry Inc., 2018 ONCA 239, at para. 43.

I decline Mr. Kestenberg’s invitation to make this award based on his letters or settlement issues. As discussed by my colleague A.P. Ramsay J. in Jarvis v Oliveira, 2023 ONSC 101 at para 27 et seq, even where cases such as Dunstan v. Flying J Travel Plaza would have granted a costs penalty in favour of a defendant who made an offer to settle, the law has evolved to require reprehensible conduct before such an award is available. This has been confirmed by the Court of Appeal more than once in cases such as Iannarella v. Corbett, 2015 ONCA 110, 124 O.R. (3d) 523, at paras. 138-139 for example.

The Quantum of Costs

[25] I am guided in my assessment of a fair and reasonable quantum of costs to be awarded by the hours docketed and hourly rates charged by counsel for both sides.

[26] Both sides used two senior lawyers for this motion. Both docketed almost identical amounts of time.

[27] Normally, I would expect the party who moves to strike a claim to spend considerably more time on research and preparation than the responding party who can rest on his laurels. Here, the defendants question the reasonableness of the amount of time claimed by the third parties because Mr. Kestenberg relied on precedents in which he had participated as counsel. That may explain why his time is just equal to the time incurred by the defendants’ counsel instead of reflecting the increased burden on his clients on the motion. The defendants benefit from Mr. Kestenberg’s experience that kept his time in check.

[28] The amount of time claimed by both sides is reasonable in my view.

[29] The hourly rates charged by Mr. Kestenberg and Ms. Jusko are much reduced for LawPro. The defendants obtain the benefit then of LawPro’s market power.

[30] It is probably coincidence, but the hourly rates sought by Mr. Kestenberg and Ms. Jusko amount to just a hair over 90% of the rates actually charged by the defendants’ lawyers. If the defendants’ reasonable expectations were based on their own lawyers’ rates, then the rates sought by Mr. Kestenberg and Ms. Jusko are right in the wheelhouse of what the defendants ought to have reasonably expected to bear if unsuccessful.

[31] I do not accept that the issue raised by the defendants on the motion is one of public importance or first impression that should not be subject to costs. Nor am I influenced by the unsworn submission that the defendants cannot afford significant costs. This is business litigation in which the defendants paid their lawyers almost exactly what the third parties’ lawyers charged their clients. If money is a major issue for the defendants then suing the other side’s lawyers and instructing their own lawyers to fight to maintain the tactic is not economically rational behaviour. That is not a basis to claim financial hardship.

[32] Moreover, civil litigation remains an optional endeavour. The defendants are free to settle at any time if they feel that the cost of continuing exceeds the benefit of doing so. The calculus of the cost benefit equation for a lawsuit must include the risks of reasonable costs awards.

[33] It is fair and reasonable for the defendants to pay the third parties their costs on a substantial indemnity basis. I fix the quantum of costs payable at $23,500 all-inclusive.

FL Myers J

Date: March 19, 2024