Court File and Parties

COURT FILE NO.: CV-22-00683918-0000 DATE: 20240403 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: PETER MCGRATH and SETTER CAPITAL, INC., Applicants AND: SIMREN DESAI, SSD ENTERPRISES, THE HIIVE COMPANY LIMITED, HIIVE MARKETS LIMITED and HIIVE TECHNOLOGY LIMITED, Respondents

BEFORE: VERMETTE J.

COUNSEL: Daniel Z. Naymark and Terrence Liu, for the Applicants Cynthia Spry and Aaron Gold, for the Respondents

HEARD: In writing

Endorsement as to Costs

[1] On December 15, 2023, I released an endorsement (2023 ONSC 7094) dismissing the Applicants’ motion for various interlocutory orders and granting the Respondents’ cross-motion for an order that this Application proceed as an action and that it be consolidated with an action commenced by the Respondents.

[2] The parties were not able to agree on costs and have delivered costs submissions.

Positions of the parties

a. Position of the Respondents

[3] The Respondents state that as the successful parties on both the Applicants’ motion and their own motion, they are entitled to their costs of these proceedings. They seek costs on a substantial indemnity basis in the amount of $251,104.00 for the Applicants’ motion (“Injunction Motion”), and $74,935.00 for their own motion (“Consolidation Motion”). [1] Their position is that they are entitled to costs on a substantial indemnity basis because of their very reasonable offers to settle and the Applicants’ egregious conduct throughout.

[4] The Respondents note that the courts have repeatedly affirmed that costs of an unsuccessful interlocutory motion are payable forthwith. They submit that cases where injunctive relief seeking to bar the opposing side from continuing what might be otherwise their normal day-to-day activity should always be subjected to a costs order following the motion. They further submit that this Court is in the best position to make an order as to costs and that doing so would ensure that the parties are kept aware of, and responsible for, the ongoing costs of interlocutory proceedings. The Respondents’ position is that an order of costs in the cause would be extremely unfair, as the Respondents were entirely successful in defeating the motion, and were put to considerable expense in doing so. They state that ordering costs in the cause would only encourage the Applicants to continue the bad faith “scorched earth” approach that they have exhibited to date.

[5] While the Respondents acknowledge that their costs of the Injunction Motion are high, they argue that they are justified in the circumstances. They note that the merits of the underlying Application were hotly contested, which required extensive use of the approximately 4,500-page Application Record. They also submit that the issues were complex and of vital importance to the Respondents.

[6] The Respondents state that costs on a substantial indemnity scale may be awarded where a party engages in egregious conduct. They argue that there was reprehensible conduct on the part of the Applicants, including the following: (1) bringing the injunction motion for a collateral purpose, i.e., to stifle competition; (2) making false statements in their evidence; (3) withholding relevant documents; and (4) making false statements regarding Mr. McGrath’s supposed lack of availability for cross-examination.

[7] With respect to the Consolidation Motion, the Respondents point out that they had been requesting that the Application proceed as an action since June 20, 2022. The Respondents state that the Applicants refused their request, necessitating four contested appearances between September 2022 and August 2023, only to effectively consent (with conditions) on the eve of the hearing.

[8] The Respondents argue that they are also entitled to substantial indemnity costs as the success they achieved on each motion surpassed the offers to settle that they served in respect of the Injunction Motion on September 11 and November 10, 2023, and in respect of the Consolidation Motion on November 20, 2023. The offers were as follows:

a. September 11, 2023 offer: An offer that the Injunction Motion be abandoned without costs. The offer remained open until 5 p.m. on September 15, 2023.

b. November 10, 2023 offer: The offer had two components: (1) Hiive will appoint an independent board member and will make reasonable commercial efforts to appoint such board member from among certain institutional investors; and (2) the Applicants will agree to abandon their motion and pay costs of the motion in the amount of $80,000. The offer expired at 9 a.m. on November 11, 2023.

c. November 20, 2023 offer: An offer proposing terms for a consolidation and requiring that the Applicants reimburse the Respondents for the costs of the Consolidation Motion incurred so far.

[9] The Respondents submit that the jurisprudence indicates that their offers may be taken into account in fixing costs under Rule 49.13, which necessitates a holistic approach to costs, even if they do not meet the technical requirements of Rule 49.10.

b. Position of the Applicants

[10] With respect to the Injunction Motion, the Applicants submit that this is an appropriate case for an order of costs in the cause. They state that almost all the work done for the motion related to the substantive merit of the claim, and that the trial judge will be able to consider a just award of costs with the benefit of hindsight.

[11] The Applicants argue that if this Court fixes costs payable now or in any event of the cause, it should do so on the usual partial indemnity scale. The Applicants state that the Respondents’ allegations of reprehensible conduct are completely false. The Applicants assert that they did not mislead the Court and that the proceedings were not brought in bad faith and are not frivolous. They point out that the Respondents rely on evidence that is hotly disputed. The Applicants deny the allegations that they lied about Mr. McGrath’s availability for examination and that they withheld relevant documents. [2] They allege bad conduct on the part of Mr. Desai.

[12] The Applicants submit that the Respondents’ offers do not meet the Rule 49 criteria and, in any event, contain no element of compromise as it required the Applicants to abandon all relief sought and only offered to appoint a minority board member, which was not relief sought on the motion and would not address the motion’s underlying practical concerns.

[13] The Applicants argue that two factors warrant a denial of or reduction in any costs awarded to the Respondents: (1) the Respondents have made serious allegations of bad faith and dishonesty that were not substantiated; and (2) the Respondents “stole a march” by taking steps on a pending urgent injunction before its result was known.

[14] The Applicants submit that a reasonable quantum is between $25,000 and $50,000 in light of a number of factors, including the following: (1) the Applicants’ partial indemnity costs were $92,144.51 (all inclusive); (2) the vast majority of time spent by both parties was on the merits and usable later; (3) much of that work related to the Respondents stealing a march, which necessitated extensive evidence and raised new issues; and (4) the Respondents have refused to produce redacted dockets, limiting scrutiny of their much higher charges.

[15] With respect to the Consolidation Motion, the Applicants argue that an appropriate award is $5,000, which is the amount of the Applicants’ costs. The Applicants state that this motion engaged a simple and narrow procedural issue with limited evidence and short oral argument. The Applicants submit that the extraordinary costs claimed by the Respondents cannot be scrutinized without their refused dockets, and they are out of line with typical awards and the parties’ corresponding reasonable expectations as to costs.

Discussion

a. Entitlement to costs

[16] I do not accept the Applicants’ submission that costs should be in the cause. In cases where an injunction has been denied, it is generally appropriate that costs be fixed and ordered payable within 30 days, in accordance with Rule 57.03 of the Rules of Civil Procedure. See, e.g., Cana International Distributing Inc. v. Standard Innovation Corporation, 2011 ONSC 752 at para. 7; Pioneering Technology Corp. v. Comber, 2019 ONSC 3914 at paras. 12-14 (“Pioneering”); Andrejs Management Inc. v Bourdignon, 2015 ONSC 7452 at para. 4 (“Andrejs Management”); and Corbiere v. Corbiere, 2020 ONSC 4363 at para. 22.

[17] Despite this general rule, a motion judge retains discretion with respect to the issue of costs in order to determine what costs order would be just. The exercise of discretion in a particular case depends on the circumstances of the case. In my view, there are no circumstances in this case that would justify departing from the usual rule.

[18] While the parties spent a lot of time on the merits of the case and some of that work may be usable later, the determinative issue on the motion was irreparable harm. This issue will not be revisited at trial and even if the Applicants are successful at trial, they still had no right to interlocutory relief given their failure to prove that they were likely to suffer irreparable harm at the interlocutory stage. See Ferrero S.p.A. v. 218587 Ontario Limited, 2016 ONSC 7036 at para. 4 (“Ferrero”) and Longyear Canada, ULC v. 897173 Ontario Inc. (J.N. Precise) at para. 8 (Ont. S.C.J.).

[19] The cases relied upon by the Applicants where the court ordered that the costs of an unsuccessful motion for an interlocutory injunction be in the cause involved extraordinary circumstances, which is not the case here. See Lambrou v. Voudouris, 2015 ONSC 1693 at paras. 4-7 and Ferrero at paras. 4-6. [3]

[20] As the judge who heard the motions, I am in the best position to determine costs. Further, ordering costs payable within 30 days ensures that parties are kept responsible for the costs of interlocutory proceedings and that they do not seek interlocutory relief without considering the spectre of a costs order in the event that they are unsuccessful. See Pioneering at para. 14 and Andrejs Management at para. 4.

[21] In light of the foregoing, I find that the Respondents, as the successful parties, are entitled to costs of the motions payable within 30 days.

b. Scale of costs

[22] As has been observed in many cases, costs on an elevated scale are exceptional and are reserved for those situations when a party has displayed reprehensible, scandalous or outrageous conduct: see Quickie Convenience Stores Corp. v. Parkland Fuel Corporation, 2021 ONCA 287 at para. 4.

[23] In this case, accusations of bad conduct have been flying back and forth, including in reply and sur-reply costs submissions that were not part of the timetable that I set for the exchange of costs submissions. Each side denies the other side’s accusations and doubles down on its own allegations. The tone of this litigation is strident.

[24] Given this context and the interlocutory stage of this matter, I am not in a position to make findings of reprehensible conduct with respect to issues that go to the merits of the dispute between the parties and that are hotly disputed. As for the conduct of the litigation in the context of the motions that I heard, based on the evidence before me, I am of the view that the Applicants’ conduct does not rise to the egregious level required to award costs on a substantial indemnity basis. I am similarly of the view that the Applicants’ complaints about the Respondents’ conduct do not justify an impact on costs.

[25] It is acknowledged that none of the offers to settle that were made by the Respondents trigger the costs consequences set out in Rule 49.10 of the Rules of Civil Procedure. Nevertheless, such offers can be considered pursuant to Rule 49.13 when the court exercises its discretion with respect to costs. I note, however, that the element of compromise in the Respondents’ offers, if any, was very limited. While compromise is not an absolute requirement to trigger costs consequences under either Rule 49.10 or Rule 57.01(1), it is a factor that can be taken into account: see Harster Greenhouses v. Visser International, 2011 ONSC 3708 at para. 15 (“Harster”). Given that the element of compromise in the Respondents’ offers was very limited when considered in light of the nature and circumstances of the case, it is my view that a consideration of the Respondents’ offers to settle does not lead to a higher scale of costs or any significant impact on the quantum of costs (discussed below). See Harster at para. 15.

[26] Consequently, the appropriate scale of costs is partial indemnity.

c. Quantum

[27] The Respondents seek $143,884.50 on a partial indemnity basis for the Injunction Motion ($169,809.35 with disbursements and HST), and $44,209.50 on a partial indemnity basis for the Consolidation Motion ($49,956.74 with HST).

[28] The Applicants’ Costs Outlines reflect costs on a partial indemnity basis in the amount of $75,060.00 for the Injunction Motion ($92,144.51 with disbursements and HST), and $4,371.50 on a partial indemnity basis for the Consolidation Motion ($4,939.80 with HST).

[29] I note that while copies of dockets or other evidence in support of the claim for fees must be attached to a bill of costs (Form 57A), this is not the case for a costs outline (Form 57B), which was the appropriate form to use in the context of these motions. See Rules 57.01(5) and (6).

[30] The rates used by the lawyers on both sides are comparable. However, there are significant differences with respect to the time spent. For the Injunction Motion: (a) the Respondents’ lawyers spent approximately 380 hours, and their articling students spent approximately 277 hours; and (b) the Applicants’ lawyers spent approximately 305 hours. For the Consolidation Motion: (a) the Respondents’ lawyers spent approximately 185 hours and their articling students spent approximately 26 hours; and (b) the Applicants’ lawyers spent approximately 17 hours. While this comparison is not determinative, it is a factor to consider, especially when assessing the reasonable expectations of the parties. In addition, it raises the issue of duplication of work between the timekeepers involved on the Respondents’ side. However, I give little weight to the number of hours spent by the Applicants’ lawyers on the Consolidation Motion. The Applicants’ response to that motion was limited in scope and it is to be expected that as the moving parties, the Respondents would have to spend more time on the Consolidation Motion than the Applicants.

[31] In light of all the circumstances of the case, and taking into account its complexity, it is my view that the total number of hours spent by the Respondents’ lawyers and articling students is excessive, particularly with respect to the Consolidation Motion, which did not raise complicated legal issues. Therefore, I will apply a reduction to the amounts sought by the Respondents to ensure that the overall time claimed is reasonable in light of all the circumstances of this case. I find that the appropriate quantum of costs for the Respondents is in the all-inclusive amounts of $120,000.00 for the Injunction Motion and $28,000.00 for the Consolidation Motion.

Conclusion

[32] Taking the foregoing into account, as well as the factors set out in Rule 57.01(1) of the Rules of Civil Procedure and the reasonable expectations of the parties, I find that the fair and reasonable awards of costs in favour of the Respondents are as follows: (a) for the Injunction Motion, on a partial indemnity basis in the all-inclusive amount of $120,000.00; and (b) for the Consolidation Motion, on a partial indemnity basis in the all-inclusive amount of $28,000.00. In my view, these are amounts that the Applicants should reasonably have expected to pay in the event that they were unsuccessful on the motions. The costs are to be paid by the Applicants to the Respondents within 30 days.

Vermette J. Date: April 3, 2024

[1] The Respondents also seek an additional $5,000.00 for the preparation of Reply Costs Submissions. My endorsement dated December 15, 2023 did not contemplate reply costs submissions and leave to deliver such submissions was not sought. Therefore, I will not grant costs with respect to reply costs submissions. However, I have read them as well as the Applicants’ sur-reply submissions.

[2] I note that the Applicants state in a footnote in their costs submissions that they “would appreciate a clarification to the critical statements” in paragraph 79 of my endorsement dated December 15, 2023 regarding a document production issue. The request is repeated in the Applicants’ sur-reply submissions. No such “clarification” can be made without arguments by both sides on the issue, which would not be appropriate at this point in time. Among other things, this point was raised by the Respondents in the context of the Consolidation Motion, the Respondents have maintained their position on this issue in their costs submission, and there is no fresh evidence.

[3] The Applicants also rely on Lucky Palace Holdings Ltd. v. Lucky Palace Investments Ltd. (Ont. S.C.J.). However, that case involved an offer by the plaintiff to abandon the motion for injunctive relief with the costs accumulated to that date to be awarded in the cause. See para. 4.