Chapell v. Canadian Pacific Railway Company, 2011 ABQB 74

Court of Queen ’ s Bench of Alberta Citation: Chapell v. Canadian Pacific Railway Company, 2011 ABQB 74 Date: 20110210 Docket: 0001 14882 Registry: Calgary Between: Paul C. Chapell Plaintiff - and - Canadian Pacific Railway Company Defendant _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice M.C. Erb _______________________________________________________ [ 1 ] The parties dispute the issues of interest and costs arising from this Court’s Reasons for Judgment dated June 30, 2010 ( 2010 ABQB 441 ).

They spoke to the issues on October 13, 2010 and on January 12, 2011, and provided written submissions as well. The issues in dispute are: 1) What is the basis upon which the Plaintiff is entitled to its costs; - solicitor/client costs;

- regular or enhanced Column 3,

Schedule C (Rules of Court) costs; - double costs because of the formal offer made prior to commencement of trial? 2) Should this Court allow the Plaintiff’s claim for second counsel fees? 3) Is the Plaintiff entitled to pre-judgment interest for the entire 11 years it took to prosecute this action? [2] Since the new Alberta Rules of Court, A.R. 124/2010 ((the “new Rules”) came into force on November 1, 2010, after theReasons for Judgment were issued, the applicability of the former and new rules needs to be addressed. [3] The new Rules include transition provisions which dictate that, unless otherwise provided in the new Rules, the new Rulesapply to every existing proceeding: Rule 15.2.

An “existing proceeding” is defined in Rule 15.1(

a) as “a court proceeding commencedbut not concluded under the former rules. ” [4] New Rule 15.12 states “[w]here these rules impose a new test, provide new criteria or provide an additional ground formaking an application in an existing proceeding, these rules apply in respect of the application if the application was made but has notbeen heard prior to the coming into force of these rules.” It is reasonable to conclude that where an application has been both made andheard, then the former Rules apply to the extent that the new Rules introduce a new test, provide a new criteria or provide an additionalground.

This seems only fair since it would be inappropriate to render a decision based on criteria not addressed by the parties. Thisinterpretation is also in keeping with one of the overall purposes of the new Rules, as reflected in Rule 1.2(2)(e): “to provide an effective,efficient and credible system of remedies and sanctions to enforce these rules and orders and judgments... ”. See also Horner J. in Broersv. Real Estate Council of Alberta, 2010 ABQB 774 at paras. 5-9. [5] Rule 10.33 (formerly Rule 601) sets out the factors courts are is to take into account when considering costs.

However,given the timing of the Reasons for Judgment, to the extent that the new Rule imposes a new test, provides a new criteria or provides anadditional ground for making an application, I apply the former Rule. I apply a similar approach to any differences between

Schedule Cunder the new and former Rules. Solicitor/Client Costs [6] The Plaintiff claims full indemnity for solicitor/client costs on the basis of the Defendant’s unsubstantiated fraud allegation. [7] In Young v. Young, (SCC), [1993] 4 S.C.R. 3, p. 134, the Supreme Court of Canada, set a high standard forawarding solicitor/client costs : “[s]olicitor-client costs are generally awarded only where there has been reprehensible, scandalous oroutrageous conduct on the part of one of the parties” (emphasis added). Unsubstantiated allegations of fraud were specifically addressedin Hamilton v.

Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303 at para. 26: . . . An unsuccessful attempt to prove fraud or dishonesty on a balance of probabilities does not lead inexorably to the conclusion that theunsuccessful party should be held liable for solicitor-and-client costs, since not all such attempts will be correctly considered to amountto "reprehensible, scandalous or outrageous conduct". However, allegations of fraud and dishonesty are serious and potentially verydamaging to those accused of deception.

When, as here, a party makes such allegations unsuccessfully at trial and with access toinformation sufficient to conclude that the other party was merely negligent and neither dishonest nor fraudulent (as Wilkins J. found),costs on a solicitor-and-client scale are appropriate: see, generally, M. M. Orkin, The Law of Costs (2nd ed. (loose-leaf)), at para. 219.[emphasis added]

[8] The Alberta Court of Appeal has recognized that plaintiffs often face a heavy costs burden when they fail to prove seriousallegations of impropriety: Recovery Production Equipment Ltd. v. McKinney Machine Co., 1998 ABCA 239, 223 A.R. 24 at para. 103.Graesser J. addressed the analytical framework in College of Physicians and Surgeons of the Province of Alberta v. J.H., 2009 ABQB 48,468 A.R. 101, at para. 27, adopting the reasoning of Fradsham P.C.J. in Davis v. 840015 Alberta Ltd., 2003 ABPC 68, 335 A.R. 172: 1.

The nature of the allegation made, and whether the particular circumstances of the party against whom the allegation was madewere such as to make the implication of the allegation more serious. 2. What, if any, information supportive of the allegation was known to the party making the allegation. 3. The strength and reliability of that information as it was known, or should have been known, by the party making the allegation. 4. The steps taken by the party making the allegation to verify the information upon which the allegation was based. 5.

When the information was made known to the party making the allegation, whether additional information subsequently becameknown, and whether the allegation was modified, or withdrawn, to reflect the new information. 6. The timeliness of any such modification or withdrawal. 7.

Whether the party making the allegation knew, or should have reasonably known, the allegation's implications for the partyagainst whom it was made. [9] On the first factor, the Plaintiff submits that the allegations resulted in the destruction of his 27-year career in a closed andspecialized industry; he had no experience or education outside this one industry. On the second factor, the Plaintiff contends that therewas no evidence accepted at trial that he intended to defraud the Defendant.

On the third factor, he observed that the Defendant hadfailed to consider the total picture and turned a blind eye to the context and surrounding circumstances. On the fourth factor, the Plaintiffsays that no steps were taken by the investigative team to follow up on his explanation; nor did the Defendant interview other membersof his team. On the fifth and six factors, the Plaintiff notes that the allegations were never withdrawn, even mid-trial when the Defendantadvised it was not calling its expert witness in forensic accounting.

On the seventh factor, the Plaintiff notes that the Defendant shouldhave known that the allegations of dishonesty would have serious implications on the Plaintiff’s career and despite this, failed towithdraw the allegations even after the situation became clear during examinations for discovery. [10] The Defendant submits that the allegations raised are not reprehensible, scandalous or outrageous and therefore solicitor/clientcosts are not appropriate.

The Defendant further submits that while the allegations of dishonesty were ultimately not proven, there wasno finding that the Defendant had raised them to either intimidate the Plaintiff or to enhance the seriousness of the overall claim. TheDefendant cited Jackson v. Trimac Industries (1993), (AB KB), 138 A.R. 161 (Q.B), var’d on other grounds 1994ABCA 199 , 155 A.R. 42 (C.A.) at para. 30: Two major propositions appear to mitigate against an award of solicitor-client costs.

The first is that it is the conduct of the action andnot the conduct of the party that gives rise to the action that determines an award of solicitor-client costs. Secondly, punitive damages ordamages should not be confused with a costs award. [emphasis added] [11] The Defendant further submits that these distinctions are significant here. It further argues that, although this Court criticizedthe manner in which the Plaintiff was dismissed, the Defendant’s conduct during the litigation was not.

In addition, the Defendantobserved that the Plaintiff was already compensated for the Defendant’s conduct by bad faith damages in the original judgment. [12] This Court approves the analytical framework Graesser J. followed in College of Physicians and Surgeons.

[ 13 ] In applying that framework, I agree with the Defendant that its conduct during the litigation does not justify an award of solicitor/client costs; it was not reprehensible, scandalous or outrageous. Further, although I did find that the Defendant had a case- building objective in its investigation of the claim against the Plaintiff, I did not find nor was there evidence to conclude that the Defendant raised the allegations to intimidate the Plaintiff or increase the seriousness of the allegations.

The Defendant’s poor conduct in the manner in which the Plaintiff was dismissed has already been adequately addressed in the award of bad faith damages. Allowing solicitor/client costs as well would amount to double relief in this case. It is important to note that the Defendant’s conduct in the period leading up to the Plaintiff’s dismissal speaks not to the manner in which the Defendant conducted itself during the litigation, but rather to the conduct that gave rise to it. Accordingly, I find that solicitor/client costs are not appropriate in this case.

Schedule C Costs [ 14 ] The Plaintiff submits that if solicitor/client costs are not awarded, then he should have

Schedule C costs but on an enhanced basis because of the Defendant’s conduct during the litigation. The Defendant argues that

Schedule C costs should be lower because of the Plaintiff’s inefficient use of trial time. Should Costs be enhanced beyond Column 3

Schedule C [ 15 ] The conduct which the Plaintiff submits support enhanced

Schedule C costs are the Defendant’s unproven allegations of fraud. Certainly, such allegations are serious and increased costs for failing to prove them may be appropriate in some circumstances. However, unsuccessful allegations of fraud do not automatically lead to an increased costs award. In Conway v. Zinkhofer , 2007 ABQB 2 , aff’d 2008 ABCA 392 , Kenny J. addressed this point at para. 23: The Respondents correctly point out that unsuccessful allegations of fraud do not necessarily result in a costs sanction or an increased costs award. There are many factors that the court must review.

Some include whether the allegations are completely unfounded or only partially unfounded, the nature of the allegations, whether the allegations were simply technical or significant, whether they were made recklessly or intentionally. Canada (Attorney General) v. Bourassa (Trustees of) , [2002] A.J. No. 1091, 2002 ABCA 205 ; Belzil v. Bain , [2002] A.J. No. 561, 2002 ABQB 388 ; Mitran v. Guarantee RV Centre Inc ., [1999] A.J. No. 403, 1999 ABQB 276 ; 599291 Alberta Ltd. v. Luff , [2005] A.J. No. 1863, 2005 ABQB 892 . [ 16 ] The allegations of fraud were the central issue in this litigation.

However, although I found that the Plaintiff did not intend to commit fraud and that the Defendant treated him unfairly during its investigation, I did not conclude that the allegations were designed to intimidate him or for the purpose of enhancing the seriousness of the allegations. Further, the Defendant did not behave improperly in the conduct of the litigation. Accordingly, I find that increased costs above Column 3 are not appropriate. Should Costs be less than Column 3

Schedule C [ 17 ] The Defendant asks this Court to order lower costs than ordinarily due under

Schedule C because of “considerable inefficiency and delay” which it says arose from the Plaintiff’s disorganized presentation of his case. [ 18 ] The Defendant cited the following examples of the conduct of Plaintiff’s Counsel: refusing to have an Agreed Book of Exhibits; requesting numerous breaks; taking long pauses during questioning and submissions; requiring a long break to prepare reply evidence; displaying general disorganization; lacking sufficient copies of documents upon which he intended to rely; requiring a significant recess in the proceedings while he searched for documents.

As a result additional trial time had to be found beyond what was scheduled. Based on these delays and inefficiencies, the Defendant argues that the number of days of trial time should be reduced from 12.5 days to 8 days. [ 19 ] Courts have reduced the number of days of trial for costs purposes where time has been wasted because of a lack of preparedness. In Craig v. Toronto (City) , [2008] O.J. No. 1664 (S.C.J.) , costs were reduced to reflect that half the trial time was unnecessary. The preparation time was reduced proportionately. Specifically with respect to the conduct of the city in that case, the Court

noted it had failed to admit certain facts that the trial judge held should have been admitted; failed to produce relevant documents and disclose witnesses; and attempted to introduce inadmissible hearsay evidence. [ 20 ] Although there is no allegation that the actions of Plaintiff’s Counsel were to the extent of what the court found to be the case in Craig , I agree that the number of trial days should be reduced. There was a discernable lack of organization and requests for frequent breaks.

Although an Agreed Book of Exhibits would have assisted in a smoother handling of the documents, it is not always possible for counsel to agree what should be included. While counsel are always encouraged to work towards agreements to aid trial efficiency, I do not find that it impacted the trial sufficiently here to result in a significant limit on trial time for costs purposes. However, the delays could have been avoided and the trial could and should have concluded within the scheduled time. [ 21 ] The number of trial days for costs purposes will be decreased from 12.5 days to 11 days.

Costs should otherwise be in accordance with

Schedule C, Column 3. Double Costs [ 22 ] On December 24, 2009 the Plaintiff made a Formal Offer of Settlement to the Defendant in the amount of $315,000, inclusive of general and special damages and pre-judgment interest. Double court costs are awarded where the judgment acquired exceeds the pre- trial offer of settlement. The Defendant challenges whether the judgment truly exceeded the Formal Offer of Settlement because the Plaintiff’s obligations under the Income Tax Act reduce the judgment to an amount lower than the offer.

It further argues that because the Reasons for Judgment state that the Plaintiff must meet his income tax obligations, then the net judgment is to be considered with respect to the double costs issue. [ 23 ] The Defendant submits that the entirety of the judgment is included within the definition of a retiring allowance pursuant to the Income Tax Act , R.S.C. 1985 c.1 (5th Supp.) and as a result the totality of the tax to be deducted is 30% pursuant to s. 103(4), 103(6) and ss.2 , 4 and 5 of the Personal Income Tax Withholding Regulation , A.R. 34/2001.

The Defendant submits that the amount of the judgment is really $287,681.75. The Defendant further argues that the Plaintiff's Formal Offer to settle of $315,000 made no specifications with respect to taxes which means that the judgment did not exceed the formal offer. [ 24 ] The Plaintiff argues that taking income tax considerations into account is wrong and contrary to established principles. He further argued that the issue is premature and moot in any event because the Defendant has not yet paid the judgment and therefore no taxes are owing.

Finally, the Plaintiff argues that even if this Court determines that there ought to be an adjustment for taxes then such an adjustment must also be made to the Plaintiff's formal offer, thereby making the adjustment equitable.

The Plaintiff concedes that it will be necessary to withhold and remit tax to the Canada Revenue Agency but points out that there could be a number of tax saving options available to the Plaintiff which would be difficult to calculate at this stage. [ 25 ] While this Court’s original Reasons for Judgment acknowledges the Plaintiff’s obligations to the CRA it was not intended that this Court’s judgment would takes into account a tax calculation. The acknowledgement was more for the payor’s purposes. Any taxation implications are addressed in the damages

section of the judgment. Further, it is not for this Court to determine income tax deductions. There are tax implications that may be unknown to this Court possibly involving complicated calculations. It would be difficult if not impossible to determine an amount net of income tax deductions. For the purposes of determining whether or not the judgment exceeds the Formal Offer, it is the amount awarded in paragraph 108, which is relevant. No deductions other than those indicated specifically in paras. 108 and 109 are part of this Court’s judgment.

The amount of the judgment is $288,449.00 plus pre-judgment interest. [ 26 ] The Plaintiff successfully recovered an amount that is more favourable than the Formal Offer and is entitled to double costs pursuant to Rule 4.29(1) of the new Rules ( Rule 174 (2) of the former Rules) for all steps taken in relation to the action after the Formal Offer was served. Second Counsel Fee [ 27 ] The Plaintiff seeks second counsel fees. The relevant factors to be considered for second counsel fees appear in Alberta Production Corp. v. Canada Lands Co., 2004 ABCA 25 , 346 A.R. 180 at para. 2 :

A number of factors have been recognized as relevant to the allowance of a fee for second counsel, including the general importance ofthe issue or issues to the parties or to others, the value of the case, the complexity and scope of the issues, the size of the trial record, themanner in which opposing counsel conducts the case and whether second counsel addressed the Court: Kassam v. Dragish, (1991) (AB KB), 123 A.R. 161, 49 C.P.C. (2d) 174 (Q.B.) ; Murray v. Bitango (1996), 1996 ABCA 182 , 184 A.R. 68;122 WA.C. 68; (AB CA), 40 Alta. L.R. (3d) 110 (C.A.); Mackie v.

Wolfe (1996), 1996 ABCA 255 , 184A.R. 339; 112 W.A.C. 339; 41 Alta. L.R. (3d) 28 (C.A.). [emphasis added] [28] The Defendant submits that the claim is not appropriate because second counsel had no role during the court proceedings.Further, the legal issues were not complex, nor was the size of the Court record sufficiently substantial to call for two counsel. TheDefendant further submits that any complexities in dealing with the records at trial were caused by the Plaintiff’s refusal to admit to oragree to a common exhibit book prior to trial.

The Defendant argues in the alternative that, if second counsel fees are awarded, theyshould be limited to the days she was present in the courtroom and suggests that any second counsel fees should be reduced by 4.5 daysor $4,050.00. It is interesting to note the Defendant had second counsel attending throughout the proceedings. [29] Although the complexity of the issues and the general importance of the issues are important factors, the litigation need not beeither complex or weighty for second counsel fees to be awarded: Kassam v. Dragish (1991), (AB KB), 123 A.R.161 (Q.B.) at para. 13.

However, in Alberta, monetary value of the case is a weighty factor: Kassam at para. 13. While second counselneed not be present at every court appearance, such counsel must assist in the preparation leading up to presentation of the matter andsuch involvement must be justified by the nature of the case: Davidson v. Patten, 2005 ABQB 521, 381 A.R. 6, var’d on other grounds2008 ABCA 65 at para. 19. [30] The amount claimed in second counsel fees is also a pertinent factor: Kassam at para. 17.

In Kassam, at para. 14 Veit J. alsosuggested that courts should err, if at all, on the side of generosity by allowing second counsel fees since party and party costs provide acheck and balance by reimbursing only a fraction of the cost of second counsel at trial. [31] The Alberta Court of Appeal also came to a similar conclusion, that is, in a case of real doubt, erring on the side of the partywhich retained the second counsel: Viridian Inc. v.

Dresser Canada Inc., 1998 ABCA 275 at para. 4. [32] Although the Plaintiff provided its authorities to the Court on this issue, no written or oral submissions were advanced on thissubject. I can, however, make some observations about the trial of this action with respect to the applicable factors. [33] Mr. Chapell’s claim concerned an action for wrongful dismissal which required the consideration of issues surroundingwhether the Plaintiff was dismissed for cause, the appropriate award for damages in lieu of reasonable notice of termination and theappropriateness of an award for bad faith damages.

The trial was heard over 12.5 days of trial time, cumulatively. While the Plaintiff’ssecond counsel did not address the Court, the trial was somewhat document-intensive and the Plaintiff’s second counsel appeared to beinvolved in the document organization, during the time she was in the court room. The issues were resolved in a 110-paragraphjudgment. [34] In consideration of all of the points raised by both Counsel and the authorities cited, I find that limited second counsel feesshould be awarded. I find that the amount claimed, $11,100.00 is unreasonably high.

Although I recognize that second counsel need notattend every trial day, I find that the Defendant’s submission to limit the number of days for which second counsel fees should apply tobe appealing because it results in a more reasonable conclusion overall and because even with second counsel assistance, the presentationof the case was less than organized and trial efficiency was lacking. I award second counsel fees for 8 of the 12.5 trial days. Pre-judgment Interest [35] The Plaintiff seeks pre-judgment interest for the entire period of the litigation.

The Defendant asks this Court to review theinterest claim and adjust it to take into account the three-year period during which the Plaintiff took no steps to advance the litigationwhatsoever. The file appears to have been dormant between April 8, 2004 (the date the Defendant provided responses to undertakings)and April 26, 2007 (the date the Plaintiff’s correspondence recommenced).

[36] The relevant statutory framework for awarding pre-judgment interest in Alberta is set out in the Judgment Interest Act, R.S.A.2000, c. J-1 s.2: 2

(1) Where a person obtains a judgment for the payment of money or a judgment that money is owing, the court shall award interest inaccordance with this Part from the date the cause of action arose to the date of the judgment. ...

(3) If it considers it just to do so having regard to changes in market interest rates, the circumstances of the case or the conduct of theaction, the court may (

a) refuse to award interest under this Part, (

b) award interest under this Part at a rate higher or lower than the rate set out in this Part, or (

c) award interest under this Part for a period other than the period provided for in this Part. [37] The Alberta Court of Appeal in 216927 Alberta Ltd. v. Fox Creek (Town) (1990), 1990 ABCA 29 , 104 A.R. 321(C.A.) at para. 51 stated that a court must have a compelling reason to exercise its discretion to refuse to award interest and thus deprive alitigant of his prima facie entitlement pursuant to s.2(1) of the Judgment Interest Act. The Court of Appeal also set out the generalprinciples to consider before denying pre-judgment interest in Rayani v. Yule & Co. (Hong Kong) (1996), 1996 ABCA 35 , 178A.R. 231 (C.

A) at para. 29: In the first place, the policy of s. 2(3) is obviously to encourage promptness, and (if need be) to penalize delay by denying interest. In thesecond place, the plaintiff has no right to treat the defendant as its compulsory banker. A torts claim should not be treated like a savingsaccount, idly drawing interest as long as the holder of it wishes. [38] Delay in prosecuting an action may be grounds for denying a successful plaintiff part or all pre-judgment interest: BegroConstruction Ltd. v. St. Mary River Irrigation District (1994), (AB KB), 154 A.R. 1 (Q.B.) at para. 235, Patterson v.

Hryciuk, 2005 ABQB 136, 45 Alta. L.R. (4th) 240 at para. 76. [39] Although the Plaintiff has applied for interest to follow the event and supplied relevant authorities, no explanation orjustification was offered for the dormant years alleged by the Defendant. Nor was it denied. [40] It is always a concern for the courts when litigation languishes for years before being brought to trial. While there may bejustifiable reasons, none here were offered.

Courts should place value on encouraging promptness and penalizing delay: Rayani. [41] Accordingly, the Plaintiff will be entitled to pre-judgment interest except for the dormant period of April 8, 2004 to April 26,2007 inclusive.

Specific Disbursements [42] With respect to specific disbursements, I agree with the Defendant that no costs should be awarded for charges under thefollowing headings in the Plaintiff’s Bill of Costs which were, apparently for the Plaintiff’s attendance at trial: Meals, Hotel charges,Airfare, Transportation, Laundry, Office Expenses. [43] The parties will be responsible for their own costs with respect to the issues which arose from the Reasons for Judgment.

Heard on the 13 th day of October, 2010 and the 12 th day of January, 2011. Dated at the City of Calgary, Alberta this 10 th day of February, 2011 . M.C. Erb J.C.Q.B.A. Appearances: Robert J. Sawers for the Plaintiff Robert A. Rakochey for the Defendant