2022 NLCA 1, 2022 NLCA 1

David J. Fong (appellant) v. David Rees (respondent) (20/41) Indexed As: Fong v. Rees 2022 NLCA 1 7 C.A.N.L.R. 199 Court of Appeal of Newfoundland and Labrador Fry C.J.N.L., Welsh and O’Brien JJ.A. January 6, 2022

Summary: At trial, the judge made an order disposing of claims of oppression brought by each party against the other and indicated that the issue of costs would be considered at a later date. That decision was appealed and dealt with by this Court; this Court did not address the costs arising from the trial proceeding. Mr. Rees applied in the trial court for an order for costs relating to the trial proceeding. The applications judge apportioned the costs on the basis of the amount of trial time and resources taken for each party’s claim. Mr.

Fong appealed the applications judge’s order for costs and sought an order from this Court for the parties to bear their own costs of the trial proceeding. Held: Appeal allowed. Welsh J.A. (Fry C.J.N.L. and O’Brien J.A. concurring): The applications judge erred in principle by apportioning costs on the basis of the amount of trial time and resources taken for each party’s claim. The applications judge did not base her apportionment of costs by percentage on any special or exceptional circumstance, or a determination of substantial success.

As each party successfully defended a claim brought by the other, in the absence of some special circumstances, it would be expected that the parties would bear their own costs of the trial (paragraphs 7-26). The parties were ordered to bear their own costs of the trial and of this appeal (paragraph 27). Cases cited: Hamilton v. Open Window Bakery Ltd. , 2004 SCC 9 , [2004] 1 S.C.R. 303 Hiscott v. Hall , 2015 NLCA 1 , 361 Nfld. & P.E.I.R. 141 Rules considered: Rules of the Supreme Court, 1986 , rules 55.03(1), 55.02(1)(b), 55.04(3) and (4), and 55.14(1) Counsel: Jerome P. Kennedy QC, for the appellant; Ernest L.

Gittens, for the respondent. The appeal was heard on October 20, 2021 before Fry C.J.N.L, Welsh and O’Brien JJ.A.

The following judgment was filed on January 6, 2022 by Welsh J.A. for the Court. ______________________________________________________________ Welsh J.A.: [ 1 ] David Fong and David Rees had an acrimonious business relationship which resulted in litigation. By decision dated March 1, 2017, Hall J. made an order disposing of claims of oppression brought by each party against the other. That decision was appealed and dealt with by this Court. The sole issue on this appeal relates to the order for costs of the proceedings in the trial division.

BACKGROUND [ 2 ] For purposes of the trial, the claims of oppression by each party against the other were heard together. In the appeal on the merits, this Court determined that the trial judge had erred in finding oppression by Mr. Rees against Mr. Fong ( 2018 NLCA 60 , at paragraphs 17 to 31 ). The Court also concluded that the trial judge had not erred in dismissing the claim of oppression by Mr. Fong against Mr. Rees.

In the result, both claims of oppression were dismissed, with the parties being ordered to bear their own costs of the appeal. [ 3 ] Hall J.’s order provided that the issue of costs in the trial division would be considered at a later date. In determining the appeal, this Court made an order for costs of the appeal only.

In a response, dated May 30, 2019, to a request for clarification by the parties, this Court concluded that, in the circumstances, where there were serious allegations made by each party against the other and the proceedings were acrimonious, the proper venue to determine the allocation of costs of the trial proceedings would be the trial court. By way of further explanation, this Court noted that in deciding a costs disposition for the trial proceedings it would be necessary to take account of the conclusions on the merits of the appeal. [ 4 ] In the result, Mr.

Rees applied in the trial court for an order for costs of the trial proceedings. In the meantime, Hall J. retired. As a result, a different applications judge dealt with the costs issue. She ordered ( 2020 NLSC 69 ): [22] For the reasons that follow: 1. Rees is awarded party-party costs as against Fong up to August 26, 2015, the date Rees commenced his action, ... 2. Fong shall bear the cost of the fees and disbursements with respect to the retainer of Deloitte [for an audit] including the attendance fees of Paul Bradley. 3.

Fong is awarded party-party costs as against Rees for the drafting and filing by Fong of the supplementary post-trial brief ... 4. With respect to all other costs incurred in either action from August 26, 2015 to March 1, 2017, the filing date of the trial decision, Rees is awarded 75% of his costs on a party-party basis as against Fong ..., and Fong is awarded 25% of his costs on a party-party basis as against Rees ... . [ 5 ] In appealing that order, David Fong seeks an order setting aside the decision of the applications judge and ordering the parties to bear their own costs of the trial proceedings.

ISSUES [ 6 ] At issue is whether the applications judge erred in principle when she apportioned costs based on the amount of trial time and resources taken for each party’s claim. ANALYSIS Relevant Rules [ 7 ] The basic principle governing costs in trial proceedings is that costs are awarded to the successful or substantially successful party ( Hiscott v. Hall , 2015 NLCA 1 , 361 Nfld. & P.E.I.R. 141 , at paragraphs 29 and 30 ).

This principle is set out in rule 55.03(1) of the Rules of the Supreme Court, 1986 : Unless the Court otherwise orders, the costs of a proceeding or of any issue of fact or law therein shall follow the event. [ 8 ] Regarding the manner in which costs may be ordered, rule 55.02(1)(

b) provides that the court may “allow a percentage of the taxed costs or allow taxed costs from or up to a specific stage of a proceeding”. [ 9 ] Factors that may be considered when determining an award of costs are enumerated in rule 55.04:

(3) The Court may award costs to be taxed in accordance with any column or combination of columns under the Scale of Costs in the Appendix to this Rule.

(4) In exercising its discretion under this Rule, the Court may consider ... (

b) the importance of the issues;

(

c) the complexity, difficulty or novelty of the issues; (

d) the manner in which the proceeding was conducted, including any conduct that tended to shorten or unnecessarily lengthen the duration of the proceeding; ... (

g) seniority at the bar of counsel; and (

h) any other relevant matter. [ 10 ] Improper or unnecessary conduct by a party is addressed in rule 55.14(1): Where any thing is done or an omission is made, improperly or unnecessarily, by or on behalf of a party, the Court may order (

a) that any cost arising from the act or omission not be allowed to the party; (

b) the party to pay the costs of any other party occasioned by the act or omission; or (

c) a taxing officer to inquire into the act or omission with power to order or disallow any costs ... . [ 11 ] These rules and relevant case law provide the framework and legal principles within which an order for costs will be made. While a costs award is discretionary in nature, on appeal the award may be set aside where the trial judge has made an error in principle or the costs award is “plainly wrong” ( Hamilton v. Open Window Bakery Ltd. , 2004 SCC 9 , [2004] 1 S.C.R. 303 , at paragraph 27 ).

Decision of the Applications Judge [ 12 ] The applications judge awarded costs of the trial proceedings by apportioning a percentage of the costs to each party. The judge indicated her rationale: [30] In this case, two actions were heard at the same time with the evidence in one being the evidence in the other. At trial, Fong had a degree of success in his action. Following appeal, however, neither party was successful in advancing his action; each was successful however in defending the other’s action. ... [31] If these two actions had been heard separately, the cost award for each would be straightforward.

Adhering to the general principle that costs normally follow the event, I would award each party his costs against the other for successfully defending the other’s action and there would be no ambiguity in terms of what that means. The complicating feature in this case is that the actions were heard together with the evidence in one being the evidence in the other, but the time and effort expended on each action was not equivalent.

Therefore, I have undertaken an analysis to assess what portion of the trial and resulting costs should reasonably be attributed to each action. (Emphasis added.) [ 13 ] In taking this approach, the applications judge concluded: [38] Given the foregoing analysis, I find that this is an appropriate case for me to exercise my discretion pursuant to Rule 55.02(1)(b), and allow each party a percentage of his taxed costs equivalent to my assessment of the approximate percentage of time and resources consumed in the advancement and defence of each action .

It is also an appropriate case for me to exercise my discretion by allowing costs from and up to specific stages of the proceeding. [39] Although it is difficult to calculate with mathematical certainty, it appears that no more than 25% of trial time was expended on the advancement and defence of Rees’ action. In saying this, I am not including the first five days of evidence which occurred prior to the commencement of Rees’ action. Since Rees’ action was not initiated at that time, this evidence was devoted to the prosecution and defence of Fong’s action.

The evidence adduced in those five days could be used as evidence in either action but my review of this evidence and its nature leads me to conclude that the costs of these trial days should be attributed solely to Fong’s action . (Emphasis added.) [ 14 ] The applications judge also found that issues raised, then abandoned by Rees “did not consume a substantial amount of trial time” (decision of the applications judge, at paragraph 41). Accordingly, she concluded that no costs consequences should flow from that expenditure of time. [ 15 ] However, the judge allowed Mr.

Fong his costs for the preparation and filing of a supplementary brief that was required after Mr. Rees raised a new issue in his written submissions, which was not anticipated by Mr. Fong, and which was filed after Mr. Fong had filed his submissions. Application of the Rules [ 16 ] In assigning a percentage of costs to be paid by each party, the applications judge referenced rule 55.02(1)(b). That rule generally applies when success on multiple issues is divided between the parties. In this case, each of Mr. Fong and Mr. Rees succeeded in defending against an allegation of oppression brought by the other.

In the absence of some special circumstance, it would be expected that the parties would bear their own costs. [ 17 ] However, in her analysis, the applications judge did not base her apportionment of costs by percentage on any special or exceptional circumstance or a determination of substantial success. Rather, she focused on an assessment of the amount of time and

resources taken for each issue. This was despite the fact that the actions in oppression were heard at the same time, with the evidence in one being the evidence in the other, resulting in a commingling of the issues and actions. This was not a situation that could be compared to two separate actions, as referenced by the applications judge at paragraph 31 of her decision. [ 18 ] In taking the approach of apportioning costs on the basis of time and resources taken for each issue, the judge stepped outside the ambit of judicially recognized principle as set out in the Rules .

Success on the issues; complexity or importance of the issues; and inappropriate, improper or unnecessary conduct by a party are considerations set out in the Rules that would be the focus in determining costs in a case such as this. Time and resources taken to present or respond to an action or an issue, without more, is not a principled basis on which to apportion costs. I note here that the applications judge did not find conduct that would affect the apportionment of costs (decision of the applications judge, at paragraphs 50 to 52). [ 19 ] The judge also found Mr. Fong entirely responsible for Mr.

Rees’ costs prior to when Mr. Rees began his action against Mr. Fong. While rule 55.02(1)(

b) provides for such an award, the basis for applying the rule in this case is unclear given the commingling of the actions, with the evidence taken in the earlier period being available for Mr. Rees to use in his claim against Mr. Fong, both of which related to the operation of the business. [ 20 ] The judge rejected Mr. Fong’s submission that Mr. Rees should bear the costs of issues he raised, then abandoned. As set out in rule 55.08, generally, the party abandoning an action or issue would be responsible for the associated costs. Nonetheless, the judge concluded that the issues abandoned by Mr.

Rees “did not consume a substantial amount of trial time”, and abandoning issues “can be a prudent course of action and should not be punished by an adverse award of costs” (decision of the applications judge, at paragraph 41). [ 21 ] While assessing costs involves the exercise of discretion, as set out above, reliance on the amount of trial time taken is not, for that reason alone, an appropriate basis on which to assess apportionment of costs. It is not unusual for one issue in an action to take more time and resources to establish or defend.

Trial time may be relevant in assessing complexity of the case, but is not, without more, an independent ground for awarding costs different from what the parties would expect, that is, costs awarded on the basis of success. [ 22 ] Further, it is generally unhelpful to parse an action into individual components unless there is some particular reason for doing so. For example, if costs are awarded to a party on the basis of success, but that party abandoned a significant issue, the judge may conclude that the costs award should be reduced to take account of that factor. [ 23 ] In this case, Mr.

Fong’s request is an order that the parties bear their own costs of the trial proceedings. I note that the applications judge had ordered that Mr. Rees should pay Mr. Fong’s costs regarding a supplementary brief necessitated by Mr. Rees’ conduct. However, it is clear from Mr. Fong’s submission that he is not seeking those costs which would amount to parsing the components of the actions in deciding the award of costs. A similar conclusion would apply regarding the issues raised, and then abandoned by Mr. Rees. [ 24 ] Likewise, there is no reason to separate the costs incurred prior to Mr.

Rees commencing his action. As stated by the applications judge, the evidence taken in respect of Mr. Fong’s claim applied and was equally available to Mr. Rees’ claim. In view of the intermingling of the actions, there is no basis on which to order Mr. Fong to pay Mr. Rees’ costs for the proceedings that occurred prior to Mr. Rees commencing his action. [ 25 ] Finally, Mr. Fong raised the question of an award of costs against Mr. Rees related to Hall J.’s order regarding the shotgun buyout arrangement.

Counsel advised that he was not pursuing this issue if his submission is accepted that the parties should bear their own costs of the trial proceedings. [ 26 ] In the result, having determined that the applications judge erred in principle in her analysis in determining a costs award, I am satisfied that her decision must be set aside. As both parties were successful in defending the actions of oppression against them, the starting point is that neither would be entitled to a more favourable costs award.

There was nothing exceptional in this case to cause a deviation from the basic principle that costs are awarded to the successful party. Accordingly, I would make the order requested by Mr. Fong, that is, the parties shall bear their own costs of the proceedings in the trial division, including, as ordered by the applications judge, the costs of the application on which this appeal is based.

Costs of this Appeal [ 27 ] With respect to costs of this appeal, I see no reason to depart from an order the same as the award for costs of the appeal on the merits and costs in the trial proceedings; that is, the parties shall bear their own costs. The entire acrimonious litigation between these parties has been complicated and delayed by the level of antipathy exhibited by each party against the other. In the end, it was necessary for an applications judge to undertake the difficult task of determining the award for costs of the trial proceedings where she had not been the trial judge.

SUMMARY AND DISPOSITION [ 28 ] The applications judge erred in principle when, in the circumstances, she apportioned costs based on the amount of trial time and resources taken for each party’s claim. [ 29 ] Accordingly, I would allow the appeal, set aside the decision of the applications judge, and order each party to bear their own costs of the trial proceedings, and of this appeal. Appeal allowed.