Earth Drilling Co. Ltd. v Keystone Drilling Corp., 2023 ABKB 17

Court of King’s Bench of Alberta Citation: Earth Drilling Co. Ltd. v Keystone Drilling Corp., 2023 ABKB 17 Date: 20230109 Docket: 2203 11165 Registry: Edmonton Between: Earth Drilling Co. Ltd. Plaintiff - and - Keystone Drilling Corp., Wollman Mechanical Corp., Expatriate Consulting Ltd. Stefan Murphy, and Randy Wollman Defendants _______________________________________________________ Costs Endorsement of the Honourable Justice M.J. Lema _______________________________________________________ A.

Introduction [ 1 ] The defendants successfully resisted an interlocutory injunction sought chiefly to prevent their use of asserted-to-be- confidential information. [ 2 ] They now seek solicitor-client-level costs of that defence. [ 3 ] The plaintiff resists, arguing for Schedule-C-level costs, possibly multiplied by 1.5.

[4] As explained below, I award costs of $52,000 (all-inclusive) to the defendants. B. Background [5] The background is outlined in the main judgment, reported at 2022 ABKB 744. C. Analysis Lack of merit potentially a factor in awarding solicitor-client costs [6] Lack of merit can affect the level of costs. Here I adopt and apply my analysis in Ho v Lau, 2023 ABKB 15, another costsdecision.

To the extent the applicant tries to characterize the respondent’s pursuit of unsuccessful arguments as litigation misconduct (with that asthe basis for solicitor-client costs), I recognize that “maintain[ing] positions or bring[ing] applications that are patently indefensible – thelikelihood they will succeed is very low” can amount to such misconduct: Pillar Resource Services Inc v PrimeWest Energy Inc, 2017ABCA 19 at paras 124(

g) and 126 (part of Wakeling JA’s concurring judgment). Here is the catalogue of cases cited by Wakeling JA in support of that position (footnote 135): Olson v. New Home Certification Program, (AB KB), 69 A.R. 356, 372 (Q.B. 1986) (“The conduct of the defendantthat this court found particularly abhorrent and which should not be tolerated was the requirement imposed upon the plaintiff to provemajor structural defects and other facts that should have been admitted”); Max Sonnenberg Inc. v. Stewart, Smith (Canada) Ltd., (AB KB), [1987] 2 W.W.R. 75, 80 & 81 (Alta.

Q.B. 1986) (the trial judge awarded full-indemnity costs to the plaintiff, inpart, because “it was apparent to me at the end of the trial that there was no serious issue of fact or law which required these lengthy,expensive proceedings ... [and that the defendants] were then contemptuous of the plaintiff in requiring the plaintiff to go to trialto get its money”); Shier v. Fiume, (ON SC), 6 O.R. 3d 759 (Gen. Div. 1991) (the Court ordered a party to pay fullindemnity costs because he knew his position was untenable); Noorani v.

Calver (No. 2), 2009 EWHC 592, ¶ 33 (the Court awardedthe defendant his costs on a full-indemnity basis because the plaintiff’s case was “hopeless ... from the outset [and] ... the claimantknew it”); Bossé v. Farm Credit Canada, 2014 NBCA 34; 419 N.B.R. 2d 1 (the Court dismissed the appeal and ordered the appellant topay costs on a solicitor-and-client basis because the grounds of appeal were frivolous); Bradbury v.

Westpac Banking Corp., [2009]NZCA 234, ¶ 24; [2009] 3 N.Z.L.R. 400, 409, 410 (“an indemnity award may be made where a party persists with what properconsideration would have shown was a hopeless case”) & ¶ 29 (an indemnity award may be granted if the payee’s misconduct “causesloss of time to the court and to other parties”); Baulderstone Hornibrook Engineering Pty. Ltd., v.

Gordian Runoff Ltd. (No. 2), [2009]NSWCA 12, ¶ 4 (Austl.) (“a party should pay costs on an indemnity ... basis when it appears that an action (here an appeal) has beencommenced or continued in circumstances where the moving party, properly advised, should have known that it had no chance ofsuccess”); Chaina v. Alvaro Homes Pty. Ltd., [2008] NSWCA 353, ¶ 111(Austl.) (the Court observed that “more recent case-lawgenerally shows a tendency to grant indemnity costs orders more readily than was the case in the past.

That may be seen to be an elementof a broader policy directed to litigation of cases where there are no reasonable prospects of success”); P.C.R.Z. Investments Pty. Ltd.v. National Golf Holdings Ltd., [2002] VSCA 24, n. 16-17 (Austl.) (the Court observed that “making assertions of facts which arepatently groundless” and adopting a position that is “patently hopeless” exposes the malefactor to an enhanced costsaward); Cosgrove & Anor v. Johns, [2000] QCA 157, ¶ 9 (Austl.) (a full-indemnity costs award may be appropriate if a party adopts anunsupportable position); Commonwealth Bank of Australia v.

Dalle Cort, 2015 QSC 41, ¶ 12 (Austl.) (the Court awarded costs againstthe defendants and counterclaimants because, in part, “they should have known that they had no real defence to CBA’s claim or anylegally sustainable counterclaim”); Fountain Selected Meats (Sales) Pty. Ltd. v. International Produce Merchants Pty Ltd., 81 Austl.L.R. 397, 401 (Fed. Ct. 1988) (“it is appropriate to consider awarding ... “indemnity” costs, whenever it appears that an action has beencommenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance ofsuccess.

In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because ofsome wilful disregard of the known facts or the clearly established law”); Colgate-Palmolive Co. v. Cussons Pty. Ltd., [1993] FCA536, ¶ 24; 46 F.C.R. 225, 233 (Austl.) (the Court stated that a full-indemnity costs award is warranted if a party engages in misconduct“that causes loss of time to the Court and to other parties”); Kuwait Asia Bank EC v.

National Mutual Life Nominees Ltd., [1991] 3N.Z.L.R. 457, 460 (C.A.) (“If a party has acted unreasonably – for instance by pursuing a wholly unmeritorious and hopeless claim ordefence – a more liberal award may well be made in the discretion of the Judge”) & 22 New York Codes, Rules and Regulations § 130-1.1(c)(1) (“conduct is frivolous if ... if it is completely without merit in law and cannot be supported by a reasonable argument foran extension, modification or reversal of existing law”). [emphasis added] [7] EDC pursued various remedies against the defendants, albeit anchoring them in a common foundation i.e. assertedconfidential information amassed by it and wrongfully exported by the defendants to their new venture. [8] As explained in the main judgment, EDC failed to prove it had amassed any confidential information on its own.

Its ownarguments recognized the upstream source of much, if not all, such information used by it i.e. a separate corporation, as reflected in itsrepeated reference to the activities and associated information of “[EDC] and/or its predecessor corporation(s).” [9] And the other corporation was not a predecessor corporation, in the commonly understood sense of an entity merged,amalgamated, continued or otherwise folded into EDC.

More accurate would have been the phrase “EDC and/or another corporation”and an acknowledgement that EDC had not acquired any information rights from it, which illustrates the key shortfalls here. [10] Pressed in cross-examination to provide any evidence of drilling-rig enhancements or innovations giving rise to confidentialinformation, EDC was only able to show everyday repairs and maintenance by itself or innovations created or co-created by outsideparties (e.g. drilling-rig manufacturers), with (again) no evidence showing that EDC had acquired exclusive or in fact any proprietary

rights to any such information. [ 11 ] These realities were reflected in my first-injunction-factor conclusion that EDC had not raised a “serious issue to be tried.” [ 12 ] Accordingly, I accept the defendants’ characterization of the injunction application as baseless. [ 13 ] This conclusion favours solicitor-client-level costs here, subject to the comments below. Narrowed scope of injunction application immaterial [ 14 ] The defendants also argued that, late in the day, EDC narrowed the scope of its requested relief, causing prejudice to them.

However, they did not provide any details of this prejudice or at least any to allow quantification of it. Eve-of-deadline provision of undertaking responses immaterial [ 15 ] Same for this complaint by the defendants.

EDC indeed provided 500 pages of undertaking responses very shortly before the defendants’ brief was due. [ 16 ] However, the defendants were able to x-ray that material and provide adequate analysis of it (sufficient for me to accept their characterizations of it) in their brief and at the application. [ 17 ] As well, the defendants did not show that incremental effort was required to review and analyze that material in the (tight) available time. [ 18 ] As well, at the application, the defendants declined to seek an adjournment on the basis of late provision of this material, advising that their clients effectively “needed to get on with things.” [ 19 ] I will observe that, given the nature of EDC’s arguments, it was surprising that it did not provide what it perceived (incorrectly, in the end) as its own contributions to confidential information via its chief witness’s principal or even supplementary affidavits. [ 20 ] But that strategic decision does not drive a different costs outcome here. [ 21 ] As well, I do not find that the late provision was itself strategic i.e. aimed at prejudicing the defendants (with EDC adequately explaining the information-sourcing issue affecting the timing).

No evidence of personal hardship to the defendants [ 22 ] Here I also accept EDC’s position that the defendants did not provide evidence either at the application or in its costs materials of the asserted hardships. [ 23 ] To the extent the hardships are or were financial (as in legal costs incurred), they are being addressed, at least in part, by this costs award.

Upstream adjournment application immaterial here [ 24 ] Here I accept EDC’s explanation of the necessity of that application (versus an agreed-to adjournment). [ 25 ] In any case, without indication from the defendants that Rothwell J. deferred costs of that application to the main application, it presumably had its own costs consequences i.e. does not bear on the costs here.

No bill of costs or other evidence of the defendants’ legal costs [ 26 ] The defendants asserted the following costs: To date, the Defendants’ legal costs and disbursements have exceeded $100,000 (even with two senior legal counsel for the Defendants working at substantially reduced rates …).

The Defendants’ current legal costs and disbursements to date [total] $101,021.19 [ 27 ] EDC responded: Rule 10.35 of the Alberta Rules of Court specifies that “A party entitled to the payment of costs must prepare a Bill of Costs” and “The Bill of Costs must itemize all costs sought to be recovered, distinguishing between fees, disbursements, and other charges.” The Court of Appeal of Alberta has stated that “… a principal purpose of a Bill is to ensure that the party who may be liable to pay such costs is entitled to express objection to entries in the Bill where any such entries are amenable to objection .” [ Al-Ghamdi v Alberta , 2017 ABCA 151 at para 4] The fact that the Defendants did not include a detailed [or any] Bill of Costs with their submissions for the Plaintiff to review and consider is highly prejudicial to the Plaintiff who … has the right to review the entirety of the costs and disbursements being claimed by the Defendants and object to what it deems unnecessary or unreasonable costs and/or disbursements .

The Defendants are simply taking a “trust me” approach which does not accord with the law and jurisprudence in this province.

As the Plaintiff is prejudiced by the Defendants’ failure to provide a detailed Bill of Costs for its review and consideration and, similarly, the Court cannot verify that the costs being claimed … are fair and reasonable , the Plaintiff submits that this Honourable Court should disregard the magnitude of the costs claimed … in the amount of $101,021.19. The Plaintiff submits that in the absence of a proper itemization of the costs being claimed …, this Honourable Court [must] resort to simply the items provided for in

Schedule C … (see enclosed Bill of costs prepared by the Plaintiff”). [emphasis added] [footnotes omitted] [ 28 ] I take EDC’s point here and adopt my analysis in Ho v Lau (cited above): As noted, the applicant asserted legal costs incurred by it of $145,918.05, plus a further $35,000 incurred by the corporation’s liquidator. However, neither provided a bill of costs, statements of account or other evidence of the claimed costs.

The respondent observed: It is inappropriate to grant any form of indemnity costs [i.e. full or percentage-of] when [we have] been unable to assess the reasonableness of the same as the Corporation has not provided a proposed Bill of Costs nor any supporting documentation to [us].

I take the respondent’s point here and adopt the following analysis from McAllister v Calgary (City) , 2021 ABCA 25 on the reasonableness dimension, which I find applies equally to a claim of full (i.e. not only a percentage of) solicitor-client costs: If the option of awarding costs as a percentage of assessed costs is chosen, the assessment of the costs may require a consideration of what is a reasonable amount which ought to have been charged for the services the successful party’s lawyer rendered and that may require reference to the considerations set forth in Rule 10.2(1) which go into the determination of what constitutes a reasonable charge (the Rule is reproduced at paragraph 47 herein).

If a trial judge chooses to award a percentage of the assessed costs pursuant to Rule 10.31(3)(

d) to the successful party, then what is being considered are the “reasonable and proper costs that a party incurred” under Rule 10.31(1)(a) . In order to determine whether the costs incurred are reasonable and proper, they must be assessed , either by the party opposite, or by the judge or by an assessment officer. If it is the trial judge, then he or she should consider the reasonableness of both the legal services performed and the amounts charged for those services. Reasonable costs reasonably incurred is what the percentage must be based on.

The incurring of the cost must be reasonable and the amount of the cost incurred must also be reasonable. As indicated above, the assessment may also be undertaken by the party opposite or, if the parties cannot reach an agreement on costs, the trial judge may direct an assessment of the legal costs by an assessment officer, pursuant to Rule 10.34. Rule 10.31(3)(

d) contemplates such an assessment when it speaks of one party being ordered to pay the other “a percentage of assessed costs” …. [para 46] [underlined emphasis in original] [bolded emphasis added] Where a party seeks solicitor-client costs or a subset of such costs (gauged, for example, as a percentage of the total actual costs incurred), it has a practical onus to provide statements of account or other evidence of its legal costs to enable such scrutiny i.e. not simply assert a figure: see also Kissel v Rocky View (County) , 2020 ABQB 570 (Eamon

J) at paras 27 , 28, 34 and 51, particularly para 34: Some case law, decided before the tariff was amended in March 2020 [1] , holds that costs should aim to indemnify a successful party for about 30, 40, or 50% of their actual costs, and therefore a party’s actual legal fees can be used to cross-check the result of applying

Schedule “C”. Because there is a distinction between solicitor and client costs, and solicitor and own client costs ( Luft v Taylor, Zinkhofer & Conway , 2017 ABCA 228 at paras 77-78 ), that approach would require evidence that a party’s legal bill is reasonable and necessarily or prudently incurred to advance the issues in the action. If the reasonableness of an account is challenged, evidence of the accounts is required ( GO Community Centre v Clark Builders and Stantec Consulting Ltd , 2020 ABQB 203 at para 162 ). The Applicants did not provide any evidence concerning their accounts, so I do not have the benefit of a cross- check. [Eamon J. ended up awarding costs anchored on

Schedule C: para 51.] And Diallo v Canada (Public Safety and Emergency Preparedness) , 2010 FC 965 (Lemieux J.) at para 33 (“ … If he is seeking solicitor-client costs … I have no evidence before me to justify the amounts indicated”). In JWS v CJS , 2022 ABCA 63 , the Court of Appeal affirmed a lump-sum award of costs “approximat[ing] the solicitor-client costs incurred” where no bill of costs had been prepared or other costs accounting provided.

However, the Court was able to perform its own assessment of the reasonableness of the claimed costs and, in any case, the appellant did not actually challenge the quantum of those costs: … The mother’s counsel is a senior practitioner, and we are satisfied that the amounts she put forward were reasonable in the circumstances. We note that the father has not suggested otherwise.

We also agree with the costs judge that this is an exceptional case and that sending the invoices for assessment would unnecessarily delay conclusion of this matter. [para 43] I am not in a position to make a similar pronouncement here, and the respondent has not acknowledged the claimed costs as reasonable.

As well, while I imposed a two-page limit on the parties’ costs submissions (main judgment, para 137), both parties obviously understood that to refer to the core submissions, with both providing extensive supporting documents, which could have (in the applicant’s case) included copies of its accounts or other evidence of the claimed legal costs. And the applicant did not inquire about the scope of the permitted supporting documents.

Such evidence would have given the respondent an opportunity to examine and, as appropriate, object to the claimed costs and then (as necessary) allowed me or, as necessary, the assessment officer, to gauge the reasonableness of those costs. For examples of litigants requesting solicitor-client costs and at the same time providing copies of the underlying statements of account, see McGhee v Qureshi , 2020 ONSC 8009 (Kiteley J.) (para 2 ) and Mazhar v Farooqi , 2020 ONSC 3490 (Pinto J.) at para 84 (appeal dismissed 2021 ONCA 355 ).

I recognize that one option here is providing the applicant with an opportunity now to provide its accounts or other evidence of its legal

costs, with the respondent then called on to advise whether it accepts those costs as reasonable (both the work done and the associatedexpenses) and, if not, either assess the costs myself or direct an assessment: see, for example, Poitras v First National Financial GPCorporation, 2010 ABPC 46 (Young PCJ) at paras 6 and 7. But (per para 137 of the main judgment), I directed a

summary costs process i.e. submissions from each side and then a decision oncosts. In theory that might have required a review of costs reasonableness by the Assessment Officer. But not a multi-stage process fromthe start i.e. with the applicant first staking a claim to an amount, the respondent either acquiescing or objecting to that amount, (if thelatter) the applicant then providing its accounts or other evidence of its costs, the respondent providing its position on the claimedamount in light of that evidence, and (as necessary) an assessment.

In this case, the applicant had a practical obligation to put its best foot forward and thus, when requesting solicitor-client costs oralternatively a subset based on them, provide its accounts or other evidence of its legal costs as part of its overall costs submission. [paras39-51] [29] Same here: my invitation in the main judgment for maximum-2.5-page costs submissions (para 136) was aimed at (andobviously understood by both parties as relating to) the core submissions, with both providing extensive supporting documentation,which could have included (for the defendants) a bill of costs or other evidence of such costs. [30] Accordingly, I decline to use the defendants’ asserted legal costs as a baseline, whether for full-indemnity costs or as apercentage of same.

Impact of settlement offer [31] The defendants made the following settlement offer, via emailed letter on October 7, 2022 i.e. three weeks before theapplication and stated as being “without prejudice except as to costs”: … we have received instructions from our clients to put forth an offer for resolution of the Action. The Defendants are prepared to waivetheir defence costs incurred to date in exchange for a filed Discontinuance of the Action without costs, Discontinuance of the Applicationwithout costs, and execution of a full Release. This offer will be open for acceptance until October 17, 2022 at 4:00 PM.

The within offer is a Calderbank offer.

It is without prejudice to the merits of the Action and the merits of the Application, but theDefendants specifically reserve the right to refer to this letter and the issues of costs only, after the Court has determined the merits of theApplication and/or the Action, in accordance with the principles set out in Calderbank v Calderbank, [1975] 3 W.L.R. 586, [1975] 3 AllE.R. 333 (C.A.), McAteer v Devencroft Developments Ltd. (2003), 2003 ABQB 425 , 21 Alta LR (4th) 115 (QB), Mosher vReimer, 2004 ABQB 496, Yellowbird v Samson Cree Nation No. 444, 2006 ABQB 913, Mahe v Boulianne, 2010 ABCA 74 and HorizonResource Management Ltd. v Blaze Energy Ltd., 2013 ABCA 139. [emphasis in original] [32] As far as I can tell, this offer was made after the pleadings and affidavits had been filed and the cross-examinations conductedbut before either side’s brief was due and before all of the undertakings had been answered by EDC. [33] EDC did not accept the offer and neither did it address its impact in its cost submissions. [34] The application was fundamentally for an interlocutory injunction. [35] The offer called for a without-costs abandonment of the application, in exchange for the defendants waiving their to-date legalcosts. [36] This was a genuine offer of compromise and one which the plaintiff should have accepted, in light of the no-injunction-warranted outcome here. [37] I will address the impact of the offer below.

Overall complexity of the application [38] The defendants submitted: This application involved seven affidavits, four days of cross-examinations, over 500 pages of undertaking responses, lengthy writtenbriefs and two court appearances. There were several complex legal and evidentiary issues to address, and multiple counsel involved oneach side. … [39] EDC did not directly address complexity, other than (implicitly) arguing, in its principal submission, that no departure fromSchedule C is warranted. [40] EDC acknowledged that column 4 of

Schedule C applies here (“over $675,000 up to and including $2 million”). Per a draftbill of costs prepared by it, the applicable items and associated amounts are: 5(1) Preparation for questioning $1,685 5(2) First half-day of questioning $1,685 5(2) 3.5 additional days of questioning ($1,685 x 7) $13,480 8(1) Contested application with briefs $2,360

SUB-TOTAL $19,210 Disbursements Unknown TOTAL $19,210 [ 41 ] EDC submitted that, if enhanced costs are warranted here, the enhancement should be limited to 1.5 times

Schedule C i.e. $28,815. [ 42 ] The defendants did not address any dimension of

Schedule C. [ 43 ] Here are some additional factors: • this was a special chambers application, argued in one afternoon; • as noted, the other court appearance (contested adjournment application) presumably had its own costs consequences; • EDC raised many legal arguments in its brief, but most of them foundered on it having no proprietary information of its own, which the defendants zeroed in on in their brief; and • while the supporting materials were somewhat extensive, the volume was not so extreme as to take the application out of the ordinary current of commercial-list half-day applications. [ 44 ] Overall-complexity-wise, in the constellation of applications and trials, this was relatively concentrated, focused and short proceeding, built on a relatively modest documentary foundation.

D. Conclusion [ 45 ] So what costs are payable? [ 46 ] As explained above, with EDC not having an opportunity to object to the reasonableness of the defendant’s legal bills, I decline to award solicitor-client costs or to set costs as a percentage of the claimed costs. [ 47 ] However, as explained, this injunction application was baseless.

And EDC was given an off-ramp (via the settlement offer) which it should have taken, forcing the defendants to research and prepare a relatively complicated brief, marshalling considerable evidence, and to prepare for and argue the half-day application. [ 48 ] In these circumstances, and taking Schedule-C-level costs as reflecting, at most, 40-to-50-per-cent of typical actual legal costs for the described steps (at least circa the late 1990s, per McAllister (cited above), paras 43 and 44), and recognizing that

Schedule C does not cover every litigation step or activity, I use EDC’s bill of costs as a baseline, albeit adjusting the “contested application with briefs” item by replacing the item 8(1) amount with that under item 20(1) (i.e. treat this as a “complex chambers application”, as contemplated in the commentary to item 8(1) i.e. change the $2,360 amount to $3,375), producing a new Schedule-C-based total of $20,225 and then multiply that amount by 2.5 i.e. as a (very conservative) estimate of the defendants’ reasonable legal costs (i.e. necessary work at a reasonable expense) i.e. award costs of $50,562.50 plus assumed minimum disbursements of $1,437.50 i.e. a total amount of $52,000. [ 49 ] The parties will bear their own costs of this costs exercise.

Heard by way of written submissions dated November 24, 2022 (defendants) and December 9, 2022 (EDC). Dated at the City of Edmonton, Alberta this 9 th day of January, 2023. M.J. Lema J.C.K.B.A. Appearances:

Shannon Kelly Parlee McLaws LLP for the Defendants Richard J. Cotter, K.C. Dentons Canada for the EDC