Thirteen Rivers Ltd. v., 2016 NSSC 232

SUPREME COURT OF Nova Scotia Citation: Thirteen Rivers Ltd. v. 3285548 Nova Scotia Ltd. , 2016 NSSC 232 Date: 20160923 Docket: BWT. No. 441487 Registry: Bridgewater Between: Thirteen Rivers Limited Plaintiff and 3285548 Nova Scotia Limited, 146436 Canada Inc., David Lawrence Defendants and Arthur Sager and Katherine Dumke Third Parties Costs Decision Judge: The Honourable Justice Robert Wright Heard: May 4, 2016 in Bridgewater, Nova Scotia Written Costs Submissions Filed: May 25 – June 23, 2016 Written Decision: September 23, 2016 Counsel: Rubin Dexter for the Plaintiff Christopher I.

Robinson for the Defendants Rubin Dexter for Arthur Sager, Third Party William Mahody, Q.C. for Katherine Dumke, Third Party Wright, J. INTRODUCTION [ 1 ] This is a costs decision following the successful outcome of twin

summary judgment motions on evidence brought by the third parties respectively against the defendants. [ 2 ] These legal proceedings arose from a failed commercial transaction for the intended purchase by Arthur Sager of a 50% shareholder interest in a numbered company called “Morgan Falls” which operated a hydroelectric facility on the LaHave River. The plan was that on completion of this transaction, both Mr. Sager and Mr.

Lawrence would each hold a 50% interest in that company. [ 3 ] After some delays, an Acknowledgement agreement was signed by these parties on April 2, 2015 which provided for a closing date of May 31 st and specified the closing documents then required. For some reason, the progress of the transaction stalled after that but the parties were able to meet in Bridgewater on May 29 th to review the terms of the proposed shareholders’ agreement which had been drafted by Mr. Lawrence’s solicitor. The meeting took place at the law office of Ms. Dumke who had only been retained by Mr.

Sager the day before. [ 4 ] At that point, the transaction was still on the rails with Ms. Dumke requiring further information with a view to meeting the

May 31 st closing date. Despite a follow up e-mail from Ms. Dumke, Mr. Lawrence sent a letter to Mr. Sager on June 16 th terminating the agreement. [ 5 ] In the result, the plaintiff company (owned by Mr. Sager) sued the defendants for breach of contract and for specific performance of the agreement. The defendants then issued third party actions against Mr. Sager and Ms. Dumke alleging the tort of conspiracy to make negligent or fraudulent misrepresentations. More specifically, the defendants plead that Mr. Sager and Ms. Dumke: (

a) Conspired to negligently or fraudulently misrepresent to the defendants the status of Ms. Dumke’s early and ongoing retainer as the legal representative of both the plaintiff company and Mr. Sager, in order to manipulate the negotiations for the intended share purchase; (

b) Conspired to negligently or fraudulently misrepresent the bona fide intentions of Mr. Sager and his company with regard to the Acknowledgement, when in fact Mr. Sager and the plaintiff company had no intentions of abiding by its terms and that the Acknowledgement was signed for the sole purpose of further delaying and to sabotage the proposed share purchase agreement; (

c) Conspired to negligently or fraudulently misrepresent the bona fide intentions of the plaintiff company to ever conclude an agreement with the defendants to acquire a stake in Morgan Falls, which misrepresentations formed part of the modus operandi employed by Mr. Sager and Ms. Dumke whereby the plaintiff company would seek to gain ownership and control of Morgan Falls through ulterior means including spurious litigation. [ 6 ] All these allegations were categorically denied in the defence pleadings filed by both Ms. Dumke and Mr. Sager. [ 7 ] Once the pleadings were closed, and before any discovery examinations were held, both third parties brought a motion for

summary judgment on evidence pursuant to Civil Procedure Rule 13.04 supported by affidavits of Mr. Sager and Ms. Dumke respectively. These motions were heard at Bridgewater, Nova Scotia on May 4, 2016 which took up the full day. [ 8 ] After hearing submissions of counsel (there being no cross-examination of affiants by any party), the Court delivered an oral judgment with the finding that the defendants had been unable to demonstrate that there were any material facts in dispute which needed to be determined at trial.

Indeed, the Court found that there was not a scintilla of evidence brought forward by the defendants to support their allegation of any conspiracy agreement having been formed between Mr. Sager and Ms. Dumke to make negligent or fraudulent misrepresentations to the defendants for the ulterior purpose of manipulating the negotiations for the share purchase or sabotaging the proposed agreement. [ 9 ] With that finding, both

summary judgment motions were granted with costs, thus dismissing the third party action. Counsel were then invited to make written submissions on costs, failing their ability to reach agreement on an appropriate amount. POSITIONS OF THE PARTIES [ 10 ] Counsel for the third parties have respectively made forceful submissions to the Court for the imposition of a solicitor-client costs award. [ 11 ] Counsel for Ms. Dumke recites in his brief on costs that the total legal fees incurred in defence of the third party action against his client were $18,438.50 plus HST and disbursements of $471.90.

No breakdown of these amounts has yet been given; rather, the suggestion is made that the solicitor-client costs should be taxed. [ 12 ] Counsel for Mr. Sager recites in his costs brief that his cumulative time charges respecting this motion at his specified hourly rate (including those pertaining to submissions on costs) produce a figure of $20,853. However, under the terms of his retainer, he has capped those fees at $15,000 plus HST. [ 13 ] In the alternative, counsel for Mr. Sager seeks substantial contribution towards his client’s reasonable legal expenses incurred on this motion.

To that end, he argues for incremental costs assessed pursuant to Tariff C of Civil Procedure Rule 77. Under the latter approach, the suggested building blocks are the tariff amount of $2,000 per day (adding an extra half day to reflect the additional time spent for making submissions on costs) and then applying a multiplier of 3 under guideline (4) of Tariff C to produce a tariff amount of $9,000. Because a formal offer to settle was made on behalf of Mr. Sager within twenty-five days after the close of pleadings in the third party action (on a dismissal without costs basis), counsel for Mr.

Sager seeks a 100% increase over the tariff amount pursuant to Civil Procedure Rule 10.09(2)(a). This formula produces a proposed costs figure on a party-party basis in the amount of $18,000. [ 14 ] Counsel for the defendants, on the other hand, proposes a strict application of Tariff C, proposing a figure of $2,000 for each third party (based on $1,000 for a half day hearing with a multiplier of 2 under guideline (4). ANALYSIS [ 15 ] First to be decided is whether the Court should depart from Tariff C and impose an award of solicitor-client costs as requested

by the third parties. [16] The Court has a general discretion with respect to the payment of costs, as embodied in Civil Procedure Rule 77.02, and maymake any order as the Court is satisfied will do justice between the parties.

To that end, Civil Procedure Rule 77.03(2) expressly confersthe power on a judge to order a party to pay solicitor and clients costs to another party in exceptional circumstances recognized by law. [17] The law of solicitor-client costs is well settled and although a number of case authorities have been referred to me, I need referto only four of them (and the cases therein cited) to avoid repetition. [18] A well known decision on solicitor-client costs in this jurisdiction is Smith’s Field Manor Development Ltd. v. Campbell,2001 NSSC 44 , [2001] N.S.J.

No. 230 where Justice Hood wrote as follows: 479 It is not disputed that solicitor-client cost awards are made only in rare and exceptional circumstances. In Coughlan et al. v.Westminer Canada Limited, et al (1994), (NS CA), 127 N.S.R. (2d) 241, the Court of Appeal upheld the decision ofNunn, J., the trial judge, [1993] N.S.J. No. 129, with respect to costs. The Court of Appeal quoted from his decision at para. 170: The plaintiffs in each of these actions are entitled to recover costs and on a solicitor client basis.

The character of the allegations involvedhere, fraud and dishonesty, and the circumstances here of the length of time of the outstanding allegations, their national publicity, thelength and extent of the pre-trial processes and the trial itself, the findings I have made regarding injury to reputations and the lack of anyreal proof of fraud or dishonesty all contribute to making this a proper situation to award costs on a solicitor client basis as, in myopinion, this does constitute one of those 'rare and exceptional' cases wherein such awards are, and should, be made. 480 In The Law of Costs, Orkin, 2nd Edition, the authors say at pp. 2-144-146: An award of costs on the solicitor-and-client scale, it has been said, is ordered only in rare and exceptional circumstances to mark thecourt's disapproval of the conduct of a party in the litigation.

The principle guiding the decision to award solicitor-and-client costs hasbeen enunciated thus: [S]olicitor-and-client costs should not be awarded unless there is some form of reprehensible conduct, either in the circumstances givingrise to the cause of action, or in the proceedings, which make such costs desirable as a form of chastisement. The Supreme Court of Canada has approved the following statement of principle: Solicitor-and-client costs are generally awarded only where there has been reprehensible, scandalous or outrageous conduct on the part ofone of the parties. . . .

At the same time, it has been said that an award of solicitor-and-client costs is not reserved for cases where the court wishes to show itsdisapproval of oppressive or contumelious conduct. There is, as well, a factor frequently underlying such an award, although not necessarily expressed, namely, that the circumstances of thecase may be such that the successful party ought not to be put to any expense for costs....

As well, an award of costs on the solicitor-and-client scale is an important device that the courts may use to discourage harassment of another party by the pursuit of fruitless litigation. [19] The foregoing passage was recently endorsed by the Nova Scotia Court of Appeal in Liu v. Atlantic Composites Ltd., 2014NSCA 58 (at para. 17). It was also recently cited in this court in Thomas v. Yuille Enterprises Ltd., [2013] N.S.J. No. 228 and again inMcInnis v. Stone, 2016 NSSC 212. [20] Another helpful reference is the decision of the Supreme Court of Canada in Hamilton v. Open Window Bakery Limited,2004 SCC 9.

The court there stated as follows: 26. In Young v. Young, (SCC), [1993] 4 S.C.R. 3, at p. 134, McLachlin J. (as she then was) for a majority of this Courtheld that solicitor-and-client costs "are generally awarded only where there has been [page 313] reprehensible, scandalous or outrageousconduct on the part of one of the parties".

An unsuccessful attempt to prove fraud or dishonesty on a balance of probabilities does notlead inexorably to the conclusion that the unsuccessful party should be held liable for solicitor-and-client costs, since not all suchattempts will be correctly considered to amount to "reprehensible, scandalous or outrageous conduct". However, allegations of fraud anddishonesty are serious and potentially very damaging to those accused of deception. When, as here, a party makes such allegationsunsuccessfully at trial and with access to information 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. [ 21 ] There are some cases, and this is one of them, where there is a fine line to be drawn as to whether the unfounded allegations of fraudulent conduct rise to the level of “reprehensible, scandalous or outrageous conduct” within the legal meaning of that phrase.

Here we have a pleading in a third party Statement of Claim advancing the tort of conspiracy as a cause of action to negligently or fraudulently make misrepresentations to the defendants. As noted earlier, the defendants were unable to demonstrate that there were any material facts in dispute, or indeed that there was any evidentiary foundation whatsoever for the claim made, during the course of the hearing of the

summary judgment motions. I surmise that the third party action was commenced for tactical purposes but in my view, it was an ill- conceived step to take in the proceeding which now leads to adverse costs consequences. The question is on what scale those costs should be measured. [ 22 ] I am mindful that the allegations of fraudulent conduct pleaded in this case under the tort of conspiracy are serious and potentially damaging to both third parties. They are an attack on Mr. Sager’s personal integrity in the business community and an attack on both the personal and professional integrity of Ms.

Dumke, an officer of the Court, who was carrying out her professional duties without any impropriety whatsoever. [ 23 ] Confined as they are, however, to a bare pleading and the hearing of these

summary judgment motions, the allegations here made are nowhere near as egregious or impactful as was the situation in the Liu and Smith’s Field Development Ltd. cases in which awards of solicitor-client costs were made. Nor is the present case as egregious as the situation in the recent case of Norbridge Management Ltd. v.

Lienaux , 2012 NSSC 411 in which Justice Bourgeois exercised her discretion to award substantial costs in excess of the tariff after declining to award the full amount of solicitor-client costs as there claimed. [ 24 ] After much deliberation in the application of the foregoing legal principles, I have concluded that this is a case where the unfounded allegations of fraudulent conduct made against the third parties approach the line for the imposition of solicitor-client costs (reserved for reprehensible, scandalous or outrageous conduct in rare and exceptional cases), without crossing over it.

I therefore decline to make an award of solicitor-client costs as requested. [ 25 ] The conduct of the defendants in making these unfounded allegations is nonetheless deserving of censure which ought to be given effect by the imposition of a party-party costs award in excess of Tariff C.

The authority of the Court to do so is embodied in Civil Procedure Rule 77.07(1) which provides that “A judge who fixes costs may add an amount to, or subtract an amount from, tariff costs”. [ 26 ] In keeping with that rule, guideline (3) under Tariff C provides that in the exercise of discretion to award costs following an application or motion, the presiding judge may, notwithstanding Tariff C, award costs that are just and appropriate in the circumstances.

Guideline (4) under Tariff C goes on to provide that when an Order following an application or motion is determinative of the entire matter at issue in the proceeding, the judge may multiply the maximum amounts in the Tariff C brackets by 2, 3 or 4 times depending on the following factors: a. The complexity of the matter; b. The importance of the matter to the parties; and c. The amount of effort involved in preparing for and conducting the application (or motion). [ 27 ] In applying Tariff C, I begin with the determination that the length of the hearing of the

summary judgment motions should be fixed at one full day (the hearing date having been fully consumed by submissions in the morning, and an oral decision in the afternoon following an extended lunch recess). Taking into account the above recited factors under guideline (4) and the added censure to be made of the defendants’ conduct, I consider it appropriate to apply a multiplier of 4 which produces a tariff amount of $8,000 for each of the third parties. [ 28 ] Having applied this multiplier of 4, I decline to exercise my discretion to further apply the offer to settle provisions contained in Civil Procedure Rule 10.09(2)(

a) as sought by counsel for Mr. Sager. To do so would be the equivalent of applying a multiplier of 8 to the Tariff C costs amount. Even though these motions were fully dispositive of the third party claims, I do not consider it appropriate to formularize this combination of multipliers in arriving at a just and appropriate award to Mr. Sager in the present circumstances.

It should be noted that generally, however, a written offer to settle that is not accepted can be considered as a relevant factor entering the mix for an increase over tariff costs, as contemplated by Civil Procedure 77.07(2)(b). [ 29 ] In the final analysis, it is my determination that the appropriate increase to be made over Tariff C costs should reflect a substantial contribution towards the third parties’ legal costs where this is the final disposition of the third party proceeding. An increase to the level of $8,000 does not achieve that objective. [ 30 ] I recently had occasion in Andrews et al. v.

Keybase et al. , 2014 NSSC 287 to review the two leading costs decisions of the Nova Scotia Court of Appeal in Williamson v. Willams , 1998 NSCA 195 and Armoyan v. Armoyan , 2013 NSCA 136 . The relevant passages are reproduced here as follows: [24] In Williamson , Justice Freeman writing for the Court adopted the underlying principle by which costs ought to be measured as one requiring a “substantial contribution” towards the party’s reasonable expenses in presenting or defending the proceeding, without amounting to a complete indemnity.

Reasonably interpreted, a “substantial contribution” was taken to mean more than 50 and less than 100 percent of a lawyer’s reasonable bill for the services provided. Justice Freeman went on to say that “A range for party and party costs between two-thirds and three-quarters of solicitor-client costs, objectively determined, might have seemed reasonable”.

. . . . [29] The Williamson case was recently followed by the Nova Scotia Court of Appeal in Armoyan , even though it applied the former tariffs from the 1989 costs regime. Justice Fichaud, in the latter case, affirmed the basic principle that a costs award should afford substantial contribution to the party’s reasonable fees and expenses. He also affirmed that generally speaking, the “substantial contribution” should exceed 50% of the appropriate base sum, but should not approach the full indemnity of a solicitor and client costs award.

He further noted that the percentage should vary, in a principled manner, according to the circumstances of the case and that a principled calculation of a lump sum should turn on the objective criteria that are accepted by the Civil Procedure Rules or case law. [ 31 ] Bearing these principles in mind, and the censure to be made of the defendants’ conduct, I have concluded that the tariff costs of $8,000 should be further increased under Civil Procedure Rule 77.07(1) to the level of $12,000 for each of the third parties.

That figure (to be inclusive of disbursements which here are only minor amounts) represents a substantial contribution of the third parties’ legal expenses and is what I consider to be a just and appropriate award in the circumstances of these motions.

CONCLUSION [ 32 ] All litigants and their counsel must be cognizant that making unfounded allegations of conspiracy, fraud and dishonesty against their opponents, without any evidentiary foundation whatsoever, will attract sharp adverse costs consequences. [ 33 ] While the defendants’ conduct here falls short of the imposition of a solicitor-client costs award, an increase over the tariff amount to the level of $12,000 for each third party is warranted. J.