IN THE SUPREME COURT OF NOVA SCOTIA
Citation: National Bank Financial Ltd. v. Potter; Barthe v. National Bank Financial Ltd.; 1384156 Ontario Inc. v. National Bank Financial Ltd., 2005 NSSC 264
Date: 20051005
Docket: S.H. 206439/208293/216543
Registry: Halifax
Between:
National Bank Financial Ltd.
Plaintiff and Defendant by Counterclaim
- and -
Daniel Potter
Defendant, Plaintiff by Counterclaim and by
Counterclaim and Defendant by Counterclaim
- and -
Raymond Courtney
Defendant and Plaintiff by Counterclaim and by
Counterclaim
- and-
Bruce Clarke
Defendant, Plaintiff by Counterclaim and
Defendant by Crossclaim and by Counterclaim
- and -
Knowledge House Inc., Starr’s Point Capital Incorporated,
Fiona Imrie, Gramm & Company Incorporated, 2532230 Nova
Scotia Limited, 3020828 Nova Scotia Limited, Donald Snow,
Meg Research.Com.Limited, 3027748 Nova Scotia Limited,
Calvin Wadden, Bernard Schelew, 2317540 Nova Scotia Limited
Defendants and Plaintiffs by Counterclaim
- and -
Blois Colpitts and Stewart McKelvey Stirling Scales
Defendants and Defendants by Counterclaim
- and -
Real Raymond, Jean Turmel, Michel Labonte, Lorie Haber,
Guy Roby, Eirck Hicks, Barry Morse, David Mack, Joel
Wisenfeld, Alan v. Paris, Brian K. Awad and Donald Winchell
Defendants by Counterclaim
- and -
Ronald Richter
Defendant
AND
2003 S. H. No. 208293
IN THE SUPREME COURT OF NOVA SCOTIA
Between:
Michael Barthe and Lutz Ristow
Plaintiffs and Defendants by Counterclaim
- and -
National Bank Financial Limited
Defendant and Plaintiff by Counterclaim
AND
2004 S. H. No. 216543
IN THE SUPREME COURT OF NOVA SCOTIA
Between:
1384156 Ontario Inc.
Plaintiff
- and -
National Bank Financial Limited
Defendant
- and -
Daniel Potter, Starr’s Point Capital Incorporated, Fiona Imrie,
Gramm & Company Incorporated, 2532230 Nova Scotia Limited,
3020828 Nova Scotia Limited, Ronald Richter, Kenneth MacLeod,
Futureed.Com.Ltd., Donald Snow, Meg Research.Com Limited,
3027748 Nova Scotia Limited, Calvin Wadden, Raymond Courtney,
Bernard Schelew, Blois Colpitts, Stewart McKelvey Stirling Scales,
Bruce Clarke, 2317540 Nova Scotia Limited, Knowledge House Inc.,
Michael Barthe and Lutz Ristow
Third Parties
DECISION
Revised Decision: The text of the original judgement has been corrected incorporating the text of the erratum (released October 12, 2005)
Judge: The Honourable Justice J. E. Scanlan
Heard: September 16, 2005, in Halifax, Nova Scotia
Final written
submission: September 27, 2005
Counsel: Mr. Daniel Potter
Representing Knowledge House Inc, Starr’s Point Capital Incorporated and Daniel Potter
Ms. Cheryl L. Hodder
Solicitor for Charles Keating
Mr. James Hodgson
Solicitor for Alan Parish and Brian Awad
Ms. Nicole E. Godbout/ Mr. David G. Coles
Solicitors for Tim Hill
Mr. James D. G. Douglas
Solicitor for Blois Colpitts
Mr. W. Dale Dunlop
Solicitor for Michael Barthe and Lutz Ristow
Mr. Tim Hill
Solicitor for Raymond Courtney
Mr. J. F. Rook, Q.C.
Solicitor for Stewart McKelvey Stirling Scales
By the Court:
[1] Technically this is an application for costs related to a decision which I rendered, reported at National Bank Financial Ltd. v. Daniel Potter 2005 NSSC 113. In that case I had, among other things, directed the removal of National Bank Financial Limited (NBFL) counsel as a result of improper access of solicitor-client information. In reality this application is as much about the proper administration of justice as it is about costs. The respective applicants are all, one way or another, involved in a complex series of litigation arising out of the collapse of a publically traded company, Knowledge House Inc. (KHI). To date, a large portion of the time, energy and legal resources have been wasted on an issue which should never have arisen. That issue was based on the applicants either trying to prevent NBFL solicitors from accessing solicitor-client privileged documents, or in trying to determine whether NBFL was using privileged documents in preparing pleadings against either the holders of the privilege or the other parties in the related litigation files.
[2] These issues first arose in March of 2004. Most of the steps taken since then by the parties have done nothing to further the actual litigation. Only now are the parties to the point of working together or with the Court to establish a process that should have been put in place at least a year and one-half ago. This will allow them to move forward with the litigation and to identify privileged documents and determine whether the privilege may have been lost or waived. I have no doubt the legal fees and disbursements since March 2004 have been far in excess of one million dollars.
[3] NBFL now takes the position that only the applicants Daniel Potter, KHI and Starr’s Point Capital Incorporated (the Potter group) should succeed in their request for costs. NBFL further suggests the Potter group should be entitled to costs based on the tariff amounts only. In this regard counsel for NBFL suggested there were hearings which lasted 14 days and, based on the tariff, costs would be in the amount of $28,000.00. In the circumstances of this case an award based on the tariff would be so low that it would be manifestly unjust. (See: Williamson v. Williams [1998] N.S.J. 498 (C.A.)) At this stage in the proceedings an amount involved in the application or the main actions cannot be determined. The number of days in court does not reflect the number of hours expended on the case, nor the seriousness and complexity of the issues. In this case as in Keddy v. Western Regional Health Board [1999] NSJ No. 464 a lump sum award of costs above the tariff is appropriate. The amounts should be such that they represent a substantial partial indemnity and take into account the unique and rather exceptional circumstances of this case.
[4] Daniel Potter is a law school graduate but he is not a practising member of the Nova Scotia Bar. He does not pay fees or insurance required for a practising member. Mr. Potter’s suggestion to the Court was that he expended some 832 hours on the applications related to solicitor-client privilege and spent $8644.68 in disbursements. Of the disbursements claimed $2,140 was paid for transcripts of the hearing and $6,275.86 was paid for legal fees to Blake, Cassels & Graydon. None of the Potter group account has been taxed. The 832 hours referred to by Mr. Potter is in keeping with what counsel for a number of parties indicated they had expended on the issue. None of the other solicitors accounts have been taxed either.
[5] Mr. Potter submitted an account to the court suggesting fees of $208,025.00 based on a rate of $250.00 per hour, GST $31,203.75 and $8644.68 disbursements. The proposed total is $247,873.43.
[6] Mr. Potter, although not a practising lawyer, carried a substantial portion of the load in terms of filing of briefs, submissions, examination and cross-examination of witnesses. It is obvious to the Court that these were complex issues which required Mr. Potter to doggedly pursue the matters in Court to protect his interest and the interest of the companies. The privilege rights Mr. Potter sought to protect go to the very essence of the proper administration of justice. NBFL gave no quarter on the issue until the applications were nearly complete. As noted in McBeth v. Governors of Dalhousie College and University (1986), 72 N.S.R. (2d) 224, a successful, unrepresented litigant should be awarded costs as is a litigant who is represented by counsel. That does not, however, mean the cost award is to be the same rate as a litigant who has retained a solicitor.
[7] The preparation of affidavits and briefs obviously consumed substantially more time than the 14 days of hearings in Court. Mr. Potter’s effort and skill in dealing wiht the complex issues is obvious when one reviews the briefs, affidavits and case materials provided to the Court by Mr. Potter. Applying the principles as set out in Toronto-Dominion Bank v. Lieneaux 2004 NSSC 235 I suggest that had the Potter group been represented by counsel I would have been inclined to hold that this is one of the rare and exceptional cases which warranted solicitor and client costs. In this case the Potter group was not represented by counsel and I therefore ask what is a reasonable compensation.
[8] Costs are in the discretion of the Court. Pursuant to Rule 63.02 the Court may order a gross sum in lieu of or in addition to any taxed costs. Rule 63.04 provides that in fixing costs the Court may consider, pursuant to Rule 63.04(2):
(a) the amount claimed;
(b) the apportionment of liability;
(c) the conduct of any party which tended to shorten or unnecessarily lengthen the duration of the proceeding;
(d) the manner in which the proceeding was conducted;
(e) any step in the proceeding which was improper, vexatious, prolix or unnecessary;
(f) any step in the proceeding which was taken through over-caution, negligence or mistake;
(g) the neglect or refusal of any party to make an admission which should have been made; ...
(j) any other matter relevant to the question of costs.
[9] Mr. Potter is not a practising solicitor and would not have overheads normally associated with the practise of law. I had noted earlier NBFL solicitors did admit, near the end of the hearings, that NBFL solicitors should not have adopted the process which they did in relation to KHI’s servers. In terms of addressing the merits of this case, the file has not likely been advanced in terms of trial readiness by the many hundreds of thousands of dollars spent and hundreds of hours wasted. I keep in mind as well that the Potter group bears none of the responsibility in terms of the problems to date related to solicitor-client privilege. NBFL alone is responsible for the process adopted by them. That last comment applies to whether I am referring to the Potter group or the other parties who now seek costs.
[10] I take into account as well the fact that Rule 63.05 provides:
unless the Court otherwise orders, the costs of any interlocutory application, whether ex-parte or otherwise, are costs in the cause and shall be included in the general costs of the proceedings.
That provision would suggest the normal rule is for costs to be in the cause but it is within the Court’s discretion to order otherwise. In the circumstances of the present case I again point out that the applications dealing with solicitor-client privilege and the KHI servers did nothing to advance this litigation. The time and money wasted to date will never be made up.
[11] The comments in my earlier decision (NBFL v. D. Potter 2005 NSSC 113) are reflective of the exceptional nature of this case, the importance of the issues at stake and the degree to which NBFL solicitors had threatened to compromise the fundamental rights of the Potter group on the issue of solicitor-client privilege.
[12] The issues raised in this case are also important public issues in terms of the world of commerce and the practise of law in the electronic age. If this Court was to award costs based only on the tariff as suggested by NBFL counsel, the result would be that Mr. Potter and the Potter group would either now or later bear the financial burden associated with protecting a fundamental right. The protection of solicitor and client privilege is fundamental to all litigants. Litigants whose privilege is under attack on such a fundamental issue should not shy away from protecting those fundamental rights based on the cost to them. In a case such as this where such a fundamental right is under attack, the wrongdoer must not be immune from the financial consequences by shifting the burden to the person who’s fundamental right is under attack.
[13] Costs above and beyond the normal tariff limit are appropriate. I take into account all of those things I must consider in accordance with the Nova Scotia Civil Procedure Rules. I am not convinced I should award costs to the Potter group based on an hourly rate of $250.00 as claimed. I again note the account has not been taxed, nor in the circumstances of this case could they be taxed in the normal sense that a solicitor-client account could be taxed. An appropriate award of cost should be in the form of a lump sum. I award costs inclusive of disbursements in the amount of $70,000.00 for the Potter group.
[14] Costs should not be in the cause. They will be payable forthwith, as a condition of NBFL continuing to prosecute its case or proceeding with its defence in these various proceedings. I say this largely because of the situation where the actions of one party alone have resulted in an enormous expenditure of money which has done nothing to advance the action. The inappropriateness of NBFL actions in relation to privileged documents will not be affected by the eventual outcome in the case. Even if the documents were later found to have lost privileged status by operation of law or through waiver, it does not take away from the fact that the process adopted by NBFL was improper. The case is only now to the point where is should have been before the servers were accessed. The parties are only now putting a process in place to determine just what documents were privileged and which may have lost privileged status. The work to date can only be described for all litigants, even NBFL as being nothing short of a colossal waste of client resources. That is an important factor in my determination that costs should not be in the cause. Costs should be payable forthwith in any event of the cause. In terms of proper administration of justice it is inappropriate to have an issue such as infringement of solicitor-client privilege dependant upon the eventual outcome of the case. If that were allowed a wealthy litigant may well trample all over the fundamental rights of a less fortunate individual knowing there is no meaningful recourse until the end of the trial process. That, in and of itself, may induce the trampling upon fundamental rights of litigants and is to be avoided.
[15] At the end of the trial process this case will not be determined based on what has happened to date in relation to privileged materials. The case will be decided based on a process that should have been put in place before the rights were infringed upon in the first instance.
[16] NBFL suggests none of the other participants in the file should be awarded costs. They suggest that only the Potter group succeeded in its applications to protect their privilege and to have NBFL solicitors removed from the file.
[17] Blois Colpitts was one of the lawyers who represented the Potter group and whose communications NBFL solicitors were reviewing on the KHI servers. Mr. Colpitts was a member of the Stewart, McKelvey, Stirling, Scales (SMSS) law firm. There were communications with other SMSS lawyers on the server. Mr. Colpitts and SMSS have been joined in the litigation, directly or indirectly. To the extent that they are parties to the litigation and to the extent that, as a solicitor, Mr. Colpitts has an obligation to take steps to maintain and protect solicitor-client privilege, Mr. Colpitts and SMSS were intricately involved in the applications. It could be said of all the parties that the actions are so intertwined with the Potter group proceedings that their cases are inseparable. The pleadings are impacted by what information may or may not be privileged. In terms of timing each event which impedes the progress of one action affects others. Whether counsel are dismissed in one action affects the others. Even if Colpitts and SMSS were not directly involved and succeed in their own capacity on the issue of protection of privilege, they were inescapably dragged into that process because of the special relationship as between solicitor and client. Counsel for Colpitts and SMSS fully participated in the privilege aspect of the hearings. This is similar to the situation existing in Johnston v. Law Society of Prince Edward Island [1987] P.E.I.J. No.89. In that case the Court of Appeal awarded costs to the Law Society and to a lawyer who was not a party to an action but who was an interested party with standing, represented by counsel. In Toronto-Dominion Bank v. Lieneaux [2004] N.S.J. No. 448 a lawyer who was a third party on a mortgage proceeding because of an assertion he failed to protect a party from undue influence was awarded costs on an application by Toronto-Dominion Bank. That application sought only to strike portions of defences and counter-claims and an application by the Lienaux’s to amend their pleadings. Even though the lawyer was not a party in those applications he was an interested party and was awarded costs related to his participation in the applications.
[18] In this case Mr. Potter, KHI and Star’s Point filed the application which requested relief in terms of protection of the privileged e-mails. They asked that the servers and e-mails not be accessed or the contents be disseminated. Colpitts and SMSS fully participated in the application as they would have been expected to when the privilege of one of their clients was under attack. In that sense it is hard to envisage a situation where they would not have been involved in the process. I am satisfied they should be entitled to costs on that basis alone.
[19] In addition, the associated actions fully engage SMSS and Colpitts in terms of the issues of liability, placing them in a position extending well beyond that of a normal solicitor or law firm attempting to assert or protect client privilege. The actions against Colpitts and SMSS made the issue of privilege relevant not only to their client but also to the lawyers themselves. They have been substantially impacted by the actions of NBFL in relation to the server. The actions against them may well be substantially different had NBFL been given unrestricted access to the servers. That will only be determined after a proper process is implemented to deal with privileged documents.
[20] Counsel for SMSS and Mr. Colpitts have urged that I award solicitor and client costs so as to send a clear message of deterrence and denunciation to NBFL. I take into account the impact that my ruling has already had on NBFL. They alone have had to retain new counsel and this will no doubt involve substantial expenditures of money.
[21] Solicitor and client costs are rare and exceptional awards, especially in interlocutory applications. An award of costs which amounts to a substantial contribution to the out-of-pocket expenses for SMSS and Colpitts is appropriate. Both were successful in assisting the Court in determining privileged documents were being accessed and being used in the pleadings. Counsel have submitted untaxed accounts suggesting fees and disbursements billable to the clients were $159,046.76 for Mr. Colpitts and $329,121.21 for SMSS. These are solicitor-client fees and disbursements.
[22] I am not convinced the arguments for awarding costs to Colpitts and SMSS are on an identical footing with the Potter group. Costs should be awarded to them but not on a solicitor-client basis. They were of necessity drawn into the proceedings but it was the Potter group represented by Mr. Potter who so doggedly pursued this matter from the beginning. NBFL’s summary dismissal of Mr. Potter’s claim for privilege and their somewhat arrogant dismissal of efforts to protect his own fundamental rights, warrants some additional sanction and denunciation. Costs for Colpitt and SMSS is to be a lump sum award which is sufficient to amount to a substantial contribution to their actual costs but something less than solicitor-client costs.
[23] In dealing with the substantial difference in the fees for Colpitts as compared to SMSS I refer to Campbell v. Jones 2001 NSSC 139 and Mathers v. Mathers (1992), 113 N.S.R. 284 in saying there is a risk of abuse if cost awards are tied to actual fees. In this case none of the accounts have been taxed. Even if they were, it is not appropriate to fix percentages related to client accounts. This comment applies not just to Colpitts and SMSS but to others I will deal with later. A more appropriate basis to deal with costs when not being awarded based on tariff or on a solicitor-client basis is to refer to the other considerations noted in the rules and cases. I take into account for example the complexity of the case, interests at stake, the degree of success, the degree or extent of participation and all other factors which I must take into account. I have already noted the inextricable connection of the parties and the direct impact the proceedings to date have had on the respective litigants. Colpitts and SMSS are each entitled to $125,000 inclusive of disbursements. In making that award I echo the comments of Justice Moir in Campbell v. Jones para 69:
One might say the objective was substantial indemnity against what would generally or ordinarily be charged to a client in like circumstances. To preserve some element of that where a lump sum award is in order, the court should try to assess counsel’s efforts on a general basis, and should take the actual fees into account only to the extent they tend to show generally what any client of any competent lawyer might expect reasonably to be billed for services necessary to the case at hand.
It serves no purpose here to try and differentiate between Colpitts and SMSS and the difference in fees. I say only that both were represented by extremely able counsel who fully participated in the hearings. Their efforts, results and cases were substantially the same in terms of the proceedings as they unfolded before the court.
[24] I turn now to other participants. Dale Dunlop, Q.C. represents a number of clients, including Messrs. Barthe, Ristow and Mahoney. Mr. Dunlop indicated during submissions that the total fees billed to all of his clients in relation to the KHI/NBFL cases exceeds one million dollars. On the specific issue of privilege he suggests his bill to clients, inclusive of disbursements is $159,752.43. NBFL challenges some portions of the account as submitted. As with the others the account has not been taxed. Mr Dunlop fully participated in the hearings on the privilege issue. The success of Mr. Potter was in no small measure attributable to the efforts of Mr. Dunlop in terms of the evidence he presented, his cross-examination of witnesses and briefs he prepared. Mr. Dunlop also raised the issue of privileged documents being used as source material in the preparation of pleadings against his clients. In part he was successful, at least on an interim basis, in having portions of the pleadings against his client struck. In addition he was successful in having counsel for NBFL removed. It was essential to the well being of Mr. Dunlop’s client that a process be put in place to allow the litigation to move forward.
[25] There, however, is a major distinction between Mr. Dunlop’s clients on the one hand and the Potter group and their lawyers. The distinction relates to the issue at stake. The Potter group and their lawyers were was dealing with a client’s fundamental right of protection of privileged communications. Mr. Dunlop’s clients supported the Potter group position and in fact played a major part in the submission of briefs and cross examination. As regards the issue of privilege however it was not Mr. Dunlop’s clients privilege which he was dealing with. Mr. Dunlop’s clients were directly affected by the pace of the litigation, the contents of the pleadings and the actions of NBFL counsel, but the issue of privilege was as between NBFL, the Potter group and their lawyers. The fundamental importance of that privilege issue and the way it was handled by NBFL solicitors put that aspect of the case into the rare and exceptional category warranting costs as I have noted.
[26] Mr. Dunlop makes the point that when the issue of privilege first arose he had commenced carriage of the main file to the state where he was prepared for discovery and in a position to advance the file towards trial readiness. He suggests most of this preparation has been wasted as much of the same ground will have to be covered again.
[27] It is clear that all affected litigants have suffered the consequences of NBFL’s carriage of the file. A crucial aspect of the case against Mr Dunlop’s clients and the Keating company, to which I will refer to later, related to the issue of what portions of the pleadings were being based on privileged or non-admissible documents. The parties were all aware of the fact NBFL may have possession and control of privileged documents but there was no proper process put in place to deal with the issue of privilege. The actions of NBFL in fact jeopardized the ability of all lawyers being able to continue to represent their respective clients when NBFL circulated the e-mail accounts to all solicitors in all related actions. Had they all accessed the e-mails they may well have been disqualified from continuing to represent their clients. That would have been a drastic result for all those who were in no way responsible for the actions of NBFL.
[28] I repeat, this file is as much about the proper administration of justice as it is about costs. It is difficult to put too fine a point on the success of any of the parties other than the Potter group. It is clear that the process NBFL employed had to be stopped before any more damage was done. It took all of the applicants through cross-examination, affidavits, briefs and representation at the hearings to achieve this. Mr. Dunlop was, in no small way, part of that effort. I am satisfied that in terms of the rather extraordinary circumstances surrounding this case that the parties as represented by Mr. Dunlop should also receive a lump sum award of costs but in a lesser amount than awarded to some of the others. I fix costs for Mr. Dunlop’s clients in the amount of $80,000 payable in any event of the cause and payable forthwith as a condition of NBFL continuing with the action.
[29] Counsel for 1384156 Ontario Inc. (the Keating company) indicated to the Court during submissions that total solicitor-client costs on the issue of privilege were approximately $36,000.00. In a written submission filed with the court after the hearing, on September 21, an untaxed account suggested the solicitor client fees were in fact $60,167.48 Either of these amounts is substantially less than what was expended by the other parties. It is reflective of the degree of participation by the Keating counsel throughout. I repeat my comments made in relation to Mr. Dunlop’s clients and again refer to the rather exceptional circumstances of this case. Both the Keating company and the Dunlop clients had different interests at stake than did the Potter group and their solicitors.
[30] The litigation in relation to the Keating company has not progressed any further than the others. Most of the money spent by them to date is wasted. As with the others, the web in which they have been entangled is not in any way of their making. They were successful in discovering the fact that documents obtained in another action were being used in the Keating action. In addition, they were successful in clarifying the use being made of the server in the drafting of the Keating pleadings and in the joint request to have NBFL counsel removed. There should be a substantial and meaningful contribution to the Keating company costs. I award costs in a lesser amount than awarded to Mr Dunlop’s clients based on the degree of participation. Costs in the amount of $25,000 are payable to the Keating company. As with the others they are payable in any event of the cause and due forthwith as a condition of NBFL continuing with its various actions and defences.
[31] All of the lump sum awards of costs which I have ordered are intended to be inclusive of disbursements.
[32] Mr. Potter and the Potter group have asked for costs against Mr. Courtney in relation to the actions of Mr. Courtney in turning the KHI servers over to NBFL through Mr. Courtney’s counsel. I am satisfied Mr. Courtney acted based on the advice of his counsel. I refer to my comments in my earlier decision National Bank Financial Ltd. v. Daniel Potter [2005] NSSC 113. I am not prepared to make an award of costs as against Mr. Courtney or his solicitor. Mr. Hill has not asked for costs as against Mr. Potter or the Potter group. Costs between Mr. Potter and Mr. Courtney will be costs in the cause dependant upon the outcome of the various actions between those parties.
[33] I conclude my comments on the issue of costs by saying the applications have raised unique issues in rare and exceptional circumstances. The Court would hope this case will provide guidance to those who follow. The objective is not just to punish NBFL. As the world of commerce goes from paper to electronics, issues such as these will no doubt arise on a more frequent basis. During that transition it is to be expected that fundamental principles and rights such as solicitor-client privilege will survive. There will be valuable lessons for all to be gleaned from their experience in this case.
[34] The wasted resources have not advanced the file in terms of resolving the issues of liability as between the parties. I appreciate that the costs I have awarded are not full indemnity as would be the case if solicitor-client costs were awarded. The amounts, however, are substantial and will serve to send a message as to the fundamental importance of solicitor-client privilege and the approach required when dealing with solicitor-client communications.
J.
09/30/05