Citation: Geophysical Services Inc. v. Sable Mary Services Inc., 2010 NSSC 357
Date: 20090929
Docket: Hfx 190208
Registry: Halifax
Between:
Geophysical Services Incorporated
Plaintiff
v.
Sable Mary Services Incorporated and
Matthew Kimball
Defendant
Judge: The Honourable Justice Gregory M. Warner
Final Written
Submissions: July 8, 2010; September 3, 2010; September 14, 2010;
and September 20, 2010
Counsel: Colin D. Piercey, for the plaintiff Geophysical Services Incorporated
Derrick J. Kimball, for the defendant Sable Mary Seismic Inc.
Nash T. Brogan, for the defendant Matthew Kimball
By the Court:
[1] After a 13-day trial involving a significant volume of documentary exhibits and some complex issues, Sable Mary was found liable to GSI for $1,764,251.70 for breach of contract. Of this sum Sable Mary and Matthew Kimball were found jointly liable to GSI for $451,885.41 for fraudulent misrepresentation. Sable Mary’s counterclaim for profit or success sharing ($1,390,000.00) was dismissed. The decision is reported as 2009 NSSC 404.
[2] The parties are unable to agree on court costs, and whether prejudgment interest should be payable for the full period between the commencement of the action (November 27, 2002) and the order for judgment (February 4, 2010).
Costs
[3] GSI claims solicitor-client costs or, in the alternative, a lump sum costs award approximating “substantial indemnity” of its actual costs. The defendants argue that costs should be party and party costs per Tariff A of Civil Procedure Rule 77.
A. Solicitor and Client Costs
[4] GSI has provided detailed records of its actual legal expenses in this action, and an outstanding but related “fraudulent conveyance action.” They total $1,053,425.72, of which $833,446.00 are legal fees; $52,760.00 are disbursements incurred by legal counsel; $115,206.00 is HST; and, $53,012.00 are disbursements paid directly by GSI for expert reports, discovery of the defendants’ experts and the costs of getting its witnesses to Nova Scotia for the trial.
[5] From the total, GSI has deducted legal fees for services respecting the related action and seven interlocutory motions in this action (for which costs were separately awarded) of $216,695.00 (26% of total fees), 26% of disbursements charged by its legal counsel, and HST on these fees and disbursements.
[6] GSI’s net claim, on a solicitor-client basis, is:
|
Fees |
$616,750.04 |
|
Disbursements incurred by legal counsel: |
39,043.50 |
|
HST: |
85,253.03 |
|
Disbursements paid directly by plaintiff: |
53,012.79 |
|
Total: |
$794,058.36 |
Submissions
[7] Civil Procedure Rule 77.03(2) reads:
A judge may order a party to pay solicitor and client costs to another party in exceptional circumstances recognized by law.
[8] GSI submits that solicitor and client costs are appropriate in rare and exceptional circumstances when reprehensible, scandalous or outrageous conduct by the losing party exists in the circumstances either leading to, but before the action, or during the proceedings. Solicitor and client costs are used to express disapproval of the conduct of the losing party.
[9] GSI’s Counsel refers the Court to:
· Young v Young, [1993] 4 SCR 3
· Brown v Metropolitan Authority, 1996 CarswellNS 147 (NSCA) at ¶ 81
· 23201072 Nova Scotia Limited v Lienaux, 2004 NSSC 235, which cites Orkin’s text, The Law of Costs, at § 219
· MacDonell v M & M Developments Limited, 1997 CarswellNS 224 at ¶ 91
· Performance Industries Ltd v Sylvan Lake Golf & Tennis Club Ltd, 2002 SCC 19
· Claibourne Industries Ltd v National Bank of Canada, 1989 CarswellOnt 1425 (ONCA)
[10] Counsel submits that the finding of fraud against the Defendants in this action constitutes reprehensible conduct and should merit the award of solicitor and client costs. Counsel does acknowledge that the only Nova Scotia decisions awarding solicitor and client costs were against parties who alleged but failed to establish fraud.
[11] Sable Mary also notes that there are no Nova Scotia precedents for awarding solicitor and client costs in circumstances similar to this case. Counsel distinguishes Young, Brown, Lienaux, MacDonell, Performance Industries and Claibourne. Sable Mary submits that decisions from other jurisdictions are not relevant or helpful.
[12] Counsel for Matthew Kimball submits that there is no authority in Nova Scotia for awarding solicitor and client costs on the facts in this case. He submits that some of the fees identified in the affidavits filed in support of GSI’s claim are not relevant to the action, and the solicitor and client fees are in fact less than $616,000.00.
Analysis
[13] Essentially the finding at trial was that the corporate defendant over billed the plaintiff and that, in respect of at least 25% of the overbilling, the corporate defendant, with the active involvement of the individual plaintiff (the operating mind and principal of the corporate defendant), intentionally invoiced the plaintiff for more than even their interpretation of the contract. While that conduct is reprehensible, it is not such a rare and exceptional circumstance (as described by Justice McLachlin, as she then was, in Young) that it deserves censure or rebuke (as described by Pugsley JA in Brown).
[14] Justice Saunders’ decision in MacDonell at ¶ 91 is not that “proof tantamount to fraud” is determinative of a party’s entitlement to solicitor and client costs. What Justice Saunders wrote, I suggest, was that “proof tantamount to fraud” in respect a party’s conduct is one of the avenues to finding conduct reprehensible. Said differently, it only opens the door to consideration of solicitor-client costs.
[15] The facts in this case do not establish an abuse by the Defendants of the Plaintiff of such a magnitude as to invoke censure or rebuke beyond the award of damages itself. This is not a rare and exceptional circumstance.
[16] I decline to award solicitor and client costs.
B. Lump Sum Costs
[17] Civil Procedure Rule 77.08 states:
A judge may award lump sum costs instead of tariff costs.
Submissions
[18] GSI cites:
· Orkin, The Law of Costs
· Landymore v Hardy, 1992 CarswellNS 92 (NSSC) at ¶¶ 17 and 18, which decision has been followed in several Nova Scotia decisions, including:
a) Turner-Lienaux v Nova Scotia (Attorney General), 1992 CarswellNS 692 at ¶ 38
b) Campbell-MacIsaac v Deveaux, 2005 NSSC 15 at ¶ 56
c) Williamson v Williams, 1998 NSCA 195 at ¶ 25
[19] These decisions held that a successful party should recover a “substantial contribution to its reasonable legal costs.” Freeman JA in Williamson wrote that a substantial contribution should not amount to a complete indemnity but rather more than 50% and less than 100% of a lawyer’s reasonable bill. In the circumstances of that case, he suggested that a reasonable range would be between two-thirds and three-quarters of the solicitor and client costs, objectively determined.
[20] As illustrations of the exercise of discretion in support of lump sum awards, GSI refers the Court to:
· Wall v Horn Abbot Ltd, 2008 NSSC 4
· Campbell v Jones, 2001 NSSC 139
· Conrad v Snair, 1996 CarswellNS 170 (NSCA)
· D W Matheson & Sons Contracting v Canada, 1999 CarswellNS 139 (NSSC)
· Founder Square Limited v Nova Scotia (Attorney General), 2000 NSSC 70
· Newfoundland Processing Ltd v DGH Construction Ltd, 1994 CarswellNfld 311 (NfldSC).
[21] GSI submits that application of Tariff A, Scale 2, to an award of $1,764,251.70, would produce a tariff fee of $114,676.36 plus $2,000.00 per day (Counsel said 20 days; I suggest 13 days) or $140,676.36 plus reasonable disbursements and HST. This would be about 22% of the plaintiff’s actual legal fees of $616,750.04, plus disbursements and HST.
[22] Sable Mary submits that the cases cited by GSI do not support its submission:
a) In Campbell-MacIsaac, the Court increased the tariff fee from $120,000.00 to $200,000.00, about 40% of the solicitor and client fees of $500,000.00, in respect of a lengthy, complex trial resulting in an award of 2.16 million dollars.
b) In Williamson, a lump sum of $30,000.00 was added to tariff fees of $44,000.00 in respect of solicitor and client fees of “some $80,000.00". The Court justified the lump sum in that case based on the public interest in protecting investor confidence in the investment industry in a case where a broker had deliberately breached a fiduciary duty.
c) In Wall, an all-inclusive lump sum award of 1.25 million dollars (less 25% to reflect the winner’s misconduct) followed a 47-day trial where 53 witnesses were heard, 19 pretrial applications determined and 65 witnesses discovered.
d) In Campbell v Jones, a 26-day defamation trial, the Court awarded a lump sum of $75,000.00 or 37.5% of the winner’s $200,276.00 solicitor and client legal fee.
e) In Conrad v Snair, the Court of Appeal, while upholding a lump sum award added to tariff fees totalling $114,000.00 where solicitor and client fees were $200,000.00, noted that the award was high.
f) In Newfoundland Processing, the lump sum award was $76,000.00 for a trial lasting 18 full days and 7 part days. The actual solicitor and client fees were not reported.
[23] Sable Mary describes GSI’s lump sum claim as a claim for “enhanced costs.” It argues that the finding of fraud is not a basis for awarding “enhanced costs.” Punitive or aggravated damages are the appropriate mechanisms to punish the defendants for fraud. Counsel submits that punitive and aggravated damages were pleaded by the plaintiff, but not awarded by the court.
[24] Sable Mary submits that the tariff provides a substantial contribution to actual costs, exclusive of costs incurred in pretrial motions, including motions for disclosure by reason of GSI’s failure to make complete disclosure.
[25] Counsel for Matthew Kimball endorses Sable Mary’s submission.
[26] In reply, GSI denies that a significant portion of its solicitor and client costs were attributable to motions for which costs were awarded. It repeats its initial submission, substantiated by the two-volume Affidavit of Paul Einarsson, that GSI has removed any fees and related expenses connected with those pretrial motions for which costs were already awarded, or matters relating to the companion action that is still outstanding.
[27] GSI does acknowledge its failure to remove fees totalling just more than one hour’s time.
Analysis
[28] To the extent that GSI intended to argue that the finding of fraud justifies lump sum costs (which is not clear in their submissions) I agree with the defendants: It is not a particularly relevant consideration.
[29] I agree that the principles respecting court costs in Nova Scotia, since Justice Saunders’ analysis in Landymore v Hardy, have focussed on providing a successful party with a substantial contribution to its legal costs, objectively assessed. This may be modified by conduct of the winning party.
[30] The analysis of whether the tariff costs constitute a substantial contribution to the plaintiff’s actual reasonable costs requires, first, an analysis of what tariff costs would be.
[31] In this case, the plaintiff claimed approximately 1.8 million dollars from the defendants for breach of a contract. The defendants claimed 1.3 million dollars from the plaintiff as profit sharing.
[32] In my view, the “amount involved” for the determination of the tariff of fees is not the final amount awarded by the Court but the amount at stake at trial. It was approximately 3.1 million dollars.
[33] Tariff A, Scale 2 (basic) generates a tariff for solicitors’ fees, for an “amount involved” of 3.1 million dollars, of $217,418.00 plus $2,000.00 per day for 13 days or $243,438.00. This is approximately 39% of solicitor and client legal fees, excluding fees for pretrial procedures for which costs have already been awarded.
[34] The trial and pretrial process were lengthened and made more complex by the voluminous documentary disclosure sought before trial and tendered at trial. Large portions of the contested disclosure motions, the disclosure made, and the exhibits filed at trial, dealt with the financial circumstances of the plaintiff, its shareholders, and related corporations. The disclosure sought, contested, and tendered at trial was not simply for the period that the plaintiff and defendants had a business relationship (1998 to March 1, 2002) but for several years after the end of their contractual relationship. Much of the disclosure sought, contested, and filed at trial did not deal with GSI’s East Coast seismic operation, which was the subject matter of the relationship between the plaintiff and the defendants.
[35] The overwhelming majority of this disclosure, and the evidence at trial, was primarily, if not exclusively, relevant to the defendants’ counterclaim for profit or success sharing. In its closing submissions, the defendants sought profit sharing in the amount of $1,390,000.00.
[36] Almost as much trial time was spent dealing with the defendants’ unsuccessful counterclaim as with the plaintiff’s successful claim.
[37] I am satisfied that much of the pretrial processes and trial effort were directed to the defendants’ substantial counterclaim. This increased the costs of litigation to the plaintiff. It is an important and relevant consideration in assessing whether GSI’s actual legal costs were objectively reasonable, and merit a contribution from the unsuccessful party that approximates a substantial contribution, as opposed to the tariff fee (where the tariff does not approximate a substantial contribution).
[38] I have carefully reviewed GSI’s legal accounts. I am satisfied that GSI’s reasonable solicitor and client costs for this litigation, (after deducting the 26% that GSI deducted for pretrial processes for which costs have already been awarded and other irrelevant services) is $550,000.00, about 10% less than claimed and itemized in Paul Einarrson’s affidavits.
[39] I agree with Justice Freeman’s interpretation that a substantial contribution to the successful party’s reasonable costs should be more than 50% and less than 100% of its reasonable legal bill.
[40] The plaintiff has itemized its legal disbursements. They have not been challenged by the defendants.
[41] I award costs to the plaintiff against the defendants, as follows:
|
Lump Sum Fees: (50% of reasonable legal fees) |
$275,000.00 |
|
Legal Disbursements by counsel: |
39,043.50 |
|
HST at 13% on above: |
40,825.65 |
|
Disbursements paid directly by the plaintiff: |
53,013.79 |
|
Total: |
$407,882.94
|
C. Prejudgment Interest
[42] GSI claims prejudgment interest at 5% per year from November 22, 2002, (when the action was commenced) to February 4, 2010, (the date of the order). It calculates the interest as $158,160.00 on the $451,885.43 fraudulent misrepresentation judgment and $459,328.00 on the remaining amount of $1,312,366.29 for the judgment respecting breach of contract.
[43] Sable Mary does not dispute the rate of 5%. It argues that the Court should not calculate interest for the entire period claimed. It submits that from February 2003 until early 2008, aside from discoveries, it brought four separate production applications against GSI. GSI’s conduct unreasonably delayed the action.
[44] Matthew Kimball makes no submissions on this issue.
[45] In response, GSI refers to its counsel’s letter to the court of August 30, 2007, in response to the defendants’ objection to the holding of a date assignment conference. The essence of its submission is that the defendants’ production motions: (i) was slow follow-up to disclosure provided by GSI at significant earlier dates; (ii) was not made in a timely manner after the prior production; and, (iii) related to periods long after the parties’ contractual relationship ended.
Analysis
[46] The Court’s file in respect of this action is now with the Court of Appeal and not available for this decision. From my working file, the following appear as the record of pretrial motions and orders:
(i) In December 2002, the plaintiff obtained an ex parte Anton Pillar order.
(ii) In April 2003, after a two-day hearing, Justice Hall set aside the Anton Pillar order.
(iii) In November 2003, the defendants were ordered to file and serve their lists of documents.
(iv) In July 2004 (by order issued December 7, 2004), GSI was ordered to produce all its corporate and financial records (internal and external), all communications with its external accountants and with Canada Revenue Agency, all records of agreements and transactions between it and related companies and other miscellaneous financial, corporate and shareholder records for the period 1998 to 2002.
(v) In April 2005, GSI was ordered to produce further documents arising out of discoveries and the production ordered in July 2004. Furthermore, Matthew Kimball and David Einarsson were ordered to attend for discoveries on fixed dates in July 2005.
(vi) A motion filed by the defendants on April 12, 2005, was withdrawn by consent order issued on May 20, 2005.
(vii) On November 15, 2006, an order was issued requiring the defendants to reply to overdue interrogatories and Gary MacKenzie (Sable Mary’s accountant) was ordered to respond to the requests and undertakings made at his discovery examination by November 20, 2006.
(viii) On November 24, 2006, the defendants were ordered to answer certain interrogatories by January 2007.
(ix) On May 17, 2007, Justice Stewart granted the defendants’ motion to change the venue of this action from Halifax to Windsor (with the understanding that the defendants intended to give a civil jury notice).
(x) In March 2008, GSI’s motion to strike the defendants’ jury notice was granted. The decision was appealed and upheld by the Nova Scotia Court of Appeal on September 30, 2008.
(xi) In September 2008, the trial, which had been scheduled in December 2007 to commence in November 2008, was adjourned at the request of the defendants to March 2009.
(xii) In December 2008, an order authorizing interprovincial subpoenas were issued to the plaintiff.
[47] This record suggests that both sides in this dispute made and were the subject of successful motions. My first involvement arose from the plaintiff’s filing of a request for a date assignment conference in mid-2007. My clear recollection was that the plaintiff was attempting at all times to move the litigation forward in an expeditious manner while the defendants were not able or willing to accommodate an expeditious process and were seeking lengthy periods for completion of pretrial processes.
[48] By CPR 70.07, I understand that prejudgment interest will be calculated at the rate of 5% per annum, simple interest, from the commencement of the action to judgment “unless a party satisfies a judge that the rate or calculation should be otherwise.” (My Emphasis).
[49] The defendants have not satisfied me that the plaintiffs caused any significant delay in getting this matter to trial. It appears that both parties were the subject of numerous pretrial motions respecting the conduct of the other.
[50] An order for pretrial interest as requested by the plaintiff will be issued.
J.