



COURT OF APPEAL FOR ONTARIO

CITATION:

Oz Optics
    Limited v. Timbercon, Inc., 2012 ONCA 735

DATE: 20121030

DOCKET: C51799

Simmons, Armstrong and LaForme JJ.A.

BETWEEN

Oz Optics Limited

Plaintiff (Appellant)

and

Timbercon, Inc.

Defendant (Respondent)

Stephen Victor, Q.C. and David Cutler, for the appellant

Jonathan Stainsby, Mark E. Davis and Andrew McIntyre,
    for the respondent

Heard: April 29, 2011

On appeal from the judgment of Justice Julianne A.
    Parfett of the Superior Court of Justice, dated February 10, 2010, with reasons
    reported at 2010 ONSC 310, 73 B.L.R. (4
th
) 120.

COSTS ENDORSEMENT

INTRODUCTION

[1]

The court allowed this appeal in respect of a claim for negligent
    misrepresentation and ordered a new trial limited to damages.  We awarded the
    appellant its costs of the appeal on a partial indemnity scale fixed in the
    amount of $40,000, including disbursements and applicable taxes.

[2]

Since the majority of the trial covered various issues of liability in
    respect of the FiberStar Project, we allowed the appellant its costs of the
    trial.  However, we ordered that the trial costs should be adjusted to account
    for the fact that the appellant, Oz, did not succeed in respect of the issue
    related to the manufacture and sale of manual attenuators.

[3]

If the parties were unable to agree on the costs of the trial, we
    invited the parties to make written submissions.  They could not agree.  We
    have received and reviewed the written submissions and this is our endorsement
    on the costs of the trial.

THE APPELLANTS SUBMISSIONS

[4]

Oz submits that its costs of the trial on a substantial indemnity scale
    are $616,903.08 and, on a partial indemnity scale, are $411,334.94.  Oz applies
    a 10 per cent discount to its costs to take into account its lack of success on
    the issue of the manual attenuators.  It therefore claims $555,212.77 on a
    substantial indemnity scale or $370,201.45 on a partial indemnity scale.

[5]

We note that Timbercons original claim for costs of the trial was
    $774,229, and Timbercon received a costs award of $454,700 on a partial
    indemnity scale for the trial.

[6]

Oz submits that it is entitled to substantial indemnity costs because of
    Timbercons conduct giving rise to the cause of action and its conduct in the
    discovery stage of the litigation.

[7]

In particular, Oz argues that Timbercon acted in a reprehensible manner
    in assuring Oz that it would be the sole supplier of the automatic attenuators
    and then, without the knowledge of Oz, inviting another supplier, DiCon, to bid
    on the project and ultimately rigging the bids in favour of DiCon.  Oz further
    submits that in the discovery stage of the litigation, Timbercon failed to
    disclose key relevant documents, which ultimately exposed its prior
    reprehensible conduct.

THE RESPONDENTS SUBMISSIONS

[8]

The respondent makes the following submissions:

(i)      Although the court has held that Oz is entitled to its
    costs of the trial, the assessment of the costs should be deferred until the
    damages are quantified in a new trial.

(ii)      If the costs are to be assessed, they should be
    assessed on a partial indemnity scale.

(iii)     The quantum claimed by Oz is excessive and should be
    reduced due to a number of factors including the amount of the damages claimed,
    the trial delay attributed to the conduct of Oz and the divided success.

(iv)     Timbercon should be awarded its costs of the trial
    related to the manual attenuators and its success in defending the allegation
    of breach of confidence and misappropriation of intellectual property as well
    as its success in certain motions during the course of the trial.

ANALYSIS

(i)

Should the assessment of the trial costs be deferred until the damages
    are quantified after a new trial?

[9]

Timbercon submits that the assessment of the costs should be deferred
    and makes four points in support of its submission.

[10]

First,
    it submits that the amount claimed compared to the amount recovered is an
    important factor for the court to consider pursuant to rule 57.01(1)(a) of the
Rules
    of Civil Procedure
.  The amount recovered is not yet known.

[11]

Second,
    it submits that the period for which Oz may claim reliance damages for negligent
    misrepresentation is limited to a short timeframe: August 4, 2003 to October 4,
    2003 and therefore damages are likely to be minimal.

[12]

Third,
    if the amount recovered is less than the $50,000 cap provided under the
    simplified procedure rules, the cap could operate to deny Oz its costs.

[13]

Fourth,
    there could be costs consequences under rule 49.

[14]

In
    respect of the first point, we agree that the amount claimed compared to the
    amount recovered is a factor that the court may consider under rule 57.01 and
    that it will not be possible to make the comparison until the damages
    assessment is done.  However, in all the circumstances of this case and in
    particular the conduct of Timbercon, discussed below, we think it is appropriate
    to proceed to make a costs award now.

[15]

We
    are not persuaded by points 2, 3 and 4.  Given the exceptional circumstances of
    this case, and, in particular, the conduct of Timbercon before the commencement
    of the action and in respect of the discovery stage of the litigation, a low
    damages award would not be a significant factor in determining the scale or the
    quantum of costs.  Even if the damages are so low that rules 49 or 76 come into
    play, we would exercise the courts discretion to deny the application of those
    rules.

(ii)

On
    what scale should the costs be assessed?

[16]

This
    is a case for costs on a substantial indemnity scale.  There is a finding by
    the trial judge, not challenged on appeal, that Timbercon rigged both of the
    bids presented to Lockheed Martin in order to ensure that DiCon was the
    successful bidder.  In respect of the failure to produce relevant documents
    from DiCon, including the key e-mail between Timbercon and DiCon inviting DiCon
    to make a bid, Timbercon takes the position that they did not have this
    document and other documents in their possession, and therefore could not
    produce them.  While that may be so, there is no explanation as to why it is
    so.  If there was a credible explanation, we are sure we would have heard it. 
    In any event, substantial indemnity costs are warranted when one of the parties
    is guilty of reprehensible conduct either prior to the litigation or during the
    litigation itself: see
Hunt v. TD Securities Inc.
(2003), 66 O.R. (3d)
    481 (C.A.) at para. 123.  In our view, the conduct of Timbercon in rigging the
    bids prior to the commencement of the litigation is sufficient to justify such
    an award.

(iii)

The quantum

[17]

The
    assessment of costs is not an exact science.  The overriding principle is that
    a costs award must be fair and reasonable.  As indicated, costs in this case
    need to be adjusted to take into account Ozs lack of success in respect of the
    manual attenuators.  Also, we agree with counsel for Timbercon that an
    adjustment should be made because of the lack of success in respect of the
    claims for breach of confidentiality and misappropriation of intellectual
    property.  Those issues were not before us on appeal, however, they are
    relevant to the trial costs.

[18]

As
    already noted, Oz submits that the adjustment in respect of the manual
    attenuators should be 10 per cent.  Timbercon submits this adjustment should be
    approximately 25 per cent to 30 per cent.  Timbercon also submits that the
    adjustment in respect of the issue of breach of confidence and misappropriation
    of intellectual property should be 25 per cent to 35 per cent.  We are of the view
    that a fair and reasonable adjustment is 20 per cent for each of those issues,
i.e.
a 40 per cent adjustment overall.  Using a rounded figure of $617,000 for
    Ozs substantial indemnity costs, we would deduct 40 per cent or $247,000,
    which produces a global rounded figure of $370,000. Finally, we do not consider
    it appropriate to make an adjustment or deduction on account of certain motions
    that Timbercon submits it won at trial and in respect of alleged delay created
    by Oz relating to the claim for breach of confidentiality and misappropriation
    of intellectual property.  The adjustment in respect of the latter has already
    been made.

(iv)

Should Timbercon be awarded its costs related to the manual attenuators,
    its success in defending the allegation of breach of confidence and
    misappropriation of intellectual property and its success on certain motions
    during the course of the trial?

[19]

In
    view of our above reasons, it is apparent that we do not agree that costs
    should be awarded in favour of Timbercon.  Timbercon, in effect, is asking for
    a distributive costs order, which this court has said is restricted to the
    rarest of cases: see
Eastern Power Ltd. v. Ontario Electricity Financial
    Corp.
, 2012 ONCA 366 at para. 18.

CONCLUSION

[20]

In
    the result, we fix Ozs trial costs on a substantial indemnity scale in the
    amount of $370,000 inclusive of disbursement and applicable taxes.

Janet Simmons
    J.A.

Robert P. Armstrong J.A.

H.S. LaForme
    J.A.


