July 2005

Sea Monkeys?

Brine Lake Products Ltd. v. Schenker of Canada Ltd. Et al 2004 CanLII 14463 (ON S.C.D.C.)
(counsel for the defendant, Schenker, was Demetrios Yiokaris of Fernandes Hearn LLP; a full copy of the decision is at http://www.canlii.org/on/cas/onscdc/2004/2004onscdc10301.html)

In this decision, the plaintiff is a company involved in the harvesting of Brine Shrimp (a.k.a. sea monkeys - those loveable microscopic creatures often sold to unsuspecting little children who believe that they are real pets). In a commercial context sea monkeys are harvested in certain areas of the world, notably Iran and Utah, and are used as food for shrimp. The plaintiff retained the defendant, Schenker to arrange for the movement of fishing equipment from Toronto to Iran for the purpose of harvesting the sea monkeys in Iran. Schenker arranged the air carriage with British Airways. Allegedly, the fishing equipment arrived late resulting in over US $4.5 million worth of damage.

As in many lawsuits there was a battle over compelling answers to Undertakings. This was a particularly fierce battle lasting two days. The plaintiff failed to or refused to answer dozens of undertakings/refusals at its representative's Examination for Discovery. The plaintiff refused/failed to answer some of these questions on the basis that if the answers are provided, individuals could potentially face criminal sanctions in Iran or the U.S. Despite this, Schenker was successful on every ground and was awarded answers to all of its questions, including $10,500 in legal costs for the motion.

The plaintiff appealed the undertakings/refusals decision; however it made the appeal approximately 30 days after the initial decision by the court. Under the Ontario Rules of Civil Procedure appeals from final orders must be made within 30 days; however appeals on interlocutory orders must be made within 7 days. Schenker immediately moved to quash the appeal on a technicality, regardless of the merits of the appeal. Schenker argued that the order appealed from was not a final order, rather an interlocutory one. Though there is no direct case on point, the judge applied several recent texts and cases on similar issues and the seminal Court of Appeal decision regarding whether an order is final or interlocutory:

"In Hendrickson v. Kallio, [1932] O.R. 675 (Ont. C.A.), Middleton J.A. (for the Court) said:

I am clearly of opinion that the order in question is not an interlocutory order within the meaning of this statutory provision. The interlocutory order from which there is no appeal is an order which does not determine the real matter in dispute between the parties - the very subject matter of the litigation, but only some matter collateral. It may be final in the sense that it determines the very question raised by the applications, but it is interlocutory if the merits of the case remain to be determined."

The court found that the Hendrikson test really means is that to be final an order must deal with the substantive merits as opposed to mere procedural rights, no matter how important the procedural rights may be. The test focuses on whether the order under appeal finally disposes of the rights of the parties, in the sense of substantive rights to relief (in the case of a plaintiff) or a substantive defence (in the case of a defendant).

As such, the court ruled that this was an interlocutory order and that the plaintiff is out of time with its appeal. The court also awarded Schenker another $4,500 in costs for the appeal. Even though:
a) there was a significant amount of money at stake in the lawsuit (US $4.5 million);
b) the error was likely made by the lawyers and not the plaintiff itself;
c) the defendants did not suffer any real prejudice;
d) the appeal was made only a few weeks after the deadline; and
e) that the plaintiff argued individuals could potentially suffer criminal sanctions in Iran and the US
the court still upheld the technicality.

Show Me the Money

Brine Lake Products Ltd. v. Schenker of Canada Ltd. [2005] O.J. No. 1365

(counsel for the defendant, Schenker, was Demetrios Yiokaris of Fernandes Hearn LLP; a full copy of the decision can be found via Quicklaw access)

A year after the above decision, Schenker brought a motion against the plaintiff for security for costs. The plaintiff is a foreign corporation, with no apparent assets in Canada. In Ontario, if a plaintiff is a foreign corporation and there is good reason to believe that it does not have assets in Ontario, then in most cases defendants are entitled to have the plaintiff post security for costs. Security for costs is an amount of money posted by a party to be held in trust in case it loses the law suit. If a costs award is made against a party at the end of trial, then the party it is awarded too may collect the costs award from that security. The reason behind this rule is so that the winning party at the trial does not have to chase down the foreign company in a foreign jurisdiction where it may or may not have assets.

The plaintiff conceded that Schenker and the co-defendant, British Airways were entitled to security for costs, but argued as to the quantum. The court believed that the trial would take approximately 2 weeks. It ordered that the plaintiff must post not a token or minimal amount in security but over $130,000 in security for costs for each defendant. Security for costs is always a powerful weapon for a defendant being sued in Ontario by a foreign plaintiff. Conversely, it is always something that a foreign plaintiff should be mindful of when proceeding with a lawsuit in Ontario.

In Ontario costs are typically awarded on a partial indemnity or substantial indemnity scale. Partial indemnity is a fraction of the actual legal fees up to a maximum hourly rate figure. The maximum hourly rate is determined by the lawyer's years of experience. Further, it is not awarded on all the work a lawyer may do for a client, but only those "assessable" categories under the Tariffs appended to the Ontario Rules of Civil Procedure. Often times, courts award partial indemnity costs at 35%-65% of the hourly rate of the lawyer. Substantial indemnity costs are awarded on a similar fashion as partial indemnity costs but are at 100% of the lawyer's hourly rate and only in rare types of cases (i.e. a fraud cases or where an offer to settle is beat at trial).

In this case, the parties agreed and the court ordered security for costs on a partial indemnity scale; however the court awarded a rather high percentage of the lawyer's hourly rate under the partial indemnity scale- approximately %85. The court did this to acknowledge that consideration must be made for the low hourly rate charged by Fernandes Hearn LLP to its client (as compared to the going rate of other downtown Toronto firms) and the firm's industry expertise in the area of shipping and air carriage. The court implicitly reasoned that the defendant should benefit in a costs assessment since it chose a specialist lawfirm. The assumption is that a specialist lawfirm would charge less than a general commercial litigation firm to the client. This case provides valuable precedent for all lawfirms with industry expertise and also for most lawyers who bill at a lower rate to its client when arguing for legal costs.