Date:
20121012
Docket:
T-1148-01
Citation:
2012 FC 1192
Vancouver, British Columbia,
October 12, 2012
PRESENT: The
Honourable Mr. Justice Harrington
BETWEEN:
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UNIVERSAL SALES,
LIMITED, ATLANTIC TOWING LIMITED, J. D. IRVING, LIMITED, IRVING OIL
COMPANY, LIMITED AND IRVING OIL LIMITED
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Plaintiffs
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and
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EDINBURGH ASSURANCE
CO. LTD., ORION INSURANCE CO. LTD., BRITISH LAW INSURANCE CO. LTD.,
ENGLISH & AMERICAN INS. CO. LTD., ECONOMIC INSURANCE CO. LTD., ANDREW
WEIR INS. CO. LTD., INSURANCE CO. OF NORTH AMERICA, LONDON & EDINBURGH
GENERAL INS. CO. LTD., OCEAN MARINE INS. CO. LTD., ROYAL EXCHANGE ASSURANCE,
SUN INSURANCE OFFICE LTD., SPHERE INSURANCE CO. LTD., DRAKE INSURANCE CO.
LTD., EAGLE STAR INSURANCE CO. LTD. AND
STEPHEN ROY MERRITT,
AS REPRESENTATIVE OF UNDERWRITERS SUBSCRIBING TO LLOYD’S POLICY NO.
614/B94656-A/1582
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Defendants
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REASONS FOR
JUDGMENT AND JUDGMENT
(INTEREST AND COSTS)
[1]
On
25 April 2012, I granted judgment in favour of Universal Sales Limited,
Atlantic Towing Limited and J.D. Irving Limited against the defendants,
severally, but not jointly, in the amount of $4,946,001.86. On consent,
interest and costs were left to be dealt with later. The plaintiffs have now
moved with respect thereto, and the defendants have replied. Both have led
evidence.
[2]
The
judgment shall be as if it were rendered at the same time as were the issues of
liability and quantum. I say this because since then some of the defendants
have settled, while others have taken the case to appeal. This judgment shall
ignore that fact since whatever agreement had been reached was reached and,
obviously, will take precedence. As the defendants were not jointly liable, the
parties can work out for themselves whatever calculations are required.
INTEREST
[3]
With
respect to interest, the issues are:
a. Since
there is always a burden on a plaintiff to move a case along, and since it took
11 years to get to trial, should the plaintiffs be deprived of some of the
interest they might otherwise have been awarded?
b. From
when should interest run: from the date the particularized claim was sent to
the underwriters, the date the action was instituted, or some other date?
c. At
what annual rate should interest be awarded?
d. Should
interest be compounded semi-annually, or at some other interval? and
e. Should
post-judgment interest be calculated at the same rate as pre-judgment interest?
COSTS
[4]
With
respect to costs, the issues are:
a. Should
the plaintiffs be awarded enhanced costs and, if so, on what basis?
b. Should
costs be reduced on a divided success basis given that the plaintiffs obtained
less than 50 percent of what they sought, and did not succeed on major issues?
c. To
what extent, if any, should settlement offers withdrawn before trial be taken
into account?
d. The
complexity of the case, time wasted, and the many other factors enumerated in
Rules 400 and following of the Federal Courts Rules.
DELAYS
[5]
In
my reasons for judgment, 2012 FC 418, [2012] FCJ No 536 (QL), I stated I would
want some explanation as to why this matter took 11 years to get to trial.
During argument, I had mentioned the decision of Mr. Justice Joyal in Santa
Marina Shipping Co SA v Madeg Holdings Inc, 6 FTR 269, 1 ACWS (3d) 302,
[1986] FCJ No 636 (QL) (the “Marina”). In that case, there had also been
an interval of 11 years from the date of the institution of the action until
trial. He ascribed a fair portion of this delay to the plaintiff and only
awarded interest at 60 percent of the average bank prime rate from the date of
the institution of the action, which was some four years after the cause of
action had arisen.
[6]
In
this case evidence was led by David Jamieson, executive vice-president and
assistant secretary of J.D. Irving Limited and assistant secretary of Universal
Sales Limited and Atlantic Towing Limited, and by Martin Futter, the lead
claims adjuster for the underwriters subscribing to the Lloyd’s Policy. Neither
was cross-examined.
[7]
I
am satisfied that delays were no more caused by the plaintiffs, than by the
defendants. There had been a change of solicitors by the defendants; both sides
needed a great deal of time to collect documents as the Irving Whale had sunk
in 1970; there were serious issues with respect to discovery of documents
and privilege. There were appeals, and the matter was under case management. Mr.
Jamieson was examined for discovery on four separate occasions. There was
general cooperation between counsel. I conclude that the circumstances are not
such that the plaintiffs should be deprived of the interest which they would
otherwise be awarded.
STARTING
DATE
[8]
The
parties are well aware that in admiralty the trial judge enjoys wide
discretion, and that interest is a function of damages. Indeed, while section
36 of the Federal Courts Act deals with pre-judgment interest,
subsection 7 provides that the section does not apply if relief is sought under
Canadian maritime law, as is the case here. To cite but one example, in Kuehne
+ Nagel Ltd v Agrimax Ltd, 2010 FC 1303, 382 FTR 47, [2010] FCJ No 1623
(QL), it was held that pre-judgment interest in maritime cases is actually an
aspect of damages, is at the Court’s discretion, and if properly pleaded runs
from the date the debt is due, not from the institution of the action.
[9]
In
this case, a particularized claim was only presented to underwriters on 10 November
2000. The plaintiffs concede that they could not have expected payment by
return mail. Some of the relevant events went back some 30 years. Documents
were missing, and the many aspects of the case had to be investigated. In these
circumstances, I consider the proper starting date to be the date the
defendants were served with the statement of claim, which was 12 July 2001.
RATE
OF INTEREST
[10]
There
is some confusion in Mr. Jamieson’s testimony. In his first affidavit, he
stated that the funds paid to the Crown in settlement of its action were
borrowed from the Royal Bank of Canada pursuant to J.D. Irving’s line of
credit. He said that the annual rate at the time was 5.22 percent.
[11]
Initially,
both sides had provided Bank of Canada interest rates. I pointed out that when
the Court speaks of commercial rates it invariably has in mind bank prime
lending rates, and so Mr. Jamieson subsequently provided information from
the Royal Bank of Canada, both as to its prime rate, and as to its lending rate
to J.D. Irving. The payment to the Crown was on or about 13 July 2000. At
that time, apparently, the Royal Bank of Canada’s lending rate to J.D. Irving
was the prime rate, which was 7.5 percent.
[12]
I
take Mr. Jamieson’s more specific evidence that J.D. Irving had borrowed $4.7
million from the Royal Bank of Canada at the initial rate of 5.22 percent. He
does not state whether any subsequent repayments were specifically made
attributable to the Irving Whale settlement.
[13]
The
evidence shows that the Royal Bank’s prime rate of 7.5 percent dropped in
January 2001 to 7.25 percent, and continued to drop. Indeed, for a short time
in 2009 it was only 2.5 percent. The rate since October 2009 has been 3
percent. In their original statement of claim, the plaintiffs claimed pre-judgment
interest in accordance with Canadian maritime law. As aforesaid, this is a
rather open-ended proposition. They now ask for interest at the annual rate of
5 percent in accordance with the Interest Act. Section 3 thereof
provides:
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Whenever any interest is payable by the
agreement of parties or by law, and no rate is fixed by the agreement or by
law, the rate of interest shall be five percent per annum.
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Chaque fois que de l’intérêt est exigible par
convention entre les parties ou en vertu de la loi, et qu’il n’est pas fixé
de taux en vertu de cette convention ou par la loi, le taux de l’intérêt est
de cinq pour cent par an.
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[14]
The
premise behind previous decisions of this Court to grant interest at a
commercial rate, such as the bank prime lending rate, or one or two percent
above, was that the commercial rate was considerably higher than the legal rate
and what we are really doing is assessing damages. However, as the Royal Bank
figures show, its prime lending rate fell below the legal rate in November 2001,
rose above in February 2006, then dropped and has remained below since May
2008.
[15]
In
the Marina, referred to above, the average bank prime rate from 1975
through to 1986 had been 12.35 percent. Even when a contractual rate has been
agreed, the Court, in its discretion, may grant interest at a different rate (Mount
Royal / Walsh Inc v Jensen Star (The), [1986] 17 FTR 289, 9 ACWS (3d) 61,
[1988] FCJ No 141 (QL), varied, but not on this point, [1990]
1 FC 199, 99 NR 42 (FCA), [1989] FCJ No 450 (QL).
[16]
The
defendants have made calculations based on Mr. Jamieson’s evidence. For the
most part, Irving’s rate was the same as the Royal Bank’s prime rate, but as
the prime rate dropped, it was charged some basis points over prime. The
average Royal Bank prime rate was 4.28653846 and the rate on Irving’s line of
credit was 4.75769231.
[17]
In
Kuehne
+ Nagel, above,
and in Société Telus Communications et al v Peracomo Inc et al, 2011 FC
494, 389 FTR 196, [2011] FCJ No 602 (QL), affirmed 2012 FCA 199, 433 NR 152,
[2012] FCJ No 855 (QL), I awarded interest at the legal rate of 5 percent, as
commercial rates had been low. I do so again in this case.
COMPOUND
INTEREST
[18]
Although
it is convenient in giving reasons to separate the rate of interest from the
issue of whether or not it should be compounded, in reality they are related.
The underlying rationale is to make the plaintiffs whole.
[19]
This
Court has often awarded compound interest without providing a full set of
reasons. A reason sometimes given is that a plaintiff has already been
deprived of full recovery because of limitation provisions, for instance the Hague-Visby
Rules limit liability on a per package or unit basis. In this case however
the insurance cover limit of $5,000,000.00 was contractually agreed and no
doubt was reflected in the premium.
[20]
I
accept that the Court in its discretion, judicially exercised, may grant
compound interest. See for example: Canastrand Industries Ltd v Lara S (The),
[1993] 2 FC 553, [1993] FCJ No 134 (QL), affirmed 1994 (176 NR 31, [1994] FCJ No
1652 (QL)). However, in my opinion, evidence must be led to show that compound
interest is necessary in order for the plaintiffs to be fairly compensated (Alcan
Aluminum Ltd v Unican International SA, 1996 113 FTR 81, 64 ACWS (3d) 11,
1996 FCJ No 843 (QL), Elders Grain Co Ltd v M/V Ralph Misener (The),
2004 FC 1285, 134 ACWS (3d) 320, [2004] FCJ No 1558 (QL), and Telus,
above).
[21]
Plaintiffs
rely on the decision of the Supreme Court in Bank of America Canada v Mutual
Trust Co, 2002 SCC 43, [2002] 2 S.C.R. 601, [2002] SCJ No 44 (QL). That was a
breach of contract case in which the agreement contemplated compound interest.
It is distinguishable from the present case. As Mr. Justice Nadon stated in the
Ralph Misener, above, at paragraphs 9 and 10:
9 For the reasons that follow,
I am not prepared to make the award sought by the defendants. For this
conclusion, I need only refer to paragraph 55 of the Reasons of Major J.
in Bank of America Canada, supra, where he states:
An award of
compound pre- and post-judgment interest will generally be limited to breach of
contract cases where there is evidence that the parties agreed, knew, or should
have known, that the money which is the subject of the dispute would bear
compound interest or damages. It may be awarded as consequential damages in
other cases but there would be the usual requirement of proving that damage
component.
10 Although this is a breach of contract case, there
is no evidence before me that the plaintiffs "agreed, knew, or should have
known, that the money which is the subject of the dispute would bear compound
interest as damages". Therefore, this case falls in Major J.'s second
category of cases, i.e. those cases where proof of compound interest, as a
component of damage, must be made. As the defendants have not adduced any
proof on that count, their claim for compound interest must fail.
[22]
Simple,
not compound, interest shall be awarded, as no evidence has been led to justify
compounding. Indeed Irving’s borrowing rate has been less than the legal rate
of 5 percent.
POST-JUDGMENT
INTEREST
[23]
Given
that the current bank prime rate is 3 percent, and Irving’s current borrowing
rate is 4.5 percent, and given that post-judgment interest runs on both the
principal and pre-judgment interest, I consider an annual rate of 4.5
percent to be fair and reasonable.
COSTS
[24]
Costs
are also a matter of discretion. The plaintiffs submit that they should be
entitled to costs on a partial indemnity basis. I do not agree. While the case
did have its complexities, in itself that is insufficient to oust the Federal
Court’s Tariff (Canadian Pacific Forrest Products Ltd v Termar
Navigation Co, 146 FTR 72, 78 ACWS (3d) 674, [1998] FCJ No 384 (QL)). There
was no reprehensible conduct on the part of the defendants which would justify
chastising them in any way. Indeed, if they wasted some time pursuing points on
which they were not successful, so too did the plaintiffs.
[25]
This
brings me to the defendants’ point that the plaintiffs were only partially
successful. Indeed, they recovered nothing on their sue and labour claim.
[26]
However,
the general principle is that costs follow the event, and in this case the
plaintiffs obtained judgment. In Liquilassie Ltd v MV Nipigon Bay (The), [1975] 2 Lloyds Rep 286, [1975] FCJ No 209 (QL), a crowding case, the plaintiff
recovered its full costs notwithstanding it was found to be 20 percent to
blame. In Sanofi-Aventis Canada Inc et al v Apotex Inc,
2009 FC 1138, [2009] FCJ No 1626 (QL), at paragraph 8, Madam Justice
Snider pointed out that, absent an abuse of process, a successful party should
be entitled to costs. She then went on to give examples of cases where success
was truly divided. I do not consider this to be such a case. The prime issues
were whether or not there was insurance coverage, and whether Irving acted as a
volunteer in settling the Crown’s action for the cost of raising the Irving
Whale. It succeeded on both points.
[27]
Both
sides made offers which were withdrawn before trial. The plaintiffs recovered
more than the defendants’ last offer, which would therefore have been
irrelevant even if kept open until trial. As Mr. Justice Hugessen said in Barzelex
Inc v the MV EBN Al Waleed et al, 94 ACWS (3d) 434, 1999 FCJ 2002 (QL), in
order to get enhanced costs, the offer must not only be close, it must be
sufficient. However, on 20 July 2006 the plaintiffs made a written offer to
settle for $4,500,000.00 all inclusive. It had no expiry date. It was rejected
in writing within a week, and the parties continued on. The defendants made
escalating offers. It was only on 10 February 2012, eight days before
trial, that the plaintiffs withdrew in writing their $4,500,000.00 settlement
offer. They did better than that at trial.
[28]
Federal
Courts Rule 420 provides that unless otherwise ordered where a plaintiff makes
a written offer to settle and obtains a judgment as least as favourable,
it is entitled to double party and party costs from the date of service of
the offer, but not double disbursements. However, it is a proviso that
such an offer not be withdrawn and not expire before the commencement of the
trial. Nevertheless, the Court may consider settlement offers which do not fall
within that Rule.
[29]
One
question is whether Irving’s offer was open for six days, or six years. In the
normal give and take of contractual offer and acceptance, an offer does not
survive its refusal. Unlike some provinces, our Federal Courts Rules
do not specifically deal with this point. According to Halsbury’s Laws of
Canada, 1st Edition, Civil Procedure II (Markham: LexisNexis, 2008)
at page 763, Manitoba, Ontario, Prince-Edward-Island and the Northwest
Territories allow a party to accept an offer to settle which has not been
withdrawn or expired, even if the offer was originally rejected, or
counter-offers were made. In MK Plastics Corp v Plasticair Inc, 2007 FC
1029, 161 ACWS (3d) 31, [2007] FCJ No 1348 (QL), the plaintiff, who had refused
a valid settlement offer, relied on article 1392 of the Quebec Civil Code,
which provides that an offer lapses if it has been rejected. Nevertheless,
Madam Justice Tremblay-Lamer applied Rule 420 of the Federal Courts Rules.
[30]
In
Termar, above, Mr. Justice Rothstein wrote at paragraph 15:
[…] In the context of ongoing litigation, in the absence of some
action or correspondence that expresses or implies that the offer is being
revoked, I see no reason why an open-ended offer does not remain open
indefinitely.
[31]
On
the basis of comity, I find that this offer was open for some six years, and
should have a bearing on costs.
OTHER FACTORS
[32]
The
other remaining essential factor is the complexity of the case. Several
difficult issues were in play, such as insurance cover, public nuisance, and
the apportionment of defence costs. Surprisingly enough, given that the claim
was for in excess of $11 million, the difference between Column III, the
default column, and Column V, the highest column, is not that great. Fees under
Column III would be just under $60,000, while under Column V they would be just
over $100,000. In both cases the drafts provided by the plaintiffs allowed for
second counsel at trial. Both sides had second counsel at trial, and I consider
it appropriate to award second counsel fees.
[33]
The
Court has a penchant to award lump-sum costs where practicable. My thought was
to award costs based on Column IV, low end. However, also taking into account
the offer which was made, I fix the fee portion of the taxable costs at $85,000
all inclusive.
[34]
As
to disbursements, some questions arose. Counsel for the defendants should have
the opportunity of getting better particulars. If an agreement cannot be
reached, the disbursements are to be taxed in the normal way.
JUDGMENT
FOR
REASONS GIVEN;
THIS
COURT’S JUDGMENT is that:
1.
Pre-judgment
interest is to be calculated at the simple rate of 5 percent per annum from
12 July 2001 until 25 April 2012.
2.
Post-judgment
interest is to be calculated at the simple rate of 4.5 percent per annum.
3.
Taxable
fees are hereby fixed at $85,000 all inclusive.
4.
Failing
agreement, claimed disbursements shall be taxed.
“Sean Harrington”
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