Proceedings

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IN THE MATTER OF THE SECURITIES ACT
R.S.O. 1990, c. S.5, AS AMENDED

- and -

IN THE MATTER OF RICHARD OCHNIK AND
1464210 ONTARIO INC.

 

REASONS AND ORDER REGARDING COSTS

 

Hearing:     May 31, 2006

Panel:         Paul M. Moore, Q.C.      -     Vice-Chair (Chair of the Panel)
                    Robert W. Davis, FCA   -     Commissioner
                    David L. Knight, FCA     -     Commissioner

Counsel:     Matthew Britton             -     On behalf of Staff of the
                                                                Ontario Securities Commission

 

REASONS AND ORDER REGARDING COSTS

THE HEARING

[1] This was a hearing before the Ontario Securities Commission pursuant to section 127.1 of the Securities Act, R.S.O. 1990, c. S. 5 as amended (the “Act”) to determine whether the Commission should order costs against Richard Ochnik and 1464210 Ontario Inc. as requested by staff of the Commission.

[2] On May 4, 2006, we issued our reasons for our decision on the merits rendered orally on March 9, 2006, and for our order dated April 12, 2006 regarding sanctions against the respondents.

[3] At the close of the hearing held on April 10, 2006, staff requested that the individual respondent, Richard Ochnik, pay to the Commission $30,748.50 as the costs of staff related to the hearing of this matter incurred by or on behalf of the Commission pursuant to section 127.1 of the Act. On that day, we decided to hold a further hearing on the issue of costs in order to provide the respondents with the opportunity to test the validity of the costs claimed by staff. We also directed staff to provide to the respondents the necessary documentation to allow them to review and assess these costs prior to the hearing.

[4] Accordingly, a hearing on the issue of costs was held on May 31, 2006.

[5] Ochnik, who had chosen not to retain counsel or an agent, was not present at the hearing.

[6] These are our reasons and order regarding costs.

THE ISSUE

[7] The sole issue to determine is whether the Commission should order costs against Ochnik and 1464210 and if so, what should be the quantum?

THE RESPONDENTS

[8] Ochnik is a contractor and resides in the Province of Ontario. Ochnik incorporated 1464210 to develop a property as a retirement complex in Listowel, Ontario. Ochnik was the president of 1464210.

[9] 1464210 is a private company incorporated under the laws of Ontario. Its constating documents prohibit it from distributing securities to the public and limit the number of its shareholders.

THE LAW

[10] Recent decisions addressed the issue of adequate evidence by staff to support a claim for costs. We take guidance from these decisions.

[11] In Donnini v. Ontario Securities Commission, [2003] O.J. No. 3541 (Div. Ct.) (Donnini), and Costello v. Ontario (Securities Commission), [2004] O.J. No. 2972 (Costello), the issue was whether Commission staff had provided the tribunal with adequate evidence to support the quantum of costs claimed.

[12] In both cases, the Court concluded that, as a matter of fairness, the respondent must be able to test the validity of the demand for costs.

[13] In Donnini at para. 39, the Divisional Court observed:

           An order for costs is simply a fine by another name, unless it is a true reflection of the actual and reasonable
           costs of the nature specified as recoverable in section 127.2 of the Act. These are questions of fact and, like all
           such questions, must be resolved upon evidence, disclosure, documents and including cross-examination…

[14] Similarly, in Costello v. Ontario (Securities Commission), [2004] O.J. No. 2972 at para. 86, the court stated that, as a matter of fairness, the respondent must be able to test the validity of the demand for costs:

           I agree entirely that the Commission is master of its procedure, subject to the requirement, noted earlier in these
           reasons, that whatever procedure it adopts meets the test of fairness. The refusal of the Commission to provide
           any real support for its assessment of the costs is, with great respect, manifestly unfair to the appellant. It is not
           for this court to devise a procedure for the Commission, nor, in my view, did the panel in Donnini (of which I was
           a member) purport to do so. But the decision to levy such a costs penalty cannot stand in the absence of a fair
           opportunity for the appellant to test the validity of the demand. I would remit the amount of the costs to the
           Commission for reconsideration on the basis set out in Donnini, or in accordance with whatever procedure the
           Commission adopts in lieu thereof to meet its obligation of fairness and due process to the appellant.

[15] The Court of Appeal stressed that in order to meet the threshold of reasonableness, the Commission’s reasons respecting costs must reflect the seriousness of the costs award. The Court of Appeal’s decision in Donnini v. Ontario Securities Commission [2005] O.J. No. 240 (C.A) at paras. 85-86 upheld the Divisional Court’s decision on the issue of costs and adopted the language of the Court in Costello, stressing that in order to meet the reasonableness standard the Commission’s process and reasons respecting costs must evince fairness and due process:

           I agree with the Divisional Court’s rather robust criticism of the Commission’s reasons relating to costs in this
           case. The Commission’s reasons on liability and sanctions are comprehensive, balanced and, in my view highly
           persuasive. They easily meet the reasonableness standard.

           The same cannot be said for the Commission’s reasons on costs, which strike me as, in a word, cavalier. A costs
           award, especially a massive one, is about real money for a real person. There is not a hint of recognition of this
           reality in the Commission’s costs reasons. On the contrary, the process followed by the Commission and its
           reasons were unfair to Donnini.

           I would allow the appeal on costs, but only to the extent of returning the matter of costs to the panel for
           consideration in accordance with a procedure that meets its obligations of fairness and due process to the
           appellant.

THE EVIDENCE

[16] Counsel for staff adduced documentary evidence to support their claim for costs. Staff filed timesheets in evidence to establish the costs incurred by staff for the period on or after September 30, 2005 until March 7, 2006, which represents a period where costs associated with the hearing can be attributable exclusively to Ochnik.

[17] Prior to September 30, TD Waterhouse Canada Inc. was involved in the proceedings and therefore, staff decided to exclude all costs incurred before that date. Staff explained that it would have been too difficult to attribute costs between the TD-W and Ochnik prior to September 30, 2005. September 30, 2005 is the date on which a settlement agreement entered into by TD-W and staff was approved by the Commission. March 7, 2006 was a date close to the end of the hearing on the merits (the hearing on the merits was completed on March 9, 2006).

[18] The request for costs was calculated for the hours of work completed on the file only for two staff members. Their timesheets were filed as an exhibit. These staff members are:

           a.           Matthew Britton, who is a Senior Litigation Counsel, called to the Bar in 1982 and with the Enforcement
           Branch of the Commission since 2001.

           b.           John Humphreys, who is a Senior Investigation Counsel, called to the Bar in 1998 and has been with the
           Enforcement Branch of the Commission since 2002. He was the primary investigator in this matter.

[19] Costs have not been calculated for other investigators, law clerks and assistants involved in the file.

[20] Additional costs were incurred by staff from March 8, 2006 to April, 11 2006. Although timesheets for the period from March 8, 2006 to April 11, 2006 were also filed as exhibits, staff did not to seek costs for this period. April 11, 2006 was the day after the sanctions hearing.

[21] The actual calculation of costs for the periods September 30, 2005 to March 7, 2006 and September 30, 2005 to April 11, 2006 are as follows:

           For the period from September 30, 2005 to March 7, 2006:

           John Humphreys.........................54.4 x 185           = $10,064.00

           Mathew Britton.........................100.90 x 205          = $20,684.50

                                                                                          = $30,748.50

           For the period from September 30, 2005 to April 11, 2006:

           John Humphreys........................57.00 x 185          = $10,545.00

           Mathew Britton.........................148.50 x 205          = $30,442.50

                                                                                          = $40,987.50

[22] The timesheets were attached to staff’s written submissions which had been previously delivered to Ochnik prior to the costs hearing.

[23] Ochnik did not file any written submissions or evidence to question or challenge the costs claimed by staff.

STAFF'S ARGUMENTS

[24] Staff submitted that they had taken a very conservative approach for the determination of costs. Staff only claimed the costs for the hearing and not for the investigation.

[25] Further, the costs requested by staff are costs incurred only for the period on or after September 30, 2005 until March 7, 2006, where costs associated with the hearing can be attributable exclusively to Ochnik.

[26] Staff submitted that the request for costs has been calculated according to schedule of hourly rates for various members of staff of the Enforcement Branch in respect of costs awards to be made under section 127.1. This schedule was recommended by a consultant that was retained for the purpose of calculating an average hourly rate that would be used by all staff to calculate costs.

[27] The hourly rates, which are designed to capture fixed costs, staff salaries and a portion of corporate services rates, provide as follows:

          Investigation Employees:           $185

          Litigation Employees:                 $205

ANALYSIS

[28] The purpose of a costs award under section 127.1 is not to punish, but to indemnify the Commission for expenses incurred and to exercise some control over the hearing process (See Re Tindall, (2000) 23 O.S.C.B. 6889 at para 68).

[29] Criteria considered by the Commission in awarding costs in the past include:

          a)          Failure by staff to provide early notice of an intention to seek costs may result in a reduced costs award
          as early notice may have facilitated early settlement, thereby reducing overall costs (see Re Tindall (2000), 23
          O.S.C.B. 6889 at para. 74);

          b)          The seriousness of the charges and the conduct of the parties (see Re YBM Magnex International Inc.
          (2003), 26 O.S.C.B. 5285 at para. 608);

          c)          Abuse of process by a respondent may be a factor in increasing the amount of costs (see Re YBM
          Magnex International Inc. cited above at para. 606);

          d)          The greater investigative/hearing costs that the specific conduct of a respondent tends to require in the
          case (see Re YBM Magnex International Inc. cited above at para. 606);

          e)          The reasonableness of the costs requested by staff (see Re Lydia Diamond Exploration of Canada,
          (2003), 26 O.S.C.B. 2511 at para. 217).

[30] In this case, the evidence of staff establishes that the costs claimed for the hearing are appropriate and reasonable.

[31] Further, the overall approach of staff for calculating costs is conservative. Staff estimated a reasonable amount of time associated with the hearing, excluded certain professionals who worked on the file, and made no claim for costs after March 7, 2006. Nor did staff claim costs for the periods prior to September 30, 2005 in order to exclude any costs that may have been incurred with respect to TD-W.

[32] The schedule of hourly rates for various members of staff provided by the consultant is reasonable.

[33] Ochnik was provided with a fair opportunity to assess staff’s claim for costs prior to the hearing but chose not file any evidence or to make any written or oral submissions or to appear at the hearing to challenge these costs.

[34] We are of the view that it is appropriate to award costs against the respondents on a joint and several basis in the amount of $30,748.50 and interest as required by law.

CONCLUSION

[35] For these reasons, it is hereby ordered that Ochnik and 1464210 pay, on a joint and several basis, the amount of $30,748.50 in costs with interest, as required by law.

Dated at Toronto this 29th day of June, 2006.

 

 

 

 

”Paul M. Moore”
Paul M. Moore

 

”Robert W. Davis”
Robert W. Davis

 

”David L. Knight“
David L. Knight