Monday, May 7, 2012

Shakur v. Mitchell Plastics - A Cautionary Tale

The Superior Court of Justice recently released its costs decision in the Shakur v. Mitchell Plastics case.  The decision on the merits is here, and the costs decision is here.

The case was a wrongful dismissal involving a 35-year-old machine operator dismissed in 2007 after 6 years of service.  Just cause was alleged, arising from an argument between Shakur and another employee in which Shakur struck the other employee - as the judge found, an open-ended slap which caused brief redness.  The Court found that this fell short of just cause.  The employer tried to rely upon the principles from Bill 168 relating to workplace violence, but the Court concluded that, regardless of the applicability of Bill 168, prevention of workplace violence is a shared responsibility between employers and employees, and the absence of training regarding workplace violence and the absence of progressive discipline on the point undermined the case for just cause.  (Reading between the lines, it looks like the judge may have been somewhat persuaded by the employee's evidence that abusive interaction between the employees involved had frequently occurred before; the employer can't just sit back and wait until the first punch is thrown, and then fire whomever did so, but should proactively intervene to prevent violence.)

The employer also relied upon an employment contract which entitled the employee only to statutory minimums.  One problem:  The employment began on September 15, 2001, and the contract was signed on September 24, 2001.  Therefore, there appears to have been a lack of consideration (which I discussed in this post).  The employer argued the Techform case, but it has been consistently distinguished in the jurisprudence, and Shakur is no exception.

Mr. Shakur ended up getting awarded 4.5 months notice, being a total sum of just over $12,500.

As of January 2010, the Small Claims Court has jurisdiction for claims up to $25,000.  When this litigation began, the jurisdiction was limited to $10,000.  So there's no question that the Superior Court was the correct venue to commence the litigation...

...but the question then arises as to whether or not it should have been continued in the Superior Court after the Small Claims Court's jurisdiction was increased.

Because there is a major impact on costs.  The Plaintiff sought over $21,000 in legal fees.  As legal costs go, that's probably a pretty reasonable amount for his lawyer to have charged for the complexity of the issues and the length of the process (in fact, the lawyer probably charged more, and probably not unreasonably so).  Nonetheless, it is disproportionate to the amounts in issue, and proportionality often guides the Court in costs awards.  It would be a very exceptional scenario where the costs award is double the damage award.  (At Small Claims Court, the default cap on costs is 15% of damages, to put the numbers in perspective.)

But this is worse than that.  Not only did the Plaintiff not recover the $21,000 he sought, but he recovered absolutely no costs.

The Court rightly noted that Rule 57.05(1) of the Rules of Civil Procedure (i.e. the rules governing proceedings before the Superior Court) provide that, where a plaintiff recovers an amount within the monetary jurisdiction of the Small Claims Court, the Court may deny the Plaintiff any costs.

At paragraph 7, the Court noted:
As stated by Justice Gray in Toronto-Dominion Bank v Thind at para. 25, “if the plaintiff has made a deliberate decision to bring the proceedings in the Superior Court where it is clear that the Small Claims Court has jurisdiction, then, save in exceptional circumstances, the plaintiff should recover no costs.”  To that statement I would add “bring or continue the proceedings.”
My Thoughts

The Court's interpretation of Rule 57.05 is important, and I can't disagree with it.  The Court noted that there is no transitional provision, no exception for claims started prior to an increase in the monetary jurisdiction.  In a similar costs provision, relating to proceeding in simplified procedure versus the ordinary procedure, there exists such transitional language.  The omission of similar language in Rule 57.05, as a matter of statutory interpretation, should likely be read as being intentional, with the result that the Court's interpretation is correct.

Furthermore, there is a basis for this rather 'black and white' viewpoint that an action should be transferred to Small Claims Court.  In Ali v. Schrauwen, in April 2011, the plaintiff moved to transfer a $30,000 action to the Small Claims Court, waiving the excess and reducing the amount of the claim to $25,000.  The defendant objected on the basis that it had already taken significant steps in preparing its defence pursuant to the Rules of Civil Procedure and had already prepared its affidavit of documents, for which costs likely would not be recoverable at the Small Claims Court.  The Court transferred the action, awarded the plaintiff $2500 in costs for the motion, but awarded the defendant $2800 for costs thrown away that would not have been necessary had the action been transferred in January 2010.

That being said, the Defendant in that case was actually ordered to serve the affidavit of documents it prepared.  In context, it seems that this was a fair balancing of interests - the plaintiff gets to change venues to a more streamlined one, it still gets the benefit of the increased procedural protections associated with the prior choice, but it also has to pay the costs associated with those procedural protections.  Makes sense.

To me, there is a world of difference between choosing to start a proceeding in a given venue and choosing to continue in the same venue.

The core principle for these punitive costs provisions is that a party is being punished for acting unreasonably; a reasonable plaintiff would have acted differently.  Today, commencing a $12,000 action in the Superior Court would be hard to justify, so yes, denial of costs would likely be appropriate in most circumstances.  Yet I would argue that a more careful analysis should be applied to a $12,000 claim that was already before the Courts when the Small Claims Court jurisdiction was increased.  The implication otherwise suggests that all $10,001-$25,000 claims existing in January 2010 should have been immediately transferred to the Small Claims Court, without regard to the amount at issue, the complexity of the dispute, or the stage the proceedings have reached.  Recognizing that there is a cost associated with transferring the proceedings to Small Claims Court, and that the benefits in terms of expeditiousness and cost savings of Small Claims Court largely occur at the stages prior to trial, it is easy to imagine a case in which the parties might reasonably have concluded that it made more sense to continue in the Superior Court than transfer to Small Claims Court.  This is especially so since the successful party ought to recover its costs which are reasonably incurred in a Superior Court proceeding, and if incurred at a time when the proceeding had to be in Superior Court, it seems rather harsh to tell parties, "Now that you've each spent thousands and thousands of dollars on this process, we're changing the rules so that the successful party won't recover more than 15% of the amount in issue."

Perhaps more importantly, it wasn't necessarily clear at the time that a transfer to Small Claims Court was always possible.  The only mechanism, in most cases, for transferring an action from the Superior Court of Justice to the Small Claims Court is under s.23(2) of the Courts of Justice Act, which on a face value reading appears to require the consent of all parties.  Prior to Ali v. Schrauwen, the leading case was a July 2010 decision in Capano v. Rahm in which the Court refused such a motion on the basis that there was no unanimous consent.  (The Court in that case contemplated that it may lie within the inherent jurisdiction of the Court to transfer the action anyways, which ultimately formed the basis of the decision in Ali, but declined to do so under the specific circumstances of that case.)

Therefore, while the parties might reasonably agree to transfer the matter into Small Claims Court, it seems to not be the least bit unreasonable, at least before the decision in Ali, for a plaintiff to hesitate to bring a contested motion to transfer into the Small Claims Court.

Now, following Ali and Shakur, with the case law being more certain on the point, it puts a plaintiff between a rock and a hard place:  Either bring a motion to move the proceedings into Small Claims Court, knowing that the costs entitlement at Small Claims Court is negligible and you may have to pay the defendant's costs thrown away, or proceed in the Superior Court and risk not recovering any costs at all even if you're successful.

The result for Mr. Shakur, who was wrongfully dismissed and had to sue to recover the money to which he was entitled, is most likely that his successful law suit has been a significant net loss for him.


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

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