The dirty secret of contract law is that a contract is only as good as a party’s ability to enforce it. Typically, this blog focuses on the legal ability of an employer to enforce certain elements of an employment contract; whether that element be termination provisions, about which I write frequently, or restrictive covenants, such as non-solicitation or non-competition agreements, about which I write much less frequently.
Putting legal considerations aside for a moment, there are also practical considerations in attempting to enforce contractual provisions, not the least of which is the element of cost.
In his reasons for decision in Accreditation Canada International v Guerra, 2016 ONSC 6184, the Honourable Justice Patrick Smith of the Ontario Superior Court of Justice sitting at Ottawa, highlights one of the main practical impediments to an employer attempting to enforce restrictive covenants: the cost.
Facts
The case of Accreditation Canada International v Guerra concerns an action commenced by the former employer of certain enumerated employees, including Mr. Cabezas. In addition to suing the defendants for money damages, the plaintiff employer sought and was awarded an interlocutory injunction for reasons reported as 2016 ONSC 3595.
Secondary to the issue of whether the plaintiff was entitled to the injunction was the issue of costs. The Plaintiffs sought costs of $179,038.47 and argued that the legal and factual complexity, importance of the issues and conduct of the defendants justified an order for costs on a "substantial indemnity" scale.
Let’s just pause for a moment here. This case was started on January 19, 2016, and the motion was argued less than two months later on March 17, 2016. In that time the plaintiff employer incurred legal fees of more than $180,000, as “substantial indemnity” does not mean “full indemnity” and therefore must have spent more than its ask.
Continuing… The Defendant, Mr. Cabezas argued that costs should be left for the trial judge to decide or alternatively that: a) an order should be made for an assessment under rule 58 of the Rules of Civil Procedure or b) if costs are ordered, they should be for an amount significantly lower than requested.
Decision
In a short decision awarding costs “in the cause”, Justice Smith reasoned as follows:
[5] It is well established that costs usually follow the event. Put another way, a successful party should be entitled to an award of costs. However, interlocutory injunctions are significantly different than other forms of civil orders in that they effectively grant the moving party judgment before the merits of the case are fully adjudicated at trial.
[6] An award of costs is a matter in the discretion of the judge by virtue of s. 131(1) of the Courts of Justice Act, which provides that:
Subject to the provisions of an Act or rules of court, the costs of and incidental to a proceeding or a step in a proceeding are in the discretion of the court, and the court may determine by whom and to what extent costs shall be paid.[7] Rule 57.01 allows the court to take into account “any other matter relevant to the question of costs.” Read in conjunction with s. 131 of the Courts of Justice Act, the court therefore has wide discretion.
[8] Rule 57.03 provides that a court may make whatever cost order appears fair and just depending on the circumstances of each case. (See: Intercontinental Forest Products SA v. Rugo, 2004 CanLII 33353 (ON SCDC).)
[9] In support of the argument that costs should be awarded in the cause the Defendant, Mr. Cabezas cited the words of Justice Robert J. Sharpe in his text, Injunctions and Specific Performance, where at pages 2 - 91, he wrote:
Where the defendant successfully resists the plaintiff's motion for an interlocutory injunction, costs may be awarded forthwith. It has been held that where the motion was groundless and based upon unfounded allegations of fraud, deceit and conspiracy, it may be appropriate for the court to fix the costs on a solicitor and client scale and require that they be paid forthwith. On the other hand, it would be unusual to award costs of an interlocutory injunction motion to the successful plaintiff prior to trial. As there has been no final determination of the rights of the parties, but rather an order to protect the plaintiff's position pending trial, the preferable course is to reserve the question of costs to the trial judge.[10] In Quizno’s Canada Restaurant Corporation v. 1450987 Ontario Corp., 2009 CanLII 31599 (ON SC), Perrell J. exercised his discretion and refused to make an order for costs in favour of a Plaintiff who had succeeded in obtaining an interlocutory order stating:
Where a plaintiff succeeds in obtaining an interlocutory injunction it is the preferable (although not inevitable) course to reserve costs to the trial judge, which is to say to make costs in the cause. This is the preferable course because it allows the court to have the benefit of hindsight and to avoid the possible injustice of awarding costs to a plaintiff for having succeeded in obtaining an order to protect his or her position pending trial when the outcome of the trial reveals that that plaintiff’s position was not worthy of having been protected.[11] This view has been cited with approval in several decisions… [citations omitted.]
[12] The rationale for reserving costs to the trial judge is that a Plaintiff who succeeds in obtaining an interlocutory injunction must give an undertaking as to damages.
[13] The written submissions that are before me contain conflicting positions on several important issues that are relevant to the fixing of costs including: legal and factual complexity, conduct of Mr. Cabezas, duplication of lawyers’ time, improper time and excessive spent on cross-examinations, proportionality of the award sought. It is not possible to make an order that would be fair and just without further evidence. For this reason and the reasons stated above, it is fair and just that costs are left to the trial judge hearing this matter.
In the result, costs were awarded in the cause.
Commentary
What “costs in the cause” means is that the issue of the costs of the motion was left for another day, after the trial of the matter.
For the defendants, what this means is that they did not have to immediately pay anything to the plaintiff. Had the court ordered the defendants to pay $179,000, it is unlikely that they would have been able to do so, the result of which being that they would have been unable to continue with the litigation. For the defendants, they live to fight to another.
For the plaintiff on the other hand, they just got told to wait to recover their costs on what was otherwise a win. In this case it is clear that the employer had spent a considerable amount of money ensuring that it was awarded the injunction, only to be advised that it would have to wait until after the trial of the matter to potentially recover its costs.
While I would submit that the judge made the correct decision in balancing the interests of the parties, it is easy to see how others might take a contrary view.
Takeaways for Employees with Labour Pains
The takeaway for employees with labour pains is that it is incredibly prudent to seek legal advice with respect to your legal right to compete with your current or former employer before you attempt to do so. Well the defendants in this case might ultimately prevail and be able to demonstrate that they did nothing illegal, being the subject of such litigation has undoubtedly not been very enjoyable.
Takeaways for Employers with Labour Pains
Enforcing a non-competition or non-solicitation contract is not as easy as it may sound. Such cases are complex and obviously time-sensitive. They are therefore inherently expensive. Will all such cases cost $200,000? Probably not – but this is not a $20,000 undertaking either. Moreover, employers need to appreciate that even if they are successful in being awarded the injunctive order, they should not expect to immediately recover their legal fees – it may be several more months, or even years, before the trial is over.
--As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.
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