HSBC successfully sued Triple J Armature Inc. (“Triple J”), Lourenco, and Salokangas (collectively the “Defendants”) for breach of trust. HSBC claimed that it was entitled to Solicitor and Client Costs pursuant to the General Security Agreement (“GSA”), which provided that the Defendants would pay any Solicitor and Client Costs in connection with the GSA. Justice Goss found that the language in the GSA was clear and unambiguous to sufficiently support a claim for Solicitor and Client Costs. The remaining questions before the Court were:

1.  Whether the Defendants received sufficient notice that the Costs covenants in the GSA would be relied upon by HSBC;

2.  What the appropriate Costs award should have been in this case; and

3.  Whether Costs should have been allocated between the Defendants.

Justice Goss wrote that “Rule 13.6 provides that a pleading must include a statement of any matter in which a party intends to rely that may take another party by surprise … To consider whether there would be surprise the Court must look to the sophistication of the parties and their negotiating power.” Justice Goss found that the claim for Costs pursuant to the GSA did not take the Defendants by surprise. They were sophisticated businessmen and assisted by legal counsel, and it should not have been a surprise that the GSA contained a clause requiring payment of Solicitor and Client Costs. His Lordship added that in the event he was wrong in his conclusion, he would address Costs in the absence of the covenant in the GSA.

Considering Rule 10.33(1) and (2), Justice Goss found that there was no basis to award Solicitor and Client Costs based on the conduct of the parties. There was no misconduct during the litigation, and the pre-suit breaches of trust and fiduciary relationship were not serious enough to attract punishment and deterrence though an award of Solicitor and Client Costs.

The Court allocated Costs under Rule 10.31(3)(c) and (d) between Lourenco and Salokangas in accordance with the time expended in relation to HSBC’s claim against each of them as directors of Triple J. Justice Goss found that apportioning 75% of the Costs to Lourenco and 25% to Salokangas was appropriate in the circumstances.