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IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation: Nazerali v. Mitchell,


2016 BCSC 2424
Date: 20161228
Docket: S116979
Registry: Vancouver

Between:
Altaf Nazerali
Plaintiff

And

Mark Mitchell, Patrick Byrne, Deep Capture LLC,


High Plains Investments LLC, GoDaddy.com, Inc.,
Nozone, Inc. dba Steadfast Networks,
Google Inc. and Google Canada Corporation
Defendants

- and -
Docket: S137262
Registry: Vancouver

Between:
Altaf Nazerali
Plaintiff

And

Judd Bagley, Evren Karpak and Overstock.com, Inc.


Defendants

Before: The Honourable Mr. Justice Affleck

Reasons for Judgment

Counsel for the Plaintiff: D.W. Burnett Q.C.


Nazerali v. Mitchell Page 2

Counsel for the Defendants Mark Mitchell, R.D. McConchie


Patrick Byrne, Deep Capture LLC, and High
Plains Investments LLC in Action No.
S116979 and Judd Bagley in Action No.
S137262:

Counsel for the Defendant Overstock.com, S.R. Schachter, Q.C.


Inc.:

Place and Date of Trial/Hearing: Vancouver, B.C.


November 7, 2016
Written Submissions of the Plaintiff dated: November 10 and 30, 2016
Written Submissions of the Defendants November 24, 2016
dated:
Place and Date of Judgment: Vancouver, B.C.
December 28, 2016
Nazerali v. Mitchell Page 3

[1] In both of these actions which were tried together the plaintiff sought an
award of damages for defamation. In action number S116979 (the Deep Capture
Action) the plaintiff was successful against Mark Mitchell, Patrick Byrne and Deep
Capture LLC (the Deep Capture Defendants). He now seeks an award of special
costs against those defendants. Alternatively the plaintiff applies for an award of
party and party costs on scale C pursuant to s. 2(2)(c) of Appendix B to the Supreme
Court Civil Rules with an uplift pursuant to s. 2(5).

[2] Action number S137262 (the Overstock Action) was dismissed and the
defendant Overstock.com, Inc. (Overstock) submits there is no reason to depart
from the usual rule that costs be awarded to it as a successful party.

[3] The plaintiff submits there are good reasons to deny Overstock its costs.
Alternatively, if Overstock is entitled to its costs a Sanderson order should be made
requiring the defendants in the Deep Capture Action to pay the costs awarded
against the plaintiff in the Overstock Action directly to Overstock. In the further
alternative the plaintiff submits that a Bullock order should be made enabling the
plaintiff to include the costs he must pay to Overstock as a disbursement on his bill
of costs to be assessed against the Deep Capture Defendants.

[4] Judd Bagley in the Overstock Action submits he should recover from the
plaintiff 20 percent of his assessable party and party costs based on scale B. High
Plains Investment LLC makes the same submission.

[5] In Casses v. Canadian Broadcasting Corporation, 2016 BCSC 949 at


paras. 17 - 19 Adair J. articulated the test for awarding special costs as follows:

[17] The single standard for the awarding of special costs is that the conduct
in question properly be categorized as reprehensible. The word
reprehensible has a wide meaning. It encompasses scandalous or
outrageous conduct, but it also encompasses milder forms of misconduct
deserving of reproof or rebuke. See Behan v. Park, 2014 BCSC 1982, at
para. 28 and Wilson v. Switlo, 2016 BCSC 130, at paras. 24 and 25. See also
Westsea Construction Ltd. v. 0759553 B.C. Ltd., 2013 BCSC 1352 (cited in
both Behan and Wilson, among other cases), where Madam Justice Gropper
very helpfully reviews a number of authorities and summarizes the law.
Nazerali v. Mitchell Page 4

[18] Special costs may be awarded where a party made the resolution of an
issue far more difficult than it should have been, or where a party who is in a
financially superior position to the other brings proceedings, not with the
reasonable expectation of a favourable outcome, but in the absence of merit
in order to impose a financial burden on the opposing party. See Mayer v.
Osborne Contracting Ltd., 2011 BCSC 914, at para. 11.
[19] A party who alleges serious misconduct against another in a civil lawsuit
must be prepared to prove such allegations or reap the consequences in the
form of an order for special costs: see Taseko Mines, at para. 187 (citing
Gichuru v. Smith, 2014 BCCA 414, at paras. 78 and 79).

[6] The plaintiff submits the misconduct of the Deep Capture Defendants both in
defaming the plaintiff and during their defence of the action was reprehensible within
the meaning of that word in the authorities and therefore deserving of rebuke by this
Court through an award of special costs.

[7] The plaintiff points to paras. 179 and 182 of my reasons for judgment indexed
at 2016 BCSC 810 which paragraphs:

[179] Mitchell, Byrne and Deep Capture LLC engaged in a calculated and
ruthless campaign to inflict as much damage on Mr. Nazerali's reputation as
they could achieve. It is clear on the evidence that their intention was to
conduct a vendetta in which the truth about Mr. Nazerali himself was of no
consequence. Their mission was to expose what they conceive to be corrupt
business practices damaging to the global economy. Mr. Nazerali became a
convenient means to that end, even when he himself could not be
demonstrated to be corrupt.

[182] The plaintiff was subjected to a prolonged and aggressive cross-
examination. No misconduct was proven through the cross-examination.
Mitchell and Byrne then chose not to attempt to support the aggressive cross-
examination with their own testimony, but instead to call no evidence at all.
The reasonable inference to draw is that they knew from the beginning of the
trial that they could not justify the Articles false and extravagant language.
Their approach to the defence of the action was an attempt to intimidate the
plaintiff and to humiliate him into abandoning his lawsuit.

[8] The Deep Capture Defendants accept that the plaintiff is entitled to an award
of party and party costs in the Deep Capture Action on scale B.

[9] The Deep Capture Defendants submit that because the damage award
includes $500,000 for aggravated damages and $250,000 for punitive damages, an
award of special costs would be unwarranted double compensation.
Nazerali v. Mitchell Page 5

[10] The Deep Capture Defendants rely on the observations of Punnett J. in


Panghali v. Panghali, 2014 BCSC 647 at paras. 100 - 106 which read:

[100] The plaintiff is correct to say that special costs are awarded where there
has been reprehensible conduct on the part of one of the parties.
Reprehensible conduct includes scandalous or outrageous conduct [and]
milder forms of misconduct deserving of reproof or rebuke (Garcia v.
Crestbrook Forest Industries Ltd. (1994), 119 D.L.R. (4th) 740 at para. 17
(B.C.C.A.)).
[101] The purpose of special costs is to chastise or punish a litigant, and to
allow the court to disassociate itself from the litigants misconduct: Mayer v.
Osborne Contracting Ltd., 2011 BCSC 914 at paras. 8, 10.
[102] Generally speaking, special costs are only available for misconduct in
the course of the litigation itself. However, in exceptional circumstances,
special costs can be awarded where pre-litigation conduct warrants rebuke:
Dockside Brewing Co. Ltd. v. Strata Plan LMS 3837, 2007 BCCA 183 at para.
90. To attract an award of special costs, the pre-litigation conduct must give
rise to a compensable legal wrong: Evergreen Building Ltd. v. IBI Leaseholds
Ltd., 2009 BCCA 275 at para. 33.
[103] As noted in Elsen v. Elsen, 2011 BCSC 1011 at para. 14, such awards
will be quite rare. The case law establishes two generally accepted
exceptions where special costs may be awarded for reprehensible conduct
prior to litigation (see Golden Capital Sec. Ltd. v. Holmes et al., 2003 BCSC
1265 at para. 166). The first was identified in Verleg v. Angeloni (1993), 20
C.P.C. (3d) 132 (B.C.S.C.), where the court said that one exception involved
misconduct giving rise to litigation in the nature of fraud or unconscionability
(at para. 10). That is the exception relied on in Wiebe. It is not applicable
here.
[104] The second exception is identified in Sun Life Assurance Co. v. Ritchie,
2000 BCCA 231 at para. 54:
[54] However, there may arise circumstances where special costs
may be awarded because of the reprehensible conduct giving rise to
the litigation, particularly where the fruits of the litigation do not
provide any appropriate compensation in relation to the reprehensible
conduct. [Emphasis that of Punnett J.]
[105] A number of cases have commented on the Sun Life exception. In
Golden Capital the court said that the special costs were suitable where such
an order would be the only method in which the court can demonstrate its
disapproval for the misconduct (para. 167).
[106] In most cases, reprehensible conduct giving rise to the cause of action
can be addressed by an award of punitive damages, rather than special
costs: D.H. v. L.J.H., [1997] B.C.J. No. 2724 at para. 26 (S.C.). Where the
plaintiff receives punitive damages, the fruits of the litigation clearly provide
compensation for the reprehensible conduct, and special costs should not be
awarded. Awarding both for the same conduct would comprise double
compensation: McPhillips v. British Columbia Ferry Corp. (1993), 16 C.P.C.
(3d) 284 at para. 18 (B.C.S.C.). In a number of decisions the court has
Nazerali v. Mitchell Page 6

refused to award special costs on the basis that punitive damages have
already fulfilled that function: see P.B. v. R.V.E., 2008 BCSC 613 at para. 27;
and Manavi v. McDonald, [1993] B.C.J. No. 463 (S.C.) at para. 23.

[11] The Deep Capture Defendants draw my attention to Home Equity et al. v.
Crow et al., 2005 BCSC 743 at paras. 38 - 41 in which Davies J.:

[38] Counsel for the plaintiffs submitted that the conduct of the unsuccessful
defendants in their defence of the plaintiffs defamation action and in the
prosecution of their counterclaims is deserving of an award of special costs.
[39] In Fullerton v. Matsqui (District) (1992), 12 C.P.C. (3d) 310, 74
B.C.L.R. (2d) 305 (C.A.), [Fullerton cited to C.P.C.], Cumming J.A. (for the
majority) stated at pp. 315 to 316:
[15] Special costs under R. 57(3) have been held to be the equivalent
of, and designed to replace, the former award of solicitor-and-client
costs. See Haida Inn Partnership v. Touche Ross & Co. (February 12,
1991), Doc. Vancouver C852504 (B.C.S.C.) [reported (1991), 48
C.P.C. (2d) 61]; Bradshaw Construction Ltd. v. Bank of Nova Scotia
(March 19, 1991), Doc. Victoria 84/02135 (B.C.S.C.) [reported (1991),
48 C.P.C. (2d) 74].
[16] The test to determine whether an award of solicitor-and-client
costs in appropriate was stated by Lambert J.A. in Stiles v. British
Columbia (Workers Compensation Board) (1989), 38 B.C.L.R. (2d)
307, at p. 311 as follows:
solicitor-and-client costs should not be awarded unless
there is some form of reprehensible conduct, either in the
circumstances giving rise to the cause of action, or in the
proceedings, which makes such costs desirable as a form of
chastisement.
This test was affirmed in Nygard International Ltd. v. Robinson (1990),
46 B.C.L.R. (2d) 103, by Macdonald J.A. as follows [p. 106]:
Our general rule is that costs on a solicitor-and-client scale are
given only with respect to or in situations of misbehaviour in
the conduct of the litigation.
[40] I am satisfied that these proceedings were excessively protracted. I am
also satisfied that the voluminous interlocutory proceedings and the lengthy
trial were largely the result of the entirely unrepentant attitude of the
unsuccessful defendants (other than the defendant Kohne) concerning their
originally defamatory statements about Thornton as well as their
uncompromising approach to the conduct of the ensuing litigation. In that
regard, I specifically note those unsuccessful defendants attempts to vilify
the plaintiffs defamation as SLAPP litigation and their relentless pursuit of
ill-conceived counterclaims.
[41] Having said that, however, I am not satisfied that in the totality of the
circumstances it would be appropriate to award special costs against those
unsuccessful defendants as a consequence of their egregious conduct in
Nazerali v. Mitchell Page 7

defaming Thornton, their actions thereafter or their uncompromising defence


of the litigation and the prosecution of their counterclaims.

[12] In reply to the argument of the Deep Capture Defendants the plaintiff submits
that an award of special costs is not intended to have the effect of enhancing the
damage award but is to recompense the successful plaintiff for the entire expense
incurred in obtaining a judgment. This is said to be a reason for an award of special
costs in the present instance particularly when the defence was conducted in a
reprehensible manner. The plaintiff submits that the Deep Capture Defendants
attempted to intimidate him to abandon his action. He also submits he was subjected
to very extensive pretrial oral discovery on November 26 and 27, 2012 as well as
March 5 and 6, 2015 by the Deep Capture Defendants and at their hands to a
lengthy and arduous cross-examination at trial.

[13] In my opinion these proceedings have been unusual in a number of respects


which were intended to cause the plaintiff damage and to increase the cost to him of
seeking to vindicate his reputation.

[14] Firstly, the Deep Capture Defendants and the defendant High Plains
Investments LLC in the Deep Capture Action delivered pleadings which made
extensive and highly detailed allegations of serious misconduct by the plaintiff, some
of a criminal in nature. This required the most careful preparation by the plaintiff to
cope with these allegations and the anticipated defence evidence. Despite filing a
trial brief which listed the defendants witnesses as Mark Mitchell, Patrick Byrne,
Alan Freeman, Chris Byron and Larry Gurwin, all from the United States, Ernest
Backes from Luxembourg as well as Howard Shapray Q.C., Diane Francis and
Adrian DuPlessis the defendants led no evidence. The trial brief estimates that
Mr. Mitchell's and Mr. Byrnes evidence in chief alone would occupy five days.

[15] Secondly, it is worthy of comment that the response to the amended notice of
civil claim of the Deep Capture Defendants pleaded the untenable position that the
amended notice of civil claim did not disclose a cause of action, was unnecessary,
frivolous or vexatious, and/or otherwise an abuse of process of this Court. In my
Nazerali v. Mitchell Page 8

view this was an aspect of the intimidation tactics employed by the Deep Capture
Defendants.

[16] Thirdly, in my opinion the Deep Capture Defendants had no belief that they
could actually prove the elaborate defamatory publications about the plaintiff were
substantially true unless the plaintiff himself directly or by inference admitted them
during his cross-examination at trial. No serious attempt was made to argue that he
did. Nevertheless, these defendants recklessly adhered to their allegations in their
entirety throughout the trial.

[17] Fourthly, the Deep Capture Defendants pleaded the fact that some of the
words complained of in the notice of civil claim were protected by the First
Amendment to the Constitution of the United States. Further they alleged that the
Securing and Protection of our Enduring and Established Constitutional Heritage
Act, 28 U.S. C. 4102, precluded enforcement of a foreign libel judgment for
defamation unless the U.S. Court which is requested to enforce a foreign judgment
determines the foreign court provides at least as much protection for freedom of
expression as that provided by the United States Constitution.

[18] These allegations have had no relevance to the adjudication of the Deep
Capture Action in accordance with the laws of British Columbia. The reasonable
inference to be drawn from the pleading is that the Deep Capture Defendants, all of
whom are in the United States, were preparing the ground to resist enforcement of a
damage award against them. Thus they believed they could defame the plaintiff in
this jurisdiction with impunity.

[19] Judd Bagley in the Overstock Action pleads that he played no part
whatsoever in the publication of the words I have found to be defamatory.
Nevertheless, Mr. Bagley makes the same allegations of serious misconduct against
the plaintiff as did the Deep Capture Defendants. He also alleges in mitigation of
damages that the plaintiff had a generally bad reputation.
Nazerali v. Mitchell Page 9

[20] Mr. Bagley alleges the defamatory words are true. Further he also pleaded
the United States statute which the Deep Capture Defendants rely on to render them
immune to enforcement of the judgment of this Court.

[21] Overstock did not plead the United States statute relied on by Mr. Bagley and
by the Deep Capture Defendants. It pleads that it had no control over the Deep
Capture website where the defamatory words were published. Overstock did not
allege the truth of the defamatory words.

[22] I accept that the reasons of Punnet J. on costs in Panghali apply in the usual
case. I am persuaded, however, that the present matter is far from the usual in
relation to the Deep Capture Defendants. In my opinion the conduct of those
defendants compelled the plaintiff to incur very substantial and unnecessary
expense to seek the vindication of his reputation in this Court. The Deep Capture
Defendants have been indifferent to the effect on the plaintiff of their single-minded
determination to cause him damage. In those circumstances it would be unjust to
require the plaintiff to bear any portion of the costs of prosecuting the Deep Capture
Action. He is entitled to an award of special costs against Mark Mitchell, Patrick
Byrne and Deep Capture LLC.

[23] Judd Bagley has been successful in defending the action against him and
would normally be entitled to an award of party and party costs. As I have said the
present situation is not normal.

[24] Mr. Bagley's real defence was that he did not participate in the publication of
the defamatory words. He chose, nonetheless, to adopt the approach of the Deep
Capture Defendants to allege the defamatory words were true and he chose to
allege in mitigation of damages that the plaintiff had a generally bad reputation. In
my opinion the allegations of truth and of a bad reputation were a gratuitous smear
of the plaintiff. Mr. Bagley will bear his own costs.
Nazerali v. Mitchell Page 10

[25] Overstock took a more restrained approach to the defence of the action
against it and has been successful. It is entitled to an award of party and party costs
against the plaintiff on scale B.

[26] Rule 14-1(18) authorizes either a Bullock order (Bullock v. London General
Omnibus Co., [1907] 1 K.B. 264 (CA)) or a Sanderson order (Sanderson v. Blyth
Theatre Co., [1903] 2 K.B. at 533 (CA)). A Bullock order would authorize the plaintiff
to include the costs he must pay to Overstock as a disbursement on his bill of costs
to the Deep Capture Defendants. In my view that would be inappropriate in this
instance. The plaintiff would be obliged to pay Overstock's party and party bill of
costs with no confidence the Deep Capture Defendants would then reimburse him
when they received his bill of costs with the Overstock bill of costs as a
disbursement. The defendants have paid no part of the damages awarded against
them. Further the U.S. Constitution and the U.S. statute they rely on may permit
them to resist enforcement in the U.S. of the present judgment. The Overstock bill of
costs will be payable directly by the Deep Capture Defendants.

[27] High Plains Investments LLC did not take an active role in the trial; made the
same spurious allegations as the Deep Capture defendants and was defended by
the same counsel. High Plains Investments LLC will bear its own costs.

Mr. Justice Affleck