10.1 Inc. v. 2248951 Ontario Inc., 2018 ONSC 381

COURT FILE NO.: DC-16-129243

DATE: 20180115

ONTARIO

SUPERIOR COURT OF JUSTICE – DIVISIONAL COURT

BETWEEN:

10.1 Inc. Appellant, (Defendant / Defendants Claimant)

– and –

2248951 Ontario Inc., Jing Zhang and Abstract Studio Respondents, (Plaintiff / Defendants to the Defendants Claim)

Aaron Crangle, for the Appellant

Toba Cooper, for the Respondents

HEARD: January 10, 2018

Appeal from the decision of Deputy Judge S.R. Wales of the Small Claims Court dated December 6, 2016.

Reasons for Decision

Charney J.:

Facts

[1] This is an appeal of the decision of the Ontario Small Claims Court dated December 6, 2016. In that decision the Small Claims Court found in favour of the plaintiff, 2248951 Ontario Inc. (224), in the sum of $10,576. The Small Claims Court ordered the defendant to pay costs in the amount of $10,500.

[2] The appellant, 10.1 Inc., (10.1), is a software development company. The case relates to a Consulting Agreement (the Agreement) signed by the parties on December 18, 2013. Pursuant to that Agreement, 10.1 hired Jing Zhang (Zhang), who is a software developer, through Zhang’s company, 224.

[3] The case involved a dispute as to services and invoices rendered by Zhang (through 224) to 10.1, and 224 sued 10.1 for $10,576.80. The plaintiff claimed that he performed his obligations under the agreement, but was not paid for work performed in February 2014. Zhang resigned his position and terminated the contract in February 2014.

[4] 10.1 filed a defence and issued a defendant’s claim against 224 and Zhang for $25,000. 10.1 claimed that Zhang had not complied with the terms of his agreement. In particular, that Zhang failed to work exclusively for 10.1 and attend at the premises of 10.1 during regular office hours. 10.1 claimed $25,000 as damages resulting from the plaintiff’s alleged breach of contract and bad faith conduct. This amount included the return of money paid by 10.1 to 224, the costs of recruiting and retaining a suitable replacement for Zhang, and expenses associated with ameliorating Zhang’s deficient work product.

[5] The trial in Small Claims Court was heard over two full days on August 19, 2016 and December 6, 2016. Two witnesses were called by the plaintiff on August 19, 2016 and four by the defendant on December 6, 2016. After a brief recess the Deputy Judge issued oral reasons at the end of the day on December 6, 2016, and provided a written endorsement setting out the terms of her order.

[6] In her endorsement of December 6, 2016, the Small Claims Court Judge indicated that rule 14.07 of the Rules of the Small Claims Court (O.Reg. 258/98) applied because the plaintiff had beaten his offer to settle. Rule 14.07 provides:

14.07 (1) When a plaintiff makes an offer to settle that is not accepted by the defendant, the court may award the plaintiff an amount not exceeding twice the costs of the action, if the following conditions are met:

1. The plaintiff obtains a judgment as favourable as or more favourable than the terms of the offer.

2. The offer was made at least seven days before the trial.

3. The offer was not withdrawn and did not expire before the trial.

[7] There is no dispute in the appeal before me that Rule 14.07 does apply to the plaintiff’s claim in this case.

[8] Due to the late hour, it was not possible to hear submissions on the application of Rule 14.07 at that time, and counsel requested an opportunity to make further submissions on costs. Counsel for the appellant, who appeared as counsel for 10.1 in the Small Claims Court proceeding, advised me that counsel for both parties requested that further costs submissions be made in writing, rather than returning to court, in an effort to reduce costs.

[9] The request to make written submissions was denied by the trial judge, who asked that counsel re-attend to make submissions. It is not clear why the trial judge insisted on oral submissions – costs submissions are routinely made in writing – but that was her prerogative.

[10] In her endorsement the Small Claims Court judge scheduled a date for the parties to return to court to address the issue of costs. Her endorsement stated:

The parties shall address the issue of costs in Motion Court before me on Tuesday Jan. 17, 2017. If counsel for Defendant is not available on that date, then he must advise Plaintiff’s counsel and inform the court office of new mutually agreeable dates. I am seized of this matter. I will be sitting on Feb. 7, 2017, March 7, 2017 and April 11, 2017. Counsel to advise the new date, if not January 17, 2017 on or before Dec. 8, 2016.

[11] Counsel for 10.1 advises that his client instructed him not to re-attend for the hearing on costs because it was too expensive to send counsel to Richmond Hill. Counsel advises that neither he nor his client attended court on January 17, 2017. Nor did he provide any written costs submissions on behalf of 10.1, because he understood the Deputy Judge’s decision and endorsement as precluding written submissions. Nor did he advise the court office or counsel for the plaintiff that he did not intend to appear on January 17, 2017.

[12] On January 17, 2017 the Deputy Judge issued the following endorsement with respect to costs:

Counsel for the Defendant did not appear, nor did he provide any written submissions regarding costs, nor did he make arrangements for another date which was mutually agreeable. Fees fixed at $10,500 taking into account the effect of Rule 14.07, and the provisions of s. 29 [of the Courts of Justice Act] if a court considers it necessary in the interest of justice to penalize a party for unreasonable delay. I took into account that the process was lengthy and that the Defendant chose not to attend to speak to costs. The Defendant’s claim for $25,000 was without merit. No separate claim was made for disbursements. Costs payable forthwith in trust to the Plaintiff’s representative.

Issues

[13] 10.1 raises four issues on this appeal:

1. Was it an error in law that the trial judge did not provide written reasons?

2. Did the trial judge make palpable and overriding errors of fact?

3. Was there a reasonable apprehension of bias against the appellant?

4. Did the trial judge award costs in excess of the amount permitted by the Courts of Justice Act, R.S.O. 1990, Chap. C-43

Analysis

Standard of Review

[14] The standard of review on an appeal from the order of a judge is correctness for a question of law and palpable and overriding error for findings of fact. A question of mixed fact and law is subject to a standard of palpable and overriding error unless it is clear that the trial judge made some extricable error in principle which may amount to an error of law (Housen v. Nikolaisen, 2002 SCC 33).

Issue 1) Was it an error in law that the trial judge did not provide written reasons?

[15] The trial judge provided oral reasons for her decision. The appellant argues that the trial judge’s failure to provide written reasons was an error in law. Counsel for 10.1 argues that he could not properly report to his client because there were no written reasons, and this prevented him from considering the merits of the judgment. While the judge provided oral reasons, counsel was unable to transcribe those reasons verbatim, which was necessary to give them proper consideration. Further, the Notice of Appeal must be filed within 30 days of the judgment, but the transcript was not available until March 27, 2017, more than two months after the reasons were delivered orally.

[16] The appellant relies on the Supreme Court of Canada’s decision in R. v. Sheppard, 2002 SCC 26 at para. 18, where the Court states:

In Canadian administrative law, this Court held in Baker v. Canada (Minister of Citizenship and Immigration), 1999 699 (SCC), [1999] 2 S.C.R. 817, at para. 43, that:

... [I]t is now appropriate to recognize that, in certain circumstances, the duty of procedural fairness will require the provision of a written explanation for a decision. The strong arguments demonstrating the advantages of written reasons suggest that, in cases such as this where the decision has important significance for the individual, when there is a statutory right of appeal, or in other circumstances, some form of reasons should be required.

[17] The appellant interprets the phrases “written explanation” and “written reasons” as precluding oral reasons that are later transcribed, and equates oral reasons with a failure to provide reasons.

[18] In my view this is a formalistic and incorrect interpretation of the Supreme Court’s decision with regard to the importance of adequate reasons. Read in context, it is clear that the Supreme Court of Canada is concerned with the substantive adequacy of the reasons for the decision, not the form in which those reasons are provided.

[19] This interpretation of the Court’s reasons is clear from para. 44 of the Baker decision, where the Court states:

In my view, however, the reasons requirement was fulfilled in this case since the appellant was provided with the notes of Officer Lorenz. The notes were given to Ms. Baker when her counsel asked for reasons. Because of this, and because there is no other record of the reasons for making the decision, the notes of the subordinate reviewing officer should be taken, by inference, to be the reasons for decision. Accepting documents such as these notes as sufficient reasons is part of the flexibility that is necessary…when courts evaluate the requirements of the duty of fairness with recognition of the day-to-day realities of administrative agencies and the many ways in which the values underlying the principles of procedural fairness can be assured. It upholds the principle that individuals are entitled to fair procedures and open decision-making, but recognizes that in the administrative context, this transparency may take place in various ways...

[20] Reasons that are delivered orally and transcribed qualify as written reasons. There is no formal requirement that reasons be typed in advance of their delivery and provided to counsel and the parties when the oral reasons are given. Delivery of oral reasons is a common and accepted practice in courts and tribunals, including courts in criminal cases, where prompt delivery of reasons is often necessary to keep the wheels of justice turning efficiently.

[21] While formal written reasons are no doubt more convenient for counsel than oral reasons, they are not required for procedural fairness.

[22] The issue is not the form but the substantive adequacy of the reasons provided. In this regard the Ontario Court of Appeal’s decision in Maple Ridge Community Management Ltd. v. Peel Condominium Corporation No. 231, 2015 ONCA 520, at para. 35 is instructive:

Reasons from the Small Claims Court must be sufficiently clear to permit judicial review on appeal. They must explain to the litigants what has been decided and why…However, appellate consideration of Small Claims Court reasons must recognize the informal nature of that court, as well as the volume of cases it handles and its statutory mandate to deal with these cases efficiently. In short, in assessing the adequacy of the reasons, context matters… Just as oral reasons will not necessarily be as detailed as written reasons, reasons from the Small Claims Court will not always be as thorough as those in Superior Court decisions. Failing to take the Small Claims Court context into account only serves to restrict access to justice by unnecessarily imparting formality and delay into a legal process that is designed to be informal and efficient. (citations omitted)

[23] Reviewing the transcript of the oral reasons given by the Deputy Judge, and considering those reasons in the Small Claims Court context, I am satisfied that her reasons do permit meaningful appellate review.

[24] While brief (3 pages) the trial judge’s reasons explain “what” was decided and “why”. She references the Agreement that established the basis for the plaintiff’s claim, and sets out the respective positions of the parties. She explained her interpretation of the Agreement, and the reasons for that interpretation. Her decision on the plaintiff’s claim was based on her interpretation of the agreement, her acceptance of the plaintiff’s evidence, and specific findings of fact. She explained her reasons for preferring the plaintiff’s evidence over the defendant’s evidence. She also explained why the evidence of the defendant was not sufficient to establish the defendant’s claim, and made findings of fact relating to the defendant’s claim. The trial judge indicated that she preferred the evidence of the plaintiff with respect to the scope and quality of his work and provided an explanation for that finding.

[25] In summary, there is no requirement that the trial judge provide “written” reasons rather than oral reasons that can be transcribed. Further, the “what” and “why” are clear in the trial judge’s reasons. Accordingly, I would not give effect to this ground of appeal.

Issue 2) Did the trial judge make palpable and overriding errors of fact?

[26] The appellant points to two errors in the trial judge’s reasons that he argues qualify as palpable and overriding errors of fact.

[27] The first is the trial judge’s reference to “paragraph 9” of the Agreement. This issue related to 10.1’s position that the agreement between the parties precluded 224/Zhang from working for anyone else while under contract with 10.1, and required Zhang to attend at the premises of 10.1 during regular office hours. The trial judge stated:

The agreement signed by the plaintiff company and the defendant company is clear in paragraph 9 that the documents together formed the final agreement. The defendant drafted the agreement and had the opportunity to include these terms if so wished.

[28] The appellant argues that this is incorrect – paragraph 9 of the Agreement has nothing to do with the matters referred to by the trial judge.

[29] The appellant is correct, paragraph 9 deals with “Indemnification”. It is clear, however, that the trial judge meant to refer to para. 14 of the Agreement, which does provide that “This Agreement and the attached Exhibit A constitutes the final, complete and exclusive agreement of the Parties…No modification of or amendment to this Agreement will be effective unless in writing signed by both parties”.

[30] The trial judge’s error was not a substantive one, but is clearly an accidental slip. The trial judge simply referenced the wrong paragraph number. It is clear that the paragraph of the Agreement that she relied on to make her decision is, in fact, in the Agreement, and her reasons are entirely consistent with the terms of para. 14 of the Agreement. The defendant’s argument was based on the assertion that Zhang failed to work exclusively for 10.1 and attend at the premises of 10.1 during regular office hours. Neither of those contractual terms was in the Agreement or the schedule to the Agreement. The trial judge relied on this provision of the Agreement to support her finding that Zhang had not violated any term of the Agreement.

[31] If this slip had been brought to the attention of the trial judge she would be entitled to correct it, as she would any arithmetical or spelling error. The trial judge’s inadvertent reference to the wrong paragraph number of the Agreement is not a valid ground of appeal.

[32] The trial judge also refers to the evidence of the defendant’s witness, whom she refers to as “Mr. Jack Welsh”. Counsel advises that the witness’ name was actually John Welch. He relies on this error to demonstrate that the trial judge was rushed and gave her reasons without due care. This is an insignificant error. Indeed, since the decision was given orally, the spelling of “Welsh” rather than “Welch” was likely a transcription error. In any event it was an immaterial error, and had no effect on the merits of the decision. It is not a valid ground of appeal.

Issue 3) Was there a reasonable apprehension of bias against the appellant?

[33] The appellant argues that the trial judge’s reasons for rejecting the evidence of the defendant’s witnesses demonstrated a “reasonable apprehension of bias”.

[34] In her oral reasons the trial judge stated: “I discount the evidence of the defendant’s witnesses. I find that they are all self-interested in that they form part of the management team of the defendant.”

[35] The appellant argues that such findings place 10.1 in an impossible position since 10.1 can only defend itself by calling people that worked there to give testimony. The appellant argues that “10.1 Inc.’s witnesses should not have been prejudicially viewed by the trial judge for the mere reason that they are employed in the management team of 10.1”.

[36] The trial judge must assess the credibility of witnesses and decide what weight to give to their evidence. “It is only after an individual witness has been tested and assessed that findings of credibility can be made.” (R. v. S. (R.D.), 1997 324 (SCC), [1997] 3 SCR 484 at para. 131). One factor that the judge may consider is whether a witness has a financial or other interest in the proceedings that may affect the objectivity of their evidence. It is open to the trial judge to “discount” a witness’ evidence on the ground that the witness has some reason to favour one side over another. That is what the trial judge did in this case. The impugned sentence is her explanation for why she preferred the evidence of the plaintiff to the evidence of the defendant’s witnesses after she heard all of the evidence.

[37] This is not the same thing as being biased. “Bias denotes a state of mind that is in some way predisposed to a particular result, or that is closed with regard to particular issues” (R. v. S. (R.D.), at para. 105). There is no evidence that the trial judge prejudged any of the witnesses. In my view, the impugned findings, viewed in the context of the judgment as a whole, do not give rise to a reasonable apprehension of bias, and I would not give effect to this ground of appeal.

Issue 4) Did the trial judge award costs in excess of the amount permitted by the Courts of Justice Act

[38] The first issue is whether leave to appeal is required.

[39] Section 133(b) of the Courts of Justice Act provides:

No appeal lies without leave of the court to which the appeal is to be taken,…

(b) where the appeal is only as to costs that are in the discretion of the court that made the order for costs.

[40] In this case the appellant appealed the entire decision, not just the costs decision of the trial judge. Accordingly, leave to appeal is not necessary. If I am incorrect on this point (see: Walford v. Stone & Webster Canada LP, 2006 37409 (ON SCDC) and rule 61.03(7)), I would grant leave to appeal.

[41] The second issue raised by the appellant is whether the court had the authority to order that costs be paid “in trust to the Plaintiff’s representative”. The appellant contends that the court has no authority to make such an order, and that costs can only be paid directly to the plaintiff. No authority was given for this proposition. I must assume, in the absence of any evidence to the contrary, that plaintiff’s counsel had direction from the plaintiff to ask that costs be paid in trust and held for the plaintiff. I can see no objection to the court making such an order if it is requested by the plaintiff, and I would not give effect to this ground of appeal.

[42] The third issue is whether the costs award exceeded the costs limits of the Small Claims Court.

[43] Section 29 of the Courts of Justice Act establishes a limit on costs recoverable in the Small Claims Court. Section 29 provides:

An award of costs in the Small Claims Court, other than disbursements, shall not exceed 15 per cent of the amount claimed or the value of the property sought to be recovered unless the court considers it necessary in the interests of justice to penalize a party or a party’s representative for unreasonable behaviour in the proceeding.

[44] As indicated above, rule 14.07 of the Rules of the Small Claims Court permits the court to award “an amount not exceeding twice the costs of the action” where the plaintiff obtains “a judgment as favourable as or more favourable than the terms of the offer”. There is no dispute that the trial judge correctly held that rule 14.07 applied to the plaintiff’s claim in this case.

[45] The appellant’s first argument is that even if rule 14.07 applies and a court orders “an amount not exceeding twice the costs of the action” the court is still limited to 15% of the amount claimed as per the ceiling in s. 29 of the Courts of Justice Act. The rules of the Small Claims Court are enacted pursuant to s. 66 of the Courts of Justice Act. Section 66(3) of the Courts of Justice Act confirms that rules enacted pursuant to s. 66 may not “conflict with an Act”, but rules may be made “supplementing the provisions of an Act with respect to practice and procedure.” The appellant argues that the practice of doubling costs to 30% of the amount claimed conflicts with the limit in s. 29.

[46] The issue of the relationship between rule 14.07 and s. 29 of the Courts of Justice Act has been considered in various Small Claims Court decisions and in at least two Superior Court decisions. Both Superior Court decisions have concluded that rule 14.07 and s. 29 can be read harmoniously, although they have come to this result by somewhat different paths.

[47] The first Superior Court decision to address this issue is Barrie Trim v. Heath et al, 2010 ONSC 2598, where Healey J. states at paras. 7 and 8:

In Beatty v. Reitzel [Deputy Judge] Winny J. began by expressing concern that if the 15% “cap” could not be doubled under Rule 14.07 without offending s.29, then the effectiveness of the cost consequences aspect of Rule 14 is undermined and in many cases would be drained of any real meaning. Judge Winny stated that in his view, the costs consequences of a party’s failure to accept a reasonable offer should be real consequences if they are to encourage settlements in a meaningful way. Further, to interpret s.29 as if it were to freeze the operation of R. 14.07 is undesirable and unwarranted based on the legislative context and the need for a reasonable and just rule dealing with the cost consequences of offers to settle in the Small Claims Court. It would tend to undermine the court’s discretion to impose cost consequences where parties inflate or exaggerate their claims and would encourage parties to claim unreasonable amounts by allowing them to do so without fear of any real cost consequences.

I agree with this reasoning and so conclude that s.29 was not intended to cap the costs at 15% in the circumstances of an offer that gives rise to the cost consequences outlined in R.14.07. This seems to give meaning to the need to encourage the acceptance of reasonable settlement offers, while maintaining proportionality with the amounts in dispute and allowing the judge to consider what is fair and reasonable in all of the circumstances.

[48] The issue was also considered by the Superior Court in Propane Levac Propane Inc. v. Macauley, 2011 ONSC 293. Mackinnon J. did not reference Healey J.’s decision from the previous year, but did express his disagreement with Beatty v. Reitzel, the case relied upon by Healey J. in her analysis. Notwithstanding this disagreement, Mackinnon J. came to the conclusion that where a party refuses an offer to settle, costs may exceed the 15 per cent limit set out in s. 29. He stated at para. 14:

The Respondent referred to the decision of Melara-Lopez v Richarz. In that case, the deputy judge awarded costs in excess of 15 percent of the amount claimed in reliance on the rejection by the plaintiff of two offers, both of which were more favourable to him than the trial judgment. He did refer himself to s. 29 of the CJA and held that the plaintiff’s failure to accept the two offers can be deemed to be unreasonable behaviour for the purposes of s. 29 of the CJA. I agree. The deputy judge also referred to another decision with approval which appears to have held that r. 14.07 can be applied to award double costs, even if that amount then exceeds the 15 percent limit under s. 29: Beatty v Reitzel Insulation Co. With respect, I cannot agree with that ruling. In my view, the rules need to be read in a manner that is consistent with the statue, and it is improper in this context to hold in effect that the rule can trump the statute. [footnotes omitted]

[49] Accordingly, both Healey J. and Mackinnon J. agree (although for different reasons) that failure to accept an offer to settle may result in an award of costs in excess of 15 per cent of the amount claimed. My quick review of recently reported cases indicates that most deputy judges appear to be following the analysis of Healey J. in Barrie Trim. This is confirmed by Hon. Marvin Zuker, Deputy Judge Sebastian Winny, Ontario Small Claims Court Practice, 2018, (Thomson Reuters) at p. 60.

[50] While rule 14.07 cannot conflict with s. 29 of the Courts of Justice Act, s. 29 does not impose a rigid cap, and I therefore agree with Healey J.’s conclusion “that s. 29 was not intended to cap the costs at 15% in the circumstances of an offer that gives rise to the cost consequences outlined in R.14.07.” I agree with those courts that have held that rule 14.07 is a specific instance of a party’s “unreasonable behaviour in the proceeding” that may invite increased costs under s. 29. In this respect, rule 14.07 supplements s. 29, and does not conflict with it. It operates to encourage settlement of Small Claims Court proceedings just as rule 49.10 of the Rules of Civil Procedure operates in the Superior Court and rule 18(14) of the Family Law Rules operates in family law proceedings.

[51] The appellant argues that even if rule 14.07 does permit costs award above 15 per cent of the amount claimed, the amount of the plaintiff’s claim was $10,567.80, 15 per cent is $1,585.17, and twice the costs under rule 14.07 would provide a maximum of $3,170.34.

[52] This argument ignores the fact that the defendant claimed $25,000. Section 29 is not limited to the amount claimed by the successful party. The amount claimed by the unsuccessful party may also be considered. The trial judge was permitted to consider the amount claimed by the defendant as part of her costs assessment. 15 per cent of $25,000 is $3,750. Twice that amount (assuming that rule 14.07 applies to the defendant’s claim) equals a maximum of $7,500.

[53] There is no reason why the amount of the defendant’s claim should not be considered when determining costs under s. 29. Certainly the defendant would have insisted that costs be calculated on the amount of its claim had it been successful in this case. Parties in Small Claims Court proceedings must understand that there are potential adverse costs consequences if they exaggerate or inflate their claims or advance unmeritorious counter-claims. This, too, promotes settlement. See: Zuker and Winny, Ontario Small Claims Court Practice, 2018, at p. 58:

In cases involving a defendant’s claim, the amount claimed in the defendant’s claim and the amount claimed in the plaintiff’s claim are added to determine the “amount claimed” for the purposes of s. 29 [citations omitted].

[54] The appellant argues that the Small Claims Court cannot award costs on the combined total of the plaintiff’s and defendant’s claims ($35,500 in this case) because that amount exceeds the $25,000 monetary limit of the Small Claims Court. I do not agree. There is no dispute that the Small Claims Court has the jurisdiction to hear both the plaintiff’s claim and defendant’s claim when the combined total of the two claims exceeds $25,000, provided that each party’s claim is under the monetary limit. Section 29 does not increase the monetary limit of the court, but sets out a method for calculating the maximum costs that the court can award in any particular case. Clearly the cost associated with a case involving a plaintiff’s claim and a defendant’s claim will usually exceed the costs of a case with only one claim, and it is only logical that the Deputy Judge can take into account the value of both claims when determining the maximum costs that can be awarded.

[55] While I see no reason why the court cannot combine the value of all of the claims in the proceeding when calculating costs under s. 29, it is not clear from the trial judge’s reasons that this is what she did.

[56] Nor is it clear that rule 14.07 applies to the defendant’s claim, which was dismissed. This is because rule 14.07, which reads the same as rule 49.10 of the Rules of Civil Procedure, assumes that the party making the claim “has recovered a judgment of some value” (see S & A Strasser Ltd. v. Richmond Hill (Town) (C.A.), 1990 6856, 1 OR (3d) 243 (ON CA): “[T]he rule has no application where the plaintiff fails to recover any judgment.”). In this case the defendant did not recover any judgment with respect to its claim, and therefore rule 14.07 does not apply: see Prohaska v Howe, 2016 ONSC 48, at paras. 61 – 62:

In this case, the words of the Small Claims Rules are precisely the same as those in the Rules of Civil Procedure. As a result, I am bound by the Court of Appeal’s findings in Strasser. Therefore, the rule that permits the doubling of costs does not apply when the Plaintiff fails to recover anything.

[57] I note that if the trial judge had found that rule 14.07 applied to both claims, the combined total ($3,170 + $7,500 = $10,670) would approximate the $10,500 the trial judge awarded.

[58] The trial judge also took into account the fact that the defendant did not appear for the scheduled court date, and did not have the courtesy to advise either the court or plaintiff’s counsel that he did not intend to appear. I agree that such conduct qualifies as “unreasonable behaviour” within the meaning of s. 29 of the Courts of Justice Act, and invites some costs penalty. There must, however, be some correlation between that penalty and the actual costs incurred.

[59] The trial judge specifically referenced her intention to “penalize a party for unreasonable delay”, but provided no indication as to how the defendant delayed (unreasonably or otherwise) the proceeding. She took “into account that the process was lengthy”, but a lengthy process is not the same as “unreasonable delay”. She also took into account that the defendant’s claim for $25,000 was without merit, but it is not clear that simply advancing a claim without merit qualifies as “unreasonable behaviour” that invites punitive costs consequences under s. 29. See St. Elizabeth Home Society v. Hamilton (City), 2010 ONCA 280 at para. 90:

[O]ther than broad statements showing his disapproval for the length of the trial and the breadth and weakness of the claims advanced, the trial judge provided little detail and carried out little analysis of these concerns. Nothing suggests they rose to a level where, according to the existing jurisprudence, substantial indemnity costs would have been warranted.

[60] In West End Tree Service Inc. v. Danuta Stabryla, 2010 10, Swinton J. held that in order to rely on s. 29 to penalize a party for unreasonable behaviour in the proceeding, “the trial judge must determine that there has been unreasonable behaviour in the proceeding on the part of a party or a party’s representative that is deserving of sanction”, and must provide an explanation as to how the amount of the increased costs award was arrived at. She stated, at paras. 25 - 26:

Even if there was a basis to find unreasonable behaviour on the part of the appellant, the trial judge gave no explanation as to how he arrived at the amount of $1,500 as a costs award. I note that s. 29 gives a power to award costs. It is not framed as a general compensation section, nor as a power to award punitive damages to the other party, nor is it a form of contempt power. Therefore, the costs awarded should logically bear some relationship to the costs incurred by the recipient party as a result of the unreasonable behaviour of the party ordered to pay costs.

…Even if elevated costs were warranted here, there is no principled basis on which the trial judge arrived at the sum he did. (emphasis added)

Conclusion on Costs

[61] While I appreciate the trial judge’s frustration with the defendant’s discourtesy in failing to appear on the scheduled court date, and failing to advise the court and opposing counsel of its intention not to appear, the award of $10,500 in costs in this case appears to be disproportionate to any additional costs actually incurred by that failure. In addition, the trial judge relied on the defendant’s “unreasonable delay”, but does not identify how the defendant delayed the proceeding unreasonably. In the absence of such identification the defendant cannot know why it was being penalized, and the Court cannot properly review the costs decision.

[62] Perhaps the trial judge arrived at the $10,500 amount by calculating 30 per cent of the combined amounts of the two claims. We are left to speculate. It is also unclear whether that figure bears any relationship to costs actually incurred as a result of the defendant’s unreasonable behaviour.

[63] Where the court exercises its discretion to increase costs above the 15% maximum set by s. 29 of the Courts of Justice Act, it must provide sufficient reasons for the party ordered to pay costs to understand what unreasonable behaviour is being penalized, and to understand the correlation between the additional costs ordered and the unreasonable behaviour. The correlation does not require the recitation of a mathematical formula, but does require at least some explanation.

[64] Even considering these reasons in the Small Claims Court context as required by Maple Ridge, the trial judge’s reasons for granting costs of $10,500 are not sufficiently clear to permit judicial review.

[65] Accordingly, the costs order of the trial judge must be set aside.

[66] Taking into account the amount claimed by both the plaintiff and the defendant in this case, the application of rule 14.07, and the unreasonable behaviour of the defendant in failing to appear for costs submissions and failing to notify the court or opposing counsel of its intention not to appear, I would reduce the costs to $7,420.

[67] I base this amount on the following calculation. I would order costs at the 30 per cent level for the plaintiff’s $10,500 claim pursuant to rule 14.07 of the Small Claims Court Rules – this totals $3,170. I would also order costs with respect to the defendant’s $25,000 counter-claim, but I would limit these costs to the 15 per cent limit set out in s. 29 of the Courts of Justice Act – this totals $3,750. Finally, I would make an additional order of $500 for the defendant’s failure to appear on the date scheduled for costs submissions or notify the court and the opposing party of its intention not to appear. This is based on the assumption that the defendant’s failure to appear on that date resulted in approximately 2 - 3 hours of wasted time for the plaintiff’s counsel.

[68] Based on this assessment the total costs should equal $7,420.

Order

[69] Accordingly, the appeal with regard to costs is allowed and the trial judge’s order for costs of $10,500 is varied to reduce the costs to $7,420.

[70] The balance of the appeal is dismissed.

Costs of the Appeal

[71] The appellant seeks partial indemnity costs for this appeal in the amount of $7,163.

[72] The respondent seeks partial substantial indemnity costs in the amount of $14,752.

[73] In my view this is not a case for costs because each party was partially successful. In addition, the appellant was, to a great degree, the author of its own misfortune by failing to appear and make submissions to the trial judge when given an opportunity to do so.

Justice R.E. Charney

Released: January 15, 2018