Court of Appeal for Ontario

Date: 2019-11-08 Docket: C65204 Judges: Feldman, Fairburn and Jamal JJ.A.

Between

Ryan Barresi and 6491243 Canada Inc. Plaintiffs/Defendants by Counterclaim (Respondents/Appellants by way of Cross-Appeal)

and

Jones Lang Lasalle Real Estate Services Inc. Defendant/Plaintiff by Counterclaim (Appellant/Respondent by way of Cross-Appeal)

Counsel

Jock Climie and Larissa Volinets Schieven, for the appellant/respondent by way of cross-appeal

Sean Bawden, for the respondents/appellants by way of cross-appeal

Heard

October 21, 2019

Appeal Information

On appeal from the order of Justice Catherine D. Aitken of the Ontario Superior Court of Justice, dated March 7, 2018, with reasons reported at 2018 ONSC 837, and from the costs order dated April 23, 2018, with reasons reported at 2018 ONSC 2579.

Reasons for Decision

The Appeal

[1] The appellant, a real estate investment management company, appeals the trial judge's decision that it repudiated its contract (the "Agreement") with the respondents, a real estate broker (Ryan Barresi) and his operating company (6491243 Canada Inc.).

[2] The respondents cross-appeal the trial judge's decision to award them substantially less in costs than they were entitled to under r. 49.10(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 as a result of obtaining a judgment more favourable than their offer to settle: partial indemnity costs to the date of service of their offer and substantial indemnity costs thereafter. They submit that the trial judge erred by failing to apply the rule.

[3] The appellant argues that the trial judge failed "to identify and properly apply the legal test for anticipatory repudiation", that is, repudiation as to the future performance of the contract. It also argues that there could be no repudiation here because section "S" of the Agreement expressly permitted it to revoke Barresi's status as the "Ottawa Practice Lead".

[4] We disagree.

[5] The trial judge correctly noted that contractual repudiation occurs "by words or conduct evincing an intention not to be bound by the contract": Guarantee Co. of North America v. Gordon Capital, [1999] 3 S.C.R. 423, at para. 40. A contractual breach "is a repudiation of the contract if it is a breach of a contractual condition or of some other sufficiently important term of the contract so that there is a substantial failure of performance": Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10, [2015] 1 S.C.R. 500, at para. 145.

[6] Applying this test, the trial judge found that the appellant had recruited Barresi from a competitor to be the "Ottawa Practice Lead" and the "go to" person at the appellant's Ottawa office for investment property transactions, but then repudiated the Agreement about a year after it was concluded by advising Barresi that: (1) going forward, the respondents could only pursue transactions in Ottawa up to a $10 million ceiling, even though the Agreement imposed no such ceiling; and (2) transactions above $10 million would be exclusively available to the National Retail Investment Group ("NRIG") of the appellant, which would involve Barresi only as it saw fit. The trial judge found that these two limitations undermined Barresi's reason for joining the appellant, which was to undertake higher value transactions in Ottawa than he had formerly.

[7] The trial judge also found that the respondents accepted the appellant's anticipatory repudiation of the Agreement, which resulted in the automatic forgiveness of a $225,000 loan under a promissory note that formed part of the Agreement. However, she dismissed the respondents' claim for damages for negligent misrepresentation in inducing Barresi to join the appellant because she found that any such representations were true when made. It was the later-imposed dollar limit that repudiated the agreement.

[8] The trial judge's application of the test for contractual repudiation in her detailed reasons was made following a five-day trial with numerous witnesses and involved findings of fact and mixed fact and law to which this court owes substantial deference. In our view, the trial judge made no palpable and overriding error in finding repudiation in this case.

[9] Finally, whether section "S" of the Agreement permitted the appellant to revoke Barresi's status as "Ottawa Practice Lead" is irrelevant to whether the appellant repudiated the Agreement. The respondents did not assert that Barresi was removed as the Ottawa Practice Lead. They asserted that the appellant had repudiated the Agreement by unilaterally imposing limitations on the respondents' commercial activities that fundamentally undercut the respondents' basis for entering the Agreement, namely, to undertake higher-value transactions in Ottawa.

[10] The appeal is therefore dismissed.

The Cross-Appeal as to Costs

[11] The respondents seek to cross-appeal the trial judge's costs ruling. Leave is required.

[12] The trial judge awarded the respondents $40,000 in costs for this five-day trial. This was much less than the respondents' claim of $125,000 based on their r. 49.10(1) offer to settle, which was made about two months before trial and remained open until trial, in which the respondents had offered to pay the appellant $50,000. The respondents later increased this offer twice before trial by offering to pay the appellant $100,000, and then $200,000 "all-in". The appellant did not accept any of these offers or make one itself. It insisted on going to trial.

[13] The trial judge accepted that the respondents' declaratory judgment for the forgiveness of the $225,000 loan was more favourable than the terms of their offer to settle, thereby triggering a presumptive entitlement under r. 49.10(1) to partial indemnity costs to the date of service of the offer and substantial indemnity costs thereafter. This would have resulted in the respondents receiving $105,288 for fees and $6,000 for disbursements. But the trial judge exercised her discretion to award the respondents only $34,000 for fees and $6,000 for disbursements because: (1) success was divided, as the respondents' negligent misrepresentation claim had been dismissed; (2) she found that Barresi had acted unreasonably during the litigation process.

[14] The respondents require leave to cross-appeal a discretionary costs order: Courts of Justice Act, R.S.O. 1990, c. C.43, s. 133(b). The test for leave to appeal costs is high: there must be "strong grounds upon which the appellate court could find that the judge erred in exercising his [or her] discretion": McNaughton Automotive Limited v. Co-Operators General Insurance Company, 2008 ONCA 597, 95 O.R. (3d) 365 (C.A.), at para. 24, citing Brad-Jay Investments Ltd. v. Szijjarto, 218 O.A.C. 315 (2006) (C.A.), at para. 21. A costs award should be set aside on appeal "only if the trial judge has made an error in principle or if the costs award is plainly wrong": Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303, at para. 27.

[15] The respondents say that they meet the test for leave in this case because the trial judge's reasons for departing from the presumption under r. 49.10(1) involve an error in principle and are plainly wrong.

[16] We agree.

[17] Rule 49.10 provides a presumption as to costs where an offer to settle is not accepted, "unless the court orders otherwise". The discretion to depart from the presumption as to costs in r. 49.10(1) is not unfettered and must be exercised in accordance with the purpose of the rule. The circumstances for invoking the exception in r. 49.10(1) should not be so widespread or common such that "the general rule is no longer, in fact, the general rule": Niagara Structural Steel (St. Catharines) Ltd. v. W.D. Laflamme Ltd., 58 O.R. (2d) 773 (C.A.), at p. 777. The presumption should be applied "in the vast majority of cases": Jarbeau v. McLean, 2017 ONCA 115, 410 D.L.R. (4th) 246, at para. 82; see also Cimmaster v. Piccione (Manufacturing Technologies Company), 2011 ONCA 486, 336 D.L.R. (4th) 506, at para. 32. This helps ensure that the rule is applied in a reasonably predictable fashion, and thereby avoids blunting the rule's incentives "to induce settlements and avoid trials": Mark M. Orkin in The Law of Costs, loose-leaf, 2nd ed. (Toronto: Thomson Reuters, 1987), at §214.1.

[18] Thus, this court has ruled that "resort should only be had to the exception where, after giving proper weight to the policy of the general rule, and the importance of reasonable predictability and the even application of the rule, the interests of justice require a departure": Niagara Structural Steel, at p. 777.

[19] Here, the trial judge departed from the presumption in r. 49.10(1) on the basis that Barresi had acted unreasonably because he could not recall signing the Agreement; he had provided his evidence in a confusing fashion; and he had been tardy in providing answers to undertakings. She also found that success at trial was divided. In our view, in this case, none of these reasons justified departure from the presumption in r. 49.10(1).

[20] First, it was an error in principle and plainly wrong for the trial judge to depart from the presumption in r. 49.10(1) on the basis that success at trial was divided in this case. An offer to settle often involves compromise, premised on the notion of divided success in order to avoid trial. Here, the claim that did succeed at trial — the $225,000 loan that was forgiven — was more favourable than the offer to settle, and therefore triggered r. 49.10(1). As this court has noted in Skye v. Matthews, 87 O.A.C. 381 (C.A.), at para. 17, "[t]here is nothing in the offer to settle rules, or the relevant policy considerations, which suggests that eligible offers should be viewed on an issue by issue basis." Once the respondents obtained a judgment more favourable than their offer to settle, thereby triggering the presumption in r. 49.10(1), the trial judge erred by essentially relying on the extent to which the judgment was more favourable than their offer as a basis to rebut that same presumption. Relying on divided success to rebut the presumption in r. 49.10(1) would mean that successful parties would obtain the higher costs contemplated by r. 49.10(1) only if they obtain a judgment that is more favourable than their offer to settle by a sufficiently wide margin. This would frustrate the reasonably predictable application of the rule and distort the incentives to induce settlements and avoid trials.

[21] Second, the trial judge contradicted her own comments about litigation misconduct. Elsewhere in her reasons, the trial judge found that while "Barresi was a tentative witness with a poor memory", she accepted that "he was not making a conscious effort to mislead the court". He simply could not recall details of certain relevant events but did not deny them. Where the court finds that a litigant simply has a poor memory and is not misleading the court, there is no litigation misconduct, and therefore it cannot be said that the interests of justice require a departure from the presumption in r. 49.10(1).

[22] Finally, in this case, providing late answers to undertakings during discovery did not in itself justify departure from the presumption in r. 49.10(1). While we accept that "the conduct of a successful party may nullify the salutary effect of an offer to settle" (Orkin, at §214.6), the impugned conduct here was not sufficiently serious and occurred well before trial. To allow such conduct to forestall the cost consequences under r. 49.10(1) would again defeat the policy and incentives of the rule, because it would mean that no offer to settle could have resulted in the higher scale of costs in this case.

[23] Thus, there was no basis for the trial judge to depart from the presumption in r. 49.10(1) in this case. The respondents were entitled to partial indemnity costs up to the date of service of their r. 49.10(1) offer and substantial indemnity costs thereafter.

[24] We therefore grant leave to appeal and allow the cross-appeal.

Disposition

[25] The appeal is dismissed. Leave to cross-appeal is granted and the cross-appeal is allowed. The costs order of the trial judge is increased to $111,288, inclusive of taxes and disbursements.

[26] Costs of the appeal and cross-appeal are payable to the respondents in the agreed amount of $20,000, inclusive of taxes and disbursements.

K. Feldman J.A. Fairburn J.A. M. Jamal J.A.