COURT FILE NO.: 585/04

DATE: 20041223

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

IN THE MATTER OF Construction Lien Act, R.S.O. 1990, c. C.30

B E T W E E N:

BELLISSIMO EXCAVATING LIMITED

Plaintiff

(Respondent)

• and -

JINLI DING, TOSHIKO NAKANO, SONADA GENERAL CONTRACTING INC., 1337526 ONTARIO INC., MOHAMMED ELBADAWI, MOBILISA DESIGN/BUILD INC. and THE BANK OF NOVA SCOTIA

Defendant

(Appellants)

Claudio R. Aiello for the Plaintiff (Respondent)

Sylvia M. Samuel for the Defendants (Appellants)

HEARD: December 9, 2004

Pitt J.

REASONS FOR JUDGMENT

[1] This is a motion for an order granting leave to appeal to the Divisional Court from the order of Sanderson J. dated October 13, 2004, which confirmed the order of Master Carol Albert dated June 7, 2004, awarding costs to the plaintiff, Bellissimo Excavating Limited in the amount of $30,825.42 in connection with a claim for lien of $15,242.15.

[2] Although the appellants submit in their factum that “leave is not necessary given that the order appealed from is not an order as to costs itself, but the exercise of discretion by Sanderson J.”, no authority was offered for the jurisdictional implications of that submission. Accordingly, I shall treat the proceeding as a motion for leave.

ANALYSIS

[3] Section 131 (1) of the Courts of Justice Act, R.S.O. 1990, c. C. 43 provides as follows:

131. (1) Costs – Subject to the provisions of an Act or rules of the 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 the costs shall be paid.

Section 133 provides as follows:

133. Leave to appeal required – No appeal lies without leave of the court to which the appeal is to be taken,

(a) from an order made with the consent of the parties; or

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

[4] The governing principle in such motions is that leave to appeal an order for costs should be granted sparingly and only in obvious cases. The applicant must convince the judge from whom leave is required that there are strong grounds upon which the appellate court could find that the judge erred in exercising his or her jurisdiction. See Yakabuski v. Yakabuski Estate (1988), 36 C.P.C. (2d) 189 (Ont. Div. Ct.).

[5] As early as Axelrod v. Betz Jacob, 1943 366 (ON SC), [1943] 2 D.L.R. 115 per Urquhart J. at p. 120:

… The trend of decisions is against the granting of leave. In the Horrocks case, supra, I expressed the opinion that leave to appeal on the question of costs alone ought to be sparingly granted and only in very obvious cases.

See Johnson v. Multinational Five Investments Ltd., [1999] O.J. No. 3442, Court File No. 294/99, September 21, 1999 per O’Driscoll (Div. Ct.) at para. 23.

[6] A court should set aside a costs award only if the trial judge has made an error in principle or if the costs award is plainly wrong. See Duong v. NN Life Insurance Co. of Canada (2001), 141 O.A.C. applied in Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303.

FACTS AND ISSUES

[7] The underlying proceeding commenced in February 2001, is a construction lien action in which the plaintiff claimed $15,242.15 for excavation work on property owned by the defendant owners. The other parties to the action were the general contractors, who, for whatever reason, were apparently sued in their personal capacity, in a trade name and in two corporate names, and the Bank of Nova Scotia which provided bridge financing, a fact that was apparently revealed to the plaintiff only during the course of the action.

[8] Although, there were no oral discoveries or preparation for an actual trial, a good indication of the course of the proceedings is found in the items claimed in the plaintiff’s bill of costs that was provided for the cost hearing on May 25, 2004. What follows is a bare summary of the bill of costs:

DESCRIPTION	HOURS
Preparation of Claim for Construction Lien	Block Fee $500.00
Perfecting Claim	Block Fee $750.00
Preparations for Trial (March 1, 2001 – January 23, 2003)	8.1
Motion for Judgment/Reference	4.3
Ex Parte Motion for Trial	1.0
First Trial Attendance	5.5
Second Trial Attendance	12.2
Amendment of Pleadings	12.1
Third Trial Attendance – Motion to strike Elbadawi defence.	20.4
Fourth Trial Attendance – Summary Judgment Motion	25.6
Preparations for Fifth Trial Attendance	1.8
TOTAL HOURS	91.1

The total amount claimed by the plaintiff in its bill of costs was $34,264.89, part on a partial indemnity scale, and part on a substantial indemnity scale. The Master awarded costs of $30,825.42.

[9] Master Carol Albert made the following findings in her endorsement dated June 7, 2004 at paragraph 15:

[15] In this case I find in respect of these five factors:

(a) throughout the case the plaintiffs made genuine efforts to settle the claim with the Owners by presenting reasonable settlement offers;

(b) the amount claimed is the amount recovered;

(c) the Owners are 100% liable. They may have a claim against the general contractor for indemnification, but this action concerned their liability to the subcontractor;

(d) the conduct of the Owners lengthened the proceeding unnecessarily. They could have ended the proceeding at the outset by paying the lien claim out of their holdback obligation.

(e) The Owners’ holdback liability should have been admitted.

[10] In substance, the Master found that the owner’s defence was spurious. She also found that although they “were duped by an unscrupulous contractor”, the breach of their statutory obligation to retain holdback funds and choosing instead to pay the amount in full to their general contractor was the real cause of the need for so many legal steps over so long a period. Notably, while the Master obviously considered the bill of costs, with the specific number of hours claimed, and the disbursements claimed, she did not, as was her right, refer to the bill of costs on an item by item basis in her endorsement.

THE APPEAL

[11] The Appeal Judge found the appeal was without merit. Paragraph 51 of Sanderson J.’s Reasons for Judgment perhaps best encapsulates her assessment of the appeal:

[51] The Master found in effect the Owners acted in bad faith. They knew they had deliberately failed to comply with the Act. They knew the amount of the lien (or had a way to expeditiously determine it.) They could have simply advised they were no longer defending on the merits and had the interest and costs issues summarily determined. Instead, they continued their spurious defences and then when judgment day was near, (improperly) obtained an order vacating the lien, attended on the summary judgment motion and argued that having taken that step, their exposure to costs was capped at $3,810.54 (25% of the value of the lien.) At that time, they knew [from correspondence] that that sum approximated the disbursements Bellissimo had already incurred. It is clear from the record that Bellissimo’s solicitors made a number of settlement offers, which expressly kept the Owners apprised of the quantum of the escalating costs. Clearly, they were attempting to escape a significant costs exposure.

[12] In light of the principles outlined at the beginning of my reasons, the clear inference to be drawn from the Appeal Judge’s reasons was that, in her view, the Master made no error in principle and/or the award was not plainly wrong.

[13] The appellants’ main objections to the Master’s decision and, by implication, to the Appeal Judge’s decision, are the following, not necessarily in order of merit or importance:

(a) The award is unreasonable and disproportionate to the quantum and complexity of the claim. See Alan Webster Family Trust v. Midland Walwyn Capital Inc. et al. (2003), 2003 35006 (ON SC), 64 O.R. (3d) 716 (S.C.J.); Toronto (City) v. First Ontario Realty Corp. (2002), 2002 49482 (ON SC), 59 O.R. (3d) 568 (S.C.J.) (hereinafter First Ontario); and Murano v. Bank of Montreal (1998), 1998 5633 (ON CA), 41 O.R. (3d) 222 (C.A.).

(b) The Master exceeded her jurisdiction by awarding costs against the owners in connection with the following:

i. an interlocutory motion to which the Owners were not the responding party, against whom no relief was sought, and in which the Owners took no part (except to advise that they supported the plaintiff’s position).

This motion accounted for about 22 percent of the total costs.

ii. a previous ex parte motion where the master hearing the motion had made no award of costs; and

iii. the plaintiff’s motion for dismissal of the action against the co-defendant, Bank of Nova Scotia, an order which was issued on the Owner’s consent and which provided for a dismissal “without costs”.

See Hannah v. Shannon et al., [1967] 1 O.R. (2d) 609 (C.A.); M. Orkin, The Law of Costs (Aurora: Canada Law Book Inc., 2003) at 1-16, 1-17; Rule 57.03 (3) of the Rules of Civil Procedure, R.R.O. 1990, R. 194; and Ray Kennedy Construction Ltd. v. Moore Park Homes Ltd. (1976) 1975 487 (ON SC), 10 O.R. (2d) 127 (Div. Ct.).

(c) The Master acted on a wrong principle in awarding costs of the plaintiff’s motion to amend its pleading, a motion made necessary by the inadvertence of plaintiff’s counsel and the subsequent intransigence of the co-defendant contractor(s)’s representative. In the bill of costs, the motion represented 14 percent of the total costs.

(d) The Master acted on a wrong principle in awarding costs dealing with a related action, previously dismissed without costs.

(e) The Master acted on a wrong principle in awarding costs on the scale that she did, despite the following facts:

i. the owners were duped by an unscrupulous contractor;

ii. the owners had no contractual obligation to pay Bellissimo directly;

iii. the court, in the summary judgment motion found that Bellissimo was not entitled to prejudgment interest as against the owner, thereby not granting the plaintiff the amount claimed, contrary to one of the reasons given to justify the award.

iv. many of the court attendances and procedures were required because of the actions and defaults of Mohammed Elbadawi (not the owners).

(f) The Master erred in finding that the conduct of the Owners lengthened the proceeding given her own findings and evidence to the contrary.

(g) The Master erred in mischaracterizing the legal relationship between the Owners and the plaintiff or erred in her application of the Construction Lien Act in finding that the action “would have ended” upon the Owners paying into court the amount of the lien claims.

(h) The Master erred in having no regard to the Tariff as required by Rule 57.01 when determining the quantum of costs or in failing to order or conduct a proper assessment.

(i) The Master erred in awarding costs on a full indemnity scale for the period following the first pre-trial.

[14] Whether I would myself have made the costs order made by the Master or upheld it on appeal is, I apprehend, irrelevant. The issue before me is whether I should grant leave to appeal to the full panel.

[15] If the issue were only whether the award was plainly wrong, I would have been most reluctant to grant leave in light of:

(a) Appellant’s conduct in failing to comply with perhaps the most fundamental provision of the Construction Lien Act, (which is indeed a breach of trust).

(b) What appears to have been a surreptitious attempt to avoid costs by seeking to vacate the lien by motion to a different Master.

(c) The observation made by Lane J. in 163972 Ontario c.o.b. Teenflo v. Isaaco et al. (1997), File 95-CU-85498 (Toronto) and adopted by the Master:

That the costs significantly exceed the amounts at stake in the litigation is regrettable, but is a common experience and is well known to counsel as one of the risks involved in pursuing or defending a case such as this to the bitter end rather than finding a compromise solution. To reduce the plaintiff’s otherwise reasonable costs on this basis would simply encourage the kind of intransigence displayed by the defendants in this case.

[16] Did the alleged error in principle have a sufficiently significant impact on the quantum to warrant review by a full panel?

In the Master’s endorsement in the summary judgment motion, the following appears:

many of the court attendances and procedures were required because of the actions and defaults of Mr. Elbadawi as representative of Sonada, and defaults of other defendants noted in default, [not including the appellants]

a finding that was echoed in her reasons for costs where she found that

most of these events [numerous interlocutory proceedings, including motions and pre-trials] were necessary due to the conduct of the principle of the general contractor, Mr. Elbadawi;

[17] The appellants have noted that the plaintiff persisted in a claim for prejudgment interest to the very end of the proceeding. That claim was disallowed by the Master, but its disallowance was not given any consideration in assessing the bill of costs.

[18] The Master had initially denied the plaintiff’s request for leave to bring the summary judgment motion making it impossible for that motion to be brought earlier than it was.

[19] With the exception of the summary judgment motion, none of the interlocutory steps in the action was taken against the appellants.

[20] The appellants were made (judging from the bill of costs) to pay costs for a plaintiff’s motion to amend its pleadings, made necessary by the inadvertence of plaintiff’s counsel and the intransigence of the co-defendant contractors, who were found to have duped the appellants.

[21] The Master apparently awarded costs on a motion with respect to which she had earlier found there should be no costs.

[22] The appellants also submit that the appellants’ failure to retain the statutory holdback and pay the lien amount into court lead the Master to completely disregard the well-known proposition that failure to admit liability and/or to settle an action, do not, in themselves, trigger a punitive cost award as held in:

▪ Mortimer v. Cameron (1994), 1994 10998 (ON CA), 111 D.L.R. (4th) 428 (Ont. C.A.);

▪ Ontario Hospital Association v. Timbrell, [1998] O.J. No. 4569 (Gen. Div.);

▪ Foulis et al. v. Robinson (1978), 1978 1307 (ON CA), 21 O.R. (2d) 769 (C.A.).

[23] Finally, the appellants submit that the Master’s disregard of the proposition that payment into court of a lien amount does not create a right in a plaintiff to have the monies paid out without proving entitlement, lead to the Master’s erroneous finding that the failure to pay in was virtually the sole cause of the delay in resolving the issues. That argument becomes even more important in a situation like the one at bar in which the appellant was relying on advice from a contractor, who the Master found had duped the appellant, presumably by not only improperly retaining the appellants’ money, but also apparently misleading the owner as to the strength of the plaintiff’s claim that the work was done in accordance with the contract.

[24] While the quantum of the costs does not offend my sense of what is appropriate, I am not certain that such sentiments are enough to deny leave to appeal.

[25] Although the appellants’ counsel was unwilling to offer an opinion as to what an appropriate award of costs should be, I had the distinct impression from her musings that her estimate was extremely low, perhaps in the $6,000.00 range.

[26] It is clear to me that unfortunately costs have become the major issue in the litigation. The dispute, however, is not about entitlement, but only about quantum, and the successful party has been without any costs in respect of a hearing that was completed in December 2003.

[27] As I said earlier, although the Master must have relied on the bill of costs as a basis for the award, there is no indication that she did not make a global rather than an item by item award, which she was entitled to do, subject to her duty to ascertain that the amount is “a fair and reasonable sum to be paid by the unsuccessful litigant rather than any exact measure of the actual costs to the successful litigant.” See Zesta Engineering Ltd. v. Cloutier, 2002 25577 (ON CA), [2002] O.J. No. 4495, 21 C.C.E.L. (3d) 161 (C.A.); Stellarbridge Management Inc. v. Magna International (Canada) Inc., 2004 9852 (ON CA), [2004] O.J. No. 2102, 187 O.A.C. 78 (C.A.), and Boucher v. Public Accountants Council for the Province, 2004 14579 (ON CA), [2004] O.J. No. 2634, 188 O.A.C. 201 (C.A.).

[28] It is not disputed that an award of costs, perhaps more so than any other decision in a proceeding, is discretionary, and is, therefore, less likely than most decisions, to be overturned on appeal.

[29] Although not dispositive of the issue, I am obliged to observe that even if there are some errors in principle in the Master’s cost award, as I noted earlier entitlement is not an issue, only quantum. It would, therefore, be most difficult for an appellate court, in a case of this nature, to require the plaintiff to bear the cost of defending the quantum of the cost awarded to it. Boucher, supra, is a significantly different case. Accordingly, it will be extremely difficult, if not impossible, for the Appeal court, even if it found errors in the decision below, as I believe there might be, to dispose of the matter in a manner that would adequately make amends for whatever errors there might have been, and also do justice to both parties.

[30] It is useful to note that, although the Master made no reference to it, Sanderson J. observed at paras. 18 and 21 that the Master ordered:

[18] … ordered, among other things, that the Owners on the one hand and Elbadawi, 1337526 Ontario Inc. and Sonada General Contracting Inc. on the other hand, each pay into court one half the value of the liens plus 25% for costs by May 30, 2003 “in order to continue to participate in the action.” She stipulated that “failure to make payment into court as directed could result in sanctions which may include costs.” Her order for the first pretrial made mention of costs.

[21] The Owners moved to set aside Master Albert’s order requiring them to pay half the value of the Bellissimo and Northwest liens plus 25% into court.

[31] When the amounts involved in the proceeding, the time already spent, the unprincipled conduct of the appellants, and the blameless conduct of the plaintiff are taken into consideration, leave to appeal cannot be justified.

DISPOSITION

[32] The motion is, therefore, dismissed.

COSTS

[33] Subject to any agreement between the parties, brief written submissions on costs are to be made within 20 days of the release of these reasons.

Pitt J.

Released: December 23, 2004

COURT FILE NO.: 585/04

DATE: 20041223

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

B E T W E E N:

BELLISSIMO EXCAVATING LIMITED

Plaintiff

(Respondent)

• and -

JINLI DING, TOSHIKO NAKANO, SONADA GENERAL CONTRACTING INC., 1337526 ONTARIO INC., MOHAMMED ELBADAWI, MOBILISA DESIGN/BUILD INC. and THE BANK OF NOVA SCOTIA

Defendant

(Appellants)

REASONS FOR JUDGMENT

Pitt J.

Released: December 23, 2004