COURT FILE AND PARTIES

COURT FILE NO.: 10-CV-099923
DATE: 20120518

ONTARIO
SUPERIOR COURT OF JUSTICE

In the Matter of the Construction Lien Act, R.S.O., 1990 c. C.30

BETWEEN:

SEYLAN’S FLOORING INC. Plaintiff – and – 2182537 ONTARIO INC., o/a YORK MEDICAL HEALTH CENTRE and PROXEMA LIMITED Defendants

H. Keith Juriansz, for the Plaintiff

Mark H. Arnold, for the Defendant, York Medical Health Centre

HEARD: May 8, 2012

COSTS RULING

Boswell J.

General Overview:

[ 1 ] This proceeding is one of a number of related lien actions arising from the construction of the York Medical Health Centre located in Newmarket, Ontario (the “Project”). This ruling is in relation to the costs of a settled motion having to do with the determination of the holdback obligation of the Defendant, York Medical.

[ 2 ] York Medical has a leasehold interest in the improved premises and is the owner, in relation to the Project, as that term is defined in the Construction Lien Act , R.S.O. 1990 c. C.30 (the “Act”). As owner, and principal payer in relation to the Project, York Medical was obliged to comply with the holdback provisions set out at Part IV of the Act.

[ 3 ] The Defendant, Proxema, was the general contractor on the project and has liened for what it claims are outstanding sums owing to it in relation to the Project. The Plaintiff is one of a number of unpaid sub-trades of Proxema. Including the Plaintiff, there are at least 5 sub-trades who had advanced lien claims. Their claims total more than $868,000 in the aggregate. They each advance contractual claims against Proxema, as well as a claim against York Medical for a share of the holdback funds.

[ 4 ] The various lien claims associated with the Project have proceeded through the Court process as a group, though I do not believe a formal consolidation order has been made. A number of pre-trial conferences have been conducted in the grouped proceedings, including one on November 8, 2011. At that time, counsel to the trades expressed their concerns (though not for the first time) about the importance of fixing York Medical’s holdback obligation, with a view to getting at least some money flowing to the trades. In the absence of an agreement about the holdback amount, I granted leave to the trades to bring a motion to determine and fix the amount.

[ 5 ] The Plaintiff in this action, Seylan’s, whose claim is for approximately $186,000, took the lead in preparing and serving a motion to fix York Medical’s holdback obligation. The motion was prepared in early January 2012. Examinations in relation to the motion took place in February 2012. Before the motion was argued, however, a further pre-trial was held on March 7, 2012. During the course of that pre-trial, York Medical agreed to deliver to its counsel, in trust, the sum of $175,000 on account of its basic holdback obligation. This payment – made on a without prejudice basis – resolved the holdback issue on an interlocutory basis. It was agreed that Seylan’s motion would not proceed, save for argument on the matter of costs.

Parties’ Positions on Costs:

[ 6 ] On May 8, 2012, I heard submissions from Mr. Juriansz, on behalf of Seylan’s, and Mr. Arnold, on behalf of York Medical, as to the costs of the settled motion. Seylan’s seeks its costs fixed at $16,000, plus disbursements, on what its counsel described as an “enhanced partial indemnity scale”. Seylan’s argues that York Medical unduly delayed the calculation and payment of the holdback funds, for the purpose of preventing the sub-trades from discovering that it had not, in fact, complied with its holdback obligations. York Medical’s actions, it says, substantially increased the costs of the proceedings to Seylan’s and other trades.

[ 7 ] York Medical asserts that costs should not exceed $2,500 on a partial indemnity scale, plus claimed disbursements, which it takes no issue with. York Medical denies that its actions were in any way unreasonable or that they unduly prolonged proceedings. It takes issue with the amounts sought in Seylan’s Costs Outline – arguing, in essence, that the matter has been over-lawyered and that preparation costs, as claimed, are excessive and unwarranted.

General Principles:

[ 8 ] The award of costs is governed by section 131 of the Courts of Justice Act , R.S.O. 1990 c. C.43 and by Rule 57.01 of the Rules of Civil Procedure . Section 131 provides for the general discretion to fix costs. Rule 57.01 provides a measure of guidance in the exercise of that discretion by enumerating certain factors that the court may consider when assessing costs. In addition, the Court must always be mindful of the purposes that costs orders serve. As Perrell J. summarized in 394 Lakeshore Oakville Holdings Inc. v. Misek , 2010 ONSC 7238 , [2010] O.J. No. 5692 (S.C.J.), at para. 10 :

Modern costs rules are designed to advance five purposes in the administration of justice: (1) to indemnify successful litigants for the costs of litigation, although not necessarily completely; (2) to facilitate access to justice, including access for impecunious litigants; (3) to discourage frivolous claims and defences; (4) to discourage the sanctioning of inappropriate behaviour by litigants in their conduct of the proceedings; and (5) to encourage settlements (internal citations omitted).

[ 9 ] The general rule is that costs follow the event and will be awarded on a partial indemnity basis: Bell Canada v. Olympia & York Developments Limited et. al . (1994), 17 O.R. (3d) 135 (C.A.). In special circumstances, costs may be awarded on a higher scale, but those cases are exceptional and generally involve circumstances where one party to the litigation has behaved in an abusive manner, brought proceedings wholly devoid of merit, and/or unnecessarily run up the costs of the litigation: Standard Life Assurance Company v. Elliott (2007), 2007 18579 (ON SC) , 86 O.R. (3d) 221 (S.C.J.).

[ 10 ] Ultimately, in fixing an amount for costs, the overriding principles are fairness and reasonableness: Boucher v. Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 291 (C.A.); and Moon v. Sher (2004), 246 D.L.R. (4 th ) 440 (C.A.). In assessing what is fair and reasonable in the circumstances, the Court is not to engage in a mechanical exercise, but rather must take a contextual approach to settle on a figure that is fair and reasonable in all the circumstances: Gratton-Masuy Environmental Technologies Inc. (c.o.b. Ecoflow Ontario) v. Building Materials Evaluation Commission , 2003 8279 (ON SCDC) , [2003] O.J. No. 1658.

Discussion:

[ 11 ] The issue of the holdback is one of very great significance, not only to this Plaintiff, but to all of the sub-trades. The Act is meant to create a summary process to resolve lien disputes: s. 67(1) . The owner’s holdback – which is considered inviolate – is meant to provide a modest level of protection to unpaid sub-trades. In this case, as in many cases, the holdback fund may represent the only certainty of recovery for an unpaid trade.

[ 12 ] Seylan’s lien was registered in June 2010 – almost two years ago. The matter is now targeted for the Fall 2012 Trial Sittings. It has been complicated by virtue of the number of parties involved. At its core, however, it remains relatively straightforward. The sub-trades have not been paid in full because the general contactor, Proxema, has not been paid in full. Proxema has not been paid because York Medical alleges deficiencies in the work. While the fight about the alleged deficiencies drags on, the sub-trades who provided labour and materials to the Project remain unpaid. For them, the process has, unfortunately, been anything but summary.

[ 13 ] The alleged deficiencies may not be used as a set-off against York Medical’s holdback obligation: Urbacon Building Groups Corp. v. Guelph (City), [2009] O.J. No. 5531, para. 29 .

[ 14 ] There is no dispute that the onus is on York Medical to establish its holdback obligation. It was agreed on November 8, 2011 that the minimum contract price was roughly $2.65 million. The contract has been, from the trades’ point of view, completed, suggesting that the minimum holdback should be at least $265,000. The evidence establishing some other minimum holdback has not been forthcoming and the trades have been understandably frustrated. They were fully justified, in my view, in bringing the motion to determine and fix the holdback.

[ 15 ] While the motion was ultimately resolved before argument, it still had its intended effect. It forced the issue. An amount, albeit conservative, has been settled upon on an interim basis, as York Medical’s holdback obligation and those funds are now available for distribution among the sub-trades. In my view, the motion generated a successful result for the Plaintiff and, in the result, the Plaintiff is entitled to its costs.

[ 16 ] I intend to assess those costs on a partial indemnity basis, which is the usual scale. The main thrust of the submission that enhanced costs should be ordered, was the suggestion that York Medical was attempting to delay proceedings in order to hide the fact that it had not actually retained a holdback. On the record now before the Court I am unable to draw the inference suggested by Mr. Juriansz. Moreover, I am not of the view that failing to set aside and withhold 10% of the contract price in cash is improper. Duncan Glaholt and David Keeshan, in the commentary to s. 22(1) in their 2011 Annotated Construction Lien Act (Toronto, Carswell: 2011), make the following observation, with which I agree:

The most prevalent misconception about holdback is that cash is actually held back at each level. In effect, the holdback is more often merely a stacked series of claims upon a final draw by the contractor on the owner’s funds.

[ 17 ] It would have been preferable had the holdback issue been resolved much earlier. This motion could have been avoided. But that said, there are not present here the type of exceptional circumstances that justify an award of costs above the usual partial indemnity scale.

[ 18 ] In terms of an appropriate amount of costs, the parties are clearly well and truly divided. On a partial indemnity scale, the Plaintiff seeks $11,300 plus disbursements. York Medical maintains that the value of the motion is no more than $2,500.

[ 19 ] Mr. Arnold spent considerable time in argument reviewing the Costs Outline of the Plaintiff in detail and pointing out areas where, in his view, excessive costs had been incurred. Normally, the court ought not to second guess the time spent by counsel. As Nordheimer J. noted in Basedo v. University Health Network, [2002] O.J. No 597 (S.C.J.) , “it is not the role of the court to second guess the time spent by counsel unless it is manifestly unreasonable in the sense that the total time spent is clearly excessive or the matter has been overly lawyered.” I am not persuaded that the time spent was manifestly unreasonable, or that there has been any excessive lawyering.

[ 20 ] At the same time, an assessment of costs is not a mechanical exercise either. There is more to it than simply applying an hourly rate to the time spent. Appellate courts have repeatedly emphasized that the assessment process is not a mechanical exercise. In Gratton-Masuy Environmental Technologies Inc. (c.o.b. Ecoflow Ontario) v. Building Materials Evaluation Commission , as above, at para. 17 , the Divisional Court expressed the principle as follows:

The amount at which costs are to be fixed is not simply an arithmetic function dependent on the number of hours worked and the hourly rates employed but, rather, the party paying the costs should be subjected to an order which is fair and predictable. In other words, the party required to pay costs must not be faced with an award that does not reasonably reflect the amount of time and effort that was warranted by the proceedings.

[ 21 ] This was, as I have indicated, a very important motion for this Plaintiff and all other sub-trades. The issue raised by York Medical made the matter somewhat complex. Although the minimum amount of the contract was agreed upon, York Medical’s argument is, as I understand it, that the value of the work, taking into account the deficiencies or other shortcomings in it, significantly less than the minimum contract price. York Medical suggests that its holdback obligation is 10% of the value of the work and that the value it received was much less than $2.65 million.

[ 22 ] While the initial motion materials may not have been overly complex, the issues in play were. Examinations were required in order to allow the Plaintiff to get a better sense of York Medical’s argument and the evidence it intended to adduce to support it. It was necessary to research and prepare a factum. Mr. Arnold points out that the factum was never served, but that, in my view, does not disentitle the Plaintiff to the costs of its preparation.

[ 23 ] It is necessary for a costs order to be fair, reasonable and proportionate. Proportionality involves a number of considerations, including, but not limited to (i) the importance and complexity of the issues involved; (ii) the amount of money at issue; and, (iii) the reasonable expectations of the parties in terms of what costs a motion of this nature might typically entail.

[ 24 ] In my view, a fair, reasonable and proportionate costs award in the circumstances of this motion is $8,000.

Disposition:

[ 25 ] In the result, the costs of the motion are fixed at $8,000 plus HST, together with disbursements of $825.05, inclusive of disbursements. These costs are payable by York Medical to the Plaintiff within 30 days.

Next Steps:

[ 26 ] Prior to the argument proceeding in terms of the costs of this motion, I conducted a pre-trial conference with the parties in the grouped actions in order to resolve a number of procedural issues. The parties have now been subject to at least 4 pre-trial conferences. I indicated to them that it is time that the matter be moved forward to trial.

[ 27 ] The matter will accordingly be set down for the Fall 2012 trial sittings at Newmarket, which begin November 19, 2012.

[ 28 ] Mr. Arnold indicated that he is hopeful that a further mediation can be scheduled, to include all sub-trades. In the event that the parties believe it would be of assistance, I am prepared to make myself available for a final, exit pre-trial. The arrangements for such a conference should be made through the local trial co-ordinators’ office.

Boswell J.

Released: May 18, 2012