ONTARIO

SUPERIOR COURT OF JUSTICE

Court File No.: 05-CV-285874 PDA1
Date: 20120523

BETWEEN:

BING KWAN PATRICK LO and MI YIM NANCY LO Plaintiffs – and – YU NAN HO and PING-CHUN HSIUNG Defendants

Martin Forget , for the Defendants

– and – NEWTO CONSTRUCTION LTD.

Gary Wiseman , for the Third Party

Third Party

Heard: In Writing

SPIES J.

DECISION ON COSTS OF THE MAIN ACTION

Introduction

[ 1 ] The plaintiffs sued the defendants in March 2005 for damages arising from a retaining wall defectively built by the third party, Newto Construction Ltd. (“Newto”). The defendants settled the main action during a pre-trial before Justice Darla Wilson in September 2009. As part of the settlement, the defendants agreed to be responsible for the plaintiffs’ costs which were fixed by the order of Justice Wilson in the amount of $59,603.70. [1] Newto did not agree with or contribute to this settlement and, as a result, the trial of the third party action proceeded before me. The trial included some claims by the defendants for damages unrelated to the defective retaining wall.

[ 2 ] The defendants were successful against Newto at trial and I awarded the defendants damages in the amount of $34,033 [2] plus prejudgment interest as well as $50,000 in costs on a substantial indemnity basis. [3] The defendants had claimed the sum of $30,153.63 paid by their home insurer to build a new retaining wall to replace both an old retaining wall as well as the new retaining wall constructed by Newto and the amount of $16,000 paid to the plaintiffs to settle the main action. That part of the Judgment was broken down as follows:

(a) For the cost of replacing the defective retaining wall built by Newto, the sum of $11,820 plus prejudgment interest from September 1, 2009. Much of the discount from the amount claimed was that the defendants did not prove that Newto was responsible for the cost to replace an old retaining wall;

(b) The sum of $5,000 for a portion of the $16,000 paid by the defendants’ home insurer to the plaintiffs for general damages and prejudgment interest for pain and suffering, with prejudgment interest from the date of that payment. The $16,000 claimed was broken down as $8,000 for pain and suffering for the loss of the use of their garden, plus prejudgment interest for a total of $10,000 and a further $6,000 for damages relating to their fence and garden when the wall constructed by Newto collapsed onto the plaintiffs’ property.

[ 3 ] As I found that Newto was only responsible for some of the plaintiffs’ claim I determined that Newto would be responsible for only some of the costs to be paid by the defendants to the plaintiffs. I reserved my decision on that issue until those costs were fixed by Justice Wilson and I received written submissions of counsel for the defendants and Newto. Those submissions were to be made within 21 days of the release of Justice Wilson’s Costs Decision. In fact, the submissions were not received for over a year following her decision. In any event I have now considered the submissions of the parties and this endorsement sets out my decision on the amount of the plaintiffs’ costs that Newto is responsible for.

[ 4 ] The defendants take the position that Newto should be responsible for 100% of the costs paid by the defendants to the plaintiffs for the following reasons:

a) Newto’s faulty work was the reason that the plaintiffs sued the defendants.

b) The costs in the main action were so high because Newto refused to participate in settlement discussions with the plaintiffs and the defendants. This prolonged the dispute between the plaintiffs and the defendants. Reliance is placed on para. 35 of my Costs Decision where I found that the defendants’ insurer had no choice but to defend the plaintiffs’ action given the fact Newto did not accept responsibility for doing so, that there were clearly many attempts to settle the main action and the third party claim; including five pre-trials which unfortunately resolved only the plaintiffs’ claim and that at least for the time spent by Shibley Righton, original counsel for the defendants’ insurer, the insurer had no choice but to instruct the firm to proceed as it did even though the legal costs were outstripping the amount in issue.

(c) The Stipulated Price Contract between Newto and the defendants stated that Newto would hold the defendants “harmless from and against claims, demands, losses, costs , damages, actions, suits, or proceedings by third parties that arise out of or are attributable to Newto’s performance of the contract provided the claims are attributable to injury or destruction of tangible property and caused by the negligent acts or omissions of Newto.” The defendants rely on the fact that at para. 12 of my Costs Decision I held that this provision was sufficient to hold Newto liable for the costs incurred by the defendants during the trial between the defendants and Newto on a full indemnity basis and argue that this provision also makes Newto fully responsible for the costs of the settlement between the plaintiffs and the defendants.

[ 5 ] Newto takes the position that it should only be responsible for somewhere between $0 - $29,801.85 of the plaintiffs’ costs for the following reasons:

(a) Don Harvey, the defendants’ prior counsel, submitted to Justice Wilson that Newto should be liable for 50% of the plaintiffs’ costs (Justice Wilson’s Costs Decision at para. 13). Newto submits that the defendants should be bound by this submission. $29,801.85 is 50% of the $59,603.70 claimed by the defendants.

(b) Newto made a settlement offer in November 2007. Newto relies on my finding at para. 7 of my Costs Decision that their offer was not an unreasonable one, although I did find that the defendants did better than this offer as against Newto.

(c) Newto went to trial because the settlement offer made by the defendants in November 2009 was not acceptable.

(d) The total costs payable by Newto would grossly exceed the damages awarded in this relatively small dispute. Newto relies on my comment at para. 5 of my Costs Decision that considering the costs claimed by both sets of counsel for the defendants (of almost $133,000) and the costs claimed by the plaintiffs, the legal costs for this relatively small dispute, even without considering the third party’s legal fees, totalled over $195,000.

[ 6 ] Dealing first with Newto’s position, it is true that at para. 13 of Justice Wilson’s Costs Decision she stated that the defendants submitted that Newto ought to pay 50% of the plaintiffs’ costs but it is not clear in what context that submission was made given that Justice Wilson had already clearly stated that I was to determine what portion of the plaintiffs’ costs would be payable by Newto. I, therefore, do not accept the submission that the defendants should be bound by any earlier submission made as to how the plaintiffs’ costs should be split.

[ 7 ] As set out in my Costs Decision, Newto served an offer to settle on counsel for the defendants and the plaintiffs in November 2007 which included, in part, that Newto do the remedial work. Although I did find that this was not an unreasonable offer, I also found that the defendants did better than this offer, albeit at great expense. I considered this offer as a factor in quantifying the defendants’ costs. However, this offer did not permit the defendants to retain a qualified contractor to do the work at the expense of Newto. Having found that Newto improperly constructed the retaining wall in the first place, I concluded that it would not have been reasonable to expect the plaintiffs and the defendants to have Newto do the remedial work. In addition, costs to that point in the action were not addressed and at that stage they were not insignificant. Furthermore, Newto was not accepting responsibility for the costs of the plaintiffs’ expert. I, therefore, do not consider this offer relevant to the determination of what portion of the plaintiffs’ costs ought to be paid by Newto.

[ 8 ] As for why Newto went to trial, I reached a number of conclusions with respect to the conduct of Newto that are set out in my Costs Decision which I will not repeat save for my conclusion that Newto made a deliberate decision not to take responsibility for and defend the plaintiffs’ action. Furthermore, even at the trial of the third party claim, Newto maintained that it was not negligent and had no contractual or common law obligation to the defendants for the cost of repair of the wall or any part of the plaintiffs’ claim, even though Newto did not call any evidence at trial to support its position or seriously challenge the evidence of the plaintiffs’ expert, Mr. Wade. I found that, as a result, Newto could not complain when the defendants sought their costs to defend the plaintiffs’ action and claim indemnity for what was paid to settle the claim.

[ 9 ] Wilson J. also commented on the conduct of Newto and, in particular, at para. 6 of Justice Wilson’s Costs Decision she found that although Newto had attended both pre-trials before her, Newto refused to engage in meaningful settlement discussions and refused to acknowledge liability for the claims of the plaintiffs and instead counsel for Newto made it clear that his client preferred to proceed to trial. Wilson J. also found at para. 20 that had Newto secured the insurance it was supposed to obtain that the dispute could have been referred to its insurer at an early date and, in all likelihood, resolved.

[ 10 ] As for the amount of costs relative to the amount of the claims, I found that the fact that Newto did not defend the plaintiffs’ action and refused to admit liability for building a defective retaining wall in the third party action went a long way in explaining all of the legal fees incurred by the parties. I accepted the submission of counsel for the defendants that at least with respect to an indemnity claim, for the plaintiffs’ action, the defendants had no choice but to defend the plaintiffs’ action and seek indemnity from Newto by way of the third party action. Newto’s decision to force the defendants to prove their claims with respect to the cost of replacing the retaining wall and settling with the plaintiffs, rather than remedy the problem when Newto had the opportunity to do so, was a decision made by Newto and this decision resulted in these costs being incurred.

[ 11 ] Turning to the submissions on behalf of the defendants, I agree that the Stipulated Price Contract between Newto and the defendants governs but it only requires Newto to indemnify the defendants for costs that arise out of or are attributable to Newto's performance of the contract. In assessing the indemnity claim however, I found that the defendants failed to mitigate their damages when they decided not to let Newto repair the retaining wall in May 2006 and that although the plaintiffs began their action in March 2005, the retaining wall was not replaced until four years later and that it could have been replaced by 2007. I also found that when a portion of the defective retaining wall built by Newto collapsed sometime between November 2007 and January 2008, that collapse caused the most significant damage to the plaintiffs’ gardens. I took this into account in quantifying the defendants’ damages. In particular, I did not accept the claim for $6,000 for damage to the plaintiffs’ fence and garden as that must have related to the fact that the new retaining wall was allowed to collapse. I also reduced the claim for the amount of $10,000 paid to the plaintiffs for pain and suffering by 50% to $5,000. I also found that the failure by the defendants to mitigate their damages must have increased the costs incurred by counsel for the defendants’ insurer and that some of their time must be considered as dealing with aspects of the plaintiffs’ claim that I did not pass on to Newto. I adjusted the defendants’ claim for costs to reflect this. Apart from this, I found that it was the failure of Newto to defend and deal with the plaintiffs’ action that led to most of the costs claimed by the defendants’ insurer.

[ 12 ] In the same vein, some of the plaintiffs’ costs, as assessed by Wilson J., presumably relate to damages that I did not hold Newto responsible for. Furthermore, the delay in replacing the retaining wall no doubt prolonged the plaintiffs’ action and the costs of that action. I understand that by the time of the settlement in September 2009, the main action had proceeded through discoveries, motions and many attempts at settlement.

[ 13 ] I am not able to determine from Justice Wilson’s Costs Decision precisely how the plaintiffs’ costs were assessed, but in my view the discount for failure to mitigate must be tempered by the conduct of Newto which forced the defendants’ insurer to defend the main action and the finding of Wilson J., who conducted two pre-trials, that Newto failed to engage in meaningful negotiations and preferred to go to trial. In my view, in all of the circumstances, and in light of the indemnity agreement, Newto should be responsible for a substantial portion of the costs paid to the plaintiffs.

[ 14 ] For these reasons, I have concluded that Newto should pay the defendants 75% of the amount paid to the plaintiffs for legal fees and disbursements; namely $44,702.78.

SPIES J.

Released: May 23, 2012

[1] Lo v. Ho , 2010 ONSC 5392 (“Justice Wilson’s Costs Decision”)

[2] Lo v. Ho , 2010 ONSC 1979 at para. 99 (“Judgment”)

[3] Lo v. Ho , 2010 ONSC 3885 (“Costs Decision”)