COURT FILE AND PARTIES

COURT FILE NO.: CV-08-366444
DATE: 20120925
SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 1302207 ONTARIO LIMITED
Plaintiff/
Defendant by Counterclaim

AND:

1517979 ONTARIO LIMITED,
1727299 ONTARIO INC.,
FRANK PANICCIA and
MAURO MARCHIONI

Defendants/
Plaintiffs by Counterclaim

BEFORE: Mr. Justice Lederer

COUNSEL: Eric Fournie & Oleg M. Roslak , for the Plaintiff/Defendant by Counterclaim

Mauro Marchioni , for the Defendants/Plaintiffs by Counterclaim

COSTS ENDORSEMENT

[ 1 ] This action began as a claim by the plaintiff landlord for rent it had not received. The defendant tenant counterclaimed for damages arising from the manner in which the tenancy was ended as well as by the precipitous actions of the landlord when it closed down renovations being undertaken by the tenant and, subsequently, commenced the process of demolishing the building.

[ 2 ] The trial centered on the counterclaim. The tenant was substantially, though not entirely, successful. The parties were unable to agree as to costs. Pursuant to the judgment, they have made written submissions and I am now required to determine that issue.

[ 3 ] The tenant seeks costs. It relies on the assertion that, in the normal course, “costs follow the event”. The landlord, while acknowledging the general principle, says that, as a result of certain actions undertaken by or on behalf of the tenant, I should depart from that approach. It is the view of counsel for the landlord that his client should have its costs.

[ 4 ] The tenant requests costs in the amount of $89,075 for fees and $84,927 for disbursements. Including the applicable taxes (HST), the claim totals $185,581.75. It is not clear the scale of costs (“partial indemnity” or “substantial indemnity”) this represents. In the submissions made on behalf of the plaintiff (the landlord), this is referred to as a claim made at a “substantial indemnity rate”. In his submissions, counsel for the defendant (the tenant) says he is seeking “party and party costs”. This is old language which today is expressed as costs on a “partial indemnity scale”. The same submission goes on to say that “the attached Bill of Costs bears a proportional [ sic ] or relationship to what [the tenant] will be obligated to pay for its solicitors’ services”. It is not clear what this means. The hourly rates charged (for Mauro Marchione – $450/hour; and for Brent Pearce – $225/hour) are high for a partial indemnity claim and more likely associated with substantial indemnity rates. As a result, I am uncertain as to the scale of costs this claim represents.

[ 5 ] For its part, the landlord says it is entitled to costs for the entire proceeding, on a partial indemnity scale, in the amount of $209,240.06 or, in the alternative, costs of the trial, on a partial indemnity scale, in the amount of $141,530.97. In the further alternative, the landlord submits that neither party should have its costs.

[ 6 ] The circumstances on which the landlord relies in suggesting that it should have its costs, despite the success of the tenant at trial, are:

a) the tenant never paid the rent that was owing even though it was ordered to do so by the court;

b) the tenant alleged perjury and failed to call any evidence to support the allegation; and

c) the tenant relied on evidence that was first disclosed at trial and should have been disclosed earlier.

[ 7 ] None of this is sufficient for me to divert from the general practice that costs should follow the event. The issue of rent was dealt with at trial. I shall have more to say about the tactics employed by the tenant, in failing to pay rent, later in this endorsement. While an allegation of perjury is a serious matter, it did not appear to me to be an issue that took up an inordinate amount of time or cost. It is a good thing when parties withdraw allegations when it becomes apparent that the evidence does not justify continuing with them. Parties should be encouraged to do this. Finally, evidence does not always develop as was expected. In this case, there was no indication of any prejudice or that the landlord was unable to respond to whatever evidence was called.

[ 8 ] In this case, it is appropriate that costs follow the event.

[ 9 ] As to the quantum of costs sought, I begin by repeating that I am uncertain as to the scale on which the claim is based. For the purpose of this endorsement, I rely on the statement that the costs represent “party and party” costs and, therefore, accept this as a claim on a “partial indemnity scale”. On this basis, the hourly rates relied on are too high.

[ 10 ] It is with respect to the issue of quantum that the tactics employed on behalf of the defendant, particularly its failure to pay rent as ordered, become relevant. Throughout this trial and, it would seem, over the course of the evolution of the circumstances that led to it, the tenant proclaimed its desire and intention to reclaim possession of the property, proceed to complete its renovations and continue the business of operating a nightclub. This being so, I do not understand why or on what basis it could rationally fail to pay the rent, reclaim the property and thereby minimize its damages.

[ 11 ] The judgment refers to some of the relevant history. On November 10, 2008, the landlord, in company with bailiffs, issued a notice terminating the tenancy. On November 21, 2008, an endorsement was made that required the arrears of rent to be paid into court and that access to the premises be given to the tenant. A motion with respect to “access to the arrears” was to proceed. The rent was not paid into court. In response to the motion, the landlord made a settlement offer in writing. It was specifically stated to be made pursuant to rule 49 of the Rules of Civil Procedure . The offer proposed:

The landlord will accept the following terms in settlement of the motion you have proposed:

a) The landlord will consent to relief from forfeiture and the tenant 1727299 Ontario Inc., may occupy the premises pursuant to the lease dated April 1, 2002, and the Consent to Assignment of Lease dated as of July 5, 2007 (“Lease”), for the term of the Lease, with any extension option it chooses to exercise under the Lease;

b) the full amount of rent owing under the Lease shall be paid immediately to the landlord, subject only to the set-off of [ sic ] in respect of the security deposit;

c) for greater certainty, the full amount of the rent owing under the Lease includes the agreed-upon water charges and all arrears of rent payments due under the Lease;

d) the tenant shall comply with the terms of the Lease, including the obligation to pay rent on the first day of each month;

e) the settlement contemplated by this Offer shall be without prejudice to any proceeding the tenant wishes to bring against the landlord for damages; and,

f) this Offer to Settle shall remain outstanding until 1 min. after the beginning of the proposed motion or until withdrawn in writing.

[Emphasis added]

( 1302207 Ontario Limited v. 1517676 Ontario Limited, 2012 ONSC 3680 , at paras. 20 , 21 and 22)

[ 12 ] So far as I can see, under this offer, all of the outstanding issues would have been resolved and the tenant left free to sue for any damage that had been caused. Despite the words I have placed in italics, the tenant sought further assurance that the offer contained the right to renew the lease. Counsel for the landlord responded: “I do not know how to state it any clearer: if the rent is paid to the landlord the Lease and all its terms are restored, including the right to renew.” Nonetheless, the tenant refused the offer, proceeded to the motion and, ultimately, to the trial heard by me.

[ 13 ] In commenting on this, the judgment says:

In order to resolve this, the landlord made its offer, relying on Rule 49 of the Rules of Civil Procedure . Certainly, it required that the rent be paid, but it accepted everything the tenant wanted, including the right to sue for damages and the option to renew the lease. The suggestion of counsel for the tenant that it was unclear if this latter ability was included was simply without merit. What else could …‘with any extension option it chooses to exercise under the Lease’...mean? If there was any doubt, the response of counsel for the landlord was clear. Among other similar statements, he said: ‘The offer expressly acknowledges this right to renew under the Lease’. Quite apart from responding to all of the tenant’s demands, had the offer been accepted, it would have gained access to the facility and to its equipment.

( 1302207 Ontario Limited v. 1517676 Ontario Limited , supra, at para. 58 )

[ 14 ] My conclusion from all of this is that the tenant, or those acting on his behalf, were engaged in some sort of tactical game directed to maximizing its damages rather than resolving the issues. The judgment went on:

One has to wonder what the tenant and those representing him were trying to accomplish. Their actions are consistent with maximizing the damage claim. This could explain why the rent was never paid. The equipment was another head of damage. On the other hand, as late as May 28, 2009 and June 29, 2009, the tenant wrote his own counsel indicating that he had expected to and was prepared to re-enter the premises and re-establish the night club. If that is the case, he could have paid the rent and reclaimed the equipment.

( 1302207 Ontario Limited v. 1517676 Ontario Limited , supra, at para. 63 )

[ 15 ] Rule 57.01 of the Rules of Civil Procedure outlines the considerations to be accounted for in an award costs. They include: “the conduct of the party that tend to shorten or lengthen unnecessarily the duration of the preceding” (see: Rule 57.01(1)(0.b)(e)). Given the opportunities it had to pay the rent and reclaim the premises and the concessions made that any claim for damages could be continued and the lease renewed, it is difficult to understand why this trial was necessary. To me, what the tenant expected or hoped to obtain from continuing on to this trial is well-hidden if not entirely obscured.

[ 16 ] The counsel fee for the cost of the trial was $50,500 (Bill of Costs, items 15 and 17-26). While, as I have said, the hourly rates this represents are high, this was a nine-day trial, there were two lawyers present and the value shown includes preparation. This is not an unreasonable amount. This is confirmed by the Bill of Costs provided on behalf of the landlord. Its cost of the trial, at least as claimed on a partial indemnity scale, were $75,345 (Bill of Costs: Trial Preparation and Attendance at Trial and Trial Preparation During Trial ). It should also be said that a trial of some duration would likely still have been required to deal with the value of the damages. As it is, counsel were able to develop an understanding which largely removed that determination from the trial. Insofar as disbursements are concerned, the claim for costs includes $81,656.27 shown as “Paid to Prem Lobo, for preparation of reports”. It is difficult for me to analyze this work. No evidence was called. I presume it was in respect of a calculation of the damages.

[ 17 ] Given the hourly rates charged and my determination that tactics rather than resolution seems to have driven the tenant, I am not prepared to award the full amount claimed. I remain concerned as to what the $81,656.27 represents.

[ 18 ] Taking these considerations into account, I have reduced the claim by approximately one third. I award costs payable by the plaintiff to the defendants in the amount of $120,000, inclusive of fees, HST and disbursements.

LEDERER J.

Date: 20120925