2012 ONSC 6616

COURT FILE NO.: CV-10-098074-00
DATE: 20121204

ONTARIO
SUPERIOR COURT OF JUSTICE

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

BETWEEN:

WELLINGTON PLUMBING & HEATING LTD. Plaintiff – and – VILLA NICOLINI INCORPORATED, C.C.M.C. CONSTRUCTION COST MANAGEMENT CONSULTANTS INC., CONSTRUCTION COST MANAGEMENT CONSULTANTS INC., CCMC INC., ILDIKO CURRAN, 534 RODD DEVELOPMENT INC., FOREMOST MORTGAGE HOLDING CORPORATION, ELLEN NEWMAN, PAUL NEMAN, ANGELO ZORDAN, ANTONIA ZORDAN, DINAPET HOLDINGS LIMITED, JEFF BUTLER, DENISE BUTLER, L. AND S. INVESTMENTS INC., JOHN RATELLE, 565815 ONTARIO LIMITED, ROBERT SOLDA, CLAIRE SOLDA, SEAGROVE INVESTMENTS LIMITED, GEORGE ISAAC, 697350 ONTARIO LIMITED, ROD KARPEL, CRISSY MIRSKY-CARPEL, LUIGI CAPUTO, MARY CAPUTO, ANTONIO SAVIO, EDDA SAVIO, JERRY FREUD, FRANCES FREUD, VINCENZO MALLOZZI, CARLA MALLOZZI, RALPH EDSON, TINA PARTNOY, JELENA GORSE, NORMAN BENSKY, AUDREY BENSKE, GILDA LEFTON, SABH PHOENIX INC., LEO GERSKUP, EMILIO BAUCO, IDA BAUCO, JOHN SAVIO, THOMAS MANNA, 1701235 ONTARIO INC., ANTONIA CAPUANI, SAM GOLDMAN, NORBERT HARTMANN, GISELE HARTMANN, SARA GRIEDMAN, JOEL NASIMOK, BONNIE NASIMOK, BRIANE NASIMOK, BERNARD GOLDBLATT, CARLO LADISA, MICHAEL LADISA, REMO BACCI, ELDA BACCI, COMMUNITY TRUST COMPANY Defendants

Donald G. Kidd, for the Plaintiff (Counsel for additional lien claimants listed on Appendix “A”)

Harvey Mandel, for the Defendant, Foremost Mortgage Holding Corporation

HEARD: May 7, 2012 and September 5, 2012

RULING ON COSTS

Boswell j.

Overview:

[ 1 ] On October 9, 2012 I released a ruling, reported at 2012 ONSC 5444 , in relation to a motion by the Plaintiff. The Plaintiff sought, and received, an order fixing the basic holdback obligation of Foremost Mortgage Holding Corporation under the provisions of the Construction Lien Act , R.S.O., 1990 c. C.30 (the “ Act ”). The holdback was fixed at $497,236 – the figure proposed by the Plaintiff. I invited the parties to make written submissions on costs. Having received and considered their submissions, I make this further ruling fixing the costs of the motion.

[ 2 ] This claim is one of a number of lien actions that arose from a failed project to construct a retirement home in Vaughan. Foremost represented the interests of a group of individual mortgagees. When the owner defaulted on the terms of mortgage financing, Foremost elected to sell the project lands. It was common ground that, in doing so, Foremost inherited the holdback obligations imposed upon the owner by the Act . Foremost posted a letter of credit in the approximate amount of $1.2 million (the “LC”) in order to vacate all registered liens from the project lands. The letter of credit took the place of the lands as security for the lien claims.

[ 3 ] There was no dispute that the gross basic holdback obligation of the owner was $497,236. During the course of the construction project, however, the owner released holdback funds totalling about $212,000 to sub-contractors whose contracts had been certified complete. The parties were agreed, and I found, that the Act does make provision for the reduction of an owner’s basic holdback obligation, through the application of sections 25 and 33 , by payments made to sub-contractors whose contracts have been certified as complete. Foremost accordingly claimed an entitlement to reduce the basic holdback obligation by the amount paid to sub-contractors. The Plaintiff, who represented a number of lien claimants whose claims have been consolidated with this one, disputed the validity of the release of any holdback funds.

[ 4 ] The motion was complex and involved extensive argument on sections of the Act that do not have a rich history of judicial interpretation. Even after the motion was fully argued on May 7, 2012 it became necessary, in my view, to have counsel return to make further submissions on an additional point. The further submissions were not completed until September 7, 2012. Counsel assisted the Court with comprehensive facta as well as written submissions on the further point I raised with them after May 7, 2012.

[ 5 ] I found, in this case, that the owner breached section 33 in three respects:

(i) The architect did not comply with s. 33(1) because he did not certify completion of the sub-contracts in the prescribed form;

(ii) The architect did not deliver the certificates to the general contractor and the affected sub-contractors in accordance with s. 33(4); and

(iii) The architect created the certificates after holdback funds had already been released, in an effort to cure payments already made in violation of s. 25.

[ 6 ] I proceeded to address the consequences of the breaches and found that:

(i) The failure to strictly follow the prescribed form was a minor breach that caused no prejudice and was cured by s. 6 of the Act ;

(ii) It was unnecessary to resolve the consequence of the breach of s-s. 33(4); and

(iii) The creation of certificates of completion after the release of holdback funds was dispositive. There is no mechanism in the Act to cure a release of funds made prior to the certification of completion provided for in s- s. 33(1) . In the result, Foremost was unable to claim a reduction in the amount of the basic holdback and it was fixed at $497,236.

Positions of the Parties on Costs:

[ 7 ] As I noted, this action is one of a number of lien actions that have been consolidated by Order of Master Short. All lien claimants had a common interest in this motion and in an outcome that maximized the holdback available for distribution to lien claimants. The Plaintiff’s counsel in this action, Mr. Kidd, together with Mr. Rosenbaum, counsel for Argo Drywall Inc. (another lien claimant) had carriage of the motion on behalf of all lien claimants. I received submissions only from them on behalf of the lien claimants. Mr. Mandell argued the motion on behalf of Foremost.

[ 8 ] When I invited counsel to make submissions on costs, I anticipated receiving submissions only from Messrs. Kidd, Rosenbaum and Mandell. Instead, however, I received submissions from counsel to five lien claimants as well as from Mr. Mandell.

Wellington Plumbing

[ 9 ] Mr. Kidd, on behalf of the Plaintiff in this action, seeks costs totalling $46,498.82. This figure includes fees of $32,406.50, calculated on a partial indemnity basis to May 4, 2012 and on a substantial indemnity basis thereafter. The justification for the higher award of costs after May 4, 2012 is, Mr. Kidd submits, that an offer to settle was delivered on May 4, 2012 which the Plaintiff has bettered. The figure sought by the Plaintiff also includes disbursements of over $9,000, the lion’s share of which reflect a fee paid to outside counsel for a legal opinion in relation to the issues raised by the motion.

[ 10 ] The Plaintiff asks as well that the Court compel the Plaintiff to contribute to one-half of the costs of a vetting committee struck by Master Short to vet the timeliness and quantum of the outstanding lien claims. On March 5, 2012, I fixed costs payable to the three counsel who were appointed to the vetting committee. Those costs totalled $45,530.56. They were payable to counsel from the LC. In the absence of a further order apportioning some of those costs to Foremost, they will be payable from the basic holdback fixed by my Order of October 9, 2012.

Argo Drywall

[ 11 ] Mr. Rosenbaum, on behalf of Argo Drywall, seeks $32,650.87 in costs, disbursements and HST. His Costs Outline was calculated on the basis of substantial indemnity costs. Presumably he relies on the Offer to Settle delivered by Mr. Kidd on May 4, 2012 to justify the higher award of costs. He also argues that Foremost extended the proceeding by serving an affidavit of the architect/payment certifier only two days before the date initially scheduled for the hearing.

Atlas Dewatering

[ 12 ] Mr. Mannella, on behalf of Atlas Dewatering seeks its costs of the motion fixed at $9,612.55, all inclusive, on a partial indemnity basis. Mr. Manella adopted Mr. Kidd’s submissions.

Intraworx Group

[ 13 ] Mr. Whealen, on behalf of Intraworx Group, seeks its costs of attendance on the motion on May 7, 2012 fixed at $3,500 plus HST, on a substantial indemnity basis.

Quorum Electric

[ 14 ] Mr. Holder, on behalf of Quorum Electric, seeks its costs fixed at $2,574 plus HST, on a partial indemnity basis.

Foremost

[ 15 ] Mr. Mandell argues that no costs should be payable. This position rests primarily on the assertion that the issue the Court found dispositive of the motion was not one that had been identified by the parties as an issue prior to the motion. At a pre-trial conference with Master Short on December 5, 2011, there was a discussion about the need to have a motion to resolve the holdback issue. Master Short made an endorsement that the matter was to proceed to a motion before the Court on March 5, 2012 to deal with, amongst other things, “any challenge to case law that payment certifier is correct.”

[ 16 ] Mr. Mandell argues that the factual issue regarding the preparation of the certificates of completion after the release of holdback funds was raised for the first time during oral argument of the motion on May 7, 2012. He submits that Foremost was unprepared to argue the issue and, had they known it was a live issue, they could have filed affidavit evidence to answer the concerns raised by the lien claimants.

[ 17 ] In the alternative, should costs be ordered, Mr. Mandell submitted that they should be substantially lower than what is sought, for reasons which include the following:

(i) The Offer to Settle submitted by the lien claimants was delivered May 4, 2012, some three days before the argument of the motion, and not early enough to trigger any cost consequences;

(ii) The costs sought by those claiming substantial indemnity costs are, in fact, full indemnity rates;

(iii) The Cost Outlines filed by counsel to various lien claimants contain references to time spent during the vetting committee’s process, which does not relate to the motion;

(iv) The only parties in whose favour costs ought to be assessed are the parties whose counsel made oral and written submissions, namely Wellington Plumbing and Argo Drywall; and,

(v) The disbursement relating to the legal opinion obtained from outside counsel is not properly recoverable.

Applicable Legal Principles:

[ 18 ] The award of costs in construction lien cases is governed by section 86(1) of the Act which provides the Court with a general discretion to fix costs. Section 67 of the Act provides that, except where inconsistent with the provisions of the Act , the Rules of Civil Procedure apply. Rule 57.01 provides a measure of guidance in the exercise of the discretion to fix costs by enumerating certain factors that the court may consider when assessing costs. Rule 57.01 is not, in my view, inconsistent with any provisions of the Act and I consider it applicable to cost awards made in lien actions. Rule 57.01 directs the Court to consider, amongst other things:

(0.a) the principle of indemnity;

(0.b) the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed;

(a) the amount claimed and the amount recovered in the proceeding;

(c) the complexity of the proceeding;

(d) the importance of the issues;

(e) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding;

(f) whether any step in the proceeding was,

(i) improper, vexatious or unnecessary, or

(ii) taken through negligence, mistake or excessive caution;

(g) a party’s denial of or refusal to admit anything that should have been admitted;

(h) whether it is appropriate to award any costs or more than one set of costs where a party,

(i) commenced separate proceedings for claims that should have been made in one proceeding, or

(ii) in defending a proceeding separated unnecessarily from another party in the same interest or defended by a different lawyer; and

(i) any other matter relevant to the question of costs.

[ 19 ] The Court must also remain 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).

[ 20 ] 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), 86 O.R. (3d) 221 (S.C.J.).

[ 21 ] Generally, the court ought not to second guess the time spent by counsel, as observed by Nordheimer J. in Basedo v. University Health Network, [2002] O.J. No 597 (S.C.J.) where he said, “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.”

[ 22 ] 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, applying the principles and factors discussed above, 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, at para. 17 .

The Principles Applied:

Costs Follow the Event

[ 23 ] There is no question that the lien claimants were successful on the motion. Each side of the motion presented their proposed holdback calculation. I accepted that of the lien claimants. The general rule is that they are entitled to an assessment of their costs.

[ 24 ] Foremost argues that costs should not be awarded given the basis on which the Court disposed of the motion. I do not accept that argument for the following reasons:

(i) Foremost points to the endorsement of Master Short as having defined the issue for the motion. Essentially, the architect on this project purportedly certified certain subcontracts complete and authorized the release of holdback funds by the owner. The lien claimants challenged the validity of the releases. Master Short, in my view, identified that there was a challenge to the amount of the holdback and he granted leave for a motion to proceed on that challenge. He did not restrict the arguments the parties were entitled to make during the challenge;

(ii) Two days before the date initially scheduled for the hearing of the motion, Foremost produced an affidavit from their architect, which necessitated an adjournment. The substance of the architect’s affidavit, including the productions attached as exhibits, gave rise to the argument that was ultimately dispositive of the motion. In other words, until the architect’s material was delivered, the lien claimants were not aware of the particular line of argument that the motion ultimately turned on. In the circumstances, it is reasonable that they had some leeway in the argument, which had evolved over time;

(iii) Counsel to Foremost did not object to the argument advanced by the lien claimants during the argument of the motion, relating to the timing of the release of funds, relative to the date of the certificates of completion.

[ 25 ] There is no basis, in my view, to depart from the general rule that the successful litigants are entitled to their costs. Costs are typically fixed on a partial indemnity basis. Here, costs are sought on a substantial indemnity basis.

The Appropriate Scale

[ 26 ] Rule 49.10 creates cost implications where a party has bettered an offer to settle. Generally, where a plaintiff makes an offer to settle and later obtains a judgment as or more favourable than the terms of the offer, the plaintiff is entitled to partial indemnity costs to the date of the offer and substantial indemnity costs thereafter. To trigger the cost consequences provided by the rule, an offer must, amongst other things, be made at least 7 days before the commencement of the hearing.

[ 27 ] In this instance, the offer was made 3 days before the commencement of the hearing and does not, therefore, trigger the cost consequences provided for in Rule 49.10. It remains open to the Court to consider the offer in the general exercise of the discretion to fix costs. In my view, however, there are no factors present in this case that warrant the imposition of costs on a higher scale than the usual partial indemnity scale. By the time the offer to settle was made on May 4, 2012, virtually all the preparation for the motion would have been done. The motion was complex and the litigation risks significant on both sides. The outcome was very much up in the air. All this is to say that I do not consider it in any way unreasonable that Foremost elected to proceed to the argument of the motion under the circumstances.

[ 28 ] Mr. Rosenbaum submitted that the late delivery of the architect’s affidavit prolonged the proceeding. I agree that it necessitated an adjournment. But this factor is not sufficient to warrant costs on an increased scale. Foremost never behaved in an abusive fashion, did not press unmeritorious positions and did not unnecessarily run up the costs of the motion.

[ 29 ] The imposition of substantial indemnity costs would not be fair and reasonable in the circumstances of this motion.

Entitlement

[ 30 ] Having made the determination that costs will be assessed on a partial indemnity scale, I turn to the question of to whom costs should be awarded. As I indicated, two counsel argued the motion on behalf of the lien claimants. Mr. Mandel does not object to the assessment of their costs, but argues that the balance of lien claimants ought not to receive an award of costs, as they did not participate in the argument of the motion.

[ 31 ] The lien claimants came to a consensus among themselves that Mr. Kidd and Mr. Rosenbaum would be carriage counsel for the motion. Foremost was aware of that and would reasonably have factored into its consideration of its litigation risks, the prospect of facing costs payable to two counsel. They would not reasonably have expected to be facing significant cost awards in favour of five other parties.

[ 32 ] That said, the motion did involve all lien claimants. All shared an interest in the outcome of the motion, which was significant to each one of them. Each had separate representation and counsel seeking costs did attend on the initial date of the motion, notwithstanding that several of them did not make submissions.

[ 33 ] It appears from the Cost Outlines that I have received that the work in preparing for the motion, arguing it, and reporting on it, fell to Mr. Kidd and Mr. Rosenbaum. Other counsel certainly would have been asked for and provided input. Other counsel would have had to discuss the motion with their clients and obtain instructions and ultimately report back. In my view, balancing the principles of indemnity and reasonable expectations, it is appropriate that a modest award of costs be fixed in favour of the three lien claimants who did not make submissions to the court. I fix costs in favour of Atlas Dewatering, Intraworx and Quorum Electric at $1,000 each.

The Vetting Committee Work

[ 34 ] I agree with the submission of Foremost that my assessment of costs is restricted to the costs associated with this motion. I have already addressed and fixed the salvage costs of the vetting committee members. Foremost’s liability for some share of the cost of that committee has never been argued and was not an issue raised or dealt with on the motion. I intend to fix only the costs related to the motion regarding the calculation of the holdback amount.

The Bowles Opinion

[ 35 ] In the course of preparing for the motion, Mr. Kidd retained outside counsel, Mr. Brendan Bowles, to prepare a legal opinion regarding the issues involved in the motion. Mr. Mandell asserts that the cost of a research opinion is not taxable. He cited two cases in support of his position. The first, Southworks Outlet Mall Inc. v. Bradley (2009), 97 O.R. (3d) 796 was an endorsement on costs by Justice Flynn. In that case, Flynn J. set out a list of items where the Plaintiff had exceeded the reasonable expectations of the losing party. One of those enumerated items was for legal research which he noted, parenthetically, “is not normally a taxable item”. No further comment or analysis on the matter was provided. The second decision cited by Mr. Mandell was Tiago v. Tinimint Housing Non-Profit Inc. (2008), 170 A.C.W.S. (3d) 255 . In that decision, Aston J. was assessing the costs of an abandoned motion for leave to appeal. He commented, in the course of his 11 paragraph decision, that “ I am also of the view that when lawyers or law students spend time on legal research, it is not something that necessarily should be passed on to the other side, certainly in whole or even in some circumstances in part.” It should be noted that Aston J. also made note of how simple and straightforward the motion before him had been.

[ 36 ] I am not aware of any absolute prohibition on the inclusion of research costs in the assessment of the costs of a proceeding. In some circumstances, it is probably quite appropriate that they be heavily discounted. In simple matters at least, a losing party ought not reasonably to be assessed the cost of educating the other side’s counsel. But the case at bar was far from simple. It was complex and difficult. There was a paucity of legal authority on the central points. Both sides prepared comprehensive and helpful facta that included their views on the law. A significant cost associated with the preparation for the motion was the review and summary of the law. There seems to me little reason to discount the value of that work. In this instance, each party ought to have reasonably expected that the losing party would be assessed costs and that those costs would include time spent in reviewing and summarizing the law.

[ 37 ] Having said that, the cost of the disbursement paid to Mr. Bowles’ firm must be discounted, otherwise the result would be to award full indemnity costs for that legal work. My award in this case is on a partial indemnity scale. Had the Plaintiff’s counsel conducted all of the legal research in house, they would recover only partial indemnity costs for their work. They should not be entitled to a higher scale of cost recovery simply because they elected to outsource part of the research work. The disbursement to Mr. Bowles was $7,539.09. I reduce the recoverable amount, to account for assessment on a partial indemnity scale, to $5,000 plus HST.

Quantum – Wellington Plumbing

[ 38 ] Wellington calculated their total fees on a substantial indemnity basis at $39,152 plus HST. They also provided a calculation of their fees on a partial indemnity basis to May 4, 2012 then substantial indemnity thereafter. That amount is $32,406.50.

[ 39 ] There are numerous entries in Wellington’s Cost Outline relating to matters that predated the commencement of preparation for the motion. As indicated, I am allowing nothing for the vetting committing work and I am not assessing costs relating to pre-trial conference attendances. The real preparation for the motion began February 6, 2012, although there was some modest research prior to that time. I have calculated $6,600 in time spent on non-assessable matters unrelated to this motion. Deducting that amount from the substantial indemnity figure provided, results in a substantial indemnity balance of $32,552.

[ 40 ] In my view, in light of the complexity of the issues before the Court, the importance of the matter to both sides, the amount of work involved, the number of appearances necessary, a fair and reasonable partial indemnity amount is $22,000. To that I add HST of $2,860. Disbursements I assess at $6,557.79 plus HST of $852.51.

Quantum – Argo Drywall

[ 41 ] Argo’s total fees, on a substantial indemnity basis were $26,187. For the same reasons expressed above, I am not assessing any time spent on matters not related to this motion. I find that Mr. Rosenbaum’s costs, relative to this motion, began to be incurred at February 14, 2012 and I discount costs incurred prior to then, which total $1,483.50, resulting in net substantial indemnity costs of $24,703.50. In my view, an appropriate partial indemnity assessment, based on all of the factors discussed above, is $16,500 plus HST of $2,145. Argo’s disbursements I fix at $2,728.23 plus HST of $331.33.

Conclusion:

[ 42 ] In summary, the following costs are assessed and payable by Foremost within 30 days:

(i) To Wellington Plumbing, $32,270.30;

(ii) To Argo Drywall, $21,704.56;

(iv) To Atlas Dewatering, $1,000 all inclusive;

(v) To Intraworx Group Inc., $1,000 all inclusive; and,

(vi) To Quarum Electric, $1,000 all inclusive.

Boswell J.

Released: December 4, 2012

APPENDIX “A”

List of Counsel Appearing for Additional Lien Claimants

Martin Z. Rosenbaum for Argo Drywall Inc.

Todd C. Hein for Apaland Landscape Contracting Inc.

B. Whealen for Intraworx Group Inc.

Donna Wilson for Construction Cost Management Inc.

Salvatore T. Mannella for Atlas Dewatering

Charles B. Holder for Quarum Electric