ONTARIO

SUPERIOR COURT OF JUSTICE

Court File No.: CV-11-432495 and CV-11-432495A
Date: February 28, 2013

BETWEEN:

GLENMORRIS COHEN

M.R. Swartz, for the plaintiff
Fax: 416-365-1876

Plaintiff

• and -

GAVIN BRIN

H.J. Ash, for the defendant
Fax: 416-225-1124

Defendant

• and -

LARRY BLUMENTHAL

S. Herschorn, for the third party
Fax: 416-967-1506

Third party

Master C. Albert

[1] Investing in real estate can be a risky business. In this case three individuals pooled their talents and resources expecting a profit, but instead suffered a loss.

[2] The court must decide:

a) whether the relationship of the three individuals was one of partners, or one of property owner, contractor and real estate agent;

b) whether the plaintiff was a “contractor” under the Construction Lien Act, R.S.O. 1990, C.C.30, and if so, whether he preserved and perfected his lien claim in time, and if so, the amount owing to him for supplying materials and services to the project;

c) if the plaintiff was not a contractor, whether he is entitled to receive any profits or liable to the defendant for any losses arising from the project; and

d) if applicable, liability of the third party to the defendant for contribution and indemnity and for losses.

I. Background

[3] Glenmorris Cohen, Gavin Brin and Larry Blumenthal got together and decided to acquire, renovate and sell an older residential property. Mr. Cohen, together with his wife, is a principal of Urbanquest, a developer of residential properties. Mr. Brin, a businessman, is the president of the Canadian branch of a business. In 2010 he had funds to invest. Mr. Blumenthal is a licenced real estate agent associated with Forest Hill Real Estate brokerage.

[4] Mr. Brin took title to 127 Orchard View Boulevard on June 30, 2010. Over the next year the property was renovated. On July 22, 2011 Mr. Cohen registered a construction lien for $67,000.00 plus HST as instrument AT2760904, which Master Sandler vacated by order of August 10, 2011 upon Mr. Brin posting security of $94,637.50[^1]. Then, on August 11, 2011, Mr. Brin conveyed the property to a purchaser.

II. The Contract

[5] In April 2010 Mr. Cohen, Mr. Brin and Mr. Blumenthal met and discussed whether they could make money in real estate. Each of them has a particular talent or expertise. In his native South Africa Mr. Cohen had been a licenced architect. In Canada he has been in the business of land development and construction. He brings to the table talent and knowledge about design and construction. Mr. Blumenthal, as a licenced real estate agent, has the experience and knowledge to identify a property with good potential, to market the property and to absorb or avoid a large real estate commission. Mr. Brin had never previously ventured into real estate as an investment vehicle. However, with funds to invest he was prepared to rely on the skills and talents of the others to identify a suitable property, design an appropriate renovation, carry out the construction and market the renovated property for a profit upon sale.

[6] The three men decided to pool their talents and resources and work together. Mr. Cohen claims that his role was only that of design and construction contractor and that Mr. Brin was the sole owner. Mr. Brin and Mr. Blumenthal’s position is that Mr. Cohen was an equal partner and Mr. Brin took title in trust for the partnership. A review of the evidence clarifies their true relationship.

[7] While their discussions about the project began in April 2010, the agreement evolved over the next several months and Mr. Cohen and Mr. Brin agree that their verbal agreement is reflected in a written memorandum of understanding (MOU) that was circulated among them several times, with each of them having input into its terms. Mr. Blumenthal denies that the MOU reflects their agreement and takes the position that the agreement was verbal, but in his evidence he does not identify any terms of the MOU that depart from their verbal agreement.

[8] I find that the contract between Mr. Cohen, Mr. Brin and Mr. Blumenthal is a verbal agreement and that the terms of their agreement are reflected in the MOU dated August 11, 2010 filed as exhibits to the affidavits of evidence in chief of both Mr. Cohen and Mr. Brin[^2].

[9] The terms of the contract, as described in the MOU, include:

a) The contract pertains to the “purchase, renovation and sale of 127 Orchard View Blvd.”

b) The parties are Gavin Brin, Glen Cohen – Urbanquest Inc., and Larry Blumenthal;

c) Mr. Brin is responsible for financing the entire project;

d) Mr. Cohen and Mr. Blumenthal are responsible for the design, construction and marketing phases of the property;

e) The design phase includes drawings, documentation, applications, obtaining approvals and building permits;

f) The construction phase includes hiring a contractor/ site super;

g) Mr. Cohen and Mr. Blumenthal are entitled to a “monthly draw of $5,000.00 each during the project” beginning June 2010;

h) Before distributing any profits Mr. Brin will be paid an amount equivalent to the amounts drawn by Mr. Cohen and Mr. Blumenthal (an equalization payment);

i) Profits will be shared equally;

j) Consultants may be required and will be paid out of the project account;

k) In the absence of a timely sale of the property it will be rented and “all shortfalls between the rental and all the other expenses will be divided equally amongst the three parties”.

[10] The parties were optimistic that they would achieve a profit on the project. While the MOU provides for the equal sharing of profits it is silent about what to do about losses, other than rental shortfalls. Mr. Cohen’s position is that Mr. Brin must bear all losses. Mr. Brin and Mr. Blumenthal assert that losses were to be shared equally by all three parties.

[11] Mr. Cohen claims that there was a further agreement as between himself and Mr. Brin that Mr. Brin would pay extra for any AUTOCAD[^3] design and drafting undertaken by Mr. Cohen through his company Urbanquest. Mr. Brin paid an Urbanquest invoice for $$10,500.00 (including $500.00 GST) dated June 18, 2010.

III. Is Mr. Cohen a contractor under the Construction Lien Act?

[12] The issue is whether Mr. Cohen agreed to contribute to the project as a contractor and supplier of materials and services, or whether he was to be Mr. Brin’s and Mr. Blumenthal’s partner.

[13] Mr. Cohen contends that he was hired as a contractor for a fixed fee of $5,000.00 per month beginning June 2010, plus a one third share in the profits upon sale of the property.

[14] The Partnership Act, R.S.O. 1990, c.P5, provides:

2. Partnership is the relation that subsists between persons carrying on business in common with a view to profit.

3. The receipt by a person of a share of the profits of a business is proof, in the absence of evidence to the contrary, that the person is a partner in the business…

(b) a contract for the remuneration of a servant or agent or a person engaged in a business by a share of the profits of the business does not of itself make the servant or agent a partner in the business or liable as such.

[15] The existence of a partnership depends on the facts and circumstances of each case and the intention of the parties. There are three essential ingredients: (1) a business, (2) carried on in common, and (3) with a view to profit. (See: Continental Bank of Canada v R, 1998 794 (SCC), 1998 CarswellNat 1496 (S.C.C.) at paras. 22 and 23). The indicia of partnership include the contribution by the parties of money, property, effort, knowledge, skill or other assets to a common undertaking, a joint property interest and the sharing of profits or losses (supra at para 24).

[16] Mr. Cohen relies on my decision in Prekas v Patrikakis 2004 CarswellOnt 4969 wherein I found that notwithstanding the initial intention of the parties to form a partnership their actions were contrary and a partnership was never formed. That case is distinguishable on two grounds. First, the parties had agreed to each contribute capital but when it came time to do so Mr. Prekas did not contribute. In effect he repudiated the partnership before it started. Second, in the Prekas case, after the renovation was completed the title holder, Mr. Patrikakis, moved into the property and lived in it as his home for two years. During that time Mr. Prekas made no claim for rent or other compensation as a partner. Those actions were inconsistent with the formation of a partnership. In the present case the property was sold at the earliest opportunity. It was never used by Mr. Brin as his home.

[17] Mr. Cohen asserts that there is a distinction between a partnership and a joint venture, relying on the decision of Clarke, J. in Downsview Contracting Ltd. v 768068 Ontario Ltd. [1998] O.J. No. 2819. In that case, the judge made a finding that the agreement between the two individuals, Mak and Grifen, was a joint venture and that they were partners. In doing so Justice Clarke implicitly made a finding that the joint venture in the case before him was a partnership. On the facts of the case he found that there was no partnership agreement as between Mak and Mr. Grifen’s company, 768068 Ontario Ltd. He found that the agreement to share in profits had been made between Mak and Griffen and not between Mak and Mr. Grifen’s company.

[18] According to the J. A. Van Duzer in “The Law of Partnerships & Corporations”, a joint venture is nothing more than a form of business organization. It is not a legal entity. Partnerships and corporations are legal entities. A joint venture can also be a partnership. I find that even if Mr. Cohen was correct in characterizing the relationship as a joint venture that characterization does not preclude a partnership.

[19] I find that the evidence does not support Mr. Cohen’s contention that he was merely a contractor. Mr. Cohen’s contribution was one of skill and effort. The agreement provides for all design and construction management to be carried out by Mr. Cohen, without the owner having any option to obtain competitive price quotes or hire a project manager other than Mr. Cohen. That provision is consistent with a partnership and inconsistent with the relationship of owner and contractor.

[20] The MOU provides for a monthly draw of $5,000.00 payable to Mr. Cohen beginning in June 2010 until the end of the project, without specifying the duration. In oral evidence Mr. Brin testified as to his expectation that the renovation would take four months. Mr. Cohen disagreed, indicating that the municipal approval process takes longer than that and a timeframe of four months was never discussed.

[21] Mr. Cohen testified that after taking only two months of draws (for a total of $10,000.00) the project ran into difficulties when the approval process stalled for reasons beyond his control. He explained that the reason there were no communications (emails or letters) or other evidence of demands for payment of his $5,00.00 a month draw is that with the delay in the municipal approval process he did not take any steps to collect his draw.

[22] Mr. Cohen’s failure to enforce his $5,000.00 a month draw is consistent with a partnership and inconsistent with the relationship of owner and contractor.

[23] The MOU provides for an equalization payment to Mr Brin before distributing any profits to Mr. Cohen and Mr. Blumenthal. In other words, Mr Cohen was not entitled to receive $5,000.00 per month plus a one third share of the profits. The draw was nothing more than a cash advance against his anticipated share of the profits expected to flow to him upon completion and sale of the property.

[24] At trial Mr. Cohen took the position that he was entitled to a two-tiered compensation: the monthly draw of $5,000.00 plus one third of the profits when the property sold. He takes the position that the monthly draw was to be paid for his services as the designer and project manager. Having admitted that the MOU outlines the parties’ agreement, he has admitted that draws for his services were to be equalized before distributing profits. Equalizing the draw before distributing profits is inconsistent with a monthly payment of $5,000.00 as compensation for services supplied.

[25] Equalizing any draws taken before distributing profits is consistent with a partnership and inconsistent with the relationship of owner and contractor. That profits were to be distributed equally is another indicator that the relationship was a partnership.

[26] There is no doubt that Mr. Cohen added value to the project through the professional services he supplied in designing the renovation, obtaining the required approvals and permits, selecting materials and finishes used in the renovation and carrying out other project management duties, as contemplated by the contract. He spent many hours on the development side of the project. As a partner with no capital contribution to the project his skills and services were his partnership contribution.

[27] There is also no doubt that Mr. Blumenthal contributed his real estate and marketing expertise and services to the project, and that Mr. Brin contributed to the project with his ability to secure the necessary financing.

[28] The evidence of Mr. Brin and Mr. Blumenthal is that Mr. Brin took title to the property in trust for the three parties. That characterization is not supported by any documentation: there is no trust document, the lawyer’s reporting letter on the transaction does not mention that the property was acquired in trust for individuals who were not on title, and there are no emails or letters referring to a trust arrangement. The absence of trust documentation is a factor to consider but it is not fatal to the formation of a partnership with one partner holding the property in trust for the partnership.

[29] Mr. Buium acted as the site superintendent through his company Image Kennedy Construction (Image). I found him to be a straightforward and forthcoming witness with no particular interest in the outcome of the action. He testified that on at least eight or ten occasions when he was on site with Mr. Cohen he introduced tradesmen working on site to Mr. Cohen referring to Mr. Cohen as “one of the partners”. He testified that Mr. Cohen never corrected him on this characterization as a partner. Mr. Cohen did not deny this evidence at trial.

[30] Taking the totality of the evidence into account I find that the relationship at its inception was that of three equal partners, each of whom was to contribute a skill, talent or financing in exchange for an equal share of the profits. I further find that whether Mr. Cohen’s contribution of design and project management services did not transform him from a partner into a contractor.

[31] The Construction Lien Act defines a contractor as:

“a person contracting with or employed directly by the owner or an agent of the owner to supply services or materials to an improvement”

[32] The Construction Lien Act defines a owner as:

“any person…having an interest in a premises at whose request and,

(a) Upon whose credit, or

(b) On whose behalf, or

(c) For whose direct benefit

An improvement is made to the premises but does not include a home buyer.”

[33] To fit within the definition of a contractor Mr. Cohen must prove that he contracted with the owner to supply services for the direct benefit of the owner.

[34] The agreement of all three parties, as reflected in the MOU, was that two of them were to provide contributions in kind and the third was to contribute financing. All three authorized the improvements and expected to share in the profits equally. The improvements were for the direct benefit of all three parties, including Mr. Cohen. As one of the parties for whose benefit the improvements were made, Mr. Cohen falls within the definition of “owner” under the Construction Lien Act. As an owner he cannot also be a contractor. To so find would be tantamount to accepting that an owner can lien his own property for performing improvements.

[35] The evidence does not support Mr. Cohen’s contention that he was nothing more than a hired contractor. I find that he was a partner in a project that ultimately proved to be less successful than anticipated. His claim, to succeed, requires the court to rewrite the contract and change the relationship of the parties from one of partners to one of owner and contractor. I find that Mr. Cohen’s contribution of design and project management services did not transform his relationship to the project from that of partner to that of contractor.

[36] Section 21(2) provides that lands of the partnership are held in trust for the persons with a beneficial interest in the lands. Notwithstanding that there is no corroborating documentation of a trust arrangement coincidental with Mr. Brin taking title to the project, I find that the three parties conducted themselves consistent with a partnership with the property as the partnership asset, and inconsistent with a relationship of owner and contractor. I find that the Mr. Cohen, Mr. Brin and Mr. Blumenthal embarked on the project as partners with each of them required to make a contribution to the project either in the form of a financial contribution (Mr. Brin) or in the form of professional services (Mr. Cohen and Mr. Blumenthal). In exchange for their professional or financial contribution each of the three of them was entitled to a one third share of the profits.

[37] I find that the three parties to the agreement are owners for purposes of the Construction Lien Act. It would be inappropriate for an owner to lien his own property as to do so would be a merger of interests even if such was technically possible. It would be tantamount to the owner suing himself. (See: Big Creek Construction Ltd. v York-Trillium Development Group Ltd. 1993 CarswellOnt 853, at paras. 29 and 30; appeal dismissed: 1993 CarsweellOnt 841 (Div. Ct.)). Mr. Cohen cannot be both owner and contractor.

[38] I find that Mr. Cohen is not a contractor under the Construction Lien Act and that his lien claim must fail on that basis.

IV. Timeliness of the lien

[39] Even if Mr. Cohen qualified as a lien claimant I find that he failed to preserve and perfect his lien within the timelines required under the Construction Lien Act.

[40] On June 28, 2011 Mr. Cohen sent an invoice to Mr. Brin for $67,000.00 as the “fee for services provided at 127 Orchard view Blvd. to June 1, 2011 – excludes autocad design”. The invoice is silent as to HST.

[41] On July 22, 2011 Mr. Cohen registered a construction lien for $67,000.00 plus HST for services and materials supplied from June 30, 2010 to July 6, 2011. The fee for services up to June 1, 2011 is the same as the fee claimed for services up to July 6, 2011. No invoice was rendered for services after June 1, 2011. The only reasonable inference to draw is that there were no services of any value supplied between June 1, 2011 and July 6, 2011.

[42] A contractor must preserve lien rights by registering a lien claim within 45 days of completion or abandonment. If Mr. Cohen was a contractor and completed his supply of services on June 1, 2011, or abandoned the project as of that date, and did not provide services of value after that date, then a lien registered on July 22, 2011 would be out of time. Mr. Cohen testified that he continued to supply services between June 1, 2011 and July 6, 2011 in the form of a meeting with an engineer to conduct an inspection of an added wood post in the furnace room door. He relied on a site inspection report that on its face refers to an inspection that occurred on July 7, 2011, the day after the last date of supply according to the construction lien.

[43] A contractor cannot revive an expired lien by performing a minimal amount of work after the date of completion, abandonment or last supply. I find that the date of completion or abandonment, if Mr. Cohen had been a contractor and not a partner, was June 1, 2011. Had Mr. Cohen been entitled to claim a lien as a contractor I would have found that the lien was not preserved in time and that his lien rights had expired before the lien claim was registered.

[44] Having found that Mr. Cohen acted as a partner and not as a contractor, with his design and project management services standing as his contribution, his claim for payment for his services fails.

V. Alternative claims

[45] Mr. Cohen relies in the alternative on section 63 of the Construction Lien Act, claiming as a contractor, not as a partner, $5,000.00 per month from June 2010 through July 2011, less the $10,000.00 draw taken. To sustain this claim Mr. Cohen must prove that he was a contractor.

[46] Having found that Mr. Cohen was a partner and not a contractor on this project his claim under section 63 of the Construction Lien Act fails.

[47] Mr. Cohen makes no claim for partnership profits, having denied that he was a partner.

VI. Quantification

[48] Mr. Brin counterclaims against Mr. Cohen for one third of the partnership’s losses. He also claims against Mr. Blumenthal for one third of the losses in the third party claim.

[49] As the party making the claim the onus is on Mr. Brin to prove that the partnership experienced a loss, that he paid for the loss and that he is entitled to be reimbursed by the other two partners for their share of the partnership loss.

[50] The Partnership Act, R.S.O. 1990, c.P5, provides at section 10 that “every partner in a firm is liable jointly with the other partners for all debts and obligations of the firm incurred while the person is a partner”.

[51] Section 24 provides that all partners are entitled to share equally in the capital and profits of the business and must contribute equally towards the losses.

[52] In calculating profit or loss the sale process is relevant. Mr. Cohen claims that Mr. Brin conducted an improvident sale and did not obtain the best price possible for the property after the renovation. The onus is on the party alleging improvident sale, in this case Mr. Cohen, to prove it on a balance of probabilities (see: Kavanaugh v Royal Bank 1997 CarswellOnt.1755 at para. 23).

[53] Mr. Cohen relies on the evidence of Desmond Brown, a real estate sales representative, who testified in chief by affidavit and was cross-examined at trial. The plaintiff asked the court to accept Mr. Brown as an expert witness but had not complied with the requirements of rule 53.03. The plaintiff had not served an expert report and had not provided the information required by rule 53.03 (2.1). I delivered my ruling and reasons at trial that the witness could not be called as an expert but may testify as a fact witness.

[54] Mr. Brown was cross-examined on the evidence in his affidavit regarding property values in the geographic area referred to in the TREB[^4] statistics attached as an exhibit. Mr. Brown admitted the area for comparison purposes in the statistics attached as an exhibit to his affidavit is so large and diverse that it included properties that are not comparable to the subject property. I find that Mr. Brown’s evidence of property value is of no assistance to the court because it failed to confine the data provided to single family detached dwellings in the Yonge and Eglington area. His evidence does not establish that the sale price of the property in August 2011 was below what it should reasonably have been.

[55] Mr. Brin had an obligation to his partners to take reasonable steps to obtain the true market value of the property. That does not mean that he must actually obtain the true market value but rather that he must take reasonable precautions. Perfection is not required. (See: Oak Orchard Development Ltd. v Iseman 1987 CarswellOnt 2138 at para. 22).

[56] Mr. Brin and Mr. Blumenthal testified as to the steps taken to market and sell the property. They listed the property for sale throughout the renovation period, with some gaps between listings to allow the property to be relisted afresh rather than as a continuous listing. They had at least 15 open house showings. They placed signage on the property. In all of that time and with all of that effort there was only one offer. Having purchased the property for $800,00.00 in June 2010 Mr. Brin sold it post-renovation for $1,395,000.00 just over a year later, in August 2011.

[57] I find that there is no evidence of probative value that the sale was improvident. Mr. Cohen has not met the onus of proving this element of his claim.

[58] In support of his claim for reimbursement of project losses, Mr. Brin included in his affidavit in chief a summary of projected losses[^5]. The calculation is flawed for several reasons. The most significant are (i) it includes double counting for monies borrowed and construction funds and (ii) it is premised on unsubstantiated project costs. In argument counsel presented a revised calculation. While the revised calculation eliminates the double counting it continues to be based on unsubstantiated project costs.

[59] In cross-examination Mr. Brin admitted that he had a briefcase full of documents pertaining to construction costs, including invoices and copies of cancelled cheques. He did not produce these documents. His evidence in chief of construction costs is made up primarily of summaries without any clear identification of what the amounts claimed and cheques are for. Attached as exhibit G to his affidavit of evidence in chief is the bank account statement for the construction account for the project. The statement includes multiple references to cheques without any description or backup documentation to identify the payees or the purpose of the payments made. I find that Mr. Brin’s evidence of construction costs does not satisfy the onus of proving on a balance of probabilities that the construction costs add up to the amount claimed.

[60] The summary of project loss, as revised in submissions made by Mr. Brin’s counsel at trial, is further flawed because it includes as a cost an amount paid to Image Kennedy separate from the amount claimed for construction costs. I am not satisfied that this has not been included in construction costs.

[61] Next, Mr. Brin includes in his calculation of project loss an amount for staging and an amount for real estate commission. Each of the partners made a contribution to the partnership. Mr. Brin’s contribution was financing. Mr. Cohen’s contribution was design, permit approvals and some of the project management. Mr. Blumenthal’s contribution was real estate and marketing services. In my view that includes any commission and marketing required to sell the property. Mr. Cohen’s wife was prepared to conduct the staging at no cost. If Mr. Blumenthal and Mr. Brin chose instead to incur the cost of staging through another supplier then that is not properly a project cost of the partnership. Rather it is a partnership contribution in kind. I have extracted the staging and commission costs from Mr. Brin’s revised calculation of project loss.

[62] I find and conclude that Mr. Brin is not entitled to recover any project loss from either Mr. Cohen or Mr. Brin because he has not proven a significant element of the claim, namely project costs.

[63] However, even if I had accepted his evidence of project costs as $446,760.00 as claimed in his affidavit of evidence in chief, he would not have succeeded beyond recovering $373.33 from each of them, as shown in the calculation that follows.

[64] Taking Mr. Brin’s project costs at face value I find that the loss on the project is as follows:

Outflow (rounded)

Inflow (rounded)

Purchase price

$800,000.00

Sale Price

$1,325,000.00

Mortgage interest

24,513.00

Line of credit interest

7,800.00

Construction costs

446,760.00

Interest on construction funds

15,637.00

Paid to Image Kennedy

Included in construction costs

Staging

Blumenthal’s partnership contribution

Real estate commission

Blumenthal’s partnership contribution

Draw paid to Cohen

10,000.00

Draw paid to Blumenthal

10,000.00

Equalization draw to Brin

10,000.00

Legal fees on sale

1,410.00

1,326,120.00

1,325,000.00

Loss

$1,120.00

1/3 of loss

$373.33

[65] I find that Mr. Brin has failed to satisfy the onus of proving that the project experienced a loss. His counterclaim and third party claims fail.

VII. Costs

[66] As a general principle costs in a proceeding under the Construction Lien Act, as in an ordinary action, are in the absolute discretion of the court[^6]. In fixing costs the court must consider the facts and circumstances of the particular case; it is not a mechanical exercise. The court must be fair and reasonable in exercising its discretion to award costs. As noted by the Court of Appeal in Boucher v. Public Accountants Council for the Province of Ontario[^7]:

In deciding what is fair and reasonable, as suggested above, the expectation of the parties concerning the quantum of a costs award is a relevant factor…The notions of fairness and reasonableness are embedded in the common law. Judges have been applying these notions for centuries to the factual matrix of particular cases.

[67] Mr. Cohen was unsuccessful in his claims for a construction lien and in the alternative for a personal judgment against Mr. Brin. Mr. Brin successfully defended the claim but he was unsuccessful in his counterclaim for a share of the partnership losses. He was also unsuccessful in his third party claim against Mr. Blumenthal for a share of the partnership losses. Mr. Blumenthal was drawn into the litigation reluctantly and made no claims against the others. He successfully defended the third party claim.

[68] Despite his lack of success Mr. Brin asks for costs of $30,000.00, relying on an offer to settle that he served on the other parties on December 12, 2012, proposing that all parties walk away on a without costs basis. The offer meets the requirements of rule 49.10. Mr. Brin achieved a result as favourable as the settlement proposed in his offer to settle.

[69] Mr. Blumenthal claims costs of trial based on an offer to settle served on February 19, 2013, the day before trial, proposing that the defendant abandon his claim against him without costs. The offer does not meet the requirements of rule 49.10 because it was not served at least seven days before trial. He asks the court to award costs payable to him by both Mr. Cohen and Mr. Brin because third party proceedings were inevitable once Mr. Cohen issued his claim against Mr. Brin.

Liability for costs

[70] Mr. Cohen’s position is that each party should bear their own costs. His reasons are twofold: first, he wanted to go to mediation and the other parties refused to co-operate. Second, Mr. Brin failed to produce proper documentation of project costs and had he done so Mr. Cohen may have been able to settle before trial.

[71] As to the first ground, mediation in construction lien references is not mandatory. Failure to mediate is not a reason to refuse a claim for costs. As to the second ground, while Mr. Brin’s failure to properly document construction costs was fatal to his claim for recovery of partnership losses, it is not a barrier to costs where an offer to settle was served and the trial result is as favourable as the proposal.

[72] Whether a plaintiff should be liable to a third party for costs, the general rule is that a plaintiff will generally not be required to pay the costs of a third party but there may be situations where fairness requires an unsuccessful plaintiff to bear the costs of a successful third party (see: Guarantee Co. of North America v Resource Funding Ltd., [2009] O.J. No. 3279, citing Milina v Bartsch (1985), 1985 454 (BC SC), 1 C.P.C. (2d) 269). One such situation is where the third party proceedings follow naturally and inevitably from the plaintiff instituting his action, in that the defendant had no real alternative but to join the third party as in this case (see: Credit Foncier Franco-Can v Bennett (1964), 1964 449 (BC CA), 47 W.W.R. 369). Mr. Brin had no alternative but to third party Mr. Blumenthal.

Quantifying costs

[73] Cases such as this one cry out for early resolution. That the parties dug in their heels and went through trial to the bitter end is unfortunate. They all must take responsibility for that, especially in view of the outcome.

[74] In a reference under the Construction Lien Act the overriding discretion to fix costs lies with the court (see: Construction Lien Act, section 86). The factors listed in 57.01 are relevant.

(i) Mr. Brin’s claim for costs

[75] Mr. Brin successfully defended the claim but was unsuccessful in his counterclaim and his third party claim. Given his divided success he would not be entitled to costs but for having served an offer to settle on December 12, 2012 in an effort to avoid trial. He is entitled to costs from that date through trial, payable by Mr. Cohen.

[76] As of December 12, 2012 Mr. Brin had already served his affidavits of evidence in chief. Costs for trial preparation and trial were incurred after December 12, 2012. Counsel’s Costs Outline proposes a counsel fee of $6,600.00 on a substantial indemnity basis and $4,400.00 on a partial indemnity basis for two days of trial. I note that counsel’s substantial indemnity rate is his actual rate and an adjustment is warranted. According to counsel’s Costs Outline time spent after preparing the affidavits of evidence is $14,725,.00 (actual) based on an hourly rate of $380.00 or $9,816.00 (partial indemnity) based on an hourly rate of $250.00. Mr. Brin also claims disbursements of $1,837.24 for the entire proceeding (main action and third party claim), of which $488.00[^8] (non-taxable) plus $242.00[^9] (including HST) were likely incurred after the offer to settle was served, for a total of $730.00 in disbursements.

(ii) Mr. Blumenthal’s claim for costs

[77] Mr. Blumenthal successfully defended the third party claim but did not serve his offer to settle in sufficient time to attract the benefits of rule 49. He asks for costs to be paid jointly and severally by Mr Cohen and Mr. Brin. Because the third party proceedings were inevitable once Mr. Cohen issued his claim I find that it is appropriate that any costs award in his favour be payable by both Mr. Cohen and Mr. Brin.

[78] Mr. Blumenthal’s counsel filed a Bill of Costs for fees of $29,645.55 for 63 hours of preparation and trial attendance, based on hourly rates of $400.00 for counsel and $150.00 for a law clerk, plus disbursements of $2,452.97, including a disbursement of $1,914.85 for legal research, for a total costs claim of $32,100.52.

(ii) Relevant factors re: costs

[79] Hourly rates and experience: Counsel appearing for Mr. Brin and Mr. Blumenthal are senior and very experienced. The hourly rates upon which their costs claims are based would be reasonable and warranted in a case where the quantum in issue is significant or the issues are complex. Their hourly rates are not reasonable or warranted in this case, where the amount in issue was only $67,000.00 at the outset, increased to $78,333.33 at trial.

[80] Time spent and complexity: Counsel must spend a certain amount of time in every case, regardless of how much is in issue. Given their experience at the bar, counsel clearly brought efficiency to the case and perhaps spent less time preparing than junior counsel. However, I find that the time spent in this case is still excessive taking into account that the case was relatively straightforward. There were no complex factual or legal issues.

[81] Reasonable expectation of the unsuccessful party: Access to justice requires that a costs award must take into account the reasonable expectation of the unsuccessful party, In this case Mr. Cohen.

[82] The costs provisions of the Construction Lien Act and the Rules should reasonably have informed Mr. Cohen to expect to pay costs if unsuccessful. Upon receiving Mr. Brin’s offer to settle on December 12, 2012 Mr. Cohen could have taken a good hard look at the weaknesses in his case. Had he accepted the offer trial preparation and trial itself could have been avoided and there would have been no costs.

[83] Mr. Cohen’s own legal fees should reasonably have informed him as to the quantum of costs that he would be expected to pay if unsuccessful at trial. In fixing costs I have taken into account these reasonable expectations of Mr. Cohen as the unsuccessful party.

[84] Proportionality: Even before the principle of proportionality was explicitly incorporated into section 1.04 of the Rules it was an intrinsic component of the Construction Lien Act. Sections 67(1) and 86(2) of the Act provide:

67(1). Summary Procedure: The procedure in an action shall be as far as possible of a summary character, having regard to the amount and nature of the liens in question.

86(2). Where the least expensive course not taken: Where the least expensive course is not taken by a party, the costs allowed to the party shall not exceed what would have been incurred had the least expensive course been taken.

[85] Read together these provisions express the expectation that lien proceedings will be streamlined and proportionate to the issues.

[86] The amount in issue was $67,000.00, increased to $78,333.33 at trial. The counterclaim was for $22,828.25 and the third party claim was for $21,393.54. None of the claimants proved their claims. The trial was straightforward and short. I find that the parties claiming costs over-resourced the case, taking into account what was at stake. I find that the amounts claimed for costs by Mr. Brin and Mr. Blumenthal are excessive, applying principles of proportionality.

[87] Taking all of these factors into account I find that an appropriate award of costs in favour of Mr. Brin is $10,000.00 inclusive of taxes and disbursements of $730.00, payable by Mr. Cohen. I further find that an appropriate award of costs in favour of Mr. Blumenthal is $8,000.00 inclusive of taxes and disbursements of $500.00, payable by Mr. Brin and Mr. Cohen jointly and severally.

VIII. Conclusion

[88] Having failed to prove his claim Mr. Cohen’s claim for lien is dismissed and the construction lien registered as instrument AT2760904 on July 22, 2011 is hereby discharged. Mr. Cohen’s claim is dismissed.

[89] Having failed to prove his counterclaim and third party claim Mr. Brin’s counterclaim and third party claims are dismissed.

[90] Security of $94,637.50 posted by Mr. Brin to account 519547 to vacate the lien shall be returned to Mr. Brin.

[91] Mr. Cohen shall pay costs of the action to Mr. Brin fixed at $10,000.00.

[92] Mr. Cohen and Mr. Brin shall jointly and severally pay costs of the third party claim to Mr. Blumenthal fixed at $8,000.00.

[93] Counsel shall prepare a draft report for my review, to be filed by March 28, 2013. If they cannot agree on the form of the report then they must schedule an attendance before the court to settle the report.

Master C. Albert

Released: February 28, 2013

Footnotes

[^1]: $75,710.00 for the lien including HST plus $18,927.50 for costs, posted to account 519547
[^2]: exhibit 1, tab 2B (exhibit B to the affidavit of Mr. Cohen) and tab 3A (exhibit A to the affidavit of Mr. Brin)
[^3]: AUTOCAD is a computerized design and drafting programme
[^4]: Toronto Real Estate Board
[^5]: Exhibit 1, tab 3E, page 132
[^6]: Courts of Justice Act, R.S.O. 1990, c.C.43, s.131; Construction Lien Act, R.S.O. 1990, c.C.30, s.86
[^7]: 2004 14579 (ON CA)
[^8]: Photocopies/ binding affidavit of evidence in chief and casebooks
[^9]: Clerk’s fees to file affidavits, notice to cross-examine, plus conference call fee and a portion of photocopy and facsimile expense