ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 04-CV-280219
DATE: April 24, 2013
BETWEEN:
THYSSENKRUPP ELEVATOR
(CANADA) LIMITED
J. Armel for plaintiff
Fax: 416-597-3370
Plaintiff
- and -
1147335 ONTARIO INC.
L. Bleta, for the defendant
Fax: 416-231-1280
Defendant
Master C. Albert
COSTS OF ACTIONS AND REFERENCES
Thyssenkrupp Elevator (Canada) Limited (“Thyss”) initiates this group of related actions nine years ago to collect unpaid accounts for supplying elevator maintenance and repair services to 1147335 Ont. Inc. and related companies, owners of five high rise apartment buildings (the “Owner”). The list of actions is attached as Schedule “A”. The litigation became complex due to the Owner’s conduct of the proceedings. For reasons released January 22, 2013 Thyss was successful in its claims for unpaid accounts and the Owner was unsuccessful in its claims for set-off.
The judgments of reference of Justice Matlow dated October 23, 2006 in five of the actions (one per apartment building) require me as reference master to determine the question of costs of the actions and of the reference. Counsel filed written costs submissions, which I have reviewed carefully.
As noted by the Court of Appeal in 1465778 Ontario Inc. v 1122077 Ontario Ltd.[1], Feldman, J.A. writing for the court, costs in a civil action serve several purposes:
“Traditionally the purpose of an award of costs within our ‘loser pay’ system was to partially or, in some limited circumstances, wholly indemnify the winning party for the legal costs it incurred. However, costs have more recently come to be recognized as an important tool in the hands of the court to influence the way the parties conduct themselves and to prevent abuse of the court’s process. Specifically the three other recognized purposes of costs awards are to encourage settlement, to deter frivolous actions and defences, and to discourage unnecessary steps that unduly prolong the litigation”
In the present case all of these elements were present. Thyssenkrupp was overwhelmingly successful and seeks indemnification. The Owner repeatedly abused the court process, rejected a reasonable settlement offer, pusued unmeritorious defences and prolonged the proceedings with unnecessary steps.
Thyss registered ten construction liens and issued ten civil actions: two liens and two actions for each of the five properties. The liens and actions were necessary because of the strict limitation periods in the Construction Lien Act. The references were combined and conducted together for efficiency and to avoid multiple proceedings.
The Thyss reference was conducted together with the reference of the lien claim action of Schindler Elevator Co.[2] The Schindler action settled in 2012 and I released my costs disposition and reference report in that action on June 15, 2012[3]. The Owner appealed by way of motion to oppose confirmation of the reference report. Justice Stevenson confirmed the report and my costs disposition by endorsement released January 3, 2013[4]. Some of my comments in the Thyss costs disposition repeat comments made in the Schindler costs disposition because the references proceeded in tandem and the Owner’s conduct of the proceedings was similar.
The Owner characterizes the litigation as a simple accounting claim. That may be how it started but it quickly morphed into complex litigation because of the Owner’s conduct, with multiple interlocutory motions and appeals (including a statutorily prohibited appeal by the Owner, quashed by the appeal court). The procedural history is set out in Schedule “B” and in the reasons released January 22, 2013[5].
Thyss asks for costs of $119,947.23 calculated on a partial indemnity scale up to October 2, 2009 when it served a rule 49 offer to settle, and on a substantial indemnity scale thereafter.
The Owner’s position is that costs of the action should be assessed at no more than the $75,881.90 in costs that the Owner has been ordered to pay in the interlocutory proceedings and appeals in this reference. I reject the Owner’s position because those cost awards apply to legal services provided for distinct interlocutory and appellate steps taken. Thyss has not included those steps in its claim for costs of the actions and the reference.
I. General principles
- 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 or assessing 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: Boucher v. Public Accountants Council for the Province of Ontario[7].
II. Relevant Factors
Rule 57.01(1) describes relevant factors for the court to consider. To the extent that any of the relevant factors fetter the discretion of the court under section 86 of the Construction Lien Act, the Act takes priority (see: section 67(3)).
The list of relevant factors is non-exhaustive and includes (i) whether the conduct of any party shortened or unnecessarily lengthened the duration of the proceeding, (ii) indemnification, (iii) reasonable expectation of the payor, (iv) the amount claimed and recovered, (v) the complexity of the proceeding, (vi) the importance of the issues, and (vii) whether any step taken was unnecessary, improper, vexatious or taken by mistake or through negligence or excessive caution. Additional considerations include rule 49 offers to settle and proportionality.
I have considered the relevant factors and determined an appropriate costs award in this case.
(i) Conduct of the parties
Rule 57.01(1)(e) includes as a relevant factor “the conduct of any party that tended to shorten or lengthen unnecessarily the duration of the proceeding”.
The Owner argues that by conducting the Thyss reference in tandem with the Schindler reference, costs claimed by Thyss are higher than they would otherwise have been. In my view the time spent at pretrial hearings for directions was not unduly lengthened because Schindler participated. There was some delay arising from Schindler’s motion to strike the Owner’s counterclaim (successful) and the Owner’s appeal from that decision (unsuccessful), but Thyss did not participate in that motion or the appeal. An additional fifteen minutes at several pretrials may have been spent discussing issues exclusive to the Schindler reference but in the overall scheme of the reference the additional time at pretrial hearings for directions on Schindler issues was not significant and I have taken it into account in quantifying and fixing costs.
The Owner argues that costs should be discounted because Thyss failed to remove liens that were partially or fully paid. I concluded following a trial that one of the ten liens had been paid in full after the second lien against the building was registered, and several of the liens had been partially satisfied.
The Owner could have moved to strike or reduce one or more of the lien claims on grounds that they had been partially or fully paid. On October 21, 2009 the Owner asked for a motion date for that purpose. The court assigned special appointment motion dates of August 10 and 11, 2010, adjourned to August 26 and 27, 2010 and again to September 21 and 22, 2010 at the request of Thyss. The day prior to the motion hearing the Owner asked to adjourn the special appointment because its motion materials were not ready. In fact, the Owner filed no motion materials and never proceeded with its motions. I find that in the extraordinary circumstances of these lien claims and the references it was appropriate for Thyss to leave all of the lien claims in place until final adjudication of the claims by the court. No costs reduction is warranted on this ground.
The Owner argues that costs claimed should be discounted because the accounting statements provided by Thyss for use at trial were inadequate The assertions advanced by the Owner in its submissions are factually incorrect. The accounting statements submitted by Thyss and relied on at trial were not inadequate. However, they were cumbersome because two of the statements combined two buildings into one statement. I directed Thyss to separate the statements by building to facilitate the arithmetic. The information contained in the statements did not change. I find that this argument advanced by the Owner does not support a reduction in costs claimed by Thyss.
The Owner argues that costs claimed should be discounted because the claims, initially for a total of $223,397.93, were reduced before trial. The reason for the reduction in the claim amount before trial is that Thyss credited the Owner with payments made after the liens were registered. The accounting, including these credits, had been provided to the Owner at least three years before trial.
The Owner argues that both parties share responsibility for the protracted nature of the litigation. That is factually incorrect. It is clear from a review of the history of this proceeding (see Schedule “B”) that the Owner’s conduct of the actions is responsible for the multiple attendances and delays, the multiple interlocutory procedures and appeals and the escalation of costs at the pretrial stage.
The Owner’s conduct also increased the length and complexity of the trial, resulting in a six day trial instead of what should have been a much shorter trial. Schedule “C” of my decision released January 22, 2013 provides detailed reasons for numerous procedural and preliminary rulings made at trial arising primarily from the Owner’s conduct of the trial and motions brought at trial. The Owner was overwhelmingly unsuccessful in its procedural challenges.
I find that the Owner’s conduct is a significant factor that caused costs to escalate. Typically a simple construction lien reference in Toronto requires one or two pretrial hearings for directions before trial. In this case more than twelve pretrial hearings for directions were required due to the Owner’s conduct which unnecessarily lengthened and complicated the proceeding. Examples are:
a. The court ordered particulars of the Owner’s million dollar counterclaim at the first pretrial hearing for directions on November 17, 2006. The Owner failed to comply, providing inadequate particulars.
b. A second pretrial hearing for directions was convened on April 12, 2007. The court gave the Owner a second chance to provide detailed particulars and ordered a deadline of June 1, 2007.
c. The Owner failed to comply with the second court order for particulars. A third pretrial hearing for directions was convened on June 6, 2007 at which time the court ordered the Owner for the third time to provide particulars of its counterclaim, with the caution that its pleadings would be struck if it failed to comply.
d. At the fourth pretrial hearing for directions on November 23, 2007 the Owner asked for an extension of time to provide particulars of its counterclaim for lost rents. The court ordered a “last extension of time” to December 31, 2007 (inadvertently typed as “2008” in the order) to provide particulars and to January 31, 2008 to answer undertakings and produce a supplementary affidavit of documents.
e. At the fifth pretrial hearing for directions on June 23, 2008 the court further extended the deadlines, allowing the Owner until July 11, 2008 to deliver a proper damages brief. The Owner failed to comply and, to exacerbate matters, provided different versions of the Owner’s deficient damages brief to Thyss’ counsel and to the court, so that the attendance on August 12, 2008 wasted valuable time of the court and Thyss’ counsel. A further extension of time was granted to the Owner with a final opportunity to deliver a proper damages brief particularizing its counterclaim.
f. Around this time the Owner decided to amend its pleadings. At the pretrial hearing for directions on July 13, 2009 the Owner announced its intention to do so, but failed to produce a proposed amended pleading so that the amendment and issues arising from the amendment could be dealt with at the pretrial. Instead, an additional pretrial hearing for directions was required after the pleading amendment, which proceeded unopposed almost three months later on October 5, 2009.
g. A further pretrial hearing for directions (#7A) was required and conducted on October 21, 2009 to address issues regarding the damages brief and discovery. Thyss moved to strike the counterclaims because of the Owner’s repeated breach of orders and failure to provide proper particulars. I fixed a motion date for the Thyss motion and also for the motions requested by the Owner to strike five of the Thyss lien claims on grounds that they had been satisfied.
h. I fixed a special appointment to hear the motions, adjourned several times and ultimately fixed for hearing on September 21, 2010. Without notice, on the day of the motion, the Owner brought to the reference master’s attention for the first time its intention to bring a recusal motion on grounds of reasonable apprehension of bias. The motions could not proceed until the Owner’s recusal motion was decided. Costs of the September 21, 2010 attendance are not included in the assessment of costs of the action because the Owner was ordered to pay costs thrown away at the time of the attendance.
i. After hearing the recusal motion on November 24, 2010 I issued a decision on December 21, 2010 refusing the motion, with detailed reasons released February 11, 2011. The Owner applied for judicial review of that disposition but did not perfect its application. On July 27, 2012 the Divisional Court dismissed the Owner’s application and fixed costs in favour of Thyss. Launching an application for judicial review and allowing it to languish and ultimately be dismissed by the court for delay is another example of the Owner’s conduct that tended to lengthen and unnecessarily complicate this proceeding. The Owner also appealed the recusal decision and was unsuccessful on its appeal.
j. Next, Thyss moved to strike the Owner’s counterclaims for lost rents. By decision released May 6, 2011 the motion was granted. The Owner appealed and on December 5, 2011 Justice Jennings upheld the order striking the Owner’s counterclaims for lost rents.
It is only at the conclusion of the entire proceeding that the court is in a position to consider the cumulative effect of a party’s conduct of the proceeding. I find that in this case the multiple pretrial hearings for directions were necessary because of the Owner’s conduct of the proceeding. For each attendance counsel for Thyss had to re-familiarize himself with the file and the stage of the reference. The time spent to do so, which was a direct result of the Owner’s conduct of the proceeding, was necessary and is properly included in costs of the actions and the reference.
In the Owner’s motion to oppose confirmation of the reference report in the related reference, Schindler Elevator Corporation v 1147335 Ontario Inc.[8] Justice Stevenson agreed with me that the fact that costs were awarded in interlocutory proceedings does not preclude the reference Master from considering the Owner’s conduct with respect to the entire action, particularly where such conduct resulted in additional pretrial hearings and attendances. I have not allowed costs for events where costs were fixed separately by the court.
I find that the Owner’s conduct caused increased costs by unnecessarily lengthening the proceeding at the pretrial stage, requiring multiple pretrial hearings for directions that would not otherwise have been convened. I further find that the Owner’s conduct caused increased costs by unnecessarily lengthening the duration of the trial itself with multiple unmeritorious motions, failure to comply with the requirements regarding expert witnesses, breach of pretrial orders requiring witness statements and other conduct described in detail in my reasons for decision on the reference.
For all of these reasons the conduct of the Owner is a significant factor in the quantum of costs of the actions and the reference.
(ii) Offers to settle
Thyss relies on the offer to settle it served October 2, 2009. Thyss offered to accept $50,000.00 in full settlement of its claims, plus costs on a partial indemnity scale to the date of the offer and on a substantial indemnity scale to the date of acceptance, plus interest in accordance with the Courts of Justice Act. At trial the court awarded Thyss $122,810.30 plus prejudgment and post-judgment interest in accordance with the Courts of Justice Act.
I find that the offer to settle was a real effort by Thyss to compromise. The offer qualifies as a rule 49 offer. It remained open until after the commencement of trial. The cost consequences of rule 49.10 are appropriate in this case.
(iii) Indemnification
One purpose of an award of costs is to indemnify the successful party for the costs it necessarily incurred to obtain a court order for what it was entitled to receive in the first place. Thyss relies on the principle of indemnification because it was required to go through the trial process to collect the debt.
Thyss claims costs on a partial indemnity scale up to October 2, 2009 when it served a rule 49 offer to settle and on a substantial indemnity scale thereafter. Thyss calculates its partial indemnity rate as fifty (50%) percent and substantial indemnity rate as seventy-five (75%) percent of actual costs.
The Owner argues that the costs claimed are not warranted because of duplication of counsel (Mr. Armel and Mr. Drake) and excessive hourly rates claimed for counsel. The Owner also asserts that Thyss failed to provide sufficient details of the legal services provided.
Applying the principle of indemnification, I find that Thyss is entitled to compensation for the legal services reasonably required to achieve a successful result. In determining the appropriate amount I have considered many factors, including whether there was duplication or unnecessary effort expended, the experience of counsel in relation to the matters in issue, the rates claimed and the time spent.
i. Duplication:
The Owner argues that the costs claimed are not warranted because of duplication of counsel. In carefully reviewing the Bill of Costs submitted by Thyss I have factored out duplication where more than one lawyer participated in a briefing meeting, attended pretrials or trial, and other such duplication. A client may choose to have two lawyers present but it should not be at the expense of the opposite party. However, fixing costs is not a strict mathematical exercise of multiplying hours spent by hourly rates.
For the most part Mr. Armel was in charge of the case. At the very beginning a senior lawyer with the firm was involved but he quickly turned the file over to Mr. Armel. Thereafter Mr. Armel carried the file, with the assistance of a junior lawyer or law clerk where appropriate. The conduct of the Owner increased Thyss’ need for legal services. I find that Thyss employed efficiency in utilizing the services of a less expensive timekeeper for appropriate tasks.
The Owner argues that the court must consider costs previously ordered in favour of Thyss for interlocutory proceedings as well as the approach to costs awards and caps applied in awarding costs in interlocutory proceedings. On that basis the Owner argues that there should be no additional costs awarded to Thyss. The significance of costs previously ordered is that the court must not award costs for steps taken for which costs have previously been considered and either refused or awarded. I am satisfied from a review of the materials filed by Thyss that the Bill of Costs submitted does not include a claim for costs for legal services provided where costs have already been considered and either awarded or refused.
ii. Whether this case warrants lawyers of this experience
- The Owner argues that the rates claimed are excessive and that the case did not warrant a lawyer of Mr. Armel’s experience and hourly rates. I find that where the services of a junior lawyer were appropriate a junior lawyer performed the work. However, given the complexity of the reference, arising from the Owner’s conduct of the proceeding, it was appropriate and reasonable for Thyss to engage the services of a lawyer of Mr. Armel’s experience and expertise. I find that the rates claimed by Mr. Armel in his Bill of Costs as adjusted (see below) are reasonable in the circumstances.
iii. Detailed breakdown
The Owner argues that Thyss failed to provide a sufficiently detailed breakdown of the legal services provided. This argument is not factually correct. The Bill of Costs is broken down by time periods, with separate time periods corresponding firstly to the applicable GST or HST tax rate period and secondly to the services performed before and after serving the offer to settle. I have carefully reviewed the Bill of Costs and materials filed by Thyss and find that they are sufficiently detailed for the court to ascertain the time spent, the nature of the services performed, the lawyer or law clerk performing the services, the experience of the timekeeper and the amount of time spent.
Having found that the offer to settle meets the requirements of rule 49 I find that it is appropriate to calculate costs at a partial indemnity rate of fifty (50%) percent of adjusted actual rates charged up to October 2, 2009 and at a substantial indemnity of seventy-five (75%) percent of adjusted actual rates charged from and after October 2, 2009. These percentages are reasonable and appropriate.
... (full decision text continues exactly as in the source, including Schedules A and B, footnotes, and all paragraphs through the final release line) ...
Master Carol Albert
DATE: April 24, 2013
Released: April 24, 2013