ONTARIO

SUPERIOR COURT OF JUSTICE

Court File No.: CV-09-383523
Date: August 28, 2013

BETWEEN:

HOMEWOOD DEVELOPMENT INC.

A. Seretis and A. Dick, for plaintiff
Fax: 416-977-0717

Plaintiff (defendant by counterclaim)

• and -

2010999 ONTARIO INC. and MERIDIAN CREDIT UNION LIMITED[^1]

P.J.Zibarras and D. Meirovici, for defendant
Fax: 416-362-8410

Master C. Albert

TRIAL COSTS

[1] Homewood Development Inc. (“Homewood”) was successful in its claim and 2010999 Ontario Inc. (“201”) was unsuccessful in its counterclaim at trial for reasons released June 26, 2013. The parties filed written submissions on costs. For the reasons that follow costs are fixed at $108,943.67 payable by 201 to Homewood.

I. Background

[2] 201 contracted with Homewood to renovate and build an addition onto an existing commercial building. Conflicts arose. Homewood left the job, registered a construction lien and issued a claim for $260,000.00, succeeding at trial to the extent of $201,670.45.

[3] 201 counterclaimed for $427,051.10 for breach of contract, $253,589.16 for loss of rental income, $100,000.00 for slander of title and $89,952.00 for overpayments, for a total counterclaim of $870,592.26. At trial 201 advanced only $282,827.00 of its counterclaim and pursued the $192,000.00 claimed for loss of rental income and $90,827.00 claimed for overpayments on the contract. In its opening statement at trial 201 submitted that the $427,051.10 claimed in its pleading for breach of contract was not in fact a claim but rather an amount to be included in 201’s valuation of the renovation. 201 did not advance its claim for slander of title at trial. 201 also pursued, unsuccessfully, its claim that the lien had expired.

[4] The court awarded Homewood $201,670.45, after deducting $1,500.00 for one deficiency. In all other respects 201 was unsuccessful in its counterclaim.

[5] Homewood asks the court to fix costs on a substantial indemnity scale or, in the alternative, on a partial indemnity scale up to the date of its offer to settle served November 9, 2012 and on a substantial indemnity scale thereafter, or in the further alternative on a partial indemnity scale for the entire proceeding.

[6] In seeking substantial indemnity costs for the entire proceeding Homewood relies on its success at trial, its offer to settle, 201’s conduct in withholding vital evidence and 201’s largely unsuccessful counterclaim.

[7] In response 201 argues that an award of substantial indemnity costs is not available because the court did not make a finding that 201’s conduct was reprehensible and Homewood did not better its settlement offer at trial.

II. General principles

[8] 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[^2]. 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[^3].

III. Factors to consider in fixing costs

[9] Rules 49, 57.01(1) and 1.04 describe factors for the court to consider when fixing costs. The list is non-exhaustive and includes the following factors relevant to the present case:

a) Settlement offers: Subrule 49.10 creates a presumption that where the party serving an offer to settle achieves a result at trial that is as good or better than the offer, that party is entitled to partial indemnity costs up to the date of the offer and substantial indemnity costs thereafter. The court may order otherwise.

b) Indemnification: This factor takes into account the experience of the lawyer for the successful party, the rates charged and the time spent.

c) Reasonable expectation: What amount should the unsuccessful party reasonably expect to pay?

d) Result: How much was claimed and how much was recovered and/or resisted?

e) Complexity: How complex was the proceeding?

f) Importance: What was the importance of the issues?

g) Conduct: Did the conduct of any party unnecessarily add to the cost of the proceeding?

h) Avoidable costs: Were any steps unnecessary, improper or taken by mistake?

i) Proportionality: Costs should be proportionate to the importance and complexity of the issues and to the amount involved in the proceeding.

[10] I have considered each of these factors which, in my view, are relevant in exercising discretion and determining an appropriate costs award in this case.

IV. Applying the Relevant Factors

a. Scale of costs and the settlement offer

[11] There is no reason to depart from the general principle that the successful party is entitled to costs. Homewood was overwhelmingly successful in advancing its claim and in resisting 201’s significant counterclaim. I find that Homewood is entitled to costs. The issue is whether costs should be fixed on a partial or substantial indemnity scale, or a combination of the two costs scales.

[12] A party’s efforts to settle the action before trial may justify an award of substantial indemnity costs. The principle underlying rule 49.10 is that a party who makes reasonable efforts to resolve the dispute and avoid trial is entitled to be reimbursed for substantially all of the costs incurred thereafter if that party is ultimately more successful at trial.

[13] Homewood served an offer to settle on 201 on November 9, 2012, offering to accept $220,000.00 in settlement of its claim, including interest, plus costs of the main action on a partial indemnity scale, with no costs payable for the counterclaim.

[14] At trial Homewood succeeded to the extent of $201,670.45. Prejudgment interest on this amount at the Courts of Justice Act rate of one and three-tenths (1.3%) percent from May 11, 2009 when the construction lien was registered to August 28, 2013 when the costs disposition is to be released is $11,277.00[^4]. The total award including prejudgment interest is $212,947.45, which is less than the amount that Homewood offered to accept in its rule 49 settlement offer.

[15] Homewood argues that it achieved a better result at trial because the $220,000.00 quantum of its offer includes costs of the counterclaim, and the amount of costs attributable to defending 201’s failed counterclaim brings the award after trial above the $220,000.00 offered. To succeed on the basis of this argument Homewood must prove that the amount awarded (including prejudgment interest) plus costs of the counterclaim up to the date of the offer to settle exceed the amount of the settlement offer.

[16] The flaw in Homewood’s position is that it asks the court to compare the readily quantifiable amount of the offer to settle with a trial award topped up by an unspecified quantification for costs of the counterclaim up to the date of the settlement offer. Paragraph 4 of the offer to settle provides that if the offer is accepted there would be no costs of the counterclaim. 201 did not accept the offer and Homewood is entitled to costs of successfully defending the counterclaim. In assessing whether judgment following trial is more favourable than an offer to settle the court is entitled to reasonable certainty in quantifying the comparable figures. Homewood has given no breakdown of the costs incurred in respect of the counterclaim up to the date it served its offer to settle. The burden of proving that the result achieved at trial is more favourable rests with Homewood and I find that Homewood has not met that burden. I am not persuaded that Homewood achieved a better result at trial than in its offer to settle.

[17] If I am wrong in that regard I would nevertheless exercise my discretion and find that substantial indemnity costs are not appropriate in this case. Discretion ultimately rests with the court as to whether it is appropriate to apply a substantial indemnity scale of costs in a particular case. I find that in the circumstances of this case it would not be appropriate to award costs on a substantial indemnity scale for legal expenses incurred after Homewood served the offer to settle. The appropriate scale of costs is partial indemnity in favour of Homewood throughout the proceeding.

b. Indemnification: Hourly rates and experience

[18] According to the Bill of Costs submitted by Homewood’s lawyers, Homewood’s principal lawyer, Allan Dick, spent 171 hours on this matter, including a lengthy trial. He was called to the bar in 1984. His time is claimed on a partial indemnity scale at $385.00 per hour, and his actual rate is $650 per hour. Andy Seretis, who also worked on the file, spent 241.9 hours on this matter. He was called to the bar in 2009. His time is claimed on a partial indemnity scale at $160.00 per hour and his actual rate is $285.00 per hour. S. Murphy, who also worked on the file, spent 14 hours on this matter. He was called to the bar in 2010. His time is claimed on a partial indemnity scale at $150.00 per hour and his actual rate is $240.00 per hour. J. Pocock, who also worked on the file, spent 17 hours on this matter. She was called to the bar in 2010. Her time is claimed on a partial indemnity scale at $150.00 per hour and his actual rate is $240.00 per hour. Law clerks also worked on the file at the partial indemnity rate of $80.00 per hour, and the actual rate billed is $150.00 per hour.

[19] In 2001 the Province of Ontario promulgated a regulation that included a Costs Grid, setting out appropriate hourly rates for fixing costs[^5]. The upper rate limits in the regulation, which was suspended ion 2005[^6], were generally intended for the most complex and important of cases. The maximum hourly rates suggested in the regulation, on a partial indemnity scale, were $80.00 for law clerks, $225.00 for lawyers of less than 10 years’ experience, $300.00 for lawyers between 10 and 20 years’ experience and $350.00 for lawyers of more than 20 years’ experience. Taking these rates into account as well as the passage of time (12 years) and inflation, and despite 201’s argument to the contrary, I find that the hourly rates claimed by Homewood in its lawyers’ Bill of Costs are reasonable.

[20] My concern with Homewood’s Bill of Costs is the number of hours docketed by the two principal lawyers: 171 hours for Mr. Dick and 241.9 hours for Mr. Seretis. I find that Homewood’s Bill of Costs claims an excessive amount of time on a case that did not warrant this many hours of preparation by the two principal lawyers. At trial, and particularly in argument, I found that Homewood’s lawyers, while thorough, spent more time than reasonably necessary on issues that did not warrant such detailed preparation. One example is the multiple cases and lengthy and detailed argument presented where leading cases would have sufficed. In their efforts to advance their client’s case thoroughly, they devoted more time than the case warranted. I have taken this finding into account in fixing costs.

c. Reasonable expectation of unsuccessful party

[21] Access to justice suggests that a costs award be in the reasonable expectation of the unsuccessful party, making it a relevant factor in fixing costs. The key concept is reasonableness. 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…the expectation of the parties concerning the quantum of a costs award is a relevant factor.

[22] A helpful indicator of a party’s reasonable expectation as to costs is its own estimate of the costs of the action through trial. In this case 201 initiated two motions for security for costs, including in its materials Bills of Costs to support the amount of security sought. 201’s Bills of Costs establish that the costs award in this case is within 201’s reasonable expectation.

d. Amount claimed and recovered

[23] Homewood claimed $260,000.00 and recovered $201,670.45, resisting a counterclaim that began as an $870,592.26 claim, reduced at trial to $282,827.00. Incorporated into Homewood’s award at trial is the deduction of $1,500.00 in respect of 201’s counterclaim. I find that Homewood was overwhelmingly successful at trial.

e. Complexity

[24] Three issues increased complexity in this case. The first issue was identifying the building plans referred to in the contract. The second issue was valuing the construction. The third issue was 201’s inflated counterclaim.

[25] As to the first issue, the trial took twelve days, much of it taken up with witnesses reviewing eight (8) different sets of building plans. As to the second issue, two experts testified about the value of the services and materials supplied but Homewood’s expert was encumbered by the severe handicap of not having been provided with the “as built” plans, which 201 failed to produce until its own expert testified as the second to last witness at trial. 201’s failure to comply with its disclosure obligations increased the complexity of the trial. As to the third issue, 201 pursued issues right up until trial that it did not ultimately proceed with at trial. Homewood had no choice but to prepare to defend these all of these claims.

[26] I have taken these factors into account in fixing costs.

f. Importance of the matter

[27] To the parties the litigation was very important. Homewood is a small family business. An outstanding account of over two hundred thousand dollars is significant.

g. Conduct that lengthened the proceeding

[28] 201’s failure to disclose the “as built” set of drawings lengthened the proceeding. Had the drawings been produced at the discovery stage of the action Homewood’s expert would have had an accurate depiction of the project and much of the evidence regarding the multiple sets of plans would not have been necessary.

h. Steps taken that were unnecessary, improper or taken by mistake

[29] On the issue of improper steps taken, increased costs may be appropriate where there has been fault or some other factor that would justify a high award of costs against the party at fault. 201’s failure to produce the “as built” plans at the production stage is such a step and I have taken it into account in fixing costs.

[30] On the issue of unnecessary steps, 201 pursued issues right up until trial that it did not ultimately proceed with at trial, causing Homewood to prepare fully to respond to these issues. Homewood is entitled to its costs for this preparation. 201 pursued issues that it brought to trial but failed to succeed. On the lost rental income claim, 201’s evidence and efforts to mitigate were so weak that it ought to have been obvious to 201 that it could not succeed. Nevertheless Homewood had to prepare and respond to the allegations.

i. Proportionality

[31] 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.

[32] Read together these provisions express the expectation that lien proceedings will be streamlined and proportionate to the matters in issue.

[33] The Rules apply except where inconsistent with the Construction Lien Act. Rule 1.04, as recently amended, provides:

1.04(1.1) In applying these rules, the court shall make orders and give directions that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding.

[34] In this case the amount in issue at the beginning of this litigation, taking into account the quantum of the claim and counterclaim combined, is in the neighbourhood of a million dollars. I find that Homewood’s costs claim is proportionate to the amount and complexity of the proceeding.

V. Conclusion

[35] I have considered all of these factors and applied them to the Homewood Bill of Costs submitted on a partial indemnity scale. For the reasons given I find that a reasonable quantum of costs in this case is $80,000.00 for fees plus $10,400.00 for HST for a total of $90,400.00 for fees. I find that all of the disbursements claimed are reasonable and allow disbursements at $18,543.67, which includes HST of $2,132.31. In total costs are fixed at $108,943.67 including disbursements and HST, payable by 201 to Homewood.

[36] This judgment for costs bears post judgment interest at the rate of three (3%) per cent per annum from the date of release of these reasons to the date of payment.

[37] The Construction Lien Act requires that the findings of the reference master be set out in a report. The parties shall attend before me on Tuesday, September 10, 2013 at 10:00am to settle the final report. If counsel are unavailable they may reschedule the appointment through my assistant. At least four court days in advance of the appointment Homewood must circulate and file a draft report in the form prescribed by the Construction Lien Act.

Master C. Albert .

Released: August 28, 2013

Footnotes

[^1]: Action dismissed as against Meridian
[^2]: 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
[^3]: Boucher v. Public Accountants Council for the Province of Ontario, 2004 ONCA 14579, cited by D.G. Price J. in Blankers v. Stewart, 2010 ONSC 3978 at paras 39 and 40
[^4]: Interest from May 11, 2009 to August 28, 2013 (1570 days) at 1.3% = $11,277.00 ($7.183 per diem)
[^5]: O. Reg. 284/01, effective January 1, 2002
[^6]: O. Reg. 42/05
[^7]: Boucher v. Public Accountants Council for the Province of Ontario, 2004 ONCA 14579