Court File and Parties

COURT FILE NO.: CV-09-13941CM

DATE: 20131107

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Matthew Brady Self Storage Corporation, Plaintiff

AND:

Instorage Limited Partnership and Instorage Trustee Corp., Defendants

BEFORE: Gates J.

COUNSEL:
C. Clifford Lax and Shaun Laubman, for the Plaintiff

Robert D. Malen and Robert J. Drake, for the Defendants

HEARD: Written submissions

ENDORSEMENT on costs

[1] On August 30, 2013 after a 17 day trial I awarded judgment to the plaintiff for specific performance for the sale of the building in question to the defendants for the sum of $7,300,000 together with damages agreed to in the sum $728,080.05, for a total $8,028,080.05, plus prejudgment interest and costs.

[2] The original costs submission from the plaintiff claimed the sum of $251,718.15 on the partial indemnity scale and $355,869.07 on the substantial indemnity scale. This was subject to its supplementary submissions and the effect of its initial Rule 49 Offer which it served on the defendants on October 27, 2011, offering to settle the proceeding for the sum $7,700,000, together with prejudgment interest and costs. It was to remain open until one minute after the commencement of the trial at which time it would be deemed to have been withdrawn.

[3] As noted from the judgment, the plaintiff was successful in exceeding its Offer to Settle.

[4] The plaintiff relies on rule 49.13 which states that in exercising its discretion with respect to the costs, the court may take into account any Offer to Settle made in writing, the date it was made, and its terms.

[5] On this basis, the defendants state that appropriate substantial indemnity costs would approximate $333,779.80, whereas the plaintiff says it should be $488,319.08.

[6] Any discussion on costs engages s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43 (“CJA”), which provides that the costs are in the discretion of the court which may determine by whom and to what extent they shall be paid. As well, Rule 57 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, lists a number of factors to be considered in addition to the result achieved. However, by rule 57.01(4) none of these factors affect the authority of the court under s. 131 in exercising its discretion in the award of the ultimate costs.

[7] It is perhaps trite to say that the purpose of costs is to indemnify successful litigants for the cost of their litigation, to encourage settlements, and to discourage and sanction any inappropriate behaviour.

[8] In general terms there are three levels of costs indemnification, ranging from partial indemnity to substantial indemnity and lastly, full indemnity which represents a complete indemnification at actual rates and which is only rarely applied and in circumstances far more exceptional than those at hand.

[9] In assessing the appropriate amount of costs to be awarded, I have regard to the following factors in rule 57.01:

• the complexity of the proceeding;

• the importance of the issues; and

• the conduct of either party that tended to shorten or lengthen the duration of the proceeding.

[10] While I would have, but for the consequences of the Rule 49 Offer to Settle awarded costs to the plaintiff on the partial indemnity scale, because of its Offer to Settle, it will be entitled to a combination of both partial and substantial indemnity costs.

[11] As noted, the trial lasted for approximately three weeks and could be described as being of moderate complexity.

[12] The plaintiff says that its preparation for the trial was somewhat lengthened by reason of the fact that the defendants engaged the services of Ray Bower, an appraiser, ostensibly to neutralize the appraisal by James Telford of Valco Appraisals Limited. It says this contradicts the very terms of the Option Agreement which clearly provided for only the contractually mandated appraisal by Valco such that the one prepared by Bower, was superfluous and unnecessary.

[13] It bases its argument on the fact that the appointment of Valco was exclusive to the Option. If decided (as I concluded) that there was no manifest error, this would negate any need to hear from Mr. Bower. Conversely, if I had concluded that there had been a manifest error, the terms of the Option would have to be resorted to to recast the appraisal by Valco and give the parties further negotiations to attempt to settle a price. Either way, the plaintiff says that the Bower appraisal was unnecessary and as a consequence the costs awarded to it should reflect the additional and unnecessary trial preparation required in order to meet the defence position that the Bower Report ought to be considered. It was only rendered moot when I found there was no manifest error, at the close of the plaintiff’s case.

[14] Secondly, the plaintiff says that the introduction by the defendants of evidence at the trial concerning alleged deficiencies in the HVAC system was likewise an unnecessary exercise to the point of being inappropriate, given the fact that they did not plead the HVAC deficiency and secondly they ultimately abandoned this line of attack. Similarly, the plaintiff says its costs of trial preparation were increased as a result.

[15] Lastly, the plaintiff says that within a few days of February 13, 2012, the initial commencement of the trial, Mr. Bower sustained a heart attack which meant that he would be unable for an indefinite period of time to appear at trial. As a consequence the defendants sought an adjournment which was opposed by the plaintiff which took the position that the trial could proceed and at the point in the future when Mr. Bower was able, his evidence could be inserted into the trial. This proposal was refused by the defendants. As a result the adjournment was obtained and the trial commenced June 18. The plaintiff says therefore that it was put to a second period of trial preparation.

[16] As a result of its Offer to Settle, the plaintiff, seeks a combination of partial and substantial indemnity costs, the latter from January 5, 2012.

[17] By way of explanation, while the defendants denied ever having received the original Offer to Settle of October 27, 2011, they did acknowledge a subsequent Offer dated July 5, 2012 sent by email from Mike Siskind to Mike Burnam, in the total sum $7.85 million. From that date it says it is entitled to substantial costs as part of the overall sum of $488,319.08. In my view that email constituted a valid Offer to Settle (see: Clark v. Agri Service Inc. v. 705680 Ontario Ltd. (1996), 2 C.P.C. (4th) 78 where Quinn J. states that it must be in writing; it must be effectively delivered to the opposite party; and thirdly, it must be a proposal that can be construed as an offer to settle, open for acceptance and binding, if accepted).

[18] These three conditions were met here.

[19] In McDougall v. McDougall (1992), 1992 7568 (ON SC), 7 O.R. (3d) 732, Blair J. took a broad approach to Rule 49 when he concluded that the parties should know that if an offer to complies in substance with the requirements of rule 49.02, which permits a party to serve on any other party an offer to settle, it will be treated as a Rule 49 offer, unless it is expressly stated not to be such.

[20] While a review of the legislation and the case law would indicate there is no obligation that the offer be served or delivered to counsel, the defendants say that Serra v. Paniccia (1999), 45 C.P.C. (4th) 219, states the contrary. However in my review of the case, I note because the offer was not in writing, it could not be served.

[21] The decision refers to John Logan Chevrolet Oldsmobile Inc. v. Baldwin (1994), 28 C.P.C. (3d) 393 (Ont. Gen. Div.), but it is clear in that case that the court did not intend the phrase “had not been served on the plaintiff’s solicitor” to mean as the defendants asserted here.

[22] It, too, involved an oral offer which could not therefore be served as the term is used in the Rules. Furthermore, I do not read the case to mean, that serving a solicitor per se is mandatory.

[23] In the wording of the email exchanges that passed between the parties themselves the defendants stated that they appreciated the plaintiff’s response was an attempt to save both parties some money and that they would attempt to work toward a settlement. The plaintiff responded with a counterproposal.

[24] When viewed together, it is clear in my view, that the parties had turned their minds to a settlement, within this exchange.

[25] The plaintiff says that the inclusion of the phrase “without prejudice” does not affect the Offer to Settle while the defendants say to the contrary, that the inclusion of the phrase takes the offer out of the scope of Rule 49 (see: Roma Construction (Niagara) Ltd. v. Dykstra Bros Roofing (1992) Ltd. (2008), 73 C.L.R. (3d)). The Roma case can be distinguished by the fact that the party had delivered the offer to settle but admitted that it was never intended to be a formal offer.

[26] The plaintiff cites a number of cases in which offers to settle which were marked “without prejudice” had been admitted by Ontario courts. In particular, Champlain Thickson Inc. v. 365 Bay New Holdings Inc., 2007 CarswellOnt 7006, Brown J. considered an offer to settle which had been transmitted by email without prejudice and held that it was captured by Rule 49 as it complied with the requirements for an offer outlined in the rule and in the circumstances, was intended to resolve all aspects of the litigation. He concluded that reference to being without prejudice did not apply to Rule 49 costs consequences, rather it applied to the ultimate issue of liability.

[27] In any event, rule 49.05 provides that an offer to settle shall be deemed to be an offer of compromise made without prejudice. This point was considered by Master Polika in Ludington v. Parisi, 2011 ONSC 5709, 14 C.L.R. (4th) 131 where he held that marking an offer as being without prejudice raises an ambiguity, given the input of rule 49.05. He concluded that given the provision of rule 49.05 there is no need to mark an offer to settle pursuant to Rule 49 as being without prejudice because marking it in that manner raises an ambiguity as to whether the party making the offer intends to be bound by it.

[28] A review of the cases indicates that there are inconsistent decisions on the point. However in my view while the affidavit of Mike Burnam makes it clear that he did not know about the Rule 49 costs consequences, offers that fulfill the requirements of Rule 49 are presumed to attract those cost consequences with the result that since he did not know about them it cannot be said that the without prejudice designation was intended to apply to the Offer. More likely it was intended to apply to the ultimate issue of liability itself as was concluded in Champlain.

[29] In my view therefore the January 5, 2012 Offer does fall within the ambit of Rule 49; it meets the requirements and it fulfills the purpose of the Rule and for that reason the defendants should be liable for substantial indemnity costs.

[30] In passing, it really matters not that Mr. Burnam understood the Rule 49 costs consequences because he and the defendants were represented by counsel with whom he could have discussed the Offer at any time, had he wanted to. In fact, it would appear that he did, given that the defendants subsequently delivered an offer to settle approximately one month later, while the plaintiff’s offer of January 2012 remained open.

[31] The plaintiff says that pursuant to s. 128(1) of the CJA it is also entitled to prejudgment interest at the rate of 1.1%, which is the average rate for the period October 19, 2009 to August 30, 2013, the date of its judgment.

[32] Lastly, it refers to the recent case of Stetson Oil & Gas Limited v. Stifel Nicolaus Canada Inc., a decision of Newbould J. at 2013 ONSC 5213, who concluded, when awarding $1,591,813 to a successful plaintiff following an 11 day trial, that the costs grid is outdated and unrealistic for an action fought by two major downtown Toronto law firms.

[33] As in Stetson Oil, the offer here was made by one sophisticated and experienced commercial party to another who had ample time to consider and deal with it and chose not to accept it. I think it fair to say that the Offer here, given all of the complexities of this case, represented a serious and reasonable attempt to settle the matter.

[34] In reviewing the plaintiff’s Bill of Costs on the partial and substantial indemnity scales, I note the relative experience of its counsel:

• C. Lax (1970 – 42 yrs experience) $800-$825-$870

• S. Laubman (2005 – 7 yrs experience) $425-$525

• A. Salyzyn (2006 – 4 yrs experience) $385

• V. Greer (2010 – 1 yr experience) $290

• law clerk $295-$310

[35] The proposed partial indemnity costs is reasonable, with the exception of the 29.3 hours expended by A. Salyzyn assisting C. Lax in the preparation of the Statement of Claim, and reviewing the defence and counterclaim which I conclude is somewhat excessive. I have reduced it by $3,000 representing 15 hours at $200 per hour.

[36] Conversely the defendants say that their costs liability should be limited to the partial indemnity sum of $251,718.15 because they deny that there was a valid Offer to Settle served since it contained the words “without prejudice”. However as I concluded earlier, this was a valid Offer. They also say that the sum of $300,865.11 would reasonably satisfy a substantial indemnity cost award whereas the plaintiff says costs on this scale of $488,319.08 is justified.

[37] It is clear from the legislation and the cases that the appropriate multiplier is 1.5 times the partial indemnity costs, for substantial indemnity costs.

[38] The major area of dispute between the parties is the increase in the hourly rates claimed by plaintiff’s counsel from its January 7, 2013 Costs Submissions to the September 6, 2013 Supplementary Costs and Interest Submissions.

[39] Between those two dates the decision of Newbould J. in Stetson Oil was released in which he applied the actual rates, rather than the costs grid rates, concluding that the latter were severely outdated and that the actual rates were more appropriate, in cases involving large downtown Toronto law firms.

[40] The plaintiff adopts the approach taken by Newbould J. as confirmed in Eli Lilly & Co. v. Apotex Inc., 2011 CarswellNat 4151, at para. 36 where it was suggested that awarding costs of a lump sum based on a percentage of the actual costs to the party, when dealing with sophisticated commercial litigants that clearly have the means to pay for the legal choices they make, is appropriate. It says this principle is applicable here because the defendants are a large sophisticated commercial entity and both parties were represented by Bay Street counsel.

[41] I have difficulty with this proposition for several reasons. A review of the Rules and the case law would not suggest that the mere existence of sophisticated commercial litigants represented by Bay Street counsel, should, by and of itself, be justification to charge the actual costs incurred by counsel. Conversely, if the parties were of very modest or indigent means and were represented by counsel, there would similarly be no justification for significantly decreasing the costs awarded to the successful party based on poverty, any more than increasing a costs award based on a party’s relatively wealthy position would be.

[42] How far behind would litigants in Ottawa, London and the other major cities around the province be in making similar claims? To pursue this line of reasoning could lead to a Balkanization of the entire costs structure.

[43] While the cost of doing business in Toronto is higher than most of the rest of Ontario, in my view, the court should not be put in the position of effectively creating a new cost grid. This should be left to the legislature or the Rules Committee.

[44] Ultimately, any assertion for costs, must be balanced against the benchmark established by the Ontario Court of Appeal in Boucher v. Public Accountants Counsel for the Province of Ontario (2004), 2004 14579 (ON CA), 71 O.R. (3d) 291 (Ont. C.A.), where the court clearly stated that the fixing of costs does not begin and end with a calculation of hours times rates, nor was the introduction of the costs grid intended to produce that result.

[45] This is only one factor of many to be considered in the assessment process, together with those factors referred to in rule 57.01.

[46] However the ultimate objective is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding, rather than an amount fixed by the actual costs incurred by the successful litigant.

[47] Therefore the overarching principle of reasonableness must remain the primary consideration in the ultimate assessment of the costs, notwithstanding Eli Lilly or Stetson.

[48] Apart from the principle of reasonableness referred to by the Court of Appeal in Boucher and the various factors for consideration in rule 57.01, s. 131 of the CJA affords me the ultimate discretion in awarding costs.

[49] As Aitken J. recently stated in the Divisional Court decision of Geographic Resources Integrated Data Solutions Ltd. v. Peterson, 2013 ONSC 1041, the issue of costs are to be determined in accordance with the guidelines in s. 131 of the CJA and Rule 57 and not in accordance with any mathematical formula tied to the actual costs.

[50] Therefore, in reviewing this matter, I have concluded that the sum of $488,319.08 claimed by the plaintiff is excessive.

[51] Rather, as a starting point I conclude that $333,779.08 would be appropriate but there are a couple of factors which cause me to exercise my discretion in favour of the plaintiff and increase that base sum and they are:

i. To some extent, the defendants lengthened the proceedings by seeking an adjournment as discussed in paragraphs 12, 13 and 15.

ii. While the defendants attempted at trial to allege deficiencies in the HVAC system, they ultimately abandoned this which no doubt served to increase the preparation for trial from the plaintiff’s perspective.

[52] For those reasons and in exercise of my ultimate discretion I therefore fix the plaintiff’s costs at the sum of $415,000 plus HST.

Original signed “Justice Gates”

Richard C. Gates

Justice

Date: November 7, 2013