SUPERIOR COURT OF JUSTICE – ONTARIO

COURT FILE NO.: 4958/10

DATE: December 17, 2014

RE: Petrus Van Berlo, plaintiff

AND:

Aim Underwriting Limited and Allianz Global Risk US Insurance Company, defendants

BEFORE: MITROW J.

COUNSEL: Douglas G. Gunn Q.C. and B. Thomas Granger Q.C. for the plaintiff

Timothy Trembley for the defendants

HEARD: pursuant to written submissions filed

JUDGMENT IN RELATION TO TRIAL COSTS AND PRE-JUDGMENT INTEREST

Introduction

[1] The trial judgment was released on August 19, 2014. Pursuant to the trial judgment the parties were permitted to file written submissions according to the timetable set out in the reasons for judgment, in the event that the parties were unable to agree on costs.

[2] I have reviewed the submissions of the plaintiff, the responding submissions of the defendants, and the reply submissions of the plaintiff.

[3] Although the plaintiff’s reply submissions are dated October 2, 2014 and were filed the following day at the court office, these reply submissions were not received by me until the early part of November 2014.

Costs of the First Trial

[4] There were two trials in this case. The first trial was conducted for two days at the end of February 2012. A decision was released in September 2012 and the plaintiff’s action was dismissed.

[5] The plaintiff appealed and in September 2013, the Court of Appeal allowed the appeal and ordered a new trial. The plaintiff was awarded the costs of the appeal and the costs of the first trial were reserved to the judge hearing the second trial.

[6] This matter came on before me for the first time as a second trial, and was heard March 24, 25, and 26, 2014. On August 19, 2014, the reasons for judgment were released awarding damages to the plaintiff in the amount of $140,000.

[7] Damages had been agreed upon. The central issue in this case is set out in para. 2 in the reasons for judgment as follows:

[2] The central issue in this case is whether the plaintiff’s actions on August 24, 2009 in attempting a take-off in his twin-engine aircraft on only one functioning engine, and then crashing during the take-off attempt, is an accident within the meaning of the policy of insurance issued by the defendants. The plaintiff seeks recovery of damages to the aircraft pursuant to the policy. Damages are agreed at $140,000. The plaintiff was the only occupant of the aircraft and he was not injured.

[8] In relation to the first trial, although the first trial judge had invited cost submissions, the parties were able to settle costs of the trial in the amount of $20,000 inclusive of H.S.T.; the parties further agreed that these costs would be payable to the party who was ultimately successful on the appeal.

[9] Accordingly, the plaintiff is entitled to his costs of the first trial fixed in the amount of $20,000 inclusive of H.S.T.

The Issue of Pre-judgment Interest

[10] The damage to the plaintiff’s aircraft occurred during the failed take-off attempt on August 24, 2009. The statement of claim was issued in January 2010. The parties agree that the prescribed pre-judgment interest rate for the first quarter of 2010 during which the statement of claim was issued was 0.5% per annum. The plaintiff relies on s.130 of the Courts of Justice Act (the “Act”) and submits that because interest rates were in excess of 0.5% during the majority of the time that this case was outstanding, that the court should exercise its discretion and increase the pre-judgment interest rate to 1%. The plaintiff submits that the period over which pre-judgment interest is payable is slightly in excess of five years and the plaintiff submits that he would be content with interest being calculated over a period of five years at $1,400 per year and invites the court to fix the pre-judgment interest at $7,000.

[11] The defendant argues that there are no “special circumstances” and that there is no basis for the court to exercise its discretion to depart from the prescribed pre-judgment interest rate of 0.5% per annum.

[12] Pre-judgment interest is provided for in section 128 of the Act. In relation to pre-judgment interest and also post-judgment interest, the court has discretion, inter alia, to allow interest at a higher or lower rate than provided in the relevant section of the Act. The basis on which the court may exercise its discretion is stated to be “… where it considers it just to do so …” Before exercising its discretion the court is required to take into account a number of factors listed in s.130(2).

[13] For convenience s. 130 is reproduced in its entirety:

130.(1)The court may, where it considers it just to do so, in respect of the whole or any part of the amount on which interest is payable under section 128 or 129,

(a) disallow interest under either section;

(b) allow interest at a rate higher or lower than that provided in either section;

(c) allow interest for a period other than that provided in either section.

(2)For the purpose of subsection (1), the court shall take into account,

(a) changes in market interest rates;

(b) the circumstances of the case;

(c) the fact that an advance payment was made;

(d) the circumstances of medical disclosure by the plaintiff;

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

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

(g) any other relevant consideration.

[14] The pre-judgment interest rates for the second, third and fourth quarter of 2010 were respectively 0.5%, 0.8% and 1%. Thereafter starting with the first quarter in 2011 the prescribed pre-judgment interest rate was 1.3% and this remained unchanged up to and including the second quarter of 2014, being the quarter immediately preceding the release of the judgement.

[15] In considering the factors set out in s. 130(2), it is clear there has been an upward change in market interest rates as reflected by the increase in the prescribed pre-judgment interest rates. It is also clear that for the substantial majority of the time that this action was outstanding, that the pre-judgment interest rate was 1.3%, as compared to the 0.5% prescribed interest rate for the first quarter of 2010. In terms of the circumstances of the case (s.2(b)), and any other relevant consideration (s.2(g)), it is noted that as a result of there being an appeal and two trials, that this case took slightly over five years to finalize after the date of the loss.

[16] In Debora v. Debora, 2006 40663 (ON CA), 2006 CarswellOnt 7633 (C.A.), the Court of Appeal for Ontario affirmed, at para. 90, that trial judges enjoy a wide discretion under section 130 of the Act to allow pre-judgment or post-judgment interest at a rate higher or lower than the rate of interest described by the Act where they consider it just to do so. Further in Debora the court stated, at para. 93, that the “amount of prejudgment interest awarded by the trial judge took into consideration the fluctuations in the applicable rate of interest during this lengthy litigation and is rationally connected to the interest rates that prevailed over the relevant period.”

[17] The defendants rely on Agribrands Purina Canada Inc. v. Kasamekas, 2011 ONCA 460 (C.A.) in advancing their position that the pre-judgment interest rate should remain at the prescribed rate of 0.5%. In that case the Court of Appeal for Ontario found that the trial judge had erred in increasing the prescribed pre-judgment interest rate by taking as the starting point the average pre-judgment interest rate for the year in which the action was commenced, rather than taking as the starting point the pre-judgment interest rate prescribed for the quarter in which the action was commenced. The court found in the circumstances of that case that this constituted an error and further that the trial judge offered “no special circumstances” for exercising his discretion to deviate from the prescribed rate specified in the Act.

[18] The fact situation in Agribrands is distinguishable from the case at bar. In Agribrands the reversible error was using an average of the pre-judgement interest rates during the year in which the action was commenced. The decision in Agribrands should not be interpreted as preventing the court in the case at bar from awarding a higher pre-judgment interest rate than prescribed by the Act, given the changes in market interest rates and the length of time that this litigation has been ongoing. The factors listed in s. 130(2)(c) and (d) are not applicable in the case at bar. In relation to subparagraph (e) damages were agreed to and in relation to subparagraph (f) there is no conduct on behalf of either party that tended to shorten or lengthen unnecessarily the duration of this proceeding.

[19] I find that in considering the factors under s. 130(2) that are relevant and applicable that it is just to award the plaintiff pre-judgment interest at the rate of 1%, and to fix the pre-judgment interest at $7,000, as sought by the plaintiff.

Costs of the Second Trial

[20] The plaintiff relies on Rule 49.10(1) and submits that the judgment in the second trial is as favourable or more favourable as the terms of the offer to settle made by the plaintiff thus entitling the plaintiff to substantial indemnity costs.

[21] The plaintiff’s offer to settle is dated September 13, 2011; however, this offer was only served on the defendants on January 20, 2014. The plaintiff seeks $33,496.50 for costs of the second trial which is the sum of the partial indemnity costs prior to January 20, 2014 and the substantial indemnity costs subsequent to January 20, 2014.

[22] The defendants raise a number of issues regarding the plaintiff’s claim for costs. The defendants submit that damages had been agreed at $140,000 and that the plaintiff’s offer is for $140,000. The defendants rely on Walker Estate v. York Finch General Hospital, 1999 2158 (ON CA), [1999] O.J. No. 644 (C.A.) paras. 74-79 in support of their argument that the objective of Rule 49 is to encourage settlement and that the plaintiff’s Rule 49 offer contained no compromise and did not foster this goal. The defendants submit that the plaintiff should not be given costs on a substantial indemnity basis for any portion of this action.

[23] In relation to partial indemnity costs, the defendants point to the fact that the plaintiff has shown his costs on a partial indemnity basis in the amount of $24,532.60. The defendants argue that this is more than the $20,000 costs agreed to for the first trial.

[24] The defendants submit that this case was not particularly complex, and that the amount in issue was relatively modest at $140,000 and that the damages were agreed upon long before the commencement of the second trial.

[25] Although the defendants acknowledge that their own costs were a little over $27,000 with disbursements in the first trial, the defendants note that their fees for the second trial were significantly less and the defendants attach for comparative purposes their bill of costs (the fees portion only) being a little under $15,000.

[26] The defendants submit no new issues were raised in the second trial and that the legal arguments were a repeat of the first trial. The defendants also point to the fact that the plaintiff had two senior counsel present during the second trial, and although the defendants in their written submissions acknowledge “the acumen of the two senior counsel representing the plaintiff,” they submit that the issues involved with this case did not warrant the involvement of two senior trial counsel. The position of the defendants is that the costs of the second trial should be fixed at $15,000 inclusive of fees, disbursements and H.S.T.

[27] In his reply submissions, the plaintiff argues that the sum of $20,000 was agreed to for the first trial because the trial took less time than the second trial and that the settlement also took into account that the plaintiff would have to pay that amount should he be unsuccessful on the appeal. In essence the plaintiff submits that the agreed upon costs of the first trial would not be an accurate reflection of the costs of the second trial.

[28] The plaintiff does concede that a considerable portion of the work for the first trial would be relevant to the second trial; however, the plaintiff points out that essentially all of the costs claimed for the second trial relate to “attendance at Assignment Court, scheduling the trial, preparation for the trial and attendance at the trial itself”.

[29] As to the presence of two senior counsel during the second trial, the plaintiff submits this was not unreasonable given the fact that “it was one of those senior counsel who conducted the first trial and lost it”.

Is the plaintiff entitled to substantial indemnity costs on the basis of Rule 49.10?

[30] The relevant portion of Rule 49 is Rule 49.10(1) which provides as follows:

49.10 (1) Where an offer to settle,

(a) is made by a plaintiff at least seven days before the commencement of the hearing;

(b) is not withdrawn and does not expire before the commencement of the hearing; and

(c) is not accepted by the defendant,

and the plaintiff obtains a judgment as favourable as or more favourable than the terms of the offer to settle, the plaintiff is entitled to partial indemnity costs to the date the offer to settle was served and substantial indemnity costs from that date, unless the court orders otherwise.

[31] As set out in the rule the plaintiff must obtain a judgment as favourable as or more favourable than the terms of the offer to settle to be entitled to the automatic consequences of Rule 49.10(1).

[32] Pursuant to Rule 49.10(3) the onus is on the plaintiff to prove that the judgment is as favourable or more favourable than the terms of the offer to settle.

[33] The plaintiff’s offer to settle is dated September 13, 2011. The offer to settle provided that the defendants pay to the plaintiff the sum of $140,000. Also included in the offer was that the defendants pay the plaintiff interest in accordance with the Courts of Justice Act; or the defendants had the option of paying the plaintiff interest at the rate of 2.5% per annum from the 24th of August 2009 to the date of acceptance, with the defendants to have the option of which calculation to accept.

[34] The offer by its terms stated that it would remain outstanding for acceptance until ten minutes after the first witness was sworn at the trial of the action, unless earlier withdrawn.

[35] This offer then contained the following two provisions in relation to costs:

(c) Should the Defendants accept this Offer to Settle on or before the 1st day of November, 2011, then the Defendants shall pay to the Plaintiff his costs of this action on a partial indemnity scale up to and including the date of such acceptance;

(d) Should the Defendants accept this Offer to Settle after the 1st day of November, 2011, then the Defendants shall pay to the Plaintiff his costs of this action on a partial indemnity scale up to and including the first day of November 2011, and thereafter on a substantial indemnity scale to the date of such acceptance. (my emphasis)

[36] In Rooney (Litigation Guardian of) v. Graham, 2001 24064 (ON CA), 2001 CarswellOnt 887 (C.A.), the majority judgment of Laskin J.A. examined the issue as to whether an offer which referred to ongoing substantial indemnity costs could attract the benefits of Rule 49.10(1). The court found that it could. (It should be noted that this case referred to “solicitor and client and party and party” costs in accordance with Rule 49.10 as it then read. However, this case remains equally applicable to the current wording of Rule 49.10 which refers to “partial indemnity” and “substantial indemnity”.)

[37] On the facts as discussed below, I find that the plaintiff has not discharged his onus under Rule 49.10(1) to prove that the judgment is as favourable or more favourable than the offer.

[38] It was pointed out in Rooney (see para. 59) that a plaintiff runs a risk of losing the benefit of Rule 49.10 if the plaintiff includes an ongoing provision for substantial indemnity costs in an offer. In my view, this is what has happened in the present case. The judgment was for $140,000. The plaintiff offered exactly $140,000. For the purpose of comparing the judgment with the offer, the judgment must be assumed to provide for partial indemnity costs as stated in Rooney (para. 58). Also, as Rooney points out (para. 58), using substantial indemnity costs from the date of the offer for comparison with the judgment is not appropriate, as that is to assume a result that is only obtained by applying Rule 49.

[39] Accordingly, by including substantial indemnity costs as part of the offer, and by having the damages in the offer equal to the judgment, it becomes clear that because of the offer’s substantial indemnity costs component, that the judgment is not as favourable, or more favourable, than the offer. As stated in Rooney, it is necessary to add the difference between partial indemnity and substantial indemnity costs to the offer in order to compare the offer with the judgment. Had the plaintiff offered to settle for a lower amount than $140,000, then it may have been possible for that lower amount, plus the difference between partial and substantial indemnity costs, to be less than the judgment, thus engaging Rule 49.10.

[40] A further complicating feature of the plaintiff’s offer is that the offer provides that if it is accepted after November 1, 2011 that the defendants have to pay partial indemnity up to November 1, 2011 and thereafter on a substantial indemnity basis. However, as noted earlier, the offer was only served on January 20, 2014. In other words the benefit of substantial indemnity costs contained in the offer is greater than contemplated by the rule as the rule provides for substantial indemnity costs after an offer is served. This unusual provision in the offer only serves to enhance the disparity between the judgment and the offer.

[41] As the plaintiff is not entitled to rely on Rule 49.10(1), I find that the plaintiff’s costs are to be determined on a partial indemnity basis.

[42] For the purpose of the above analysis, it was not necessary to factor in the pre-judgment interest component of the offer. Given the pre-judgment interest provisions in the offer, the best argument for the plaintiff would be that the judgment provided for $7,000 pre-judgment interest, whereas the offer could be interpreted to settle pre-judgment interest for as low as the prescribed rate of 0.5%, which would be approximately equal to $3,500. However, this apparent approximate $3,500 advantage to the plaintiff would be more than offset by the differential between partial and substantial indemnity costs.

[43] Given my conclusion on this point I find it unnecessary to deal with the argument raised by the defendants as to whether there has been a genuine offer to settle as contemplated by Rule 49.

Quantum of Costs

[44] The plaintiff is entitled to his costs on a partial indemnity basis. In considering the factors in Rule 57.01(1), I find as follows: the plaintiff’s damages were not large and were agreed to; the facts were not complex, but there was some complexity to the legal issues flowing from the facts and in particular whether the conduct of the plaintiff amounted to an accident; while this case was important to the plaintiff on a personal level, there may have been some additional importance to the defendant insurers as a precedent that could be applicable to other cases; the rates charged by the plaintiffs’ counsel were reasonable, and no issue is taken by the defendants as to those rates; all parties conducted themselves appropriately in the presentation of this case; sub-paragraphs (b), (f), (g) and (h) are not engaged on the facts.

[45] The main disputes as to the quantum of costs falls within Rule 57.01(1)(0.a); the defendants submit that the time spent was excessive. I agree with the defendants that there was some overlap between the first and second trial which should reduce costs of the second trial. The defendants also argue that there is no justification for the costs of the second trial to exceed the first trial – and that in fact the costs of the second trial should be less.

[46] I find that the costs outline submitted by the plaintiff demonstrates that the timeframe for costs relates primarily to the time spent in relation to the second trial for the period starting with the assignment court, and with the majority of the legal fees being the three days of trial. I am satisfied that the costs outline as to the time spent on the second trial does not duplicate costs incurred in the first trial, and that the costs claimed are reasonable, subject to the discussion below as to whether fees for two senior counsel should be allowed.

[47] As previously noted, the partial indemnity fees claimed for the second trial are $24,532.60. Mr. Gunn and Mr. Granger each docketed 20 hours total for the three days in attending at trial; and they each docketed 6.2 hours to meeting with their client and preparing for trial. They each claimed $350 per hour on a partial indemnity basis. This rate is reasonable and as indicated earlier is not challenged by the defendants.

[48] In fixing costs, the overriding principle is reasonableness. The judge should not engage in a purely mathematical exercise. A judge awarding costs should reflect on what the court views as a reasonable amount that should be paid by the unsuccessful party, rather than any exact measure of the successful litigant’s actual costs: Davies v. Clarington (Municipality), 2009 ONCA 722, 2009 CarswellOnt 6185 (Ont. C.A.) at para. 52, and see also Rule 57.01(1)(0.b).

[49] Although the plaintiff was well served by engaging two senior counsel for the second trial, this does not mean that it is reasonable for the defendants to pay for those additional costs. I find that the issues and the complexity of this case are not such that it would have been a reasonable expectation of the defendants that they may face trial costs involving two counsel.

[50] I find that a substantial portion of one senior counsel’s fee should not be included in the costs that the defendants should be expected to pay.

[51] It is reasonable for the defendants to pay $18,000 for fees for the second trial plus H.S.T. of $2,340. The plaintiff’s costs outline did not claim any disbursements for the second trial.

Order

[52] The defendants shall pay to the plaintiff forthwith:

(a) pre-judgment interest in the amount of $7,000;

(b) costs of the first trial in the amount of $20,000 inclusive of H.S.T.; and

(c) costs of the second trial in the amount of $20,340 inclusive of fees and H.S.T.

“Justice Victor Mitrow”

Justice Victor Mitrow

Date: December 17, 2014