ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-12-449856
DATE: August 25, 2015
BETWEEN:
Beta Construction Inc.
G. Wiseman, for the Plaintiff (defendant by counterclaim) and third party
Fax: 905-475-7590
Plaintiff (defendant by counterclaim)
- and -
He-Xing Chiu and Kin-Hung Chiu
F. Wong, for the Defendants (plaintiffs by counterclaim and third party claim)
Fax: 905-305-1739
Defendants (plaintiffs by counterclaim and third party claim)
- and -
Farid Bakhty Soroosh
Third party defendant
Trial decision released: August 24, 2015
Master C. Albert
COSTS
Background
[1] The parties submitted costs outlines and made oral submissions on costs. Beta Construction Inc. ("Beta C") claims costs fixed on a substantial indemnity scale at $107,229.89 or, alternatively, on a partial indemnity scale at $71,215.16, inclusive of disbursements and HST. The defendants propose that each party bear their own costs.
General Principles
[2] 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: Courts of Justice Act[^1]; Construction Lien Act[^2]. Usually costs go to the successful party.
Relevant Factors
[3] Rules 57.01(1), 49 and 1.04 and section 86 of the Construction Lien Act describe factors for the court to consider when fixing costs. The list is non-exhaustive. The factors relevant to the present case include:
a) Result achieved;
b) Indemnity;
c) Complexity;
d) Reasonable expectation: quantum the unsuccessful party reasonably expect to pay;
e) Proportionality: are the costs claimed proportionate to the claim?
f) Conduct: Did the conduct of any party unnecessarily lengthened the case or increase costs? and
g) Rule 49 settlement offers.
[4] I have considered each of these factors, which in my view are relevant in exercising discretion and determining an appropriate costs order in this case.
Result achieved
[5] Beta C was entirely successful on its claim and in defending the counterclaim for all items listed in the Scott Schedule other than delay. On the issue of delay Beta C was partly successful. Mr. and Mrs. Chiu succeeded in part on their counterclaim for delay but only after advancing a much higher claim through to the end of trial. Mr. Soroosh successfully defended the third party claim but the additional costs of doing so were marginal, pertaining primarily to pleadings, as Mr. Soroosh was represented by the same counsel as Beta C.
[6] Generally the successful party is entitled to costs. In this case Beta C was successful and is entitled to costs. There is no basis to require Beta C to absorb its own costs of litigation when it had no choice but to go to trial to collect monies owing for services and materials supplied.
Indemnity
Hourly rates and experience
[7] Beta C’s lawyer claims costs based on an actual hourly rate of $525.00 and a partial indemnity rate of $341.25. Applying rule 1.03[^3] the substantial indemnity rate applicable if Mr. Wiseman’s actual rate is accepted would be $511.88. While Mr. Wiseman is a lawyer of some 40 years’ experience, the case does not warrant the hourly rates of a lawyer of such experience. More appropriate hourly rates for a case of this type, taking into account the modest amounts of the claim and counterclaim, would be in the range of $350.00 for substantial indemnity costs and $250.00 for partial indemnity costs. A client is free to choose his or her lawyer and pay the rates of the lawyer, but it is not always appropriate to visit those rates on the losing party.
[8] Beta C’s costs claim includes costs of the summary judgment motion heard and dismissed by Justice Perell, who adjourned costs of the motion to the trial judge[^4]. The plaintiff claims costs for 40 hours for the summary judgment motion. Much of that preparation was also used for trial. In total Beta C claims costs for over 160 hours of legal services, which Beta C translates into fees of $91,061.25 plus HST on an actual indemnity scale (which is a higher scale than substantial indemnity) and $59,189.81 plus HST on a partial indemnity scale.
[9] I find the amount of time docketed to this case is excessive and disproportionate to the amounts in issue, even after taking into account the Chiu's conduct of the case.
Complexity
This was a fact-driven case and not overly complex. The only significant legal issue was whether the lien claimant was the contracting party. The Chiu’s were aware of my decision in Juddav Design Inc. v Cosgriffe[^5], a decision they relied on at trial, and ought to have anticipated that even if they were successful on the technical issue, the Chiu’s would have been held liable to pay for the work on a basis similar to that applied in the Juddav decision. It was not reasonable for them to pursue the technicality to the bitter end, claiming that they “did not notice” the multiple pages on the letterhead of Beta C, the emails sent to and from Beta C and the payments to and receipts from Beta C.
Reasonable expectation of the unsuccessful party
[10] A costs award should be within the reasonable expectation of the unsuccessful party. The Chiu's lawyer’s costs outline is informative on that issue.
[11] Mr. Wong filed a costs outline showing substantial indemnity costs of $60,777.50 plus HST and disbursements and partial indemnity costs of $43,886.50 plus HST and disbursements. Mr. Wong, who has 21 years of experience, calculated fees based on a substantial indemnity hourly rate of $300.00 to $375.00 over the course of the file, and based on a partial indemnity hourly rate of $210.00 to $265.00 over the course of the file. Taking into account the quantum and matters in issue I find the rates used to be reasonable. The defendants’ costs outline also includes the time of a junior lawyer at the substantial indemnity rate of $200.00 and the partial indemnity rate of $150.00. I find these rates to be reasonable.
[12] The costs provisions of the Construction Lien Act and the Rules should reasonably have informed the Chiu’s that if they were unsuccessful they should expect to pay costs. The costs incurred by them for their own lawyer should reasonably have informed them of the quantum to expect Beta C to request if successful. Costs in the range of Mr. Wong's costs outline would have been in the reasonable expectation of the Chiu’s.
Proportionality
[13] 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 at sections 67(1) and 86(2). Procedures are to be summary to the extent possible, and, pursuant to section 86(2):
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.
[14] These provisions express the expectation that lien proceedings will be streamlined and proportionate to the matters in issue.
[15] The claim was for $73,442.50, reduced to $69,547.99 at trial. The counterclaim began at $174,764.30, with the claim for delay damages reduced at trial. The counterclaim included many minor items listed in the Scott Schedule and claimed for amounts such as $30.01, $37.29, $84.75, $101.70, $113.00 (2 items), $127.69, $130.00, $141.25, $169.50 (3 items), $200.00, $226.00 (2 items), $266.68, $282.50, $339.00 (3 items), $320.00, $375.00 and $395.00. The Chiu’s were unsuccessful in their claim for all of these items. There must be consequences for taking up valuable court time and requiring the opposite party to gather evidence to respond to such trivial claims at trial. The Chiu’s pursuit of these minor items was disproportionate to the costs incurred to advance them through to trial.
Did unnecessary steps taken by a party increase costs?
[16] In my decision in Thyssenkrupp Elevator (Canada) Ltd. v. 1147335 Ontario Inc.[^6] I cited 1465778 Ontario Inc. v 1122077 Ontario Ltd.[^7] regarding the purpose of a costs award. In that case Feldman, J.A., writing for the Court of Appeal, explained that 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.
[17] In this case the intransigent behavior of the Chiu’s increased costs and caused Beta C to incur significant costs that would have been avoidable had the Chiu's conducted the litigation more reasonably.
[18] On example is the pursuit of the technicality over the name the contractor inserted into the contract. After admitting in pre-trial cross-examinations that the corporate name Mr. Soroosh used did not matter, Mrs. Chiu testified at trial that it did matter. In the face of many pages of contract documents and emails in the name of Beta C, and cheques paid to and receipts issued by Beta C, both Mr. and Mrs. Chiu maintained that they “did not notice” the name Beta Construction Inc. and contracted only with Beta Homes Inc.
[19] Another example is the Chiu’s challenge to deposit slips filed in Beta C’s document book. Mr. Soroosh brought the original documents to court and showed them to the Chiu’s. . After viewing them, rather than admit that the deposit slips were what they purported to be, Mr. and Mrs. Chiu refused to do so and required Mr. Soroosh to take the stand and testify as to their authenticity, showing the bank stamp on the back of the receipts.
[20] A further example of the Chiu’s conduct of the litigation that increased costs is the manner in which they dealt with expert evidence. They called an expert witness but failed to serve the expert report in compliance with rule 53.03, failed to deliver an expert acknowledgement until three years later on the eve of trial, failed to have the expert update the report and failed to provide their expert with a balanced factual foundation upon which to form his opinions.
[21] One more example is the Chiu’s insistence on pursuing to trial many items of a trivial monetary amount, thus causing costs to escalate. The court's costs disposition is one way to discourage such trivial claims. A party seeking to utilize the resources of the courts and compel the other parties to incur excessive legal costs must be prepared to pay if unsuccessful.
[22] These examples illustrate that the Chiu's conducted themselves in a manner that caused Beta C's legal costs to escalate. Such increased costs could have been avoided had the Chiu’s conducted themselves reasonably and in proportion to the modest amounts in issue.
[23] Applying the decision of Justice Feldman in 1465778 Ontario Inc. v 1122077 Ontario Ltd., supra, it would be appropriate for the court to exercise its discretion on costs to discourage litigants from taking or requiring unnecessary steps that unduly prolong litigation.
Settlement offers
[24] The plaintiff served a settlement offer on April 11, 2013 in an effort to settle the defendants’ summary judgment motion seeking a discharge of the lien claim. Beta C offered to allow the defendants to withdraw their motion on a without costs basis by April 16, 2013.The summary judgment motion was argued and dismissed on June 17, 2013, costs to be fixed in the cause following trial. At trial the defendant was unsuccessful on the issue argued on the summary judgment motion, with the result that Beta C prevailed “in the cause” and is entitled to costs of that motion.
[25] Beta C seeks costs of the summary judgment motion on a substantial indemnity scale pursuant to rule 49. Awarding costs on an elevated scale is discretionary. Several factors lead me to conclude that costs on an elevated scale are not appropriate in this case.
[26] Firstly, the materials prepared for the summary judgment motion were used again at trial, thus saving preparation time for trial. Secondly, the motion was dismissed because Justice Perell was of the view that it raised a genuine issue for trial. He found that Beta C and Mr. Soroosh were sloppy in their practices. Had Mr. Soroosh conducted his business properly the need for the motion would not have arisen. Much of the trial time was taken up with the issue of whether Beta C was the contracting party. Ultimately Beta C prevailed on the issue but it is not entirely blameless regarding the need for the issue to be litigated.
[27] Taking these factors into account costs of the summary judgment motion are included in the costs award, but on a partial indemnity scale not a substantial indemnity scale.
CONCLUSION
[28] In all the circumstances it is my view that costs ought to be fixed at $35,000.00 for fees plus HST on fees of $4,550.00 plus disbursements of $4,330.68[^8] for a total of $43,880.68 payable by He-Xing Chiu and Kin-Hung Chiu jointly and severally to Beta C. I regard this amount as fair and reasonable in the circumstances and what Mr. and Mrs. Chiu ought reasonably have expected to pay if unsuccessful.
Master C. Albert .
Released: August 25, 2015
COURT FILE NO.: CV-12-449856
DATE: August 25, 2015
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Beta Construction Inc.
Plaintiff (defendant by counterclaim)
- and -
He-Xing Chiu and Kin-Hung Chiu
Defendant (plaintiff by counterclaim)
- and -
Farid Soroosh
Third party
COSTS OF TRIAL
Master C. Albert
Released: August 25, 2015
[^1]: R.S.O. 1990, c.C.43, s.131
[^2]: R.S.O. 1990, c.C.30, s.86
[^3]: substantial indemnity is 1.5 times the partial indemnity rate
[^4]: On a reference the reference master exercises all of the powers of the judge: Construction Lien Act, section 58(4).
[^5]: [2010] O.J. No. 5117
[^6]: Thyssenkrupp Elevator (Canada) Ltd. v. 1147335 Ontario Inc., 2013 ONSC 2452
[^7]: 1465778 Ontario Inc. v 1122077 Ontario Ltd., 2006 35819 (ON CA)
[^8]: Disbursements are shown as inclusive of applicable HST