SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-07-343729
DATE: 20151021

RE: HYDRASTONE INC., Plaintiff

AND:

CLEARWAY CONSTRUCTION INC., CITY OF TORONTO and THE QUEEN IN THE RIGHT OF THE PROVINCE OF ONTARIO AS REPRESENTED BY THE MINISTRY OF PUBLIC INFRASTRUCTURE RENEWAL, Defendants

BEFORE: Mr. Justice Graeme Mew

COUNSEL:
Leo Klug, for the Plaintiff

Marco Drudi, for the Defendant Clearway Construction Inc.

HEARD: 16 September 2015 at Toronto

ENDORSEMENT

[1] Clearway Construction Inc. (“Clearway”) opposes confirmation of the costs decision of Master Albert in this construction lien matter.

[2] On 30 March 2015, eight days before the commencement of trial, Clearway delivered an Offer to Settle containing the following terms:

(a) Payment in the amount of $75,000 inclusive of partial indemnity costs;

(b) Pre-judgment interest in accordance with the terms of the sub-contract between Clearway and Hydrastone Inc. (“Hydrastone”).

(c) An order discharging the Claim for Lien of Hydrastone Inc.

[3] Clearway’s offer was not accepted and the matter proceeded to trial, following which the Master signed and delivered her Report ordering that:

(a) The principal amount of $39,179.91 should be paid by Clearway to Hydrastone;

(b) The costs of the action should be fixed for a total of $32,905.03 in favour of Hydrastone; and

(c) Hydrastone should be paid $4,680.71 for pre-judgment interest at the contractual rate of 1.4% per annum.

[4] The main issue on this motion is whether the award of costs made by the Master in favour of the plaintiff discloses an error in principle, or absence or excess of jurisdiction, or patent misapprehension of the evidence (being the applicable standard of review: Jordan v. McKenzie (1987), 26 C.P.C. (2d) 197 (Ont. H.C.J.) at para. 10; aff’d. (1989), 33 C.P.C. (2d) 217 (Ont. C.A.)).

[5] The total amount awarded by the Master for costs and principal was $72,084.94, i.e. approximately $3,000 less than the offer of settlement made by Clearway.

[6] Rule 49.10(2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 provides as follows:

Where an offer to settle,

(a) is made by a defendant 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(b) is not withdrawn and does not expire before the commencement of the hearing; and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 plaintiff,

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

[7] Rule 49.13 provides that despite, inter alia, rule 49.10, the court in exercising its discretion with respect to costs, may take into account any offer to settle made in writing, the date the offer was made and the terms of the offer.

[8] In rendering her decision on costs, the Master declined to apply the costs consequences of rule 49.10 in favour of Clearway. She stated (at para. 12):

This is a case where including the variable of costs of an unknown amount in the fixed settlement sum renders the settlement amount vague and incapable of a meaningful comparison when the result achieved is so close to the settlement sum, give or take a few dollars based on what the court determines regarding costs. I find that in the circumstances of this case it is most appropriate to exercise discretion and not apply the costs consequences of rule 49.10 in favour of either party.

[9] The proviso “unless the court orders otherwise” in rule 49.10(2) has been narrowly construed, such that the defendant will almost always be entitled to the benefit of rule 49.10 where the defendant’s offer complies with rule 49.10. The rationale for this approach was described by Rosenberg J.A. in Elbakhiet v. Palmer 2014 ONCA 544, at 30 in these terms:

A narrow construction of the exception underlies the high interest in encouraging settlement of cases…

[10] To similar effect is the statement of Morden J.A. in Niagara Structural Steel (St. Catharines) Ltd. v. W.D. Laflamme Ltd. (1987), 2002 53259 (ON SCDC), 59 O.R. (3d) 773 (C.A.), at p. 777:

“[R]esort should only be had to the exception where, after giving proper weight to the policy of the general rule, and the importance of reasonable predictability and the even application of the rule, the interests of justice require a departure.”

[11] In the Elbakhiet case, the jury in a personal injury action awarded the plaintiffs damages of $144,013.07. Prior to the trial, the defendants had offered to settle for $145,000 plus pre-judgment interest in accordance with the Courts of Justice Act, R.S.O. 1990, c.C.43 and costs as agreed or assessed to the date of the offer. The question arose whether this offer exceeded the judgment. In that respect, two issues had to be considered. First, whether the offer was sufficiently certain or clear. Second, whether the defendants had established that the offer did, in fact, exceed the judgment.

[12] On the first issue, despite the fact that the provision for pre-judgment interest in the offer did not provide for a specified amount or a specified rate (the rate varied depending upon the element of the claim), the Court of Appeal observed (at para. 26):

The respondents could know with sufficient precision whether to accept the offer. The uncertainty about the amount that would accrue for pre-judgment interest in the circumstances of this case was narrow and did not prevent the respondents from fairly determining whether to accept the offer or proceed with the trial.

[13] However, on the second issue, the Court of Appeal concluded that the defendants had not met the burden of proof imposed by rule 49.10(3), which places on the party who claims the benefit of sub-rules (1) or (2) the onus of establishing that the judgment is as favourable as the terms of the offer to settle, or less favourable, as the case may be.

[14] Despite its conclusion with respect to the application of rule 49.10, the Court of Appeal found that the trial judge had erred in awarding the plaintiffs partial indemnity costs of the action. Noting that the offer to settle made by the defendant was virtually the same as the jury’s award, the Court of Appeal said that the case was one where the trial judge had to consider the impact of rule 49.13 (para. 32). Rosenberg J.A. stated, at para. 33:

As this court pointed out in Lawson v. Viersen, 2012 ONCA 25, at para. 46, Rule 49.13 is not concerned with technical compliance with the requirements of Rule 49.10. Rather, it “calls on the judge to take a more holistic approach.” The appellants complied with the spirit of Rule 49 even if they failed for technical reasons to provide an offer that exceeded the Judgment. As held in Lawson, at para. 49, this was the type of offer that ought to have been given “considerable weight in arriving at a costs award.”

[15] In the decision under review, Master Albert correctly observed that because Clearway’s offer included an item, namely costs, that was unquantifiable at the time of the offer, a determination of whether Hydrastone achieved a better result at trial could only be made after the court had fixed costs.

[16] Hydrastone claimed costs of the action, including the trial, of $43,652.23, inclusive of HST and disbursements. After taking into account the factors relevant to fixing costs in rules 57.01(1), 49 and 101, as well as s. 86 of the Construction Lien Act, R.S.O. 1990, c.C.30, the Master assessed Hydrastone’s costs at $32,905.03 (inclusive of HST and disbursements).

[17] The defendant argues that Master Albert erred in principle in failing to properly apply rule 49.10(2). The principal amount of the award was $39,179.91. The costs of the action assessed by Master Albert were fixed at $32,905.03. The total award for costs and principal of $72,084.94 was clearly less than Clearway’s offer to settle for $75,000. Although there was some confusion about whether the interest recoverable by Hydrastone was at a contractual rate or the rate provided by the Courts of Justice Act, that issue should have had no bearing on the application of rule 49.10 because the amount of interest provided for by the offer was in addition to the sum of $75,000 for principal and costs.

[18] Hydrastone submits that the appropriate way for Clearway to have delivered an offer to settle would have been to separate out the principal amount being offered, together with pre-judgment interest, either pursuant to a contractual term or pursuant to the Courts of Justice Act, and then in a separate item, offer to settle the question of costs, either to be agreed upon or assessed by the court, up to the date of the offer to settle on a partial indemnity basis. In that fashion, Hydrastone argues, the comparison of the judgment (exclusive of costs) obtained at the trial could be compared with the offer to settle, with interest being calculated to the date of the offer to settle. Where an offer to settle blends the question of costs with the principal amount, then that amount is unquantifiable and makes it difficult if not impossible to compare the principal amount of the offer to settle with the amount recovered at trial.

[19] I do not agree that Clearway’s offer was vague. An offer which is inclusive of costs can readily be valued once the costs have been assessed or fixed by the court. Once the Master had assessed the plaintiff’s costs, applying the usual principles, it was readily apparent that the total costs fixed by her added to the principal amount resulted in an amount that was approximately $3,000 less than the defendants’ offer to settle.

[20] While it may well be in a perfect world every offer to settle would be broken down in the ways suggested by the plaintiff, following the approach taken by the Court of Appeal in Elbakhiet, any uncertainty about the amount that would accrue for costs was narrow and did not prevent the plaintiff from fairly determining whether to accept the offer to settle or proceed to trial. Indeed, as the Master noted in her reasons, the costs submissions made by both parties demonstrated a significant alignment in terms of the amount of costs which they each expected to either receive or pay.

[21] It was an error for the Master to conclude that the inclusion of the variable of costs of an unknown amount in the fixed settlement sum rendered the settlement amount vague and incapable of a meaningful comparison.

[22] Given the admonition in Elbakhiet v. Palmer and Niagara Structural Steel (St. Catharines) Ltd. v. W.D. Laflamme Ltd. that the exception in rule 49.10(2) should be applied sparingly, the Master was also in error in the exercise of her discretion to not apply the costs consequences of rule 49.10 in favour of Clearway.

[23] Furthermore, even if it could be said that Clearway had failed to demonstrate that its offer was more favourable than Hydrastone’s recovery, the Master’s reasons disclosed no consideration of whether the discretion provided for by rule 49.13 should have been engaged. Even if Clearway had not beaten its offer, taking a holistic approach, the Master should have given considerable weight to Clearway’s offer in arriving at a costs award.

[24] It follows that rule 49.10 should be applied in Clearway’s favour. And even if I am in error in taking that view, consideration of the application of rule 49.13, particularly in light of the guidance provided by the Court of Appeal in Elbakhiet, would result in an outcome favourable to Clearway.

[25] In addition to the submission that the Master erred in principle in her application of rule 49, Clearway also submitted that the Master failed to give adequate consideration to the submission that the lien claimant should face sanctions under s. 35 of the Construction Lien Act and, further, that the costs fixed by the Master were not proportional to the amount recovered.

[26] At paras. 25 and 26 of her costs decision, the Master considered the application of s. 35 damages and concluded that the plaintiff did not knowingly claim a grossly excessive lien. Her reasons disclose no error of principle which would justify me interfering with her conclusion in that regard.

[27] Similarly, with respect to the Master’s assessment of costs, she scrutinised the hourly rates of the fee-earners concerned, the number of hours spent and the application of the proportionality principle having regard to the result achieved. The Master made a number of adjustments in reducing the partial indemnity costs claimed by the plaintiff down to the amount awarded. Setting to one side the Master’s failure to properly apply rule 49.10, I find no other error in principle in her approach to the quantification of costs and her determination as to what the plaintiff’s partial indemnity costs of the action would have amounted to.

[28] Hydrastone should have its costs of the action on a partial indemnity basis up to 30 March 2015 and Clearway should have its costs of the action on a partial indemnity scale from 31 March 2015 going forward. If the parties are unable to agree on what these amounts should be, they should contact my judicial assistant so that arrangements can be made for me to receive further submissions on the issue.

[29] The parties agreed that whoever prevailed on the motion should obtain costs of the motion fixed at $3,500 inclusive of HST and disbursements. Those costs are, accordingly, awarded to Clearway.

Graeme Mew J.

Date: 21 October 2015