CITATION: Interborough Electric Incorporated v. Maple Reinders Constructors Ltd., 2016 ONSC 1115

NEWMARKET COURT FILE NO.: CV-09-092778-00

DATE: 20160212

IN THE MATTER OF THE CONSTRUCTION LIEN ACT, R.S.O. 1990, c.C.30

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: INTERBOROUGH ELECTRIC INCORPORATED, Plaintiff

AND:

724352 ONTARIO LIMITED, UNITED PARCEL SERVICE OF CANADA LTD. and MAPLE REINDERS CONSTRUCTORS LTD., Defendants

BEFORE: THE HON. MADAM JUSTICE M.E. VALLEE

COUNSEL: E. Bisceglia, for the Plaintiff

J. Speigel, for the Defendants

HEARD: By written submissions

COSTS ENDORSEMENT

The Trial

[1] This action was tried for 11 weeks in 2013 and 2014. The plaintiff Interborough claimed $648,840 (with some minor adjustments) and was awarded $308,799 (48 percent) at trial. The defendant Maple counterclaimed for $492,412 and was awarded $86,683 (18 percent). After set off, the amount owing to Interborough is $254,464.

Costs Requested

[2] Interborough requests $1,265,291.79 for costs, comprised of the following:

a) $214,474.74 for partial indemnity up to the date of its offer;

b) $744,672.25 for substantial indemnity after the date of the offer;

c) $124,689.11 for tax

d) $128,816.56 for expert disbursements; and

e) $54,639.12 for non-expert disbursements.

Offers to Settle

[3] Maple made an offer to settle dated November 12, 2012, six months prior to trial. It stated that Interborough shall pay to Maple $5,000 plus interest together with partial indemnity costs. The offer also stated that if it was accepted, Maple’s release would not constitute a release against Interborough for “any inadequacies or deficiencies in the plaintiff’s work at the UPS project of which Maple did not know and does not know at the time of this offer.” Interborough did not accept the offer. In my view, most litigants would not accept the indefinite liability described in the release.

[4] On May 3, 2013, 10 days prior to the commencement of trial, Interborough, made an offer to settle. It stated that Maple shall pay to Interborough $217,000 plus partial indemnity costs up to the date of acceptance together with applicable interest. This offer complied with the requirements of Rule 49(10).

[5] The award at trial to Interborough was higher than the amount of its offer. Accordingly, the impact of Rule 49 is that Interborough is presumptively entitled to partial indemnity costs up to the date of its offer and substantial indemnity costs after the date of its offer.

Assessment of costs generally

[6] There are a number of factors that I must review when considering costs. Section 131 of the Courts of Justice Act states that costs are in the discretion of the court. Rule 57 of the Rules of Civil Procedure sets out various factors to be considered in the exercise of that discretion. The overriding principle is reasonableness. The Ontario Court of Appeal, in Boucher v. Public Accountants, 2004 CanLII 14579 (ON CA), [2004] O.J. No. 2634, made the following statement:

The failure to refer, in assessing costs, to the overriding principle of reasonableness, can produce a result that is contrary to the fundamental objective of access to justice. The costs system is incorporated into the Rules of Civil Procedure, which exist to facilitate access to justice. There are obviously cases where the prospect of an award of costs against the losing party will operate as a reality check for the litigant and assist in discouraging frivolous or unnecessary litigation… In deciding what is fair and reasonable, as suggested above, the expectation of the parties concerning the quantum of a costs award is a relevant factor. See City of Toronto v. First Ontario Realty Corporation (2002), 2002 CanLII 49482 (ON SC), 59 O.R. (3d) 568 at 574 (S.C.).

[7] Proportionality has become an important factor in assessing costs. A costs award should reflect what the court views as a fair and reasonable amount to be paid by the unsuccessful party rather than an exact measure of the actual costs incurred by the successful party (see Zesta Engineering Ltd. v. Cloutier, 2002 CanLII 25577 (ON CA), [2002] O.J. No. 4495 (C.A.).

[8] In Hamfler v. Mink, ONSC 3331, the court stated that principles of reasonableness and proportionality should also apply to an assessment of disbursements. In pars 16 to 18, the court stated:

I do not see the task of the trial judge in reviewing a claim for disbursements as merely rubber stamping a list of disbursements put before the court by counsel at the end of a trial.

In determining the reasonableness of whether an expert’s fee is excessive, various factors should be taken into account before reducing the disbursements claimed. In that regard, the following types of questions may focus the court’s attention:

1. Did the evidence of the expert make a contribution to the case, and was it relevant to the issues?

2. Was the evidence of marginal value or was it crucial to the ultimate outcome at trial?

3. Was the cost of the expert or experts disproportionate to the economic value of the issue at risk?

4. Was the evidence of the expert duplicated by other experts called by the same party? Was the report of the expert overkill or did it provide the court with the necessary tools to properly conduct its assessment of a material issue?

…Fundamentally however, the court must…direct itself to the question of whether the amount claimed is fair and reasonable.

[9] I am mindful of all of the above-noted factors and principles in my assessment of the reasonableness of the plaintiff’s request for costs in this matter.

Did either party lengthen the duration of the proceedings?

[10] Maple points out that from the outset of trial, it agreed that Interborough had been delayed for 104 days through no fault of its own. Interborough’s position was that it had been delayed for 111 days. Both parties agreed that the end date for the delay was December 4, the date of Interborough’s termination. The difference was the start date. Maple stated that it was August 22 whereas Interborough stated it was August 15, being the planned substantial performance date of the subcontract. I accepted Maple’s position. A certain amount of trial time was spent examining witnesses regarding the length of delay. Maple stated several times during the trial that 104 days had been conceded. The difference was only seven days.

[11] Interborough’s expert evidence on the issue of loss of productivity resulting from the delay took approximately five days. Its main expert, Sean Keegan, P.Eng, testified for two days regarding this and the method he used to calculate the related loss. Richard Fogarassi’s testimony focused on a comparison of Mr. Keegan’s findings to the peer review comments of Maple’s expert, Gerald Winters, P.Eng. and the other method that he proposed to calculate the loss. Ultimately, I rejected the methods used by both Mr. Keegan and Mr. Winters.

[12] Interborough could have made a claim for labour overruns based on budget which were easy to calculate rather than making a claim for loss of productivity which was much more complicated. If it had done this, the trial would have been approximately one week shorter and the result on this issue would have been nearly the same. Nevertheless, this was only one of a number of issues that had to be decided.

[13] Maple states that Interborough added last minute witnesses and spent more time examining them than it estimated. Conversely, Maple did not call all of its proposed witnesses, thereby shortening the trial. Interborough brought a motion to have counsel and the Court attend at the site. Maple prepared responding materials. Interborough then withdrew the motion. It brought another motion to (a) have one of Maple’s witnesses search for documents and (b) to have Maple find and produce drawings. It was unsuccessful on (a). The drawings could not be found.

[14] Interborough did waste court time on an unacceptable method to calculate loss of productivity. A large number of photographs were shown that depicted the excessive mud on the site, among other things, that related to delay.

[15] Maple also wasted court time on its claim for deficient conduits. The court saw a large number of photographs of conduits, some of which were taken with a zoom lens because they were located in the ceiling joist webs, at least 30’ from the floor. One of Maple’s witnesses stated that after the various conveyor equipment was installed in the building, one could not see any of the conduits on the walls.

[16] Interborough probably wasted a bit more court time than Maple did; however, the difference was not significant.

Are some of Interborough’s disbursements unsupported?

[17] Maple states that Interborough claims $181,455 for disbursements; however, its client ledger shows that only $76,394 was paid. Counsel for Interborough states that Interborough itself paid for some of the disbursements. Copies of the related receipts have been provided.

Was the case was over-lawyered?

[18] Maple states that Interborough generally had two counsel on every attendance regarding examinations, motions and trial. Counsel, who attended the trial to assist, had 17 years of experience. Interborough claims $445,305 for her work at trial even though she did not examine any witnesses or make submissions. It states that a law clerk could have done the same work. Maple states that Interborough’s costs are excessive, in a large part, because two counsel were always present, all of their time was charged, and other senior lawyers also worked on the file.

[19] A junior lawyer, Ms. Luu, assisted Maple’s senior counsel at trial. Her rate was $250. Counsel for Maple decided not to charge Maple for her time. Maple states it used one senior counsel most of the time. Interborough should not recover costs for 2 lawyers when only one was required.

[20] In an affidavit prepared in March, 2010, counsel for Maple described this action as massive, involving many thousands of documents. I agree with this description. Accordingly, senior counsel were entitled to be assisted by junior counsel, particularly at trial. Any suggestion that either party should have required only one counsel is unrealistic. Maple’s counsel decided not to charge for Ms. Luu’s time. He was entitled to make this decision; however, this does not mean that Interborough’s counsel acted improperly by charging time for Ms. Turajlich, the lawyer who assisted him at trial.

[21] Ideally, assisting counsel should be a junior lawyer with a lower hourly rate. Ms. Luu’s rate of $250 is an appropriate rate for assisting counsel. Ms. Turajlich’s rate was $300 in February, 2012. It was raised to $350 four months later. Ms. Turajlich spent approximately 1,433 hours on the entire action. Not surprisingly, a significant amount of that time was her attendance at trial. According to Maple, the value claimed for Ms. Turajlich’s trial attendance is $445,305, which at a rate of $350 results in 1,272 hours. At a rate of $250, the value of 1,272 hours is $318,000. The difference is $127,305.

Are some of Interborough’s non-expert disbursements unsupported or unrecoverable?

[22] Maple states that according to Moon v. Sher, 2004 CanLII 39005 (ON CA), 2004 CarswellOnt 4702 par 42. Interborough must show that each disbursement was reasonably necessary for the conduct of the proceeding, the amount is reasonable and was charged to the client, and it does not fall within standard office overhead. Interborough has not done this.

[23] While a consideration of costs is not a line by line mathematical exercise, in response to Interborough’s costs submissions, Maple did carry out a line by line analysis of Interborough’s costs and time docketed compared to its own and created several detailed spread sheets. One of them was so large that it had to be printed on paper suitable for construction drawings. There are two disbursements that do stand out.

[24] Interborough claims $52,639 for non-expert disbursements, which includes $32,179, for photocopying. Maple states that it spent $1,510.47 for copies. This case did involve thousands of documents. At trial, Interborough provided many bound volumes which were accepted as exhibits. They were helpful because they showed the history of the interactions between Interborough and Maple for the entire project. Maple also provided bound volumes but not as many. When placed on a shelf, similar to library books, all of the bound volumes occupied more than five feet. In addition, there were a number of single page exhibits, drawings and experts’ reports. Despite this, it is hard to imagine how $32,179 was spent on photocopying. At $0.40 per page, this would amount to 80,477 copies. Maple states that it made double-sided copies to save expense. I note that this would not reduce the copying charge; however, only half the amount of paper would be required.

[25] In many cases, the plaintiff’s disbursements are higher than those of the defendant because the plaintiff bears the onus of proving its case. Nevertheless, Interborough likely did not make 80,477 copies. I conclude that a reasonable amount for Interborough’s copies is $5,000 including tax.

[26] Another disbursement relates to the parties’ attendance at a voluntary mediation. Interborough’s bill of costs shows that it paid $2,403.51 to the mediator. Maple states that the cost of the mediator is not a litigation disbursement. I disagree. Unless there was some element of bad faith, and I am not persuaded that there was, the disbursement is recoverable.

Are all of Interborough’s expert disbursements recoverable?

Sean Keegan, P.Eng.

[27] According to its bill of costs, Interborough spent $128,816.56 on expert disbursements. The largest one, $69,517.97, relates to Mr. Keegan’s work and testimony. His written report filled a large binder. It included a number of attachments. These included project schedules that showed when the various aspects of the work were projected to be done in contrast to when that work was actually done. Mr. Keegan made a number of visits to the site as the project progressed. He took photos and wrote site reports.

[28] A good part of Mr. Keegan’s report and testimony focused on his calculation of damages for loss of productivity caused by delay. I rejected the method that he used. Despite this, other aspects of his report and testimony were useful. Having a record of the project’s progress and the interrelationship of Interborough’s work with that of the other trades was helpful in determining the issues of termination and the percentage of the work that Interborough completed. Mr. Keegan also prepared calculations on damages that Interborough claimed for other items including: labour rate increase, rented equipment, extended overhead and extended holdback financing. They were relevant to my consideration of damages.

[29] After applying the questions set out in Hamfler, I conclude that Mr. Keegan’s evidence and report made a contribution to the case. It was relevant to other issues besides loss of productivity. The report was very detailed. It did provide the court with necessary evidence regarding the progress of the project which was required to determine material issues. The cost of Mr. Keegan’s report and testimony, $69,517.97, was disproportionate to the economic value at risk. It is not a fair and reasonable disbursement because I rejected the method that he used to calculate loss of productivity. This aspect of the report was not helpful. Taking all of this into account, the expert disbursement for Mr. Keegan shall be reduced by one-third, $23,172.65.

Richard Fogarasi, P.Eng.

[30] Interborough claims a disbursement of $21,872.28. This relates to Mr. Fogarasi’s work and testimony. He prepared a report, the purpose of which was to compare the methods used by Mr. Keegan and Mr. Winters (Maple’s expert) to calculate loss of productivity caused by delay. He also commented on other damages that Interborough claimed. I rejected the methods that both Mr. Keegan and Mr. Winters used to calculate loss of productivity. Accordingly, Mr. Fogarasi’s comparison of the two methods was not useful. His evidence on the other damages claimed by Interborough was helpful. These included labour overruns, extended site overhead, head office overhead and extended holdback financing. Nevertheless, the amounts claimed for these items were relatively small in comparison to the overall claim. The disbursement for Mr. Fogarasi’s work and testimony shall be reduced by three quarters, $16,404.21.

Alfred Powell, P.Eng. (U.K.)

[31] Interborough claims a disbursement of $18,883.60. This relates to Mr. Powell’s work and testimony. He concluded that most of the work carried out by DeRock Electrical (the company that replaced most of the conduits) was not identified as a deficiency. He stated that DeRock’s work was excessive. This was important evidence. Nevertheless, most of Mr. Powell’s evidence was focused on the cost to rectify an item, wiring, that I found to be a deficiency. He did not attend at the building. He reviewed only documents to reach his conclusions. He made incorrect assumptions. I rejected his evidence on the cost to rectify. His evidence did not make a significant contribution to the case. The expert disbursement for Mr. Powell shall be reduced by 80 percent, $15,106.88.

Sam Poon, P.Eng.

[32] Interborough claims disbursements of $389.85 and $15,249.35 relating to Mr. Poon’s work and testimony. He gave evidence of the cost to replace the wiring. His estimate was $50,000 - $70,000. His report was unclear. The estimate provided by DeRock, who did the work, was $19,000 to $20,000. Accordingly, Mr. Poon’s estimate did not make sense. The expert disbursement for Mr. Poon, $15,639.20, is not allowed.

Did Interborough behave improperly?

[33] Maple states that, among other things, Interborough filed its offer to settle before all questions of liability other than costs were determined. Interborough should not have put the court in the position of determining costs before the actual judgment.

[34] In stating this, Maple refers to its allegation that Interborough registered an excessive lien. In my view, the question of whether the lien was excessive could not be answered until the amount of the judgment was determined. An excessive lien can cause a defendant to suffer damages. A defendant could have incurred increased carrying charges on a bond posted to vacate a lien. At trial, counsel would not have been in a position to know the additional costs incurred and to make submissions on them without knowing the amount of the judgment. In this case, the costs to carry a bond relating to an excessive lien are properly addressed at the costs stage of the proceedings.

Did Interborough register a lien in an amount that was grossly excessive? If so, is Maple entitled to related damages?

[35] Interborough registered a lien in the amount of $645,341.30. Maple posted a bond to vacate it. At trial, after set off, Interborough was awarded $254,464.70. Maple states that Interborough’s lien was grossly excessive. In addition, the lien amount was comprised of amounts for non-lienable items. For example, the amount of the lien included $105,000 for loss of profit. A lien cannot include a claim for loss of profit. In fact, Interborough was not awarded any amount for loss of profit. At examinations, $78,860.54 was deleted from the claim. Maple states in submissions that in accordance with s. 35 of the Construction Lien Act, it is entitled to related damages.

[36] I note that in paragraph 20 of the statement of defence, counterclaim and crossclaim, Maple stated:

Interborough registered its claim for lien against the Project in an excessive amount. Maple relies on section 86(1) of the Act.

[37] Section 86 refers to legal costs in a lien action. Section 35 refers to damages for an excessive lien. It is not pleaded. In addition to this technical issue, there is a good reason why Maple is not entitled to damages for an excessive lien.

[38] Interborough states that it issued a breach of trust action on October 3, 2008. It registered its lien on December 23, 2008. Both parties recognized that Interborough’s claim for lien included some items that were lienable and some that were not. The parties expressly agreed that Interborough would dismiss its breach of trust action against Maple and that the bond posted to vacate the lien would stand as security for any judgment obtained in the lien action.

[39] The emails among counsel provided by Interborough clearly show that this was the agreement. Interborough sent the following email on April 22, 2009 at 3:10 in the afternoon:

While I understand that you are disputing whether any amounts are owing, what I was referring to by validity of the Plaintiff’s lien is that no issue would be taken by the Defendants with respect to whether the amounts claimed by the Plaintiff are lienable, i.e. all amounts awarded by the Court to the Plaintiff are recoverable from the security posted to vacate its registered lien. [emphasis added]

By proceeding as I have proposed, my client would have adequate protection and there would be no need to the Trust action.

I trust that this clarifies matters.

Maple responded at 4:08:

This is acceptable to Maple. Mr DesBrisay will be getting instructions from UPS…[emphasis added]

[40] When one considers the amount of the contract that Interborough completed in comparison to the amount paid to Interborough, there was a shortfall. The difference was properly lienable. Furthermore, there were some extras. Maple agreed that no issue would be taken with respect to whether the amounts claimed by the Plaintiff were lienable. Accordingly, I conclude that Maple is not entitled to damages related to the amount of Interborough’s lien.

Was success at trial mixed?

[41] Maple states that it admitted it owed Interborough $255,459 comprised of $196,661 on the contract and $58,798 for delay. It also claimed that Interborough owed it $492,412 for pre-termination backcharges, deficiencies and incomplete work. After set off, Maple claimed that Interborough owed it $236,953. Maple states that when the admitted amounts are backed out, Interborough was awarded $85,124 out of the $405,816 that was in dispute (21 percent). Maple was awarded $86,683 of its claim for $492,412 (18 percent). Accordingly, success at trial was mixed.

[42] The difficulty with this type of analysis is that even though Maple may have admitted it owed Interborough $255,459, it still maintained that Interborough owed it considerably more. Given Maple’s only offer in 2012, it was not prepared to pay anything to Interborough to settle the action. The result was a lengthy trial. I disagree that the amount of the award to Interborough indicates mixed success. When the “admitted amounts” are not backed out, Interborough recovered 48 percent of its claim. Maple recovered 18 percent of its counterclaim. Viewed differently, Maple’s trial position was that Interborough owed it $492,412. The result was that Maple owed Interborough $254,464. This is a $746,876 difference.

Did Interborough misrepresent the time claimed?

[43] Maple states that the court’s consideration of costs must begin with the amount that counsel actually billed to Interborough, as opposed to docketed amounts. Despite requests, counsel refused to divulge the amount that was actually billed. It is unlikely that the amount billed to Interborough is $1,336,199.58, shown as the full indemnity amount. Interborough’s client ledger shows 2,688 docketed hours; however, it claims 3,036 hours in its bill of costs. The difference is an additional $133,416.

[44] Interborough states that not all of counsel’s time was docketed. During the 11 week trial, counsel prepared for at least two to three hours per day and did not docket this time. This is a significant problem. A party cannot expect to be awarded costs related to the value of time that is not recorded. Interborough’s bill of costs does not fully assist me in determining the hours spent and whether they were reasonable. The amount that counsel billed Interborough is relevant. Maple states that it was not provided. Although Interborough’s documentation is inadequate in certain areas, one of the best ways for the court to determine whether the time spent was reasonable is to consider the docketed time of the opposing party. This is discussed below.

Is the amount of costs requested by Interborough at odds with the principle of reasonableness? Is it outside of the expectations of the parties? Is it disproportionate?

[45] Maple states that if Interborough had spent the same number of hours as Maple did on the trial, being 1,636 and the same amount on disbursements, $45,418, Interborough’s total costs would have been $613,763.97 prior to a consideration of mixed success. Interborough spent $128,816 on experts whereas Maple spent $49,473.

[46] Interborough states that at a minimum, it should be able to recover the same amount as indicated by Maple’s own dockets, adjusted for partial indemnity and substantial indemnity in accordance with its Rule 49 offer. It states that the value of Maple’s dockets up to and including the date of Interborough’s offer is $372,335. At a partial indemnity rate, this is $260,634. The value of Maple’s dockets after the date of the offer is $522,708. At a substantial indemnity rate, this is $461,302. The total is $721,937. Therefore, Interborough should be able to recover at least $721,937 in fees.

[47] I assume that Interborough’s calculations correctly correspond to Maple’s docketed hours. I also assume that Maple’s docketed hours are accurate. I disagree with the percentages that Interborough used to calculate partial indemnity and substantial indemnity. Based on the above numbers, using 66 percent to calculate partial indemnity, the amount is $245,741. Using 80 percent to calculate substantial indemnity, the amount is $418,166. The total is $663,907.

[48] Interborough states that Maple’s counsel docketed $915,044 in fees from February 15, 2008 to November 16, 2015. I note that counsel was providing advice to Maple from almost the start of the project, before Interborough began any significant work. Taking these hours into consideration would not be appropriate. If counsel has only billed Maple $124,774.01, this shows that there has been a very large reduction in fees based on the outcome at trial.

[49] The time spent by Maple’s counsel prior to Interborough’s issuing a claim is not time spent with respect to litigation. Docketed time is not always billable time. In situations where only one lawyer was really required, the second lawyer’s time should have been discounted or not billed at all. Efficiency has to be taken into account. Sometimes, the hours spent to do work are disproportionate to the value of that work.

[50] As I mentioned above, in assessing costs, the overriding principle is reasonableness. A costs award must be fair and within the expectation of the parties. Proportionality must also be considered. Rule 1.04(1.1) requires the court to make orders that are proportionate to the importance and complexity of the issues and the amount involved in the proceeding. In this matter, the issues were important and reasonably complex. A total of $1,141,252 (the amounts of the claim and counterclaim) was at issue in the proceeding.

[51] Maple ought to have expected that this matter would proceed to a lengthy trial, given its settlement position. The award at trial is close to the amount of Interborough’s offer. Accordingly, it was a reasonable offer. Maple must have known that if Interborough was successful, its costs would far exceed the outcome and that if Maple was unsuccessful, it would be facing a huge amount of costs. Maple took a significant risk in proceeding to trial on a counterclaim based primarily on a weak deficiency claim. It ought to have expected to pay a large amount for costs if it was unsuccessful. The trial was the result of Maple’s refusal to pay anything. In the circumstances, Interborough would have expected to receive an award that reflected the costs of the trial and earlier work.

[52] I must consider the impact of Rule 49. Unless there are significant consequences to a party who refuses to accept an offer and then loses at trial, Rule 49 will be meaningless. This entire trial could have been avoided if Maple had paid Interborough $217,000. The British Columbia Court of Appeal had this to say about the requirement for realistic assessments of cases:

It seems to me that the trend of recent authorities is to the effect that the costs rules should be utilized to have a winnowing function in the litigation process. The costs rules require litigants to make careful assessments of the strength or lack thereof of their cases at commencement and throughout the course of litigation. The rules should discourage the continuance of doubtful cases or defences. This of course imposes burdens on counsel to carefully consider the strengths and weaknesses of particular fact situations. Such considerations should, among other things, encourage reasonable settlements.

[53] If counsel advises a defendant that its case is weak and that it will be exposed to significant costs if it does not settle, a defendant ought to take that advice seriously.

[54] There is no rule as to how proportionality should be calculated. As noted above, this is an unusual matter in which the costs far exceed the result. Perhaps the trial could have been shorter but maybe only by a week or so. I am aware of several decisions in which costs have been awarded in an amount that is less than the result, on the basis of proportionality, even though the costs of the action were much higher. Maple has set out these decisions in its submissions. I will comment on two of them.

[55] In Men at Work General Contractors Ltd. v. MacDonald, ONSC 383 (Div. Ct.), the court stated, “To put it simply, an early offer to settle is not a licence to accrue excessive costs.” Here, Interborough made an offer shortly before trial. It was not an early offer to settle.

[56] In Elbakhiet v. Palmer, 2014 ONCA 544, a recent decision, the court stated that, “It was not fair and reasonable to award the respondents costs of almost $580,000 for a claim the jury valued at just under $145,000.” A significant difference between Elbakhiet and this matter is that in Elbakhiet, the appellant (defendant) made two offers to settle, one in the amount of $120,000 and the other in the amount of $145,000. The second offer was very close to the result. Here, Maple made no offer to pay Interborough anything.

[57] In this case, it seems completely unfair and unreasonable to deny Interborough a large share of its costs on the basis that the amount is not proportionate to the result. Maple’s refusal to pay anything resulted in a lengthy trial. If a results-based view of proportionality were to be applied here, a serious injustice would occur. The principle of indemnity is important in this matter. If Interborough were to be awarded significantly less than the costs to which it is entitled pursuant to Rule 49, then the entire exercise would be for nothing. Interborough had two choices prior to trial. It could have thrown in the towel and walked away from money to which it was entitled. If this had happened, Maple certainly would have requested costs and might have still proceeded with its counterclaim. The other choice was to proceed to trial to present a legitimate claim.

[58] In Accurate v. Tarasco, 2015 ONSC 5980 at par 16, the court addressed this issue. It stated:

An over-emphasis on proportionality may serve to under-compensate a litigant for costs legitimately incurred. Assuming, as is often the case, that a successful Plaintiff’s lawyer is working on an actual fees basis (as opposed to a contingency agreement), this will inevitably result in the Plaintiff having to fund her successful litigation out of the proceeds of judgment that a court found she was entitled to. This is patently unfair to litigants who have been wronged and who choose to invest their hard-earned resources into pursuing a legitimate claim. One does not say to one’s lawyer, “I have only a modest claim. I am instructing you to do a mediocre job in advancing it.” Few litigation lawyers would be attracted to a litigation landscape where they could not recommend giving a matter the time and effort it requires to be properly advanced because the principle of proportionality predestines a costs award that promises to turn a successful result in court into a net financial loss for their client. A pattern of such outcomes would result in an unintended but nonetheless real denial of access to justice; it will send a message to litigants that it is not worth one’s while to pursue legitimate claims in court because one cannot possibly make it cost effective to do so. This is a denial of justice in the most fundamental sense. It tends to encourage those resisting legitimate but modest claims to take unreasonable positions, the logic being that any exposure to costs will be limited because of the size of the claim, regardless of the time and expense necessary to extract a judgment.

[59] The comments above also apply here as well. Although Interborough’s actual claim was not modest, the result could be seen as modest in view of the amount claimed. It was 39 percent. The principle of proportionality would turn a successful result in court into a large net financial loss for Interborough. This type of result would be especially offensive in light of its Rule 49 offer. As the court stated in Boucher, the prospect of a large costs award against Maple should have acted as a reality check.

[60] Interborough made a reasonable offer to settle and then was forced to trial. In order to give effect to the consequences set out in Rule 49 and in order for the costs of this unusual matter to be fair, reasonable and within the expectations of the parties, the amount must greatly exceed the result.

[61] As I noted earlier, Maple stated that Interborough’s total costs should have been $613,763.97 if it had spent the same amount of time and incurred the same disbursements that Maple did.

[62] In exercising my discretion, I assess fees globally at $680,000 including tax. After making the deductions described above, I conclude that Interborough is entitled to expert disbursements of $58,493.62 and non-expert disbursements of $25,460.12, both including tax. The total is $763,953.74, 24 percent more than Maple’s number. This is a fair and reasonable amount for Maple to pay. It should have been within Maple’s expectations.

[63] Maple shall therefore pay to Interborough the costs of the action in the amount of $758,421.20 within 30 days.

VALLEE J.

Date: February 12, 2016