Recchia Developments Inc. v 1059233 Ontario Ltd, 2016 ONSC 3766

Court File and Parties

COURT FILE NO.: 14/47854 DATE: 2016-06-08 ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:

Recchia Developments Inc. David J. H. Jackson, for the Applicant Applicant

- and -

1059233 Ontario Ltd James Zibarras, for the Respondent Respondent

Costs Judgment

WHITTEN, J.

1Originally, the litigation between these parties was commenced with the launching of Power of Sale proceedings by the defendant. Those proceedings would have presented as pro forma proceedings to realize a mortgage taken back in the amount of $700,000.00. However, unlike a conventional mortgage, the face value of the mortgage was contingent upon the success of an application to provide for the development of the property in question, for multiple townhouses. The application had been originally commenced by the defendant, with the sale and the VTB, the plaintiff literally stepped into the shoes of the former owner, the defendant.

2The terms of the VTB would suggest that the parties contemplated that three years would be sufficient to determine the application. It would have been rapidly obvious to all that an application for an 18 unit townhouse project was a “long shot”. Local opposition had started to emerge even before the completion of the sale January 27, 2012. The parties were to some extent at the mercy of the third parties; namely, the City of Hamilton and the Ontario Municipal Board and the terms of the mortgage as optimistic as they were, would be tested by the action of those outside parties.

3The defendant, no doubt aware of the difficulties in the application process as the plaintiff inherited and used the same planning consultant, Ed Fothergill, became more impatient and commenced the Power of Sale proceedings. No doubt because the face value of the mortgage was contingent upon (some might say “kidnapped” by) the application process, Justice Carpenter-Gunn effectively stayed the Power of Sale proceeding June 26, 2014. What became the proceeding between the parties was the determination of the face value of the VTB. Affidavits were exchanged; examinations on the affidavits were all conducted with that end.

4In the judgment of this court released April 13, 2015, this jurist in paragraph 56 opined that it was difficult to calculate the face value of the VTB as there was an outstanding application before the Ontario Municipal Board as to whether or not twelve units would be permissible. The court invited counsel to address this lacuna.

5By correspondence dated December 1, 2015, the court was advised on consent that the application in question was unsuccessful. Therefore as a consequence of that unsuccessful application, the bylaws only permit the erection of two units. Obviously, that number is far less than eleven, and the realities referred to in paragraph 53 of the original judgment are in play.

6Accordingly, the face value of the VTB was found to be $250,000 with appropriate interest arising out of the duration of the mortgage and any time beyond its coming to maturity; i.e., January 27, 2015 and beyond.

7In accordance with correspondence referred to above, counsel were to exchange their submissions as to costs. Those submissions have now been received.

The Applicable Law of “Costs”

8Section 131 (1) of the Courts of Justice Act, R.S.O. 1990 Chapter c. C.43 speaks in terms of “the costs of and incidental to a proceeding or step in a proceeding are in the discretion of the court”. This language would encompass a Power of Sale proceeding which in this case had morphed into the determination of the face value of the mortgage. Obviously, the existence of any discretion mandates a decision which is fair and guided by principle.

9Rule 57.01 of the Rules of Civil Procedure provides the principal framework for the cost decision, which is essentially which party pays and how much.

10The preamble of the Rule starts with the consideration of the result. In this matter the defendant sought full face value of the VTB and the court found the “floor” of $250,000 was applicable. Clearly the plaintiff was the successor. Normally to he or she who wins goes the costs.

11The Rule proceeds beyond the result per se to consider the complexity and importance of the issues which would affect the intensity and duration of the proceeding. Sub factor 57.01(1)(0b)(e) talks of the conduct of any party that affects the duration and intensity of the proceeding. Specifically was there any conduct which was “improper, vexatious or unnecessary”.

The Cost Clause Contained in the VTB

12The cost clause in the mortgage, namely paragraph 8, is one of a “set of Standard Charge Terms” based on a Dye and Durham precedent. The question becomes does that trump the possibility of the plaintiff instead of the mortgagee/defendant realizing costs?

13The heading “Standard Charge” contemplates the atypical mortgage enforcement. However, as stated in the opening remarks to this judgment, this proceeding was far from “standard”. It was a mortgage in which the face value would be decided by the decision of others.

14Thorburn J. in MCAP Financial Corp. v. Fernicola (in Trust) [2010] O.J. No. 20 stated in paragraph 18 that “contractual provisions stipulating entitlement of a mortgagee to costs of enforcement on the basis of costs actually expended is recognized by the Courts absent misconduct or unfairness on the part of the party claiming costs ” (underlining mine). This highlighted phraseology harkens back to the behavioural concerns expressed in subparagraph (e) of the Rule.

15Of course, raising issues that are not ultimately litigated, but consume pretrial energy is an aspect of prolonging the litigation.

16Raising unfounded aspersions about the behaviour of the other party also adds to the proceedings becoming prolix. Because, the allegations are in “print”, the other side would feel driven to respond, as otherwise silence could be construed as tacit agreement with what is alleged. The most heinous form of accusation is that of “fraud” which is obviously so given the criminal law implications.

17Yet egregious behaviour is not confined to fraud allegations.

18“Unfounded allegations of fraud and dishonesty or improper conduct seriously prejudicial to the character or reputation of the party” can according to case law generate liability for substantial indemnity costs (ref. Coats J. in DiBattista v. Wawanesa Mutual Insurance Company (2005), O.J. No. 4865. Justice Loo in Chancery Estate Holdings Corp v. Sahara Real Estate Investments Inc., 2012 BCSC 822 referred to special costs being awarded when one party engages in “reprehensible conduct” (ref. para. 6).

19The latter term being defined by Chief Justice Essen as a word of wide meaning. It encompasses scandalous or outrageous behaviour but it also encompasses milder forms of misconduct deserving of reproof or rebuke.

20Commercial common sense would merit that parties contemplating the determination of the face value, based on the outcome of a development application, would not believe themselves to be bound by a “standard clause”. Nor would they expect a departure from the factors enumerated in Rule 57.01.

Analysis

a) Entitlement to costs

21Stevens, the operating mind of the defendant did raise issues in his affidavits which consumed pretrial energy but failed to materialize at trial. One such issue being the existence of a so called verbal agreement which varied the terms of the agreement of purchase and sale. Stevens as a real estate practitioner appears to have forgotten the terms of the Statute of Frauds, R.S.O. 1990, c. S.19 which presumptively dismiss the impact of “verbal agreements”. This was not advanced at trial.

22Another issue being that the plaintiff had “sabotaged” versus “salvaged”, the development application. As this court noted in the original judgment, why would anyone in a commercial transaction act to their detriment? The same planning expert was used by both parties. That expert had carriage of the various applications. This was a spurious assertion designed to cause the good faith of the plaintiff to be questioned. Again this was not an issue prosecuted at trial, but it did cause examination of Mr. Fothergill.

23The allegation by Stevens that he was somehow taken advantage of, given his health concerns was another issue not pursued at trial. The intent was to cast aspersions upon counsel representing the defendant at the closing. Yes, that alleged behaviour was pre-process, but it was still referenced to demonstrate how Stevens was somehow taken advantage of. There is definitely behaviour on the part of Stevens which made the suit “personal”, and caused a distraction from the central issue, which was, given the state of the development application, what was the face value? That behaviour justifies a departure from the utilization of the standard mortgage costs terms, and in a way reveals or adds to the notion that this was not a standard exercise. That being said, Stevens could not prevail upon the standard term, not should the plaintiff. To do otherwise would be schizophrenogenic; as the terms were never designed to assist the mortgagor.

24The strongest point against the receipt of costs by Stevens on behalf of the defendant is that he was fully aware that the face value was contingent upon the development application. To commence proceedings for the full face value, cognizant of that contingency was high-handed and an abuse of process. It was to completely ignore the contingency.

25For all of the above, the plaintiff is entitled to costs.

b) Quantum of costs

26Although given the behaviour of Stevens, it is tempting to think in terms of substantial indemnity costs, one cannot lose sight of proportionality and the fact that the face value was dependent upon the decisions of others. Whatever inappropriate behaviour Stevens demonstrated, that third party contingency was the reality. Both parties were affected by that, they effectively came full circle to where they started value wise with this property.

27That being said, the costs outline of the plaintiff is an example of “over-lawyering”. Why did senior counsel need to farm out research to PGL or need 48.6 hours of work from a junior SK? In stark contrast lies the amounts claimed for fees by counsel for the defendant at trial. Although not of the same seniority, counsel singlehandedly put in the same amount of time as senior counsel unassisted.

28Proportionality and fairness merits a cost award payable by the defendant of $50,000.00 for fees inclusive of HST and $8,746.82 for disbursements.

Whitten, J.