Court File and Parties

CITATION: Jarbeau v. McLean, 2016 ONSC 3789 COURT FILE NO.: CV-14-6048 DATE: 2016-06-09

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Darren Jarbeau and Lillian Jarbeau, Plaintiffs AND: Ian McLean, Defendant

BEFORE: The Honourable Mr. Justice R. Dan Cornell

COUNSEL: Mark H. Arnold, Counsel for the Plaintiffs J. Daniel Dooley and Sabrina A. Lucenti, Counsel for the Defendant

HEARD: Written Submissions

ENDORSEMENT ON COSTS

Introduction

[1] This solicitor’s negligence case was tried by a jury that found that the defendant was liable to the plaintiffs in an amount of $190,000. As the parties have been unable to agree, I am now called upon to address the issue of costs.

Background

[2] The plaintiffs purchased a new home utilizing the legal services of the defendant. When it became clear that there were a number of deficiencies associated with the home, the plaintiffs retained the defendant to bring an action against various parties including the vendor corporation, Tarion, and the City of North Bay. The engineer that had certified Building Code compliance was not a party to that action as the defendant advised the plaintiffs that the engineer could not be included in the claim as the plaintiffs had no contractual relationship with him.

[3] Despite receiving repair and rebuild estimates ranging from $250,000 to $362,334, the plaintiffs settled the first action for the sum of $75,000. The plaintiffs then proceeded to sue the defendant in this action for solicitor’s negligence for failing to include the engineer in the first action.

[4] The plaintiffs served an offer to settle in an amount of $225,000 plus costs on February 12, 2015. A second offer in an amount of $175,000 plus costs was served on December 14, 2015.

[5] The jury assessed the plaintiffs’ damages on a diminution in value basis at $265,000. The jury also determined that the amount that the plaintiffs had received in the first action was $75,000. As a result, judgment was granted to the plaintiffs in the net amount of $190,000.

Applicable Rules

[6] In view of the fact that the jury award exceeded the plaintiffs’ offer to settle in an amount of $175,000, Rule 49.10(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, comes into play whereby the plaintiff is entitled to partial indemnity costs to the date of the offer and substantial indemnity costs thereafter, unless the court orders otherwise.

[7] The general principles contained within Rule 57.01 must also be taken into consideration.

Defendant’s reasonable expectations – Rule 57.01(1)(0.b)

[8] The plaintiffs submit that LawPro, as a sophisticated insurer, would have had full knowledge of the costs and expenses involved in defending a claim of this nature.

Amount claimed/Amount recovered – Rule 57.01(1)(a)

[9] The plaintiffs claimed the sum of $500,000 in the statement of claim. By letter dated November 6, 2014, the defendant was advised by the plaintiffs that “their remaining damages will exceed $300,000”.

[10] At trial, the plaintiffs sought the sum of $362,334 representing the cost to demolish and rebuild the house according to the estimate of Fry’s Construction Ltd. The jury awarded the sum of $433,000 on a cost to repair basis.

Complexity of the proceeding – Rule 57.01(1)(c)

[11] The issue of liability was not complex and was admitted on the first day of trial.

[12] There was a measure of complexity with respect to a determination of the proper measure of damages. The plaintiffs asserted that they should be entitled to receive the cost to repair or rebuild the house. The alternative approach would be to establish the diminution in value of the property as a result of the defects and deficiencies. It was my view that the plaintiffs would be entitled to the lesser of these two amounts.

[13] If this were not so, the plaintiffs would receive a windfall. They would receive $433,000 according to the finding of the jury as the cost to rebuild. They would have a house with an “as is” value of $220,000 according to the evidence. This would put the plaintiffs in the position of having $653,000 in compensation for a house that, absent defects, was worth a maximum of $360,000.

Importance of the issues - Rule 57.01(1)(d)

[14] The plaintiffs submit that the matter was very important to them as it involved their home in which they had made a substantial investment.

[15] There was very little importance to the public at large as no novel legal principle was at stake.

Conduct tending to impact duration of proceedings – Rule 57.01(1)(e)

[16] The defendant points to the fact that the plaintiffs did not co-operate with their request to prepare a joint document brief and joint book of authorities. The defendant also points out that plaintiffs’ counsel had repeated disregard for various rulings made by me during the course of the trial that required the jury to be excused on a number of occasions. These transgressions included various improper statements made by plaintiffs’ counsel during the course of closing submissions to the jury with the result that I was required to take the extraordinary step of stopping such submissions, excusing the jury, and reviewing with plaintiffs’ counsel his submissions in their entirety in order to avoid the introduction of information that had been ruled inadmissible during the course of the trial.

Improper vexatious or unnecessary steps – Rule 57.01(1)(f)

[17] There were no improper, vexatious or unnecessary steps taken by either party.

Denial or refusal to admit – Rule 57.01(1)(g)

[18] It was not until the first day of trial that the plaintiffs admitted that the defendant had been negligent.

[19] The plaintiffs point to the fact that this admission could have been made at an earlier date which would have obviated the need to spend time on trial preparation for this issue. While this is true, the fact remains that by making this admission on the first day of trial, the trial remained focused on the question of the proper measure of damages.

Position of the plaintiffs

[20] The plaintiffs take the position that they did better than the offer to settle of December 14, 2015, and accordingly are entitled to substantial indemnity costs from that date. The plaintiffs claim total fees, disbursements, and H.S.T. in an amount of $237,535.25.

[21] The claim for disbursements made by the plaintiffs totals $50,216.50. To this, they have added H.S.T. in an amount of $6,528.15 for a total of $56,744.65. A review of the invoices for the disbursements indicates that such invoices included H.S.T. Accordingly, the claim for H.S.T. in an amount of $6,528.15 is improper.

Position of the defendant

[22] The defendant takes the position that as a result of the undue delay occasioned by the conduct of plaintiffs’ counsel, the plaintiffs should only receive partial indemnity costs throughout.

Analysis

Perverse award

[23] As already mentioned, damages could be calculated in two ways:

a. the cost of repair or to rebuild; or

b. the diminution in market value after taking into consideration the defects and deficiencies associated with the home.

[24] It remained the position of the plaintiffs throughout that the plaintiffs were entitled to the higher amount which involved rebuilding the house. The only evidence tendered on this point was a report from Fry’s Construction Ltd. that indicated that the sum of $362,334 was required to demolish and rebuild the house.

[25] Gerald Genge P.Eng. testified as an expert witness for the plaintiffs. He testified that the house did not need to be torn down and rebuilt, but could be repaired at a cost of approximately $250,000 including the cost of security during the course of construction.

[26] For appeal purposes, the jury was asked to establish the cost of repair. The jury awarded the sum of $433,000. There was absolutely no evidence upon which the jury could make this determination.

[27] The jury was also asked to establish the diminution in value for the property. Evidence was tendered that the fair market value of the property at the time in question ranged from $320,000 to $360,000. In December of 2015, a conditional offer was received in an amount of $220,000. Mr. Jarbeau testified that he did not accept the offer or make a counter-offer as he was instructed by his lawyer “not to do anything until after the trial”. This was the best evidence tendered as to the fair market value of the house if it were to be sold on an “as is” condition. Using the highest fair market figure of $360,000 and deducting the sum of $220,000 representing the best evidence of fair market value with the defects and deficiencies left a difference of $140,000. From this amount it was necessary to deduct the sum of $75,000, the amount that the jury found that the plaintiffs had received when they settled the first action. This resulted in a diminution in value in an amount of $65,000. The jury found that the diminution in value amounted to $190,000. There was no evidence to support this finding.

[28] The findings of the jury with respect to the cost to repair and diminution in value were clearly perverse in that there was no evidence to support such findings. Despite this, no motion for a perverse verdict was brought by the defendant and accordingly judgment was granted in an amount of $190,000 representing the lesser of the cost to repair and the diminution in value.

[29] It has already been mentioned that the trial was unduly delayed by virtue of plaintiffs’ counsel repeatedly attempting to admit evidence that I had ruled was inadmissible and by pursuing claims that had not been pleaded or had been otherwise disallowed by me. There was an effort by plaintiffs’ counsel to introduce into evidence minutes of settlement from the first action that contained within them an attempt to set the stage for certain findings to be made in this negligence action. It also involved an effort on behalf of the plaintiffs to introduce evidence of pre-trial settlement discussions.

[30] When plaintiffs’ counsel was thwarted in his efforts to introduce this evidence, he attempted to do so during his closing submissions to the jury. As a result, I was required to interrupt counsel at that time, excuse the jury, and review plaintiffs’ counsel’s closing submissions in order to remove the improper parts.

[31] In view of the fact that there was no evidence whatsoever to support the finding of the jury with respect to the repair/rebuild costs or the diminution in value, I can only come to the conclusion that the jury used some of plaintiffs’ counsel’s statements during the course of the trial and during the course of closing submissions in order to come to their conclusions.

[32] After taking all of these facts into account, I am of the opinion that this is an appropriate case where I should depart from the prima facie cost consequences in Rule 49.10 as the interests of justice dictate this course of action. The conduct of plaintiffs’ counsel is to be taken into consideration when awarding costs. See Rodas v. Toronto Transit Commission, 2012 ONSC 5662 (ONSC) at para. 23.

[33] I therefore find that the plaintiffs are entitled to partial indemnity costs throughout.

Proportionality

[34] For many years now, various concerns have been expressed about access to justice. When this subject arises, invariably the discussion focuses on the cost of legal representation and the time that it takes for claims to be adjudicated. Various efforts have been undertaken to address these concerns. These include expansion of the jurisdiction of the Small Claims Court, the creation and expansion of simplified claims, and limits on discovery. Such efforts also include the introduction in the interpretation section of the Rules of Civil Procedure that proportionality shall be a requirement when applying all of the Rules of Civil Procedure. Rule 1.1 states:

Proportionality

In applying these rules, the court shall make orders and give directions that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding.

[35] Prior to the inclusion of the proportionality rule in the Rules of Civil Procedure, the courts had embarked upon an effort to create and apply the principle in a variety of circumstances.

[36] In Culligan Springs Ltd. v. Dunlop Lift Truck (1994) Inc. (2006), 2006 CanLII 13419 (ON SCDC), the Divisional Court determined that the principle of proportionality should be applied whether it is the plaintiff or the defendant who is successful using the simplified procedure and that the parties’ reasonable expectations of the costs that they might be responsible for must be taken into consideration in determining the appropriate amount of costs.

[37] In Buchanan v. Geotel Communications Corp., [2002] O.T.C. 360 (S.C.), Ferguson J. stated at paras. 10 and 11:

Having said all that, the bottom line is that the proposed costs are excessive. They are excessive from two perspectives: costs of this magnitude will make litigation inaccessible as a method of dispute resolution; costs of this magnitude are also disproportionate to the value of the legal work reasonably necessary to represent a client in this dispute.

If counsel do not use more restraint in deciding how much to invest in litigation they will put both the bar and the courts out of business which will profoundly harm the public whom we both serve.

[38] In Patene Building Supplies Ltd. v. Niagara Home Builders Inc., 2010 ONSC 468, 96 C.L.R. (3d) 209, Parayeski J. addressed the subject in this manner, at para. 1:

… The plaintiff was successful, and should be paid its costs. Those costs should be on the partial indemnity scale. They should also bear some reasonable proportionality to the amount of money awarded to the plaintiff as damages. Those damages were for less than $15,000.00. Accordingly, the plaintiff’s request for $8,977.55, plus GST is excessive. This was a short and simple trial. The plaintiff is entitled to judgment for costs fixed at $5,000.00, inclusive of GST and disbursements, as against both defendants, that liability being joint and several.

[39] The most recent word on the subject comes from the Ontario Court of Appeal. In Elbakhiet v. Palmer, 2014 ONCA 544, 121 O.R. (3d) 616, leave to appeal to S.C.C. refused [2014] S.C.C.A. No. 427, the court considered an appeal from the trial judge’s costs award in a motor vehicle accident action. In that case, the plaintiff was seeking damages of approximately $1,900,000. The jury awarded just under $145,000. The trial judge awarded costs in an amount of almost $580,000. In addressing the award of costs by the trial judge, Rosenberg J.A. stated:

[35] … 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.

[36] In my view, because of these errors, the trial court’s decision on costs cannot stand. The trial judge made an error in principle in failing to give any consideration to the offers to settle and her award is wholly disproportionate to the amounts recovered. The trial judge’s decision to simply award the costs sought by the respondents failed to give any consideration to what amount would be fair and reasonable.

[38] I would allow the appeal and reduce the costs to be paid by the appellants to $100,000. In my view, this amount takes into consideration all the factors to be considered under Rules 49 and 57, including the complexity of the matter and the manner in which the litigation was conducted, and in particular that the offer to settle was virtually the same as the Judgment. This amount is more consistent with the objectives of fairness and reasonableness and especially gives some attention to the need for some proportionality [Emphasis added].

[40] Among all of the factors that the court may consider in awarding costs, Patene Building Supplies Ltd. and Elbakhiet reference the fact that such award must be proportionate to the amount recovered. I make the observation that if Rule 1.1 is to have any meaning, how could it be otherwise? In Patene, costs of $5,000 were awarded representing approximately one-third of the amount recovered at trial. In Elbakhiet, costs of $100,000 were awarded representing approximately two-thirds of the amount recovered at trial.

[41] In Elbakhiet fees claimed in an amount of $580,000 were reduced to $100,000 inclusive of disbursements and H.S.T. where, following a trial, the sum of $145,000 was recovered. In this case, total fees, disbursements and H.S.T. are claimed in an amount of $237,535.25 following a trial where the sum of $190,000 was recovered.

Conclusion

[42] Concepts of fairness, reasonableness and proportionality are generic concepts that almost always involve a significant subjective component. My extensive review of the application of the proportionality principle to an award of costs indicates that the case law has yet to develop to the point where guiding principles have been well established.

[43] Given the current state of the law on this subject, the best that I can do is to extrapolate and apply the approach taken by the court in Elbakhiet. After taking into consideration the various factors enumerated in Rules 49 and 57, the perverse findings made by the jury and the objectives of fairness, reasonableness and proportionality, it is my opinion that an appropriate award of costs in this case is $70,000, H.S.T. in an amount of $9,100, together with disbursements in an amount of $50,216, for a total award of $129,316.

The Honourable Mr. Justice R. Dan Cornell

Date: June 9, 2016