Court File and Parties

COURT FILE NO.: CV-12-2908 DATE: 20170302 SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Quality Rugs of Canada Limited AND: Sedona Development Group (Lorne Park) Inc. Sedona Development Group Inc. Casaco Developments Inc. Casimiro holdings Inc., The Guarantee Company of North America and Laurentian Bank of Canada

BEFORE: Ricchetti, J.

COUNSEL: R. Harason, Counsel for Quality Rugs of Canada Limited ("Quality Rugs") C. Reed, Counsel for Casaco Developments Inc. and Casimiro Holdings Inc. ("Casaco/Casimiro") R. Kennaley, Carriage Counsel

COSTS ENDORSEMENT

The Motions

1The motions before the court and the disposition are set out in Quality Rugs v. Sedona Development et al, 2016 ONSC 7896. Written cost submissions were requested and received from counsel.

2There are three sets of costs to be decided:

a) Quality Rugs' claim for Carriage/Salvage Costs Motion; b) Quality Rugs' Summary Judgment Motion; and c) Quality Rugs' Costs of the Action.

Awarding Costs

3The fixing of costs is a discretionary decision under section 131 of the Courts of Justice Act.

4The court's discretion is to be exercised in accordance with the factors listed in Rule 57.01 of the Rules of Civil Procedure. These include the principle of indemnity for the successful party (57.01(1)(0.a)), the expectations of the unsuccessful party (57.01(1)(0.b)), the amount claimed and recovered (57.01(1)(a)), and the complexity of the issues (57.01(1)(c)).

5The purpose of a costs order is to advance the administration of justice by indemnifying successful litigants from costs of litigation, facilitating access to justice, including access for impecunious litigants, discouraging frivolous claims and defences, discouraging inappropriate behaviour by litigants in their conduct of proceedings and encouraging settlements. See 394 Lakeshore Oakville Holdings Inc. v. Misek, 2010 ONSC 7238, [2010] O.J. No. 5692 (S.C.J.) at para. 10. Overall, the court is required to consider what is “fair and reasonable” in fixing costs. See Boucher v Public Accountants Council (Ontario), (2004), 71 O.R. (3d) 291, (ONCA), at paras 26, 37.

6Embedded in the principle of reasonableness is proportionality. See Emmet v. Your Community Realty Inc., 2016 ONSC 7446.

The Hearing of the Motions

7In this case, it is important to note that the motions commenced at 8:30 a.m. and continued until approximately 10:00 a.m. to permit a trial to continue and then resumed at approximately 4:30 p.m. until approximately 7:00 p.m. Through no fault of counsel, this increased the time counsel were to remain in the courthouse to deal with this matter.

8Approximately 3 ½ to 4 hours were taken on the Carriage Costs Motion. Less than ½ hour was taken on the Quality Rugs' summary judgment motion. This is an indication of the complexity and issues to be resolved on the respective motions.

The Carriage Cost Motion

9Quality Rugs claimed salvage costs. Carriage Counsel and Casaco/Casimiro opposed. Quality Rugs was not successful.

10Carriage Counsel seeks costs of $18,593.30 on a partial indemnity basis and $28,300.85 on a full indemnity basis.

11Casaco/Casimiro seeks costs of $16,500.00 on a substantial indemnity basis.

12Quality Rugs seeks an order that no costs be payable for the carriage cost motion.

Entitlement

13No Rule 49 Offer to Settle is engaged.

14Quality Rugs submits that the issues were novel and as a result, this is a significant factor against an award of costs.

15I am not persuaded that the unsettled issue of entitlement to salvage costs by a party not appointed as carriage counsel rises to the level to deprive the successful party of costs in this case. I agree with the statement of Justice Perrell in Mancinelli v Royal Bank of Canada, 2017 ONSC 1196:

[6] First, the issue was not novel in the legally significant way that would justify the court in ordering no costs against the party who unsuccessfully advanced the issue. For the successful party to be denied its costs, it is not enough that the issue is unprecedented or that the issue has not been decided before: McCracken v. Canadian National Railway Co., 2012 ONSC 6838. The legally significant novelty of a legal issue is found in the circumstance that the existing case law is inadequate to resolve the issue and there would be no proper reason for the party advancing the issue to expect to fail: Baldwin v. Daubney, [2006] O.J. No. 3919 (S.C.J.) at paras. 19-22; Fisher v. IG Investment Management Ltd., [2010] O.J. No. 2036 (S.C.J.). Given the state of the case law, the Plaintiffs were just rolling the procedural and tactical dice and there were a lot of reasons to anticipate snake eyes.

16It is also important to note that, even if I had found the court had jurisdiction to award salvage costs to a party not appointed carriage counsel, I would have refused to do so because the steps taken by Quality Rugs’ counsel for which it claims salvage costs did not and were not for benefit the lien class. This alone would have been sufficient to dismiss this argument.

17I see no basis to deny the wholly successful parties to costs of the carriage costs motion.

Scale of Costs

18Essentially, Quality Rugs' motion became necessary because of settlement tactics which did not work out - over a dispute of $18,000.00.

19Substantial indemnity costs “are generally awarded only where there has been reprehensible, scandalous or outrageous conduct on the part of one of the parties”. See Young v. Young (1993), 4 S.C.R. 3 and Iannarella v. Corbett, 2015 ONCA 110, 124 O.R. (3d) 523, at para. 139.

20Even an award of costs on a substantial indemnity basis must be consistent with the reasonable expectations of the parties: Toronto District School Board v. Molson Breweries Property Ltd., 2009 CarswellOnt 3661 (S.C.), at para. 16.

21While Quality Rugs’ tactics to force the other lien claimants to capitulate to Quality Rugs' demands for salvage costs were unreasonable conduct and a significant factor in assessing costs, I cannot conclude that Quality Rugs' conduct in bringing this motion amounted to reprehensible, scandalous or egregious conduct by Quality Rugs deserving of “punishment” by a higher level of costs.

22It is with some reluctance that I conclude Carriage Counsel and Casaco/Casimiro are to be awarded costs of the Carriage Costs motion on a partial indemnity basis.

Quantum

Carriage Counsel

23Much of Quality Rugs' submission is nothing more than a repeat of its reasoning which was rejected on the motion. I will not repeat why these submissions were rejected again. Besides, costs submissions were limited to 5 pages not 11 pages submitted by Quality Rugs.

24There are significant factors to take into account in determining what amount of costs are reasonable including:

a) the responding parties (including all lien claimants and their counsel) had offered to pay Quality Rugs the sum of $39,048.21 for Quality Rugs' salvage costs. This was a significant amount, in quantum and proportionally to the lien claims, in excess of what a few other counsel received for salvage costs. Quality Rugs chose to reject the settlement offer. Quality Rugs chose to put at risk the entire settlement – approximately $2,000,000 to flow to the lien claimants. Quality Rugs chose to use its leverage to oppose the settlement to exert pressure on all other lien claimants to capitulate to its demand. Quality Rugs did so by attempting to set aside the Provisional Settlement and demand another Settlement Conference. Even after this court ordered that the Provisional Settlement could proceed with all other lien claimants (and security being set aside for Quality Rugs' claims), Quality Rugs knew that by continuing to hold up the settlement and flow of money to the lien claimants by not approving the Order, the additional pressure would be brought to bear on the other lien claimants. Additional costs were incurred by the lien claimants when this court had to deal with the settlement of the Order. Quality Rugs relied on the fact that payment to it of the amount sought for salvage costs would not have cost the other parties much. It takes this position in its submissions as showing unreasonableness on the party of lien claimants. I do not see it that way. I see this as unreasonably putting pressure on the lien claimants to settle Quality Rugs’ demands. Quality Rugs' strategy did not work;

b) this is particularly unreasonable conduct as this court found that little, if any legal services claimed by Quality Rugs as salvage costs was done for the benefit for or with the approval of the lien claimants. Much of the time spent was to position Quality Rugs’ counsel to become carriage counsel;

c) Quality Rugs sought salvage costs for the same period of time and the same work (the September 2012 motion) which this court had specifically denied it costs. The same costs were now sought by Quality Rugs under a different heading - salvage costs. This was in essence an attempt to circumvent this court's prior order; and

d) when Quality Rugs was asked prior to the Carriage Costs motion to provide sworn evidence that the salvage costs claimed were either necessary, approved or incurred for the benefits of the lien claimants, no sworn evidence was forthcoming. Quality Rugs' counsel simply prepared a number of volumes of briefs with many letters, emails and documents for this court to have to sift through to figure out what was done, who did what, was there any benefit from that work and who, if anyone, benefitted from the steps. This failure to provide sworn evidence caused a further issue at the motion and certainly extended the motion as it required Carriage Counsel to obtain and file a large number of affidavits from counsel for the lien claimants that they did not approve Quality Rugs’ salvage costs and their clients did not benefit from the legal steps taken by Quality Rugs' counsel.

25I do not accept Quality Rugs' submission that Carriage Counsel should be denied costs because it had agreed Quality Rugs should receive some salvage costs. An amount was offered to settle the issue based on payment of a certain amount for costs. Quality Rugs rejected it and chose to seek relief in the courts. The court dismissed Quality Rugs’ claim for salvage costs. There is no merit to this argument. The fact there was previously an offer to pay an amount for salvage costs is irrelevant to the issue of entitlement to costs of this motion.

26I do not accept Quality Rugs' submission that Carriage Counsel did not seek to minimize costs of the motion. Quite frankly, the failure to file sworn material by Quality Rugs' resulted in Carriage Counsel having to file a number of affidavits to make it clear that they had not approved or benefitted from the steps taken by Quality Rugs' counsel.

27Quality Rugs submits that Carriage Counsel's rates are too high given counsel's experience. I am not persuaded that $292.00 per hour for Mr. Kennaley (18 years’ experience and specializing in construction law) is high. I do not consider Quality Rugs' suggested hourly rate of $175.00 per hour as reasonable for counsel with the expertise and experience of Mr. Kennaley.

28The Carriage Costs motion resulted in very extensive materials filed with the court. Factums were prepared. As stated above, approximately four hours of oral submissions were made on this motion alone.

29At the conclusion of the motion, the court received Bills of Costs from each counsel. Quality Rugs' counsel sought $13,370.00 plus counsel fee on a partial indemnity basis for the carriage costs motion and $19,100.00 plus counsel fee on the summary judgment motion (this is based on a portion of the Costs Outline filed by Quality Rugs). The summary judgment motion, only took approximately a ½ hour while the carriage cost motion took approximately four hours and the materials in the carriage cost motion were more voluminous. It is hard to reconcile this disparity in the number of hours claimed on each motion. Since dockets were not submitted by Quality Rugs, it is difficult to assess why such a disparity exists.

30The suggestion by Quality Rugs that partial indemnity costs for Carriage Counsel should be $5,000.00 all-inclusive is simply unreasonable. Given what Quality Rugs was seeking for costs on the same motion (even if I accept what was in its Costs Outline), Quality Rugs had every reason to anticipate that partial indemnity costs would be much higher if it lost the motion.

31Carriage Counsel seeks costs of $14,508.00 plus counsel fee on the motion on a partial indemnity basis. This appears to be eminently reasonable and consistent with what Quality Rugs' counsel was seeking for the same motion. Carriage Counsel submitted its docket entries. They appear to be reasonable and related to the Carriage Costs motion.

32There is no basis to award disbursements as there are no supporting documents. However, Quality Rugs concedes $125.00 for disbursements. I accept this amount.

33I fix Carriage Counsel's costs of the Carriage Cost Motion at $20,125.00 plus HST. To be clear, I have increased what I would normally have determined for partial indemnity costs of ($16,125.00 plus HST) to reflect the unreasonable conduct of Quality Rugs' use of this motion to exert pressure on the other lien claimants to capitulate to its demand for its salvage costs; because the salvage costs claimed which, even if awardable, were found to be without merit; and because of the additional affidavits which Carriage Counsel were required to obtain and file to deal with issues which Quality Rugs failed to deal with in sworn evidence. While not rising to the level of egregious conduct requiring this court to sanction Quality Rugs, this court has the discretion to consider these factors in assessing what costs are reasonable in the circumstances.

Casaco/Casimiro Costs

34Contrary to Quality Rugs' submission, Casaco/Casimiro counsel did participate in this motion. Casaco/Casimiro’s counsel prepared an affidavit. His submissions were brief.

35Casaco/Casimiro seeks to take advantage of the offer made by all the parties. I do not consider this to be an Offer under the Rules. It is but one factor to consider - Casaco/Casimiro was one of the parties that agreed to $39,000.00 for Quality Rugs' salvage costs before this motion became necessary.

36Casaco/Casimiro seeks costs of $11,500. I consider this to be excessive given the limited role played by counsel both in the materials prepared and the submissions made. I recognize that there was a considerable amount of materials to review and factums to prepare on this issue. I also recognize that the motion took a number of hours over a lengthy day.

37I fix costs to Casaco/Casimiro in the amount of $4,000.00 plus HST.

38Casaco/Casimiro seeks that these costs be paid to counsel from the trust funds set aside to pay the claims of Quality Rugs. Essentially, Casaco/Casimiro would have this court pay these costs directly to its lawyers. This would be at the expense of the lien claimants who are entitled to share the balance after payment of Quality Rugs entitlement. While I might guess as to the reasons for this, I see no basis to make this cost order payable personally to Casaco/Casimiro's counsel out of the trust funds.

Quality Rugs' Costs of the Motion and Action

39Quality Rugs seeks costs of $41,108.03 on a substantial indemnity basis or, in the alternative, $28,918.16 for partial indemnity costs for this motion. This does not include its claim for $76,513.13 on a substantial indemnity basis or $54,073.02 on a partial indemnity basis for the action.

40Quality Rugs seeks costs of the action in the amount of $76,513.13 on a substantial indemnity basis or $54,073.02 on a partial indemnity basis for the action.

41Neither of these claims include any legal costs relating to the September 2012 motion.

42The clear implication is that Quality Rugs’ legal costs for this approximately $82,000 lien claim was close to $200,000!

Entitlement

43Quality Rugs was successful on the motion entitling it to a judgment for $82,278.69.

44This motion required very little oral submissions. The materials were fairly straight forward, although there was cross examinations. Factums were filed.

45Quality Rugs is entitled to costs of the motion and action.

Scale of Costs

46There is no applicable Rule 49 Offer to Settle.

47I see nothing improper, egregious or reprehensible in the conduct of Casaco/Casimiro in requiring Quality Rugs to prove its claim for lien. In particular, the issue of whether Mr. Prosocco was required to personally approve each extra included in Quality Rugs’ lien claims (as was explicitly stated in the agreements but ignored during the construction project) was a reasonable issue to be brought forward by Casaco/Casimiro as they were not parties to the agreement. The only reason Quality Rugs was successful on this issue was that this court found the evidence advanced on the motion disclosed a course of conduct resulting in a variation to the written agreement.

48There is no basis to award substantial indemnity costs.

49Costs are payable for both the motion and the action on a partial indemnity basis.

Quantum For the Summary Judgment Motion

50The amount claimed screams a lack of proportionality. The purpose of cost consequences is to focus litigants on the costs of the litigation to all parties, and to ensure that litigants act responsibly in bringing and pursuing actions.

51The amount claimed also fails to take into account how and why this motion needed to be brought including that:

a) Quality Rugs could have accepted the settlement from all other parties which would have given Quality Rugs $75,151.60 for it’s approximately $82,000 lien claims. There was only $7,000.00 separating the parties on the amount of the lien. The only dispute with respect to the Provisional Settlement was Quality Rugs' claim for salvage costs. When salvage costs couldn't be agreed upon, Quality Rugs chose not to accept a settlement which meant that its lien was open for judicial scrutiny and determination. There is no reason why Quality Rugs could not have sought to accept the $75,151.60 and have its claim for salvage costs dealt with alone. This was not raised once by Quality Rugs;

b) Quality Rugs was prepared to settle for approximately $132,650.00 (being $75,151.60 plus $57,500.00 for salvage costs). The lien claimants were prepared to pay Quality Rugs $114,199.81 (being $75,151.60 plus the $39,048.21 in salvage costs);

c) the amount of legal costs spent by Quality Rugs on this motion even on substantial indemnity basis was $41,108.30. It is not known what the actual legal costs were. This is an amount which is vastly out of proportion to the amount at stake.

52Then there is the issue of the different Costs Outlines. The Costs Outline submitted by Quality Rugs at the end of the motion sought costs of $38,490.50 on a partial indemnity basis for both motions. Now Quality Rugs files a new Costs Outline which seeks $28,918.16 for partial indemnity on the summary judgment motion alone. The total hours have gone from 52.2 hours to 64.2 hours. Quality Rugs suggest that there was unrecorded time in the new Costs Outline. That may or may not be so but it shows an even greater concern regarding proper apportionment between the motions and proportionality.

53There remains a concern that Quality Rugs’ Costs Outline shows that the hours spent on this motion was substantially less than the much more complex, time consuming carriage costs motion. This leaves me with an uneasy feeling about the number of hours actually spent on each motion. Could this be overcome by detailed dockets? No. Quality Rugs provided docket entries for its claim for costs of the action but it did not provide docket entries for the two motions. There is no explanation on the record. Quality Rugs’ counsel’s docket entries for the two motions could have been reviewed by this court. Instead there is just one block amount of time with a lengthy paragraph as to what it included for each motion. A detailed assessment is not possible.

54I recognize that Casaco/Casimiro required an examination and production of a considerable amount of materials from Quality Rugs to be produced. How much of this resulted in increased legal fees is impossible to tell from the materials before me.

55I fix the costs of the summary judgment motion at $7,500.00 plus HST payable by Casaco/Casimiro.

Quantum for the Quality Rugs' Action

56It makes little sense that, on a substantial indemnity basis, Quality Rugs’ legal costs are $76,513.13 for the action given that this amount does not include the costs of the summary judgment motion and excludes the costs of the September 2012 motion. This makes no sense and is out of complete proportionality to what was at stake, the issues, and complexity. This quantum also makes no sense since there were few documents exchanged, no discoveries, no trial, the motion of payment into court was handled by Casaco/Casimiro's counsel, and the motion on priority was handled by Carriage Counsel.

57Quality Rugs’ counsel characterizes this action as a “hard fight”. The only “fight” was a very brief summary judgment motion.

58The other serious problem with the amount claimed is this court's ruling on salvage costs motion that much of the time spent by Quality Rugs' counsel was to attempt to get carriage or get an agreement of the lien claimants to fund his dealing the lien proceedings on behalf of all lien claimants. Neither materialized. Costs incurred by Quality Rugs’ counsel for this purpose cannot possibly be proper costs of the action and be foisted upon the lien claimants to pay.

59What did Quality Rugs do in connection with the action? Register two liens, a Statement of Claim, review Statements of Defence, production of Quality Rugs' agreements and some documents produced by Sedona and Casimiro, setting the action down for trial, monitoring the motion for payment into court and the priority motion, settlement conference, a pre-trial, and settlement discussions.

60Casimiro/Casaco submits that $6,800 should be awarded for costs of the action.

61In my view, the only complexity was the number of lien claimants. As a result, I conclude $10,000.00 plus HST is a reasonable amount for costs of the action on a partial indemnity basis in these circumstances. These costs are payable by Sedona Development Group (Lorne Park) Inc., Sedona Development Group Inc., Casaco Developments Inc. and Casimiro Holdings Inc.

Conclusion

62Quality Rugs shall pay costs to Carriage Counsel the sum of $20,125.00 plus HST. This amount may be deducted from amount payable to Quality Rugs from the trust funds and the balance of the trust funds can be disbursed pro-rata to the lien claimants or as the lien claimants may direct.

63Quality Rugs shall pay costs to Casaco/Casimiro in the amount of $4,000.00 plus HST for costs of the carriage costs motion. Casaco/Casimiro shall pay costs to Quality Rugs of $7,500.00 plus HST as costs of the summary judgment motion. These costs orders are to be set off against one another.

64Sedona Development Group (Lorne Park) Inc., Sedona Development Group Inc., Casaco Developments Inc., and Casimiro Holdings Inc. shall pay costs to Quality Rugs of $10,000.00 plus HST as costs of the action.

65If there is any issue regarding the terms of the Order to issue, I may be spoken to.

Ricchetti, J.