McCloy v Bennett, 2017 ONSC 2659

COURT FILE NO.: CV-15-533838 DATE: April 28, 2017

Ontario Superior Court of Justice

In the Matter of the Construction Lien Act, R.S.O. 1990, c.C.30

BETWEEN:

MARLENE MCCLOY Plaintiff

Scott A. Rosen, for the plaintiff, Tel.: 416-867-9500, Fax: 416-367-0429.

- and -

LYNDON BENNETT Defendant

Michael E. Freeman for the defendant, Tel.: 416-822-8716, Fax: 905-326-2720.

DECISION: February 27, 2017. Master C. Wiebe

Costs Decision

1On February 27, 2017 I rendered my trial decision in this reference, and directed that the parties make their final written submissions on costs.

2Mr. Rosen delivered the Plaintiff’s Costs Submissions on March 10, 2017 in accordance with my directions. Ms. McCloy seeks $10,244 in partial indemnity costs for the costs of the motion before Madame Justice Conway and the action up to that point. As previously stated, Her Honour ruled that Ms. McCloy was entitled to partial indemnity costs for this period, and that I was to determine the final quantum of same. Ms. McCloy also seeks partial indemnity costs of $8,806.77 for the costs of the reference for the period from December 18, 2015, the day of the motion before Justice Conway, to June 29, 2016, the day Ms. McCloy served a written offer to settle that remained open for acceptance until trial. She also seeks $59,407.09 in substantial indemnity costs for the period from June 29, 2016 to the end of the trial hearing primarily on the grounds that she achieved a result that exceeded the offer to settle that she served on June 29, 2016, all in accordance with Rule 49.10. She also seeks $4,400.26 for the costs of the disbursements in this reference after December 17, 2015. Finally, she seeks $2,260 in costs directly from Mr. Freeman in light of his conduct. This produces a total of $82,858.12 in costs as against Mr. Bennett, and $2,260 in costs as against Mr. Freeman. In the alternative, if I do not award costs against Mr. Freeman, Ms. McCloy wants that $2,260 charged to Mr. Bennett, producing a total claim in that event of $85,118.12.

3On March 21, 2017 Mr. Rosen delivered a draft Report on Reference, copying Mr. Freeman. In his covering email, Mr. Rosen asked that I direct an attendance before me to finalize the Report, as his client is anxious to get her money. Mr. Freeman has not apparently commented on this document to date.

4Mr. Freeman did not deliver the Defendant’s Costs Submission by the deadline I had imposed. He did so on April 3, 2017. The lateness of the submission was apparently due to Mr. Freeman’s unsuccessful effort to have other counsel take over this case, given Ms. McCloy’s desire to get costs from Mr. Freeman. In the end, he decided to make the costs submissions himself. He argued that there should be no costs against counsel, and that the costs award against Mr. Bennett should be “reasonable costs.”

5I have reviewed these submissions in light of the factors to be considered on costs under Rule 56.01(1).

i. Proceedings up to December 17, 2015:

6Madam Justice Conway ordered on December 17, 2015 that Mr. Bennett pay Ms. McCloy partial indemnity costs for the motion before her and for the action to that point, with the quantum of the award to be determined by me. The McCloy Bill of Costs for this early period shows that Mr. Rosen spent 27.1 hours and his clerk 1.1 hours in commencing the action, and for bringing and arguing the motion before Her Honour for default judgment and lifting the bankruptcy stay. The partial indemnity claim for fees was 60% of the actual cost incurred by Ms. McCloy, which is consistent with the case law. The overall claim of $10,244 was accepted by Mr. Freeman. I also find no basis for disagreeing with the claim, and grant it.

7I award Ms. McCloy $10,244 in partial indemnity costs for this period.

ii. Result:

8The first factor to be considered under Rule 57.01(1) is the result. I agree with Mr. Rosen that Ms. McCloy was clearly the successful party here. She succeeded in getting an entitlement to 92.65% of the sale proceeds. She succeeded in having all of the net proceeds of sale in the trust account ordered paid to her. She succeeded in getting an additional judgment against Mr. Bennett of $24,178.49. Mr. Bennett succeeded only in getting some small portion (7.35%) of the sale proceeds declared to be his entitlement, and in avoiding personal liability for most of the line of credit payout; but none of this translated into any bottom line payment to Mr. Bennett. Mr. Freeman accepted these arguments, although he intimated at the end of his submissions that the result was not an assured one during the litigation.

9This overwhelming result in favour of Ms. McCloy will be reflected in the costs award. I will make an adjustment to reflect Mr. Bennett’s mild success on some of the issues.

iii. Offers to settle:

10Mr. Rosen’s other major argument is that Ms. McCloy should be entitled to a significant award of substantial indemnity costs in light of the written offer to settle she made to Mr. Bennett on June 29, 2016. On that day, Ms. McCloy served Mr. Bennett a written offer to settle whereby Mr. Bennett would receive $20,000 and Ms. McCloy the balance, with each party bearing their own costs. This offer was made open for acceptance until the trial hearing, and, therefore, qualified as an offer to settle under Rule 49.10(1). Ms. McCloy obtained a result at the trial hearing that was more favourable to her than the offer. The result was considerably more favourable than the offer, as it was undisputed that Mr. Bennett would have received at least $100,000 more under the offer than what he will receive from the result. This all was accepted by Mr. Freeman.

11There was then another McCloy written offer to settle. It was delivered during the hiatus in the trial hearing on December 1, 2016. It expired on December 16, 2016. It essentially reiterated the June 29, 2016 offer, as the December 1, 2016 offer again offered to have Mr. Bennett receive $20,000 from the net proceeds of sale in the trust account, with Ms. McCloy receiving the remainder and with the parties releasing each other. This offer was after Ms. McCloy’s witnesses had given their evidence. In my ruling, I found that the McCloy witnesses had considerably more credibility than did Mr. Bennett. By the time of the second offer, Mr. Bennett, having seen Ms. McCloy’s case and knowing whom he would be calling as witnesses, should have accepted the offer. Yet, he did not.

12Rule 49.10(1) makes it clear that where a plaintiff obtains a judgment that is more favourable to the plaintiff than his or her offer, the plaintiff is entitled to partial indemnity costs to the date of the offer and substantial indemnity costs thereafter, “unless the court orders otherwise.” Given the facts of this case, and both of these offers to settle, I see no reason to deviate from the full consequences of Rule 49.10(1). It is indeed puzzling why Mr. Bennett did not accept either offer given the evidence that came out at trial. This is particularly the case with the second offer which happened after Ms. McCloy’s evidence had been presented.

13I, therefore, order that Ms. McCloy be paid partial indemnity costs up to June 29, 2016 and substantial indemnity costs thereafter.

iv. Mr. Freeman’s liability:

14Mr. Rosen submitted that $2,260 should be awarded in costs for Ms. McCloy as against Mr. Freeman personally. He argued that Mr. Freeman was inexcusably late at the trial hearing on January 16, 2017, and that Mr. Freeman inexplicably, claiming health issues, did not attend at all at the trial on January 19, 2017. This caused delay to the trial, and costs to Ms. McCloy, as Mr. Rosen attended both days on time as required. Mr. Rosen argued that this conduct was consistent with other conduct of Mr. Freeman prior to the trial hearing, such as the delay in the discoveries. Mr. Rosen estimated that least 6 hours of his time was wasted on January 16 and 19, 2017 due to Mr. Freeman’s conduct. Mr. Rosen also pointed out that any costs award as against Mr. Bennett in this regard was pointless since Mr. Bennett is insolvent. Hence, the claim for costs as against Mr. Freeman.

15Mr. Freeman responded that his lateness on January 16, 2017 was due to weather conditions and a motor vehicle accident that blocked traffic. He stated that he did not attend on January 19, 2017 due to a personal illness. I recall that Mr. Freeman advised the court the next day with a note from his physician in hand that Mr. Freeman suffers from Parkinson’s disease and that the stress of the trial hearing had caused a flare-up in the disease to the point where he could not attend on January 19, 2017.

16After careful consideration, I have reluctantly decided not to award costs against Mr. Freeman. The delay on January 16, 2017 and the non-attendance on January 19, 2017 frustrated me, profoundly. I have no doubt that it frustrated Ms. McCloy and Mr. Rosen, who attended dutifully on both days. My frustration was compounded by Mr. Freeman’s persistent and wrong practice of corresponding with the court without copying Mr. Rosen. This happened throughout this litigation.

17Yet, I accept that Mr. Freeman was delayed by weather and traffic on January 16, 2017 and suffered (and continues to suffer) from a serious medical condition, Parkinson’s disease, that flared up due to the trial stress on January 19, 2017 to the point where he could not attend. I recall the nasty weather on January 16, 2017. The non-attendance on January 19, 2017 was corroborated by a doctor’s note. As a result, I accept that the delays were not caused by events over which Mr. Freeman had control. As such, it is not appropriate for me to punish Mr. Freeman with an award of costs against him. I will not do so.

18I make three other comments. First, it is an open question as to whether Mr. Freeman should have taken on this assignment in the first place given his medical limitations, but I am not aware of any authority justifying the imposition of costs against a lawyer personally for making such a fateful decision. Second, as to Ms. McCloy’s inability to collect these costs from Mr. Bennett, that reality should not cloud my judgment as to Mr. Freeman’s personal liability for costs. Third, Mr. Rosen stated in paragraph 7 of his written submissions that, once Mr. Freeman became involved in the litigation in February, 2016, Mr. Bennett “made every step more lengthy and expensive than it ought to have been,” such as the eviction, the sale and ultimately each litigation step. He implied that Mr. Freeman was in part responsible for these earlier delays. I am not prepared to make that conclusion, as I have no evidence that Mr. Freeman acted on anything other than firm instructions in this regard.

19I, therefore, do not award costs against Mr. Freeman.

v. Quantum of award:

20Mr. Rosen argued that Ms. McCloy’s partial indemnity costs for fees from December 17, 2015 to June 29, 2016 are $8,806.77 (HST inclusive). Mr. Freeman did not dispute this calculation. In reviewing Ms. McCloy’s Costs Outline, it appears that this total represents 60% of the actual costs Ms. McCloy incurred for fees in getting the Property sold. Other than the formalization of Justice Conway’s order, there was no interlocutory activity in the litigation during this time, and this is reflected in the Costs Outline. During this period, the property was listed and sold. Given Mr. Rosen’s year of call, I have no criticism of either his actual rate or his partial indemnity rate. I note that most of the time shown was that of Mr. Rosen. I also do not criticize him for that, given the importance to his client of getting the Property sold properly and promptly. I award Ms. McCloy $8,806.77 in partial indemnity costs for fees for this period.

21Concerning the period of June 29, 2016 to the end of the trial hearing, Mr. Rosen made two alternative claims for costs for fees, one in the event I award costs against Mr. Freeman and the other in the event I do not. Since I have not awarded costs against Mr. Freeman, I will discuss only the second alternative. Mr. Rosen argued that I should award $59,407 + $2,266 = $61,673 in substantial indemnity costs, HST inclusive, for fees for this period.

22I have already decided that Ms. McCloy is entitled to substantial indemnity costs for this period. Looking at her Costs Outline, the claim of $59,407 is indeed 90% of the actual cost that was incurred by Ms. McCloy in fees for this period, which is consistent with the authorities as to what a substantial indemnity award should be. Mr. Freeman did not dispute this calculation.

23Mr. Freeman’s only submission concerning this time period was that Ms. McCloy should not be awarded costs for the “August 2016 motion” concerning the “missed cross-examination.” He accused Mr. Rosen of booking the “cross-examination” without first consulting him, Mr. Freeman, and refusing to accommodate Mr. Freeman’s schedule. There was no August 2016 motion in this matter. What did happen was that the examinations for discovery I ordered take place on August 16 and 17, 2016 did not take place, and I convened a conference call with counsel that took place on September 2, 2016. It came out that it was Mr. Bennett, not Ms. McCloy, who cancelled the ordered discoveries, and who then did not attend at the agreed upon rescheduled dates. After hearing submissions, I found that it was Mr. Bennett who had not acted reasonably in failing to attend at the ordered discoveries. I rescheduled the discoveries, and awarded Ms. McCloy costs thrown away for the aborted discoveries. This matter has been adjudicated upon, and I will not revisit it here.

24Mr. Freeman did not make further submissions as to the quantum of the costs to be awarded in favour of Ms. McCloy. He stated that he found Mr. Rosen’s “mathematics . . . to be reasonable.” He generally submitted that my award of costs as against Mr. Bennett should be reasonable in the circumstances.

25Should I award Ms. McCloy the additional $2,266 of costs as against Mr. Bennett that I did not award for her as against Mr. Freeman? I have decided not to do so. Such an award would be in excess of the substantial indemnity costs Ms. McCloy will be awarded. It would in effect punish Mr. Bennett for Mr. Freeman’s actions, which is inappropriate. In the end, I have decided that the normal substantial indemnity award should suffice for Ms. McCloy for the period after June 29, 2016, including the January, 2017 trial delays. Mr. Bennett’s choice of counsel is a risk that comes with litigation in this particular case.

26I have also decided to discount the substantial indemnity award somewhat in little of the mild success Mr. Bennett obtained on some of the issues. I award Ms. McCloy $55,000 all-inclusive in substantial indemnity costs for fees for the period following June 29, 2016. The reduction is commensurate with Mr. Bennett’s interest in the sale proceeds.

27Finally, there is the question of disbursements for the period after December 18, 2015. Ms. McCloy claims $4,400.26 in actual costs for this period. Mr. Freeman made no submissions in this regard. Most of the disbursements concerned the discoveries and filing fees, all of which are reasonable. $456 is, however, claimed for the cancellation fees for the two scheduled discoveries in August, 2016. I will not award that amount as those costs were covered in my award of costs thrown away on September 2, 2016. I award Ms. McCloy $3,944.26 for disbursements.

28I, therefore, award Ms. McCloy a total of $8,806.77 + $55,000 + $3,944.26 = $67,751.03 in partial and substantial indemnity costs for the period after December 17, 2015.

29Considering some of the other factors in Rule 57.01(1), I find this award to be proportionate to the amount in issue and the amount recovered by Ms. McCloy. It is also appropriate to the importance of this case to the parties, and reasonable in light of the complexity of the issues and the conduct of the parties, particularly the conduct of Mr. Bennett. Concerning conduct, I note that Mr. Bennett repeatedly did not comply with court orders, such as the deadline imposed by Justice Conway to vacate the Property and my directions concerning discoveries which I have already discussed. This must be considered, and my award does so.

vi. Prejudgment interest:

30Mr. Rosen submitted that Ms. McCloy is entitled to prejudgment interest at the rate of 0.8% running from the date of the Statement of Claim, namely August 6, 2015, on Ms. McCloy’s gross entitlement of $341,781.61. The rate appears to be correct, but the principal amount does not. The gross total does not account for my finding that Mr. Bennett is entitled to a 7.3% interest in the sale proceeds. The calculation should be on the net amount of $341,781.61 - $23,343.83 = $318,437.78. I so order.

31Mr. Rosen further argued that the prejudgment interest should be awarded in two blocks. The first block must be on the total amount, which I have found to be $318,437.78, calculated to the day I ordered on consent that $96,173.32 be paid to Ms. McCloy during the trial. I agree. It is undisputed that the $96,173.32 was paid to Ms. McCloy on December 8, 2016. The per diem interest at 0.8% on $318,437.78 would appear to be $6.98. The number of days between August 6, 2015 and December 8, 2016 was 490 days. This means that the interest entitlement for the period up to December 8, 2016 is $6.98 x 490 = $3,420.20. The second block of interest must be on the reduced amount, $222,264.46, from December 8, 2016 to the date of my final report. The per diem interest at 0.8% on this reduced amount is $4.88. I so order.

32Mr. Rosen submitted that I calculate the interest to the date of my reasons, namely February 27, 2017. This calculation is not consistent with the Courts of Justice Act, R.S.O. 1990, c. C. 43, section 127(1) which defines “date of the order” for the purposes of calculating prejudgment interest in a reference to be the date the report is confirmed. That means that, at minimum, I must calculate the prejudgment interest to the date of my report, not to the date of my reasons.

33I have, therefore, decided to convene a conference call with counsel to finalize my report, and I will sign my report on that day. I will also finalize the prejudgment interest entitlement of Ms. McCloy on that day, as well as the post-judgment interest rate.

vii. Conclusion:

34The following is a summary of my award. I award Ms. McCloy costs as against Mr. Bennett totaling $10,244 for the period up to and including December 17, 2015, and costs as against Mr. Bennett totaling $67,751.03 for the period after December 17, 2015. I do not award costs against Mr. Freeman. The total costs award is $77,995.03.

35I also award Ms. McCloy prejudgment interest in the amount of $3,420.20 for the period up to December 8, 2016 and prejudgment interest for the period after December 8, 2016 at the per diem rate of $4.88 up to the date of my report in an amount yet to be determined. The total prejudgment interest is yet to be determined

36I require that counsel confer and arrange a conference call with me for half hour at any time during one of the following dates to finalize my report: May 2, 3, 4 and 9, 2017. I will award the post-judgment interest rate on that day as well.