Court File and Parties
Court File No.: CV-13-487409 Date: June 14, 2017 Ontario Superior Court of Justice
Between: Dirm 2010 Inc., Plaintiff (defendant by counterclaim)
And: Her Majesty the Queen in Right of Ontario as represented by the Minister of Infrastructure, Ontario Infrastructure and Lands Corporation o/a Infrastructure Ontario, Humber River Regional Hospital, HCP Social Infrastructure (Canada) Limited, Innisfree Health (Humber) GPCO Ltd., Plenary Health Care Partnerships Humber GP Inc., PCL Constructors Canada Inc. and Prestressed Systems Incorporated [1]
Counsel: S. Mannella and D. Gurizzan, for Dirm P. Chandler for the PSI
Costs of Action
Before: Master C. Albert
Background
1The trial of this construction lien reference took place over 23 days beginning in September 2016 and concluding in December 2016. My decision and reasons were released on April 10, 2017 and the parties files their submissions on the issue of costs in writing. Neither party requested an oral hearing on the issue of costs.
2Dirm was substantially successful at trial, recovering $1,315,159.20 of its claim for services and materials supplied pursuant to the contract and extras, and for lost profit on the balance of the contract that Dirm was unable to complete when PSI terminated the contract prior to completion. The amount recovered is net of PSI’s recovery on its counterclaim for deficiencies. Dirm was largely successful in its claim (roughly 70 percent recovery) and PSI was marginally successful in its counterclaim (roughly 15 percent recovery). It is appropriate for costs of the action to follow the event and be awarded to Dirm.
3The parties submitted costs outlines and made submissions on costs. Dirm asks for costs on a partial indemnity scale fixed at $519,316.51, inclusive of HST and disbursements. PSI responds that the costs claim is excessive. PSI’s Bill of Costs discloses costs of $281,385.45 on a partial indemnity scale inclusive of HST and disbursements.
General Principles
4As a general principle costs in a proceeding under the Construction Lien Act, R.S.O. 1990, c.C.30, as in an ordinary action, are in the absolute discretion of the court [2]. In fixing costs the court must consider the facts and circumstances of the particular case. It is not a mechanical exercise. The court must be fair and reasonable in exercising its discretion to award costs. As noted by the Court of Appeal in Boucher v. Public Accountants Council for the Province of Ontario [3]:
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…The notions of fairness and reasonableness are embedded in the common law. Judges have been applying these notions for centuries to the factual matrix of particular cases.
5This general principal is incorporated into construction lien references in section 86 of the Construction Lien Act:
“…any order as to costs in an action…is in the discretion of the court”
Relevant Factors
6Rules 57.01(1), 49 and 1.04 describe factors for the court to consider when fixing costs. The list is non-exhaustive and includes:
a) The principle of indemnity: the experience of the lawyer for the party entitled to costs, the rates charged and the time spent; b) Reasonable expectation of the payor: what quantum of costs should the unsuccessful party reasonably expect to pay? c) The amount claimed and recovered; d) Complexity of the proceeding; e) Importance of the issues; f) Conduct: did the conduct of any party shorten or unnecessarily lengthen the duration of the proceeding? g) Whether any step taken was unnecessary, improper, vexatious or taken by mistake or through negligence or excessive caution. h) Proportionality: costs should be proportionate to the importance and complexity of the issues and to the amount involved in the proceeding [4].
7The court must also consider any rule 49 settlement offer served and outstanding at the opening of trial.
8I have considered these factors, which in my view are relevant in exercising discretion and determining an appropriate costs order in this case.
Indemnity
9Generally the successful party is entitled to costs. Dirm was largely successful and is entitled to costs. There is no reason to deprive Dirm of those costs having regard to the factors described in rule 57.01, or any other relevant factors.
10Intertwined with the principle of indemnity is the impact of any settlement offer on a party’s entitlement to substantial indemnity costs. The principle underlying rule 49.10 is that a party who does everything reasonably possible to resolve the dispute and avoid trial is entitled to be reimbursed for all costs incurred thereafter if that party is ultimately more successful at trial.
11In this case PSI made a formal rule 49 settlement offer shortly before trial. Dirm did not accept the offer and had greater success at trial.
12Dirm made no formal settlement offer. In today’s era of encouraging settlement, and notwithstanding that Dirm participated in a mediation and a court-ordered settlement conference with a master, Dirm made no settlement offers in this entire proceeding. I find it surprising that Dirm did not make a settlement offer. Parties to litigation must be encouraged to make formal settlement offers and should face reasonable consequences for failing to do so. In this case I have deducted $6,000.00 from the costs that I would have otherwise found reasonable, to reflect Dirm’s failure to serve a formal settlement offer. I base the quantification on the approximate fee on a partial indemnity scale for the legal time to participate in these two settlement events. Dirm’s principal lawyer, Salvatore Mannella, claims to have spent 371 hours prior to trial and 22.5 days at trial on this matter. He was called to the bar in 1982. His time is claimed on a partial indemnity scale at $425 per hour for preparation and $4,750 per day for trial. He billed his client at the rate of $675.00 per hour.
13Danny Gurizzan, called to the Bar in 2014, also worked on the file. He claims 309 hours prior to trial and 18.5 days at trial. His time is claimed in the Bill of Costs on a partial indemnity scale at $215.00 per hour for preparation and $2,500.00 per day for trial. His time was charged to the client at $325.00 per hour. PSI’s counsel pointed out in argument that Mr. Gurrizon was a student in 2013 and on that basis the hourly rate for his services in 2013 should be reduced to reflect that he was a student. Dirm’s counsel suggests that a reasonable partial indemnity rate for Mr. Gurrizon in 2013 should be $125.00 per hour. I agree.
14PSI’s counsel relies on hourly rates reflected in a Professional Bulletin issued in 2005 by the Costs Sub-committee of the Rules Committee, updated to the timeframe applicable to the present case.
15I generally quantify partial indemnity hourly rates as 60 percent of actual rates. For Mr. Mannella that would be $405.00. For Mr. Gurizzan as a lawyer that would be $195.00.
16Taking into account the rates in the 2005 bulletin, adjusted for inflation, as well as the partial indemnity rates calculated as explained above, I find that reasonable rates for purposes of calculating an appropriate costs award are as follows:
a) Mr. Mannella: $405.00 per hour for preparation; $4,000.00 per day for trial; and b) Mr. Gurizzon: $125.00 per hour for 2013 as a student; $195.00 per hour from 2014 as a junior lawyer; $1,000 per day for trial days allowed as chargeable.
17Taking into account the complexity of the issues (discussed in greater detail below) and the amounts in issue, PSI ought to have expected that Dirm’s counsel would devote a considerable amount of time to preparing and trying this case. However, having reviewed the time claimed by Dirm’s counsel I find that Mr. Gurrizon’s docketed time as a student is excessive. Notwithstanding that the partial indemnity hourly rates for students and junior lawyers reflect their productivity, PSI should not be required to pay for educating a student and new lawyer to the extent docketed in this case. In total, Mr. Gurrizon’s time excluding trial attendance exceeds 300 hours. In quantifying reasonable costs I have reduced the time recognized for Mr. Gurrizon to reflect his level of experience.
18I further find that the time spent by Mr. Manella for trial preparation exceeds what PSI ought reasonably have expected, taking into account that he had the assistance of a junior lawyer.
19Dirm claims the time of two lawyers to attend at trial. PSI should not be visited with the cost of two Dirm lawyers to attend at trial. For that reason I have not included in the calculation of reasonable and fair allowable costs the time claimed for Mr. Gurizzon’s attendance at trial.
Complexity
20This construction lien reference began as a multi-party proceeding with voluminous documentary productions. Examinations for discovery required multiple days. Trial exhibits were voluminous, even after narrowing down productions not required for trial. Seventeen witnesses testified at trial over 22 days. Oral argument required additional trial days. The parties participated in a private mediation and a court-ordered settlement conference with a master. They were unable to settle the claim, presumably due in part to its complexity. Conflicting expert evidence added to the complexity of the case.
21The trial raised multiple issues and I issued 87 pages of reasons following trial.
22I find that the matter was complex and required counsel of Mr. Mannella’s considerable experience and expertise. Given the complexity of the case Mr. Mannella’s careful preparation and organized presentation assisted the court at trial.
23I am satisfied that most of the time claimed by Dirm’s counsel was required. However, as previously stated, PSI should not be liable for the attendance of more than one lawyer at trial. That was Dirm’s choice and ought to be at Dirm’s sole expense.
Importance of the matter
24The issues were extremely important to both parties. Dirm had not received any payment for its supply of services and materials despite having incurred considerable expense for labour and materials. PSI had not been paid by PCL for Dirm’s work and incurred significant litigation expense. The litigation was also important to both parties because of the claims made by PSI against the labour and materials and performance bonds.
25Because the parties had been unable to resolve the issues a trial was necessary.
Reasonable expectation of the unsuccessful party
26Access to justice requires that a costs award must be in the reasonable expectation of the unsuccessful party. Consequently reasonable expectation of the unsuccessful party is a relevant factor in exercising discretion when fixing costs.
27The costs provisions of the Construction Lien Act and the Rules should reasonably have informed PSI to expect to pay costs if unsuccessful. The costs incurred by PSI in this litigation against Dirm as well as in legal proceedings involving PCL (for which PSI sought recovery from Dirm) should reasonably have informed PSI as to the quantum of costs it could expect Dirm to claim if successful at trial.
28PSI is based in Windsor. Legal hourly rates in Windsor are more modest than those in Toronto. Given that this action involved a Toronto project [5] and was issued in Toronto, PSI ought reasonably to have expected to pay costs based on Toronto legal rates if unsuccessful at trial.
29PSI’s Bill of Costs on a partial indemnity scale reflect costs of $281,385.45 including HST and disbursements. This is the lowest amount for costs that PSI ought reasonably to have expected to pay if unsuccessful at trial.
Conduct of the parties
30Both counsel conducted the case professionally and with the highest degree of civility. Conduct of the parties is a neutral factor in fixing costs.
Proportionality
31Even before the principle of proportionality was explicitly incorporated into section 1.04 of the Rules, it was an intrinsic component of the Construction Lien Act, having regard to sections 67(1) and 86(2) of the Act.
32Read together these provisions express the expectation that lien proceedings will be streamlined and proportionate to the matters in issue.
33Dirm claimed over $1.6 million and recovered over $1.3 million after set-off. PSI counterclaimed for $2 million and succeeded in proving only $300,000.00, an amount set off against Dirm’s award in calculating the final judgment. The total amount in issue was $3.6 million.
34The trial was lengthy and complex, with multiple issues, many witnesses and significant issues of credibility. The trial also raised complex technical engineering issues. I find that the costs claimed by Dirm are proportionate to the matters and amounts in issue.
35The principle of proportionality should not normally result in reduced costs where the unsuccessful party has forced a long and expensive trial. In that regard, had PSI acknowledged early on in this reference that the contractual provisions that it relied on had never been incorporated into the PSI/Dirm contract, perhaps the parties could have narrowed the issues for trial or even reached a settlement without requiring a long and complex trial.
Quantifying costs
36Applying the findings set out herein, I find that Dirm is entitled to costs on a partial indemnity scale, based on rates as set out above. In quantifying costs I have allowed:
a) Mr. Gurrizon: 48.6 hours at $125 per hour plus 101 hours at $195 per hour plus HST, b) Mr. Manella: 319 hours [6] at $405 per hour plus 22.5 trial days at $4,000 per day plus HST, and c) Disbursements of $68,443.13 plus HST
37For the reasons given I find that a reasonable quantification for costs payable by PSI to Dirm is $244,965.00 for fees plus $31,845.45 for HST on fees plus $68,443.13 for disbursements plus $8,897.61 for HST on disbursements for a total of $354,151.19.
Conclusion
38In all the circumstances it is my view that costs ought to be fixed at $354,151.19 payable by Prestressed Systems Incorporated to Dirm 2010 Inc. within 30 days of confirmation of the report that is signed in this reference. I regard this amount as fair and reasonable in the circumstances and what PSI ought to reasonably have expected to pay if unsuccessful.
39This court orders that Dirm prepare the draft report in the prescribed form for review by opposing counsel and the court, incorporating this costs award, and file the draft report by June 26, 2017 in hard copy and in electronic format [7]. If the parties are in agreement as to the form and content of the report then the report may be settled in writing upon the parties filing the draft report together with approval as to form and content. If the parties do not agree on the form of order then counsel should request a hearing by conference call to settle the form of the report.
Master C. Albert. Released: June 14, 2017
[1] Action has been discontinued as against all defendants other than PCL Constructors Canada Inc. and Prestressed Systems Incorporated [2] Courts of Justice Act, R.S.O. 1990, c.C.43, s.131; Construction Lien Act, R.S.O. 1990, c.C.30, s.86 [3] Boucher v. Public Accountants Council for the Province of Ontario, 71 O.R. (3d) 291; [2004] O.J. No. 2634; (Ontario Court of Appeal) per Armstrong, J.A. at paras. 24 and 26, cited by D.G.Price, J. in Blankers v. Stewart, 2010 ONSC 3978 at paras 39 and 40 [4] Rule 1.04 [5] The Construction Lien Act, R.S.O. 1990, c.C.30 requires an action to be issued in the region where the lands are located. [6] The $6,000 reduction to Mr. Mannella’s fee attributable to failure to deliver a settlement offer is accounted for in reducing his allowable docketed hours by amount sufficient to reflect this finding. [7] The draft report may be sent electronically by email to the Assistant Trial Coordinator for construction lien.