Court File and Parties

COURT FILE NO.: CV-09-394437 DATE: 2018-10-17

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: LUXTERIOR DESIGN CORP., Plaintiff – AND – JANNA GELFAND, MARK GELFAND and THE TORONTO DOMINION BANK, Defendants

BEFORE: Justice E.M. Morgan

COUNSEL: Vanessa Ibe, for the Plaintiff Kevin Sherkin and Jeremy Sacks, for the Defendants, Janna Gelfand and Mark Gelfand

HEARD: Cost submissions in writing

REASONS FOR JUDGMENT

[1] This motion which was in the nature of an appeal of a Master’s judgment in a construction lien trial. My decision was a net positive outcome for the Defendants, resulting in a reduction of the amount awarded to the Plaintiff from $243,325.20 to $171,325.20 – i.e. a reduction of roughly one-third. Given this result, I ordered that the Plaintiff pay the Defendants costs in the amount of $19,000 for the motion. At the same time, I invited counsel to make written submissions on the question of the costs ordered by the Master. The Master had awarded costs to the Plaintiff in the total amount of $485,000.

[2] In my judgment I addressed in a preliminary way the arguments of each side with respect to the costs awarded by the Master. I concluded that I was not able to decide that issue at the time, as I was advised that there had been offers to settle that I might have to take into account. As is the general practice, I did not want to see the settlement offers at the time of the hearing of the motion, but rather wanted to wait until after the matter was decided on its merits before considering the issue of the Master’s costs and the relevant offers.

[3] That said, it is worth repeating the pertinent paragraphs of the judgment as it sets the framework for the current dispute:

[66] In total, the Master found that the Plaintiff was owed $243,325.20 in commissions, plus pre-judgment interest. On top of that, he awarded the Plaintiff $485,000 in costs.

[67] Counsel for the Defendants submits that awarding costs that are double the award on the merits is disproportional and should be reduced. He argues that proportionality is an overriding principle that guides costs awards. The Court of Appeal in England has made this point, Home Office v Lounds, [2002] EWCA Civ 365, and in Ontario it is embodied in Rule 57.01(1)(a) which lists as a factor in fixing the quantum of costs “the amount claimed and the amount recovered in the proceeding”.

[68] Defendants’ counsel further submits that the costs award was partly based on the Master’s erroneous use of a full indemnity scale for the portion of costs incurred subsequent to an offer to settle served by the Plaintiff. The compensation awarded the Plaintiff was slightly more than what the Plaintiff would have received had the Defendants accepted their settlement offer, and so under Rule 49 the Master raised the scale of costs for the period subsequent to the offer. The problem, according to Defendants’ counsel, is that he raised it to full indemnity rather than to substantial indemnity as specified by Rule 49(1)(c) [sic].

[69] It may be that the Master’s costs ruling needs to be re-visited, but I am not yet in a position to do so. I have been advised by counsel that the Defendants also made an offer to settle prior to the trial below, and that their offer may change the calculus under Rule 49 depending whether, and by how much, I reduce the award to the Plaintiff. As it turns out, I have reversed the Master on one point – the $72,000 ‘extra’ for design services – and, as a consequence, the award to the Plaintiff will be correspondingly reduced. This will have to be addressed in further submissions, as described below.

[4] I tend to agree with Defendants’ counsel that a costs award that is double the award on the merits is disproportional. It is, of course, conceivable that this could be a proper outcome if the losing side’s conduct warrants a larger than expected costs award. The case at bar, however, is not such a case.

[5] The outsized costs award was issued by the Master because he was of the view that Rule 49.10(1)(c) of the Rules of Civil Procedure applied to the offers to settle made by the Plaintiff. He was also influenced by the fact that he had made adverse credibility findings against the Defendants. As it turns out, this was done in error.

[6] As I found in my judgment, the credibility findings of the Master were primarily based on a mistaken understanding that the Master had in respect of a specific $72,000 invoice. Without that mistake, the assessment of the Defendants’ credibility would have been different. In addition, the reduction in the award to the Plaintiff that resulted from correcting this error reduced the award to the Plaintiff to an amount that is less than their offer to settle. It therefore negated the application of Rule 49.

[7] The Plaintiff’s position is that it submitted two offers to settle prior to trial, a first offer dated January 14, 2013 for $327,000 inclusive of interest and costs, and a subsequent offer dated June 6, 2013 for $238,561 plus interest and costs. The trial before the Master commenced on September 3, 2013.

[8] As a result of my ruling, the Defendants are required to pay the Plaintiff $171,325.20 plus interest and costs. They therefore did better than they would have done had they accepted the Plaintiff’s offer of $238,561 plus interest and costs.

[9] Counsel for the Plaintiff takes the view that the Plaintiff’s January 14, 2013 offer remained open even after its June 6, 2013 offer was served. She further calculates that the award to the Plaintiff, even after my reduction of it, is more than the $327,000 all-inclusive offer of January 14, 2013, and so Rule 49.10(1)(c ) should still apply. Plaintiff’s counsel submits that the January 14, 2013 offer stated that it remains open “unless withdrawn in writing”, and that the subsequent June 6, 2013 offer did not in so many words withdraw the earlier offer. According to this logic, both of the Plaintiff’s offers remained open to be accepted; the higher offer of June 6th did not effectively withdraw the lower offer of January 14th.

[10] While I have to accept that Plaintiff’s counsel sincerely reads her own offers in that way, no one else would rationally do so. With the greatest of respect, a party who makes an offer to settle which is not responded to for 6 months, and who then raises the stakes and makes a higher settlement offer, does not mean to also leave the earlier, lower offer on the table just for good measure. The only logical understanding of the two offers is that the latter offer withdraws and replaces the former, and that it does so in writing. Any other interpretation of the words “unless withdrawn in writing” takes literalism to an embarrassing extreme.

[11] Accordingly, the Master’s cost ruling must be reduced to a partial indemnity level since Rule 49.10(1)(c) does not apply to the Plaintiff’s offers. In addition, the Master’s costs award must be made to reflect the fact that the overall award to the Plaintiff has been significantly reduced. Counsel for the Defendants submits that the appropriate reduction in those circumstances is to bring the Master’s cost award down from $485,000 to $236,574.20.

[12] Defendants’s counsel also suggests that the amount be rounded down to $200,000 based on the provision in s. 86(1) of the Construction Lien Act allowing for a reduction in the face of a lien for a “grossly excessive amount”. However, I do not think that this case falls into that category. I reduced the award of the Master due to a specific mistake made not only by the Plaintiff in asserting its claim but by the Master himself. Mistakes happen; this one was not the kind of egregious and intentional error that s. 86(1) appears to address.

[13] Costs are always discretionary under s. 131 of the Courts of Justice Act. Overall, the court is required to consider what is “fair and reasonable” in fixing costs, and is to do so with a view to balancing compensation of the successful party with the goal of fairness to the paying party: Boucher v Public Accountants Council (Ontario) (2004), 2004 CanLII 14579 (ON CA), 71 OR (3d) 291, at paras 26, 37 (Ont CA).

[14] I will take a rounded-off version of Defendants’ counsel’s suggestion as reflecting an appropriate reduction in the Master’s costs. In my view, this will compensate the Plaintiff on the equivalent of a partial indemnity scale [Rule 57.0191)(0.a)] at the same time as it brings the level of costs to something squarely within the Defendants’ expectations [Rule 57.01(1)(0.b0].

[15] The Master’s award of costs of the hearing before him is hereby set aside. The Defendants shall pay the Plaintiff a total of $236,500 in respect of the costs of the hearing before the Master.

Morgan J.

Date: October 17, 2018