Court File and Parties
Court File No.: C-538-14 & C-540-14 Date: 2018/12/11 Superior Court of Justice - Ontario
Re: Hogg Fuel & Supply Limited, Plaintiff And: Historic Royal Wales Apartments Inc., Madison Avenue Construction Corporation, Home Trust Company and Centurion Mortgage Capital Corporation, Defendants
Hogg Fuel & Supply Limited, Plaintiff And: Chvrchill Developments B Inc., Madison Avenue Construction Corporation, Home Trust Company and Centurion Mortgage Capital Corporation, Defendants
Before: The Honourable Mr. Justice G.E. Taylor
Counsel: Jeremy Forrest, Counsel for the Plaintiff Stephen Schwartz, Counsel for the Defendants, Home Trust Company and Centurion Mortgage Capital Corporation Alex Toolsie, Counsel for Absolute Electric No one appearing for Historic Royal Wales Apartments Inc., Madison Avenue Construction Corporation and Chvrchill Developments B Inc.
Heard: September 12, 2018
Cost Endorsement
Introduction
[1] This was a one-day trial of two construction lien actions commenced by Hogg Fuel & Supply Limited. Absolute Electric sheltered under one of Hogg Fuel’s liens. The owners of the properties and the general contractor did not participate in the trial. It was conceded by the mortgagee, Home Trust Company that it was liable for a deficiency in the holdback. The issue at trial was whether the deficiency related to the basic holdback or the finishing holdback.
[2] I found that the deficiency related to the finishing holdback and accordingly granted judgment against Home Trust in favour of Hogg Fuel for $6,837 and in favour of Absolute Electric for $3,641. I granted judgment against the owners and the general contractor in favour of Hogg Fuel for $68,368.66 and in favour of Absolute Electric for $36,408.90. I dismissed the actions against Centurion Mortgage Capital Corporation.
[3] The parties who participated in the trial have made written submissions with respect to costs of the actions.
The Positions of the Parties
[4] It is the position of Hogg Fuel that it should be awarded partial indemnity costs against the owners and the general contractor. Absolute Electric did not make submissions about this issue.
[5] Home Trust and Centurion were represented by common counsel. Both parties take the position that they should be awarded partial indemnity costs of the action to the date of offers to settle dated August 21, 2017 and substantial indemnity costs thereafter. Home Trust and Centurion take the position that they were both successful in defending these actions.
[6] Hogg Fuel’s position is that it was unsuccessful in its action against Centurion which therefore entitles Centurion to costs of the action on a partial indemnity basis. Hogg Fuel also recognizes that it obtained a judgment less favourable than the offer to settle dated August 21, 2017 and therefore asserts that the provisions of rule 49.10(2) of the Rules of Civil Procedure apply. As a result of the application of rule 49.10(2), Hogg Fuel is entitled to partial indemnity costs of the action up to August 21, 2017, payable by Home Trust, and Home Trust is entitled to partial indemnity costs subsequent to that date.
[7] It is the position of Absolute Electric that it ought to be paid its cost of the action in an amount in excess of $22,000. Absolute Electric takes the position that the offers to settle dated August 21, 2017 and a subsequent offer to settle dated April 18, 2018 were not legitimate offers to settle because they could only be accepted by Absolute Electric if Hogg Fuel also accepted the offers to settle.
[8] Both Hogg Fuel and Absolute Electric take the position that the other ought to bear a disproportionate portion of any costs awarded to Home Trust or Centurion although each has a different basis for their respective position.
Entitlement and Scale of Costs
[9] I begin by making two observations both of which I think are significant considerations regarding the costs to be awarded in this case. Firstly, Hogg Fuel and Absolute Electric obtained judgments against Home Trust. Secondly, the amount of those judgments was exceedingly modest.
[10] Although the amounts awarded in judgment to Hogg Fuel and Absolute Electric against Home Trust were considerably less than the amounts sought, the lien claimants were successful in this action. I disagree with the position of Home Trust. Home Trust did not successfully defend these claims. I am mindful that the judgment at trial was for the amounts asserted to be owing by Home Trust, but that does not mean it is entitled to costs of the entire action.
[11] Rule 49.10(2) of the Rules of Civil Procedure contemplates the precise result that occurred in this case. That rule reads as follows:
Where an offer to settle, (a) is made by a defendant at least seven days before the commencement of the hearing; (b) is not withdrawn and does not expire before the commencement of the hearing; and (c) is not accepted by the plaintiff, and the plaintiff obtains a judgment as favourable as or less favourable than the terms of the offer to settle, the plaintiff is entitled to partial indemnity costs to the date the offer was served and the defendant is entitled to partial indemnity costs from that date, unless the court orders otherwise.
[12] Home Trust and Centurion made offers to settle the claims of both lien claimants in August 2017. These offers provided that they were to expire one minute after the commencement of the trial. The amount offered in settlement of the claims of Hogg Fuel was $35,000 inclusive of interest and costs and the amount offered in settlement of the Absolute Electric claim was $15,000 inclusive of interest and costs. Clearly these amounts are more than the amounts awarded to the lien claimants at trial.
[13] Home Trust and Centurion rely on the Ontario Superior Court decision in Young Estate v. RBC Dominion Securities, [2009] O.J. No. 734. In that case, the defendants made an offer to settle, purportedly pursuant to rule 49, offering to consent to a dismissal of the action without costs. That offer was not accepted and the action was dismissed at trial. The trial judge held that the cost consequences of rule 49 had been engaged (paragraph 31). The trial judge also found that the defendants were not entitled to an award of substantial indemnity costs because of an assertion that one of the defendants was incompetent and dishonest.
[14] The cost ruling in Young Estate was released on February 24, 2009 and accordingly the trial judge did not have the benefit of the decision of the Ontario Court of Appeal in Davies v. Clarington (Municipality), 2009 ONCA 722, [2009] O.J. No. 4236 which was released on October 16, 2009. In Davies, the court made it clear that substantial indemnity costs can only be awarded when the conditions set out in rule 49.10 have been met or when there has been a clear finding of reprehensible conduct by the party against which the cost award is being made. The Court of Appeal stated at paragraphs 40 and 48:
In summary, while fixing costs is a discretionary exercise, attracting a high level of deference, it must be on a principled basis. The judicial discretion under rules 49.13 and 57.01 is not so broad as to permit a fundamental change to the law that governs the award of an elevated level of costs. Apart from the operation of rule 49.10, elevated costs should only be awarded on a clear finding of reprehensible conduct on the part of the party against which the cost award is being made.
Before turning to the settling defendants' second argument, I make one final comment. In cases such as [reference to cases omitted], trial judges have expressed the view that denying elevated costs to defendants who submit an offer to settle, which is later revealed to be more favourable than the result at trial, acts as a disincentive to defendants to make reasonable offers to settle. This view, while understandable, is contrary to the wording, spirit and intent of rule 49. Rules cannot be incrementally changed through jurisprudence. Any change in the rules to take into account the position of defendants who legitimately try to curtail what turns out to be unnecessary litigation is a matter for the Rules Committee.
[15] In Smith v. Inco Ltd., 2013 ONCA 724, [2013] O.J. No. 5449, the Court of Appeal was invited to reconsider its decision in Davies and declined to do so stating at paragraphs 61 and 62:
The trial judge agreed that Inco's offer to settle was a factor he could consider in awarding costs. However, he recognized this court's decisions in Scapillati v. A. Potvin Construction Ltd. (1999), 44 O.R. (3d) 737, and, especially, Davies v. Clarington (Municipality), 2009 ONCA 722, 100 O.R. (3d) 66, which held that, absent a rule 49.10 offer to settle, enhanced costs should be awarded only on a clear finding of reprehensible conduct on the part of the party against which the costs award is being made. Applying these decisions, the trial judge found that the Class Proceedings Committee "did not conduct itself in a reprehensible manner so as to justify an enhanced costs award in Inco's favour." Accordingly, the trial judge did not award costs to the appellant on a substantial indemnity basis.
The appellant does not contest this finding. Instead, it invites this court to "revisit and reformulate" the law enunciated in Scapillati and Davies. We decline the invitation. The law as set out in Scapillati and Davies is clear and settled, and was applied appropriately by the trial judge in this case.
[16] There is no suggestion that either Hogg Fuel or Absolute Electric engaged in reprehensible conduct which would justify an award of substantial indemnity costs.
[17] I reject the position of Absolute Electric that the offer to settle made to it on August 21, 2017 ought not to be considered because that offer could only be accepted if Hogg Fuel also accepted the offer made to it on the same day. There is no evidence that Absolute Electric sought to accept the August 2017 offer made to it independently of acceptance by Hogg Fuel of the simultaneous offer made to it. I therefore do not accept that Absolute Electric was not allowed to “escape the proceeding” because of the terms of the August 2017 offers to settle and the position of Hogg Fuel.
[18] I therefore find that Hogg Fuel and Absolute Electric are entitled to their partial indemnity costs of this proceeding up to August 21, 2017 and Home Trust is entitled to its partial indemnity costs thereafter.
[19] The claims against Centurion were dismissed. Therefore, Centurion is entitled to be paid its partial indemnity costs of the entire action by Hogg Fuel and Absolute Electric.
[20] Hogg Fuel submits that the costs awarded to Home Trust and Centurion should be apportioned and made payable 40% by it and 60% by Absolute Electric. The basis for this submission is that Absolute Electric insisted on its right to call viva voce evidence when the other parties were content to have the evidence at trial consist of affidavits and transcripts of cross-examinations on affidavits which were originally intended for use on a summary judgment motion that did not proceed. I do not accept this reasoning.
[21] When the case was originally called for trial in April 2018, counsel for Absolute Electric stated that his client wanted to testify at the trial. Counsel for Hogg Fuel and the defendant mortgagees objected but reserved the right to present viva voce in the event that Absolute Electric was allowed to call its witness. I was the assigned trial judge on that occasion as well. When I indicated that I would allow Absolute Electric to call its witness, the parties agreed to adjourn the trial. I agree with the submission that the testimony of Karl David Jones, the principal of Absolute Electric, was of no assistance in resolving the issues in dispute. However, his testimony was also very short, occupying approximately 15 minutes of court time.
[22] Absolute Electric submits that Hogg Fuel should bear full responsibility for any costs awarded in favour of Home Trust and Centurion because Hogg Fuel did not accept the offers to settle made by Home Trust and Centurion. According to Absolute Electric, Hogg Fuel “used its veto power to nullify both Offers”. Not only is there no evidence on which that proposition could be based, there is no authority referred to by Absolute Electric to support such a novel approach.
[23] Accordingly, it is my view that the costs awarded in favour of Home Trust and Centurion are to be payable jointly and severally by Hogg Fuel and Absolute Electric.
[24] Hogg Fuel and Absolute Electric are each entitled to an award of partial indemnity costs against the owners of the properties against which their respective liens were filed and the general contractor.
Quantum
[25] This case was presented on the basis that a choice had to be made between two possible outcomes. Either the lien claimants were entitled to priority over the mortgagee because of the deficiency in the basic holdback required to be maintained by the owner, in which case the lien claimants would be granted judgment for the full amount of their liens, or the deficiency was in relation to the finishing holdback, in which case the lien claimants would be awarded judgment for ten percent of the amount of their liens. To put those options in perspective, but for these proceedings being pursuant to the Construction Lien Act, the action would be within the monetary limit of the simplified procedure if the claims were in relation to the basic holdback or within the monetary jurisdiction of the Small Claims Court for the amounts of the judgment actually awarded to Hogg Fuel and Absolute Electric.
[26] Hogg Fuel submits that its partial indemnity costs of the entire action total $34,014 and that its partial indemnity costs to August 21, 2017 are in the amount of $18,937. Absolute Electric claims partial indemnity costs of $22,680 for the entire action and does not provide a calculation for its costs to the date of the first offer to settle. Home Trust and Centurion seek partial indemnity costs to August 21, 2017 and substantial indemnity costs thereafter in the total of $21,900 each for a total of $43,800.
[27] As I have previously stated, Centurion and Home Trust were represented by the same law firm and counsel. In my view, it was fairly clear that the Centurion mortgage was not a building mortgage and therefore there was no priority in favour of the lien claimants. The time spent at trial was primarily with respect to which of the two holdbacks was the relevant one for determining the priority issue. I have difficulty seeing that any great amount of extra time was spent by counsel for Centurion in defending the action against Centurion than in defending the claims against Home Trust. Centurion is entitled to its costs up to August 27, 2017 which Home Trust is not. I also take into consideration that the total amount claimed was in excess of $100,000.
[28] I find that Centurion is entitled to costs fixed at $10,000 payable by Hogg Fuel and Absolute Electric jointly and severally. This amount includes an amount for disbursements but it is not possible, based on the submissions made, for me to separate the costs incurred by Centurion from the disbursements incurred by Home Trust. Centurion in my view would be entitled to be reimbursed for some but not all of the disbursements incurred before August 21, 2017 but as pointed out by Hogg Fuel it is not apparent when the disbursements claimed by Centurion were incurred in relation to the date of the first offers to settle. I have therefore fixed an all inclusive amount without separating fees, disbursements and HST.
[29] Hogg Fuel was the party with de facto carriage of this proceeding. Absolute Electric relied on and supported the positions advocated by Hogg Fuel. Therefore I find that Hogg Fuel is entitled to a greater award of costs to the date of the first offers to settle than Absolute Electric.
[30] Before August 21, 2017, there was a motion for summary judgment brought by Home Trust and Centurion. The motion ultimately did not proceed. However the motion affidavits filed by the parties and the transcripts of the cross examinations on those affidavits formed substantially all of the evidence at the trial. The pretrial conference also took place before August 21, 2017.
[31] Counsel for Hogg Fuel, a lawyer called to the bar in 2006 charged an hourly rate of between $310 and $340. The original lawyer retained by Absolute Electric was called to the bar in 2014 and charged hourly rates of between $150 and $165. The successor counsel for Absolute Electric, a lawyer with 5 years of experience sought an hourly rate of $300. I find the hourly rate charged by the lawyer for Hogg Fuel and the first lawyer for Absolute Electric to be appropriate rates for the purpose of determining a partial indemnity rate but the rate charged by the second lawyer for Absolute Electric should be discounted somewhat. I find that an appropriate hourly rate for partial indemnity for Hogg Fuel’s lawyer to be $175. I find the appropriate hourly rate for Absolute Electric’s first lawyer to be $90 and for Absolute Electric’s second lawyer to be $140.
[32] No exception was taken to the hours spent by counsel for Hogg Fuel or Absolute Electric. Those hours were 67 for the lawyer for Hogg Fuel, 59 for the first lawyer and 2 for the second lawyer for Absolute Electric for a total of 61. However, I am not simply applying an hourly rate to a number of hours to calculate an amount for partial indemnity costs to be paid by Home Trust to the date of the first offers to settle. I am fixing costs, not assessing costs. The modest amounts awarded in judgment to the lien claimants must be taken into account in fixing the appropriate amount for costs.
[33] The disbursements incurred by Hogg Fuel to August 21, 2017 totaled $4,809 plus HST of $505. I was given no information by Absolute Electric about its disbursements incurred before August 21, 2017.
[34] I therefore fix the partial indemnity costs to August 21, 2017 of Hogg Fuel at $12,500 inclusive of disbursements and HST and of Absolute Electric at $3,000 inclusive of disbursements and HST. These costs are payable by Home Trust.
[35] The actual hourly rate of counsel for Home Trust was $625. It is proposed by Home Trust that a partial indemnity rate of $325 per be allowed. The actual hourly rate and the partial indemnity rate of counsel for Home Trust are significantly more than the hourly rates of counsel for Hogg Fuel and Absolute Electric. However, rule 57.01(1) provides that one of the principles to be considered when awarding costs is that of indemnity. Counsel for Home Trust has over 30 years’ experience. It must have been in the expectation of the lien claimants that if their position was not accepted, they would be facing a significant award of costs on the basis that the judgment was less than the amount offered by Home Trust in settlement of the action.
[36] It is not clear which of the disbursements were incurred by Home Trust after August 21, 2017. Some of them were obviously incurred before that date.
[37] I therefore fix the partial indemnity costs of Home Trust subsequent to August 21, 2017 in the amount of $7,500 inclusive of disbursements and HST payable jointly and severally by Hogg Fuel and Absolute Electric.
[38] The partial indemnity costs of Hogg Fuel payable by the owners and the general contractor are fixed at $30,000 inclusive of disbursements and HST. These costs are payable jointly and severally. The partial indemnity costs of Absolute Electric payable by Chvrchill Developments B Inc. and Madison Avenue Construction Corporation are fixed at $15,000 inclusive of disbursements and HST which costs are payable jointly and severally.
Summary
[39] The following is a summary of my ruling on the issue of costs:
| Recipient | Payor | Amount |
|---|---|---|
| Hogg Fuel | Home Trust | $12,500 |
| Absolute Electric | Home Trust | $ 3,000 |
| Centurion | Hogg Fuel and Absolute Electric | $10,000 |
| Home Trust | Hogg Fuel and Absolute Electric | $ 7,500 |
| Hogg Fuel | Historic Royal Wales, Chvrchill Developments and Madison | $30,000 |
| Absolute Electric | Chvrchill Developments and Madison | $15,000 |
G.E. Taylor, J. Date: December 11, 2018