Court File and Parties
COURT FILE NO.: CV-15-523666 REFERENCE HEARD: 2019-02-27 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Joe Guerrieri, Applicant AND: Tracie Anne Parrott, Frances Gower, Jerry Schmanda, Dawna Catharine Fairbairn and Rob Rolston Building Materials Ltd., Respondents
BEFORE: Master Jolley
COUNSEL: Oleg Roslak, Counsel for the Applicant D.J. Wyjad, Counsel for the Respondent Frances Gower J. Herbert, Counsel for the Respondents Jerry Schmanda and Dawna Catharine Fairbairn A. Wood, Counsel for the Respondent Rob Rolston Building Materials Ltd. No one appearing for the respondent Tracie Anne Parrott
COSTS IN WRITING: 27 February 2019
Decision on Costs
Overview
1On 1 February 2019 I released my decision on this reference and provided the parties with the opportunity to address the issue of costs, other than the carriage costs of the reference which were dealt with in my earlier decision.
2On the reference, I found that the taxes paid by the applicant Joe Guerrieri (“Guerrieri”) ranked in first priority, followed by the mortgage held by Frances Gower (“Gower”), then the Guerrieri mortgage and finally, the judgments held by Jerry Schmanda and Dawna Catharine Fairbain (together, the “Schmandas”) and by Rob Rolston Building Materials Ltd. (“Rolston”) ranking pari passu.
3In determining costs, I have been mindful of the factors set out in Rule 57 of the Rules of Civil Procedure including the amount claimed and recovered, success achieved, the complexity and importance of the matter, unreasonable conduct on the part of any party which unduly lengthened the proceeding, the scale of costs, any offers to settle, the hourly rate claimed, hours spent, the principle of proportionality and the amount a losing party would reasonably expect to pay.
4I am also mindful that both the Guerrieri and Gower mortgages provided for recovery of costs of enforcement on a solicitor and client or substantial indemnity basis. Nonetheless, as a general costs principle, in order for a mortgagee to recover its costs incurred, those costs must be reasonably and necessarily incurred to preserve the mortgaged property or to protect the security and they must be just to all parties (3072453 Nova Scotia Company v. 1623242 Ontario Inc. 2015 ONSC 2105 at paragraph 126).
Guerrieri’s Claim for Costs
5Guerrieri seeks his substantial indemnity costs of $56,774.52, comprised of $42,709.50 in fees, $3,500 in counsel fees, HST on those amounts and disbursements of $4,988.28. His full indemnity costs are $62,567.43.
6He also argues that the carriage costs previously ordered should be paid in priority to any other party’s recovery so that they are shared pro rata, as ordered.
7To the extent that Guerrieri does not recover his costs award from the sale proceeds, then he seeks those costs from the Schmandas, who unsuccessfully advanced a claim for first priority over Guerrieri, and all other respondents.
Gower’s Claim for Costs
8Gower seeks her full indemnity costs in the amount of $88,932.82.
9Guerrieri argues that Gower should not be entitled to her costs as they were not ‘necessarily’ incurred. Gower’s costs related to defending the claim by the Schmandas for an equitable first mortgage which, even if successful, would not have impacted Gower’s full recovery. Further, he argues that Gower’s fees are out of all proportion with the other parties on the reference. Lastly, he argues that Gower’s arguments with respect to the priority claim advanced by the Schmandas were duplicative of those he had advanced and therefore unnecessary.
10Gower takes the position that it was unclear at that time that had the Schmandas succeeded, there would have been sufficient funds to pay Gower. I note that there were $397,197.89 in closing funds. Had the Schmandas received their full claim and Guerrieri his paid taxes and carriage costs as a priority claim, that still would have left approximately $213,609.32, which would have protected Gower’s principal and some of her costs, even had there been a considerable costs award in favour of the Schmandas.
Rolston’s Claim for Costs
11Rolston reasonably limited its argument to whether it and the Schmandas shared pari passu or whether their interests were dealt with based on the time of registration. Rolston also made an offer to settle, which was not accepted by any party and it obtained a more favourable result at the reference than the offer it had made.
12Rolston argues that any costs award should be borne by the Schmandas as the reference was only necessary because of their position that they had an equitable mortgage and that it ranked in priority to the mortgagees and the Rolston judgment.
13Rolston further argues that it would be unfair to have the costs ordered paid from the proceeds as that would effectively eliminate any payment to it even though it was successful on the reference.
Schmandas’ Claim for Costs
14The Schmandas argue that they should not be responsible for the costs of any party as they made an offer on 7 December 2019 that paid Gower her full claim, absent costs, Guerrieri his anticipated full claim with carriage costs, and Rolston an amount for which it had offered to settle but less than it received at the reference.
15They note that they have incurred actual costs of $31,166.02 on the reference, all of which could have been avoided had their settlement offer been accepted. In particular, they argue that Guerrieri should not have his costs as their offer would have provided him with an amount equal to his claim and the carriage costs and could have avoided the reference hearing had Guerrieri accepted it.
Decision on Costs
Impact of Settlement Offers
16Gower, Rolston and Schmanda each served a settlement offer. Each of the offers was reasonable but none was accepted. (The Schmandas did accept Rolston’s offer, to the extent they could, by including it in the terms of their offer.) Unfortunately as none of the offers were accepted, all parties bore the brunt of the reference costs that the value of the property could not bear. I also note that the offers for the most part came after all materials were prepared so they would not have saved the preparation costs but would have saved the costs of the reference hearing.
Entitlement to Costs
17Pursuant to the terms of his mortgage, I find Guerrieri entitled to his substantial indemnity costs. I have used 80% of the actual rate for a total of $51,051.64, which I have reduced to $40,000 to take into account the justness to all parties and the fact that offers were made by the Schmandas and Rolston that would have fairly protected Guerrieri. These costs are in priority to all parties other than Gower, who holds the first mortgage.
18As for Gower’s costs, I did find the Gower outline of issues and submissions to be a helpful addition to the submissions of Guerrieri and only marginally duplicative. I also note that Guerrieri benefited from Gower’s comprehensive response to the Schmanda claim. Further, Gower had to respond to an actual notice claim that was not levied against Guerrieri. However, I find the time spent to be disproportionate to that of the other parties. Removing the time that was specific to Guerrieri on the sale process, Guerrieri spent roughly 120 hours on the reference. Gower’s hours total 227.7 for a significantly shorter period of time.
19Gower’s substantial indemnity costs pursuant to her mortgage total $71,239.62. Given the very small risk to which Gower was exposed, even if the Schmandas had succeeded, I do not find that those costs were necessarily incurred to protect her security. Nor would I find an amount of that magnitude fair for the other parties to bear. As such, I have reduced her costs award to $20,000, which will take first priority along with her mortgage amount.
20I award Rolston its costs in the amount of $5,000. While its issues were not as complex as those faced by the mortgagees fending off the equitable mortgage claim advanced by Schmanda, its costs claimed are commensurately smaller. It was content to adopt the position of Guerrieri on the Schmanda claim, even though the claim would have affected its interest, had it been successful. Further, it made a real attempt to settle and its offer could have been accepted, letting it out of the reference. Those costs will be added to its judgment.
21While I understand that awarding the costs to the mortgagees from the proceeds necessarily reduces the amount available to the judgment creditors, such is the situation where any party has a judgment against a defaulting mortgagor.
Carriage Costs
22There appears to be differing interpretations as to how the carriage costs are to be shared. The decision ordered those costs to be shared pari passu pro-rated to their interests. I find it fair that those costs be shared based on the percentage their recovery represents as the carriage benefited them in that proportion. Further those costs should be paid in priority to any party’s recovery.
23To the extent that the costs ordered to Guerrieri, Gower and Rolston are not recoverable from the proceeds, they may look to the Schmandas for those costs as it was the Schmandas’s unsuccessful claim to an equitable mortgage that ranked in priority to the others that was the cause of the reference.
Master Jolley
Date: 1 March 2019