Court File and Parties

BARRIE COURT FILE NO.: CV-17-348-00 DATE: 20190313 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Barrie Leasing Services Inc. and James Shirley Plaintiffs – and – Richard Wainman, Michele Wainman, 1783069 Ontario Inc. and 1872984 Ontario Inc. Defendants

Counsel: Jack Armstrong, for the Plaintiffs Daniel Wyjad, for the Defendants

HEARD: In Writing

Reasons for Decision on Costs

DiTOMASO J.

Background

[1] This matter proceeded to trial on May 25, 28, 29, 30 and 31, 2018.

[2] There were two main issues at trial. The plaintiffs, Barrie Leasing Inc. (“Barrie Leasing”) and James Shirley, loaned money to the defendant, Michele Wainman, who owned property on Lake Muskoka (“Lake Muskoka Property”). The loans were secured by three mortgages that were registered against the Lake Muskoka Property. All three mortgages went into default. Barrie Leasing and James Shirley sought to recover monies owed in respect of those defaulted mortgages.

[3] Further, Barrie Leasing and James Shirley advanced funds for the construction of a new cottage and boathouse on the Lake Muskoka Property with a view to enhancing the value of the property, selling the property, and thereafter using the sale proceeds to pay off the outstanding mortgages and construction costs.

[4] A dispute arose in respect of the balances owing on the three mortgages, the amount of construction costs advanced, the rate of interest to be charged, if any, on the advances for construction costs, and whether the construction costs advanced by Barrie Leasing and James Shirley to Richard Wainman and his corporation, 1783069 Ontario Inc., were secured as part of the third mortgage. In respect of the construction costs, one of the issues was whether the construction costs were secured against the Lake Muskoka Property by way of an equitable mortgage or a constructive trust. Another issue, as to who was liable for the construction costs and whether Michele Wainman’s company, 1872984 Ontario Inc., was liable for anything.

[5] The parties were engaged in a long and acrimonious dispute over these issues. Not surprisingly, they blame each other for legal costs incurred, which involved the trial of two actions which were consolidated. They each blame the other for being unreasonable, resulting in an unnecessary trial. They each are of the view that they are entitled to costs.

[6] In these proceedings, for reasons to follow, I find Barrie Leasing and James Shirley are entitled to their costs, and not Richard Wainman, Michele Wainman or their companies.

[7] I have reviewed my Reasons for Judgment released January 22, 2019.

[8] On the fifth and last day of trial, the parties agreed that the amounts owing under the three mortgages as at July 12, 2017, were in the amount of $579,393.02. I found that Michele Wainman was solely responsible for the payment of the amount outstanding on the mortgages and that Richard Wainman had no liability to pay anything under any of the mortgages.

[9] Because the parties had agreed on the outstanding balances of the three mortgages, including interest, it was unnecessary for me to find whether there had been any agreement to amend the rates of interest charged under the three mortgages.

[10] Similarly, on the last day of trial, the parties agreed that the sum of $253,500 was advanced by Barrie Leasing directly to fund the construction of the cottage and boathouse on the Lake Muskoka Property owned by Michele Wainman. They also agreed that additional funding was provided by way of the value of materials obtained from United Lumber through an account in the name of and paid for by Barrie Leasing. This amount was agreed to by the parties in the amount of $145,873.27. The parties agreed that the total construction costs owing was the sum of $399,373.27. This amount was subject to the issue of interest. The Wainmans took the position that there was no interest chargeable to the construction costs. If interest was chargeable, it was at the rate of 5%, calculated annually.

[11] Barrie Leasing and James Shirley submitted that the mortgage costs were secured by the third mortgage and that the interest rate of 15%, calculated semi-annually, applied. I found, for reasons given, that the construction costs were not secured by the third mortgage. Further, I found that the applicable rate in respect of construction costs was in the amount of 5% per annum, calculated annually on the sum of $399,373.27, pursuant to s.3 of the Interest Act, R.S.C. 1985, c. I-15.

[12] In respect of the issue of liability for repayment of construction costs, the defendants took the position that neither Michele Wainman nor her company were liable for these costs. In the end, the defendants took the position that it was Richard Wainman’s company alone that was liable for the repayment of the construction costs.

[13] For reasons given, I found that Richard Wainman, Michele Wainman, and Mr. Wainman’s company, 1783069 Ontario Inc., were jointly and severally liable to pay Barrie Leasing and James Shirley the sum of $399,373.27 for construction costs, together with interest at the rate of 5% per annum. I found that Michele Wainman’s company, 1872984 Ontario Inc., was not liable for the construction costs.

[14] I also found the issue of equitable mortgage/constructive trust claims in favour of Barrie Leasing and James Shirley.

[15] I found that the net proceeds of sale held in trust by both the solicitor for the plaintiffs and the solicitor for the defendants were impressed with an equitable mortgage/lien. See para. 76 of my Reasons for Judgment.

[16] In respect of a constructive trust, I also found that the net proceeds of the sale held in trust by counsel for the plaintiffs and counsel for the defendants were impressed with a constructive trust in favour of the plaintiffs.

Position of the Parties

Position of the Plaintiffs, Barrie Leasing and James Shirley

[17] Barrie Leasing and James Shirley claim that they are entitled to an award of substantial indemnity costs. It is submitted that they have been entirely successful in respect of these proceedings, in that they have been awarded judgment in the amount of $978,766.29, plus interest, regarding the outstanding monies owing under the three mortgages and monies outstanding for the construction costs. In my Judgment, I made further findings and orders in respect of how the outstanding amounts are to be paid in respect of monies held in trust by the solicitors for the plaintiffs and defendants.

[18] Barrie Leasing and James Shirley claim that they are entitled to substantial indemnity costs on the basis that this matter took more than three years to resolve, all because of the unreasonable position taken by the Wainmans. They seek substantial indemnity costs in the amount of $150,904.71.

Position of the Defendants, Richard Wainman, Michele Wainman, 1783069 Ontario Inc. and 1872984 Ontario Inc.

[19] The Wainmans submit that Barrie Leasing and James Shirley were unreasonable parties that forced this matter to result in an unnecessary five-day trial. The Wainmans submit that Michele Wainman was always liable in respect of the monies owing under the three mortgages. However, what was disputed was the additional charges sought by Barrie Leasing and James Shirley, which were administrative and extra charges. The parties could not agree on calculations in respect of the monies owed under the three mortgages until counsel for Barrie Leasing and James Shirley proceeded at trial with a claim for principal and interest only, outstanding on the three mortgages. On the fifth day of the trial, the parties agreed to the amounts owing on the three mortgages as at July 12, 2017, with interest, in the amount of $579,393.02.

[20] Further, the Wainmans submit that the amount owed for construction costs was not really in issue. Rather, in issue was whether those amounts were secured by the third mortgage, what rate of interest applied in respect of the outstanding construction costs and who was liable for the repayment of those construction costs. In addition, there were issues relating to equitable mortgage and a constructive trust claim. It was submitted that Michele Wainman’s company, 1872984 Ontario Inc., had no liability and that the action should be dismissed as against this company.

[21] The Wainmans submit that they are the successful parties in this litigation and that a r. 49 offer, dated May 2, 2017, applies. The Wainmans seek costs in the amount of $110,512.03.

Analysis

Entitlement

[22] The award of costs is discretionary. See s. 131 of the Courts of Justice Act, R.S.O. 1990 c.C.43. In determining costs, the court may also consider those factors set out in r. 57.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[23] I have reviewed all of the written submissions delivered by counsel, including draft Bills of Costs, Costs Outlines, supporting documentation and r. 49 offers.

[24] I find that Barrie Leasing and James Shirley were the successful parties in respect of these two actions which were consolidated and proceeded to trial and judgment. While Barrie Leasing and James Shirley proceeded on the basis of a claim for principal and interest only on the three mortgages, it took five days of trial before the court was advised by counsel that they had come to an agreement of amounts outstanding on the three mortgages as of July 12, 2017. No trial time was spent dealing with any claims regarding extra and/or administrative charges.

[25] Abundantly clear at trial was that these three mortgages had long been in default and that these monies were owed to Barrie Leasing and James Shirley. The interest owing on the third mortgage was found in favour of Barrie Leasing and James Shirley at the rate of 15% per annum, calculated semi-annually until payment.

[26] In respect of the construction funds, the amount owing was also agreed upon by the parties on the last day of trial, in the amount of $399,373.27. The evidence was overwhelming that the sum of $253,500 was advanced by Barrie Leasing directly to fund construction, and that the documentation established and proved the United Lumber balance in the amount of $145,873.27, also paid for by Barrie Leasing, was attributable to the Lake Muskoka Property project.

[27] Barrie Leasing and James Shirley submitted that the construction costs were secured by the third mortgage. Their claim was unsubstantiated and denied. However, the issue still remained as to what amount of interest, if any, was owed. The Wainmans submitted that no interest was owed in respect of the construction costs. Barrie Leasing and James Shirley submitted that interest applied at the rate of 15%; the same rate as the third mortgage. I found that interest applied at 5% per annum, calculated annually, pursuant to the provisions of s.3 of the Interest Act.

[28] I further found liability for repayment of the construction costs against Richard Wainman, Michele Wainman and Richard Wainman’s company, 1783069 Ontario Inc. I found no liability against Michele Wainman’s company, 1872984 Ontario Inc.

[29] I further found in favour of Barrie Leasing and James Shirley that the net proceeds of sale held in trust by both the solicitors for the plaintiffs and the defendants were impressed with an equitable mortgage/lien and with a constructive trust in favour of the plaintiffs.

[30] I find that in all the circumstances, Barrie Leasing and James Shirley are entitled to their costs on a partial indemnity scale. I do not agree that Barrie Leasing and James Shirley are entitled to fees on a substantial indemnity scale. No doubt, they are the successful parties in respect of this litigation. However, I do not agree that a trial in this matter was unnecessary. There were live issues that could not be resolved. There were triable issues that were determined by way of judgment, even where the amounts outstanding for the three mortgages and for the construction costs were agreed upon. For example, the judgment also deals with how funds held in trust are to be distributed. Such distribution could not be awarded until a number of critical findings needed to be made at trial. Those findings were made.

[31] I find that the r. 49 offer, dated May 2, 2017, and relied upon by the Wainmans, does not apply. They submit that they did better at trial than their offer. I disagree. The offer read in total does not support such a submission. Rather, Barrie Leasing and James Shirley were awarded judgment in the amount of $978,766.29, with interest. The Wainmans’ offer does not reflect an offer to settle anywhere near this amount. Further, I also reject the offer as, in respect of the construction costs, it was in the amount of $275,000, as opposed to almost $400,000 which was agreed upon at trial. The Wainmans’ offer also does not speak to any obligations to settle on the part of Michele Wainman. Further, paragraph 5 of the offer provides for payment of $150,000 on the Kashe Lake second mortgage. The court found at paragraph 73 of my Reasons on the Summary Judgment motion, dated March 26, 2018, that the defendants owed $462,192.85 as at January 31, 2018, plus interest at 15%. Further, at paragraph 6 of the offer, rather than no costs being payable by any party, on the Summary Judgment motion, the court awarded the plaintiffs costs in the amount of $20,544.34. Those Reasons for Costs were released on May 14, 2018 and I am advised that those costs remain unpaid.

[32] I find that the r. 49 offer advanced by the Wainmans do not attract any of the consequences of r. 49.

[33] This having been said, I have also reviewed the r. 49 offer advanced by Barrie Leasing and James Shirley, dated April 30, 2018. This offer also speaks to the distribution of funds held in trust and that a shortfall in a prescribed amount shall be evidenced by way of a promissory note executed by all defendants in favour of Barrie Leasing Services Inc. and which note shall become due and payable on January 1, 2019. I find that there are no r. 49 consequences which result from this offer either.

[34] I find that the defendants, Wainman, are not entitled to costs in respect of these proceedings whatsoever. Any costs to be awarded are in favour of Barrie Leasing and James Shirley on a partial indemnity scale.

Quantum

[35] Barrie Leasing and James Shirley have claimed fees from June 29, 2015 to January 22, 2019 (551 hours) at a substantial indemnity rate of $260 per hour. I have already found that Barrie Leasing and James Shirley are not entitled to fees at a substantial indemnity rate. I have considered the r. 57.01(1) factors and do not find there are any factors which would support a claim for substantial indemnity fees. Rather, Barrie Leasing and James Shirley are entitled to fees on a partial indemnity scale.

[36] There are a number of problems in respect of the documentation provided by Barrie Leasing and James Shirley in respect of fees.

[37] On a partial indemnity scale, they claim that the partial indemnity rate for fees is $160 x 551 hours, which produces an amount of $88,160.

[38] With respect, this is incorrect.

[39] Initially, the amount claimed for fees on a substantial indemnity rate of $260 per hour x 551 hours was the sum of $143,260.

[40] I do not have before me documentation to support the 551 hours expended on these two actions. Rather, counsel for Barrie Leasing and James Shirley has produced a PREBILL dated January 22, 2019 for services rendered from August 1, 2017 to January 22, 2019. The number of hours spent for the services described is 285.93. The amount charged for those hours spent at the rate of $260 is the sum of $74,341.80.

[41] On a partial indemnity scale, based on the prebill, I find that Barrie Leasing and James Shirley are entitled to 66.66% (partial indemnity scale) of the fees claimed in the amount of $49,511.64. HST at the rate of 13% calculated on that amount is the sum of $6,442.31. I find the total fees on a partial indemnity scale for a period of August 1, 2017 to January 22, 2019 to be $55,998.55.

[42] The prebill also indicates a previous balance, past due and outstanding, in the amount of $23,797.14. There is no previous account to show the breakout of fees, disbursements, time spent or any particulars regarding the previous bill.

[43] In respect of the previous bill in the amount of $23,797.14, I have applied the partial indemnity rate of 66.66%. On the previous bill, I have calculated a total cost in the amount of $15,863.17.

[44] I have allowed costs on the prebill in the amount of $1,432, with HST of $106.10 for a total of $1,538.10.

[45] Barrie Leasing and James Shirley have also claimed an estimated fee in respect of the costs submissions in the amount of $5,000. I have allowed fees on a partial indemnity scale in the amount of $2,500 plus $325 for HST, for a total of $2,825.

[46] I would therefore award partial indemnity fees, discounted to 66.66%, to Barrie Leasing and James Shirley summarized as follows:

Fees claimed per PREBILL for August 1, 2017 to January 22, 2019 on a partial indemnity scale: $74,341.80 x 66.66% $49,556.24 HST at 13% $6,442.31 Subtotal: $55,998.55

Previous bill, outstanding and past due: $23,797.14 x 66.66% $15,863.17 Subtotal $71,861.72

Disbursements 1,432.00 HST on Disbursements 106.10 Subtotal $ 1,538.10

Fees allowed for costs submissions, including HST $2,825

Total: ($76,224.82, rounded up to $76,225.00) $76,225.00

[47] I find these costs to be fair, reasonable and proportional. See: Davies v. Clarington (Municipality), 2009 ONCA 722 at paras 51 and 52.

Disposition

[48] I hereby order that Richard Wainman, Michele Wainman and 1783069 Ontario Inc., jointly and severally, pay the sum of $76,225, inclusive of fees, disbursements and HST to Barrie Leasing Services Inc. and James Shirley for costs.

Mr. Justice G.P. DiTomaso Released: March 13, 2019