2019 ONSC 3796
COURT FILE NO.: CV-11-5112-00
DATE: 2019 06 18
ONTARIO
SUPERIOR COURT OF JUSTICE
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Phyzex Technologies Inc. and Sasha Sekretov, Plaintiffs
AND
Correct Development Corporation, Defendant
BEFORE: MCSWEENEY J.
COUNSEL: K. RANDAWA, for the Plaintiffs
E. MOORE, for the defendant
HEARD: IN WRITING
COSTS DECISION
[1] On January 11, 2019 I released my decision following trial in this commercial lease dispute. I dismissed the claim of the plaintiffs/defendants by counterclaim (“plaintiffs”, “tenants”) for $120,000 in business losses and $50,000 in punitive damages relating to the termination of its lease. I allowed the counterclaim of the defendant/plaintiff by counterclaim (landlord) for unpaid amounts owning under the terms of the lease, in the total amount of $65,989.00.
[2] The defendant was successful in defeating the plaintiffs’ claim and in obtaining judgment on its own counterclaim. Trial of this action from evidence to final submissions took a total of eight days of court attendance. The defendant is entitled to its costs.
[3] I have now received written cost submissions from the parties.
Position of the parties on costs
[4] I have read the parties’ materials and considered their submissions. Neither made offers to settle relevant to this analysis.
[5] The defendant’s detailed bill of costs showing actual costs of $73,499.84. Its partial indemnity costs totalled $45,630.76, and substantial indemnity costs totalled $66,533.42. Defendant seeks substantial indemnity costs on the basis of the contractual terms in the parties’ final lease.
[6] The plaintiffs do not take issue with the specific description of the work done by the defendant nor the disbursements claimed. They make four objections to the quantum of costs claimed:
a. the defendant’s cost recovery should be limited to that available in Small Claims Court because it started its action in that forum;
b. the plaintiffs continue to view some of the terms of the parties’ final as unfair (e.g. double rent payable during period of overholding); and
c. the defendants should be held to an hourly rate according to a Cost Grid Consultation Paper prepared by the Civil Rules Committee several years ago. Applying the grid, the plaintiff submits that defendant’s trial counsel should be held to a partial indemnity rate of $110.00 per hour and to a maximum of $175.00 per hour on a substantial indemnity scale.
d. costs are overall excessive/disproportionate and beyond the reasonable expectations of the plaintiff.
[7] With respect to objection (a), it is accurate that this landlord-tenant lease dispute started as a Small Claims action brought by the landlord defendant to recover unpaid lease arrears. The tenant, plaintiff at trial before me, responded by starting its own action in Superior Court for damages against the landlord in excess of the Small Claims Court limit. This led to the transfer of the small claims action to the Superior Court where the parties’ agreed it would be joined and tried as a counterclaim.
[8] No more need be said about the plaintiffs’ argument for Small Claims Court cost limits than that it was the plaintiffs’ own forum choice that moved this lease dispute into the significantly more costly territory of the Superior Court.
[9] The plaintiffs should benefit from a reduction in their cost exposure by pointing to the fact that, had they themselves made the more proportionate decision to defend and counterclaim in the Small Claims jurisdiction, their cost exposure would have been much lower.
[10] With respect to objection (b), the plaintiffs’ disagreement with the lease terms was part of his case at trial. Plaintiffs’ continuing perception of the unfairness of the lease they entered into is not a legal basis for opposing a cost award.
[11] With respect to objection (c), as noted in the landlord’s reply submissions, the hourly rates in the Cost Grid document reflect a proposal made more than ten years ago which has been superseded by other direction to the legal profession from Civil Rules Committee.
[12] The plaintiff’s objection (d), to overall quantum as excessive and beyond its expectations is addressed further below.
Scale of costs:
[13] The defendant landlord seeks substantial indemnity costs on the basis of the lease signed with the plaintiffs. Specifically, Clauses at page 2, at section 24 and at Schedule C of the Final lease establish the defendant’s contractual entitlement to recovery of its legal costs, on a solicitor-client scale, where it incurs costs relating to default by the tenant. Where such clauses form part of an agreement, they indicate that the parties turned their minds to the question of scale of costs, and the courts give effect to those terms.
[14] Royal Bank of Canada v. Lunardi, 2016 ONSC 3382 (“RBC v Lunardi”) considered a debtor’s argument against application of a similar legal cost recovery term for solicitor-client costs in a bank guarantee. In upholding the scale of costs, the Court agreed with the bank’s position that the debtor had accepted the costs term of the contract by signing the contract. As stated by the Court, such contractual clauses will be enforced unless cost-receiving party has engaged in conduct that “militates against it”: Toronto Dominion Bank v. Berthin, [1994] O.J. No. 2590, 1994 CarswellOnt 4483 (Gen.Div.) per Winkler J. (as he then was) at para. 6.
[15] As noted above, exceptions to judicial application of clear contractual provisions may be found in cases where the conduct of the cost-receiving party during trial disentitles it the enhanced case. No such conduct by the defendant occurred in this trial. To the contrary, if I were to consider the conduct of the plaintiffs, in pursuing in Superior Court a claim with little merit in the manner it did, and contributing to significantly more costs than would have been incurred if they had counterclaimed in Small Claims Court, such considerations could have grounded an argument for substantial indemnity costs even in the absence of contractual provisions.
[16] I find on the basis of the lease terms and the case law that the defendant landlord is entitled to its costs on a substantial indemnity scale.
Quantum
[17] Rule 57.01 of our Rules of Civil Procedure sets out the factors that the court may consider when determining costs. The relevant factors that I should consider here are:
(a) the result in the proceeding,
(b) the experience of the lawyer for the party entitled to the costs as well as the rates charged and the hours spent by that lawyer;
(c) the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed;
(d) the amount claimed and the amount recovered in the proceeding;
(e) the complexity of the proceeding;
(f) the importance of the issues;
(g) the conduct of any party that tended to shorten or lengthen unnecessarily the duration of the proceeding.
[18] Modern costs rules are designed to foster three fundamental purposes: (1) to partially indemnify successful litigants for the cost of litigation; (2) to encourage settlement; and (3) to discourage and sanction inappropriate behaviour by litigants: Fong v. Chan 1999 CanLII 2052 (ON C.A.), (1999), 46 O.R. (3d) 330, at para. 22.
[19] Costs awards, at the end of the day, should reflect “what the court views as a fair and reasonable amount that should be paid by the unsuccessful parties”: see Boucher v. Public Accountants Council for the Province of Ontario 2004 CanLII 14579 (ON C.A.), (2004), 71 O.R. (3d) 291, at para. 24.
Analysis:
[20] The plaintiffs argue that the defendant’s bill of costs is excessive overall exceeds the amount of costs that, as the unsuccessful party, it could reasonably expect to pay on the dismissal of its claim following trial.
[21] The landlord’s substantial indemnity costs, as stated above, totalled $66,533.42. I find that its hourly rates and description of work are appropriate and proportionate to preparation for a trial of this length and number of court day attendances in Brampton (eight dates total).
[22] The issues were of moderate complexity. In terms of success, the defendant succeeded in fully defeating the plaintiffs’ claim, and in obtaining the award it sought on its counterclaim, with a reduction by the court of just over $1,000, out of a total recovery of over $63,000.
[23] I note that the defendant was required to defend in the Superior Court and that it was successful in defeating a claim for approximately $170,000.00.
[24] There is certainly a disproportionality between the amount recovered and the costs expended by the landlord in order to recover the judgment it obtained on the counterclaim. In this case, however, such disproportionality cannot be laid at the landlord’s door.
[25] In commencing its initial claim in Small Claims Court, the landlord chose a venue in which the costs and recovery would have been more proportionate and much lower. It was the plaintiff Sekretov’s commencement of a Superior Court proceeding which drove costs and process up. The manner in which it did so was entirely foreseeable, as the plaintiffs made extensive document-dependant claims for damages, each of which the defendant was required to consider and respond to.
[26] In my view the substantial indemnity costs quantum claimed by the defendant is an amount the plaintiffs would reasonably have expected to pay when they commenced their own Superior Court action. I reach this conclusion because the choice of forum was the plaintiffs’: by choosing a forum with higher monetary recovery thresholds, the plaintiffs took a risk of being exposed to costs in that venue. By choosing to start their own claim rather than making a counterclaim in the Small Claims Court, the plaintiffs made the whole dispute resolution process substantially more costly.
[27] In summary: this was initially a landlord’s action to recover amounts found ultimately to be due to it under the terms of a commercial lease. It was successful in obtaining the recovery it sought. It was also fully successful in defeating the counterclaim against it which sought a total of $170,000 in damages.
[28] In all the circumstances described above, the substantial indemnity costs of the defendant, totaling $66,533.42, reflect a fair and reasonable cost award. I therefore order that the plaintiffs Sasha Sekretov and Physzex Technologies Inc, which parties were found to be jointly and severally liable at trial, shall pay costs to the defendant in the amount of $65,000.00 fixed, payable within 30 days.
McSweeney J.
Released: June 18, 2019
2019 ONSC 3796
COURT FILE NO.: CV-11-5112-00
DATE: 2019 06 18
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Phyzex Technologies Inc. and Sasha Sekretov,
Plaintiffs
AND
Correct Development Corporation,
Defendants
COSTS DECISION
McSweeney J.
Released: June 18, 2019