2019 ONSC 5009

BRACEBRIDGE COURT FILE NO.: CV-14-178

DATE: 20190826

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

SANDRA POLLICE, personally and as Estate Trustee for THE ESTATE OF MICHAEL POLLICE

Plaintiffs/Defendants by Counterclaim

– and –

MUSKOKA CREATIVE CONSTRUCTION & RENOVATION INC., a.k.a. MUSKOKA CREATIVE CONSTRUCTIONS & RENOVATIONS INC.

Defendant/Plaintiff by Counterclaim

– and –

MICHAEL DOUCETTE

Plaintiff by Counterclaim

Julia Wilkes, for the Plaintiffs/Defendants by Counterclaim

David A. Morin and Peter Reinitzer, for the Defendant/Plaintiffs by Counterclaim

HEARD: In Writing

REASONS FOR DECISION ON COSTS

VALLEE J.:

Introduction

[1] The plaintiffs hired the corporate defendant to construct a large, waterfront dwelling. The plaintiff, Mr. Pollice, was extensively involved in the project. Difficulties arose between him and the principal of the defendant, Mr. M. Doucette. The defendant left the job. The plaintiffs commenced an action for breach of contract and unjust enrichment. The defendant, Mr. Doucette, personally counterclaimed for damages for mental distress based on breach of contract. Mr. Doucette personally claimed damages based on injurious falsehood. The trial began on November 28, 2018 and proceeded over eight days.

[2] In my judgment, I found that Mr. Pollice had breached the contract with the corporation. The plaintiffs had no proven damages. Their action was dismissed. I found that the counterclaim for mental distress was unsupportable in law because the contract between the plaintiffs and the corporation did not contemplate a psychological benefit. The corporation was not entitled to damages relating to mental distress. There was no privity of contract between the plaintiffs and Mr. Doucette; therefore, Mr. Doucette was not entitled to damages for mental distress relating to the breach of contract. The tort of injurious falsehood advanced by Mr. Doucette personally was not made out because the internet posts in issue were not made by the plaintiffs nor was there any evidence that either the corporation nor Mr. Doucette had suffered any related damages. The counterclaim was dismissed.

[3] The result was that neither party recovered anything. The question is whether either party should pay any costs related to its defence of the other party’s claim.

The Plaintiffs’ Position

[4] The plaintiffs state that they made good faith offers to settle the action. Four years prior to trial, they proposed mediation. The defendant refused[^1]. In November 2017, the plaintiffs made an initial offer to accept $60,000 plus costs. On October 26, 2018, 32 days prior to trial, the defendant made its only written offer to accept $40,000 plus interest on the counterclaim plus costs, the amount of which was dependent on the date of acceptance. On October 29, 2018, one month prior to trial, the plaintiffs made a walk away offer to settle on the basis that the claim and the counterclaim be dismissed without costs. That offer was open for acceptance for two days. On November 9, 2018, 19 days before trial, the plaintiffs offered to settle on the basis that the action and counterclaim be dismissed and that the defendant pay the plaintiffs partial indemnity costs.

[5] Rule 49.13 states that in exercising its discretion regarding costs, the court can take into account any offers to settle made in writing, even if they do not attract costs consequences. The plaintiffs rely on König v. Hobza, 2015 ONCA 885, in which the trial judge considered an offer to settle that was served only four days prior to the commencement of trial. The Court of Appeal stated that although the trial judge should not have treated the offer as a valid Rule 49.10 offer, he was entitled to take it into account pursuant to Rule 49.13 and Rule 57.01(1). He used the required holistic approach in awarding substantial indemnity costs.

[6] The plaintiffs state that they took reasonable steps in pursuing the action. Six months after commencing the action, they transferred it to the simplified procedure. Discoveries were held in one day[^2]. In its counterclaim, the defendant claimed a 20% management fee on various materials and labour supplied. The defendant demanded records from third party providers and that receipts be produced for various items, which lengthened the proceedings. After three years, at the outset of the trial, the defendant withdrew this claim.

[7] The counterclaim added complexity to the trial because research was needed on issues of privity of contract, aggravated damages, damages for mental distress, injurious falsehood and absolute and qualified privilege. The plaintiffs incurred greater fees in responding to the counterclaim in contrast to advancing their own claim. The plaintiffs state that time was recorded separately for work related to the counterclaim.

[8] The defendant substantially increased the costs of trial because it refused to proceed with a simplified trial with affidavit evidence. The counterclaim increased the costs of litigation. The trial time was doubled because four additional witnesses were required to give evidence on the counterclaim issues.

[9] Two lawyers represented the defendant at trial whereas the plaintiffs had one. In the action, the plaintiffs claimed $100,000. The defendant requests its costs of $124,772.40 all-inclusive to defend the action. The defendant states that this is net of a 25 % reduction for prosecuting the counterclaim. The plaintiffs state that this is just an arbitrary deduction. Time was not recorded separately for work to defend the claim in contrast to work to advance the counterclaim. In addition, the amount claimed is not proportionate to the claim.

[10] The plaintiffs state that because neither party was successful, each should bear its own costs. In the alternative, the plaintiffs are entitled to their reasonable costs of $43,190.17 to defend the counterclaim.

The Defendant’s Position

[11] The defendant states that even though the counterclaim was dismissed, it is the more successful party. The counterclaim arose only because the claim was made. But for that, the counterclaim could not have been advanced.

[12] The defendant states that the plaintiff made a walk-away settlement offer only one month prior to trial, knowing that the defendant had incurred substantial trial preparation costs.

[13] The defendant relies on Georgian Flooring v. Goslin, 2018 ONSC 1189 as standing for the principle that in cases of divided success, where one party has been more successful than the other, orders for no costs are not appropriate. Georgian was a case about renovations. There was a quote but no signed contract. Work was done including items not mentioned in the quote. There were no change orders or interim bills. The final account was for $70,000 after accounting for two $20,000 deposits that the defendant owners, the Goslins, had paid. They sent a cheque for $23,715.05. After the plaintiffs commenced litigation, the Goslins advanced a counterclaim for incomplete and deficient work. The result at trial was $23,715.05 for the plaintiff. The counterclaim was dismissed.

[14] The court noted that divided success may result in no costs being awarded to either side. Where neither side won on everything, but one side did do better than the other, a reduced amount of costs may be granted to the more successful party. In this matter, the court analyzed the importance of the issues and which party had been successful on each one. It found that the Goslins were successful even though their counterclaim was dismissed. The court also determined that the Goslins had tried the hardest to settle the case. They made a very early offer to pay Georgian more than $23,715.05, the amount of the damages awarded. The court stated that it would not focus on the Rule 49 consequences because they would lead to an absurd result.

[15] The amount claimed was $70,000, whereas the counterclaim was much smaller. The Goslins’ substantial indemnity costs were $193,792.90. Georgian requested $139,165.19 for costs. The court noted that proportionality was a significant consideration, given the amounts in issue. Regarding conduct, it also noted that the plaintiff’s witness was responsible for the slow pace of the trial. The court awarded the Goslins one-third of their partial indemnity fees plus disbursements, even though their counterclaim was dismissed, because the Goslins had been successful on the main issue. They proved that the work was deficient.

[16] The defendant also relies on Brough v. Lebeznick, 2017 ONSC 1392, another construction case, in which the court awarded costs to the defendants even though the plaintiff had been partly successful on the claim. The plaintiff recovered $30,595.63, which was less than its claim on the contract, because of deficiencies. The defendants recovered “virtually none of their counterclaim”. The court awarded a modest amount of costs to the defendants because they had been successful on the key issue, which was deficiencies. The plaintiff had adopted a hard line when some of the deficiencies were obvious at the time it alleged the building was completed. Furthermore, the defendants had made a pre-litigation offer to pay $30,000. While not a Rule 49 offer, the court noted that it demonstrated that from the outset that the defendants were prepared to be reasonable.

[17] The court considered proportionality and stated in paras 9 -10,

…the principle of proportionality should not be used to deprive a successful litigant of its costs simply because the claim is small. Overapplying the principle of proportionality will tend to encourage litigants who are resisting legitimate but modest claims to act unreasonably…

[18] The defendant requests $124,772.40 all-inclusive for costs to defend the action.

Analysis

[19] Rule 57.01 sets out factors that the court may consider, in addition to the result, in exercising its discretion to award costs under s. 131 of the Courts of Justice Act R.S.O. 1990 c. C. 43.

[20] As noted above, neither party recovered anything. The plaintiffs should not have pursued this claim. They alleged deficiencies; however, their expert’s evidence was that certain issues might become problems in the future. They could not be quantified.

[21] The plaintiffs alleged that the contract was not enforceable because defendant was not qualified to build the structure. It was not registered with Tarion. Therefore, it could not build a structure that was capable of year-round habitation. They alleged that the defendant misrepresented its qualifications and induced the plaintiffs to enter into the contract. The defendant stated that it was building a cottage because the plaintiffs said they would not live there year-round. This issue consumed a considerable amount of court time. The plaintiffs reported the defendant to Tarion. It decided to not prosecute the defendant, even though registration was required.

[22] The plaintiffs made a financial loss claim to Tarion. It determined that the plaintiffs could not show that they had overpaid the defendant for the work that it had completed. The contract did not set out a fixed price. Rather, it was essentially a construction management agreement. The defendant was to be paid a 20% management fee on labour and materials. The plaintiffs took the position that the defendant was not entitled to the management fee because it had not completed the contract. This was ironic because Mr. Pollice’s conduct caused the defendant to leave the project.

[23] The plaintiffs were unsuccessful on all of their claims.

[24] Had the defendant and Mr. Doucette not advanced counterclaims, the defendant would be entitled to costs in defending the action. Nevertheless, the defendant made a counterclaim which had no basis in law. Mr. Doucette made a counterclaim that the evidence did not support.

[25] Unfortunately, the plaintiffs seem to have realized that they were unlikely to be successful only a month prior to trial. Their previous offer required the defendant to pay damages.

[26] The opening statements and evidence took seven trial days. Mr. Doucette’s evidence regarding his mental health condition was short. The defendant called two witnesses on the issue. Their testimony took one day. The plaintiffs called one witness, the plaintiffs’ son, who testified that he wrote the posts. His testimony took part of an afternoon. The counterclaim consumed 29% of the trial time.

[27] The plaintiffs made more of an effort to settle the case in contrast to the defendant. In fact, their offer, dated October 29, 2018, was exactly the same as the result at trial. Nevertheless, it was made just a few weeks prior to trial. Actions like this one become difficult to settle close to trial because each side has incurred significant legal fees. The defendant made only one written offer to settle a month before trial, on the basis that the plaintiffs would pay damages. This was not a reasonable offer, given the legal and evidentiary problems relating to the counterclaims.

[28] The balancing of these factors weighs in favour of granting some costs to the defendant. The amount requested by the defendant, on a partial indemnity basis, is $124,772.40 all-inclusive of which $97,826.25 is fees. This cannot be compared to the plaintiffs’ costs to prosecute the action because that information has not been provided[^3]. I find that $97,826.25 is not a reasonable nor proportionate amount for fees in this action. The defendant was represented by two lawyers. Co-counsel’s attendance at trial, for which $27,600 in fees is requested, was not justified.

[29] It seems that a great deal of time, which resulted in $9,000 in fees, was spent on what is described as “voluminous responses to undertakings”. It is difficult to assess whether this was reasonable without knowing whether the undertakings requested were reasonable.

[30] The amounts claimed for disbursements, which total $12,588.77 before tax, are generally reasonable. The largest expense by far is $6,778.91 which was paid to the defendant’s expert engineer, Mr. Koerth, for his report and attendance at trial. This evidence was necessary to refute the plaintiffs’ claim for deficiencies.

[31] After considering all of the above, including proportionality, and taking into account that the overriding principles are fairness and reasonableness as set out in Boucher v. Public Accountants, 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291, I find that the defendant is entitled to costs fixed at $70,000 all inclusive.

Madam Justice M.E. Vallee

Released: August 26, 2019

[^1]: No evidence of this was provided. The defendant states, “[the plaintiffs] would not countenance a result at mediation in which the defendant did not pay something”. [^2]: Rule 76.04(2) limits oral examinations to two hours. [^3]: The plaintiffs provided their costs to defend the counterclaims.