M & M Homes Inc. v. 2088556 Ontario Inc. et al.

Newmarket Court File No.: CV-14-120631-00 Date: 2019-11-04 Ontario Superior Court of Justice

Between: M & M Homes Inc., Plaintiff – and – 2088556 Ontario Inc., John Redvers, Royal LePage Real Estate Services Ltd., 697350 Ontario Limited, 1375051 Ontario Limited, Dorothy Kushner, Sam Goldman, Frank Goodman, Lillian Goodman, Dinapet Holdings Limited, 614921 Ontario Limited, Maria Traina, Howard Brian Goldman, Joseph Burdi, Doris Miller, Carole Greenspan, Community Trust Company, 2178875 Ontario Inc., Jong Suk Im, Sung Ran Lee, Yeon Hee Huh and In Hee Woo, Defendants

Counsel: Elliot Birnboim and Michael Crampton, for the Plaintiff Robert Choi and Katie Sharp, for the Defendant, 2088556 Ontario Inc.

Heard: In Writing

Reasons for Decision on Costs

Healey, J.:

Introduction

[1] This decision addresses costs to be awarded following trial.

[2] This action by M & M Homes Inc. ("M & M") against 2088556 Ontario Inc. ("208") was for specific performance of an Agreement of Purchase and Sale, with an abatement of the original purchase price. The abatement was sought due to 208's breach of its obligation to provide water, storm and sanitary services to the property line prior to closing as required by the terms of the Agreement.

[3] M & M was granted specific performance and an adjusted purchase price, decreased from $2,150,000 to $713,979.

[4] The trial was scheduled to last two days. From M & M's perspective, and that of the court's, the sole issue to be tried was abatement. Instead, the trial took nine days to complete because:

(a) 208 retained counsel the day before the trial;

(b) 208 sought to resile from its pleading. It was granted the indulgence of time to prepare and argue a motion to amend its Statement of Defence and Counterclaim by withdrawing admissions. The motion was not granted because 208 did not provide evidence that could meet the test mandated by r. 51.05 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, and well-established case law;

(c) 208 served documents during the trial that had never been produced before;

(d) 208 called witnesses to provide evidence of alleged completion of its servicing obligations under the Agreement of Purchase and Sale, despite not having pled such a defence or otherwise communicating such an assertion to M & M during the five-year pre-trial timeframe. Although these witnesses were permitted by the court to testify in the hope that they would offer evidence relevant to abatement, these witnesses were unable to offer persuasive evidence of completion of servicing;

(e) the insistence of 208 on attempting to advance a defence that the Agreement of Purchase and Sale had terminated, alleging that M & M had failed to extend the timelines under the Agreement despite no such obligation in the terms and advancing no convincing evidence of the plaintiff's alleged failure to extend; and,

(f) the numerous and repetitive objections made M & M's counsel, most of which were necessitated by 208's counsel's insistence on examining or leading evidence that was at odds with the admissions in 208's pleading.

[5] In my Reasons for Judgment I made numerous findings about the unreasonable pretrial and trial conduct of 208:

(a) 208 has been "spectacularly inattentive" to this litigation by: (i) failing to answer M & M's Demand for Particulars served September 27, 2016; (ii) failing to respond to pretrial dates; (iii) failing to attend Central East Trial Scheduling Court; (iv) failing to attend the pretrial; (v) failing to pay the costs ordered at the pretrial until a deadline was imposed by the court during trial; (vi) failing to respond to a Request to Admit; and, (vii) failing to abide by the Order of Justice de Sa to appoint new counsel within 30 days.

(b) After M & M's abatement expert was retained, his request for documentation that would show the status of the servicing work went unanswered. Mr. Lam, the principal of 208, did not respond to his emails or a phone message;

(c) 208's trial counsel, Mr. Choi, first appeared the day before trial as an agent to seek an adjournment. When unsuccessful, he was retained as counsel;

(d) 208 attempted to file an amended pleading on the first day of trial, without leave, and it was only then that M & M's counsel became aware that M & M's entitlement to specific performance was being contested;

(e) 208 did not notify M & M before trial that 208 would be advancing a position that its pleading contained inconsistent claims for relief;

(f) On the second or third day of trial, 208's counsel stated his intention to lead evidence that would prove that the servicing was either complete or substantially complete, with the prospect that M & M could get what it sought - a completed bargain and delivery of service of land. But 208, despite the admissions in its pleading, did not want to complete the deal and argued that the court should not award specific performance;

(g) At trial 208 took the position that a transfer of the property by 208 to CRC Sutton Inc. ("CRC") was an impediment to specific performance despite the transfer occurring almost two years before 208 filed its pleading, in which 208 sought specific performance. CRC is a company having the same principal and directing mind as 208, Alan Lam.

(h) Despite knowledge of M & M's claims and the Order of Vallee, J. granting leave to register a certificate of pending litigation, 208 mortgaged the property after transferring it to CRC;

(i) Subsequent encumbrance of the property was the basis for 208's transfer to CRC;

(j) Despite the court already making its ruling on 208's attempt to withdraw its admissions after hearing 208's motion to amend its pleading, Mr. Choi attempted to reargue the issue in his closing submissions; and,

(k) While the court allowed 208's counsel to make its arguments against M & M's right to specific performance, 208's arguments were without substance and ultimately amounted to a collateral attack on the dismissal of its motion to amend its pleading.

[6] This list focuses this court's attention on the provisions of rr. 57.01(1)(e), (f) and (g).

[7] Additionally, Mr. Choi's closing submissions confirmed that no written confirmation of servicing was or can be obtained, despite calling evidence to attempt to hoodwink the court into finding that 208 had fulfilled its obligations to provide servicing. Witnesses called by 208 testified that written confirmation would consist of final engineering submissions to the Town and confirmatory letters from the Town, if servicing was complete. This closing submission was appalling, as it meant that the additional trial dates were a waste of time and resources, and 208 and its counsel knew it.

Applicable Principles in Awarding Costs

[8] The court has broad discretion in deciding whether to award costs, to whom, and in what amount: s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43. However, that discretion is to be exercised in accordance with the provisions of an act or the Rules of Civil Procedure: 1465778 Ontario Inc. v. 1122077 Ontario Ltd., (2006), 2006 35819 (ON CA), 82 O.R. (3d) 757 (C.A.); Andersen v. St. Jude Medical, Inc. (2006), 2006 85158 (ON SCDC), 264 D.L.R. (4th) 557 (Div. Ct.).

[9] Rule 57.01 of the Rules sets out the factors a court may consider when deciding costs. Despite those factors, the court's authority under r. 57.01(1) remains discretionary: Ontario v. Rothmans Inc., 2013 ONCA 353, 115 O.R. (3d) 561, at para. 134. Costs may also be affected by the provisions of r. 49 and the failure of a party to accept an offer made under that rule.

[10] Unsuccessful litigants should expect to pay similar amounts by way of costs across similar pieces of litigation involving similar conduct: Walker v. Ritchie, 2006 SCC 45, [2006] 2 S.C.R. 428, at para. 28; 1465778 Ontario Inc., at paras. 39-40; Larcade v. Ontario (Ministry of Community and Social Services) (2006), 2006 17943 (ON SCDC), O.A.C. 247, 35 C.P.C. (6th) 55 (Div. Ct.), at para 6.

[11] A consideration of experience, rates charged and hours spent is appropriate, but is subject to the overriding principle of reasonableness in the context of the particular case. The quantum awarded should reflect an amount that the court considers to be fair and reasonable, rather than any exact measure of the actual costs to the successful party: St. Jude Medical, at para. 49; Zesta Engineering Ltd. v. Cloutier (2002), 2002 45084 (ON CA), 164 O.A.C. 234 (Ont. C.A.), at para. 4: Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 14579 (ON CA), 71 O.R. (3d) 291 (C.A.), at para. 24. The overall objective is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding, rather than an amount fixed by the actual costs incurred by the successful litigant: Boucher, at para. 26.

[12] The reasonable expectation of the unsuccessful party is one of the factors to be considered in determining an amount that is fair and reasonable: St. Jude Medical, at para. 22; Boucher, at para. 38. While there is no requirement for the losing party to file a bill of costs, it is preferable. Not filing a bill of costs is a factor that may be taken into account when considering the reasonable expectations of the losing party: Smith Estate v. Rotstein, 2011 ONCA 491, 336 D.L.R. (4th) 112, additional reasons 73 E.T.R. (3d) 191, leave to appeal to S.C.C. refused to 97 O.A.C. 398 (note); Enerworks Inc. v. Glenbarra Energy Solutions Inc., 2016 ONSC 4291, 90 C.P.C. (7th) 287. For example, in Risorto v. State Farm Mutual Automobile Insurance Co., 2003 43566 (ON SC), 2003 ONSC 43566, 64 O.R. (3d) 135, the court rejected the defendant's attack on the quantum of costs based on allegations of "unwarranted over-lawyering" where the defendant failed to disclose its own legal bills.

[13] Even in the absence of a r. 49.10 offer, or an offer that attracts the provisions of that rule, the court must not ignore offers that demonstrate a genuine and continuing effort to settle the action, and pre-trial efforts by counsel to expedite the conduct of the trial, when deciding the appropriate order as to costs: Bifolchi v. Sherar (Litigation Administrator of) (1998) 1998 7122 (ON CA), 38 O.R. (3d) 772 (C.A.), at para. 20.

[14] Modern cost rules are designed to foster three fundamental purposes: (1) to 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), 1999 2052 (ON CA), 46 O.R. (3d) 330, at para. 22. In 394 Lakeshore Oakville Holdings Inc. v. Misek, 2010 ONSC 7238, [2010] O.J. No. 5692, at para. 10, Perrell, J. identified two further purposes: (1) to facilitate access to justice, including access for impecunious litigants; and (2) to discourage frivolous claims and defences.

[15] In this era where judges, lawyers and litigants are being urged to use court resources more efficiently, costs orders are routinely being used to shape how litigants approach their use of the justice system. The spectre of a cost award being imposed for taking unnecessary steps or unreasonable positions is intended to encourage litigants to pursue only legally sound proceedings, defences and interlocutory steps. The shift in cost awards away from the sole or primary purpose of indemnification was explained in 1465778 Ontario Inc., at para. 26:

Traditionally the purpose of an award of costs within our "loser pay" system was to partially or, in some limited circumstances, wholly indemnify the winning party for the legal costs it incurred. However, costs have more recently come to be recognized as an important tool in the hands of the court to influence the way the parties conduct themselves and to prevent abuse of the court's process. Specifically, the three other recognized purposes of costs awards are to encourage settlement, to deter frivolous actions and defences, and to discourage unnecessary steps that unduly prolong the litigation. See Fellowes, McNeil v. Kansa General International Insurance Co. (1997), 1997 12208 (ON SC), 37 O.R. (3d) 464 (Ont. Gen. Div.), at 467 and 472.

Scale of Costs

[16] M & M seeks its substantial indemnity cost of this successful action in the amount of $209,239.82, which represents 80% of its actual costs. Additionally, it seeks $3,955 for cost submissions plus post trial work such as preparation and entry of the Judgment. It also seeks reimbursement for the invoices rendered by its expert engineer, who testified at trial, in the amount of $12,304.20. All of these amounts are inclusive of HST where applicable.

[17] Subrule 57.01(4)(c) specifically authorizes the court, in exercising its discretion under s. 131 of the Courts of Justice Act, to award substantial indemnity costs. Substantial indemnity costs are an amount that is 1.5 times the lawyer's partial indemnity rates: McNeil v. Brewers Retail Inc., 2008 ONCA 405, at para. 73.

[18] An award of costs on an elevated scale is justified in only very narrow circumstances - where an offer to settle is engaged or where the losing party's conduct is worthy of sanction: Davies v. Clarington (Municipality), 2009 ONCA 722, 100 O.R. (3d) 66, at para. 28. Substantial indemnity costs are usually attracted by egregious conduct in the proceeding: Mars Canada Inc. v. Bemco Cash & Carry Inc., 2018 ONCA 239, 140 O.R. (3d) 81, at para. 43; Pirani v Esmail, 2014 ONCA 145, 320 O.A.C 356, at para. 73; Laczko v. Alexander, 2012 ONCA 872, at para. 2. Substantial indemnity is the scale of costs that may be resorted to when the court wishes to express its disapproval of the conduct of a party to the litigation: Net Connect Installation Inc. v. Mobile Zone Inc., 2017 ONCA 766, at para. 8. In the case of Net Connect Installation, the Court of Appeal stressed that it is only in rare and exceptional cases where such a costs award is justified: at para. 9.

[19] Mr. Choi submits that Mr. Birnboim has not complied with r. 57.01(5), which mandates that a party who was awarded costs after a trial shall serve a bill of costs on the other parties and file it with proof of service. He submits that the prescribed form (Form 57A) requires the party to attach copies of their dockets and invoices. Mr. Choi cites two cases in which courts in Ontario have ordered that cost should be assessed, or significantly reduced, as a result of time dockets not being produced: Juras v. Carbone, [1999] O.J. No. 5017, at para. 23; Niro v. Caruso, 2016 ONSC 660.

[20] The actual wording on Form 57A is "in support of the claim for fees, attach copies of the dockets or other evidence" and "in support of the claim for disbursements, attach copies of invoices or other evidence".

[21] There is divided authority on the requirement to produce dockets, which Mr. Choi did not draw to the court's attention in his submissions. In Bhatt (Litigation Guardian of) v. William Beasley Enterprises Ltd., 2015 ONSC 4941, 75 C.P.C (7th) 212, the court refused the request by the losing party to have the plaintiff's lawyer produce computer dockets, which were sought in order to obtain "the best evidence of the time and expenses incurred". The court determined that the mere size of the amount claimed is not a good enough reason to require the parties to undertake the expense of preparing dockets, nor to spend the time likely required to redact those dockets to protect solicitor-client privilege. A lawyer's affidavit was likewise not required.

[22] While I agree that there may be cases in which dockets or an affidavit from counsel may be required for the court to properly evaluate costs, this is not that case. Further, the fixing of costs by a judge is not an item-by-item assessment, but a review of the factors in r. 57.01(1). A line by line examination of a lawyer's dockets runs contrary to this exercise, and is likely more appropriate where costs are being assessed.

Application of the Principles

[23] First, by reason of all the conduct of 208 earlier outlined in these Reasons, this case is one of those rare exceptions in which substantial indemnity costs are warranted. Mr. Lam was present in court for many days of the trial and was aware of, and I must presume instructed, how this proceeding was being conducted by counsel. Mr. Lam wanted to resile from his bargain due to an increase in the value of the land and wanted to delay the trial. When forced on, he retained counsel to conduct an all-out attack on the Agreement. In doing so, 208 tied up valuable court resources for seven days more than originally scheduled and drove up costs for M & M significantly. In doing so, as described in my Reasons for Judgment, 208 rendered:

...much of this trial to be a waste of time and resources. It is unconscionable that the defendant and its counsel conducted a charade to elicit evidence that the defendant has satisfied its obligations under the APS, when both clearly knew otherwise. In doing so, they sought and received from this court indulgences for trial preparation and to bring a motion to amend, and largely contributed to extending the estimated trial time from 2 to 9 days.

[24] Second, 208 has not provided his own bill of costs. Like M & M's counsel, Mr. Choi is part of a Toronto law firm and advised the court during the trial that he is head of the litigation group at Owens, Wright. He was accompanied by a junior lawyer or articling student each day of the trial. The hourly rate paid by Mr. Lam for Mr. Choi's time and other resources provided by the firm will be on par with that paid by M & M. Mr. Choi does not need detailed dockets to understand the steps comprising litigation and the amount of time that they take to complete. He was aware of the work undertaken by his litigation department to compile the compendious documentary disclosure that 208 dumped on M & M after the trial began. Mr. Choi frequently advised the court during the trial that he was working full-out. The quantum of costs being sought for the litigation will not come as a surprise to Mr. Lam or be outside of his reasonable expectations.

[25] Third, M & M made a pretrial offer to 208. I am not satisfied that the offer meets the requirements of r. 49.10, but take into account M & M's good faith attempts to reach resolution and avoid a lengthy trial. M & M also continued to try to find practical and businesslike solutions to this proceeding, even during the trial, after Mr. Choi first suggested that his client had documents to prove that the servicing had been completed.

[26] The issue in this proceeding concerned property purchased for over $2 million, on which M & M has plans to build a commercial development. The amount of the abatement totalled over $1.3 million. M & M was also successful in being granted an order, resisted by 208, for continued judicial intervention to ensure that the trial judgment is implemented, and to provide ongoing management of any issues relevant to the amount of the abatement.

[27] M & M has not filed a bill of costs as required under r. 57.01(5). I am not aware of a case in which costs have been denied to a successful plaintiff for non-compliance with this rule. However, the two-page "invoice journal" setting out the fees incurred by Chitiz Pathak LLP to July 11, 2019 on this matter provides little information, other than the actual costs calculated to that date were $256,606 inclusive of HST. The absence of the bill of costs is not explained in M & M's submissions, but I can infer that it was a step avoided to prevent further fees from being incurred, as the plaintiff is unlikely to recover costs from 208 given the encumbrances now registered against the property.

[28] Although this claim took five years before called for trial, there were few interlocutory steps. M & M's counsel did not demand a defence from 208 until 2016, after it became doubtful that 208 was still trying to install services to the property. The plaintiff took a conservative approach to prevent unnecessary costs, avoiding the need for oral discoveries. A single expert was retained to address the abatement issue. There was one motion, to address the certificate of pending litigation.

[29] Mr. Birnboim is senior counsel, practicing since 1992, with an hourly rate of $650 at the time of trial. The time of various associates assigned to the file has been billed at a rate of $285 to $350 per hour.

[30] During the trial, M & M's lawyers had to expend additional resources reviewing multiple unorganized documents delivered after hours, and to respond to the motion by 208 to amend its pleading, which was made on short notice. They responded to the motion with an affidavit from their client, a factum and book of authorities. I recognize that there would have been substantial additional preparation time during the trial beyond what would be typical as a result of how the litigation was conducted by 208. Still, the overall fees are considerable given the minimal interlocutory steps and for that reason, in the absence of a bill of costs that would provide better explanation, they must be reduced.

[31] M & M incurred a disbursement of $12,304.20 to EXP Services Inc. for the engineering report of Mr. Scott Passmore and his attendance at trial, which was required for 2 days.

Order

[32] Having considered each of the factors set out in r. 57.01, I find that an amount that is fair and reasonable to award for the action, taking into account the reasonable expectations of 208, is $210,000 inclusive of HST. Order to issue accordingly.

Madam Justice S.E. Healey

Released: November 4, 2019