Court File and Parties

COURT FILE NO.: CV-16-566209 DATE: June 15, 2020

ONTARIO SUPERIOR COURT OF JUSTICE IN THE MATTER OF the Construction Act, R.S.O. 1990, c.C.30

BETWEEN:

THE GATTI GROUP CORP. Plaintiff Peter J. Mitchell, for the plaintiff, Tel.: 416-361-0024, Fax: 416-361-1992.

AND:

JOHN ZUCCARINI and CLAUDIA ZUCCARINI Defendants Marco Drudi for the Defendants Tel.: 905-850-6116, Fax: 905-850-9146.

Decision: May 5, 2020 Master C. Wiebe

Costs and Interest Decision

[1] On May 5, 2020, I released my Reasons for Judgment in the trial of this action. I dismissed the plaintiff’s action and discharged its claim for lien. I found that the plaintiff owed the defendants $332,667.44 in damages for breach of contract. I ordered that the parties deliver written submissions on costs and interests, which they have now done. I herewith render my decision as to costs and interest.

[2] This being a construction lien action under the old provisions of the Construction Act, R.S.O. 1990, c.C.30 (“CA”), my jurisdiction as to costs is grounded in CA section 86. This is a broad discretion. The only mandatory provision is section 86(2) which specifies that only costs of the “least expensive” course of action should be awarded where a party being awarded costs has not taken that least expensive course of action. It is well established law as well that the provisions of Rules of Civil Procedure concerning costs will provide guidance to the lien court in exercising its section 86 discretion. This includes the provisions of Rule 49.10 concerning the costs consequences of offers to settle.

[3] The original Costs Outline of the defendants showed a partial indemnity figure, $121,299.42. However, the body of this Costs Outline shows “actual” costs for the specified work totaling $137,759 plus $20,115.44 for disbursements, amounting to a grand actual cost total of $157,874.44. Mr. Drudi now submits that the defendants should be awarded $189,000 in substantial indemnity costs arguing that the defendants’ actual costs totaled $221,199.47. He attached his firm’s dockets for this and bills from the defendants’ original laweyrs and their two experts.

[4] The Costs Outline of the plaintiff showed two figures, namely a partial indemnity total of $137,754.28 and a substantial indemnity total of $189,446.69. Mr. Mitchell argued that the defendants should be awarded costs of either $110,281.49 or $125,965.94.

Result

[5] The defendants are clearly the successful party in this action and deserve an award of costs. This proposition was not contested. The real question is the amount.

Scale of Costs

[6] Mr. Drudi argued that I should award costs in favour of the defendants on a substantial indemnity scale. Awards of substantial indemnity costs are the exception, not the norm. They are appropriate where there is has been egregious or reprehensible conduct.

[7] I do not find that to be case here. What the plaintiff suffered from, in my view, was a gross inability to properly estimate, monitor and control its construction costs throughout this project. This showed incompetence and sloppiness, but not maliciousness or abusive behavior. I made no finding as to whether GGC actually incurred the huge costs it claimed it incurred. It may well have done so. If these costs existed, GGC’s steps resemble those of a party aggrieved at a perceived windfall enjoyed by the defendants. Indeed, Mr. Emmons found that the value of the GGC work in place in November 2016 exceeded what GGC had been paid. As a result, I am not prepared to penalize GGC with an award of substantial indemnity costs on all of the defendants’ costs.

Offers to Settle

[8] This is an area where I do fault GGC. On March 4, 2019, after discoveries, Mr. Drudi sent Mr. Mitchell a letter in which he asked whether Mr. Mitchell would recommend a settlement where the parties agreed to dismiss the action and discharge the claim for lien without costs. There was no written response. I do not view this as an offer to settle and will not deal with it further as a result.

[9] However, on December 4, 2019, I ordered that GGC post $95,000 in security for the defendants’ costs within thirty days. On December 31, 2019, Mr. Drudi emailed Mr. Mitchell stating that the “defendants will accept payment to them in the all-inclusive amount of $95K. The Plaintiff will discharge the lien, dismiss the action and provide a Release.” Mr. Mitchell argued that this was not a certain offer to settle as it did not refer to the counterclaim. That may be a valid point, particularly as this email was in response to an email sent earlier that day by Mr. Mitchell containing a formal Rule 49 offer from GGC expressly stated to pertain to both the claim and counterclaim. The defendants’ counterclaim was a serious claim, probably the more serious of the claim and counterclaim.

[10] Nevertheless, I find that the email exchange of December 30, 2019 reflected badly on GGC. I am certain that the defendants would have settled the entire proceeding for the payment of the $95,000. Had GGC wished to settle at that amount, a clarification email from Mr. Mitch would have sufficed. But the email exchange shows me that the GGC expectation was grossly discordant with the evidence. By this time the production and discoveries and undertakings were done. In the face of this evidence, which came out clearly at trial later, GGC made a Rule 49 offer on December 30, 2019 whereby the defendants would pay GGC a total of $300,000, $225,000 of which was for damages and $75,000 for costs. The $225,000 was 65% of the GGC claim for lien.

[11] How GGC could assess its case as meriting such an offer is astounding to me. The evidence showed strongly that there was an enforceable fixed price contract signed by both parties, that GGC had itself affirmed this contract on several occasions, that the defendants had paid the contract price and extras in full, and that the project was still far from done when GGC ceased working. The disconnect between the reality of the evidence and GGC’s expectation was underscored by Mr. Mitchell contemptuous “LOL” response to Mr. Drudi’s email containing the $95,000 counter-offer from the defendants.

[12] This disconnect between the reality of the evidence and GGC’s expectation cannot be condoned. The defendants’ $95,000 offer was very reasonable in the circumstances and should have been accepted. It would have spared GGC the judgment that it now faces, and it would have spared the defendants their cost of trial preparation and trial. GGC’s grossly unreasonable expectations in effect caused this case to move to and through trial. There should, therefore, be an award of substantial indemnity costs against GGC for the period after December 31, 2019.

Quantum

[13] I do not accept Mr. Drudi’s attempted departure from the defendants’ Costs Outline in assessing the quantum of the costs to be awarded. He argued that, as the GGC Costs Outline showed a substantial indemnity total of $189,446.69, the defendants were now entitled to seek such an amount in substantial indemnity costs. He then argued that, contrary to the defendants’ Costs Outline, the defendants’ actual costs were $221,199.47.

[14] In my view, the purpose of providing Costs Outlines for a proceeding prior to the hearing, as indicated in Rule 57.01(6) of the Rules of Civil Procedure, is to have the Costs Outline act as a discipline on a party. Not knowing the outcome of a hearing, a party should be motivated to review critically what costs it can recover in preparing its Costs Outline since it might lose and have its Costs Outline used as the standard to award costs for the successful party. The party should also be accurate in preparing its Costs Outline. To then allow that party to disregard its Costs Outline when it succeeds defeats this purpose. Therefore, I will assess the quantum of the defendants’ costs claim based on their Costs Outline.

[15] The partial indemnity lawyer’s costs shown on the defendants’ Costs Outline for the period prior to December 31, 2019 would appear to be $39,943 x 1.13 (HST) = $45,135.59. This is a fair figure. It includes an amount for what the defendants paid to their previous lawyers, Mancini Salvati. It does not include the costs for the unsuccessful first motion by the defendants for security for costs. It includes the costs of the defendants’ successful motion for security for costs in December, 2019. I ordered that the defendants were to get partial indemnity costs for that motion with the quantum to be determined at trial. It includes the pleadings, production and discovery processes.

[16] For the lawyers’ costs after December 31, 2019, I am going to find that all the shown trial preparation costs occurred after December 31, 2019. Mr. Drudi’s filed dockets indicate that this was the case. Ms. Zuccarini’s lengthy affidavit was sworn at the end January, 2020, and this was the bulk of the defendants’ case. The defendants’ Costs Outline shows that their actual lawyers’ costs for trial preparation, trial attendance and costs outline preparation totaled $76,306. It is now well established that substantial indemnity costs are to be assessed at 90% of actual costs. This leads to the following total: $76,306 x 0.90 = $68,675.40.

[17] The disbursements are another issue. The total amount claimed by the defendants is $20,115.44. Mr. Mitchell properly criticized the amount claimed for photocopying, namely $4,459.75. I think a more appropriate amount, given what happened at the trial would be $2,500.

[18] The costs for expert evidence also must be adjusted. I am not going to allow the full amount claimed for the O’Keefe expert. I did not find Mr. Emmons at all helpful on the issue of deficiencies. His opinion as to the value of the GGC cost in place was problematic, as noted in my Reasons. This opinion was also important only in response to Mr. Karst’s opinion on the subject. In the end, Mr. Emmon’s evidence on the subject was unnecessary due to my determination of the nature of the governing contract. I think that $4,500 is an appropriate amount to be awarded for Mr. Emmons. In his written submission, not in the defendants’ Costs Outline, Mr. Drudi raised a claim for the cost of Pinchin Ltd. in the amount of $9,4028.70. This is another cost that does not appear on the defendants’ Costs Outline. The Pinchin expert was also an expert witness the defendants originally had their witness list but did not call at trial. I am not prepared to give any award for the cost of this expert as a result. With these adjustments, the disbursements to be awarded total $13,498.01.

[19] The grand total of these figures is: $45,135.59 + $68,675.40 + $13,498.01 = $127,309. There may have been some trial preparation costs incurred for the period prior to December 31, 2019. Therefore, I find that a reasonable amount for an award of costs in favour of the defendants in this case is $125,000. This amount is clearly within the reasonable expectation of what GGC should expect to pay in costs given what was included in the GGC Costs Outline. If this award is not paid in 30 days from the date of the report, the defendants can obtain the posted security for costs of $95,000 plus any accrued interest thereon in part payment of the costs award.

Interest

[20] The parties agree that the prejudgment interest on the judgment should run from January 1, 2018. They disagree as to the rate. Mr. Drudi submits that the rate should be 1.3% which is the rate specified by the Courts of Justice Act, R.S.O. 1990, c. C.43 (“CJA”), section 127 for the first quarter of 2018, namely the quarter in the which the defendants’ cause of action arose.

[21] Mr. Mitchell, on the other hand, submits that the rate should be the one for the quarter in which the action was commenced. Section 127 is clear that Mr. Mitchell is right. This action was commenced in December, 2016 and the counterclaim was commenced in February, 2017. The specified prejudgment interest rate for this quarter is 0.8%. This is the rate that will apply here.

[22] According to the CJA section 127, the post-judgment interest rate is the one that applies to the quarter in which the order in question falls. The specified post-judgment rate for this quarter is 3%. That is the post-judgment rate that will apply.

Conclusion

[23] I conclude that GGC must pay the defendants $125,000 in costs, that if this amount is not paid in thirty (30) days the posted security for costs of $95,000 plus any accrued interest thereon be paid to the defendants, that prejudgment interest on the judgment amount must run from January 1, 2018 to the date of the report at the rate of 0.8%, and that post-judgment interest on that judgment and the costs award will be at the rate of 3% per annum.

[24] There was a discussion about the Bramalea Tile claim for lien. This claim for lien should be deleted from title in accordance with my ruling during the trial. If there is a continuing issue in this regard, the parties can make an appointment with me by phone to deal with it.

Released: June 15, 2020

MASTER C. WIEBE