COURT FILE NO.: CV-13-478530

DATE: 2020819

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 2072467 Ontario Inc., Plaintiff

AND:

Dr. Matthews Professional Corporation, Dr. Matthew Professional Corporation, and Paul Matthews, also known as Dr. Paul Matthews, Defendants

BEFORE: Nishikawa J.

COUNSEL: Macdonald Allen, for the Plaintiff

Peter Danson, for the Defendants

HEARD: In writing

costs endorsement

Overview

[1] In May 2020, I granted judgment of $157,791.12 to the Plaintiff, 2072467 Ontario Inc. (the “Landlord”), for breach of lease by the tenant, Dr. Paul Matthews (the “Tenant”): 2072467 Ontario Inc. v. Dr. Paul Matthews P.C., 2020 ONSC 2739. The parties were given the opportunity to make further submissions on the applicable interest rate and costs.

[2] The Landlord seeks pre-judgment interest at the rate stipulated in the Lease, prime plus five percent, for a total of $78,542.33.

[3] The Tenant submits that the prejudgment interest rate under the Courts of Justice Act, R.S.O. 1990, c. C.43 (“CJA”), should apply. The total interest would be $10,865.71.

[4] In addition, the Landlord seeks costs in the amount of $206,875.84, including HST and $10,564.33 in disbursements. The Landlord seeks substantial indemnity costs from the date of its first offer to settle, June 21, 2016, on the basis that it was more successful at trial than its offer.

[5] The Tenant accepts that the Landlord was more successful at trial than the offer to settle but submits that substantial indemnity costs should not be awarded because the Tenant was self-represented for six years, including when the offer was made. Alternatively, the Tenant submits that the Landlord’s costs are excessive, especially in comparison to its own costs, which are $80,885.40 at the full indemnity rate, including HST and disbursements of $3,38.21.

Analysis

Prejudgment Interest

[6] The Supreme Court of Canada has held that absent exceptional circumstances, the interest rate appliable to a loan prior to a breach is the appropriate rate to apply post-breach. The courts have authority to order such interest pursuant to s. 128(4)(g) of the CJA: Bank of America Canada v. Mutual Trust Co., 2002 SCC 43. This court has applied this principle where a party breached its obligations under a commercial lease: 10 Dundas Street Ltd. v. Koryo Korean BBQ Franchise Corp., 2015 ONSC 4564.

[7] In Northridge Property Management Inc. v Champion Products Corp., 2017 ONCA 249, the Court of Appeal upheld the trial judge’s finding that the appropriate interest rate was that contained in an offer to lease. In that case, the Court of Appeal also took into consideration the fact that the defendant failed to take any action towards an amicable resolution of the issues.

[8] The Tenant’s argument that he is “commercially unsophisticated” is not an exceptional circumstance that would justify a departure from the contractual interest rate. The Lease term was clear. The Tenant agreed to the contractual interest rate and then chose to leave the premises before the end of the term without notice to the Landlord. It does not take a commercially sophisticated party to understand the consequences of breaching a lease. In any event, the evidence does not support that the Tenant was unsophisticated.

[9] Moreover, under s. 130(1)(b) of the CJA, the court has discretion to allow interest at a rate higher than the pre-judgment rate set out in s. 128(1). The factors for the court to consider in applying an interest rate higher than the CJA rate include, among others, the circumstances of the case, the amount claimed and the amount recovered in the proceeding, the conduct of any party that tended to lengthen unnecessarily the duration of the proceeding, and any other relevant consideration.

[10] In this case, the terms of the Lease and the applicable factors weigh in favour of exercising my discretion to award the contractual interest rate. The Tenant defaulted on the rent and vacated the premises without notice to the Landlord. The Landlord was unable to re-lease the premises for a lengthy period of time. For years, the Tenant disregarded the Landlord’s efforts to resolve or to advance the litigation.

[11] Under the circumstances, I find it appropriate to apply the interest rate stipulated in the Lease, prime plus five percent.

[12] The Landlord has calculated simple interest over the relevant period of time, for a total of $78,542.33. The Tenant’s calculation yields a lower total amount of interest, $67,412.16. It appears, however, that the Tenant has applied an incorrect interest rate at various times. For example, the interest rate applied by the Tenant is often less than five percent. This cannot be correct since the contractual interest rate is prime plus five percent. Moreover, the Tenant has identified no error in the Landlord’s calculation. The Landlord is therefore entitled to prejudgment interest of $78,542.33.

Costs After the Offer to Settle

[13] It is undisputed that the Landlord was more successful at trial than its first offer to settle, made on June 21, 2016, for $100,000. On September 12, 2019, the Landlord made a subsequent offer to settle for $90,000. That offer is not relevant to the calculation of costs but demonstrates genuine attempts by the Landlord to resolve the matter without the need to proceed to trial. Had the Tenant accepted either offer, both parties would have avoided the significant legal fees incurred in proceeding to a seven-day trial.

[14] The Landlord’s offer meets the requirements of r. 49.10(1) of the Rules of Civil Procedure. It is therefore appropriate to award costs on a substantial indemnity basis after the date of the offer.

[15] I do not accept the Tenant’s submission that substantial indemnity costs ought not be awarded because the Tenant was self-represented when the offer was made. It is evident from the history of this proceeding that the Tenant’s approach was to delay and avoid until the prospect of a trial became inevitable. The original trial date was vacated and a new timetable was ordered. Even then, the Tenant failed to comply with the court-ordered timetable and failed to attend a pre-trial conference. The Tenant also failed to attend an examination for discovery and a scheduled mediation. The fact that the Tenant was self-represented does not justify a disregard of the Rules. Rather than seek proper legal representation or advice, the Tenant had various individuals, who were not lawyers, act on his behalf. Under the circumstances, I see no reason to shield the Tenant from the consequences of r. 49.10(1). To do so would undermine the purpose of the rule, which is to encourage early resolution.

Amount of Costs

[16] Based on the foregoing, the Landlord is entitled to its partial indemnity costs until June 21, 2016 and its substantial indemnity costs after that date. The Landlord’s partial indemnity costs before the offer total approximately $23,498, before disbursements and HST. The Landlord’s substantial indemnity costs after that date total approximately $149,403, before disbursements and HST.

[17] Pursuant to the Courts of Justice Act, s. 131(1), the Court has broad discretion when determining the issue of costs. The overall objective of fixing costs is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the circumstances, rather than an amount fixed by actual costs incurred by the successful litigant: Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291 (C.A.). The court must also consider the principle of proportionality in R. 1.01(1.1) of the Rules of Civil Procedure, while keeping in mind that the court should seek to balance the indemnity principle with the fundamental objective of access to justice.

[18] Rule 57.01(1) of the Rules of Civil Procedure sets out the factors to be considered by the court when determining the issue of costs:

(1) In exercising its discretion under section 131 of the Courts of Justice Act to award costs, the court may consider, in addition to the result in the proceeding and any offer to settle or to contribute made in writing,

(0.a) the principle of indemnity, including, where applicable, 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;

(0.b) 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;

(a) the amount claimed and the amount recovered in the proceeding;

(b) the apportionment of liability;

(c) the complexity of the proceeding;

(d) the importance of the issues;

(e) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding;

(f) whether any step in the proceeding was,

(i) improper, vexatious or unnecessary, or

(ii) taken through negligence, mistake or excessive caution;

(g) a party’s denial of or refusal to admit anything that should have been admitted;

(h) whether it is appropriate to award any costs or more than one set of costs where a party,

(i) commenced separate proceedings for claims that should have been made in one proceeding, or

(ii) in defending a proceeding separated unnecessarily from another party in the same interest or defended by a different lawyer; and

(i) any other matter relevant to the question of costs.

[19] The matter involved the interpretation of a Lease. While many factual issues were raised, the issues were not particularly complex. The Tenant’s lack of representation lengthened the proceedings and, as detailed above, required unnecessary court appearances and repeated communication by the Landlord’s counsel. The Tenant’s non-responsiveness lengthened the proceeding and impeded attempts at resolution. It also resulted in multiple attendances for examinations for discovery and pre-trial conferences.

[20] However, given the lack of complexity and the amount at issue, the amount of time spent by the Landlord’s counsel strikes me as disproportionately high. The total amount of damages was always known to the Landlord from the outset, because damages consisted of rent for the balance of the Lease term. $173,902 in legal fees for a recovery of approximately $157,791 is likely more than an unsuccessful party would expect to pay.

[21] While I recognize that the Tenant’s counsel was not retained until early 2019, the Landlord’s legal fees are significantly higher than the Tenant’s legal fees, even after that date. For example, the Landlord’s counsel billed a total of 220 hours for trial preparation and attendance at seven days of trial, including trial preparation by senior counsel who did not attend the trial. There was an additional 64 hours billed by an articling student. The Tenant’s counsel billed 91.85 hours.

[22] The Tenant notes that the Landlord’s Bill of Costs submitted with its costs submissions is significantly higher than the Bill of Costs submitted after trial. The difference arises because the first Bill of Costs calculated all fees at a partial indemnity rate.

[23] Based on the foregoing considerations, I find that a fair and reasonable amount of costs until June 21, 2016 is $18,000 on a partial indemnity basis and $110,000 thereafter on a substantial indemnity basis. Accordingly, I fix costs of the action at $128,000, including disbursements and HST, as well as the costs incurred in the preparation of costs submissions.

[24] The following is ordered:

(a) The Tenant shall pay the Landlord damages of $157,791.12 and prejudgment interest of $78,542.33, for a total of $246,333.45.

(b) The Tenant shall pay the Landlord’s costs of the action in the amount of $128,000, including disbursements and HST.

[25] This endorsement is effective as an order of this court as of the date of release without the necessity of a further order being issued and entered. Counsel may nonetheless submit a draft order through my judicial assistant at roxanne.johnson@ontario.ca.

Nishikawa J.

Date: August 19, 2020