ONTARIO SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-17-237
DATE: 20201030
BETWEEN:
1157391 Ontario Inc.
Plaintiff
– and –
Alejandro Dada Ortiz, Michelle Nicole Tremblay, Michael Joseph Tremblay, and Meridian Credit Union Limited
Defendants
COUNSEL:
W. Michael Adams, Counsel for the Applicant
R. Christopher M. Belsito, Counsel for the Respondents
HEARD: In writing
REASONS ON COSTS AND INTEREST
MCCARTHY J.
Background
[1] Following a three-week trial in November and December 2019, I granted judgment in favour of the Plaintiff in the amount of $143,787.65. The date of the judgement was June 19, 2020.
[2] The result at trial exceeded all three offers to settle made by the Plaintiff: $135,000 on February 9, 2017; $105,000 plus partial indemnity costs as fixed, assessed or agreed upon on December 7, 2017; and $95,000 plus partial indemnity costs as fixed, assessed or agreed upon on October 2, 2018.
[3] The Plaintiff was largely successful at trial. The court awarded judgment together with a claim for lien for an amount almost entirely comprised of the draw amount it was entitled to upon achieving the “first milestone” under the fixed price contract between the parties ($124,064.65). The Plaintiff’s claim for extras to the contract was only partially allowed; however, the Plaintiff was awarded the sum of $19,723 for the Defendant’s breach of contract. The court denied the Defendants’ claim for set-off and dismissed its counter-claim.
[4] The court directed the parties to address the outstanding issues of costs and pre-judgment/contractual interest by way of written submissions. I have now reviewed and considered those submissions.
The Plaintiff’s Position
[5] The Plaintiff seeks the amount of $3,353.50 in partial indemnity costs plus $215,591.56 in substantial indemnity costs plus HST. The Plaintiff acknowledges that the total amount sought well exceeds both the amount claimed and the amount awarded. In support of its position, it submits a Bill of Costs which contains a line for “Substantial indemnity fees calculated” in the amount of $204,335.93. This amount is rounded to $200,000 before the addition of $26,000 for HST. There is also a claim for disbursements in the amount of $16,889.70 inclusive of HST. The court remains unclear how to reconcile the amount demanded with the amount set out in the Bill of Costs. Nonetheless, the fees claimed by the Plaintiff exceed the amount of the judgment by almost $60,000.
The Defendants’ Position
[6] The Defendants do not oppose the Plaintiff’s entitlement to costs. They submit that the Plaintiff should be entitled to no more than $80,000 all inclusive. The Defendants have submitted a Costs Outline which purports to set out the amount for costs the Defendants would have sought had they been successful: $86,220 for fees, $6,602.73 for disbursements and $11,387.70 HST for a total of $104,210.43.
Offers to Settle
[7] Rule 49.10(1) sets out the costs consequences of a failure to accept an offer to settle:
49.10 (1) Plaintiff’s offer – where an offer to settle,
(a) is made by a plaintiff at least seven days before the commencement of the hearing;
(b) is not withdrawn and does not expire before the commencement of the hearing; and
(c) is not accepted by the defendant,
and the plaintiff obtains a judgment as favourable as or more favourable than the terms of the offer to settle, the plaintiff is entitled to partial indemnity costs to the date the offer to settle was served and substantial indemnity costs from that date, unless the court orders otherwise.
[8] The Defendants did not challenge the validity of the three offers to settle. Nor did they suggest that the Plaintiff did not achieve an award in excess of the amounts contained in those respective offers.
[9] I find that the offers to settle of the Plaintiff met the requirements of the rule; that none of them were revoked prior to trial; and that the Plaintiff achieved a result at trial which was better than all three of the respective offers.
[10] I find no reason to depart from the Plaintiff’s prima facie entitlement to substantial indemnity costs from the date of the first offer to the end of the hearing. I am not persuaded that the Defendants’ own offers to settle should serve to dislodge that entitlement. Those offers, as genuine and sincere as they might have been, were not accepted by the Plaintiff. The Plaintiff recovered significantly more at trial than what was being offered by the Defendant at any time. In light of the result of my findings and the ultimate result at trial, I am not prepared to consider them as factors in the exercise of my discretion.
Rule 57.01 Factors
[11] The following factors as set out in Rule 57.01 also weigh in favour of an award of substantial indemnity costs:
a. Mr. Adams is senior counsel, called to the bar in 1976. His hourly rate of $385 is reasonable and in keeping with that of a senior lawyer with over 43 years of experience at the time of trial. I accept that he devoted the hours set out in the Plaintiff’s Bill of Costs to the prosecution, preparation and trial of this action. The principle of indemnity weighs in favour of seeing a wholly successful party compensated for the legitimate costs it has incurred in bringing the action to a successful conclusion;
b. Extras aside, the overall amount claimed did not greatly exceed the amount recovered ($143,787.65 recovered versus $148,308.91 sought);
c. Both the claim for set-off and the counterclaim of the Defendants were rejected by the court;
d. The proceeding was modestly complex; it demanded marshalling hundreds of pages of documents and required the testimony of multiple witnesses including experts. Moreover, Plaintiff’s counsel was required to be conversant and knowledgeable in construction and engineering matters;
e. The issues were of importance for both parties. The Defendants faced a claim for lien against their principal residence. The Plaintiff had significant time and material costs wrapped up in the construction project for which it remained unpaid;
f. Mr. Adams was both thorough and efficient in his presentation of evidence and his cross-examination of witnesses. I remain grateful for his efforts to commit the great bulk of the documentary evidence into a digital format for the convenience of the court;
g. As should be evident from my reasons, the two Defendants tenaciously but unreasonably resisted even the simplest and most straight forward of suggestions made to them during cross-examination. I find that their unwillingness to admit things that should have been admitted was a contributing cause to the trial’s lengthy duration;
h. It is difficult to determine what the Defendants might reasonably have expected to pay for costs in this matter. I found them both to be people of above average intelligence. They must have understood from the rates being charged by their own counsel ($325 per hour – called to the Bar in 2012) that litigation was expensive. They must have appreciated that a lawyer with 5 times as much experience as their own would charge a higher hourly rate. They should reasonably have expected that a 13-day, document heavy trial involving issues of modest complexity would have demanded extensive preparation and diligent toil on the part of Plaintiff’s counsel whose role it was to piece together and put forward his client’s case. I must assume as well that the costs consequences of failing to accept the Plaintiff’s offers to settle would have been explained to them by their lawyer.
Proportionality
[12] Costs should be proportionate to the result. Our Court of Appeal has stressed that the overall objective of the process should be 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 v. Public Accountants Council for the Province of Ontario (2004), 2004 14579 (ON CA), 71 O.R. (3d) 291 (C.A.)
[13] While the principle of proportionality should remain at the forefront of the court when fixing costs, there is a line of cases which emphasize that the principle should not be rigidly applied to reduce costs for defendants who mount a wholly unmeritorious defense to a legitimate claim. To do so might undercompensate litigants for costs legitimately incurred and impose an unfair result on litigants who have been wronged: see Aacurate v. Tarasco, 2015 ONSC 5980; Brophy v. Harrison 2019 ONSC 4377.
[14] In the case at Bar, I find that it would be manifestly unjust and unfair to undercompensate the Plaintiff for costs. The judgment it received was hardly a windfall. The evidence made it clear that the Plaintiff covered a good share of the front-end costs of the project by purchasing supplies and paying sub-trades. The Plaintiff has been out of pocket for those costs for more than three and half years. It would be an absurd result if the Plaintiff was forced to relinquish more than half of a hard-won judgment to its own lawyer because the principle of proportionality served to rescue the Defendants from their own folly. It would be equally absurd to expect the Plaintiff’s lawyer to significantly reduce the fees he would charge his client because the Defendants have been largely spared of their obligation to pay the legitimate costs of the action.
Disposition on Costs
[15] Having balanced all the relevant factors and having had due regard for the principle of proportionality, I find that a fair and reasonable award of costs should approximate the amount of the judgment received by the Plaintiff before HST and disbursements. Accordingly, I have concluded that the Plaintiff should be entitled to $145,000 in fees. To this should be added HST of $18,850.00. I find the disbursements claimed by the Plaintiff are reasonable and fair. In particular, the expert report and attendance fees of $9,624.00 were a justified expense; the court placed considerable weight on the expert testimony offered by Mr. Koerth. I would allow these disbursements in the amount of $16,889.70 inclusive of HST.
[16] Accordingly, the Defendants shall pay the Plaintiff its costs of the action in the all-inclusive amount of $180,739.70
Pre-Judgment Interest
[17] The Plaintiff claims pre-judgment interest based upon the 12 percent contractual rate found in paragraph 3 of Schedule I. It contends that interest on the lien amount from the milestone draw date of December 20, 2016 until June 19, 2020 (the date of release of the judgment) should be calculated at $64,741.26; in addition, the Plaintiff suggests that interest on the damages award should be calculated from May 1, 2017 until June 19, 2020 in the amount of $8,999.02.
[18] The Defendants argues that pre-judgment interest should be at the Courts of Justice Act rate and should be limited to a period of 24 months considering the Plaintiff’s delay in prosecuting the action and the inability of the court to offer trial dates to the parties when they were both set to proceed in May 2019. The total amount of interest should be no more than $7,602.53.
[19] I see no basis upon which to deny the Plaintiff the interest rate agreed to by the contracting parties. Section 128(4)(g) of the Courts of Justice Act expressly states that interest thereunder shall not be awarded if it is payable by a right other than under that section. The Defendants have had the use of the funds owing to the Plaintiff since the date of the first milestone draw. A contractual rate of interest is meant to encourage prompt payment. The Defendants could have alleviated some of their exposure to the contractual interest by paying the disputed funds into an interest-bearing account.
[20] I find that the Plaintiff is entitled to compounded interest, at least in part. In ordinary commercial parlance the words “at the rate of 12% per annum, calculated daily, not in advance, until paid” as found at paragraph 3 of Schedule I would be understood to mean compounded interest. I would allow interest on a “calculated daily rate” basis only on the lien-able amounts which became due and owing on December 20, 2016. As well, I would allow the contractual rate of interest to the date of judgment; as much as the Defendants cannot be blamed for the court being unable to provide trial dates in the spring of 2019 neither should the Plaintiff be deprived of contractual interest upon amounts which were left due and owing for months on end. I therefore accept and adopt the calculations set out in the Plaintiff’s written submissions and find that the Plaintiff is entitled to pre-judgment interest in the sum of $64,741.26 on the lien-able amount of its claim. For the sake of convenience, I have appended a slightly revised version of those calculations as “Schedule A” to my reasons. That schedule forms part of these reasons.
[21] I would limit pre-judgment interest on the damages for breach of contract to the Courts of Justice Act rate. In my view, these damages are distinct from the amount that the Plaintiff became entitled to for the first draw and extras claim. Unlike the latter, there appears not to have been any demand for damages for contract breach at the time of the project’s termination. This is hardly surprising since no loss of profit had been quantified. It would be unfair to the Defendants to pay contractual interest on an undetermined sum when no calculation of loss of profit was furnished to them until much later in the litigation. Indeed, even at trial the damages for loss of contract were at best a moving target. Accordingly, the Plaintiff is limited to simple pre-judgment interest on the damages award of $19,723.00 at the rate prescribed under the Courts of Justice Act. Since it began to suffer those damages beginning on the termination date of December 20, 2016, it should be entitled to pre-judgment interest from that date to the date of judgment. I calculate that pre-judgment interest as follows: 1277 days X 0.8 % per annum (for the 4th quarter of 2016) X $19,723.00 = $552.03. The Plaintiff is entitled to pre-judgment interest on its damages in the amount of $552.03.
Post-Judgment Interest s. 129
[22] I accept that the lien-able portion of the judgment should be subject to a per diem of $61.62. S.129(5) of the Courts of Justice Act states that interest shall not be awarded thereunder where interest is payable by a right other than under that section. The “right” to the higher contractual interest exists until the amount owing is paid pursuant to the wording of the contract. The Defendant shall therefore pay an additional per diem for contractual interest of $61.62 on the lien-able portion of the award until that judgment is paid.
[23] I would allow post-judgment interest at the Courts of Justice Act rate only on the damages award for breach of contract plus the accumulated pre-judgment interest ($20,275.03). That total shall bear interest at the rate prescribed in the Courts of Justice Act.
[24] The parties should now be able to prepare and approve a draft judgment for consideration by the court. In the event that the parties are unable to agree upon the form and content of any judgment, they shall take out an appointment with me through the Barrie trial coordinator to settle the judgment.
Justice J. R. McCarthy
Released: October 30, 2020
Schedule A
Calculation of Interest on Draw 1 and Extras
Date
Amount
Balance
Dec. 20, 2016
Interest calculated from this date on the award
$124,064.65
$124,064.65
Dec. 20, 2017
Year 1 interest (12% calculated daily = 12.7%*)
$15,756.21
$139,820.86
Dec. 20, 2018
Year 2 interest
$17,757.25
$157,578.11
Dec. 20, 2019
Year 3 interest
$20,012.42
$177,590.53
Jun. 19, 2020
Per diem interest
61.6229424
Days from Dec. 20, 2019
182
Year 4 (part) interest
$11,215.38
$188,805.91
*12 percent per year calculated daily =
((1+ 0.12/365)^365)-1
12.747%
Total interest owing = $64,741.26