Court File and Parties

Court File No.: 10-19874, 11-26349 & 12-38697 Date: 2020-12-08 Superior Court of Justice - Ontario

Re: Homes of Distinction (2002) Inc., Plaintiff And: Elisa Angela and The Toronto-Dominion Bank, Defendants

And Re: Anthony Adili and Elisa Angela Adili, Plaintiffs And: Homes of Distinction (2002) Inc., Roberto Venier and City of Hamilton, Defendants

And Re: Anthony Adili and Elisa Angela Adili, Plaintiffs And: Homes of Distinction Inc., Roberto Venier and City of Hamilton, Defendants

Before: The Honourable Mr. Justice R.A. Lococo

Counsel: David Thompson, for Homes of Distinction (2002) Inc., Homes of Distinction Inc. and Roberto Venier J. Barry Eakins, for Anthony Adili and Elisa Angela Adili Daron L. Earthy, for the City of Hamilton

Heard: By written submissions dated October 6 to 26, 2020

Corrected Decision on December 10, 2020: Reference to file no. 12-26349 in the citation information has been corrected to 12-38697. No change to content has been made.

Endorsement – Costs

I. Introduction

[1] Three related actions arising from a residential construction dispute were tried together in instalments totaling nine weeks, followed by written closing submissions. As set out in my Reasons for Judgment dated September 16, 2020 (reported at 2020 ONSC 5344), I awarded $558,095.52 to the builder Homes of Distinction (2002) Inc. (“HoD”) for unpaid construction work, payable by the property owner and her husband, Elisa and Anthony Adili. I also dismissed the Adilis’ claim for substantial damages against the builder (and related parties) and the City of Hamilton, relating to alleged construction deficiencies. Costs were left to be determined based on written submissions.

[2] There is no dispute that there should be a costs award in favour of the successful parties, HoD and the City. The parties differ, however, on the scale and quantum of costs.

[3] Costs are normally awarded on a partial indemnity basis, with two limited exceptions when “elevated costs” are warranted, as set out in Davies v. Clarington (Municipality), 2009 ONCA 722, 100 O.R. (3d) 66, at para. 28:

This court … has repeatedly said that elevated costs are warranted in only two circumstances. The first involves the operation of an offer to settle under rule 49.10 [of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194], where substantial indemnity costs are explicitly authorized. The second is where the losing party has engaged in behaviour worthy of sanction.

[4] HoD says that an elevated costs award against the Adilis is warranted in this case, on both bases referred to in Davies. The City takes a similar position. The Adilis disagree.

II. HoD’s costs

[5] On October 1, 2018, HoD delivered an offer to settle, under which the Adilis would pay HoD $575,000 plus costs to be agreed upon or assessed. HoD seeks a costs award against the Adilis as follows: (i) on a substantial indemnity basis prior to the offer date (calculated as 80 per cent of actual fees, plus tax and disbursements), and (ii) on a full indemnity basis (100 per cent) or near-full indemnity basis (90 per cent) from the offer date.

[6] As part of HoD’s costs submissions, their counsel provides a bill of costs, in which actual (full indemnity) fees are calculated at approximately $1,080,000 (before tax) plus disbursements of $118,179.84. With tax, the total full indemnity costs would be approximately $1,338,600.

[7] Applying the calculation method HoD proposes, the approximate total costs award against the Adilis would be either $1,200,000 or $1,130,000, depending on whether costs after the offer date are calculated on a full indemnity or near-full indemnity basis.

[8] For reference purposes, HoD also provides alternative fee calculations on a partial indemnity basis (65 per cent) to the offer date and a substantial indemnity basis (80 per cent) from the offer date, the approximate fee total being $767,900. Adding tax and disbursements, the approximate total costs award would be $985,900.

[9] HoD’s reasoning in favour of the elevated costs award it seeks is as follows:

a. As set out in the Reasons for Judgment, at para. 228, in addition to the $558,095.52 found to be owing for construction work, HoD is entitled to pre-judgment interest at the statutory rate commencing April 21, 2010. When pre-judgment interest is included, the amount payable to HoD exceeds $575,000, the amount of HoD’s offer to settle. Therefore, HoD’s offer falls within the scope of r. 49.10(1), under which HoD would be presumptively entitled to partial indemnity costs to the date of the offer and substantial indemnity costs thereafter.

b. The Adilis’ conduct warranted an elevated costs award beyond the level indicated in r. 49.10(1). That conduct includes litigating the actions in bad faith or in a frivolous and vexatious manner, raising specious bases for non-payment and making exaggerated claims for rectifying illusory deficiencies. HoD also says that the Adilis acted unreasonably in seeking substantial damages far beyond the amount of HoD’s lien claim for alleged deficiencies the Adilis said rendered their home unsafe while continuing to reside in the home for the ten-year period between the construction and the trial’s completion.

[10] The Adilis raise an issue about the application of r. 49.10 to HoD’s offer, noting that (i) the offer to settle for $575,000 did not state whether that amount included prejudgment interest, and (ii) on a straight comparison of the judgment amount to the offer amount, HoD’s offer did not exceed the judgment. The Adilis also say that if r. 49.10 does apply of the offer, this is not one of the exceptional cases where further elevated costs would be justified beyond the level indicated in r. 49.10(1) (that is, substantial indemnity costs after the offer date only).

[11] As well, the Adilis dispute the amount of HoD’s costs claim as being excessive. The Adilis allege overstaffing (two senior lawyers and an articling student in court throughout the trial, compared to a senior lawyer and a law clerk for the Adilis) and that excessive time was spent in the preparation of certain documents (including the Scott Schedules relating to disputed construction issues). They also submit that HoD is seeking a percentage of full indemnity costs that is beyond the level appropriate for partial or substantial indemnity costs. In light of the substantial costs award HoD is seeking, the Adilis also request more than the usual 30 days to pay the ordered amount.

[12] Based on binding case law, there is no doubt that HoD’s offer to settle falls within the ambit of r. 49.10(1). In addition to the $558,095.52 awarded for unpaid construction work, HoD is also entitled to prejudgment interest at the statutory rate commencing April 21, 2010. There is no dispute that the total of those amounts exceeded the offer amount of $575,000. In these circumstances, the Ontario Court of Appeal has indicated in a number of cases that the offer would meet the requirement in r. 49.10(1) that the judgment amount is “as favourable or more favourable that the terms of the offer to settle”: see Pilon v. Janveaux (2006), 2006 6190 (ON CA), 211 O.A.C. 19 (C.A.), at para. 16; Lawson v. Viersen, 2012 ONCA 25, 108 O.R. (3d) 771, at para. 22; and Wilson v Cranley, 2014 ONCA 844, 325 O.A.C. 396, at paras. 17 and 21. Since there is no dispute that HoD’s offer otherwise meets the requirements of r. 49.10(1), HoD was presumptively entitled to partial indemnity costs to the offer date and substantial indemnity costs after that date.

[13] That being said, I agree with the Adilis’ counsel that the circumstances of this case do not warrant a further elevation of the scale of costs beyond the level indicated in r. 49.10(1). In Young v. Young, 1993 34 (SCC), [1993] 4 S.C.R. 3, at p. 134, McLachlin J. describes the circumstances when elevated costs are warranted as "only where there has been reprehensible, scandalous or outrageous conduct on the part of one of the parties.” In a similar vein, except where r. 49.10 applies, the Ontario Court of Appeal has indicated that elevated costs based on a party’s conduct should be awarded only in a “rare and exceptional case”, based on “egregious or reprehensible conduct that warrants sanction”: see Foulis v. Robinson (1978), 1978 1307 (ON CA), 21 O.R. (2d) 769 (C.A.), at p. 776; Mortimer v. Cameron (1994), 1994 10998 (ON CA), 17 O.R. (3d) 1 (C.A.), at pp. 22-23; and McBride Metal Fabricating Corp. v. H & W Sales Co. (2002), 2002 41899 (ON CA), 59 O.R. (3d) 97, (C.A.), at paras. 37-38.

[14] Clearly, the current litigation was contentious, protracted and difficult. The Adilis were ultimately unsuccessful at trial. When looked at with 20-20 hindsight, it may not be difficult (especially for opposing parties) to view an unsuccessful party’s conduct of the litigation with a critical eye. However, I do not agree with HoD that the Adilis’ conduct can be fairly characterized as litigating in bad faith or in a frivolous and vexatious manner, or that the claims the Adilis made were so utterly without merit that they should not have been litigated. As the Court of Appeal indicated in Davies, at para. 45:

[A] distinction must be made between hard-fought litigation that turns out to have been misguided, on the one hand, and malicious counter-productive conduct, on the other. The former, the thrust and parry of the adversary system, does not warrant sanction: the latter well may.

[15] In all the circumstances, I agree with the Adilis’ counsel that HoD should be entitled to partial indemnity costs to the date of HoD’s offer and substantial indemnity costs thereafter, as presumptively set out in r. 49.10(1). I see no sufficient justification for ordering costs on an enhanced scale beyond the level indicated in r. 49.10(1).

[16] In determining the amount of costs to award, I considered the Adilis’ submission that the amounts claimed in HoD’s bill of costs were excessive. In general, I did not find the time spent, actual billing rates or staffing to be out of line with what would be expected in a protracted and heavily-contested matter involving hundreds of alleged construction deficiencies and other disputed matters.

[17] In any case, as noted by the Ontario Court of Appeal in Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 14579 (ON CA), 71 O.R. (3d) 291 (C.A.), at para. 26, when fixing costs, the calculation of hours and time rates is only one factor to be taken into account. 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.”

[18] In all the circumstances, I would fix HoD’s costs at $850,000 including disbursements and tax, payable by the Adilis within 60 days.

[19] In doing so, I considered whether the amount of that costs award (together with the costs awarded to the City below) was proportionate, given that it exceeded the amount that HoD recovered under the judgment. I concluded that it was proportionate, taking into account (among other things) the required trial time to address the significant number of alleged construction deficiencies and other disputed matters the Adilis unsuccessfully placed in issue. As well, the amounts in question should be viewed in the context of the not only the amount HoD recovered, but also the amounts that the Adilis claimed in the construction deficiency actions against HoD (over $1.4 million), with contribution claimed from the City (over $600,000).

III. The City’s costs

[20] The City also argues it should be awarded costs on an enhanced scale, based on the Adilis’ failure to accept two offers to settle that the City made as well other conduct by the Adilis that is worthy of sanction.

[21] The City made two offers to settle the Adilis’ claim against the City. The first offer (made shortly before the trial’s commencement) was for dismissal of the claim without costs. The second offer (made mid-trial) was for dismissal, with costs of $35,000 payable to the City. The City now seeks a costs award against the Adilis as follows: (i) on a partial indemnity basis prior to the first offer date or alternatively the second offer date (calculated as 60 per cent of the City’s notional full indemnity fees, plus disbursements), and (ii) on a substantial indemnity basis (90 per cent) from the relevant offer date.

[22] The City provided a bill of costs, in which notional full indemnity fees are calculated at $160,615 (before tax), plus disbursements of $13,015.90. With tax, the total full indemnity costs would be approximately $194,500.

[23] Applying the calculation method the City proposes, the approximate total costs award against the Adilis would be either $166,000 or $143,000[^1], depending on which offer date is accepted as the starting point for substantial indemnity costs

[24] For reference purposes, the City calculates its costs on a partial indemnity basis throughout as being approximately $122,000.

[25] While conceding that the City’s offers do not meet the requirements of r. 49.10, the City says that acceptance of either offer would have represented a fair compromise that was more favourable to the Adilis than the trial outcome. According to the City, the Adilis acted unreasonably in failing to accept either offer, unnecessarily prolonging the trial. Taking that factor into account, together with the other considerations HoD also raised relating to the Adilis’ conduct, an enhanced costs award in the City’s favour is justified. The City recognizes that it is appropriate to award partial indemnity costs to the relevant offer date (in recognition of the Adilis’ having a prima facie justification for adding the City as a defendant) but seeks substantial indemnity costs after that date.

[26] Given that r. 49.10 is not applicable to the City’s offers, the Adilis say that the City should be awarded costs on a partial indemnity basis only. The Adilis dispute that this is “a rare and exceptional case” in which elevated costs are justified, given the absence of “reprehensible, scandalous or outrageous conduct” on their part. They also dispute the City’s calculation of partial indemnity costs, submitting that too high a percentage of full indemnity costs is being sought. The Adilis say that the appropriate costs award to the City would be approximately $82,900, all in.

[27] The City was correct to concede that r. 49.10 is not engaged in this case. Rule 49.10(2) (relating to offers to settle made by a defendant) applies where the plaintiff succeeds in its action against the defendant but the result falls short of the terms of the defendant’s offer to settle. That rule does not apply where the plaintiff’s action against the defendant is dismissed outright: see S & A Strasser Ltd. v. Richmond Hill (Town) (1990), 1990 6856 (ON CA), 1 O.R. (3d) 243 (C.A.), at p. 245. As well, even if r. 49.10(2) did apply, the City would be entitled to partial (rather than substantial) indemnity costs from the offer date. However, in fixing costs, I am entitled to take such “non-compliant offers to settle” into account by reason of r. 49.13 and the opening words of r. 57.01(1), both of which permit consideration of “any offer to settle made in writing”, including offers that do not engage r. 49.10: see Strasser, at p. 245; Lawson, at para. 45-48.

[28] Having done so, I have concluded the scale of costs awarded to the City should be partial indemnity costs throughout, the usual scale of costs awarded to a successful party.

[29] In considering HoD’s costs award, I have already concluded that apart from the application of r. 49.10, the Adilis’ conduct did not provide a sufficient basis for an award on an enhanced scale. In previous cases, courts have considered a non-compliant offer to settle to be a significant factor in favour of finding that an enhanced costs award should be made, relying on rr. 49.13 and 57.01(1). However, I agree with the Adilis’ counsel that it would be an exceptional case where costs would be awarded on an enhanced scale based on failure to accept a non-compliant offer to settle in the absence of other conduct that warranted sanction: see McBride, at paras. 34-40; Lawson, paras. 45-52. This is not one of those exceptional cases. The Adilis’ failure to accept one of the City’s offers to settle may have been inadvisable in retrospect, but that does not make it tantamount to an abuse of process or otherwise deserving of additional sanction.

[30] As indicated above, the Adilis did not raise any particular issue with the time and notional full indemnity charges set out in the City’s bill of costs (which I found to be reasonable), other than suggesting that the City was seeking too high a percentage of its full indemnity costs. Rather than placing undue emphasis on actual time and charges, I prefer the more holistic approach suggested in Boucher.

[31] In all the circumstances, I would fix the City of Hamilton’s costs at $100,000 including disbursements and tax, payable by the Adilis within 60 days.

The Honourable Mr. Justice R.A. Lococo

Date: December 8, 2020

[^1]: In the City’s costs submissions, this figure calculated as approximately $150,000, due to an apparent error in the calculation of substantial indemnity costs from the second offer date.