COURT FILE NO.: CV-21-00662986-0000

DATE: 20211215

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: FERNBROOK HOMES (STRACHAN) LIMITED, Applicant

AND: TARION WARRANTY CORPORATION, Respondent

BEFORE: S.F. Dunphy J.

COUNSEL: Michael Farace, for the Applicants Shalom Cumbo-Steinmetz, for the Respondents

HEARD at Toronto: December 3, 2021

REASONS FOR DECISION- COSTS

[1] The applicant secured a full-day appointment for the hearing of this application in June of this year. The application was abandoned only a few short days ago after the respondent Tarion had incurred substantially all of the expenses necessary to defend this now-abandoned application. This motion considers whether unreasonable delay in coming to the decision to abandon the application warrants the application of the higher substantial indemnity scale of costs and whether the costs claimed are in all of the circumstances reasonable.

Background facts

[2] This application was commenced on May 20, 2021. The applicant Fernbrook Homes (Strachan) Limited is a homebuilder while the respondent Tarion Warranty Corporation administers Ontario’s new home consumer warranty program under the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. O.31. Fernbrook alleged that its failure to delivery timely occupancy to purchasers of new homes in one of its developments was the result of unavoidable delay arising from the pandemic and the inability of the City of Toronto to complete certain necessary utility and inspection work. It sought declaratory relief in this application related to these issues as well as an interlocutory injunction barring Tarion from processing warranty claims made by individual home purchasers arising from the delay pending the hearing of the application.

[3] A June 23, 2021 Civil Practice Court hearing scheduled a requested urgent injunction hearing for July 7, 2021 and a full-day hearing for the application on the merits for December 3, 2021. A litigation timetable was also approved for each of the hearings, with the timetable for the application hearing being somewhat sparer given uncertainty as to what might emerge from the injunction process.

[4] The injunction application was heard on July 7, 2021 and on July 14, 2021, Davies J. released her Reasons for Decision dismissing it. Costs of that hearing were separately dealt with by her and are not part of the proceeding before me.

[5] When the motion for an injunction was dismissed, Tarion had reasonable grounds for anticipating that the application might be abandoned as being largely moot. Among the reasons given by Davies J. in rejecting the motion was that the injunction sought to prevent Tarion from carrying out its statutory obligation to process and conciliate claims, claims that in this case were made by affected consumers who were not parties to the application. It would certainly have been reasonable to expect the applicant to take some time to consider its next steps in light of that decision. The apparent thinness of the ice on which their application was based had been highlighted if indeed that was not something already known and taken into account. Counsel for the respondent confirms that substantially all of the time charges on the file arose after the release of the court’s decision on the injunction and after receipt of a letter from the applicant on October 20, 2021.

[6] On October 20, 2021, the applicant emerged from hibernation and sent a letter to the respondent announcing that the application “will be proceeding on December 3, 2021” and proposed a cross-examination timetable. This was in effect the firing of the starter’s pistol requiring Tarion to begin preparing the application for a hearing in earnest.

[7] Tarion’s counsel responded on October 27, 2021 with a modified timetable, proposing dates for each party to file additional evidence and seeking certain points of clarification regarding the relief sought.

[8] On November 10, 2021, the applicant announced that its record was complete and demanding Tarion’s responding material forthwith. Tarion delivered its (lengthy) Responding Application Record on November 15, 2021 and attempted to arrange times to cross-examine the applicant’s representative over the following week without success. The applicant declined to permit cross-examinations to proceed and failed to deliver its factum when required on November 24, 2021. Instead, the applicant indicated it would be seeking an adjournment of the hearing on December 3, 2021. The following day (November 25, 2021) the applicant delivered its notice of abandonment.

[9] Tarion made offers to settle on November 22, 2021 and November 25, 2021. The former offer would have required the applicant to pay the respondent’s partial indemnity costs to the date of acceptance and was open for acceptance until the commencement of the hearing. The latter offer was substantially identical to the first but provided an amount of the partial indemnity costs sought. The notice of abandonment was delivered approximately an hour later.

Position of the parties

[10] Tarion seeks costs to be assessed on a substantial indemnity scale in the amount of $87,082.32 being 90% of its actually incurred costs. Tarion based its request for substantial indemnity costs on (i) Fernbrook’s fundamentally flawed application and failure to take appropriate action to abandon after these flaws became plain; (ii) Fernbrook’s October 20, 2021 that required Tarion to undertake substantial efforts to defend the application; (iii) Regulation 894 of the ONHWP Act; and (iv) reasonable efforts made by Tarion to settle the action through offers to settle.

[11] There is no issue taken by the applicant with the proposition that Tarion is entitled to its costs. The Applicant challenges the requested scale and the overall reasonableness of the amounts claimed. The applicant took the position that partial indemnity costs of $53,000 all-inclusive would be the highest amount that could be characterized as reasonable.

Analysis and discussion

[12] I find no need to address Tarion’s argument that it is entitled to substantial indemnity costs by reason of Regulation 894 under the ONHWP Act. I have come to the conclusion that substantial indemnity costs are appropriate applying the principles set forth in Rule 57.01 of the Rules of Civil Procedure and s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43 without reference to that regulation.

[13] In my view, costs on a substantial indemnity scale are warranted here based on the first two of the positions advanced by Tarion.

[14] This application was on its face a flawed application. Decisions made by Tarion in the discharge of its statutory mandate under the ONHWP Act are subject to judicial review before the Divisional Court. The substantive relief requested would directly impact the substantive rights of purchasers to the benefit of their Tarion warranties and none of these were joined as parties to the civil application. Both of these rather fundamental defects were brought to the applicant’s attention, and both were highlighted by Davies J. in her decision rejecting the motion for an interim injunction.

[15] Tarion prudently avoided incurring further costs after the injunction decision was released until the letter of October 20, 2021. These circumstances are closely analogous to the case of Cossette Communication Inc. v. Breton, 2011 ONSC 7737 where D.M. Brown J. (as he then was) sanctioned a moving party plaintiff with substantial indemnity costs where “the plaintiff cranked up the interlocutory injunction “war machine”, insisted on and secured an expedited date for the hearing of its motion, during a time of year when only “emergency” motions are scheduled, then folded its cards immediately in the face of the defendants’ responding materials” (at para. 7).

[16] The present situation is not on all fours with Cosette, but the parallels are instructive. The parties poured a substantial effort into the injunction application over a very brief period of time in the summer. The result of that effort was a decision that ought to have given serious reason to re-assess the viability of the application scheduled to be heard on the merits a few months later. The applicant had three months to consider its position during which time essentially no costs were incurred by Tarion. An abandonment of the application could have been processed at no cost or next to no cost any time prior to October 20, 2021. Instead, the applicant came out of its slumber to require the respondent Tarion to gird its loins for battle and actively defend the application.

[17] I have trouble accepting that the applicant had a serious and considered intention to proceed with the application when it sent that letter.

[18] There is no evidence that the applicant took any concrete actions during this time to prepare for the hearing while it was insisting the respondent burn the midnight oil to respond in a comparatively compressed timeline. The applicant chose to disclose no information about what costs it incurred to prepare for the hearing during this same time frame. The record of correspondence contains no indications of concrete activity by the applicant: no materials for the application beyond the record already present were filed; there was no cooperation in getting cross-examinations completed and when pressed on this front, the applicant responded that it would be seeking an adjournment of its own application. No factum was prepared as required.

[19] The inference that the applicant was just going through the motions without actually preparing seriously for a hearing is hard to avoid. Whether this was done for the malicious purpose of causing Tarion to incur costs or simply indifferent to that foreseeable outcome matters little. This behaviour is in my view worthy of sanction with a higher scale of costs.

[20] The respondent has provided a detailed outline of costs. I am satisfied that none of the claimed costs are duplicative of the costs claimed on the injunction application. Substantially all of the costs claimed relate to work performed after the October 20, 2021 firing of the starter’s pistol by the applicant. Both sides had sophisticated commercial counsel and the principle of indemnity does not preclude costs being claimed on a scale commensurate with the skill and experience that counsel and the firm selected by the respondent brought to the matter. The applicant provided no information from which I might assess the reasonable expectations of the unsuccessful party. While the issues raised were not particularly complex, they were significant, potentially involved significant sums of money and required Tarion to defend its statutory mandate and the interests of the consumers whom the applicant chose not to name. Tarion could not afford to sit on its hands.

[21] The applicant had every opportunity to engage in whatever soul-searching and analysis that resulted in the decision to abandon the application long before it prodded Tarion into life on October 20, 2021. That being said, I am persuaded that at least some of the hours claimed for preparing for cross-examinations and preparing for final argument might have been deferred or avoided by Tarion’s counsel given the increasingly clear signs that the applicant was not leaning into the matter after the responding record was delivered. However, this observation applies only to the last few days of activity.

[22] The fixing of costs is not a precise science, as much as judges might yearn for the days when the mechanical application of a pre-set tariff on a “one size fits all” basis could be applied. The $87,082.32 in costs sought seems excessive, particularly following on the heels of a hard-fought injunction application that laid much of the groundwork even if additional material was required to be assembled for the hearing on the merits. On the other hand, the $53,000 figure suggested by the respondent seems to be on the low end particularly given the opportunities the applicant had to reduce or eliminate its exposure.

[23] In the result, I fix the costs payable by the applicant to the respondent in the amount of $72,500 inclusive of HST and disbursements.

[24] Order accordingly.

S.F. Dunphy J.

Date: December 14, 2021