COURT FILE NO.: CV-15-0315-00
DATE: 2022-06-17
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: 2002759 ONTARIO INC. carrying on business as SUPERIOR CONTRACTING v. CHRISTOPHER JAMES KOROPESKI, CAROLYN FRANCES KOROPESKI and HAMILTON TEACHERS’ CREDIT UNION LIMITED
HEARD: In Writing
BEFORE: Nieckarz J.
COUNSEL: R Clinker, for the Applicant
W. Mouck, for the Respondent
Endorsement re: Costs
[1] This action pertained to a dispute over the terms of a construction contract, and the quality of work performed by the Plaintiff with respect to the Defendants’ home addition and renovations.
[2] The Plaintiff claimed the sum of $80,288.43 as the amount remaining unpaid on account of the verbal contract. For reasons released as 2002759 Ontario Ltd et al. v. Koropeski et al., 2021 ONSC 7873, judgment was awarded to the Plaintiff in the amount of $61,940.73, plus pre-judgment interest, net of the amount ordered in favour of the Defendants on account of their counterclaim.
[3] At trial, the Defendants denied there was any amount owing to the Plaintiff. They disputed the contract price, scope of work to be performed for that price, who breached the contract, value of extras, and whether the work performed on the project was done in a good and workmanlike manner. They advanced a counterclaim in the amount of $45,539. They were awarded $7,916.78.
[4] I invited written submissions on account of costs in the event the parties could not agree. The parties have been unable to agree as to costs. The Plaintiff seeks costs in the amount of $63,898.45 inclusive of fees, disbursements and HST. The Plaintiff acknowledges that the costs claim is greater than the amount awarded at trial. The Plaintiff argues, among other things, that it is entitled to this level of costs by virtue of its Rule 49 Offer to Settle, dated August 24, 2020, that was for a lesser amount than that which was awarded at trial. The Plaintiff seeks partial indemnity costs from the commencement of the action to August 24, 2020, with substantial indemnity costs thereafter.
[5] The Defendants deny that any costs should be payable. They argue that the conduct of the Plaintiff in the action grossly complicated the proceedings and result in unnecessary and inflated costs. They state that the action should have been pursued as a simplified procedure action and that Rule 76.13 of the Rules of Civil Procedure is triggered so as to deny the Plaintiff its costs. Overall, the Defendants argue that the Plaintiff’s actions unnecessarily prolonged and complicated the disposition of the action. The Defendants take the position that each party should bear their own costs. Alternatively, if the Plaintiff is entitled to any costs, which the Defendants deny, those costs should be limited to a maximum of $20,000 inclusive.
Legal Framework:
[6] An award of costs is in the discretion of the court by virtue of s. 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43.
[7] In Fong v. Chan, 1999 2052 (ONCA), 46 O.R. (3d) 330 at para. 22 the Court of Appeal held that there were three fundamental purposes for modern costs rules:
- To indemnify successful litigants for the cost of litigation;
- To encourage settlement; and
- To discourage and sanction inappropriate behavior by litigants.
[8] The discretion of the court with respect to costs is to be exercised with consideration given to the result in the proceeding, offers to settle, and the factors provided for in Rule 57.01(1) of the Rules of Civil Procedure. These factors include but are not limited to: the amount claimed and recovered; the complexity of the case the importance of the issues; the conduct of the parties that tended to shorten or lengthen unnecessarily the duration of the proceeding; whether there were unnecessary steps; and a party’s denial of or refusal to admit anything that should be admitted.
[9] The court must also consider any offers to settle that were made, and whether Rule 49.10 of the Rules of Civil Procedure has been triggered.
[10] Rule 49.10 encourages the parties to explore settlement and deliver their best offers prior to trial: Burnett Construction v. Gregory and Suzanne Gartner, 2013 ONSC 2008 at para. 22.
[11] Provided certain requirements are met, costs consequences are imposed on a party by Rule 49.10 for not accepting an offer that was as favourable or more favourable than the result obtained at trial.
[12] In exercising its discretion, a court must take care to ensure that a costs award is fair and reasonable. It is not just a mechanical exercise of considering hours and rates. It should also reflect the reasonable expectations of the parties and seek to balance the indemnity principle with the fundamental objective of access to justice: Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 14579 (ON CA), 71 O.R. (3d) 291 (C.A.) at paras. 37-38; Andersen v. St. Jude Medical Inc., 2006 85158 (ONSC Div. Court) at para. 22.
Analysis:
Success and Rule 49 Offer:
[13] I agree with the Plaintiff that it was substantially successful on its claim, and in defending the counterclaim, and is entitled to its costs unless there is some reason the Defendants point to as to why costs to the successful party should be denied.
[14] I further agree that the Plaintiff’s August 24, 2020, offer triggers Rule 49 costs consequences, entitling the Plaintiff to partial indemnity costs from the date of commencement of the action to August 24, 2020, and substantial indemnity costs thereafter.
[15] There were no offers from the Defendants that would trigger Rule 49 or otherwise suggest that the Plaintiff should be deprived of any portion of its costs. The only offer made by the Defendants was a dismissal of all claims on a without costs basis. I agree with the Plaintiff that in the circumstances of this case, this offer did not reflect a genuine effort to resolve the case.
Failure to Employ Simplified Procedure:
[16] The Defendants argue that the Plaintiff should be denied its costs because this matter should have been pursued as a simplified procedure action.
[17] Rule 76 of the Rules of Civil Procedure provides for a simplified procedure for claims having a value of $100,000 or less. While the rule has been amended to provide for claims of $200,000 or less, at the time this action was commenced, the monetary limit for simplified claims was $100,000.
[18] The simplified procedure rules are designed to attempt to reduce the cost of litigating claims of modest amounts by reducing the procedural requirements for such claims.
[19] Rule 76.13(3) provides for the costs consequences of not following the simplified procedure for modest claims. If a plaintiff is awarded $100,000 or less at trial [see Rule 76.13(3) as modified by (11)], and at the time of trial the action was not under the simplified procedure, a plaintiff will be denied any recovery for costs unless the court is satisfied that it was reasonable for the plaintiff to have commenced and continued the action under the ordinary procedure. This is regardless of any offer to settle served by the Plaintiff.
[20] The Defendants argue that the Plaintiff’s claim, even the amount plead as opposed to recovered, was within the monetary limit of the simplified rules. The Defendants further argue that there is no reasonable basis for the Plaintiff to have commenced or continued this action under the ordinary procedure.
[21] The Plaintiff argues that the following justified commencing, and continuing this action under the ordinary procedure:
a. This case started as a construction lien case, which could not have been commenced as a simplified procedure matter due to the nature of the declaratory relief sought.
b. By the time the lien was discharged on consent (February 12, 2020), it was not cost effective to bring a motion to amend the claim and move it to the simplified procedure. There would have been little benefit to doing so from a costs perspective, as any cost savings from having the action within the simplified procedure were already lost (i.e. reduced discovery time).
c. This was a case that hinged on credibility and was not well suited to the simplified procedure. Whether there could be costs savings from having in-chief evidence introduced by way of affidavit was specifically discussed at the trial management conference (presumably raised by the judge), but all parties agreed that viva voce evidence was preferable given the credibility issues that the trial judge would have had to resolve.
d. The Defendants took advantage of all the procedural benefits of the ordinary procedure, proceeded with 6 ½ days of trial, but did not raise any issue as to the procedure until they were unsuccessful and faced with a claim for costs.
e. Any extra steps required because this matter remained within the ordinary procedure did not add significantly to the costs of the action.
[22] The Defendants argue:
a. Plaintiffs should be discouraged from bringing improper claims for lien and declaratory relief that takes an otherwise simplified procedure claim, and places it into the ordinary procedure and increases the costs of parties unnecessarily. The Defendants were put to additional costs of lengthier discoveries, expert reports and a motion to discharge the lien, as a result of the Plaintiff’s improper use of the lien process and resulting use of the ordinary procedure. Not only should the Plaintiff be deprived of its costs, but the Defendants are entitled to their costs of $3,991.12 for the motion to discharge the lien, they are entitled to damages under s. 35 of the Construction Act, RSO 1990, c. C.30.
b. It is incumbent on the Plaintiff, and not the Defendants, to be constantly evaluating its claim to proceed in the most expeditious manner.
This did not need to be a lengthy trial. It is because of Mr. Yoller’s poor notes, that were largely illegible, that lengthy direct and cross-examination was required.
c. The Defendants rely on Garisto v. Wang, 2008 ONCA 389, at para. 17:
The purpose of the simplified procedure regime is to reduce legal costs and to enhance access to justice by making available a cheaper and more expeditious procedural regime appropriately geared to the litigation of modest claims. That important purpose will be undermined if the costs sanctions built into the simplified procedure regime are not enforced.
[23] I agree with the general concepts advanced by the Defendants that Plaintiffs should be discouraged from advancing claims for declaratory relief that are improper and that take them out of the simplified procedure without other justification. I further agree that Plaintiffs have an obligation to review their case on an ongoing basis to determine whether the case would be more appropriately determined under the simplified rules. Finally, I agree that courts must closely examine the decision not to, to determine the reasonableness of a Plaintiff’s decision to proceed through the ordinary procedure with a claim that clearly does not exceed the monetary limit of the simplified procedure and impose costs sanctions when warranted.
[24] Despite my agreement with these general principles, on the facts of this case, I concur with each of the arguments of the Plaintiff (as set out in paragraph 22 herein) that form its position it was reasonable to commence the action, and subsequently continue it under the ordinary procedure.
[25] Firstly, it is not clear to me based on my knowledge of the case at trial and the costs submissions before me, that the Plaintiff acted improperly in commencing this action as a construction lien matter. While there were valid issues raised by the Defendants with respect to the lien, it was not certain that this matter should not have been a construction lien case. These were arguable issues. Furthermore, while ultimately the lien was discharged on consent, the consent order merely references the claim for lien as has having expired. This is possibly because the action had not been set down for trial within 2 years of the action being commenced. There is nothing suggesting an acknowledgement or admission that the claim for lien was inappropriate.
[26] Secondly, while the Defendants plead their concerns with respect to the validity of the lien and discussed them at the pre-trial conference, by the point of the pre-trial the Defendants had taken advantage of the lengthened discovery and other procedures available in the ordinary procedure. They did so without complaint. They did so without at any point raising an issue with respect to procedure or notifying the Plaintiff that it would be pursuing Rule 76.13(3) costs sanctions.
[27] At a trial management conference, the Defendants had a further opportunity to raise its concerns with respect to procedure and at that point, take the position that direct evidence should be in affidavit form to save on trial time. The Defendants did not. They concurred with the Plaintiff that credibility was a significant issue, and that viva voce evidence was preferable.
[28] While Plaintiffs have a responsibility to evaluate on an ongoing basis whether their matter should be converted to the simplified procedure, it strikes me as somewhat odious that Defendants can take advantage of all the pre-trial and trial procedures necessary to fully advance their defences and counterclaims and raised a Rule 76.13(3) issue for the very first time when faced with a costs claim, particularly in circumstances such as this when there are also Rule 49 consequences applicable. If a Defendant truly believes that a matter should proceed on a simplified basis, it would be wise to put the Plaintiff on notice prior to the trial.
[29] Finally, I agree with the assessment of the parties at the trial management conference that this case required credibility assessments that would have been difficult to make on the basis of affidavit evidence in direct, subject solely to viva voce cross-examination. This alone made the Plaintiff’s decision to continue under the ordinary procedure reasonable.
[30] I disagree that it is inappropriate of the Plaintiff to raise these discussions from the trial management conference in determining costs. This is exactly the place to raise it, particularly to defend against the arguments of the Defendants.
Section 35 damages and costs of lien discharge motion:
[31] The time to claim formal damages under s. 35 is trial. Having said this, I have taken the Defendants’ arguments into consideration in determining quantum of costs.
[32] With respect to the costs claim from the motion, I note that paragraph 8 of the Order of Newton J., dated February 6, 2020, states that “…costs of this motion of the Defendants, Christopher James Koropeski and Carolyn Frances Koropeski, be considered in the cause of the action.”. Generally, “costs in the cause” means they are assessed as part of the bill of costs of the successful party. The Defendants were not the successful parties. Having said this, I agree that the additional costs incurred by the Defendants with respect to that motion should be factor in considering quantum of costs and steps taken (or not taken) by the Plaintiff that increased costs.
[33] As such, there is no reason to deprive the Plaintiff of its partial indemnity costs to the date of its offer, and its substantial indemnity costs thereafter
Quantum:
[34] In considering the factors provided for in Rule 57.01(1) with respect to determining the amount of costs, I can only assume, based on the vigour with which each party advanced their positions and the resources devoted to doing so, that this litigation was important to both parties. While the amount claimed on account of costs exceeds the amount awarded, the counterclaim had to also be contended with. Both the claim and the counterclaim values must be taken into considering the amount claimed and recovered.
[35] The matter itself was not overly complex in terms of the law, but there were multiple issues that had to be resolved and were time consuming, particularly with respect to deficiencies.
[36] Despite the lack of legal complexity, considerable time had to be devoted by the parties to preparing for the issues arising out of the claim and counterclaim. All these issues combined, consumed a fair amount of trial time. It is not fair to say that Mr. Yoller’s 2 ½ days on the stand was devoted solely to his lack of clarity surrounding the terms of the contract. Much of that time was also spent on his evidence with respect to the deficiencies being alleged by the Defendants, on which they were minimally successful.
[37] The Defendants’ strategy of no meaningful offers is also a consideration. It is a strategy that attracts some risk, particularly given the costs associated with litigating these types of claims. It is not uncommon to see the legal costs exceed the amounts awarded in these home construction cases. The Defendants were represented by counsel and either knew or ought to have known how costly a trial can be and the risks associated with proceeding. They have a right to advance their case, but having been unsuccessful, there are responsibilities that attach to that right. That includes contribution towards the costs of the successful party in an amount sufficient to recognize the principle of indemnity and the expectations of the courts and the legislation that parties will make reasonable attempts to resolve a case.
[38] With respect to the principle of indemnity and reasonable expectations of the parties, the Defendants have put forward a bill of costs of $47,513.50 for fees, $2,962.14 for disbursements, and $6,482.82 for HST, for a total of $56,958.46. I note that the Defendants, through no fault of their own, had to change counsel, which likely added to their costs.
[39] The Plaintiff’s full indemnity fees (with no change in counsel) are $58,354.75, plus disbursements of $3,063.09 (including HST) and HST on fees of $7,586.12 for a total of $69,003.96. The Plaintiff also, through no fault of its own, had to change counsel, but it is evident from the bill of costs that it did add to the cost. There is no issue taken with the rates claimed for counsel, and I find them appropriate given the experience.
[40] The costs of the Plaintiff are higher and may require some adjustment to bring them within the reasonable contemplation of the Defendants for this matter. This does not mean each bill of costs for each party should be equal. There are numerous factors to consider, including but not limited to the nature of the issues each side had to deal with and experience level of counsel.
[41] I also note that while it may, at first glance, appear to offend the principle of proportionality to spend more than a claim is worth, again I must consider the amount of the counterclaim in determining this issue, and the amount of time it takes to properly prepare and conduct a trial of this nature. Given the level of experience of counsel for the Plaintiff, it would be unreasonable to expect that a claim / counterclaim could be litigated, and a 6 ½ day trial held for much less than the costs incurred by the Plaintiff. Counsel for the Plaintiff conducted her case as efficiently as may be expected. She was prepared and there was no wasted time at trial.
[42] Some reduction is required in the amount claimed to account for items not properly chargeable on a partial indemnity basis. These include, but are not limited to certain meetings with client, law clerk time that is on account of administrative tasks, and administrative disbursements that are difficult to assess the reasonableness based on the description in the bill of costs (i.e. photocopies).
[43] Reduction to the costs claimed, and consideration for the additional costs incurred by the Defendants, is also appropriate for matters that unnecessarily increased the costs of the action including the claim against the credit union, which the Plaintiff ultimately agreed to make a contribution to the costs of (along with the Defendants). Given the contribution towards costs, and based on my knowledge of the case, this was not a necessary claim and therefore the Plaintiff should not recover any costs associated with this. Some of these costs are built into other items, such as “preparation of claim” and cannot easily be separated out but are factors in my exercise of discretion as to the appropriate global amount of costs to award. I must also consider the extra costs incurred by the Defendants on this issue.
Order:
[44] Taking into consideration the foregoing, along with the principles of indemnity, reasonableness and proportionality, I find that a fair and reasonable amount for the Defendants to pay to the Plaintiff on account of its costs incurred in this proceeding is $40,000 inclusive of fees, disbursements and HST.
“Original signed by” The Honourable Madam Justice T.J. Nieckarz
Date: June 17, 2022
COURT FILE NO.: CV-15-0315-00
DATE: 2022-06-17
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 2002759 Ontario Inc. v. Koropeski et al.
HEARD: In writing
COUNSEL: R. Clinker, for the Plaintiffs
W. Mouck, for the Defendants
ENDORSEMENT Re: Costs
Nieckarz J.
DATE: June 17, 2022
/cjj