COURT FILE NO.: CV-17-580793
DATE: October 3, 2022
ONTARIO
SUPERIOR COURT OF JUSTICE
IN THE MATTER OF the Construction Act, R.S.O. 1990, c.C.30
BETWEEN:
MICHAEL HOBSON
Plaintiff
Neal Roth for the plaintiff,
Tel.: 416-351-7706,
Fax: 416-351-7684,
Email: nealroth@on.aibn.com,
-and-
DAVID WILLIAM TURNER and
YIN DAWN KAN
Defendants
Michael Katzman and Jessica Hewlett for the defendants;
Tel.: 416-593-7604,
Fax:: 416-628-2224,
Email: mkatzman@katzlitigation.com.
DECISION: July 11, 2022.
Associate Justice C. Wiebe
COSTS DECISION
[1] On July 11, 2022 I released my Reasons for Decision concerning the trial of this action. Concerning Mr. Hobson’s claim for lien of $50,720.33, I found that he had a lien and personal judgment against the defendants in the amount of $19,113.80. I denied his additional $6,965.78 claim for personal judgment in damages. Concerning the defendants’ set-off and counterclaim of $325,777.37, I denied that claim entirely.
[2] As directed, the parties have served and filed written submissions on the costs of this reference. Mr. Hobson seeks substantial indemnity costs throughout this action and reference in the amount of $225,504.45. The defendants submit that Mr. Hobson should receive $85,000.
[3] My jurisdiction to award costs stems from Construction Act, R.S.O. 1990. c. C.30 (“CA”), section 86. This section gives me broad discretion. The only limitation on my discretion is CA section 86(2) which specifies that the costs awarded a party should not exceed the costs that would have been incurred by that party had it chosen the least expensive course of action. It is also well established law that, while any mandatory aspects of the Rules of Civil Procedure concerning costs are not binding on this court given the broad discretion on costs under CA section 86, this court should take guidance from the factors listed in Rule 57.01 of the Rules of Civil Procedure in awarding costs. This approach stems from CA section 67(3), the section which applies the Rules to any proceedings under the CA to the extent they are not inconsistent with the CA.
Result
[4] The result of the case is a primary factor to be considered. There is no doubt that Mr. Hobson was the successful party. This was not disputed. On his own claim, Mr. Hobson succeeded in getting a judgment in an amount that was 33% of his claim. The modest nature of this success will be factored into the award. However, he was entirely successful in defeating the defendants’ set-off and counterclaim.
[5] Therefore, Mr. Hobson deserves costs and will get them. The question is the quantum of the costs to be paid to him.
Offers to settle
[6] Offers to settle are one of the factors to be considered under Rule 57.01. In my view, this factor is the most important one in this case. Mr. Hobson made three offers to settle. I was not made aware of any offers to settle from the defendants.
[7] Mr. Hobson’s first offer to settle was delivered on November 9, 2017, two days after the defendants served their statement of defence and counterclaim. Mr. Hobson offered to accept the all-inclusive sum of $25,360.17. This was 50% of his lien claim at a time when minimal costs had been incurred. Mr. Roth showed that this offer, which was not time limited, was less favourable to Mr. Hobson than the result.
[8] While any mandatory aspects of Rule 49.10 are not binding on me, I will take this offer into serious consideration. It frankly astounds me, given the evidence that came out at trial, that the defendants did not accept this offer and spare both parties all the costs they have incurred in this action.
[9] But Mr. Hobson did not stop with this offer. He made two further offers to settle, each more generous to the defendants that the last. He made an offer to settle on March 13, 2019 before serious interlocutory steps were taken. It specified that neither party would be paid anything to bring this proceeding to an end if the offer was accepted before March 24, 2019. If accepted after March 24, 2019, this offer specified that Mr. Hobson would be paid his partial indemnity costs after March 24, 2019. This offer was essentially a “walkaway” offer. Again, it astounds me that the defendants did not accept this offer. Had they accepted, the defendants would have paid Mr. Hobson nothing.
[10] Mr. Hobson’s final offer was made on November 2, 2020. It was an offer whereby Mr. Hobson offered to pay the defendants $25,000 in two equal installments over 60 days. This was a few days after the unsuccessful settlement conference the parties had with Associate Justice Robinson. It is truly astounding that the defendants did not accept this offer. They would have received some recovery when in the end I found that they are entitled to no recovery and to have to pay Mr. Hobson.
[11] These offers show me that my observations in my Reasons about the defendants embarking on a vendetta against Mr. Hobson were apt. The defendants were not really interested in assessing the merits of the parties’ cases. They were only interested in exacting vengeance on Mr. Hobson.
[12] Mr. Hobson, on the other hand, made serious efforts to settle this case, none of which were reciprocated. The defendants’ conduct in rejecting these very generous offers and giving none of their own itself merits an award of substantial indemnity costs against the defendants.
Conduct
[13] The defendants deserve substantial indemnity costs for other reasons. Their conduct warrants a higher level of costs.
[14] In my Reasons I identified the instances of withheld evidence by the defendants, such as their history with Mr. Bumbaca. I also found that the defendants gave evidence that was downright duplicitous. There was the evidence of Mr. Hobson’s alleged abandonment of the project and the defendants alleged efforts to find other contractors, when the evidence showed that for some time the defendants planned to terminate Mr. Hobson’s contract and use BAC. The defendants tried to assert that Mr. Hobson made payment demands at the termination meeting when the evidence showed that that did not happen. The defendants tried to paint Mr. Hobson as dishonest and fraudulent with the episode involving the truncated email. They simply would not accept his word when he said he had tried to find the missing part of the email and could not find it. They went to great effort to involve the City and were proven utterly wrong. This alone serves censure. They failed to produce documentation they were ordered to produce about BAC’s work. They produced witness affidavits that I found were consistently slanted against Mr. Hobson. These were all instances where the defendants’ conduct merits censure.
[15] The defendants also took unreasonable positions. They tried to portray the contract price as embracing all the extras Mr. Hobson claimed when the wording of the contract made it clear that that was not the case. With the initially hidden assistance of their expert witness, the defendants put together an extraordinarily long Scott Schedule about alleged deficiencies to try to justify their termination of the contract after the fact. I found that these items concerned uncompleted work, work outside of the contract scope, or work about which the evidence concerning deficiency was quite unclear.
[16] Mr. Roth pointed out an egregious example, namely the persistent assertion by the defendants that the rear deck was a deficiency item. The rear deck was not a part of the contract scope. It has not been constructed even as of today. Yet even Mr. McElhinny insisted that this was a deficiency. These are all examples of conduct that unnecessarily lengthened the proceeding.
[17] Mr. Katzman argued that the court should not punish the defendants for their misleading evidence. He referred me to the decision of the Court of Appeal in Birtzu v. McCron, 2019 ONCA 777. In this case a daughter succeeded in defending her father’s will that left his estate to her. Her brothers had attacked the will. The trial judge, however, denied her costs because she had given misleading evidence denying that the father’s doctor had told her about the father’s dementia. The Court of Appeal reversed the costs ruling as it found that the misleading evidence had no effect on the length of the trial, the conduct of the trial, or the judge’s findings. That is what distinguishes this decision from the case before me. I found that the defendants’ conduct concerns issues that determined the outcome of the case, namely the question of contract termination, contract abandonment, Mr. Hobson’s character, extras and deficiencies. Therefore, I find that this decision does not assist the defendants.
[18] There were issues with Mr. Hobson’s conduct. There was Mr. Hobson’s obviously poor record-keeping. This played a major part in Mr. Hobson’s chronic inability to nail down his own claim, particularly his claim for extras. He changed the calculation of his damages several times. He significantly changed his position on the evidence underlying his extras in the middle of this reference. Then in 2021 he brought his motion on the eve of trial to add the claimed extra about the McCrie work. This led to another motion and delayed the trial for months. In the end, I had no difficulty denying the McCrie extra as I found it clearly without merit. I note that even that amendment was unclear. In light of the result, the defendants deserve the costs of that motion and the delay that were not thrown away and already compensated.
[19] Mr. Hobson also admitted not being forthright with the defendants about the Forte inspections. While he is to be commended for admitting this fact, the fact itself made my findings on credibility as between the parties more difficult than it should have been. This all will be factored into my award.
Reasonable expectation of unsuccessful party
[20] The reasonable expectation of the unsuccessful parties, the defendants, is another important factor to be considered. Their costs outline shows the figures of $131,915.70 in partial indemnity costs and $188,074.67 in substantial indemnity costs. Mr. Hobson filed a costs outline that showed a total of $145,934.62 in partial indemnity costs and $216,884.97 in substantial indemnity costs. He now wants more, namely $225,504.45, in substantial indemnity costs.
[21] Mr. Roth showed that the number of hours spent by each side on this case were not that dissimilar. The total docketed time shown as being charged to the defendants was 469.90 hours. The total docketed time shown as being charged to Mr. Hobson was 429.54 hours. It should also be born in mind that the charges of Mr. Capanelli were not included in the defendants’ costs outline.
[22] The major difference between the two costs outlines therefore comes down to different rates. Mr. Roth had at $550/hour rate and did the bulk of the work for Mr. Hobson (ie. about 325 hours). That was about 70% of the total docketed hours. The lawyer’s time shown in the defendants’ costs outline was divided between Mr. Katzman at $425/hour and Ms. Hewlett at $225/hour. Over half of the lawyers’ time charged to the defendants was the time of Ms. Hewlett at the much lower rate.
[23] Therefore, on balance, I find that the defendants made more of an effort to economize than did Mr. Hobson. While I am not overly critical of Mr. Hobson’s decision to use Mr. Roth at his level of experience and cost given the size of the set-off and counterclaim he was facing, I do find that there needs to be some recognition of the defendants’ efforts to economize, particularly given the requirement in CA section 86(2) not to award costs to the successful party that are greater than the least expensive course of action that could have been taken.
Quantum
[24] Mr. Katzman also tried to argue that I should not believe the figures contained in the Hobson costs outline since Mr. Roth corresponded with Mr. Katzman in December, 2020 about Hobson being insolvent and having to go bankrupt if he lost this case. Mr. Katzman argued that Mr. Hobson should produce the actual bills he received, stating that Mr. Roth simply “calculated” the hours.
[25] I agree with Mr. Roth’s reply on this point that by certifying the costs outline as he did, Mr. Roth represented to the court that these were the amounts that have been, or will be, charged to Mr. Hobson on this matter. There may be a contingency fee arrangement in this case for all I know, which arrangement is I understand perfectly legal. That would explain this point. I am troubled that this criticism is another example of the defendants’ attack on the honesty of Mr. Hobson, only with the attack this time extending to Mr. Hobson’s lawyer. I do not accept it.
Conclusion on costs
[26] In awarding costs, the court is obligated to “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”; see Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 14579 (ON CA), 71 O.R. (3d) 291 (C.A.) at paragraph 26.
[27] Considering all of the factors reviewed, I have decided that a fair and reasonable award of costs in favour of Mr. Hobson is $175,000 in substantial indemnity costs. This amount is close to what the defendants claimed in substantial indemnity costs, and represents an appropriate deduction from what Mr. Hobson claims on account of the factors I have already discussed.
Interest
[28] There is no dispute that prejudgment interest should start running on the $19,113.80 judgment from June 16, 2017, namely 30 days after Mr. Hobson’s contract was wrongfully terminated. The dispute is over the rate.
[29] Mr. Hobson asserts that it should be the rate specified by the contract, namely 25%. The defendants assert that it should be the rate specified by the Courts of Justice Act, c. C.43 (“CJA”), section 128, which is 0.8%.
[30] Mr. Hobson originally pleaded claiming only the CJA rate. In 2021 he moved to amend his statement of claim adding inter alia the alternative claim for prejudgment interest at the contractual rate. The defendants argue that the claim for the contractual rate is a new cause of action, that Mr. Hobson knew of the contractual rate when his contract was terminated on May 17, 2017, and that he is now statute barred under the Limitations Act, 2002, S.O., c. 24, Sch. B (“LA”) from raising the claim not having added it to his statement of claim within two years from May 17, 2017.
[31] I do not accept the defendants’ position. As stated by the Court of Appeal in Klassen v. Beausoleil, 2019 ONCA 407 at paragraph 29, an amendment to a pleading does not assert a new cause of action when the amendment claims an alternative form of relief arising from the same facts previously pleaded. Mr. Hobson originally pleaded prejudgment interest under the CJA arising from the alleged breach of contract by the defendants for non-payment on account. The 2021 amendment added the alternative claim for the contractual interest and was simply an alternative form of relief arising from the same facts.
[32] There was no other challenge to the enforceability of the contractual rate of interest. I, therefore, find that Mr. Hobson is entitled to the contractual prejudgment interest rate of 25%.
[33] As of today, October 3, 2022, this means that Mr. Hobson is entitled to the following prejudgment interest: ($19,113.80 x 25%/365) x 1,935 days = $25,332.33. The per diam rate is $13.0917.
[34] By operation of section 129(5) of the CJA, Mr. Hobson will be entitled to the same 25% rate for post-judgment interest. However, the award of costs attracts the CJA post-judgment rate of 4%.
[35] I have attached a draft report dated October 7, 2022. On October 7, 2022 at 12 noon I intend to sign and circulate the report. Counsel must provide me with their comments on the draft by that time. I also attach a sheet outlining the steps to be followed to have the report confirmed.
Released: October 3, 2022 _____________________________
ASSOCIATE JUSTICE C. WIEBE
COURT FILE NO.: CV-17-580793
ONTARIO
SUPERIOR COURT OF JUSTICE
In the matter of the Construction Act, R.S.O. 1990, c. C.30
BETWEEN:
Michael Hobson
Plaintiff
- and -
David William Turner
and Yin Dawn Kan
Defendants
COSTS DECISION
Associate Justice C. Wiebe
Released: October 3, 2022