Court File and Parties

COURT FILE NO.: CV-17-114

DATE: 20221024

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 1694467 Ontario Inc. o/a Keesmaat Homes, Plaintiff/Defendant to the Counterclaim

AND:

Ron Vandenhengel and Betty Vandenhengel, Defendants/Plaintiffs by Counterclaim

BEFORE: Justice D.A. Broad

COUNSEL: John V. Kranjc, for the Plaintiff/Defendant to the Counterclaim

Richard A. Wellenreiter, for the Defendants/Plaintiffs by Counterclaim

COSTS ENDORSEMENT

[1] The parties have been unable to resolve the question of costs of the proceeding and have each delivered written submissions on costs.

Position of the defendants/plaintiffs by counterclaim

[2] The defendants/plaintiffs by counterclaim (the “defendants”) seek an order for costs on a substantial indemnity basis against the plaintiff/defendant by counterclaim (the “plaintiff”) in the amount of $109,747, comprising $85,189.50 in legal fees, HST thereon in the sum of $11,074.64 and $13,482.86 in disbursements inclusive of HST on the taxable disbursements. In the alternative, the defendants seek an order for costs on a partial indemnity basis in the sum of $77,650.95, comprised of fees in the sum of $56,793, HST thereon in the sum of $7,383.09, and $13,482.86 in disbursements, inclusive of HST.

[3] The defendants say that they were ultimately the successful party in the proceeding. They point out that the plaintiff’s original demand for payment was reduced by approximately half by trial, and the plaintiff was awarded significantly less than this reduced claim. They assert that they were fully successful on their counterclaim.

[4] The defendants submit that the proceeding was reasonably complex requiring expert evidence to address the specifications of the contract as they related to the two remaining deficiencies, and due to the plaintiff’s lack of accounting of the costs of the project.

[5] The defendants say that the plaintiff refused to acknowledge or admit its breach of contract, despite offering no real evidence to refute the conclusions of the plaintiff’s own subcontractors and of the defendants’ expert witness, and also unreasonably maintained, until final submissions, that there was no breach of the Ontario Building Code or of the requirements of the contract. The plaintiff also refused to admit that it had failed to provide an accounting to the defendants. The defendants say that the plaintiff’s unsubstantiated position entitles them to the recovery of costs at or near the substantial indemnity level. Moreover, the plaintiff brought a summary judgment motion that had no real chance of success and never proceeded, but which nevertheless required comprehensive responding material from the defendants.

[6] The defendants point to their Offer to Settle dated June 10, 2021 which contained the following terms:

A. the plaintiff shall pay to the defendants the sum of $45,000 plus costs on a partial indemnity basis. This section A of the Offer was stated to be open for acceptance until June 30, 2021 and thereafter to automatically expire and be deemed to be withdrawn;

B. the plaintiff shall pay to the defendants the sum of $55,000 plus costs on a partial indemnity basis. This section B of the Offer was stated to be open for acceptance after June 30, 2021 and until July 31, 2021. After July 31, 2021, the ability to accept this section B was stated to expire and be deemed to be withdrawn;

C. the plaintiff shall pay to the defendants the sum of $60,000 plus costs on a substantial indemnity basis. This section C of the Offer was stated to be open for acceptance after July 31, 2021 until the commencement of the trial, at which time it shall be deemed to be withdrawn.

[7] In reliance to the case of Rooney v. Graham, 2001 24064 (ON CA), [2001] O.J. No. 1055 (C.A.) the defendants submit that an escalating offer to settle can be considered a rule 49 offer for the purpose of determining costs consequences as provided under Rule 49.10 and therefore the court should consider whether their escalating offer was more favourable to the plaintiff pursuant to the considerations under that rule. They say that, had their Offer to Settle been accepted prior to July 1, 2021, it would have been more favourable to the plaintiff than what was awarded to them at trial and additionally, neither party would have had to incur the legal costs associated with a five-day trial. Even if section B of the defendants’ offer had been accepted by July 31, 2021, the offer would have been more favourable to the plaintiff, given the plaintiff’s legal costs associated with the trial.

Position of the plaintiff, defendant by counterclaim

[8] The plaintiff submits that costs in the circumstances may be denied entirely, or, if awarded, should be significantly less than the amount claimed by the defendants. In reliance on the case of Cornerstone Properties Inc. v. Southside Construction Management Limited, 2020 ONCA 280 (C.A.) it submits that a claim for costs which equals or exceeds the amount claimed offends the principle of proportionality and that the costs should be significantly below the amount recovered. Following the views of the Court of Appeal in Cornerstone, the plaintiff submits that an award of costs of $25,000 inclusive of disbursements would be considered proportionate to the ultimate result.

[9] The plaintiff points out that the liability for the dispute between the parties has been apportioned. The plaintiff was successful in part in respect of its claim, and the defendants were successful in a greater part on their claim. The principles of proportionality and the expectations of the parties should be considered when assessing the apportionment of costs.

[10] The plaintiff submits that neither its own Offer to Settle, nor that of the defendants,’ complies with the strict rule 49 requirements. If the offers are to be considered, the plaintiff says that its own offer represented a very good faith offer to settle. It provided for the plaintiff to pay to the defendants $500 and to repair the stairs from the garage area to the basement area of the home to ensure compliance with the Ontario Building Code by, at the option of the defendants, sending the plaintiff’s own workers and subcontractors to rebuild the stairs, or requiring it to pay for the cost of a subcontractor to attend to rebuild the stairs with wooden painted stairs, in compliance with the Ontario Building Code. The offer also provided for the plaintiff to waive any right to any further payment from the defendants pursuant to the construction contract.

[11] The plaintiffs also say that there was nothing tactical in considering an early resolution of the dispute by way of a summary judgment motion, which was only reconsidered once the defendants strongly objected to that approach.

Guiding Principles on Costs Generally

[12] Section 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43, as amended, provides that "subject to the provisions of an Act or rules of court, the costs of and incidental to a proceeding or a step in a proceeding are in the discretion of the court, and the court may determine by whom and to what extent the cost shall be paid."

[13] The factors to be considered by the court, in the exercise of its discretion on costs, are set forth in sub-rule 57.01(1), including, in particular, the principle of indemnity at para. (0.a) and the amount of costs that an unsuccessful party could reasonably expect to pay at para. (0.b).

[14] The usual rule in civil litigation is that costs follow the event and that rule should not be departed from except for very good reasons (see Gonawati v. Teitsson [2002] CarswellOnt 1007 (Ont. C.A.), 2002 41469 and Macfie v. Cater, 1920 401 (ON SC), [1920] O.J. No. 71 (Ont. H.C.) at para 28).

[15] Sub rule 57.01(4) provides that the court has the discretion to award all or part of the costs on a substantial indemnity basis or award costs in an amount that represents full indemnity. While full indemnity and substantial indemnity costs are an exception to the general rule and awarded only under special circumstances, allegations made or conduct by a party that is "reprehensible, scandalous, or outrageous" falls within the ambit of an award of full indemnity costs (see Baryluk v Campbell, [2009] O.J. No. 2772 (S.C.J.) at paras. 8-10).

[16] It is well known that the overall objective in dealing with costs is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular circumstances of the case, rather than an amount fixed by the actual costs incurred by the successful party. The expectation of the parties concerning the quantum of costs is a relevant factor to consider. The court is required to consider what is "fair and reasonable" having regard to what the losing party could have expected the costs to be (see Boucher v. Public Accountants Council (Ontario), 2004 14579 (ON CA), [2004] O.J. No. 2634 (Ont. C.A.) at para. 26 and Coldmatic Refrigeration of Canada Ltd. v. Leveltek Processing LLC, 2005 1042 (ON CA), [2005] O.J. No. 160 (Ont. C.A.)) The amount awarded for costs must reflect some form of proportionality to the actual issues argued, rather than an unquestioned reliance on billable hours and documents created (see Mason v. Smissen, [2013] O.J. No. 4229 (Ont. S.C.J.) at paras. 5 and 6 and the cases therein referred to).

Discussion

[17] The defendants assert that they were the successful party as the amount recovered on their counterclaim exceeded the amount recovered by the plaintiff on its claim by $44,033.49 plus pre-judgment interest.

[18] I am prepared to accept that the defendants were the more successful parties in terms of the quantum of the parties’ recoveries on the main action and the counterclaim respectively. However, the matter is more nuanced than that. The defendants steadfastly maintained their position that the construction contract was a “fixed price” contract and that they owed no further amounts to the plaintiff. They were unsuccessful in these positions and, although the plaintiff was not successful in recovering the full amount of its ultimate claim of $71,629.55, it did succeed in recovering $44,299.51 in the main action comprising 61.8% of its claim. Moreover, the defendant Ron Vandenhengel’s counterclaim for damages against Ike Keesmaat for harassment and intentional infliction of mental distress, which occupied a not-insignificant proportion of trial time, and the defendants’ claim for recovery of their hotel expense for delay, were unsuccessful. The trial was necessitated, in significant measure, by the unwavering positions taken by the defendants on these issues which were ultimately not vindicated.

[19] Thus, although the defendants may be considered the more successful parties, entitling them to an award of costs, the quantum of the award should be mitigated by the foregoing considerations.

[20] I find that neither the defendants’ Offer to Settle nor that of the plaintiff, satisfy the requirements of rule 49.10 of the Rules of Civil Procedure so as to bear on the costs determination. The defendants’ offer comprised three distinct and consecutive Offers to Settle, the first two of which (sections A and B) were stated to automatically expire and be deemed to be withdrawn if not accepted by June 31 and July 31 2021 respectively. Para. 49.10(1)(b) requires that an offer must not be withdrawn and not expire before commencement of the hearing. Neither sections A nor B satisfy this requirement.

[21] In my view Rooney is distinguishable. The Offer to Settle in that case was a single offer, the escalating feature of which was the costs component. The offer sought party and party costs to the date of the offer and solicitor and client costs thereafter (see para 21). Unlike the defendants’ Offer to Settle in the case at bar, Laskin, J.A., for the majority at para. 41, characterized the plaintiff’s offer in Rooney as “a single offer that varies in amount over time” (see para. 41). Unlike the offer in the case at bar, there was no provision deeming any part of the offer to be withdrawn if it was not accepted by a stipulated date.

[22] There were no exceptional circumstances relating to the plaintiff’s conduct in the litigation itself which would justify an award of elevated costs.

[23] The fact that this proceeding was conducted under the Simplified Procedure mandated by rule 76 of Rules of Civil Procedure brings the principle of proportionality into sharp focus. The Court of Appeal made this clear in the case of Williams Distinctive Gems Inc. v. Advantex Dining Corporation, 2019 ONCA 702 (C.A.) when it stated at para. 15:

This was an action under the simplified procedure. It is well established that the limited monetary ceiling for actions under the simplified rules translates into reduced costs orders: Trafalgar Industries of Canada Ltd. v. Pharmax Ltd. (2003), 2003 40313 (ON SC), 64 O.R. (3d) 288 (Ont. S.C.J.) , at paras. 5-7. The appellant claimed damages of $63,071.17. CIBC chose to bring a summary judgment motion and conduct a lengthy cross-examination of the appellant's principal. It should have been within CIBC's contemplation that its costs, if successful, would be limited and that it was required to exercise constraint in its expenditure of costs or risk not being compensated. The motion judge failed to advert to these factors in keeping with the principle of proportionality and awarded costs that were excessive and unreasonable.

[24] These principles were reinforced more recently by Kimmel, J. in the case of 2364562 Ontario Ltd. v Yogurtworld Enterprises Inc., 2021 ONSC 5964 (S.C.J.) as follows at para. 17:

The cost limitations that now exist under Rule 76.12.1 (limiting costs to $50,000.00 and disbursements to $25,000.00, exclusive of taxes) do not apply to this action because the action was commenced and continued under the simplified procedure long before these cost limitations came into effect on January 1, 2020. However, the proportionality that this subsequently enacted Rule embodies in simplified procedure cases is a relevant consideration. The plaintiffs cite many examples of cases pre-dating this Rule amendment in which costs awards against unsuccessful plaintiffs were curtailed on grounds of proportionality where the amounts at issue were less than the simplified procedure limit of $100,000.00.

[25] I am unable to accept that the cases of Corbett v. Odorico, 2016 ONSC 2961 (S.C.J.) and TCA/Thier & Curran Architects v Art Gallery of Hamilton, 2022 ONSC 13, cited by the defendants in their reply costs submissions, detract in a persuasive manner from the importance of the principle of proportionality in respect of costs in the context of an action tried under Simplified Procedure under rule 76.

[26] Corbett involved a six-week jury trial in respect of a claim by the plaintiff for personal injuries and financial losses arising from a motor vehicle collision as well as claims by the plaintiff’s spouse and children under s. 61 of the Family Law Act. It did not involve an action tried under the Simplified Procedure. Hackland, J. noted at para. 19 that the defendant did not make a meaningful offer to settle at any stage, which presented the plaintiff with the proposition on the eve of trial that she should walk away from her case with no compensation or proceed to trial. He went on to state:

In my view, to impose a rule arbitrarily limiting the amount of costs to some proportion of the recovery when there has been no offer of settlement, or only a nominal offer as in this case, would undermine the purpose of Rule 49, which is to encourage settlement by attaching costs consequences for failure to make or accept reasonable offers. It would also encourage the type of "hard ball" approach to settlement employed in this case.

[27] In the result Justice Hackland awarded the plaintiff, who had obtained a jury verdict in the amount of $141,500, an award in respect of fees of $159,249. In my view the facts of Corbett are no analogous to the case at bar.

[28] TCA/Thier Sheard, J. made specific note that the trial, by virtue of a consent order, proceeded under the ordinary rules, and rule 76 had no bearing on the costs decision (see paras. 56-57).

[29] Sheard, J., far from downplaying the proportionality principle in Cornerstone, reinforced it. At para. 62 she stated, citing Cornerstone. “even accepting that this case was important to the [successful defendant], that concern cannot justify a ‘significant devaluation of the proportionality principle.’”

[30] Applying the principle of proportionality and taking into consideration the facts that (a) the defendants were unsuccessful in respect of aspects of their counterclaim, most significantly Ron Vandenhengel’s claims for harassment and intentional infliction of mental distress, (b) the plaintiff was successful in part in respect if its claim for payment in the main action, (c) the plaintiff brought a motion for summary judgment which it did not pursue, but which the defendants were nevertheless required to respond to, and (d) the defendants were required to call expert evidence at trial in respect of their claimed deficiencies, I find that an award of costs to the defendants of $30,000 in respect of fees, HST thereon in the sum of $3,900, and disbursements, including experts’ fees and HST, in the sum of $13,482.86, totalling $47,382.86 would be fair, reasonable and appropriate.

Disposition

[31] In light of the foregoing, it is ordered that the plaintiff 1694467 Ontario Inc. o/a Keesmaat Homes pay to the defendants/plaintiffs by counterclaim costs of the proceeding fixed in the sum of $47,382.86 within 30 days hereof.

D.A. Broad, J.

Date: October 24, 2022