Court File and Parties

COURT FILE NO.: CV-22-00680385 DATE: 20230418

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: INTERCITY PROPERTIES LIMITED, Plaintiff AND: 1584904 ONTARIO INC. and COMMUNITY FIRST, Defendants

BEFORE: Justice Papageorgiou

COUNSEL: Ted Frankel and Kayla Smith for the Plaintiff Paul M. Paciocco for the Defendant 1584904

HEARD: In writing April 18, 2023

Endorsement

[1] The Plaintiff Intercity Properties Limited (“Intercity”) brings a motion in writing seeking an order requiring the Respondents, 1584904 Ontario Inc. (“158”) and Community First Credit Union Limited (“Community First”) to indemnify Intercity for fees and costs associated with enforcing an encroachment agreement dated March 1, 2012 (the “Encroachment Agreement”). In the alternative, it seeks costs pursuant to r. 57.01 in respect of the Application brought by Intercity to enforce the Encroachment Agreement.

Background

[2] The background to this matter is as follows. (I note that most of the communications of the parties have been through counsel.)

[3] Intercity owns certain lands in Sault-Ste Marie (the “Intercity Land”).

[4] In early 2012, Intercity learned that 158 had constructed an encroaching pylon sign (the “Pylon Sign”) on the Intercity Land (the “Encroachment”).

[5] Intercity put 158 on notice of the Encroachment.

[6] Intercity and 158 entered into the Encroachment Agreement dated March 1, 2012 for a ten year period. Although Community First is a respondent to the Application, Community First never signed the Encroachment Agreement.

[7] Pursuant to section 9(a) of the Encroachment Agreement, 158 was required to pay Intercity 50 % of the revenues received by 158 from any third parties for the use of the Pylon Sign.

[8] On February 3, 2022, Intercity put 158 on notice that the Encroachment Agreement would expire on February 28, 2022. At that time, 158 had declined to renew the Encroachment Agreement. Thus, Intercity demanded that 158 remove the Pylon Sign by March 15, 2022 at the latest. The letter concluded:

If you fail to comply with this demand our client reserves all rights to avail itself of self-help remedies, including but not limited to removing the Pylon Sign (and looking to you for all expenses associated with doing so), or assuming full ownership of the Pylon Sign.

Would you please advise, by reply letter to me, whether you will be removing the Pylon Sign by March 15, or whether it will be necessary for Intercity to proceed with a self-help remedy.

[9] On February 10, 2022, 158 advised that it was its intention to provide a prompt response.

[10] 158 conducted a visual examination of the site to inspect and direct the removal of the Pylon Sign. It stated that it could not be removed given that Intercity or its tenants had piled months’ worth of their snow and debris at the base of the billboard.

[11] On February 16, 2022, 158 advised Intercity of its findings and offered to arrange the removal of the sign once the snow was removed or sufficiently melted, and that it would pay $100 per month until the sign was removed. Otherwise, it welcomed Intercity’s removal of the snow at its own cost and expense after which it would remove the snow shortly thereafter.

[12] On February 22, 2022, Intercity advised that it would be prepared to allow the Pylon Sign to remain temporarily on the condition that it was removed no later than May 30, 2022, that the Respondents pay $300 in advance for the 3 month extension, and that the Respondents pay $2,000 in costs. The letter concluded:

If the above is not acceptable, we reserve all rights to seek the immediate removal of the sign through the Courts. If this is required our client will look to yours for all fees and costs incurred in relation to the Court proceeding.

[13] On February 25, 2022, 158 refused Intercity’s offer, and advised that costs in the amount of $2,000 were commercially unreasonable.

[14] As of April 27, 2022, 158 took no action to remove the pylon sign. On or about April 27, 2022, Intercity commenced an Application seeking a mandatory order directing that 158 remove the Encroachment as well as seeking costs “incurred in consequence of or incidental to the existence of the Encroachment.”

[15] On May 2, 2022, Intercity requested that 158 provide dates for a hearing in the Superior Court to address outstanding issues.

[16] On May 3, 2022 158 responded that the trifling matter of $2,000 in costs did not warrant a Superior Court Application and instead the proper jurisdiction was Sault Ste. Marie Small Claims Court for breach of contract, if any. In that regard, the property in question, the parties and the witnesses all reside in Sault Ste. Marie Ontario. He referenced the following Small Claims Court Rules:

Place of Commencement and Trial

6.01 (1) An action shall be commenced,

(a) in the territorial division,

(i) in which the cause of action arose, or

(ii) in which the defendant or, if there are several defendants, in which any one of them resides or carries on business; or

(b) at the court's place of sitting that is nearest to the place where the defendant or, if there are several defendants, where any one of them resides or carries on business. O. Reg. 78/06, s. 8 (1)

[17] On May 3, 2022, Intercity advised that since they were seeking declaratory relief, Small Claims Court was not the proper venue and that an application had been issued in the Superior Court. I pause to note here that based upon 158’s offer to remove the Pylon Sign when the snow had sufficiently melted, and the realities of scheduling Applications in the current civil backlog, it was inconceivable that the Application would be heard prior to the snow being melted and the Pylon Sign being removed as 158 had indicated it would do.

[18] On May 5, 2022, 158 re-inspected the pylon sign and discovered that the snow had melted to a point where removal was possible. It retained contractors who agreed to complete the removal and restoration work as soon as possible. It also advised Intercity of its efforts indicating that the Pylon Sign would be removed shortly. The email stated:

I re-iterate that if your client’s claim is solely one for recovery of costs, the proper procedure, in my view, if any, is through the Small Claims Court. I respectfully challenge that this is the type of claim that counsel should be allowing on the docket of the Superior Court of Justice given the current environment, backlog, delay and limited judicial resources.

With that said, in light of the significant costs about to be incurred by both parties, we shall allow your client one last opportunity to withdraw its claim on a without costs basis.

[19] On May 13, 2022, the parties scheduled a CPC attendance to schedule the Application’s timetable which was scheduled for June 1, 2023.

[20] The pylon sign was removed from the site on March 24, 2022 which Intercity advises was the first date available. This is uncontradicted.

[21] The parties still attended CPC on June 1, 2022 to schedule dates.

[22] Koehnen J’s June 1, 2022 endorsement reads as follows:

The applicant seeks a 2 hour motion to remove an encroachment from land. The respondent says the encroachment has been removed. The applicant has not checked if this is the case.

The applicant also seeks costs of $7,000.

I am not prepared to schedule a motion when the applicant has not even checked to see if the encroachment has been removed. The applicant should first determine if the motion is necessary before booking court time. Once the applicant has done so, it can return to CPC Court to book a motion if needed.

[23] The matter then proceeded to a case conference before Vella J. on October 3, 2022. At that time, Intercity advised that it was seeking over $18,000 in costs. She adjourned the matter and determined that the matter must be heard as a motion in writing. She advised that counsel were strongly encouraged to attempt to resolve this matter before further costs were incurred.

The Basis of Intercity’s Costs Claim

[24] Intercity now seeks costs in the amount of approximately $19,000 on a full indemnity basis or on a partial indemnity basis on the following grounds.

[25] I note that its costs went from $2,000 in its first letter, to $7,000 before Koehnen J to something stated to be more than $18,000 before Vella J.

The Indemnification

[26] First, section 4 of the Encroachment Agreement provides that 158 is obliged to indemnify Intercity from and against all losses, costs, damages, etc. sustained by Intercity by reason of the Encroachment (the “Indemnification”). The Indemnification stated:

1584904 will always indemnify and keep indemnified Intercity from and against all actions, suits, claims and demands which may be brought against or made upon Intercity and from all losses, costs, damages, charges and expenses which may be suffered, incurred, sustained or paid by Intercity by reason of, in consequence of or incidental to the existence of the Encroachment, the exercise by 1584904 of the permission hereby granted to maintain the Encroachment or any entry upon the Intercity Land by 1584904 or those for whom 1584904 is in law responsible. [emphasis added]

[27] The Encroachment Agreement was entered into by two sophisticated commercial parties. Reading the contract as a whole, and giving words their ordinary grammatical meaning, consistent with the surrounding circumstances as per Sattva Capital Corp v. Creston Moly Corp, 2014 SCC 53, I agree that the language of the Indemnification does not restrict indemnification claims to claims brought by third parties as it specifically includes “losses, costs, damages, charges, and expenses which may be suffered or sustained…by Intercity by reason of, in consequence of or incidental to the existence of the Encroachment”.

[28] However, I also agree with 158 that the Indemnification must be interpreted in a commercially reasonable manner. It implicitly does not permit 158 to incur unreasonable costs and then claim them. I will circle back to what I consider reasonable after I analyze Intercity’s r. 57 costs claim.

Rule 57

[29] Intercity claims it is entitled to the costs of the Application which it says it was forced to bring to enforce its rights in the approximate amount of $18,000. And 158 also claims costs of this proceeding in the approximate amount of $13,000.

[30] Rule 57 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 provides as follows:

General Principles

Factors in Discretion

57.01 (1) In exercising its discretion under section 131 of the Courts of Justice Act to award costs, the court may consider, in addition to the result in the proceeding and any offer to settle or to contribute made in writing,

(0.a) the principle of indemnity, including, where applicable, the experience of the lawyer for the party entitled to the costs as well as the rates charged and the hours spent by that lawyer;

(0.b) the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed;

(a) the amount claimed and the amount recovered in the proceeding;

(b) the apportionment of liability;

(c) the complexity of the proceeding;

(d) the importance of the issues;

(e) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding;

(f) whether any step in the proceeding was,

(i) improper, vexatious or unnecessary, or

(ii) taken through negligence, mistake or excessive caution;

(g) a party’s denial of or refusal to admit anything that should have been admitted;

(h) whether it is appropriate to award any costs or more than one set of costs where a party,

(i) commenced separate proceedings for claims that should have been made in one proceeding, or

(ii) in defending a proceeding separated unnecessarily from another party in the same interest or defended by a different lawyer;

(h.1) whether a party unreasonably objected to proceeding by telephone conference or video conference under rule 1.08; and

(i) any other matter relevant to the question of costs. R.R.O. 1990, Reg. 194, r. 57.01 (1) ; O. Reg. 627/98, s. 6; O. Reg. 42/05, s. 4 (1); O. Reg. 575/07, s. 1; O. Reg. 689/20, s. 37.

[31] As set out in Finmax Investments Group Ltd. v Grossman, 2015 ONSC 2048:

The fixing of costs is a discretionary decision under s. 131 of the Courts of Justice Act. That discretion is generally to be exercised in accordance with the factors listed in Rule 57.01 of the Rules of Civil Procedure. These include the principle of indemnity for the successful party (57.01(1)(0.a)), the expectations of the unsuccessful party (57.01(1)(0.b)), the amount claimed and recovered (57.01(1)(a)), and the complexity of the issues (57.01(1)(c)). Overall, the court is required to consider what is "fair and reasonable" in fixing costs, and is to do so with a view to balancing compensation of the successful party with the goal of fostering access to justice: Boucher v. Public Accountants Council (Ontario), (2004), 71 O.R. (3d) 291 (Ont. C.A.), at paras 26.

[32] In my view, the principle factor relevant to costs in this matter is the fact that these two parties took what was a simple issue which could have been negotiated and/or where they could have incurred modest costs themselves if they pursued the issues in Small Claims Court. Instead, they both took unreasonable positions escalating costs and resulting in a significant waste of the Superior Court’s scarce judicial resources.

The Reasonableness of the Parties’ Conduct

[33] The image of the pylon sign shows that it is in the middle of a parking lot. While the land was certainly Intercity’s and it was entitled to the removal of the Pylon Sign by February 28, 2022, Intercity’s first letter indicated that if the Pylon Sign was not removed, it would seek self-help remedies to remove it and seek the costs of doing so as against 158. For reasons which are unknown, Intercity lead no evidence that it considered this option which was available to it or what it would have cost. Had it taken this course of action, there is no question that such costs could have been recovered pursuant to section 4 of the Encroachment Agreement.

[34] As well, Intercity has led no evidence that the existence of the Pylon Sign on its property during the period that 158 was waiting for the snow to melt actually caused Intercity any damage. It lead no evidence that it needed the land for any other purpose and that the existence of the Pylon Sign during the intervening period would cause any economic losses. It lead no evidence that it investigated the costs of simply removing the snow as requested by 158, and then claiming such costs pursuant to the Indemnification. While there is no evidence as to the likely cost, the picture in the materials of the quantum of snow, does not support any inference that the cost would be exorbitant or anything close to the costs it now claims in the amount of $18,000 for, instead, bringing an Application in the Superior Court.

[35] At the same time, 158’s conduct was also unreasonable and caused costs to escalate. It had a contractual obligation to remove the Pylon Sign by February 28, 2022. There is no provision for it to delay if there was snow on the Pylon Sign which may have made removal more expensive. Although 158 claims that Intercity’s actions regarding the snow made it impossible for it to comply with its contractual obligation, there is no evidence of this. It was simply a matter of it being more expensive because of the snow.

[36] 158 could have removed the snow and the Pylon Sign on time, and then brought its own Small Claims Court proceeding claiming the costs of the snow removal on the basis that Intercity had placed snow on its property without its consent, thereby causing it to incur additional costs when it removed the Pylon Sign. In that regard, I note that section 7 of the Encroachment Agreement specifically stated that “Notwithstanding that the Encroachment is located on Intercity Land, Intercity and [158] agree that the Encroachment shall remain the property of [158 ]…”

[37] As well, 158’s refusal to pay the modest costs request in the amount of $2,000 in Intercity’s first attempt to negotiate the issues was unreasonable. It was 158 who had not complied with its contractual obligation. This necessitated Intercity retaining counsel who had to review documents and write letters to address the issue and negotiate.

[38] Both parties have pursued this matter in an unreasonable and non-cost effective manner.

[39] Neither should be rewarded by their conduct with a significant costs award.

[40] However, in my view, the party most at fault was 158, despite the fact that Intercity also behaved unreasonably.

[41] It was 158 who failed to remove the Pylon Sign in accordance with its contractual obligation, thus breaching the agreement. It should have removed the sign on time, paid any additional costs because of the snow and then claimed those against Intercity in a Small Claims Court Action in Sault Ste Marie, which is where it thinks Intercity should have brought the proceeding. It should have acknowledged that it was its own default that lead to Intercity retaining counsel to address the matter. As at the February 22, 2022 letter, the $2,000 claimed was not unreasonable and it could have saved itself and both parties considerable costs by simply agreeing to the proposal in Intercity’s February 22, 2022 letter.

[42] Therefore, in the exercise of my discretion, I am awarding Intercity costs on a partial indemnity basis in the amount of $7,000. My rationale is as follows.

[43] Intercity’s Bill of Costs is not prepared on the basis of when time was incurred, but is prepared based upon the type of work done by counsel. However, Intercity’s stated costs claim when the parties appeared before Koehnen J, on June 1, 2022, and when the Encroachment had already been removed was $7,000. I presume this stated amount was on a full indemnity basis since that is what Intercity claims before me.

[44] As at June 1, 2022, the Superior Court action brought for injunctive and declaratory relief was no longer necessary. Intercity could have agreed to this matter being traversed to Small Claims Court in Sault Ste. Marie to claim these costs, which would have been the least expensive and most efficient manner of proceeding.

[45] Instead, it continued with this Superior Court Proceeding where it sought injunctive and declaratory relief which it no longer needed, attempting to arrange motion dates, and causing costs to escalate. No less than three judges have had to address this matter and as at the date of this written motion the parties’ combined costs are in excess of $30,000.

[46] It is shocking that this simple matter had a Caselines file which exceeded 330 pages.

[47] As I said, it appears to me that Intercity’s cost claim of $7,000 before Koehnen J. on June 1, 2022 was on a full indemnity basis. I am not awarding this amount on a full indemnity basis but on a partial indemnity basis. I am including in this amount a reasonable amount for work done to then seek its costs after the June 1, 2022 attendance.

[48] Therefore, I am awarding Intercity costs in the amount of $7,000 on a partial indemnity basis as against 158, payable within 30 days pursuant to r. 57.01 as well as pursuant to section 4 of the Encroachment Agreement.

[49] In my view, these are the only costs within the reasonable contemplation of 158. These were the costs that Intercity had incurred up until the point when the Encroachment had been removed, which was the basis of the Application which had become moot except for the issue of costs. And as I said, Intercity filed no evidence of any actual damages suffered by the delay.

Justice Papageorgiou Date: April 18, 2023