Gregor Homes Ltd. v. Julianne Christine Woodyer and Steven John Nikifork

BRACEBRIDGE COURT FILE NO.: CV-18-159 DATE: 20230126 CORRIGENDA: 20230127

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Gregor Homes Ltd. Plaintiff

– and –

Julianne Christine Woodyer and Steven John Nikifork Defendants

COUNSEL: Judith Turner, for the Plaintiff Erica Johnston, for the Defendants

HEARD: October 27, 2022

RULING RE: COSTS (TEXT OF ORIGINAL RULING HAS BEEN AMENDED – CHANGES APPENDED)

MCKELVEY J.:

Introduction

[1] This action arose out of a contract for the construction of a new home which was built by the Plaintiff. The Plaintiff claimed that it was not paid for its services in constructing the home by the Defendants. At trial the Plaintiff was successful in obtaining judgment against the Defendants for the net sum of $52,736.16. Pre-judgment interest calculated from the date the claim was issued to the date of the Reasons for Judgment being released was a further $3,444.58. Therefore, the total judgment in favour of the Plaintiff was $56,180.76.

[2] The parties have not been able to reach an agreement on costs and this decision addresses that issue.

Factors Relating to Costs

[3] Rule 57.01 sets out the criteria which a court should consider in awarding costs. The particular factors which appear to be the most relevant in this case are as follows:

1. The results of the proceeding;
2. Any offer to settle made in writing;
3. The principle of indemnity, including, 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;
4. The amount claimed and the amount recovered in the proceeding; and
5. The amount of costs that an unsuccessful party could reasonably expect to pay.

[4] In addition, Rule 49 specifically deals with offers to settle. Rule 49.10 provides that where an offer to settle is made by a plaintiff at least seven days before the commencement of the hearing which is not withdrawn and does not expire before the commencement of the hearing and is not accepted by the defendant, then if the plaintiff obtains a judgment as favourable or more favourable than the terms of the offer to settle, the plaintiff is entitled to partial indemnity costs to the date of the offer to settle and substantial indemnity costs from that date forward, unless the court orders otherwise.

[5] Further, Rule 49.13 provides that a court in exercising its discretion with respect to costs may take into account any offer to settle made in writing, the date the offer was made and the terms of the offer.

[6] It is significant to note that at the time of the hearing with respect to costs, Defence counsel did not take issue with the number of hours spent by the Plaintiff’s counsel, nor was there any issue taken with respect to the hourly rates or the disbursements.

[7] The Plaintiff’s solicitor-client bill for the services rendered in the action totalled $57,787.50 plus HST of $7,512.38, for a total of $65,299.88. In addition, the Plaintiff incurred disbursements including HST of $3,587.90.

[8] The Plaintiff’s position is that they should be entitled to their partial indemnity costs up to January 14, 2021 (being the date an offer to settle was submitted) and substantial indemnity costs after January 14, 2021. The Plaintiff asserts that this would result in a costs award of $38,313.49 plus disbursements, for a total of $50,800.14 plus HST.

[9] The Defendant did not provide a specific figure as to what it considered to be a reasonable amount for costs but argued that proportionality is a significant factor to take into account and that the amount of costs claimed by the Plaintiff is close to the amount of the award itself.

The Results of the Proceeding

[10] As previously noted, the Plaintiff obtained a judgment for a total of $56,180.76. The Defence was successful at trial on one issue relating to the cost of staining the home. In this regard, they received a set-off of $11,698.62 from what the Plaintiff would otherwise have been entitled to. While it is apparent that the Defendants had some success, I have concluded that the Plaintiff was substantially successful in the action and should be entitled to their costs, recognizing that the costs should take into account the success the Defendants achieved in obtaining the set-off. This set-off was equivalent to just under 20% of the Plaintiff’s claim which according to the Plaintiff totalled $64,434 not including costs or interest.

The Scale of Costs

[11] As previously noted, the Plaintiff seeks its costs on a partial indemnity rate up until January 14, 2021, which was the date of an offer to settle made by the Plaintiff and substantial indemnity costs after January 14, 2021.

[12] The Plaintiff’s offer to settle was for the sum of $55,000. This offer included a provision that if the offer was accepted by January 20, 2021 no pre-judgment interest was payable and each party would bear its own costs.

[13] Paragraph 5 of the offer provided as follows, however:

If this offer is accepted after Wednesday January 20, 2021 the costs consequences set out in Rule 49 of the Rules of Civil Procedure shall apply.

[14] The Plaintiff’s solicitor advised during submissions that her intention under paragraph 5 of the offer to settle was to require the Defendants to pay substantial indemnity costs after January 20, 2021. The Plaintiff’s solicitor acknowledged in her submissions that the cost consequences under Rule 49.10 would not apply as a result of paragraph 5 of the offer. I agree with this assessment.

[15] Paragraph 5 of the offer does not specify what level of costs are payable and from what date. The reference to the “costs consequence set out in Rule 49” does not assist in understanding the answers to these two questions. The Plaintiff’s onus is to establish that its offer satisfied the requirements of Rule 49.10(1). In my view, the Plaintiff’s silence on what was being demanded in terms of costs is fatal to its claim for substantial indemnity costs under Rule 49.10(1). If, for example, the Plaintiff’s expectations were for substantial indemnity costs from the commencement of the action, this is not something the Plaintiff would have been entitled to and would serve to significantly increase the cost of the offer.

[16] A further issue arises with respect to the Plaintiff’s calculation of pre-judgment interest and whether the Plaintiff’s offer was more favourable than the judgment in this case. For purposes of determining whether its offer was more favourable than the judgment, the Plaintiff has included pre-judgment interest to the date of judgment which was July 11, 2022. However, the Plaintiff’s offer expired at the commencement of trial which was February 1, 2021. There is no basis, in my view, for the Plaintiff to claim the benefit of pre-judgment interest for purposes of Rule 49.10(1) after its offer had expired and was no longer available for acceptance. According to the Plaintiff’s calculation the applicable pre-judgment interest rate is 1.8%. When I calculate interest at this rate for the period between February 1, 2021 to July 11, 2022 when my decision was released I arrive at the figure of $1,213.87 which is based on a monthly figure of $79.08 per month. When this figure is subtracted from the Plaintiff’s total award of $56,180.74 which includes pre-judgment interest to the date of my judgment, the net figure for the Plaintiff’s award including pre-judgment interest up to the start of trial is $54,967 which is just slightly less favourable than the Plaintiff’s offer to settle. The Plaintiff’s offer, therefore, failed to meet the threshold required.

[17] For the above reasons I have concluded that the Plaintiff is not entitled to substantial indemnity costs pursuant to Rule 49.10(1).

[18] I do accept, however, that the Plaintiff’s offer to settle was a sincere offer made by the Plaintiff to try and settle the action. In response, the Defendants’ offer to settle the claim for $10,000 inclusive of interest and costs, which would have netted the Plaintiff very little after payment of its partial indemnity costs. I have concluded that the Plaintiff’s offer is entitled to consideration under both Rule 57 and Rule 49.13 in assessing partial indemnity costs.

Proportionality

[19] The defence argues that the costs claimed by the Plaintiff are not proportionate to the amount involved in the proceeding. It notes that the Plaintiff is now seeking a costs award roughly equivalent to the total amount of the judgment.

[20] In the Ontario Court of Appeal decision in Elbakhiet v. Palmer, 2014 ONCA 544, [2014] O.J. No. 3302, the Court overruled the trial judge in a case where the respondent sought damages of approximately $1.9 million and where the jury award came in at just under $145,000. The trial judge awarded costs of $580,000. In overturning the trial judge’s decision, the Ontario Court of Appeal stated:

The trial judge made an error in principle in failing to give any consideration to the offers to settle and her award is wholly disproportionate to the amounts recovered. The trial judge’s decision to simply award the costs sought by the respondents failed to give any consideration to what amount would be fair and reasonable.

[21] In the Elbakhiet case, the Court of Appeal reduced the costs to be paid by the Appellants to $100,000 which took into consideration an offer to settle which was virtually the same as the judgment.

[22] On the other hand, in a decision by Justice McCarthy in Aacurate v. Tarasco, 2015 ONSC 5980, he comments that declining to make a realistic award of costs in modest cases would send a message to litigants that it is not worth one’s while to pursue legitimate claims in court because one cannot possibly make it cost effective to do so. Justice McCarthy concludes that this would constitute a denial of justice in the most fundamental sense and would encourage those resisting legitimate but modest claims to take unreasonable positions, the logic being any exposure to costs would be limited because of the size of the claim, regardless of the time and expense necessary to extract a judgment.

[23] I have concluded that while proportionality is a factor that must be considered, it should not be given undue weight for the reasons outlined by Justice McCarthy.

The Cost of Mediation

[24] The Defendants have referred to a scheduled mediation which was to be held on January 5, 2021. By letter dated December 7, 2020, the Plaintiff, through their counsel, advised the Defendants that the Plaintiff would not be attending the mediation on this matter. The cancellation resulted in only a partial refund of the mediation fee. The Defendants were required to pay the sum of $1,977.50 as a result of the Plaintiff’s decision to cancel the mediation. The Plaintiff’s solicitor in her submissions advised that she was under the impression that her office had paid the entire cancellation fee and was surprised to hear that the Defendants had incurred an expense in this regard. I have concluded that the cancellation of the mediation by the Plaintiff should not result in the Defendant incurring any of the costs for the mediation. Therefore, I order that the sum of $1,977.50 be set off against the costs owed by the Defendants to the Plaintiff in this action. I have also taken into consideration in connection with the Plaintiff’s claim for costs that the Defendants likely spent some time in arranging and preparing for the mediation.

The Arbitration Agreement and the Reasonable Expectation of the Parties

[25] The Defendants have submitted that the costs against them should be reduced to reflect the reasonable expectation that disputes arising from the contract would be dealt with by arbitration, rather than through the courts. They also argue that any cost award must be fair to the parties and reasonable in the circumstances, including the reasonable expectations of the losing party (see Boucher v. Public Accountants Council for the Province of Ontario, [2004] O.J. No. 2634 (ONCA)).

[26] In my decision on the merits of this action, I dealt with the issue of the arbitration provision contained in the contract between the Plaintiff and the Defendants. I noted that the provisions of the Construction Act provide for the creation of a lien and a judgment from a court. I therefore concluded that the commencement of a civil action by the Plaintiff and their failure to refer the matter to arbitration did not disentitle them to bring this case before the court for adjudication.

[27] I accept that the costs award in this action must be fair to the parties and must take into account the reasonable expectations of the Defendants. I also recognize that this litigation was caused by inaccurate estimates given by the Plaintiff on a number of cash allowance items which led to significant overages being incurred by the Defendants for this construction contract.

Conclusion

[28] With respect to costs, based on a 60% recovery I have concluded that the full partial indemnity fees of the Plaintiff would be assessed at $34,672.50, plus HST of $4,507.42 for a total of $39,179.92.

[29] Taking into account the success of the Defendants in establishing a set-off for the staining of the home and also considering the issue of proportionality as well as the Plaintiff’s offer to settle, together with the other factors outlined in these Reasons, I have concluded that it would be reasonable to assess the Plaintiff’s costs at $32,000 including HST plus disbursements of $3,587.90 including HST.

[30] For the reasons given, I order that the Defendants pay to the Plaintiff their costs of the action assessed at $32,000 including HST plus disbursements of $3,587.90 including HST subject to credit being given to the Defendants for the mediation fee paid by them as noted earlier. These funds are to be paid within four months from the date of these Reasons, as agreed to by the parties.

Justice M. McKelvey

Released: January 26, 2023

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Gregor Homes Ltd. Plaintiff

– and –

Julianne Christine Woodyer and Steven John Nikifork Defendants

RULING RE: COSTS

Justice M. McKelvey

Released: January 26, 2023

AMENDMENTS

1. The following sentence within para. [15] has been amended from its original text:

… If, for example, the Plaintiff’s expectations were for substantial indemnity costs from the commencement of the action, this is not something the Plaintiff’s would have been entitled to and would serve to significantly reduce the offer relating to the value of the claim, excluding costs.

To now read:

… If, for example, the Plaintiff’s expectations were for substantial indemnity costs from the commencement of the action, this is not something the Plaintiff would have been entitled to and would serve to significantly increase the cost of the offer.

2. The following sentence within para. [16] has been amended from its original text:

... When this figure is subtracted from the Plaintiff’s total award of $56,180.74 which includes pre-judgment interest to the date of my judgment, the net figure for the Plaintiff’s award including pre-judgment interest up to the start of trial is $54,967 which is just slightly less favourable than the judgment at trial.

To now read:

… When this figure is subtracted from the Plaintiff’s total award of $56,180.74 which includes pre-judgment interest to the date of my judgment, the net figure for the Plaintiff’s award including pre-judgment interest up to the start of trial is $54,967 which is just slightly less favourable than the Plaintiff’s offer to settle.