COURT FILE NO.: SC-21-00000007 DATE: 2024/02/09
ONTARIO SUPERIOR COURT OF JUSTICE SMALL CLAIMS COURT
B E T W E E N:
KIMBERLEY BILBIJA and JOHN BILBIJA Plaintiffs
D. Shewman, for the Plaintiffs
- and -
WHITTINGTON ENGINEERING LTD., IWS WOOD PRODUCTS INC. and MANITOULIN CEDAR PRODUCTS Defendants
M. Leef, for the Defendants, Whittington Engineering Ltd. and IWS Wood Products Inc. J. Bryce, for the Defendant, Manitoulin Cedar Products
HEARD: In writing
ellies J.
REASONS FOR DECISION ON COSTS
BACKGROUND
[1] The plaintiffs sued the defendants in the Small Claims Court for damages relating to the deterioration of beams used in the construction of an elaborate deck that had been installed on their house in 2009. The defendant, Whittington Engineering Ltd. (“Whittington”) designed the Glulam beams and it would appear that the principal of the company, Ian Whittington, recommended them for use in building the deck. IWS Wood Products Inc. (“IWS”) supplied the beams and Manitoulin Cedar Products (“Manitoulin”) used them to build the deck in accordance with plans prepared by Whittington.
[2] The trial proceeded before Deputy Judge Thurston on November 14 and 15, 2022. For reasons released on May 15, 2023, the deputy judge dismissed the plaintiffs’ claim because it was commenced after the limitation period expired. Nonetheless, he went on to consider the merits of the claim and found that the plaintiffs had failed to establish both liability and damages.
[3] The deputy judge invited cost submissions in writing. However, his appointment as a deputy judge under s. 32 of the Courts of Justice Act, R.S.O. 1990, c. C.43 (the “CJA”), had expired on February 17, 2023, before his reasons for decision were released. Under s. 123(2) of the CJA, the deputy judge was permitted to render his decision within three months of the expiration of his appointment, which he did with respect to liability and damages. Unfortunately, he was unable to render a decision on the question of costs before those three months ended. Therefore, I wrote to the parties in my capacity as the Regional Senior Judge at the time to suggest that, if they agreed, I would render a decision on the issue of costs. The parties agreed and made written submissions on the issue.
[4] Ordinarily, s. 29 of the CJA imposes a 15 per cent cap on the amount of costs that can be awarded in Small Claims Court actions. The section provides:
An award of costs in the Small Claims Court, other than disbursements, shall not exceed 15 per cent of the amount claimed or the value of the property sought to be recovered unless the court considers it necessary in the interests of justice to penalize a party or a party’s representative for unreasonable behaviour in the proceeding.
[5] However, r. 14.10 of the Rules of the Small Claims Court, O. Reg. 258/98 (the “Small Claims Court Rules”), provides that a party who makes an offer to settle that is not accepted may be awarded up to twice the costs of the action. The relevant portion of the rule provides:
14.07 (1) When a plaintiff makes an offer to settle that is not accepted by the defendant, the court may award the plaintiff an amount not exceeding twice the costs of the action, if the following conditions are met:
- The plaintiff obtains a judgment as favourable as or more favourable than the terms of the offer.
- The offer was made at least seven days before the trial.
- The offer was not withdrawn and did not expire before the trial.
(2) When a defendant makes an offer to settle that is not accepted by the plaintiff, the court may award the defendant an amount not exceeding twice the costs awardable to a successful party, from the date the offer was served, if the following conditions are met:
- The plaintiff obtains a judgment as favourable as or less favourable than the terms of the offer.
- The offer was made at least seven days before the trial.
- The offer was not withdrawn and did not expire before the trial.
[6] In their written submissions, the defendants sought twice the costs cap on the basis that they had made an offer to settle which was not accepted by the plaintiffs. On October 11, 2022, Manitoulin made an offer to settle the plaintiffs’ claims for payment to them of $5,000.00, inclusive of pre-judgment interest, but exclusive of the plaintiffs’ costs and disbursements, which Manitoulin offered to agree upon or assess. In exchange, the plaintiffs would be required to consent to a dismissal of their claims against all defendants. The offer was made in consultation and with the consent of Whittington and IWS (the “Whittington/IWS defendants”). It remained open until five minutes after the commencement of the trial but was never accepted by the plaintiffs.
[7] In their submissions, the plaintiffs accepted that Manitoulin was entitled to a costs award of up to twice the cap but disputed that the Whittington/IWS defendants were also entitled to such an award. Although the basis of the plaintiff’s position is not obvious from their written submissions, I presume that the issue from their perspective is that the offer was not made by the Whittington/IWS defendants.
[8] After reviewing the parties’ written submissions, I released an endorsement in which I pointed out that in Prohaska v. Howe, 2016 ONSC 48 (Div. Ct.), the court applied jurisprudence developed under r. 49.10(2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (applicable in the Superior Court), to the Small Claims Court Rules and held that the cost consequences under r. 14.07(2) do not apply where a plaintiff’s claim has been dismissed in its entirety, as it was here. I invited further submissions from the parties if they wished to maintain that those cost consequences applied nonetheless, which invitation was accepted by the defendants.
[9] In their supplementary written submissions, the Whittington/IWS defendants argue that Prohaska was wrongly decided. They contend that the result in Prohaska works an unfairness on a defendant who makes an offer to settle in a Smalls Claims Court action and who succeeds at totally shutting out a plaintiff. They submit that the defendant in such a case would only be entitled to costs of up to 15 per cent on the basis of Prohaska, whereas a defendant who makes an offer to settle and only partially shuts out a plaintiff would be entitled to a costs award of up to 30 per cent where the plaintiff does not beat the defendant’s offer.
[10] The Whittington/IWS defendants submit that the court in Prohaska misinterpreted the jurisprudence developed under the Rules of Civil Procedure. They submit that the jurisprudence holds that, where a defendant has made an offer to settle and a plaintiff is wholly unsuccessful, the defendant is entitled to an even greater costs award than the one provided for under r. 49.10(2).
[11] Manitoulin adopts the submissions of the Whittington/IWS defendants. In addition, it makes two further submissions. First, it submits that the court in Prohaska erred in concluding that the operative parts of r. 14.07(2) are the same as those in r. 49.10(2). Second, it submits that the court in Prohaska failed to appreciate that, in the Small Claims Court, there is no rule akin to r. 57.01 of the Rules of Civil Procedure, which gives the Superior Court broad discretion to consider, among other things, offers to settle that do not attract the costs consequences of r. 49.10(2).
[12] As I will explain, the doctrine of stare decisis precludes me from considering any of these arguments. However, even if I could, I would not give effect to any of them.
ISSUES
[13] The defendants’ arguments give rise to the following issues:
(1) Am I free to disregard the decision in Prohaska? (2) If so, was Prohaska wrongly decided? (3) If not, what costs awards should be made in this case?
ANALYSIS
Am I free to disregard the decision in Prohaska?
[14] The defendants urge me to disregard the decision in Prohaska for all the reasons outlined above. I am not free to do that.
[15] Prohaska was an appeal from the decision of a deputy judge who had dismissed the plaintiff's claim and awarded the defendant twice his costs because the defendant had made an offer to settle. Justice LeMay, sitting as a single judge of the Divisional Court under ss. 18(3) and 331 of the CJA, dismissed the appeal on the issue of liability. However, he granted leave to appeal the costs award on the basis that the decision of the Court of Appeal in S & A Strasser Ltd. Richmond Hill (Town) (1990), 1 O.R. (3d) 243, had never been considered in the context of the Small Claims Court Rules: Prohaska, at para. 60.
[16] In Strasser, the Court of Appeal considered the provisions of r. 49.10 of the Rules of Civil Procedure. Although the terminology surrounding the scales of costs (“partial indemnity” v. “party and party” and “substantial indemnity” v. “solicitor and client”) has changed since the decision in Strasser was rendered, the relevant portions of r. 49.10 continue to read today as they did then:
49.10 (1) Where an offer to settle,
(a) is made by a plaintiff at least seven days before the commencement of the hearing; (b) is not withdrawn and does not expire before the commencement of the hearing; and (c) is not accepted by the defendant,
and the plaintiff obtains a judgment as favourable as or more favourable than the terms of the offer to settle, the plaintiff is entitled to partial indemnity costs to the date the offer to settle was served and substantial indemnity costs from that date, unless the court orders otherwise.
(2) Where an offer to settle,
(a) is made by a defendant at least seven days before the commencement of the hearing; (b) is not withdrawn and does not expire before the commencement of the hearing; and (c) is not accepted by the plaintiff,
and the plaintiff obtains a judgment as favourable as or less favourable than the terms of the offer to settle, the plaintiff is entitled to partial indemnity costs to the date the offer was served and the defendant is entitled to partial indemnity costs from that date, unless the court orders otherwise.
[17] In Strasser, the Court of Appeal held that r. 49.10(2) does not apply in a case where a plaintiff has been wholly unsuccessful. As Carthy J.A. wrote for the court, at p. 245:
At first glance it seems an anomaly that the plaintiff should be awarded [substantial indemnity] costs following the date of an offer, while the defendant only receives [partial indemnity] costs. The answer is found in appreciating that this rule assumes that the plaintiff has recovered a judgment of some value. Without the rule, that plaintiff would normally recover [partial indemnity] costs. The rule gives that plaintiff a bonus for an offer lower than the recovery by elevating costs to the [substantial indemnity] level following the offer. The bonus to a defendant who makes an offer higher than the recovery is that the defendant pays no costs following the offer and, in addition, recovers [partial indemnity] costs for that period of time. That rationale does not fit a case where the plaintiff is totally unsuccessful because, without the rule, the defendant is normally entitled to [partial indemnity] costs. The words in the rule "and the plaintiff recovers a judgment as favourable" make it clear that the rule has no application where the plaintiff fails to recover any judgment.
[18] In Prohaska, LeMay J. held that the operative parts of r. 14.07 are identical to those of r. 49.10. He, therefore, held that he was bound to follow the decision in Strasser. He set aside the deputy judge’s decision on costs and awarded, instead, a lower amount: Prohaska, at paras. 62-65.
[19] The doctrine of stare decisis requires that lower courts follow the decisions of higher courts having jurisdiction over the same subject matter, unless those decisions are distinguishable on either the facts or the law: see Canada v. Craig, 2012 SCC 43, [2012] 2 S.C.R. 489, at paras. 18-23; Canada (Attorney General) v. Bedford, 2013 SCC 72, [2013] 3 S.C.R. 1101, at paras. 38-47.
[20] It is true that, like the judge in Prohaska, I am a Superior Court judge. However, the authority of a Superior Court judge depends not on the nature of his appointment, but on the jurisdiction of the court on which he is sitting. The judge in Prohaska was sitting as a judge of the Divisional Court hearing an appeal under ss. 18(3) and 31 of the CJA. In this case, I am sitting as a judge of the Small Claims Court pursuant to s. 22(3) of the CJA, which provides that every judge of the Superior Court is also a judge of the Small Claims Court. My jurisdiction in this matter, therefore, is limited to that of a Small Claims Court judge. The Divisional Court is a higher court. Therefore, unless the decision in Prohaska can be distinguished, I am not free to disregard it.
[21] As I have explained, the decision in Prohaska cannot be distinguished on the law because the rules remain the same. Nor can it be distinguished on the facts. Indeed, the facts in Prohaska are quite similar to those in the case at bar. Prohaska was also a case about alleged building deficiencies. In Prohaska, as in the present case, the defendant had made a r. 14.07(2)-complaint offer to settle which was not accepted by the plaintiff. Finally, in both Prohaska and this case, the plaintiff’s claim was dismissed.
[22] For these reasons, I am bound to follow the decision in Prohaska in the same way the judge in Prohaska was bound to follow the decision in Strasser. However, as I will explain, even if I was free to disregard the decision in Prohaska, I would not do so.
Was Prohaska wrongly decided?
[23] In my view, Prohaska was correctly decided. To explain why, I will address each of the defendants’ arguments, although not in the order set out above.
Rules 49.10(2) and 14.07(2) are not materially different.
[24] Manitoulin submits that the court in Prohaska was wrong in concluding that the operative parts of r. 14.07(2) are the same as those of r. 49.10(2). It submits that r. 49.10(2) presumes some form of success on the plaintiff’s part, whereas r. 14.07(2) does not. Manitoulin focuses on the following portions of r. 49.10(2) and r. 14.07(2), respectively (emphasis added):
49.10(2) … the plaintiff is entitled to partial indemnity costs to the date the offer was served and the defendant is entitled to partial indemnity costs from that date, unless the court orders otherwise.
14.07(2) When a defendant makes an offer to settle that is not accepted by the plaintiff, the court may award the defendant an amount not exceeding twice the costs awardable to a successful party, from the date the offer was served, if the following conditions are met:
[25] Manitoulin submits that the two rules are materially different from one another because r. 49.10(2) speaks to the plaintiff’s costs to the date an offer to settle was served, whereas r. 14.07(2) does not. Manitoulin submits that this is why the court in Strasser held that r. 49.10(2) applies only where the plaintiff obtains a judgment of some kind in its favour, a distinction missed by the judge in Prohaska.
[26] In my view, Manitoulin has focused on the wrong portions of the rules. The relevant portions, the ones that make the rules indistinguishable, are the portions that precede the relied-upon wording in r. 49.10(2) and that follow the relied-upon wording in r. 14.07(2) (emphasis added):
49.10(2) Where an offer to settle,
(a) is made by a defendant…
… and the plaintiff obtains a judgment as favourable as or less favourable than the terms of the offer to settle…
14.07(2) When a defendant makes an offer to settle…if the following conditions are met:
- The plaintiff obtains a judgment as favourable as or less favourable than the terms of the offer…
[27] It will be immediately obvious that the wording of the two rules is identical in requiring that the plaintiff obtain a judgment before the rule becomes operative.
[28] It is true that r. 14.07(2) does not make any reference to the plaintiff being awarded costs to the date of the defendant’s offer. However, like r. 49.10(2), r. 14.07(2) does provide that a defendant can only obtain enhanced costs after the date of the offer. There is nothing in the Small Claims Court Rules that precludes a plaintiff being awarded a representation fee up to the date of the offer, in the same way r. 49.10(2) of the Rules of Civil Procedure provides for partial indemnity costs to that date.
[29] For these reasons, I cannot accept the argument that Prohaska was wrongly decided on this basis.
Strasser did not hold that a different rule applies where a plaintiff’s case is dismissed.
[30] The Whittington/IWS defendants submit that the Court of Appeal in Strasser held that where a defendant makes an offer to settle that is not accepted and a plaintiff fails to recover anything, the offering defendant is entitled to costs on an even more enhanced basis than that called for by r. 49.10(2). They submit that where a defendant who makes an unaccepted rule-complaint offer totally shuts out a plaintiff, the Court of Appeal in Strasser held that the defendant should be awarded partial indemnity costs to the date of the offer and substantial indemnity costs thereafter, rather than the costs consequences otherwise called for under the rule (partial indemnity costs to the plaintiff until the date of the offer and partial indemnity costs to the defendant thereafter).
[31] Again, I disagree. It is true that, in Strasser, after holding that rule 49.10(2) does not apply where a plaintiff has not obtained a judgment, the Court of Appeal did go on to award the defendant partial indemnity costs up to the date of the offer and substantial indemnity costs thereafter. However, the Court of Appeal did not purport to lay down a hard-and-fast rule, as the defendants suggest.
[32] In Strasser, the plaintiff had claimed $1 million, which had been scaled down by more than $900,000 to roughly $70,000 just prior to trial. The trial judge had awarded the defendant substantial indemnity costs throughout the proceedings because of the offer. The Court of Appeal held that there was no evidence of the type of litigation misbehaviour that ordinarily attracts an award of substantial indemnity costs against a party. At page 246, Carthy J.A. wrote:
However, I do see reason for a bonus in making an offer of $30,000 in the face of a claim which subsequently reduced itself to $70,000 and resulted in a dismissal of the action. That bonus should be related to the offer and its date and, based upon the general principles enunciated in Rule 57.01, I would award [substantial indemnity] costs to the defendant following the date of the offer and [partial indemnity] costs up to that date.
[33] I do not read this passage as laying down any rule of general application and I have not been taken to any subsequent authority in which Strasser has been so interpreted. Instead, I interpret the Court of Appeal’s decision in Strasser to award partial indemnity costs to the date of the offer and substantial indemnity costs thereafter as an exercise of its discretion in the face of a claim that had obviously been trumped up from the outset. Nothing in the deputy judge’s reasons in this case suggests that the situation was the same here.
[34] Thus, even if I am wrong that the Court of Appeal did not intend to lay down any rule of general application where a defendant has made an offer to settle and a plaintiff’s claim has been dismissed, I would distinguish Strasser on the basis that the claim in this case was not artificially inflated the way it was in that case: see also Davies v. Clarington, 2009 ONCA 722, 100 O.R. (3d) 66, at paras. 34-40.
Applying Prohaska does not necessarily result in unfairness.
[35] In Strasser, the trial judge had relied on r. 49.13 of the Rules of Civil Procedure in awarding the defendant its substantial indemnity costs throughout. That rule provides that a court exercising its discretion as to costs may consider any offer to settle made in writing, the date the offer was made, and the terms of the offer, even where the offer does not comply with r. 49.10. On behalf of the Court of Appeal, Carthy J.A. expressed concern that the trial judge had relied on r. 49.13 to fill in a “gap” in the rules. Instead, he held that r. 57.01 provides the court with discretion to fashion a proper costs award where a defendant makes a rule-compliant offer and the plaintiff is entirely unsuccessful. The relevant portion of the rule reads:
(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 …
[36] The defendants argue that the court in Prohaska failed to consider that the Small Claims Court Rules contain no rule similar to r. 57.01 of the Rules of Civil Procedure, as a result of which the application of Strasser in Small Claims Court actions necessarily results in unfairness to a defendant in a case such as this where the plaintiff fails to recover a judgment.
[37] This submission ignores decisions of the Divisional Court in which it has been held that s. 29 of the Courts of Justice Act permits a court to consider a party’s failure to accept a reasonable offer to settle when determining whether a party should be penalized for “unreasonable behaviour in the proceeding”: see Propane Levac Propane Inc. v. Macauley, 2011 ONSC 293 (Div. Ct.), at para. 14; 10.1 Inc. v. 2248951 Ontario Inc., 2018 ONSC 381 (Div. Ct.), at paras. 48-50.
[38] This is precisely what I intend to do in this case.
What costs award should be made in this case?
[39] In my opinion, the offer to settle made in this case, while not generous, was a reasonable one. This is particularly true in light of the limitation defence. The deputy judge found, and there seems to have been no controversy in the evidence about the fact, that the plaintiffs discovered wood rot in the summer of 2018. The plaintiffs’ claim was not issued until April 2021, almost two and a half years later. Although the normal limitation period of two years was extended during the pandemic by 182 days, the deputy judge held that the claim was still issued nearly two months too late.
[40] The risk for the plaintiffs was clear from the outset as far as the limitation period was concerned. For that reason, I believe that some cost consequences should result from the offer to settle, but not those sought by the defendants. Before I get to what those consequences should be, I will briefly comment on the governing statutory and regulatory provisions of the rules.
[41] Under r. 19.04 of the Small Claims Court Rules, where a party is represented by counsel, as the defendants were here, the court may award the party a reasonable representation fee at trial. The Whittington/IWS defendants were represented by one lawyer at the trial. Manitoulin was represented by another.
[42] As I mentioned above, under s. 29 of the CJA, an award of costs in the Small Claims Court cannot exceed 15 per cent of the amount claimed, unless the court considers it necessary to penalize a party for having behaved unreasonably in the proceedings. The 15 per cent cap applies to each party awarded costs and not to all parties awarded costs: 681638 Ontario Ltd. v. UGT Ltd. (2009), 252 O.A.C. 285, at paras. 15-16.
[43] In this case, the plaintiffs sought $35,000.00 in damages from the defendants, the maximum amount claimable in the Small Claims Court. Fifteen per cent of this amount is $5,250.00. The Whittington/IWS defendants and the Manitoulin defendant each seek double this amount. As I will explain, in the case of Manitoulin, I believe this amount is excessive. In the case of the Whittington/IWS defendants, I believe it is unwarranted.
Manitoulin
[44] The costs outline submitted on behalf of Manitoulin breaks down the services rendered before and after the October 11, 2022, offer to settle. It indicates that about $3,000.00 in costs were incurred prior to October 11, on what appears to be a full indemnity basis. In line with the cases discussed above, I would award a representation fee for costs incurred to this date in the amount of $2,000.00.
[45] Manitoulin’s costs outline indicates that over 50 hours were spent after the offer was served to prepare for and to attend the trial. On a full indemnity basis, these costs amounted to $10,040.00. The costs outline also indicates that another four hours were spent on services rendered after the trial, for a full indemnity fee of $800.00.
[46] With respect, while I find the hourly rate to be quite reasonable, I find the length of time spent for trial preparation to be excessive. As the deputy judge pointed out, the plaintiffs failed to call any expert evidence to establish liability and failed to call sufficient evidence to establish damages. In light of the weak case the defendants had to meet on liability and damages, I believe that less time could have been spent preparing to defend it. I am fortified in this belief by the fact that considerably less time was spent preparing for trial by counsel representing the Whittington/IWS defendants. For this reason, I would award a representation fee after the offer to settle was served in the amount of $7,500.00, inclusive of the HST. I would add the filing fee of $73.00 as a disbursement under r. 19.01(1.1) of the Small Claims Court Rules, for a total of $9,573.00.
Whittington/IWS
[47] I believe that the Whittington/IWS defendants should receive less than this amount. My reason is really the inverse of the reason I would award elevated costs to Manitoulin.
[48] As far as I can tell from the submissions, Manitoulin was the only defendant actually offering to pay anything to the plaintiffs. No contribution was being made by the Whittington/IWS defendants, other than foregoing their costs. In my view, if any of the defendants should have put money on the table, it was the Whittington/IWS defendants. Clearly, the fact that Manitoulin made an offer demonstrates that there was at least some risk for the defendants in proceeding to trial. If any of the defendants were at risk, it was the Whittington/IWS defendants.
[49] While it is true that the plaintiffs failed to call any expert evidence to explain why, there was no issue that the beams designed and supplied by the Whittington/IWS defendants were failing after only nine years. This was the evidence of Mr. McKay, the owner of Manitoulin, which evidence was accepted by the deputy judge. While such failure may not rise to the level of negligence speaking for itself, this seems highly unusual. While Mr. McKay took steps to try to slow down the failure and to help the plaintiffs, the Whittington/IWS defendants did absolutely nothing. Their refusal to do so must be based on mere intransigence and unwillingness to settle, given that none of the defendants could rely on the limitation defence at the time that this failure was brought to their attention.
[50] This kind of unwillingness to resolve potentially meritorious claims should not be encouraged. For that reason, I would only award the Whittington/IWS defendants the maximum 15 per cent plus disbursements, for a total of $5,323.00.
CONCLUSION
[51] For the reasons set out above, the plaintiffs shall pay costs to Manitoulin in the amount of $9,573.00 and costs to Whittington/IWS in the amount of $5,323.00.
[52] The plaintiffs seek time to pay the costs award for the reasons expressed in their submissions, which are personal and need not be repeated here. I am prepared to grant them time to pay. However, unfortunately, the delivery of these reasons has been delayed because of the forced retirement of the deputy judge, my concern about the decision in Prohaska, and the demands of my role as the Regional Senior Judge. For that reason, I will grant the plaintiffs until June 30, 2024, to pay the total costs. This is roughly a year from the date that the deputy judge would likely have released his decision on costs, had it not been for his mandatory retirement. No prejudgment interest shall run on the total costs award of $14,896 until that date.
[53] I wish to thank the parties and their representatives for their submissions and for their patience.
M.G. Ellies J.