DATE: 20240209 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

LALANI PROPERTIES INTERNATIONAL INC. and 2160943 ONTARIO LIMITED Plaintiffs – and – INTACT INSURANCE COMPANY Defendant

Ordered to be tried with:

Robert L. Love and Erin VanderVeer, for the Plaintiffs Harvey Klein and Tina Le, for the Defendant, Intact Insurance Company

2160943 ONTARIO LIMITED Plaintiff – and – INTACT INSURANCE COMPANY and D.M. EDWARDS INSURANCE GROUP LTD. and THE CG & B GROUP INC. Defendants

Robert L. Love and Erin VanderVeer, for the Plaintiff Harvey Klein and Tina Le, for the Defendant, Intact Insurance Company Barry B. Papazian Q.C. and Michael Krygier-Baum, for the Defendants, D.M. Edwards Insurance Group Ltd. and The CG&B Group Ltd.

HEARD in writing

VELLA J.

COSTS ENDORSEMENT

[1] On April 16, 2010, a portion of the wall of a three-story commercial heritage building in Toronto collapsed. Then, on January 3, 2011, the same building was burned down by an arsonist.

[2] The defendant insurer, Intact Insurance Company (“Intact”), denied coverage for both claims by the plaintiff insureds (“Lalani”) under its 2009-2010 Policy (“Wall Collapse Claim”) and subsequent 2010-2011 Renewal Policy (“Fire Loss Claim”).

[3] I dismissed the Wall Collapse Claim, and I granted judgment in favour of Lalani against Intact with respect to the Fire Loss Claim, awarding damages of $5,721,536.06. The claims by Lalani against D.M. Edwards Insurance Group Ltd. and The CG & B Group Inc. (the “Broker”) raised only in relation to the Fire Loss Claim, were dismissed in light of the finding, inter alia, that there was insurance coverage on the Fire Loss Claim, as the purported amendment was not valid under s. 124 of the Insurance Act, R.S.O. 1990, c. I.8. I invited written submissions on costs in the event the parties could not agree on this issue.

[4] The parties could not agree on costs and provided cost outlines and written submissions. This is my disposition of costs.

ISSUES

(a) What is an appropriate allocation of costs as between the Wall Collapse Claim and the Fire Loss Claim? (b) What is the appropriate costs order for the Fire Loss Claim as between Lalani and Intact? (c) Is the Broker entitled to costs? If so, is a Sanderson order warranted in relation to the Broker’s costs? (d) What is the appropriate costs order, including scale of costs, for the Wall Collapse Claim?

General Principles and Overview

[5] The court’s discretion to award and fix costs is under s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43. The factors set out in r. 57.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, inform the exercise of the court’s discretion.

[6] Of particular importance to the case at bar are the factors of indemnity, proportionality, and the reasonable expectations of the losing party: Boucher v. Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 291 (C.A.).

[7] The court will not take a mathematical, line-by-line, approach in fixing the costs in an amount that is fair and reasonable: Davies v. The Corporation of the Municipality of Clarington et al., 2009 ONCA 722, 100 O.R. (3d) 66, at para. 52. This is not an assessment. Rather, the court will examine the factors in r. 57.01, which guide the exercise of its discretion in fixing costs that are fair and reasonable in the circumstances of the case.

[8] One of the challenges posed in this matter is the fact that two separate insurance property loss actions, pertaining to the same heritage building but reflecting different occurrences, were tried together. Lalani was successful in obtaining judgment in the Fire Loss Claim but unsuccessful in the Wall Collapse Claim. Intact was successful in defeating the Wall Collapse Claim, but unsuccessful in the Fire Loss Claim. The Broker was only sued by Lalani in relation to the Fire Loss Claim, and it was ultimately successful insofar as the claim against it was dismissed.

[9] In preparing their respective dockets, neither Lalani nor Intact segregated the work done as between the Wall Collapse and Fire Loss Claims. Furthermore, some of the work performed could properly be characterized as necessary for both claims.

What is the Appropriate Allocation of Costs as between the Two Claims?

[10] Lalani and Intact agree that there must be an allocation of their respective costs as between the two insurance claims. They do not agree on quantification or the appropriate allocation.

[11] Lalani submits that I should employ a “but for” test in its favour. In other words, if the evidence at trial was required for both insurance claims, then I should allocate those common costs to the Fire Loss Claim. Put another way, Lalani submits that the question to be answered is “but for the fire loss, would the costs have been incurred”?

[12] Lalani submits that only a small percentage of the total costs were “solely” attributable to the Wall Collapse Claim. It submits that, based on a review of the dockets and cost outlines, only about 10 percent of the total costs were incurred solely in prosecuting the Wall Collapse Claim. Therefore, I should attribute 90 percent of their docketed costs to the Fire Loss Claim.

[13] On this basis, Lalani seeks a total of $749,439.90 for costs comprised of: (a) Partial indemnity costs to the date of its offer to settle on April 4, 2022 in the amount of $414,349.20, inclusive of HST; (b) Substantial indemnity costs from the date of its offer in the amount of $282,904.70, inclusive of HST; and (c) Disbursements in the amount of $52,185.98, inclusive of HST.

[14] In calculating these amounts, Lalani states that it extricated the costs which were solely attributed to the Wall Collapse Claim from ten years of dockets. It then reduced the partial indemnity amount up to the offer by ten percent to take into account time which was not easily extricable from the docketed time as between the two claims. It reduced its substantial indemnity portion of the costs claimed by five percent for the same reason. Lalani removed all costs associated with their expert, Mr. Zucchi, who was adduced to provide opinion evidence specifically to the Wall Collapse Claim. It also removed costs associated with attendance during Mr. Holder’s testimony for the same reason.

[15] Intact agrees in principle that the costs should be allocated as between the Fire Loss and Wall Collapse Claims. However, it diverges on the appropriate percentage split between the two claims.

[16] Intact submits that the claims associated with the wall collapse comprise 41.8 percent of the total damages assessed at trial. It also notes that based on the plaintiff’s written offers to settle the two claims the claims associated with the wall collapse comprised 35.9 percent of Lalani’s total claims. Intact states that it allocated its defence costs equally between the two actions. Intact submits that these are better indicators of how costs should be apportioned.

[17] Intact submits that about 50 percent of the lawyers’ time is properly attributed to the Fire Loss Claim and 50 percent to the Wall Collapse Claim.

[18] It is acknowledged that neither law firm segregated their docketing as between the two actions. Accordingly, both parties are reconstructing the work allocation with the benefit of hindsight after judgment.

[19] Neither party submitted jurisprudence in relation to approaches to allocation of costs in these types of matters.

[20] I have examined the respective cost outlines of Lalani and Intact. I have also considered the evidence that was adduced, and whether the primary reason for the evidence was for the Wall Collapse Claim, the Fire Loss Claim, or was important for both claims.

[21] In my view, the “but for” test as applied by Lalani is overreaching and not fair and reasonable. For example, Lalani acknowledges that Mr. Zucchi’s primary role at trial was to provide opinion evidence with respect to the cause or causes of the wall collapse. The cost associated with his evidence is appropriately removed from the Fire Loss Claim, in which he played at most, a minor role with respect to the narrative. However, Lalani also called Mr. Borgal, whose primary role was to provide opinion evidence as to whether this heritage building, in the wake of the wall collapse, should be demolished or preserved. His evidence pertained primarily to the Wall Collapse Claim. Furthermore, Intact’s expert, Mr. Holder, testified with respect to the cause or causes of the wall collapse and appropriately Lalani removed costs associated with his attendance. While the evidence of these experts was, to varying degrees, tangentially relevant to the Fire Loss Claim, their primary roles were with respect to the Wall Collapse Claim, and it is unlikely they would have been called if the Wall Collapse Claim had not been advanced.

[22] Some of the evidence of some of the fact witnesses, such as Noori Lalani and Al Lalani Jr., provided testimony with respect to both claims. It is likely that their testimony would have been shorter in the absence of the Wall Collapse Claim. In addition, Mr. Ebel (MDD), as Lalani’s expert, provided opinion evidence concerning the business interruption loss claim with respect to both the Wall Collapse and Fire Loss Claims.

[23] With respect to the Fire Loss Claim, much of the evidence was derived from fact witnesses. The testimony of Mr. Sampson and Mr. Staines was devoted to the Fire Loss Claim. There was also expert testimony. Mr. Dal Colle (Antec), as Lalani’s expert, provided opinion evidence with respect to the market value of the building prior to the fire loss. However, as part of his opinion, he testified about the cost of repairing the collapsed wall to make the building ready for occupancy and deducted that cost of repair from the actual cash value of the building.

[24] Furthermore, the negligence claim against the Broker was only with respect to the Fire Loss Claim. The evidence called on this issue only related to the Fire Loss Claim. Aside from the evidence of the fact witnesses, Mr. White, Lalani’s expert, provided opinion evidence on the standard of care of a reasonable insurance broker.

[25] By way of overview, this trial took place over the course of twelve days, of which two days were half days. The first day and a half was devoted to a motion brought by the Broker against Lalani, and other preliminary matters. Approximately two days of evidence were devoted to the Wall Collapse Claim, and approximately six days were devoted to the Fire Loss Claim and Lalani’s negligence claim against the Broker. The last two days for trial were devoted to closing submissions. In other words, approximately 75 percent of trial time hearing from witnesses, was devoted to the Fire Loss Claim and, to a much lesser degree, the related Broker’s negligence claim.

[26] In my view, the majority of the legal work claimed was primarily driven by the Fire Loss Claim. However, a substantial amount of legal work was primarily driven by the Wall Collapse Claim.

[27] Both claims were clearly important to Lalani and Intact. Both claims attracted potentially high damage awards, though the Fire Loss Claim was valued at a higher amount than the Wall Collapse Claim.

[28] I have also considered the relative values of the two actions as measured by the assessed damages and Lalani’s respective offers to settle each of the two actions that engages proportionality.

[29] The allocation of costs is part of the costs exercise overall, and as such is a matter of discretion. Overall, a fair and reasonable allocation of the costs based on the r. 57.01 factors, including particularly the dockets submitted, the evidence adduced at trial together with the number of days consumed by each action, and the relative assessed values of the two claims, indemnity, proportionality and the reasonable expectations of the losing party, is 70 percent to the Fire Loss Claim and 30 percent to the Wall Collapse Claim.

The Fire Loss Claim

[30] Lalani delivered a costs overview to the defendants prior to trial for both actions combined. The partial indemnity costs for the entire proceeding are listed at $800,057.59 whereas substantial indemnity costs for the entire proceeding are listed at $1,200,086.40, all inclusive of HST. Disbursements claimed are $52,185.98.

[31] Lalani subsequently delivered cost outlines for each action after judgment was released. The costs sought with respect to the Fire Loss Claim are $414,349.20, inclusive of HST on a partial indemnity basis to April 4, 2022; $282,904.70, inclusive of HST on a substantial indemnity basis from and after April 4, 2022; and disbursements in the sum of $52,185.98, inclusive of HST.

[32] Lalani served a written offer to settle the Fire Loss Claim on April 4, 2022 in the amount of $5,000,000 plus costs on a partial indemnity basis as agreed or assessed. This offer was inclusive of prejudgment interest.

[33] As stated, judgment for damages in the sum of $5,841,536.06 plus prejudgment (and post-judgment) interest was granted, with costs to be determined. I determined that the rate of prejudgment interest is the rate prescribed by s. 127 of the Courts of Justice Act.

[34] Intact accepts that Lalani beat its r. 49 offer to settle but submits that the elevated costs do not commence until the day following delivery (April 5, 2022).

[35] In my view, the elevated costs commence from the date that the offer to settle was served. The offer was served on April 4, 2022. Rule 49.10 states that where the offer is surpassed, the plaintiff is entitled “to partial indemnity costs to the date the offer was served and substantial indemnity costs from that date, unless the court orders otherwise.” In my view, this means that the substantial indemnity scale applies on the date the offer was served, not the next day. This also accords with the time computation set out in r. 3.01(1).

[36] There is no doubt that Lalani beat its r. 49 offer to settle, and therefore, presumptively, it is entitled to costs on a substantial indemnity basis from the date the offer was delivered. There is no dispute that the offer to settle satisfies the requisite elements of r. 49 to attract the cost consequences imposed under r. 49.10(1), nor that it was surpassed by the trial award of damages. There was no suggestion that the elevated cost consequences should not apply.

[37] Accordingly, Lalani will have partial indemnity costs up to April 4, 2022, and substantial indemnity costs from, and including, April 4, 2022.

[38] In considering the factors under r. 57.01, those that are particularly apt in this case are: indemnity, proportionality, reasonableness of the number of hours docketed, and the reasonable expectations of the losing party.

[39] The starkest contrasting factor is found in the respective cost outlines of Lalani and Intact in relation to the Fire Loss Claim. However, Intact’s failure to exchange cost outlines with Lalani in advance of the release of Judgment lessens the utility of Intact’s cost outline and undermines the strength of Intact’s criticisms of Lalani’s cost outline: Frazer v. Haukioja, 2010 ONCA 249, 101 O.R. (3d) 528, at para. 73.

[40] Intact’s own cost outline shows that its partial indemnity costs to April 3, 2022 are $56,519.20, and substantial indemnity costs from April 4, 2022 are $48,919.50. The disbursements claimed are $4,782.51. When the HST is added ($13,707.03), the total costs listed by Intact, on the same footing as Lalani’s, are $123,928.24. This is premised on Intact’s 50/50 allocation of time between the two claims. Under the determined allocation, approximately 70 percent of Intact’s time would be claimed under the Fire Loss Claim, thereby increasing it by about 20 percent to $126,526.44 plus HST of $16,448.44 for a total of $142,974.88 plus disbursements.

[41] Furthermore, based on the allocation that I have directed, Lalani’s costs sought in relation to the Fire Loss Claim will be reduced by 20 percent overall. The total fees claimed are thus reduced to approximately $557,803.12, inclusive of HST. Disbursements will be discussed later.

[42] This still leaves a sizable gap. However, the reasonable expectations of the losing party is only one factor that must be tempered by more than what the losing party’s costs are. This is even more so where, as here, the losing party did not submit its cost outline in advance of the judgment being released.

[43] As indicated, this was a 12-day trial (11 full days in court). Examinations for discovery occurred over the course of five days. The parties attended to other pre-trial steps. Lalani called the majority of witnesses, including expert witnesses. This was reasonable, as Lalani carried the burden of proof and there were several issues that required a determination of credibility and expert evidence. Intact called one fact witness and one expert witness, while the Broker called one expert witness.

[44] It was reasonable for Lalani to have two counsel at trial. One was a 1994 call and the other was a 2015 call. Intact also had one senior and one junior counsel. The Broker also had two counsel at trial (1971 and 2013 calls). [1]

[45] The Fire Loss Claim was moderately complex, particularly with respect to damages given the findings that the Wall Collapse Claim was not covered by insurance, whereas the Fire Loss Claim was, and that both claims pertained to the same heritage building.

[46] The fees claimed are proportionate to the amount recovered.

[47] The parties agree that partial indemnity rates should be approximately 60 percent of full indemnity rates and substantial indemnity rates should be one and a half times the partial indemnity rates, or, in this case, approximately 90 percent of full indemnity rates: Rules of Civil Procedure, r. 1.03; Inter-Leasing Inc. v. Ontario (Revenue), 2014 ONCA 683.

[48] However, there were a significant number of timekeepers on the dockets filed by Lalani. This likely gave rise to some duplication of time.

[49] Furthermore, the time is disproportionate to the time docketed by either of the defendants, notably including the Broker, who only fully participated in the defence of the Fire Loss Claim (though one counsel was present throughout the trial) and is seeking costs against Lalani and Intact. The Broker is seeking $248,122.80 all inclusive, reflecting partial indemnity to February 11, 2022 and substantial indemnity thereafter. That said, I am taking into consideration the fact that Lalani justifiably incurred more work in order to advance its claim successfully against Intact.

[50] Taking into account the factors under r. 57.01, fees are fixed in favour of Lalani in the sum of $450,000 plus HST of $58,500 for a total of $508,500 to be paid by Intact. This reflects partial indemnity fees to the date of the offer and substantial indemnity fees thereafter.

[51] The disbursements claimed by Lalani are $52,185.98. As noted by Intact, these disbursements include all of the disbursements incurred by Lalani for both claims, with the exception of Mr. Zucchi’s and Mr. Borgal’s respective expert fees, which related solely to the Wall Collapse Claim and were not claimed. Mr. Ebel and Mr. Dal Colle provided opinions relevant to both claims. However, Mr. White was called solely in relation to the negligence claim against the Broker brought within the context of the Fire Loss Claim and in light of my decision with respect to the Broker’s claim as discussed later in this Endorsement, I am deducting Mr. White’s fee of $11,187.00.

[52] Consistent with the apportionment of fees as between the Fire Loss Claim and the Wall Collapse Claim, I am reducing Lalani’s disbursements by about 30 percent to reflect the overlap. [2] Disbursements are fixed at $28,700.

Negligence Claim Against the Broker

[53] The claim against the Broker was dismissed. Presumptively, the Broker is entitled to costs against Lalani.

[54] On February 11, 2022, the Broker served an offer to settle on the plaintiff on a dismissal without costs basis.

[55] The Broker is seeking costs on a partial indemnity basis to the date of its offer and substantial indemnity thereafter in the total sum of $248,122.80. This total is comprised of $73,554.60 for partial indemnity fees, $130,172.85 in substantial indemnity fees plus HST of $26,484.57, and disbursements inclusive of HST in the sum of $17,910.78.

[56] Lalani submits that the Broker should not be entitled to costs. The Broker took the position throughout the proceedings that Lalani had in fact agreed to the purported amended insurance agreement. It stated in its pleading as follows:

25. Intact’s willingness to insure the building until early January 2011 was an accommodation and was subject to the Plaintiff’s acceptance of the amendments of the policy in November 2010. The said amendments were reviewed with and agreed to by the Plaintiff with a view to continuing coverage under the policy until alternative arrangements had been made.

[57] This paragraph was not in the alternative, nor was it withdrawn. I agree with Intact that the Broker, in its closing submissions, continued to advance the position that Lalani had agreed to the purported amendments to its insurance policy governing the Fire Loss Claim, notwithstanding its own witness’ evidence at trial.

[58] In the alternative, Lalani submits that any cost award in favour of the Broker be subject to a Sanderson Order.

[59] Furthermore, Lalani submits that an offer by a defendant to dismiss an action without costs is not a compromise and does not satisfy the requirements of r. 49 or the policy objective of encouraging settlements underlying r. 49. Such an offer does not attract the cost consequences of r. 49.10.

[60] Intact agrees that in these circumstances, no costs should be awarded in favour of the Broker and that the offer does not attract r. 49.10 cost consequences. Intact submits, however, that this is also not an appropriate situation for a Sanderson Order.

[61] While the successful defendant is generally entitled to costs, given the unique circumstances of this case, an order of no costs is appropriate. The Broker took an adversarial position against Lalani throughout the proceedings. The Broker’s substantive position was ultimately unsuccessful given my finding that Lalani did not agree in writing to the purported amendment to its policy. Furthermore, I found that the Broker’s conduct in relation to this issue fell below the standard of care it owed to Lalani. That finding was of no import given the ultimate disposition that the purported amendment was not valid in any event because it violated s. 124 of the Insurance Act. It is relevant to my disposition of costs.

[62] Furthermore, I agree that an offer by a defendant which requires the plaintiff to agree to a consent dismissal without costs does not have the requisite element of compromise required to attract the cost consequences of r. 49.10. There is also no basis upon which, outside the parameters of r. 49.10, to award costs on a substantial indemnity basis. There is no suggestion that Lalani’s (or Intact’s) behaviour warranted an elevated costs award. This is not one of those rare and exceptional cases: Davies.

[63] Had I awarded costs, however, I would have made the costs award subject to a Sanderson Order and ordered the costs payable by Intact: Sanderson v. Blyth Theatre Co, [1903] 2 K.B. 533; Moore v. Wienecke, 2008 ONCA 162, 90 O.R. (3d) 46.

[64] A Sanderson order is an exception to the general rule that where a plaintiff succeeds against one defendant, but not another, the normal course is for the unsuccessful defendant to pay the plaintiff’s costs and the plaintiff to pay the successful defendant’s costs.

[65] The threshold issue is whether it was reasonable to join the multiple defendants in one action. If so, then the court proceeds to an analysis of whether a Sanderson order would be just and fair in the circumstances. There are four factors to consider as per Moore, at paras. 46-50.

[66] It was reasonable for Lalani to add the Broker as a defendant given Intact’s assertion in its statement of defence that Lalani had requested the purported amendment to the policy through the Broker and Intact agreed. In response to this pleading, Lalani amended its statement of claim and added, in the alternative, that if the Broker communicated Lalani’ consent, it was done without Lalani’s consent or authority. In the further alternative, if the policy was amended, then the disputed consent was based on negligent advice from the Broker. Accordingly, the threshold test is met.

[67] While no cross claims were issued as between the two defendants, and the defendants presented a unified front at the trial, it is significant that the Broker was only added as a result of Intact’s pleading. In this case, the ability to pay is not relevant.

[68] While the negligence action against the Broker was independent from the causes of action against Intact, they overlapped: Lauzon v. Dominion of Canada General Insurance Co., 2014 ONSC 4366, 32 C.C.L.I. (5th) 337, at para 12. Either Lalani did not consent at all; or, if the Broker consented on its behalf, it was without Lalani’s approval; or, if Lalani did consent in writing, it was based on the Broker’s negligent advice.

[69] Overall, in exercising my discretion, I would have ordered a Sanderson Order in the circumstances of this case. Much time was devoted at trial to the issue of whether Mr. Noori Lalani’s initials on the vacancy permit at a meeting held with the Broker (and never provided to Intact) constituted consent in writing to the purported amendment, and whether the Broker’s conduct in relation to this event was below the standard of care. I found that the initials did not constitute the requisite consent in writing required by s. 124 of the Insurance Act. But for Intact’s pleading, the issues of consent and the related Broker’s negligence would have been non-issues at trial and the Broker would not have been added as a defendant. Based on the defences, there was some doubt as to which of the two defendants might be liable with respect to the Fire Loss Claim, and in the end, neither of the defendant’s theories were validated – Lalani did not consent in writing to the purported amendment, contrary to both defendants’ positions: Wicken (Litigation Guardian of) v. Harssar, [2002] O.T.C. 1067 (S.C.), at paras. 29-32, appealed on other grounds, 73 O.R. (3d) 600 (Div. Ct.).

[70] However, neither Lalani nor Intact disputed the reasonableness or fairness of the costs claimed by the Broker, subject to the scale of costs. I agree that the costs claimed were both fair and reasonable, and I would have awarded the amount claimed on a partial indemnity basis only.

The Wall Collapse Claim

[71] Intact was a successful defendant in the Wall Collapse Claim. Therefore, it is presumptively entitled to costs against Lalani.

[72] On April 4, 2022 (seven days before trial), Intact delivered an offer to settle the wall collapse action (CV-12-450891) for “the sum of $865,000 plus applicable prejudgment interest in accordance with the Courts of Justice Act, plus costs to be agreed upon, fixed by the trial judge or assessed”.

[73] Based on its 50/50 proposed allocation of costs between the two claims, Intact seeks costs of the Wall Collapse Claim on a partial indemnity basis to April 3, 2022, in the sum of $56,519.20 and on a substantial indemnity basis, from the date of its offer, April 4, 2022, in the sum of $48,919.50 plus HST of $13,707.03, and disbursements, in the sum of $25,502.77 for a total of $144,648.50.

[74] Lalani submits that the offer to settle was not a reasonable compromise in light of my findings as to the damages that would have been awarded had its Wall Collapse Claim been successful. According to Lalani’s math, the offer to settle was worth approximately 20 percent of that value based on my findings at trial. Therefore, the court is urged to exercise its discretion to decline to award the costs on a substantial indemnity basis.

[75] Rule 49.10(2) provides that where the plaintiff obtains a judgment as favourable or less favourable than the terms of a defendant’s 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. Here, the plaintiff did not obtain a judgment against Intact with respect to the Wall Collapse Claim. Accordingly, r. 49.10(2) does not apply.

[76] Notwithstanding the fact that r. 49.10 does not apply to Intact’s offer, the court may still consider Intact’s offer in determining whether substantial indemnity costs from the date of the offer are warranted (r. 57.01) and other factors.

[77] Generally speaking, substantial indemnity costs should only be awarded in rare and exceptional cases, where the payor party’s conduct warrants the court’s disapproval and justifies the sanction of an elevated scale of costs.

[78] However, in Strasser, the Court of Appeal recognized and affirmed that awarding substantial indemnity costs to a successful defendant who made an offer to settle that reflects an element of compromise, and the action against it is dismissed, can justify the awarding of a “bonus” to the successful defendant in this way. This recognizes that even without the bettered offer to settle, the defendant would be entitled to partial indemnity costs. However, the Court of Appeal in Davies clarified that in Strasser, the decision to award substantial indemnity costs was not based on the successful defendant’s offer to settle, but rather implicitly, on finding that there was “egregious behaviour, deserving of sanction”: at para. 40. The court also referred to Scapillati v. A. Potvin Construction Ltd. (1999), 44 O.R. (3d) 737, in which the Court of Appeal had previously clarified Strasser and reinforced the premise that for offers that fail to attract the mandatory cost consequences of r. 49.10, the court will not award costs on a substantial indemnity basis failing egregious conduct by the losing party (see the other cases cited at para. 39 of Davies).

[79] More recently, however, the Court of Appeal in OZ Merchandising Inc. v. Canadian Professional Soccer League Inc., 2021 ONCA 520, affirmed the trial judge’s decision to award the successful defendants partial indemnity costs to the date of the defendants’ offer to settle, and substantial indemnity thereafter after the case was dismissed against them. The court relied on Strasser, at paras. 25-35. The Court of Appeal stated the following, at para 85:

The trial judge was also satisfied the appellant's conduct in the course of the trial warranted an elevated costs award. She set that conduct out in some detail in her reasons and concluded it justified an award of substantial indemnity from the date of trial. Although the trial judge's finding that the conduct of the appellant merited an award of costs on a substantial indemnity basis was supportable on this record, it was unnecessary to the trial judge's finding with respect to the respondents’ entitlement to costs on a substantial indemnity basis. The trial judge had determined, apart from the appellant's conduct, based on the offers to settle, that the respondents should have substantial indemnity costs from the date of the offers in 2017, well before the commencement of the trial: Costs Decision, at paras. 36-39.

[80] Furthermore, in OZ, the Court of Appeal observed that the trial judge’s award of substantial indemnity costs based on the respondents/defendants’ offer to settle “was consistent with well-established case law”: at para. 86. The trial judge also found that the appellant was engaged in egregious conduct during the trial itself and justified awarding substantial indemnity costs for the period of the trial. Importantly, however, the Court of Appeal noted that the substantial indemnity costs awarded were for a longer period of time, commencing from the date of the offer to settle. The Court of Appeal specifically upheld the elevated cost award based solely on the defendant’s offer to settle, irrespective of the finding of egregious conduct during the trial. Thus, the offer to settle was the starting point for awarding substantial indemnity costs. [3]

[81] In affirming the trial judge’s decision to award substantial indemnity costs from the date of the defendant’s offer to settle, the Court of Appeal did not comment on Davies or Scapillati.

[82] It is obvious that Intact’s offer to settle does not qualify for the cost consequences of r. 49.10(1), which are only available to a plaintiff. Furthermore, as stated, r. 49(10(2) does not assist Intact. To award substantial indemnity costs on the basis of a successful defendant’s offer to settle, the court must exercise its discretion without relying on r. 49.10. As noted, the court is entitled to take into account any offer to settle in determining what scale of costs to award under r. 57.01 and retains broad, though not unfettered, discretion to award an elevated costs award. The jurisprudence guides the exercise of that discretion.

[83] An award of substantial indemnity costs in favour of the successful defendant from the date a r. 49-compliant offer to settle is served promotes the policy objective underlying offers to settle generally; namely, to encourage settlement with the risk that if the offer is better than the result, the recipient has an enhanced cost consequence. In light of the scarcity of judicial resources, this policy objective is heightened in today’s context.

[84] Intact’s offer to settle had the requisite element of compromise. It was also a substantial six-figure offer.

[85] In my view, this case warrants the exercise of my discretion to award Intact partial indemnity costs to the date of its offer and substantial indemnity costs thereafter, based on the public policy reason of promoting out of court settlements. While I appreciate that this matter may benefit from clarification from the Court of Appeal and direction from the Civil Rules Committee, in my view, this is the correct disposition of costs in this case. To be clear, there is no suggestion that Lalani engaged in egregious conduct during the course of the litigation that would otherwise attract disapproval by the court in the form of an elevated cost award.

[86] In accordance with my allocation decision, I will reduce the costs claimed in Intact’s cost outline by about 20 percent.

[87] Applying the factors above discussed under r. 57.01, including the reasonable expectations of Lalani, whose own costs are comparable, and the principles of indemnity and proportionality, I am fixing Intact’s costs as follows: partial indemnity costs to April 3, 2022 in the sum of $45,215.36 plus HST; and from April 4, 2022, on a substantial indemnity basis in the sum of $39,135.60 plus HST for a total of $95,316.58, inclusive of HST. I am fixing the disbursements in the sum of $24,546.33, reflecting all of Mr. Holder’s expert fees with HST and a 20 percent reduction of the remaining disbursements.

DISPOSITION

[88] Lalani shall have its costs against Intact fixed in the sum of $537,200.

[89] No costs are ordered with respect to the negligence claim against the Broker.

[90] Intact shall have its costs against Lalani in the sum of $119,862.83.

Justice S. Vella

Date: February 09, 2024

DATE: 20240209 ONTARIO SUPERIOR COURT OF JUSTICE LALANI PROPERTIES INTERNATIONAL INC. and 2160943 ONTARIO LIMITED Plaintiffs – and – INTACT INSURANCE COMPANY Defendant Ordered to be tried with: 2160943 ONTARIO LIMITED Plaintiff – and – INTACT INSURANCE COMPANY and D.M. EDWARDS INSURANCE GROUP LTD. and THE CG & B GROUP INC. Defendants

COSTS ENDORSEMENT

VELLA J. Released: February 09, 2024

[1] It is noted that Mr. Papazian, Q.C. did not attend at every day of trial, which was appropriate since the Broker was not implicated in the Wall Collapse Claim.

[2] It appears that the 10 percent and 5 percent amounts deducted by Lalani related only to fees and not disbursements.

[3] In OZ, the successful defendants had also made “substantial six figure offers to settle”, which were outstanding at the time of trial.