Court File and Parties

Court File No.: CV-16-70700
Date: 2025/05/15
Ontario Superior Court of Justice

Between:
Faulkner Real Estate Ltd. and Judy Faulkner, Plaintiffs
– and –
Sakto Corporation and Waterford Property Group Ltd., Defendants

Counsel:
David Sauvé and Alex Robineau, Counsel for the Plaintiffs
John Melia and Kara Takagi, Counsel for the Defendants

Heard: In Writing

Decision Regarding Costs
Robert Smith J.

Overview

[1] The Plaintiffs, Faulkner Real Estate Ltd. (“FRE”) and Judy Faulkner (“Ms. Faulkner”), initially sought damages of over $6,000,000 as a result of alleged exposure to moulds in her office space. Towards the end of the 4-week trial, this amount was reduced to approximately $3,291,000. I ultimately found that any mould in the office air did not cause the symptoms complained of by Ms. Faulkner and awarded damages of $4,000 as a partial rent abatement for 2 months, while the damages caused by the water leak were being repaired. The Defendants seek costs of $522,400.40 because the Plaintiffs recovered less than two Rule 49 offers to settle made by the Defendants more than 7 days before the trial commenced.

Positions of Parties

[2] As mentioned above, the Defendants seek costs of $522,400.40 for “beating” their offers to settle. They seek costs on a partial indemnity basis to July 17, 2024, the date of its first offer to settle for $300,000 all inclusive and substantial indemnity costs thereafter. The Plaintiffs submit that no costs should be awarded to either party in the circumstances.

Factors

[3] The factors to be considered when fixing costs are set out in Rule 57 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 and include, in addition to success, the amount claimed and recovered, the complexity and importance of the matter, the scale of costs and any offer to settle, the principle of indemnity, the hourly rate claimed, time spent, and the amount that a losing party would reasonably expect to pay.

Success

[4] While the Plaintiffs recovered $4,000 in damages, the Defendants were the overwhelmingly successful parties as the Plaintiffs initially sought damages of approximately $6,000,000 and then reduced the amount of their claim to just over $3,000,000 in damages at the end of the trial. The parties spent a very small amount of time on the issue of rent abatement during the repairs. The Plaintiffs sought approximately $21,000 which amounts to 3 months’ rent for the entire office space while the repairs to the drywall and carpet tiles were being performed. The recovery amounted to approximately 20% of the amount claimed for a rent abatement. The Defendants were more successful than the Plaintiffs on this issue as the amount of damages awarded for a rent abatement was reduced by 80%. The area that was protected by tarps during the remediation amounted to between 2% and 6% of the total office space which is a very small area of the total office space leased.

[5] The Defendants were successful on all of the main issues that were argued at trial, including the issues of causation, negligence, breach of contract, and negligent misrepresentation.

Amount Claimed and Recovered

[6] The Plaintiffs initially claimed over $6,000,000 in damages which they reduced to approximately $3,200,000 towards the end of the trial and ultimately recovered $4,000.00. This amounts to a recovery of 0.06% of the original amount claimed or 0.12% of the amount claimed at the end of the trial. The amount recovered after trial was nominal when compared to the amount claimed. As a result, the Defendants were the successful parties in this trial.

[7] In Eastern Power Limited v. Ontario Electricity Financial Corporation, 2012 ONCA 366 at para. 16, the Ontario Court of Appeal upheld a costs award in favour of the defendant where the plaintiff was ultimately successful on a single ground of appeal (one of 6 issues) where it recovered the amount of $8.5 million of a total claim of $121 million. The Ontario Court of Appeal reduced the scale of the defendant’s costs from substantial indemnity to a partial indemnity scale and further reduced the costs by 15% to account for the limited success by the plaintiff. In Eastern Power Limited, the plaintiff recovered approximately 7% of the amount claimed. In this case, the plaintiffs only recovered 0.12% of the amount she claimed, which is a much smaller percentage than in Eastern Power Limited. In Eastern Power Limited, the plaintiff recovered $8.5 million whereas in this case, the Plaintiffs only recovered $4,000, which is a nominal amount.

[8] Rule 57.05(1) provides that if a plaintiff recovers an amount within the monetary jurisdiction of the Small Claims Court, the court may order that the plaintiff shall not recover any costs. The maximum award available in the Small Claims Court in 2016 was $25,000. The amount recovered was well below the maximum allowable in the Small Claims Court.

Complexity and Importance

[9] The issues were very complex involving numerous legal causes of action, scientific evidence on the novel issue of mould toxicity, multiple independent and treating experts, numerous questions with respect to causation, a detailed loss of profits claim intertwined with the causation analysis, and multiple witnesses. Expert medical and scientific evidence of the symptoms that are associated with exposure to various moulds and testing for various moulds in the office space air and for mycotoxins in samples of Ms. Faulkner’s urine that were sent to a lab in Texas, USA.

Scale of Costs and Offers to Settle

[10] On July 17, 2015, the Defendants provided FRE with an option to terminate its lease without any penalty in exchange for a release which the Plaintiffs refused to sign. FRE paid $30,701 as an early termination penalty instead. The amount of this termination penalty, which the Defendants offered to waive, is greater than the $4,000 ultimately recovered by the Plaintiff. However, the Plaintiff was unrepresented at the time of this, which included a full and final release and as such, I do not consider this a major factor in the awarding of costs.

[11] On July 19, 2024, the Defendants made a Rule 49 offer to settle for the amount of $300,000 inclusive of all costs, taxes, and interest. The Plaintiffs have obtained a judgement after trial, less favourable than the terms of the Defendants’ offer to settle.

[12] On September 25, 2024, the Defendants made another Rule 49 offer to settle for $450,000, particularized at $275,000 for damages, $25,000 for interest and $150,000 for costs. Again, the Plaintiffs obtained a judgement after trial that is less favourable than the terms of this offer to settle.

[13] The Defendants claim costs on a substantial indemnity basis from their first Rule 49 offer to settle which was made on July 19, 2024. Rule 49.10(2) deals with an offer to settle by a Defendant. The Rule 49 cost provision for a Defendant’s offer to settle is different from that of a Plaintiff. Rule 49.10(2) provides that where “the Plaintiff obtains a judgement as favourable 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.” This provision was intended to apply where the Plaintiff made a substantial recovery but was less than the amount of the Defendant’s Rule 49 offer.

[14] Here the Plaintiffs only recovered a nominal amount which was not a substantial recovery considering the claim for $6,000,000 to $3,000,000. As a result, I find it would not be fair to award the Plaintiff partial indemnity costs to the date of the Defendants’ first Rule 49 offer to settle. I will exercise my discretion as provided for in the Rule and will order otherwise by awarding the Defendants costs throughout the proceeding on a partial indemnity basis to reflect their overwhelming successful result.

[15] I find that the Defendants made two reasonable offers to settle that constituted a compromise as they were for several hundred thousand dollars. In contrast, the Plaintiffs’ offers to settle were not reasonable in the circumstances. On September 17, 2024, the Plaintiffs offered to settle for the all-inclusive amount of $1,500,000 and offered to settle on September 25, 2024 for $1,100,000 or in the alternative, $800,000 inclusive of damage and interest plus costs on a partial indemnity basis.

[16] I also consider the written offers to settle made by the Defendants pursuant to Rule 49.13 of the Rules of Civil Procedure which provides a discretion to refuse to award partial indemnity costs to the Plaintiffs to the date of the Defendants Rule 49 offer to settle.

[17] In Davies v. Clarington (Municipality), 2009 ONCA 722 at para. 40, the Ontario Court of Appeal stated that substantial indemnity costs against an unsuccessful Plaintiff were only justified where the trial judge had expressly or implicitly found that the Plaintiff engaged in egregious behaviour deserving of sanction. In the circumstances, I find that the Plaintiffs did not engage in egregious behaviour that would justify an award of substantial indemnity costs against them. As a result, I will award costs on a partial indemnity basis to the Defendants throughout as was the order by Justice Perell in Rogers & Rogers Inc. v. Pinehurst Woodworking Company Inc. at paras. 8-11.

Hourly Rates and Time Spent

[18] The Plaintiffs did not challenge the hourly rates claimed by the Defendants’ counsel or the time spent working on this case. The Plaintiffs’ counsel advised the Defendants’ counsel when they prepared their own Rule 49 Offer in September 2024 that their costs at that time were $455,000, which included $132,636 of disbursements. Additional costs would have been incurred after that date as the trial lasted 4 weeks plus a half day for closing submissions. There would have been costs incurred in preparing for trial and in attending the trial.

Amount the Unsuccessful Party Would Reasonably Expect to Pay

[19] The Plaintiffs’ counsel advised that he had incurred full costs and disbursements of approximately $455,000 as of September 2024. This amount did not include the preparation for trial and a lengthy, complex 4-week trial involving two Plaintiffs’ counsel. The amount of costs that the Plaintiff had incurred prior to trial are in the same range or greater than the costs claimed by the Defendants’ counsel and as such, the Plaintiffs would reasonably expect to pay costs in the range of $450,000 if they were unsuccessful at trial.

Disposition

[20] Having considered all of the above factors, the Plaintiffs are ordered to pay costs to the Defendants fixed in the amount of $225,000 plus HST on a partial indemnity basis throughout the proceeding, plus disbursements of $149,823.42 (which is inclusive of HST), $5,000 on a partial indemnity basis for submissions and reply submissions, and post-judgment interest pursuant to the Courts of Justice Act from the date of the costs order.

Date: May 15, 2025

Robert Smith

Released: May 15, 2025