Legal Blog

Costs

In a hotly contested construction dispute, legal fees and disbursements (together, “costs”) can be significant, sometimes approaching or even exceeding the money in dispute. Subject to some variation arising out of offers to settle, the general rule is that the losing party pays a portion of the costs of the winning party.

An award of “partial indemnity costs”, the usual award, allows the winning party to recoup about 60% of its actual reasonable costs. An award of “substantial indemnity costs” allows the winning party to recoup about 90% of its actual reasonable costs. This scale of costs is awarded only to demonstrate the court’s displeasure with the actions of the losing party either before or during trial. An award of “full indemnity costs” allows the winning party to recoup all of its actual reasonable costs. This rarely happens, but can happen when a contract (e.g. a bank loan agreement) specifically calls for this scale of reimbursement.

In previous newsletters (e.g. July 2011 newsletter), we have highlighted cases in which substantial indemnity costs have been awarded. We now discuss two recent decisions in the Ontario Superior Court of Justice dealing with substantial indemnity costs: 690536 Ontario Inc v. Trimark Homes Ltd. (a 2012 decision) and Sunwell Investments Ltd. v. Cheung (a 2013 decision).

Trimark

An owner was held liable for breach of trust for non-payment of $144,000 owed on four projects to a masonry contractor. In addition, the judge held that the owner’s principal (probably the sole director and officer) was personally liable for the breach of trust. The judge came to this decision after a six-day trial, two and half days of examination for discovery, a failed mediation, and a myriad of other matters with which the lawyers had to deal.

The judge then had to set the scale of the costs. She noted that the owner and its principal had breached their trust obligations owed to the contractor. Further, during trial, the principal had produced declarations stating that the owner had made cash payments to the contractor, declarations that the judge had decided were false.

One of these findings deals with improper behaviour before trial and the other deals with improper behaviour at trial. Either of them may have been sufficient for the judge to award substantial indemnity costs. Finding both of them made it easy for the judge to award substantial indemnity costs against the defendants.

Quantification

The contractor’s lawyers submitted a bill of costs claiming $139,000 on a substantial indemnity basis. The judge noted that the fixing of costs is not simply a mathematical exercise; rather, the court must reflect on what it considers a reasonable amount that an unsuccessful party should pay.

The judge held that the defendants could not reasonably be expected to pay costs of $139,000 and that the lawyers for the plaintiff spent “an inordinate amount of time in litigating this case.”

Accordingly, the judge decided that, based on the reasonable expectations of the parties, the reasonable costs on a substantial indemnity scale was $90,000 inclusive of disbursements and HST.

Sunwell

The president of a family corporation misappropriated funds. The corporation obtained a judgment against him in which he was found to have misappropriated the funds while acting in a fiduciary capacity. For whatever reason, the corporation did not obtain a declaration in the action that the debt survived bankruptcy. Instead, it brought an application before another judge for that declaration.

Since the parties had not contemplated bankruptcy proceedings at the time of the application, the president argued that the application was merely hypothetical. The judge disagreed. He must have had some financial information regarding the president because he noted that, given the unpaid status of the judgment and the president’s financial position, there was no reason why actual bankruptcy should be a precondition to the determination of whether a debt is of a nature that brings it within section 178 of the Bankruptcy and Insolvency Act (i.e. debts that survive bankruptcy). Accordingly, the judge held that the judgment debt survived bankruptcy.

The judge noted that the usual rule was that “a finding of dishonesty, or wrongdoing, or misconduct by a person in a position of trust results in costs on a substantial indemnity basis.” Without giving further reasons, the judge ordered substantial indemnity costs of $13,290.59, which, given the exact amount involved, we assume is the amount that the plaintiff requested.

Counsel

Coincidence or not, the same lawyers represented the plaintiffs in Sunwell and Trimark. We assume that, unlike the judge in Trimark, the judge in Sunwell did not think that the lawyers were claiming an “inordinate” amount of time“.