Case Name:

Dinsmore v. Southwood Lakes Holdings Ltd.

Between

James Dinsmore & Barbara Dinsmore, Plaintiffs, and

Southwood Lakes Holdings Ltd., Masterpiece Homes (1997)

Ltd., The Corporation of the City of Windsor and the

Ontario New Home Warranties Plan, Defendants

[2007] O.J. No. 263

154 A.C.W.S. (3d) 790

Court File No. 02-GD-53338

 Ontario Superior Court of Justice

J.H. Brockenshire J.

Heard: By written submissions.

 Judgment: January 26, 2007.

(37 paras.)

Civil procedure -- Costs -- Assessment or fixing of costs -- Considerations -- Counsel fees -- Offers to settle -- Amount of offer v. award -- The plaintiffs were awarded $67,045 in total costs against the defendant builder/vendors, while the defendant Ontario New Home Warranty Plan was awarded $67,498 in costs against the plaintiffs -- The builders' offers to settle were non-factors as the offer was significantly less than the awarded damages when costs were added into the calculation.

Civil procedure -- Interest -- Prejudgment interest -- The plaintiffs were awarded $67,045 in total costs against the defendant builder/vendors, while the defendant Ontario New Home Warranty Plan was awarded $67,498 in costs against the plaintiffs -- Pre-judgment interest was not to start to run until the time when the reports of the construction company had all arrived, and the parties could or should have seen the nature of the work required to remedy the problem, and could quantify the reasonable cost thereof.

Construction law -- Liability of contractors and subcontractors -- New home warranty programs -- The plaintiffs were awarded $67,045 in total costs against the defendant builder/vendors, while the defendant Ontario New Home Warranty Plan was awarded $67,498 in costs against the plaintiffs.

In this case, where the plaintiff brought an action based on discovering a damp basement in a new townhouse purchased from and constructed by the defendants Southwood and Masterpiece, and where the plaintiff was awarded $29,700 in damages, the parties sought a ruling on costs -- HELD: The plaintiffs were awarded $67,045 in total costs against the defendants Southwood Lakes Holdings Ltd. and Masterpiece Homes (1997) Ltd., composed of $36,000 in costs fixed on a partial indemnity basis plus GST, disbursements of $26,682 plus GST, and pre-judgment interest of $1,178 -- The defendant Ontario New Home Warranty's Plan was entitled to costs of $67,498 against the plaintiff made up of $36,081 in fees, $27,028 in disbursements plus GST -- The builders' claim for costs was dismissed -- It was not unreasonable for the plaintiffs to have commenced and continued this as an ordinary action as their experts placed the damage claims well over $50,000 -- The offers to settle had no effect on the costs ruling as the figure awarded, including disbursements, costs, etc., was well over the $45,000 offered -- The plaintiff's counsel fees were limited to the $36,000 set for the defendants; senior counsel for the plaintiffs had over-charged for a matter resulting in a $30,000 award -- Pre-judgment interest was not to start to run until Feb. 1, 2005, in the special circumstances of this case, when the reports of the construction company had all arrived, and the parties could or should have seen the nature of the work required to remedy the problem, and could quantify the reasonable cost thereof.

Statutes, Regulations and Rules Cited:

Courts of Justice Act, s. 130(2)

Ontario Rules of Civil Procedure, Rule 49.10, Rule 57.01, Rule 76.13

Counsel:

Raymond G. Colautti and Owen D. Thomas, for the Plaintiffs.

Gino Morga, Q.C., for the Defendant Southwood Lakes Holdings Ltd. and Masterpiece Homes (1997) Ltd.

Montgomery Shillington for the Defendant Ontario New Home Warranties Plan.

No one representing the Defendant the Corporation of the City of Windsor.

COSTS DECISION

1 J.H. BROCKENSHIRE J.:-- This action was tried in May of 2006. The 40 page long reserved judgment was released July 12, 2006. At the end I asked counsel, if the issues of costs and pre-judgment interest could not be resolved, to make submissions to me. I have now received submissions from Mr. Morga, counsel for Southwood and Masterpiece, from Mr. Shillington, counsel for the Ontario New Home Warranty Program, and from Mr. Colautti, counsel for the plaintiffs.

2     The claim herein related to a damp basement in a new townhouse purchased from, and constructed by the defendants Southwood and Masterpiece. The purchase was completed in 1997. There was no question but that there was dampness in the basement, and that the basement floor was not as thick as it should have been under the Building Code provisions. The issue was how the defects should be dealt with. The evidence, which I accepted, was that Southwood and Masterpiece, with the help of their co-defendant the Warranty Program, had tried to negotiate or mediate these issues. However, despite the input from a number of experts, differences of opinion continued to exist through to the end of the trial, when plaintiffs' counsel sought $200,000, and counsel for the developers suggested $20,000 was more appropriate.

3     I ordered damages of $29,700. I concluded that the damages should be assessed as of 2004, when the reasonableness of using sealants on the floor had been confirmed. My award covered the estimated costs of sealing the floor, removing standpipes various engineers had put through the floor, putting clay plugs in the utility trenches, grading the lot away from the foundation walls, pumping out standing water under the basement floor, and $14,000 for engineering investigations prior to litigation. I dismissed the claims for loss of enjoyment of life, emotional upset, reduction in the resale value of the home, and for aggravated and punitive damages.

4     I now find that the defendants Southwood and Masterpiece had made settlement offers of $20,000 on January 31, 2005 and $30,000 on April 26, 2006. The defendant Warranty Program offered to let the plaintiffs off without costs if they dismissed against it on April 11, 2003, and then on May 3, 2006 offered to contribute a $15,000 payment to the plaintiffs as part of any global settlement of the proceedings.

5     I find that although the earlier offers by both defendants were individual, the later offer of $30,000 on behalf of the developers was a general offer to "settle this proceeding", which generality was fleshed out by the later offer to contribute $15,000 from the Warranty Program. Mr. Morga argued in his submissions that the damages of $29,700 were substantially less than the combined offer, and the provisions of rule 49.10 should apply. Mr. Colautti, for the plaintiffs, argues however that costs and pre-judgment interest should be added to the plaintiffs' judgment, and that the totality of damages, costs and interest would greatly exceed the $45,000 offered.

6     The statement of claim claimed general and aggravated damages, punitive damages, costs, and interest. All of those claims were alive through the trial. The offer to settle of the builders was to pay $30,000 "on account of all claims". The offer of the Warranty Plan was to "contribute a $15,000 payment to the plaintiffs as part of any global settlement of the proceedings." That offer further provided terms that all parties to the proceedings would exchange mutual releases, and that the action, cross-claims and third party claim would be dismissed without costs. Clearly the offer was not to settle the damage claims only. The offer was on an "all in" basis, to absolutely end the action, including the continuance of any claims for pre-judgment interest, costs and disbursements. It is clear from the detailed dockets of plaintiffs' counsel that by May of 2006 the plaintiffs' claim for fees and disbursements, and indeed for disbursements alone, because a lot of the investigative engineering work was done early, would, when added to the damage award, bring the figure well over the $45,000 offered.

7     I therefore find that the offers, and Rule 49, have no effect on the cost issues before me.

8     Further, Mr. Morga raises an issue under rule 76.13, namely that this action proceeded to trial under the ordinary procedure, the monetary judgment was less than $50,000 and therefore, under rule 76.13(3), the plaintiff cannot recover any costs unless the court is satisfied that it was reasonable for the plaintiff to have commenced and continued the action under the ordinary procedure.

9     This was an action seeking general damages, including the cost of remedying an admitted problem with the townhouse basement, which the plaintiffs' experts put at well over $50,000, plus general, aggravated and punitive damages. The issue of Rule 76 was not raised before me during the trial. In the circumstances I do not think it was unreasonable for the plaintiffs' counsel to have commenced and continued this as an ordinary action. I therefore do not see rule 76.13 as being an issue when dealing with these cost claims.

GENERAL COMMENT ON QUANTUM

10     This action started with a claim for $350,000 for breach of contract and negligence, and $150,000 for punitive damages. It ended with a judgment for $29,700 for damages against the builders, a complete dismissal of the claim for punitive damages, and a dismissal of the action as against the Warranty Program. Plaintiffs' counsel have put forth a claim for $148,464.50 in fees plus $45,403.40 in disbursements plus GST of $11,611.85, totalling $205,479.75 on a substantial indemnity basis. Mr. Morga, for the builder, claims fees of $86,700 plus disbursements of $5,184.64 plus GST of $6,414.21, totalling $98,299.75, on a substantial indemnity basis. Mr. Shillington, for the Warranty Program, claims fees of $67,424.25 plus disbursements of $27,027.61, plus GST of $6,583.55, totalling $101,035.41 on a substantial indemnity basis.

11     I do not know whether bills in those amounts have actually been given to, and paid by the respective clients. Even if they had been, it would seem to me that in this case the principle of indemnity under rule 57.01 would be completely overridden by the principle of the consideration of what an unsuccessful party could reasonably expect to pay. I am very mindful of the statements in Boucher v. Public Accountants' Council (2004), 71 O.R. (3d) 291 (C.A.) to the effect that the fixing of costs does not begin or end with the calculation of hours times rates since the overall objective is to fix an amount that is fair and reasonable, having regard to the broad range of factors in rule 57.01, for the unsuccessful party to pay, rather than an amount fixed by the actual costs incurred by the successful party.

12     I am also cognizant of the statement, quite telling in this case, of Madam Justice Feldman in the Court of Appeal, in paragraphs 36 through 39, of Amherst Crane Rentals Ltd. v. Perring (2004), 241 D.L.R. (4th) 176, 187 O.A.C. 336 (C.A.). This involved an application by a creditor against a bankrupt estate, and so presumably did not involve all of the procedural work that goes into an ordinary action. However, the claim included one for $1.27 million in life insurance, as well as a claim for over $50,000 of RRSP proceeds. The application judge awarded fees of $30,000. In the Court of Appeal Madam Justice Feldman noted that the claim for life insurance was abandoned shortly before the hearing, and so should not have counted directly in fixing the amount of costs and that:

"... the first factor to be taken into account in considering the appropriate amount to award for costs is the amount in issue. The rule reflects the principle that the cost must be commensurate with the value of the lawsuit to the parties."

She therefore concluded that the $30,000 award constituted an error in principle, and reduced the award to the estate, against the unsuccessful applicant, to $15,000. This was in a case where, as the court noted in the first paragraph, the issue of the proper treatment of RRSP proceeds following the death of the owner was being addressed for the first time by the Court of Appeal.

13     Here, the townhouse was purchased for $177,000. It, and many others in the same development, were constructed on a production basis, in which it was anticipated that there could and would be problems, which the builders would rectify on a systematic basis. Although some years went by trying to determine exactly why this basement was damp, and in determining definitively what would fix the dampness and what if anything had to be done about the basement slab not being as thick as it should have been, I fail to see why anyone, at any stage in this proceeding, would see it as justifying legal bills in the amounts that have now been presented. Further, while uncertainty continued for many years as to why the problem existed and precisely what to do about it, it seemed clear to me at trial that the reports of Construction Control Inc., the last of which was billed out in February of 2005, left the plaintiffs with an uphill battle to try to recover anything anywhere close to the plaintiffs' estimate of their damages. Unfortunately this action was not settled, and the evidence at trial indicated it was not for lack of trying by both the builders and the home warranty plan.

THE COST CLAIM OF THE HOME WARRANTY PLAN

14     The position of the Plan from the beginning was that it had no direct responsibility at all to the plaintiffs. It would have been directly involved if the builders absconded, could not pay for repairs, or refused to carry out appropriate repairs. None of these happened. While it might have made some sense, as a precaution and for tactical reasons, to have involved the Plan in the beginning, it seemed to me there was little point in holding the Plan into the action until the bitter end. In fact the Plan, through the experts it retained, provided the answers to the issues that I accepted. The claims made against the Plan by the plaintiffs of negligence, failure to fulfill statutory duties, offending community standards, and of acting in a high handed and insulting manner were not supported by the evidence, and in my view would have, at the discovery stage, been found to be obviously baseless.

15     The Plan succeeded completely at trial, with all claims against it being dismissed.

16     Mr. Shillington claims firstly for costs throughout on a substantial indemnity basis. He indicates an hourly rate of $157.50, a special reduced rate for this client, until April of 2006 when it increased to $171. Other counsel have not objected to those rates and neither do I. However, the general entitlement of a defendant who succeeds at trial is to costs on a partial indemnity basis. Mr. Shillington argues that the allegations of improper conduct, above referred to would raise this to entitlement to substantial indemnity costs. I do not agree. As above indicated, it seems to me that it would have been clear very early in the game that the plaintiffs had nothing to substantiate those allegations except personal, and unsupported, perceptions of entitlement and of being somehow wronged.

17     I accept most of the number of hours docketed by Mr. Shillington. A lot of time was spent with his experts, but as above indicated that was time well spent. My concerns are with the preparation time and trial time that was docketed. I do not doubt that the hours recorded were actually spent in connection with this case. However, I see that while Mr. Shillington docketed 121 hours in trial preparation, Mr. Morga, who had in my view a more difficult case, docketed only 63 1/4 hours for trial preparation. Mr. Shillington docketed 160.3 hours for attending at trial and preparation during trial. Mr. Morga docketed only 140 hours. I appreciate Mr. Morga has many more years of trial experience, but here, in my view, he had the more difficult case. I also appreciate Mr. Shillington would have had considerable travel time included in his amounts, but the usual practice is to bill travel time at half rates. My conclusion is that Mr. Shillington's preparation time should be reduced by 30 hours, at $157.50, and his trial time by 15 hours at $171.00. Those deductions, at 60% of the substantial indemnity basis would total $4,374, bringing his partial indemnity fees, claimed at $40,454.55, down to $36,080.55, with the GST thereon to be $2,525.64. The total, which I fix as partial indemnity costs is $38,606.19.

18     His taxable disbursements total $26,626.61, with GST of $1,863.86 plus non-taxable disbursements of $401. The principle disbursements were to his experts from Construction Control Inc., for reports and witness fees of over $16,000. Other counsel have not objected to that and as they had to be brought in from Toronto, repeatedly, I do not either. Mr. Shillington himself claims for mileage and 16 nights in a hotel in Windsor. Other counsel did not raise the question of why out of town counsel was retained to defend this action. In my view, if one sues a governmental or quasi governmental agency, it would be reasonably expected that counsel from out of town would appear and I accept the disbursements as put forth, which together with GST total $28,891.47. The resulting total of fees and disbursements would be $67,497.66.

COST CLAIM OF THE BUILDERS

19     Mr. Morga presented bills of cost prepared on a substantial indemnity and partial indemnity basis, as well as bills of cost based on Rule 49.

20     The arguments in relation to Rule 49, and rule 76.13 have been dealt with above.

21     Additionally, Mr. Morga argued that the builders should have costs from the commencement of this action because the plaintiffs failed to mitigate, failed to cooperate with the defendants to find solutions to their problems, elected a significantly more expensive trial procedure, and made serious allegations of improper conduct against he builders.

22     I have commented above on the reasonability of proceeding with an ordinary action, and the obvious impossibility of the plaintiffs succeeding on their allegations of impropriety and wrongdoing. The figures of the plaintiffs to proceed on their own to do repair work, should not reflect on their claim for costs, but is a factor I will consider later re the claim for interest. It seems to me, with the advantage of hindsight, that it was indeed unfortunate that the plaintiffs did not come to some co-operative agreement with the builders to remedy their problems. However, I know of no principle of law which would require a person, alleging to have been wronged, to cooperate with the alleged wrongdoer, or suffer cost consequences.

23     I find that the builders are not entitled an award of costs against the plaintiffs.

COST CLAIMS OF THE PLAINTIFF

24     Plaintiffs' counsel filed, as a bill of costs, a detailed list of disbursements, and a complete listing of all docketed hours by everyone in the law firm that was involved with the file. The total fees claimed, at rates ranging from Mr. Colautti's at $350 per hour to law students and clerks at $60 per hour is $148,464.50. No attempt was made to group the hours spent into the usual recognizable items in litigation, as both Mr. Morga and Mr. Shillington had done. However, a cursory examination of the detailed dockets would indicate that most of the work done on the file was by Mr. Colautti and Mr. Thomas. Mr. Colautti has over 29 years of experience. Mr. Thomas has nine, and claims fees of $200 per hour. It appears that in the preparation for trial, as well as the trial itself, Messrs. Colautti and Thomas worked together, so that at that time the client was purportedly being billed $550 per hour, plus, at trial, disbursements of some $1,635 to a Catherine Colautti for "clerical assistance". For a case which I found in the end was worth less than $30,000, this is massive overkill.

25     I have no intention of going through, in detail, what appears to be over 20 pages of dockets. The case law is replete with statements that a trial judge is called upon to fix costs, not to assess costs. I would however observe that this is the sort of case which I would expect would be handled by one lawyer, so that generally time docketed for discussions between various lawyers in the law office should be excluded. So should repeated administrative actions between law students, clerks, etc., which in my view should be treated as simple office overhead and not billed out to the client, much less to opposing parties. As an example, I note with interest an entry of October 18, 2004 for "office conference with Mr. Colautti in efforts to locate file and bring downstairs and instructions received to prepare settlement conference brief". This was billed out at .4 hours by Pat Boyd, apparently a law clerk in the office, at $90 per hour. She later, after finding the file spent 12 hours to prepare a settlement conference brief.

26     In my view, the overriding principles in a case such as this are those laid down in the two Court of Appeal decisions above cited. In addition to those, there are many decisions frowning upon billing for two counsel representing a party at trial, including recent ones under the grid system where only one counsel fee would be allowed. I feel it is commendable if a senior counsel takes on a case of this kind, and the Bench is grateful for the assistance of such counsel, but such counsel have to clearly understand that no one, including of course the trial judge, would expect such counsel to bill in a $30,000 case as he or she would in a $3 million case.

27 Amherst Crane Rentals, supra, made clear that the legal costs have to be commensurate with the value of the lawsuit. In this case, I do not find the dockets filed by plaintiffs' counsel to be helpful in arriving at a fair and proper figure. That is especially true here, where the plaintiffs lost against one defendant, but won against the builders, and the dockets do not distinguish between the defendants. What I find to be most helpful is the billing of Mr. Shillington. He worked at a special reduced rate, which I think would be appropriate in this case, he worked alone, and he had to deal, at least indirectly, with all of the issues raised in the case. He was completely successful in his position. Plaintiff's counsel were partially successful. I fixed Mr. Shillington's costs at just over $36,000. I see no reason why plaintiff's counsel should be entitled to more.

28     For all of the reasons above listed, I conclude that plaintiffs' counsel are not entitled to costs on a substantial indemnity basis, but are entitled to costs on a partial indemnity basis. I fix the partial indemnity costs of the plaintiffs, payable by the defendant builders, at $36,000. GST thereon would be $2,520, and the total for costs would be $38,520.

29     Plaintiffs' counsel filed a three-page list of disbursements, totalling $45,403.40, $337. dollars of which are indicated to be non-taxable. Some of them are obviously overhead expenses of the law office. I reject the computer legal searches, the lunches, "miscellaneous expenditures during trial" and the charges for clerical assistance at trial. I also disallow the fax charges, courier charges and long distance telephone charges. There is a charge of $2,147.50 for photocopies. For the purpose of fixing costs I simply reject $1,000 of that. I would accept the expert reports in full, except for that of Boscariol & Associates Limited, shown here as $14,152.35. In the damage judgment I awarded $14,000 on account of engineering work for Mr. Boscariol, and would deduct that $14,000 from the disbursements claimed here. Those deductions, on my account, total $18,721.89. When that is subtracted from the $45,403.40 claimed, I get $26,681.51. Three hundred and twenty-seven of that is shown as non-taxable. GST on the balance would be $1,844.12. The total allowed for disbursements is $28,525.62.

Prejudgment Interest

30     Mr. Morga, in his submissions, argues that the court should disallow any prejudgment interest, as it is entitled to do under s. 130(2) of the Courts of Justice Act. He argues that the defendants offered viable solutions to the plaintiff's problems that were unreasonably refused. They made a claim for half a million dollars and received a judgment for only 6% of that. The purpose of prejudgment interest is to compensate for the loss of the use of the money. Up to the trial the plaintiffs had not made any repairs. The damage award made by the court was based on the current costs of repair and not the cost at the time claim arose.

31     Plaintiff's counsel argues that prejudgment interest should commence from the date the cause of action arose, October of 1997, at the then prevailing rate of 3.5%. The whole cause of the problem was faulty design, and faulty work by the builder's sub-trades. The builders admitted liability but failed to pay over, or pay into court at an amount appropriate to remedy the problem and had the use of those funds over a period of 8 years.

32     The background history of this litigation, as it was unfolded before the court, was quite unusual. The builders admitted liability for the problem early on. However, their obligation was not to pay money - it was to fix the problem. They immediately offered to tear out and replace the entire basement floor. The plaintiffs did not want that for personal reasons - concern over dust etc., during the work. At the time the builders could have had the sub-trades who caused the problem, come back and replace the basement floor at minimal cost. The plaintiffs wanted a less intrusive repair, and the builders sought one out in the form of various sealants and floor coverings which the plaintiffs rejected. The plaintiffs then wanted the basement floor, and all of the partitions etc., they installed after they were aware of the problems replaced on a custom construction basis. The builders now did not now have the former sub-trades available and argued the plaintiff's proposal was out of line for a reasonable repair to the problem. During all of those negotiations, neither side knew exactly what caused the problem or what would solve it, but throughout the warranty's plan was indicating that if a builder's proposal did not work, the obligation would be on the builders to try again, with the warranty's plan backing up the cost of a second repair effort.

33     In my view, during that entire negotiating period, although an action had been commenced sometime before, the claim had not turned into one for money. The plaintiffs did not put out any money of their own in attempting to get repair work done and the builders could not do anything because the plaintiffs would not let them into the home. When the reports of Construction Control Inc., had all arrived, the parties could or should, have seen the nature of the work required to remedy the problem, and could quantify the reasonable cost thereof. I would fix the date for this as January 31, 2005, by which time the final report of the Engineers was on hand.

34     I find in the special circumstances of this case that prejudgment interest should not start to run until February 1, 2005 and that it should run from that date to the reasonable date for judgment which I would fix as the end of July 2006 as my reasons issued on July 12th. The prejudgment interest should be at the rate for the first quarter of 2005 which was 2.8%. The figure I get is $1,178.10.

Conclusion

35     For the foregoing reasons I conclude that the plaintiffs are entitled to judgment against the defendant's Southwood Lakes Holdings Ltd., and Masterpiece Homes (1997) Ltd. for costs in the total amount of $67,045.62, made up of fees of $36,000.00, disbursements of $26,681.51 and the applicable G.S.T. thereon. The plaintiffs are also entitled to judgment against those defendants for prejudgment interest in the amount of $1,178.10.

36     The defendant the Ontario New Home Warranty's Plan is entitled to judgment against the plaintiffs for costs in the amount of $67,497.66 made up of fees of $36,080.55, disbursements of $27,027.61 plus applicable G.S.T.

37     The claim by the builders for costs is dismissed.

J.H. BROCKENSHIRE J.

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