Kon Construction Ltd v Terranova Developments Ltd, 2014 ABQB 665

Court of Queen ’ s Bench of Alberta Citation: Kon Construction Ltd v Terranova Developments Ltd, 2014 ABQB 665 Date: 20141104 Docket: 0703 09467 Registry: Edmonton Between: Kon Construction Ltd Plaintiff - and - Terranova Developments Ltd Defendant - and - Terranova Developments Ltd Plaintiff by Counterclaim - and - Kon Construction Ltd and Scheffer Andrew Ltd Defendants by Counterclaim _______________________________________________________

Memorandum of Reasons regarding Decision on Costs of Associate Chief Justice J.D. Rooke _______________________________________________________ I. Introduction, Decision and Broad Considerations [ 1 ] On October 14, 2014, I issued a Decision on Costs ( 2014 ABQB 625 ) [Decision], pursuant to Justice Browne’s findings in Kon Construction Ltd v Terranova Developments Ltd , 2014 ABQB 256 . For ease of reference, I attach a copy of the Decision as Appendix “A”. In my Decision, I indicated that reasons would follow.

This is a Memorandum of those Reasons [Reasons]. [ 2 ] I do not intend to go into detail on all of the arguments raised by Counsel or all the potential reasons for my Decision in detail; further reasons may be provided if necessary and I reserve the right to so provide.

Rather, I will provide some general and broad observations, as well as deal with some specific points that flow from Counsels’ arguments, all of which caused me to exercise my discretion on costs in this unique case and with my unique role. [ 3 ] As mentioned in my Decision, it is more difficult for me to make an assessment as to costs on some issues than others, as I was not the trial justice in this case. However, Counsel had the opportunity to wait for a cost decision from Justice Browne but all Counsel wanted to have costs resolved before her return. My Decision and these Reasons are the result. II.

Reasons [ 4 ] Pursuant to r 10.30(1) of the Alberta Rules of Court , Alta Reg 124/2010 [Rules], the ordinary rule applies, namely that costs follow “the event.” Moreover, details within the case (i.e. within the “event”), except in specific cases, do not result in off-setting costs, but rather the costs are awarded, usually under the appropriate Column of

Schedule C of the Rules, for the end result in the case. For example, costs of an interlocutory motion won by the party not successful at trial go to the victor at trial when awarded in “the cause.” [ 5 ] In general, subject to some exceptions discussed below, including enhanced costs, I accept the propositions of Counsel for both Kon and SAL in their costs arguments and, where they differ from TDL, I generally do not accept the arguments by Counsel for TDL. A. Specific Comments with Respect of the Submissions of Kon i.

What is the appropriate column for Kon’s costs? [ 6 ] I am aware that a plaintiff’s success may be measured by their jeopardy in terms of a defendant’s counterclaim, in which case, Column 4 costs might have been awarded to Kon for the debt action: see Hnatiuk v Assured Developments Ltd , 2012 ABCA 97 at para 46 . However, I choose to use my discretion and award Kon costs for the successful debt action claim under Column 2 of

Schedule C of the Rules , as its claim amount fell under that Column. [ 7 ] On the issue of Kon’s debt action claim and any defences to it by TDL, I am satisfied that two days of evidence would have been sufficient, but for TDL’s counterclaim. [ 8 ] Aside from its defence to Kon’s claim, TDL’s counterclaim action against Kon for breach of contract was an independent action for which different costs would flow for the balance of the trial. I agree with Kon that every aspect of TDL’s counterclaim was dismissed: see 2014 ABQB 256 at paras 192-199 .

As the quantum of that claim was in the range applicable to Column 4, costs in that range follow. ii. Should TDL be entitled to costs pursuant to Kon’s and SAL’s misrepresentation? [ 9 ] Although not submitted in the first instance by Kon, I feel this is an appropriate place to address an argument made by TDL, as this argument bears upon each of the parties’ submissions and my ultimate costs findings. [ 10 ] TDL alleged at trial that Kon’s debt action claim was inflated due to a miscalculation or misapplication of clay quantities hauled and compacted by Kon and charged to TDL.

Specifically, TDL asserted that the clay quantities were inflated, but charged at the 2005 unit rate, to result in the equivalent of lesser then actual volumes but at the 2006 unit rate. While Justice Browne found that this accounting inflation had, in effect, happened, and that SAL was complicit with Kon in approving bills in that manner, she also found that the quantities in the documentation were accurate of what was in fact hauled and compacted (i.e. not inflated).

She further found that, had there not been this misrepresentation by Kon and SAL, Kon would have been entitled to make a claim based on the increased price for

the 2006 rate for the actual quantities she found had been delivered: 2014 ABQB 256 at paras 118-119 . [ 11 ] In equitably setting off these considerations, Justice Browne ( 2014 ABQB 256 at para 126 ) penalized Kon by reducing the rate for 2006 work back to the 2005 rate, but based on the quantities actually delivered.

In other words, Justice Browne found that Kon’s invoices were properly based on 2006 actual quantities but improperly inflated for invoice purposes (i.e. contrived by Kon and SAL as to what they believed had been delivered, although at trial they proved such amounts were actually delivered) and charged on the 2005 rate.

As a result, she concluded the appropriate remedy was for TDL’s liability to Kon for the Recalculated Billings to be reduced by 20% (the amount of the contrivance), but at the 2005 rate: 2014 ABQB 256 at paras 124-126, 191. [ 12 ] Justice Browne found that SAL was complicit in the misrepresentation, but did not find it sufficient to award judgment to TDL against SAL: 2014 ABQB 256 at para 190 . [ 13 ] TDL asserted it succeeded in part against both SAL and Kon, entitling it to costs against both.

However, the end result at trial was that TDL’s counterclaim was not successful and Kon’s claim was successful, although reduced. Additionally, TDL’s assertion of clay quantity inflation was by way of defence, rather than counterclaim. Further, normally it is only the successful party to a proceeding that is entitled to a costs award against the unsuccessful party.

The successful party need not succeed on every point; rather, a finding of “substantial success”, based on a balanced assessment of the outcome and the nature of the final judgment, is sufficient: Kent v Kent (Ellis) , 2011 ABQB 611 at paras 6-7 , 209 ACWS (3d) 345, citing Mahe v Boulianne , 2010 ABCA 74 at para 6 , 505 AR 168.

Thus, in this context Kon was “substantially successful” in proving its claim, reduced only by the contrivance, and is thus entitled to costs in the amount of its judgment – Column 2. [ 14 ] Alternatively, while not specifically stated by Justice Browne, it was open for her to conclude that the counterclaim on this point (reduction for the contrivance) was so close to the status of a defence that it should not have been treated as a separate and independent action.

Regardless, the result is the same in either case in the face of a counterclaim (on other breach of contract allegations) that was unsuccessful in the end result, as well as Justice Browne’s findings that the actual quantities used were accurate, and that Kon’s Recalculated Billings be limited to 2005 rates. [ 15 ] Therefore, for these reasons, I do not find it unreasonable to deny TDL’s claim for off-setting costs under Column 1 as against either SAL or Kon. iii.

Is Kon entitled to double costs, pursuant to the formal offer? [ 16 ] Generally, double costs will be awarded where a formal offer is made for the steps taken from the date of the formal offer until the end of trial, and/or in some cases for further activity after trial until a decision is made, and, in some additional cases, for steps taken until the Judgment Roll is settled. This is consistent with rr 4.24 and 4.29. It is clear on the facts that the Kon offer was more advantageous to Kon than what was achieved by TDL, when costs and pre-judgment interest are included.

Therefore, Kon is entitled to double costs for all fee portions of costs awarded, up to the end of trial. iv. Is Kon entitled to enhanced costs? [ 17 ] I find that no party is entitled to enhanced costs beyond what applies under

Schedule C. [ 18 ] There were some circumstances where enhanced costs might have been justified, but I find that, overall, these arguments effectively balance out against one another. These arguments include, among others: 1. TDL’s Counsel’s conduct allegedly unnecessarily lengthened the trial; 2. The trial judge did not accept TDL’s expert evidence and his attack against SAL was allegedly unjustified; 3. SAL provided documents late, at least formally; 4. TDL’s Notice to Admit Facts was denied by the other parties and later proven; and 5.

Other [ 19 ] Because I was not the trial justice, I cannot determine if there was any impact on any party not sufficiently covered by ordinary costs, or any factors that did not, as I say, balance out. However, no party proved any such impact. The result is that no enhanced costs are to be awarded to any party beyond what is set out in my Decision. 1. TDL’s Counsel’s conduct unnecessarily lengthened the trial [ 20 ] Kon argued that TDL unreasonably delayed the timely progression of the trial, such that it should receive additional

compensation for the costs it incurred as a result, pursuant to r 10.33(2)(a). [ 21 ] It may be that lengthening a trial beyond what is reasonable may result in an increased costs award in specific circumstances: see, for example, my decision in Parkridge Homes Ltd v Anglin , [1996] AJ No 768 (ABQB) . Without being the trial judge, however, and not having any arguments to better prove that the allegation was true, I cannot determine that the trial length, intentional or otherwise, was an abuse of the litigation process. I therefore do not so award.

To the extent that this circumstance and other matters did have some impact, they generally appear to settle out or balance off with counter-considerations as alleged by TDL. [ 22 ] Moreover, I note that Kon and SAL get double compensation under Column C for every day of trial, albeit at the tariff party- party rate. Thus, while

Schedule C costs do not necessarily reflect the actual cost of counsel (the solicitor-client rate), the fact that double party-and-party costs have also been awarded due to the bettered offers provides reasonable compensation for any extra time that was taken.

In the end result, the double tariff rates are appropriate compensation for the total time it took Kon and SAL to achieve success or victory in each case. [ 23 ] Furthermore, whatever the reason for the lengthy conduct of TDL’s case, I am not satisfied, on the record or on anything that was brought to my attention, that it was a matter of “us[ing] delay as a tactic to exacerbate expense”. Moreover, I do not find the addition of TDL’s “surprise” witness, albeit inappropriate in a jurisdiction which does not permit “trial by ambush”, caused any harm to the other parties justifying enhanced costs. 2.

The trial judge did not accept TDL’s expert evidence and his attack against SAL was unjustified [ 24 ] Kon further argued that TDL’s expert evidence was wholly suspect, warranting enhanced costs, because TDL’s expert witness’ evidence was rendered of little value, mainly because the facts upon which it was based were not accepted by the Court and the opinion was found to be unduly prescribed by Counsel’s instructions. However, I find this circumstance is again, another factor that balances out as neutral once put among other counter-considerations, such that further elevation of costs should not be awarded.

That, and other failures or difficulties with the counterclaim of TDL, merely results in the failure of its counterclaim in total, with associated costs, and that is where it should end. [ 25 ] Equally, TDL’s expert’s attack on SAL is compensated by costs for SAL’s victory. 3. SAL provided documents late, at least formally [ 26 ] These arguments are addressed further below. 4. TDL’s Notice to Admit Facts were denied by the other parties and later proven. [ 27 ] These arguments are also addressed further below. 5. Other [ 28 ] Finally, the fact that the credibility of Mr.

Frank Constantino, principal of TDL, was found to be lacking by the Court on at least one issue again goes to the total success or failure of the counterclaim, rather than a factor warranting enhanced costs. B. Specific Comments with Respect of the Submissions of SAL [ 29 ] Where matters have been addressed in the SAL argument as well as Kon’s, and I have addressed them above, they will not be repeated here. i.

What is the appropriate column for SAL’s costs in successfully defending the claim against it? [ 30 ] I accept SAL’s submission that “there are no allegations of fraud against SAL contained in any of TDL’s pleadings...”. Rather, I find that TDL’s claim against SAL was for failing to meet the appropriate standard of care of an engineer in the context of the services rendered.

TDL did not succeed in establishing a breach of duty of care or negligence or breach of contract as against SAL, and its counterclaim against SAL was effectively dismissed in its entirety. [ 31 ] SAL offered a settlement of a not insignificant amount but the counterclaim against it by TDL was absolutely unsuccessful and therefore costs under Column 4, in accordance with the amount of the claim, are justified.

Equally so is the double costs result, because the claim that was the subject of the formal offer to settle was wholly dismissed: see r 4.29(3). [ 32 ] I note that SAL’s acknowledgment of its complicity in Kon’s misleading billings was “made to TDL on June 3, 2009”.

Following therefrom, I accept SAL’s submissions that, “notwithstanding her finding that SAL was complicit in Kon’s misleading billing...”, Justice Browne found that SAL’s “work overall meet the standard of care of reasonable land development engineer”. [ 33 ] As discussed previously, the involvement of SAL in the “misleading billing” did not result in any judgment against SAL and

was only related to the reduction of the quantum of Kon’s claim. The reduction of Kon’s claim was, at best, an equitable set-off, which isavailable in situations where equitable grounds going to the root of a plaintiff’s claim exist, and the defendant’s counterclaim is soclosely related to the plaintiff’s claims that it would be “manifestly unjust to allow the plaintiff to enforce payment without taking intoconsideration the cross claim”: see Holt v Telford, (SCC), [1987] 2 SCR 193 at 211-212, 81 AR 385 and Do All MetalFabricating Ltd v Embury, 2013 ABQB 135 at para 26, 226 ACWS (3d) 712 .

Further, while the negligence claim against SAL was anindependent claim, it was wholly dismissed. [34] In the result, with respect to the reduction of Kon’s claim, I find that SAL’s submission should be accepted, namely that “anyfindings relating to SAL’s complicity in or responsibility for the Recalculating Billings is referable directly and exclusively to TDL’sdefence of Kon’s claim for payment of its invoices and not to any counterclaim against SAL”.

I also accept SAL’s argument that “[t]hereis no finding of negligence or breach of contract against SAL, which were the only causes of action plead against SAL”. ii. Is SAL entitled to second Counsel costs? [35] I take no issue with SAL being entitled to appropriate costs for second Counsel. I agree with SAL that the claim was acomplex one, with additional significance in the challenge to SAL’s professional integrity.

I also reject TDL’s argument that becausesecond Counsel did not participate in questioning of the witnesses, SAL should be denied those costs. [36] However, there is always a lot of work done in litigation by support lawyers behind the scenes that is not included in thecosts, based on a second counsel fee, and that is not a separate claim. [37] Therefore, second Counsel should be at trial (it is their being “counsel” at trial that is the basis for such a cost claim) to meritthose costs, unless there is a further explanation, not provided here.

Therefore, in this case, I find that an extra second Counsel fee shouldonly apply to the extent that second Counsel actually attended trial. iii. Is SAL entitled to enhanced costs? [38] Amongst other assertions, which will not be addressed specifically here, SAL argued that it should be entitled to enhancedcosts due to TDL attaching the wrong retainer letter to the expert Druett Report. Once the actual retainer letter was discovered, SALasserted it was required to make an application to have the letter be made an exhibit, upon TDL’s refusal.

Importantly, the actual retainerletter had explicit instructions which weakened the expert’s report, for which SAL receives compensation due to its resulting victory. While this may be a valid consideration when assessing whether enhanced costs are warranted, it is normally, absent further evidencenot present here, included within the costs of victory. Moreover, it again balances out with other counter-considerations raised by TDL. C.

Specific Comments with Respect of the Submissions of TDL [39] Where matters have been addressed in TDL’s argument, as well as Kon’s and SAL’s that have already been addressed above,they will not be repeated here. i.

Is TDL entitled to costs as against Kon and/or SAL? [40] This was substantially resolved above, but I will address some further arguments here – to the same result. [41] To start, TDL’s submission that “the focus of the trial was on [TDL’s] claim against Kon and [SAL]” is quite accurate.Moreover, that is the primary basis for costs in this case. [42] As mentioned above, while TDL alleged joint and several liability of SAL and Kon for the contrived overbilling, to whichSAL and Kon were found “jointly liable”, there was no award made by Justice Browne against SAL: see 2014 ABQB 256 at paras 11,197-199.

Rather, the Recalculated Billings in Kon’s claim was simply reduced 20% (the amount of the attempted contrivance) chargedat the 2005 rate: see 2014 ABQB 256 at para 126. [43] TDL argued that its claim against SAL “was not a counterclaim at all but a claim in the first instance”.

While that is true insubstance, I do not see how that statement can be maintained in a procedural sense, because the document is very specifically called a“counterclaim.” This is notwithstanding the fact that there was no original claim by SAL against TDL, but rather this separate claim wasadded (procedurally inappropriately?) by TDL against SAL by way of counterclaim rather than filing a separate action against SAL.Properly plead, TDL’s claim against SAL for, at least, all matters except perhaps the defence to Kon’s misrepresentation, should havebeen a separate action, although the two were interrelated and might well have, in such a case, been directed to be heard together.

Indeed,SAL’s involvement in the Kon misrepresentation should properly have been a Third Party claim by TDL against SAL. Moreover, therewere no allegations in either of TDL’s Statement of Defence or Counterclaim that claim a misrepresentation with respect to the billing.Rather, the only allegation that was made was by TDL against Kon for billing work not completed, which Justice Browne found was notthe case.

Nor can I determine that there was any allegation in the pleadings that SAL was a party to this misrepresentation,notwithstanding that this evidence was introduced at trial, with consequences that are clear. [44] In the result, TDL is incorrect in arguing there was success by TDL against SAL, justifying Column 1 costs to TDL againstSAL. While there was a finding of complicity, there was no award rendered to TDL against SAL of any kind.

Accordingly, TDL is notentitled to any costs against SAL. [45] Put another way, the only success TDL had at trial was in raising a defence to limit the quantum of Kon’s claim for payment

of its outstanding invoice. No award was made against Kon of any kind beyond the equitable set-off to its total claim. Thus, the result is merely that Kon gets costs based on the limit of its proven claim. In the circumstances, TDL would only have received costs against Kon if it had admitted or offered a settlement at the exact amount awarded to Kon at trial, which is not the case. Accordingly, TDL is not entitled to costs against Kon. [ 46 ] With respect to TDL’s claim against Kon for work not being performed, that was, as I said, specifically rejected by Justice Browne’s finding.

She held that the alleged inflated amounts of material had been actually delivered, but, the quantities and rates having been contrived, she penalized Kon by reducing the award by 20% and applying the 2005 rate in the end result. ii. Are there special circumstances warranting a departure from the general rules on costs? [ 47 ] TDL submits that inappropriate or careless pre-litigation conduct of a party can constitute a “special reason” to deprive a successful party of its own costs or deprive a party of double costs after service of a formal offer.

While this summarization of the law is accurate, its application to this case depends on the facts. Therefore, for the reasons that follow, I do not find it warrants depriving the successful parties of their own costs or double costs. However, as noted above, I find that several of TDL’s arguments effectively counter or balance against the other parties’ submissions for enhanced costs. [ 48 ] TDL takes issue with the formal offer being made two months before the trial commenced, despite litigation commencing in 2007.

I find no problem with the formal offer being made only after all of the facts were known prior to trial, as it was still made more than 10 days prior to the start of the trial, in accordance with r 4.24(1). More directly, one would not expect to make a formal offer until all facts were known. [ 49 ] TDL also alleged that both Kon and SAL carelessly or inappropriately refused to admit matters contained in Notices to Admit Facts (which were only filed by TDL after the Form 37 was filed in April 2012 according to Kon’s reply argument), requiring TDL to prove them at trial.

These matters were subsequently established by TDL at trial. This may , in fact, be the result in the normal case.

However, I find here that this consideration merely offsets other arguments with respect to enhanced costs, rather than one that warrants depriving the other parties of their own costs, double costs, or awarding off-setting costs. [ 50 ] Further in support of this result, while certain facts related to the Notice to Admit Facts were in fact proved by TDL at trial, I note that SAL’s initial denial was based on the assertion that there were off-setting facts to those in the Notice that needed to be proved at trial but where not admitted.

In other words, as I interpret the argument, SAL was saying that all of the facts between the parties needed to tried at trial and it was not prepared to admit one while leaving the others open for argument. This may not be a justification for not admitting the facts sought to be admitted, and might normally justify off-setting costs, but I choose to have them to go into the off-setting mix. [ 51 ] Having said that, the answer in SAL’s Reply to the Notice to Admit relating to what the 2006 unit prices were referring to was, at best, disingenuous.

While there is normally an off-setting of costs for failing to admit the contents of Notices to Admit Facts, there is no evidence before the Court that any additional actual expense was incurred by TDL in proving these facts. [ 52 ] In the end result, as I say, this argument goes “into the mix” of the various pieces of conduct during the course of the trial that offset each other such that there should be, in my view, no justification of awarding enhanced (or credit against) costs for or against any party. [ 53 ] TDL also argued that SAL acted in a fiduciary capacity to TDL, given the agency relationship between the two, and that any pre-suit conduct amounting to breach of fiduciary duty or fraud as between the two, entitling TDL to its costs.

However, Justice Browne made no findings that SAL was guilty of fraud or that it was in breach of fiduciary duty. The Court merely found that it was complicit in the misrepresentations with respect to the billing process.

This finding, rather than a finding of fraud or breach of fiduciary duty, and the total conclusion that SAL was not negligent, is not an independent matter for which TDL is entitled to costs. [ 54 ] TDL also submitted that SAL produced a subsequent lengthy Affidavit of Records after the trial had commenced and once cross-examination of Kon’s witness was in progress, amounting to a “trial by ambush”.

While the emails in the Affidavit of Records were provided at a very late time, all of the substantive documents appear to have been disclosed in advance and there is no evidence of any real prejudice caused to TDL. [ 55 ] Having rejected Kon’s claim for enhanced costs due to the allegation that TDL’s Counsel extended the trial, I do not need to respond to arguments TDL raised in defence of that claim. iii. Are there issues with the other parties’ Bills of Costs? [ 56 ] TDL takes issue with the fact that both parties’ Bills of Costs do not distinguish between items 5(2) and 5(3) of

Schedule C. These matters can be agreed to by Counsel or assessed by the Assessment Officer. They seem not particularly in dispute, but if a minor mistake has been made, it should be corrected by Counsel without further costs.

If there remains an issue that needs a further specific judicial decision, the parties can come back to the Court with future costs at risk – e.g. with their “costs cheque book in hand”. [ 57 ] Regarding SAL’s total fees for its expert witness’ attendance at trial without testifying, expert fees can be (and I find here are) proper disbursements, even where the expert does not provide evidence at trial, so long as the expense was reasonable and proper in the light of the circumstances which existed at the time the expert was retained and continued: see Patterson v Hryciuk , 2005 ABQB 136 at paras 57-59 , 45 Alta LR (4th) 240; see also Forsberg v Naidoo , 2011 ABQB 705 at paras 19-23 , 525 AR 65.

Given the claim’s complexity, I find it was reasonable to retain the expert in this case and have him attend trial. Moreover, expert witnesses in this context, in addition to doing an expert report and testifying, are often there to assist counsel in cross-examination. Finally, a last minute decision

not to call an expert (or any) witness, due to the perceived strength of one’s case at that point in a trial, should not disentitle one for the costs incurred in having that witness, otherwise proper, in attendance. I therefore do not see any particular issue with the amount SAL seeks for reimbursement. III. Conclusion [ 58 ] For these Reasons, I award costs as set out in the Decision attached as Appendix “A”. Any matters raised by Counsel in their briefs, but not specifically addressed above, were reviewed but I have chosen not to address them in these Reasons.

Nevertheless, if, due to inadvertence, there is any matter which requires further judicial determination, the parties can apply. [ 59 ] Furthermore, Kon and SAL are entitled to a single set (not double) of costs with respect to their arguments on costs under Column 4, as the majority of trial (and cost arguments therefrom) related to TDL’s counterclaim against Kon and SAL, for which the latter two were wholly successful. Dated at the City of Edmonton, Alberta this 4th day of November 2014. J.D. Rooke A.C.J.C.Q.B.A. Appearances: Matt A. Pruski for Kon Construction Ltd Carmen L.

Plante for Terranova Developments Ltd Sigurd Delblanc for Scheffer Andrew Ltd