2010 NLCA 31, 2010 NLCA 31

Date: 20100504 Docket: 08/53 Citation: 2010 NLCA 31 IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR COURT OF APPEAL BETWEEN : DAVID CABLE FIRST APPELLANT AND : FRANCES CABLE SECOND APPELLANT AND : CIBC MORTGAGES INC. FIRST RESPONDENT AND : E. J. DALTON SECOND RESPONDENT AND : E. J. DALTON THIRD PARTY Coram: Cameron, Harrington and White, JJ.A. Court Appealed From: Supreme Court of Newfoundland and Labrador 200 001T2405 Appeal Heard: April 16, 2010 Judgment Rendered: May 4, 2010 Reasons for Judgment by Cameron, J.A. Concurred in by White and Harrington, JJ.A.

Counsel for the First Appellant: Self Represented Counsel for the Second Appellant: Self Represented Counsel for the First Respondent: John B. French and Andrea L. Murphy

No one appearing for E. J. Dalton Cameron, J.A.: [ 1 ] This is the second of two appeals arising out of the same two actions, which were consolidated for trial. A decision on the merits of the claims and counterclaims (the first decision) was filed by the trial judge in 2007: CIBC Mortgages Inc. v. Cable (2007), 2007 NLTD 159 (CanLII) , 273 Nfld. & P.E.I.R. 97. The history of the dealings between the parties is recounted in that decision. A claim by the first respondent for the deficiency after the sale of the appellants’ property was abandoned after three days of trial. The claim and counterclaim of Mr. and Mrs.

Cable, grounded in negligence and breach of a duty of good faith, were dismissed and orders were made for the payment of costs. The order reflecting the first decision was appealed (the first appeal). The first appeal was dismissed: CIBC Mortgages Inc. v. Cable (2008), 2008 NLCA 63 (CanLII) , 282 Nfld. & P.E.I.R. 92; 2008 NLCA 63, leave to appeal to Supreme Court of Canada denied, [2009] S.C.C.A.

No. 91. [ 2 ] Subsequent to the filing of the first appeal but before the first appeal was heard, an application by the first respondent for an order for costs pursuant to Rule 20A of the Rules of the Supreme Court of Newfoundland , 1986 was heard by the trial judge. He awarded CIBC Mortgage Inc. (CMI) costs, on a solicitor and client basis, from the date of the first formal offer to settle: CIBC Mortgages Inc. v. Cable , (2008) 2008 NLTD 104 (CanLII) , 286 Nfld. & P.E.I.R. 143.

This is an appeal from the order on the Rule 20A.08 application. [ 3 ] The second respondent (Third Party) did not participate in this appeal. He was not a party to the offers of settlement. No one having appeared for the second respondent and no submissions having been made on his behalf, this appeal does not address any award of costs to the second respondent. [ 4 ] The first order of the trial judge provided, in part, that: 3.

David and Frances Cable be entitled to costs on a party and party basis as against CIBC Mortgage Inc. up to the withdrawal of CIBC Mortgage Inc. of its claim and counterclaim for a deficiency as against David and Frances Cable. These costs are limited, however, to only those aspects of costs related to defending against the deficiency claim and not in any way related to actions for aggravated, punitive or exemplary damages; … 5.

CIBC Mortgage Inc. be entitled to the costs of this action as against David and Frances Cable on a party and party basis, save and except for those costs related to the pursuit of CIBC Mortgage Inc.’s deficiency claim as against David and Frances Cable. This order was consistent with the reasonable expectation that a successful party is entitled to his or her costs. It gave the Cables costs related to the claim for deficiency, up to the point where CMI abandoned that claim. CMI was awarded its costs respecting the Cables’ unsuccessful action against it.

In other words, CMI and the Cables were unsuccessful in their respective claims and the first order of the trial judge reflected that fact. [ 5 ] The order following the application pursuant to Rule 20A provided, in part: 2. CIBC Mortgages Inc. be entitled to recover its costs as against David Cable and Frances Cable from the date of the first formal offer to settle, being July 25, 2005 on a solicitor and client basis; 3. … 4. CIBC Mortgages Inc and the Estate of E.J. Dalton be entitled to their respective costs on the within Application on a party and party basis.

It is from this order that the Cables now appeal. [ 6 ] CMI concedes that the trial judge erred in his application of Rule 20A.08 and, therefore, the appeal should be allowed. The trial judge proceeded under Rule 20A.08 (2). That was an error. Where the plaintiff to whom an offer has been made does not obtain a judgment in his or her favour, Rule 20A.08 (2) has no application. However, under Rule 20A.10 the existence of an offer for settlement may be considered in circumstances where Rule 20A.08 is not applicable: Rowe (Guardian ad litem of) v. Sears Canada , 2005 NLCA 65 .

The issue becomes what is the appropriate remedy in these circumstances. Before turning to that point, however, I shall address certain submissions of CMI relevant to whether there are any limits on the discretion of this Court in dealing with costs as between CMI and Mr. and Mrs. Cable. [ 7 ] I am not persuaded by the argument of CMI that the question of costs is now, in large part, res judicata .

The operative part of the Rule 20A order of the trial judge says that: CIBC Mortgages Inc. be entitled to recover its costs as against David Cable and Frances Cable from the date of the first formal offer to settle, being July 25, 2005 on a solicitor and client basis; [ 8 ] CMI submits that, because the order deals only with costs after the offer of settlement, the first order must survive as regards other aspects of costs and it is res judicata , by virtue of the decision of this Court on the first appeal. I do not accept this position. The order appealed from was said to be made under Rule 20A.08 (2).

That Rule states: Unless ordered otherwise, when an offer to settle was made by a defendant at least seven days before the commencement of the trial or hearing of the proceeding and was not revoked or accepted prior to commencement of the trial or hearing, and where the plaintiff obtains

a judgment no more favourable than the terms of the offer to settle, the plaintiff shall be entitled only to party and party costs plus taxed disbursements to the date of service of the offer to settle, and the defendant shall be entitled to taxed disbursements plus, from the date of service of the offer to settle, costs on a party and party or some other greater basis as the judge deems appropriate. [ 9 ] It is clear that if the specified criteria are met, unless the trial judge orders otherwise, the order which is to be made relates to costs both before and after an offer of settlement.

The omission from the decision of the trial judge, and the formal order, of a determination as to costs before the offer of settlement does not revive the earlier order for costs. It is merely a defect in the order of the trial judge which might have been corrected on an application to the Trial Division or be dealt with on this appeal, if Rule 20A.08 (2) were applicable. I would note also that Rule 20A.08 (4) would have given the trial judge discretion to preserve aspects of the first order of costs but he made no reference to preserving any aspect of the earlier order when disposing of the Rule 20A application.

In the absence of a statement otherwise, Rule 20A.08 (4) [1] results in the second order replacing the first by “deemed replacement”. [ 10 ] It is true that the notice of appeal in the first appeal raised the question of costs. However, prior to the hearing of that appeal: (1) the application under Rule 20A.08 had been made, thereby suspending the original order regarding costs and resulting in it being of no force and effect; and (2) that application had been determined by the trial judge, thereby replacing the original order with the one under 20A.08 (Rule 20.08 (4)).

Further, the notice of appeal from the Rule 20A.08 order had been filed. Consequently, when the first appeal was heard by this Court it was clear that the questions related to costs would be dealt with in the context of this appeal, the order as to costs made in 2007 having been replaced. The only issue of costs addressed on the first appeal was the costs on the appeal itself. [ 11 ] The powers of this Court on appeal include the power to set aside an order and make an order which might have been made by the court appealed from: Rule 57.23(1).

I would add, as was made clear to the appellants during the hearing, this power is limited to that which is necessary to deal with the matters at issue in this appeal. Questions dealt with by this Court on the first appeal are res judicata . This Court has no jurisdiction to revisit them when dealing with the issue of costs. The appropriate course of action in this case is for this Court to make an order which might have been made in the court appealed from (the Trial Division). This must be done on the basis of the facts as found by the trial judge. [ 12 ] Before this Court, Mr. and Mrs.

Cable argue that they should be awarded costs on a solicitor client basis, though they were not successful in their action against CMI. In the factum filed on their behalf, by a solicitor who represented them at an earlier point, their request was for an order for costs, which I interpret to be party and party costs, there being no statement otherwise.

There was an alternative submission made in the appellants’ factum: they should be awarded costs related to the claim for deficiency, up to the point where it was abandoned by CMI, and thereafter CMI should be deprived of the costs which might be awarded to a successful litigant. [ 13 ] I agree with the trial judge that the appellants are entitled to their costs related to the defence of the claim for the deficiency, which was abandoned during the trial.

I shall return to the question of the basis upon which costs should have been awarded. [ 14 ] The first question, which arises by implication in the request of the appellants for solicitor client costs against CMI, is: should CMI, the successful defendant in the Cables’ action, be deprived of its costs? [ 15 ] Rule 55.03(1) states: 55.03.

(1) Unless the Court otherwise orders, the costs of a proceeding or of any issue of fact or law therein shall follow the event. However, as this Court has noted, because costs are always in the discretion of the court a successful litigant can never be said to have a “right” to costs. Rather, in the absence of special circumstances, all he has is a reasonable expectation of obtaining an order for the payment of costs: Portugal Cove-St. Phillips (Town) v. Willcott (1997), 1997 CanLII 14702 (NL CA) , 150 Nfld. & P.E.I.R. 183, para. 40 . The discretion of the court is expressed in the opening words of Rule 55.03.

There must be a principled reason, however, to depart from the general rule: Moakler v. Conception Bay South (Town) , 2006 NLCA 72 , para. 35 . [ 16 ] In Fraser v. Westminer , 2005 NSCA 27 , the Nova Scotia Court of Appeal upheld the trial judge’s denial of costs to the successful party. Justice Hamilton for the majority said: 34 The corporate appellants have not provided us with any specific cases supporting its argument that there must be almost abusive or reprehensible conduct before there can be costs sanctions. Rather it refers us to Orkin, supra , s. 205.2(2). That

section refers to many cases where costs have been denied in many different factual circumstances, for example, if a person has been guilty of reprehensible, or dishonest and criminal conduct, of unfair dealings, or has engaged in unnecessarily harsh proceedings. On the other hand, it also refers to cases where costs have been denied where a party failed to proceed promptly, prolonged the trial by calling unnecessary witnesses, behaved unreasonably during or leading up to litigation, introduced irrelevant evidence and made an unduly long argument or advanced an unmeritorious claim.

What these cases suggest is that a trial judge has a broad discretion to decide what actions merit costs consequences, not that the action must almost amount to an abuse of process. [ 17 ] In my view the behaviour of CMI is such that it should be deprived of its costs, in spite of an offer of settlement to the Cables. When one examines the Statement of Claim of the Cables it is clear that it was the failure of CMI to properly deal with the appraisal of the property before sale which was the basis of the claim by Mr. and Mrs. Cable.

The award of costs to the Cables to the point of the withdrawal of the deficiency claim (after the trial had begun) does not adequately deal with the CMI’s conduct being the root of the problem. In addition, early efforts by Mr. and Mrs. Cable to resolve the problem were rebuffed by persons who said they had no authority to deal with the issue or ignored by those who did. [ 18 ] The next question is whether there is any basis on which an award of costs should be made against CMI which was successful at trial, having abandoned its claim for the deficiency.

If costs should be awarded the question then becomes on what basis. [ 19 ] In Winter v. Newfoundland and Labrador (Minister of Health) et al. (2005), 2005 NLCA 66 (CanLII) , 251 Nfld. & P.E.I.R. 322; 2005 NLCA 66, I summarized the options on costs as follows: 13. Generally costs follow the event and they are taxed on a party and party basis (rule 55.03 and rule 55.04). The courts, however,

have the discretion to order otherwise (

Section 53 of the Judicature Act , RSNL 1990, c. J-4 and rule 55.02). That discretion must be exercised judicially, on the basis of principle. Leaving aside … the application of Rule 20A, directed to offers to settle, generally it can be said that there are three variations from awarding costs to the successful party on a party and party basis.

Those are: the successful party obtains costs on a greater than party and party basis; the successful party is denied costs; or the successful party is denied costs and, in addition, he or she is ordered to pay costs to an unsuccessful party on a party and party or some greater basis. The last of these was considered by this Court in Dorset Seafoods Ltd. v. Registrar of Companies (1988), 1988 CanLII 4459 (NL CA) , 69 Nfld. & P.E.I.R. 105 and in Holloway v. Holloway (2001), 2001 NFCA 17 (CanLII) , 199 Nfld. & P.E.I.R. 1. In Holloway , the decision of the Court turned on the application of rule 55.14(1).

However, Holloway does not preclude the application of common law principles in the exercise of the discretion, the existence of which is confirmed by Rule 55 itself. … [ 20 ] In Holloway v. Holloway (2001), 2001 NFCA 17 (CanLII) , 199 Nfld. & P.E.I.R. 1, this Court approved of the following, from Petten et al. v. E.Y.E.

Marine Consultants et al. (1998), 1998 CanLII 18739 (NL SC) , 179 Nfld. & P.E.I.R. 94, at para. 158 , regarding the basis upon which an order for solicitor and client costs might be awarded. 158 Such considerations must be balanced against the understandable desire not to let the system be subverted for improper purposes. Litigants already operate with the Damoclean sword of a potential adverse award of party and party costs hanging over their heads.

The threat of an additional award of special costs, unless judiciously applied, may well have the effect of driving litigants from the courtroom or dampening the efforts of counsel in the fearless pursuit of the client's interests.

This is the theme underlying Young , where McLachlin, J. spoke against such costs awards against parties even where the claims had "little merit" and warned against placing the lawyer in a situation "where his or her fear of an adverse order of costs may conflict with ... fundamental duties of his or her calling." That is why it is not inappropriate to set the threshold high and generally to limit awards of solicitor-client costs to events which can attract the types of descriptions discussed earlier in this decision: scandalous, outrageous, reprehensible, deserving of reproof or rebuke, bad faith, serious misconduct, flagrant acts meriting censure, acting on improper motives, serious dereliction of duty and gross neglect - conduct bordering on abuse of the court and its process, not merely negligence or mistake in bona fide assuming a case has some merit when in fact it does not.

It is at that point where the scales tip in favour of using costs more aggressively because, then, it can fairly be said that the other side has abused the privilege of easy access to the system and should no longer be entitled to that privilege without having to compensate fully the other party affected, or without having to risk the censure of the court. [ 21 ] The appellants list a number of factors cited by the trial judge which could be said to be critical of the behaviour of CMI.

These relate to the manner of the conduct of the sale of the Cables’ property and the pursuit of the deficiency and to the conduct of various CMI employees or representatives in their dealings with Mr. and Mrs. Cable. The difficulties identified by the trial judge relate, in large part, to CMI’s uncritical acceptance of an appraisal done at the time of the exercise of the power of sale, which appraisal was significantly different than the one CMI had relied on to give the loan approximately two years before.

The unquestioned acceptance of this appraisal led to an undervaluing of the Cables’ property at the time of the sale. The trial judge held, however, that the arrears owed by the Cables, plus fees and disbursements related to the mortgage sale were in excess of the true value of the property and, therefore, in light of the abandonment of the claim for deficiencies, the Cables suffered no damage from the exercise of the power of sale.

I should note as well that the trial judge rejected the Cables’ submissions that they were not in arrears at the time of the sale of their property. [ 22 ] When one boils this case down to essential features, it was the very behaviour which made the action for the deficiency so problematic for CMI which formed the basis of the Cables’ action against CMI – the preparation by Mr. Dalton of his appraisal and its acceptance without question by all involved at CMI and their solicitors. Essentially, the trial judge found that the abandonment of the action for the deficiency was an effective remedy for the Cables.

He also found that though the acceptance of an appraisal, which was suspect, was not done with sufficient caution he was satisfied that it was not done in any highhanded or callous manner. Other failures of communication with the Cables the trial judge found to amount to poor customer relations. The trial judge also found the actions of the Cables to be wanting. For example, he cited the transfer of property by the Cables to protect it from the claims of creditors, including CMI.

It should be noted that the Cables’ early efforts to try to resolve their problem with CMI was frustrated by the inability of any one at the CIBC branch to deal with mortgages which were in arrears and the unresponsiveness of the collection centre dealing with the file. [ 23 ] I have not been satisfied that the conduct of CMI met the high threshold warranting an award of solicitor costs against it. The trial judge’s findings of fact, including that CMI’s acceptance of the impugned appraisal was not done in a highhanded or callous manner, do not support costs on a solicitor client basis.

Nor am I satisfied that the necessary misconduct which would result in an award of costs against CMI on a party and party basis is present. [ 24 ] Finally, the appellants having been successful on this appeal are entitled to their taxed costs on this appeal, on a party and party basis, here and in the Trial Division. [ 25 ] In

summary, the appellants shall be entitled to their costs on a party and party basis as against CIBC Mortgages Inc. up to the withdrawal by CIBC Mortgages Inc. of its claim and counterclaim for a deficiency as against the appellants.

These costs are limited to those aspects of costs related to defending against the deficiency claim and not in any way related to their actions for aggravated, punitive or exemplary damages. [ 26 ] CIBC Mortgages Inc. shall not be entitled to any order for costs. [ 27 ] In respect to the costs related to the Rule 20A application, the appellants, having been successful on appeal, shall be entitled to their costs on a party and party basis, here and in the Trial Division. [ 28 ] This decision does not disturb the order of this Court on the first appeal as it relates to costs. ________________________________ M. A.

Cameron, J.A.

I Concur: ____________________________ C. W. White, J.A. I Concur: ____________________________ M. F. Harrington, J.A.