PR CONSTRUCTION LTD v COLONY MANAGEMENT INC

This is a Costs decision following a lengthy and complex construction dispute that resulted in a 29-day Trial. PR Construction Ltd. (“PR Construction”) successfully obtained Judgment against Colony Management Inc. (“Colony”) and the Guarantee Company of North America (“GCNA”) for unpaid invoices and damages exceeding $8 million. Colony was largely unsuccessful in its Counterclaim which alleged breach of contract and conspiracy between the owner of PR Construction and Colony’s former project manager, Kevin Lacroix, who later joined PR Construction. Additionally, a Third-Party Claim made by Lacroix and his numbered company (collectively, the “Lacroix Parties”) was dismissed.

All parties sought Costs. PR Construction and its owner, who was a Defendant by Counterclaim, sought solicitor-client Costs against Colony and GCNA jointly and severally, for both the main action and the Counterclaim, including a second counsel fee, citing the scope and complexity of the litigation. The Lacroix Parties also sought solicitor-client Costs against Colony and GCNA at a rate of 75% of their legal fees, citing Colony and GCNA’s litigation conduct in making serious and ill-founded claims. Colony sought Column 5 Costs with a 2x multiplier against the Lacroix Parties, citing the complexity of the Action and alleged delays caused by the Lacroix Parties. Colony claimed it was substantially successful against the Lacroix Parties because their Third-Party Claim was dismissed and part of Colony’s Counterclaim against them was granted. GCNA claimed that the Trial Decision made it only liable to Colony for “tariff costs”, not solicitor-client Costs, and that it was not liable for any of the Lacroix Parties’ Costs because it was not a party to Colony’s Counterclaim.

Justice Friesen considered the general Costs principles pursuant to Rules 10.29, 10.31, and 10.33, emphasizing that Costs awards are discretionary and guided by proportionality, substantial success, and litigation conduct. The Court noted that solicitor-client Costs are rare and reserved for exceptional cases involving reprehensible or outrageous litigation conduct. Friesen J. emphasized that enhanced Costs may be awarded depending on circumstance and are often based on the Trial Judge’s “after-the-fact” assessment of the parties’ litigation conduct, including litigation misconduct and unsubstantiated allegations of fraud. Where a party has been successful on both the initial claim and a Counterclaim, generally the costs of the Counterclaim should reflect the amount of increase in costs of the initial proceedings because of the Counterclaim.

In applying these principals, the Court determined that PR Construction was substantially successful on its claim and in defending the Counterclaim and that the Lacroix Parties were substantially successful in defending against Colony’s allegations. Although Colony established some elements of its claim, its Counterclaim largely failed and added significantly to the duration and complexity of the Trial. Despite condemning Colony’s litigation conduct and finding that it was wholly unsuccessful on its claims of fraud and conspiracy, the Court did not find solicitor-client Costs to be a reasonable or proportionate award, especially considering the sizable award that PR Construction already received as the successful claimant. Rather, when considering the overall damages awarded, Justice Friesen determined that a 2x multiplier based on Column 5 of Schedule C would be a reasonable and proportionate consequence for the questionable litigation conduct of Colony.

Justice Friesen noted that courts have the discretion to award second counsel costs and found it appropriate to do so based on the factors as set out in Alberta Productions Corporation v Canada Lands Company CLC Limited, 2004 ABCA 25. Friesen J. also referred to Rule 4.29 because PR Construction disclosed that a formal offer to settle had been made to Colony, and claimed entitlement to double Costs on that basis. The Court noted that in order for double costs to be awarded pursuant to Rule 4.29, the formal offer to settle must represent a genuine compromise, and the judgment awarded must be equal to or greater than the formal offer, including interests and Costs. However, PR Construction conceded in a follow up letter that the double Costs rule was not engaged, as the post judgment interest that would have accumulated following the formal offer would not have resulted in a judgment exceeding the formal offer amount.

The Court found GCNA to be jointly and severally liable for any Costs payable to PR Construction and the Lacroix Parties because it joined forces with Colony early in the litigation process, working with the same law firm where both Colony and GCNA defended the claim and made allegations against the Lacroix Parties in the Counterclaim. Further, GCNA was not limited to the “tariff costs” as claimed because that sentence in the Trial Decision was directedly related to liability only, not litigation costs.

Justice Friesen awarded both PR Construction and the Lacroix Parties 2x Schedule C, Column 5 Costs as against Colony and GCNA, jointly, plus disbursements subject to certain exclusions. Lastly, the Court determined that the parties would bear their own costs in relation to the Lacroix Parties’ Counterclaim, a Summary Trial Application, and a mid-trial Non-suit Application.