Substantial Indemnity Costs in the Context of Liens
Constructive Thoughts Newsletter
August 2023 - 4 min read
Parties to construction contracts should be attentive to the potential for substantial indemnity costs in lien proceedings, recognizing the significance of recoverable litigation costs. The courts have the authority to award costs on a substantial indemnity basis when certain criteria are met, based on factors like breach of contract, refusal to pay as promised, and unsubstantiated claims.
Recoverable costs in litigation are always a concern, given how expensive protracted, contested litigation can be. A common question is whether a party can recover all or substantially all the incurred fees.
The Court in Benoit Const. v. Bawa and Hard at Work considered how s. 86(1) of the Ontario Construction Act provides the ability to award costs throughout lien proceedings on a substantial indemnity basis. Similar, but not identical, language is found in the Alberta Prompt Payment and Construction Lien Act, and the Ontario decision provides helpful guidance on when enhanced costs may be warranted in other Provinces and Territories.
Benoit Construction performed framing and general construction work on a luxury residential home for Hard at Work. Benoit was unpaid and commenced a claim for damages. Hard at Work counterclaimed. Benoit was successful at trial, obtaining a judgment against Hard at Work for $144,950.91 plus interest.
Hard at Work’s counterclaim for $125,000 was dismissed at trial. Before the trial, Benoit made a settlement offer for $75,000 plus $15,000 in costs, which was not accepted. As such, Benoit had bested its own settlement offer.
The parties could not agree on Benoit’s costs entitlement, and the parties returned to court to resolve the issue.
Court Decision on Costs
The Court established the legislative framework governing costs awards in Ontario, particularly for lien actions.
For costs generally, under the Ontario Rules of Civil Procedure, proportionality, the conduct of the parties and the expectation of the losing party as to their liability for costs are considered in a cost ruling. Under the Courts of Justice Act, the costs of and incidental to a proceeding or step in a proceeding are at the court’s discretion.
Specific to lien claims, s. 86(1) of the Construction Act gives the Court authority to award costs throughout the proceedings on a “substantial indemnity basis.”
Here, Hard at Work:
- breached its contract with Benoit;
- refused to pay Benoit what was promised; and
- submitted an unsubstantiated counterclaim based upon unproven facts at trial.
Benoit sought its full solicitor-client costs of $228,826.01 plus $6,500 for cost submissions (approximately 1.5 times the judgment awarded to Benoit). Hard at Work noted that its legal fees totalled $127,398.18; on that basis, the amounts charged and claimed by Benoit were excessive. It argued that Benoit’s costs entitlement should be $89,000.
The Court held that Benoit was not entitled to its full solicitor-client costs but was entitled to costs on a substantial indemnity basis. The Court found this was the appropriate costs award based on proportionality and reasonableness. The Court noted that Hard at Work’s conduct in its dealings with Benoit forced the claim forward and lengthened and complicated the proceedings at trial. Further, Benoit bested an offer to settle.
However, while these facts were “extremely close to warranting costs on a complete indemnity basis,” the Court concluded that full solicitor-client costs were not appropriate. There was no evidence of any intent to mislead the court by Hard at Work’s principals, but there was evidence of acts of bad faith and unfair dealing. As such, costs on a substantial indemnity basis for the entirety of the file were found to be appropriate.
In calculating the costs award, the Court analyzed the Bill of Costs provided by Benoit and reduced the amounts sought based on duplication. From there, the Court awarded 80% of the remaining costs, plus $1,000 for cost submissions, for a total costs award of $120,852.01 – over 80% of the judgment amount.
Applicability in Alberta
In Alberta, s. 69 of the Prompt Payment and Construction Lien Act is similar to s. 86(1) of the Ontario Construction Act. While s. 69 does not specify that the Court may award costs on a substantial indemnity basis, it provides that the Court may “order the owner and contractor, or either of them, to pay all the costs of the proceedings.”
Alberta courts have held that s. 69 does not provide full solicitor-client costs entitlement. Instead, it can be used to award enhanced costs “approaching the true costs of the litigation” (see ILI’s Painting Services Ltd v Homes by Bellia Inc at para 39). In other words, it enables the Court to award costs on a substantial indemnity basis.
While costs awards are always discretionary, the Benoit decision confirms that a court may award costs on a substantial indemnity basis in lien actions, even when those costs approach the amount of judgment awarded. Given the costs of litigation, and the general purpose of lien actions to be dealt with expeditiously, this provides some comfort that successful lien claimants will receive a large portion of their legal costs in obtaining judgment.
For any questions regarding lien claims or costs awards generally, contact Anthony Burden in Calgary, Ryan Krushelnitzky in Edmonton, or any member of Field Law’s Construction Group.
Link to decision: Benoit Const. v. Bawa and Hard at Work, 2023 ONSC 4239
Special thanks to Jason Ramsoondar, Field Law Summer Student, for assistance authoring this article.