Executive Summary: Key Legal and Evidentiary Issues

• The Respondents sought substantial indemnity costs following their successful defence of a lease termination application.
   
• Two unaccepted settlement offers factored into the court's decision to award elevated costs.
   
• Justice Somji considered the complexity and importance of the underlying lease dispute to the Respondents' businesses.
   
• Reasonableness of both parties' legal billings supported the costs sought.
   
• No misconduct was found on the part of either party during the proceedings.
   
• A fixed costs award of $20,000 was ultimately ordered against the Applicant.
   

Facts of the case

Parthenos Developments Ltd. applied to terminate a commercial lease held by 2599792 Ontario Inc. and Atef Ghali Medicine Professional Corporation and to require them to vacate the property. Justice Somji dismissed the application in the underlying decision, Parthenos Developments Ltd. v. 2599792 Ontario Inc. et al., 2026 ONSC 3128, finding that the Respondents had given the Applicant unequivocal notice of their intent to renew the lease, or alternatively, were entitled to relief from forfeiture. That decision entitled the Respondents to renew the lease for ten years at an increased rate of 5% or fair market value. This costs endorsement addresses the Respondents' request for elevated costs following that success. The Respondents sought substantial indemnity costs of $24,821.93, or alternatively partial indemnity costs of $16,715.60. The Applicant accepted the Respondents' entitlement to costs as the successful party but argued the award should be limited to partial indemnity.

Policy and legislative provisions at issue

Section 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43, gives courts broad discretion over costs awards and quantum. Rule 57.01(1) of the Rules of Civil Procedure sets out relevant factors, including counsel's experience and rates, amounts claimed and recovered, the importance and complexity of the issues, and the conduct of the parties. Rule 49.10 authorizes substantial indemnity costs where specified conditions tied to formal offers to settle are met, while Rule 49.13 permits the court to consider informal settlement offers, including their timing and terms, even outside the formal Rule 49 framework.

Reasoning and analysis

Justice Somji found that the Respondents' two email settlement offers, though not made in the prescribed Rule 49 form, warranted consideration toward an elevated costs award because they were made in good faith roughly eight months before the hearing and offered the Applicant terms equal to or better than the eventual judgment. The first offer, made April 11, 2025, proposed renewal at the escalated market rent the Applicant sought, while the second, dated June 8, 2025, proposed a shorter two-year renewal to give the Respondents time to relocate. On conduct, the court rejected the Applicant's argument that the Respondents' pre-litigation communications or their reliance on relief from forfeiture should reduce costs, noting it was the Applicant who commenced the proceeding and that the Respondents were entitled to raise available defences once sued. Citing North York Family Physicians Holdings Inc. v. 1482241 Ontario Limited, 2011 ONSC 3742, Justice Somji observed that relief from forfeiture does not preclude a costs award to the party who obtains it. The proceeding was described as moderately complex, involving disputed issues of lease renewal, uncertainty of the renewal option, and relief from forfeiture, and as highly important to the Respondents given the risk of closing a long-standing medical clinic and pharmacy. Comparing the parties' billings, the court found the Respondents' total costs of $27,524, inclusive of fees, disbursements, and HST, comparable to the Applicant's own fees of $22,899 for 63 hours, and found the Applicant's rate of $195 per hour and roughly 75 hours of work reasonable.

Ruling and overall outcome

Weighing the Respondents' success, the settlement offers, the complexity and importance of the issues, and the reasonableness of the billings on both sides, Justice Somji held that an elevated costs award was fair and reasonable. The Respondents, as the successful party, were awarded fixed costs of $20,000, inclusive of HST and disbursements, payable by the Applicant within 30 days.