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RECENT DEVELOPMENTS CONCERNING COSTS

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					RECENT DEVELOPMENTS CONCERNING COSTS

POWER J.

JANUARY 2004

2 Practice Direction Concerning Civil Appeals In The Court Of Appeal – Effective January 1, 2004 Among other things, this new direction replaces the January 1, 2003 Notice to the Profession regarding costs in the Court of Appeal. Counsel are directed to be ready to address all costs issues on the hearing of the Appeal or Motion. Counsel must prepare, and exchange, Bill of Costs up to the day before the argument and they are required to estimate the counsel fee for the hearing of the Appeal or Motion. If the Motion or Appeal is not disposed of from the bench, the successful party will be required to deliver a Bill of Costs and written submissions within seven (7) days of the release of the court’s decision. The other parties will have a further seven (7) days within which to respond and the successful party, if he/she/it wishes to reply, has an additional three (3) days to do so. The Appropriate Scale The general rule continues to be that costs on a substantial indemnity basis should not be awarded unless special grounds exit to justify a departure from the partial indemnity scale. Such orders are not to be made by way of damages or on the view that the award of damages should reach the plaintiff intact. Such orders are also inappropriate where there has been no wrongdoing. Mortimer et al v. Cameron et al, [1994] O.J. No. 277 (C.A.)

3 Recent authorities have held that the failure of a defendant to admit liability and force a plaintiff to go through protracted proceeds and to prove liability where there is no realistic defence may justify an award of costs on a substantial indemnity basis. In some reasonably narrow circumstances, Offers to Settle that do not comply with Rule 49.10 can be used to justify an award on a substantial indemnity basis. There is, however, room for ameliorating the strict requirement of Rule 49.10 through the Rule 49.13 discretion. The simple refusal, with no other relevant facts, of the defendant to make an offer, does not provide a sufficient ground for an award of costs on a substantial indemnity basis. Failure to make an advance payment where there is little doubt about liability in personal injury litigation where the failure amounts to more than just playing “hardball” has been held to justify the higher award. (See Banihashem-Bakhtiari v. Axes

Investments Inc., [2003] O.J. No. 3071, (Sup.Ct.) (Lane, J.)) Lane J., in Hodgson v. Canadian Newspapers Co., [2003] O.J. No. 2760, (Sup.Ct.), at para. 19(a) of his decision said: …there is no obligation to settle, a party is entitled to take his case to trial. As in Mortimer, so here, the defendant’s failure to make a reasonable offer does not, of itself, warrant an award on the higher scale, but it is a factor. Where, as here, the only offer was derisory, in effect an invitation to capitulate, it is fair to treat the defendants as having made no offer at all.

In determining to award costs on the higher scale, Lane J. relied on, among other things, the fact that the evidence of the defendants at trial was unreliable.

4 Retroactivity – Pre-Grid Work The general rule is that the Costs Grid applies to costs incurred prior to its coming into effect unless strict compliance will give rise to serious consequences or be highly prejudicial. Canadian Broadcasting Corp. Pension Plan (Trustee of) v. BF Realty Holdings Ltd., [2002] O.J. No. 4313 (C.A.); Canadian Universities’ Reciprocal Insurance v. Halwell Mutual Insurance Co., [2002] O.J. No. 4406 (C.A.); Kinbauri Gold Corp. v. IAMGOLD African Mining Gold Corp., [2003] O.J. No. 2855 (Sup.Ct); Hodgson v. Canadian Newspapers Co., supra – Lane J. noted that, since he awarded costs in 1998, the costs should be assessed under the regime then in force. Aviaco International Leasing, Inc. v. Boeing Canada Inc., [2003] O.J. No. 4876 (Sup.Ct.) Premiums There have been several recent decisions in which substantial premiums have been awarded, especially in circumstances where the successful party’s law firm has carried the case for a long period of time; i.e., has assumed responsibility for disbursements and has billed little or nothing during the course of the litigation. The

5 theory is that the possibility of an award of a premium gives lawyers an economic incentive to take on risky, but otherwise meritorious, litigation and to do it well. It has been said that the granting of a premium can enhance access to justice. In Banihashem-Bakhtiari, supra, Lane J. allowed a premium of $350,000 on the basis that, that amount represented the costs incurred by the plaintiffs’ law firm in carrying the action without interim payments. I note that Lane J. also included an “Aging Factor”. It seems to me that where an aging factor is taken into consideration and where costs are awarded on the higher scale, the granting of the premium involves some duplication. In addition, a question arises, in my opinion, with respect to whether the court has jurisdiction to grant a premium in situations where, as a result, the “up-to” maximum amounts contained in the Costs Grid are exceeded. Lane J. does note the jurisdictional issue in paragraph 36 of his decision where he says: In the case of a fixing of substantial indemnity costs, my function is to achieve substantial indemnity for the party for his actual solicitor's bill, subject to the limits in the tariff and except for charges judged not to be reasonably necessary for the preparation and presentation of the client's case, [See Note 21 below] or beyond the reasonable scope of the litigation. Formerly, solicitor and client costs were to be in the nature of a full indemnity. [See Note 22 below] The Rules Committee adopted the term "substantial indemnity" rather than "full indemnity" and, in light of the maximums established in the grid, substantial indemnity costs will not be full indemnification for a client whose solicitors actually charge more than the maximums. It does not appear to me that there is any authority to increase the grid maximums to achieve full indemnity. Costs are in the discretion of the court, but subject to the Rules [See Note 23 below]. Rule 57.01(3) requires the court to fix costs in accordance with Rule 57.01(1) and the Tariffs, of which the grid is part. While the Tariff has been said to be essentially irrelevant where the assessment is between the parties but on a solicitor and client basis [See Note 24 below], this cannot be true of the grid, which specifically sets the parameters for solicitors' fees on the substantial indemnity costs basis. However, there is no reason why it cannot still remain true as to the rest of the Tariff. I will deal with specific instances as I work through the bill.

6 Quinn J. awarded a premium of $150,000 in Dybongco-Rimando Estate v. Lee, [2003] O.J. No. 534 (Sup.Ct.). Even though Rule 49 came into play, he held that a premium may be allowed where it arises from the risk and/or the result of the litigation rather than from a retainer agreement. In Hodgson v. Canadian Newspaper Co., supra, Lane J. reduced a request for a premium from $120,000 to $95,000. In Tsai v. Dylex Ltd. (c.o.b. Bi-Way Stores), [2003] O.J. No. 4189, (Sup.Ct.) Sanderson J. said: [3] Counsel for the Defendants submitted that in light of the dismissal of the Plaintiff's claim, the Defendants are entitled, at a minimum, to partial indemnity costs throughout the action pursuant to Rule 49. He submitted that I should exercise my discretion, under Rule 49(10), to order Mr. Tsai to pay its costs on a substantial indemnity scale due to Mr. Tsai's conduct in the course of this litigation. He submitted the defence was more difficult and lengthier by Mr. Tsai's personal attacks on counsel. Mr. Tsai reported defence counsel to the Law Society of Upper Canada. He reported defence counsel, the Defendants and their insurers to the Ontario Human Rights Commission. He copied vitriolic letters about counsel and the Defendants to Premier Mike Harris, Lieutenant Governor Hillary Weston, Law Society Treasurers Strosberg and Krishna and MP Monte Kwinter, among others. He subjected the defence's medical experts Dr. Hugh Cameron and Dr. Ezra Silverstein to complaints to their professional bodies. Conduct such as Mr. Tsai's should be deterred by the courts through the making of a costs order on a substantial indemnity scale.

The Court of Appeal, in a majority judgment, in Christian Brothers of Ireland in Canada (Re), [2003] O.J. No. 4249, awarded a premium late last year of nearly $500,000 in part due to its success in the proceeding and in part for the law firm’s assumption of the risk of non-payment of its fees. WeirFoulds, the law firm in question, calculated the

7 premium by increasing the rate of its lead counsel from $400 to $675 per hour pursuant to an agreement with its client. Counsel Fee Where More Than One Counsel Appears On Behalf Of The Successful Party? Nordheimer J. deals with this issue in Aviaco International Leasing, Inc. v. Boeing Canada Inc., supra. He observes that the Costs Grid refers to “counsel fee” and does not contain any express allowance for a second, or junior, counsel fee as did the former Tariff A. In addition, he notes that the Grid uses the term “up to” which suggests a limit on the amount that can be awarded for a counsel fee. However, according to Nordheimer J., there exist a residual discretion to depart from these limits in special circumstances. In Banihashem-Bakhtiari v. Axes Investments Inc., supra, Lane J. held that there is but one amount available under the Costs Grid for all counsel representing the same party. He held that the wording of the Tariff does not forbid the granting of a second counsel fee; however, the total allowable for counsel fee cannot be exceeded. In other words, the “up to” amount is the maximum amount that can be awarded for counsel fees to any single party.

However, the Court of Appeal in Delrina Corp. (c.o.b. Carolian Systems) v. Triolet Systems Inc., [2002] O.J. No. 3729, (Sup.Ct.), awarded multiple counsel fees which, in total, substantially exceeded the “up to” amount in the Grid.

8 Preparation For Trial During The Trial In Buchanan v. Geotel Communications Corp., [2002] O.J. No. 3063, (Sup.Ct.), Ferguson J. held that a party is entitled to indemnification for counsel’s preparation time during a trial in addition to the counsel fee for attending in court. There are, however, authorities to the contrary. Lane J., in Banihashem-Bakhtiari v. Axes Investments Inc., supra, had the following to say at paragraphs 48-49 about this issue and multiple counsel:

[48] This conclusion is supported by certain characteristics of the counsel fee. First, it is per day and a day in trial court is normally about 5 to 6 hours maximum; indeed the tariff for motions and appeals both declare a half day to be two hours, although the trial tariff does not. If the top hourly rate is $450, then a normal court day of, say, 5.5 hours, would be $2,475. Second, preparation for trial is not included in the counsel fee; it is specifically included among the matters to which the hourly rates are applicable. While the situation may differ on a partial indemnity costs basis, on a substantial indemnity costs basis the hourly rates are therefore applicable to the time spent in the evenings and weekends during the trial preparing for the following days. Third, even assuming that the intention was to be more generous for time actually spent at trial, there is clearly room for a fee for more than one counsel. Fourth, the length and complexity of trials have increased significantly in recent years and second counsel are now more frequently seen than in the past. It makes sense to provide for this development, and it appears that the tariff does so. Finally, the weekly rate represents a significant discount on the rate for five days, reflecting either the notion that there is some economy involved in spending an entire week at the same trial, as opposed to appearing in five one-day trials, or, perhaps more likely, an effort to keep the cost of litigation within a more manageable range. This reinforces the point that the sum is a maximum. [49] In the light of the above considerations, I can see no basis for refusing to allow fees for a second counsel in this case, but the fees should not be allowed at the docket rate. This is particularly so if the result would be to exceed the daily or weekly maximum. These considerations do not apply to students or law clerks for whom there is no separate rate for time at trial. The proportion of the maximum counsel fee actually awarded is governed by the same considerations as govern hourly rates. In my view the maximum is appropriate for the combination of Mr. Outerbridge and Ms. Sefton in the light of all the Rule 57 factors and other circumstances of the case. Counsel fees will therefore be awarded at $17,500 for each of

9 the three complete weeks and $4,000 daily for the 24 other days, for a total of $148,500. As noted, time spent on preparation during the trial is additional at the hourly rate. Trial attendance by law clerks and students is allowed at their hourly rates. (underlining mine) Greer J., in Feng v. Sung Estate, [2003] O.J. No. 4109, (Sup.Ct.), refused to compensate the successful party for additional hours worked following the time in court.

In Gorman v. Falardeau, [2003] O.J. No. 3317 (Sup.Ct.), Bolan J. dealt with this issue in the following fashion:

[6] The trial lasted 10 full days and two half days. Mr. Boland claims $2,300.00 for each full day - the highest amount of the grid. This amount is equivalent to approximately 6 1/2 hours at $350.00 an hour. I am mindful of the fact that in this case, considerable time was expended by counsel over and above the 6 1/2 hours allocated for actual trial time. Complex legal issues had to be addressed and it is not unreasonable to expect that counsel would have spent considerable time in the evenings preparing for the next day's work as well as final preparation of the numerous expert witnesses who testified on complex issues. I will accordingly allow $2,300.00 for each full day of trial and $1,500.00 per day for two 1/2 days at $1,500.00 each.

Flynn J., in Paonessa v. Burke, [2003] O.J. No. 4049, (Sup.Ct.), refused to allow, as a separate item, the hours worked in trial preparation during the trial. He considered this work in arriving at his assessment of the appropriate counsel fees to be awarded for the ensuing days in court.

Aging Factor

In Banihashem-Bakhtiari v. Axes Investments Inc., supra, Lane J. held that where legal fees are not paid on an ongoing basis, work done years before the award of costs

10 may be compensated on the basis of the lawyer’s present day rate. In paragraph 51 of his decision he said:

[51] In my view, the taxing Officer was correct in Kolbrich to state at page 22 that "one should consider, to the extent that it is possible to do so, the real value of money when there is a substantial period of time between the performance of the services and the payment of the legal costs." If a solicitor charges the client $80/hr. in 1978 and is not paid until 1988, when the effect of inflationary and other influences is that the purchasing power equivalent of $80 is now $100, that is surely a factor to be considered. If the non-payment is the choice of the solicitor, perhaps no adjustment is called for, but if it is because the client is impecunious due to the actions of the defendants themselves, that is a factor to be considered. In the present case, no aging adjustment in rates is called for because they have remained stable, and the risk of non-payment, assumed by counsel for the plaintiffs, is to be the subject of a premium, as already discussed. There is no case here for a downward adjustment; if anything an upward adjustment would be called for.

Duplication And Organization

At paragraph 40 of the Banihashem-Bakhtiari v. Axes Investments Inc., supra decision, Lane J. said:

[40] I have reviewed all the year-by-year summaries and many of the dockets, particularly relating to the Inquest and the trial, and, although the defendants have pointed to some apparent overlaps and duplications, I am of the view that the organization of the plaintiffs' forces was well done, the division of labour was reasonable and duplication of effort was kept to a minimum. There is an obvious need for conferences from time to time to keep team members up to speed on developments about which they all need to know. There are occasions when "brain-storming" in a group is an effective method of resolving problems. While such conferences show up on dockets as apparent duplication, in my experience, they avoid far greater expense in the long run. I am not prepared to second-guess counsel as to who was present on particular days, or at case conferences or other meetings, or whether time was reasonable for particular tasks or as to particular dockets. None of the questioned charges appears to be obviously beyond the reasonable range.

11 Costs Incurred Prior To The Commencement Of The Action

Lane J., in Banihashem-Bakhtiari v. Axes Investments Inc., supra, held that such costs can be allowed where costs are fixed or assessed on a substantial indemnity basis provided they were necessary and reasonably incurred.

The Amount Of Costs Can Exceed The Recovery In The Action

In Dybongco-Rimando Estate v. Lee, supra, Quinn J. held that such a result is a forceable risk of litigation and, therefore, may be appropriate. Disbursements Not Expressly Falling Within The Disbursement Tariff – Part II of Tariff A

In Banihashem-Bakhtiari v. Axes Investments Inc., supra, Lane J. notes that there are many omissions from the disbursements tariff such as faxes, long distance calls, couriers, legal research through Quicklaw, etc. which illustrate the degree to which the tariff of disbursements has lost touch with modern legal practice. He held that these particular expenses are not part of overhead but, rather, are case specific. These, he said, can be compensated for under Tariff Item 35 - “where ordered by the presiding judge or officer for any other disbursement reasonably necessary for the conduct of the proceeding, a reasonable amount in the discretion of the assessment officer.”

With respect to travel, parking and accommodation he held that where costs are awarded on a substantial indemnity basis, a judge may award actual amounts even though

12 they exceed the rates specified in Tariff Item 21. He also awarded copying and binding expenses. It is important to read Lane J.’s decision carefully to appreciate that there might be a difference in result depending on the scale of costs that is being applied.

It is also to be noted that assessment officers do not, of course, possess the same discretion as does a judge.

Experts

In Banihashem-Bakhtiari v. Axes Investments Inc., supra, the defendants argued that nothing should be allowed for the expenses of experts where such experts did not prepare reports or who did not testify. Lane J. awarded compensation for such expenses on the basis that they were incurred on a reasonable and prudent basis. He held that Tariff Item 35 justified indemnification even where costs were being fixed or assessed on a partial indemnity basis. He further held that time spent by an expert in preparation for the giving of evidence at trial in circumstances where the expert did not actually testify, may be compensated where the costs are being fixed or assessed on a substantial indemnity basis. The test, according to Lane J., is one of reasonableness. Similarly, costs incurred by an expert in talking or meeting with counsel are compensable if reasonable.

13 Lawyer’s Travel Time

Pierce, J., in B.R. Davidson Mining & Development Ltd. v. Lac des Iles, [2003] O.J. No. 3966 (Sup.Ct.), relying on the Orkin Text, refused to compensate the successful party for counsel’s travelling time at counsel’s full allowable hourly rate. She allowed the travel time at $100 per hour.

Costs Against A Solicitor Personally

In Beardy v. Canada (Attorney General), [2003] O.J. No. 3940, (Sup.Ct.), Pierce J. does a good job of reviewing the various lines of authority with respect to Rule 57.07.


				
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