Ontario Superior Court Justice Joan Lax has released an interesting costs decision in Manning v. Epp et al. In this lawsuit, the plaintiff was well-known Ontario lawyer, Morris Manning. He sued the mayor of the City of Waterloo, as well as a number of municipal officials. In an earlier decision, Justice Lax had granted a motion to strike the 111-page statement of claim as an abuse of process. In yesterday’s ruling, she fixed the costs of the defendants.
Because the statement of claim had contained unproven allegations of illegal conduct on the part of the defendants, allegations which were strongly condemned by Justice Lax, the defendants sought costs on a “full indemnity” scale.
Justice Lax made it clear that in her view, there are still only two scales of costs: “partial indemnity” and “substantial indemnity”. While the court has discretion to award costs that fully indemnify a party for legal fees, the escalation of lawyers’ hourly rates has, she obse:ved, widened the gap between what is properly recoverable as “substantial indemnity” costs and what would be required to fully indemnify a litigant:
The moving parties appear to take the position that under the “new Rules” (referring, I believe, to the amendments that came into effect on July 1, 2005), substantial indemnity and full indemnity costs awards are one and the same. While the 2005 amendments to Rule 57.01(4) make clear that the court may award costs in an amount that represents full indemnity (rule 57.01(4)(d)), there continues to be a distinction between full and substantial indemnity costs (see, rule 57.01(4)(c)). The choice of the term “substantial indemnity” reinforces this distinction.
As between litigants, there are two scales of costs – partial indemnity and substantial indemnity. These terms were introduced in 2001 and correspond to the former scales of “party-and-party” and “solicitor and client” costs. Before their introduction, a costs award that provided complete indemnity was referred to as “costs as between the client and its own solicitor”. An award on this scale was rare, except in estate matters and in some commercial matters, such as mortgage actions.
Historically, solicitor and client costs approached full indemnity and depending on a solicitor’s actual billing rate, they may still coincide. As billing rates to clients have increased and risen to hourly rates in excess of $600.00, the gap between an award of costs that provides full indemnity and one that provides substantial indemnity has widened. In this case, the difference in fees is roughly $40,000. I was not provided with any authority for awarding the costs of this motion in an amount that would fully indemnify the successful parties and in my view, there is no basis for such an award. I believe that the choice here is between partial indemnity costs and substantial indemnity costs.
Because the plaintiff Manning had made, in his statement of claim, allegations against the defendants which were “designed to harm and embarrass”, Her Honour was satisfied that the defendants were entitled to costs on a substantial indemnity basis. However, she did not feel that those costs should fully indemnify the defendants, given the time that had been spent (which she felt was, in some respects, excessive) and the hourly rates charged.
Justice Lax then turned to quantification of the defendants’ costs. She followed the proper procedure by first applying the factors set out in Rule 57.01 in order to come up with a figure for partial indemnity costs. The amount so derived was $65,000. The next step was to apply Rule 1.03(1) and multiply the partial indemnity figure by 1.5, to arrive at an amount for substantial indemnity costs. The resulting figure was $97,500.
Justice Lax then took a third step. She felt that the figure that she had calculated for substantial indemnity costs was still too high and did not satisfy “the principles of reasonableness or proportionality”. She noted that “[t]he revocation of the costs grid and the amendments to Rule 57.01 send a clear message that it is these principles rather than a mechanical application that should inform an award of costs.”
Exercising her discretion, she reduced the substantial indemnity fees to $80,000. (The defendants in question had been seeking fees of $138,521.25, so the award fell well short of “full indemnity”.)
The decision is instructive in making it clear that (1) there are still only two costs scales; (2) even though Rule 1.03(1) says that substantial indemnity costs are 1.5 times partial indemnity costs, the final figure will still be arrived at by an application of the principles of reasonableness and proportionality; and (3) that costs on a substantial indemnity scale will not necessarily amount to full indemnity for the legal expenses of that party.