Important Costs Decision

We have attached the decision of Justice Denis Power in Russett v. Bujold on the issue of costs. As you will see from the fax line at the top of each page, this is literally “hot off the presses”.

This case is an important one to anyone involved in personal injury litigation. Indeed, it will undoubtedly be one of the leading authorities on costs in this type of case.

There are several features of the decision that make it a must-read. The main one, though, is that, unlike many of the major costs decisions, this action did not involve catastrophic injuries and huge indemnity dollars. Rather, it was very much a typical soft tissue case. So Justice Power’s decision will have broad application to many of the cases that you are handling.

Also of note is the fact that, among the Ontario Superior Court judiciary, Mr. Justice Power is viewed as one of the “authorities” on costs. He is often asked to speak on this issue and it is likely that other judges will treat his decision with a great deal of respect. In this decision, he has undertaken a very detailed analysis of the factors that will be considered by a court in assessing costs.

The reasons that we have attached have not yet been finalized; there is some further arithmetic to be done by counsel, before final figures can be arrived at. However, in broad brush strokes, the following is a summary of what the case says:

1. The action arose out of a 1997 MVA. The plaintiff was a young woman who claimed damages for various soft tissue injuries and for “chronic pain”.

2. Liability was contested, although Justice Power found that there was no legitimate basis for this, other than the possibility of getting a miniscule reduction on account of a seatbelt defence. He punished the defence for having defended on liability.

3. The case went to trial before Power J. and a jury. It was settled after eleven days of trial, for $435,000 plus costs to be assessed.

4. The plaintiffs made several alternative submissions with respect to costs. Some involved substantial indemnity costs for some or all of the services provided. One scenario (the one eventually accepted by Power J.) was for partial indemnity costs throughout. These were quantified by the plaintiff’s lawyers at $447,520, including a premium of 9% ($23,500). As you can see, even under this scenario, the costs exceeded the damages.

5. Justice Power found that the defence “played hardball”.

6. He also noted that the plaintiff’s lawyers (Kelly, Howard, Santini in Ottawa) incurred $150,000 in disbursements alone, of which only $17,000 had been paid by the plaintiffs themselves. Thus, he felt that financing the litigation had been not only costly to Kelly, Howard, but risky as well. (Disbursements of $142,950 were allowed by Power J. as part of his award.)

7. Justice Power considered the obligation, contained in s. 258.5 of the Insurance Act, requiring that an insurer attempt to settle claims expeditiously. He concluded that this insurer had not breached the section but did conclude that its offers to settle had been “on the low side”. He made it clear that he had taken this fact into account in his award of costs. He also said that the insurer’s conduct could and would be considered for the purpose of determining an appropriate hourly rate and allowable number of hours.

8. Power J. went on to list (paragraph 72) other factors that he had taken into consideration

(a) the defendants’ “unreasonable position on liability”;

(b) the challenge to the plaintiff’s credibility;

(c) the defendants’ position on causality with respect to the plaintiff’s chronic pain condition;

(d) the plaintiff’s lack of means to be able to afford expensive litigation.

9. These findings are among several troubling aspects of this decision. Each of the four factors are present in most, if not all, “chronic pain” cases. The case suggests that defendants may now be penalized for employing such tactics.

10. The plaintiffs’ last settlement offer before trial was $60,000 less than the amount of the settlement. Plaintiffs’ counsel had urged Justice Power to award costs on a substantial indemnity basis, treating this offer as “a near miss”. He declined to make this finding (or to award substantial indemnity costs). But he then went on to say that he was taking into account the fact that the offer had been “fairly close” to the settlement figure.

11. Justice Power awarded a premium of $25,000. The basis for this is not entirely clear; it seems to have been justified by the fact that the plaintiffs, although expressly found by him not to be “impecunious”, could not afford to pay for the litigation themselves. Again, this finding causes some concern because it suggests that a premium would be warranted in the great majority of personal injury cases.

12. His award was: a counsel fee of about $11,000 for the time spent at the trial itself, plus fees calculated at an hourly rate for the remaining time. The principal plaintiff’s lawyer’s time was allowed at $225 per hour. (This was less than the maximum under the grid: $300 per hour.) Unfortunately, the decision does not indicate how many hours are being claimed or allowed, so we do not yet know what the final tally will end up being. However, we expect that the total amount (including disbursements) will exceed the damages of $435,000.

Lessons to be learned:

1. Give careful consideration to admitting liability if there is no realistic chance of winning on this issue.

2. Justice Power referred to the Court of Appeal’s decision in Zesta Engineering, which said that “the costs award should reflect more what the court views as a fair and reasonable amount that should be paid by the unsuccessful parties rather than any exact measure of the actual costs to the successful litigant”. However, his decision seems to have been based more on the actual costs to the plaintiff. This suggests a judicial unwillingness to apply an objective measure to the time spent by plaintiff’s counsel.

3. Expect to see more and more requests for “premiums” in even run of the mill cases.

We will update you again when Justice Power’s final award is released.

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