Divisional Court Says Partial Indemnity Costs To Be Calculated On Basis of Costs Subcommittee’s Rates, Not Counsel’s Actual Rates

UPDATE: Just a few days after the decision in Geographic Resources was released, Regional Senior Justice Charles T. Hackland has handed down his costs ruling in the widely-publicized case of Guergis v. Novak et al.  Justice Hackland too endorsed the Mantella principle (and in doing so, also followed another decision, Marcus v. Cochrane, in which Heather Williams was the winning counsel):

The plaintiff also challenges the hourly rates employed by defence counsel. The hourly rates employed by government defendants reflect the significantly discounted rates allowed under Treasury Board guidelines. The argument is that these rates, while discounted to meet Treasury Board guidelines, are nevertheless full indemnity rates and I am asked to discount these rates by a further amount of approximately 40% to reflect what would be a partial indemnity scale. I decline to give effect to this argument. In my opinion, the question of what constitutes an appropriate hourly rate for any claim for costs is determined by referring to the criteria in Rule 57.01 and not by the terms of the retainer between counsel and his or her client. This is subject to the proviso that costs must not be awarded in excess of counsel’s hourly rate in noncontingency fee situations. I would follow the decisions of this court in Mantella v. Mantella, [2006] O.J. No. 2085 (S.C.J. at para. 7 and Marcus v. Cochrane, [2012] O.J. No. 1663 (S.C.J.) at paras. 22-23.

The original post follows.

My partner Heather Williams has just received a decision from Justice Catherine Aitken, sitting as a judge of Divisional Court, that addresses an important costs issue. In Geographic Resources Integrated Data Solutions Ltd. et al. v. Peterson et al., Ms. Williams was retained by LawPRO on behalf of some of the defendants in this action. She successfully opposed a motion to amend the claim, which motion was heard by Master MacLeod. An appeal of that order was heard by Justice Aitken, sitting in Divisional Court. It was the costs of the appeal that were in issue in the most recent ruling.

The defendants were seeking payment of their costs of the appeal, on a partial indemnity basis. They argued that the partial indemnity rates set out in the “Information for the Profession” table published by the Costs Subcommittee of the Civil Rules Committee, should be the basis of calculating their costs. Using that approach, the defendants submitted that an award of costs in the amount of $10,026.89 was appropriate.

However, this figure was the same as the amount that was actually charged to the client, LawPRO. The issue in the case was: does that fact make any difference to the fixing of costs? The answer, it turns out, is “no”.

Counsel for the plaintiffs submitted that the partial indemnity costs should be computed as 60% of actual costs, which, in this case, would have been $6,117.09. (The partial indemnity costs that the plaintiffs themselves had sought in their Form 57B totalled $10,116.82. That sum had been calculated as 60% of their “full indemnity”, which presumably means “actual”, rates.)

In making their argument for costs of $10,026.89, the defendants relied upon Mantella v. Mantella 2006 CanLII 17337 (ON SC), (2006), 27 R.F.L. (6th) 76 (S.C.J.), a decision of Justice Corbett. In that case, His Honour said this:

In this case, because of the rates at which counsel undertook Ms. Murray’s defence, there is little difference between partial indemnity and full recovery costs. The actual fees charged by counsel are not the starting point of a costs analysis. Costs are an indemnity, and thus may not exceed the client’s total liability to her solicitor; the client may not gain a windfall as a result of a costs award. However, in fixing partial indemnity costs, the court does not look at the actual fee arrangement between solicitor and client and discount that arrangement to ensure that recovery is “partial”. Rather, the court considers the pertinent factors laid down in the rules in fixing the amount of recovery appropriate on a partial indemnity basis. So long as the amount is equal to or less than the actual fees and disbursements charged, then the amount arrived at by reference to the factors listed in the rules will be the amount of the award – whether that represents 50% of actual fees, 75% of actual fees, or even 100% of actual fees. If counsel is prepared to work at rates approximating partial recovery costs, that is counsel’s choice. There is no reason why the client’s fee recovery ought to be reduced because she has negotiated a favourable rate with counsel, so long as the total of the indemnity does not exceed the fees actually charged.

While our office has relied upon the Mantella case with some success in a number of Superior Court cases, for the proposition that our clients’ partial indemnity costs could equal the actual fees charged, the Geographic Resources decision is the first time, to our knowledge, that the Mantella principle has been considered by an appellate court. Justice Aitken held that Mantella had not been “trumped” by older Court of Appeal cases upon which counsel for the plaintiff had relied and she applied the decision here.

Her Honour’s approach makes it clear that the fixing of costs is, for the most part, an objective, not a subjective exercise. She began by looking at the Costs Subcommittee’s “Information for the Profession”, which can be found immediately before Rule 57 in the Carthy or Watson & McGowan editions of the Rules.

That table sets out maximum partial indemnity hourly rates for counsel of various levels of seniority, up to 20 years plus, for which the maximum is $350.00 per hour.

Justice Aitken noted that each of Heather Williams and Susanne Sviergula had “recently arrived in her category” (Ms. Williams in 20+ years and Ms. Sviergula in 10-19 years). She also noted that the maximum rates “would apply to the more experienced counsel and to the most complicated matters in each category”.

Her Honour then considered an adjustment to the Costs Subcommittee’s hourly rates for inflation, as had been done by Justice Robert Smith in First Capital (Canholdings) Corp. v. North American Property Group, 2012 ONSC 1359 (CanLII), 2012 ONSC 1359 (S.C.J.) (My post about the latter case can be found here.)

Such an adjustment would have increased the two rates in question, from $350 to $396.13 and from $300.00 to $339.54, respectively. However, given the moderate complexity of this case, Justice Aitken elected to use rates of $350.00 and $275.00 for Ms. Williams and Ms. Sviergula. The resulting figure for costs–$9,800.00–was only slightly less than the actual fees charged. Justice Aitken rejected the plaintiffs’ argument, that “the partial indemnity costs be reduced so that they are a smaller proportion of the Respondents’ actual costs”.

This decision has significant implications even for cases in which counsel are not working at discounted hourly rates. It makes it clear that the starting point in fixing costs is the “Information for the Profession” table, not the actual hourly rate charged. In fact, the actual rate charged becomes almost irrelevant, except as a limiting factor (the costs awarded cannot exceed the actual fees charged).

Rule 1.03 defines “substantial indemnity costs” as “costs awarded in an amount that is 1.5 times what would otherwise be awarded in accordance with Part I of Tariff A, and ‘on a substantial indemnity basis’ has a corresponding meaning”. But again, a lawyer who has been practising for 20+ years and is charging his or her client $350 per hour or less, will not be concerned with trying to get substantial indemnity costs because, on the principles laid down by Mantella and Geographic Resources, an award on a partial indemnity basis, using the Costs Subcommittee’s hourly rates, would equal the actual fees charged.

Form 57B only asks the lawyer to specify his or her “partial indemnity” and “actual” rates. And Justice Aitken’s decision makes it clear that those are the only two rates that are relevant, the former as the basis of the calculation and the latter as the “ceiling” for an award of costs. Except as a limiting factor, the actual rate does not enter into the calculation of an appropriate partial indemnity rate at all.

In my view, Justice Aitken’s decision appropriately opts for an objective approach to costs instead of a subjective one. The Costs Subcommittee’s rates apply to all lawyers and all cases, so everyone of the same level of experience starts at the same place. The court can then adjust the rate to reflect unique features about the complexity of the proceeding, the importance of the issues or the other factors set out in Rule 57.01(1). If appropriate, the rate can be adjusted for inflation, as in First Capital. If an excessive amount of time has been spent or too many lawyers have worked on the file, those factors can be taken into account too. So long as the resulting figure for costs does not exceed what was actually charged to the client, the actual fee that a particular client has agreed to pay, whether it is extremely high or extremely low, is irrelevant.





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