Partial Indemnity Costs Can Equal 100% of Actual Fees

Last week’s decision of Mr. Justice David Corbett in a family law case is actually an important one for counsel acting for insurance companies.

In Mantella v. Mantella, a husband and wife were involved in bitter matrimonial litigation. As seems to happen so often nowadays, the husband sued the wife’s lawyer. Justice Corbett dismissed that action as an abuse of process.

But what is interesting is what he did with respect to costs. In our view, he correctly interpreted the amendments to Rule 57.

Counsel for the lawyer had been retained by LawPRO. Like most other insurance companies, LawPRO’s lawyers agree to work for specified hourly rates. In any given case, those rates might be lower than the rates the same lawyers charge to other clients or lower than the “going rate” in a particular area.

Justice Corbett said though, that “the actual rates charged by counsel are not the starting point of a costs analysis”. Instead, the correct approach, he said, is to consider the factors in Rule 57.01. (There is a costs grid that appears in a notice to the profession accompanying Rule 57. It contains maximum hourly rates for counsel of various levels of experience: $350 per hour, for instance, for counsel of more than 20 years’ experience. While Justice Corbett did not specifically refer to this grid, it appears likely that he took it into consideration.)

His Honour’s description of the correct process, with which we respectully agree, appears in paragraph 7 of his reasons, as follows:

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.

As we have said in previous posts, we agree that the Rules do not call for partial indemnity costs to be fixed as a proportion of substantial indemnity. To the contrary, Rule 1.03 defines substantial indemnity costs as “1.5 times what woudl otherwise be awarded in accordance with Part I of Tariff A” [which, in turn, refers to s. 131 of the Courts of Justice Act and the factors in Rule 57.01(1)]. In other words, substantial indemnity costs are a multiple of partial indemnity costs, not the other way around.

The actual amount charged to the client, as Justice Corbett found, limits what can be claimed for partial indemnity costs. But apart from that, the court’s assessment of those costs should otherwise be based entirely on the factors in Rule 57.01(1), not on what hourly rate a particular lawyer has negotiated with a particular client. The Rule 57.01(1) factors would include, in our view, the costs “grid” that accompany Rule 57. The actual hourly rates become an extraneous consideration, with the result that an award of partial indemnity costs might produce, in a particular case, reimbursement of 100% of the amount paid to his or her lawyer by the client in whose favour costs have been awarded.

Thanks to Debra Rolph of LawPRO for drawing this decision to our attention.

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