Important Costs Decision

Awards of costs have increased substantially since 2002, making costs a key ingredient of many lawsuits. Last week, the Divisional Court released a comprehensive review of the principles to be applied by courts in assessing costs. This is the first major appellate treatment of costs since the costs rules were substantially revised in 2005.

The case is Andersen v. St. Jude Medical. It is not yet online, so we have attached a copy. This is a class action lawsuit in which the defendant is alleged to have manufactured and sold a defective heart valve. The costs award in issue was for the certification motion. Superior Court Justice Maurice Cullity heard (and granted) that motion. He allowed fees of $396,859.80 and disbursements at $213,841.05, for a total award of $610,700.85 plus GST. The plaintiffs had asked for fees of $997,825.55 for fees and $468,969.82 for disbursements (most of the latter was for experts’ fees).

The defendants sought leave to appeal the costs award. Another Superior Court judge, Justice Anne Molloy, felt that there was good reason to doubt the correctness of Justice Cullity’s decision and granted leave to appeal to the Divisional Court. In the attached ruling, the Divisional Court panel (Justices Epstein, Lax and Then) dismissed the appeal. In the course of doing so, the court reviewed in some detail the current state of the law with respect to costs.

The main principles to emerge from the case are these:

  1. An appellate court should only review a judge’s exercise of discretion in awarding costs if that judge has failed to properly apply the principles of reasonableness, proportionality and consistency.
  2. Awards of costs should not be interfered with on the basis that they are “excessive”. This is because “excessiveness” is an elusive and subjective concept unless measured against something.
  3. Comparisons with costs awards prior to the “costs grid” (which existed from January 1, 2002 to July 15, 2005 and established a range of hourly rates, depending on years at the bar) are not helpful. Costs awards have increased substantially since then.
  4. Although the costs grid has been repealed, the current system requires that judges consider “the experience of the lawyer, the rates charged and the hours spent”.
  5. The court must consider a published hourly rate “guideline” (identical to the former costs grid) in order to arrive at amounts for partial indemnity costs. Costs on a substantial indemnity scale are to be 1.5 times higher than the partial indemnity amounts arrived at by using the guideline.
  6. Another important factor is the amount that an unsuccessful party could reasonably expect to have to pay in costs. In making this assessment, courts will be aided by the costs outlines now mandated by Rule 57.01(1)(0.b). (In these outlines, each party is to advise the court at the hearing, before the judge’s decision has been rendered, how much that party will be seeking in costs. A breakdown of time spent and hourly rates must also be provided.)
  7. Appellate courts should show particular deference to the decisions of judges who are case-managing a particular lawsuit, because of their familiarity with the litigation. This is especially true in class action suits.
  8. Courts should try to avoid inconsistency with costs awards in comparable cases (although the court then went on to say that it is dangerous to use costs awards in other cases as “comparators”).
  9. A party who wishes to argue that an opponent’s demand for costs is excessive should be prepared to disclose details of its own costs. But even though Rule 57 now requires that this information be given, judges must realize that most sides might have been engaging in “overkill” and be prepared to move beyond the mere product of the hours and the rates.

The Andersen case has already been applied in another Divisional Court decision. Justice Epstein, one of the members of the Andersen panel, granted leave to appeal costs in United States of America v. Yemec et al., where she was not certain that a motions judge had undertaken a proper analysis before awarding costs against the United States of America, in an amount totalling almost $800,000.

For the time being, Andersen is likely to become the leading Ontario case on the issue of costs.

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