The case of Sandhu v. Wellington Place Apartments has produced another significant ruling. Readers will recall that Sandhu is the recent personal injury action in which damages of over $12 million were awarded.
Today’s decision by Madam Justice Carolyn Horkins dealt with the issue of costs premiums. The plaintiffs and defendants had agreed that the plaintiffs were entitled to costs on a partial indemnity basis to the date of an offer and substantial indemnity costs thereafter. These costs were over $1 million by the time this motion was argued. It dealt with whether counsel for the plaintiffs was entitled, in addition, to a costs premium of $1 million.
The decision is valuable because Justice Horkins reviewed the caselaw and undertook a conceptual analysis of the subject. This is something that is badly needed; premium awards to date have been all over the map. (The Supreme Court of Canada is going to look at the issue in Ritchie v. Walker, now making its way to a hearing date in that court.)
Justice Horkins summarized the principles that emerge from the jurisprudence decided to date:
(1) A costs premium is reserved for consideration in those cases where the plaintiff has been awarded substantial indemnity costs. To “award a premium in addition to partial indemnity costs would offend the principles that govern costs awards.” (See Walker at para. 114.)
(2) A cost premium is rare.
(3) Both the risk and result criteria must be satisfied. Neither alone will justify a premium.
(4) Counsel must achieve an outstanding result.
(5) The risk criterion requires four factors to be proven:
(a) the plaintiffs lacked financial resources to fund lengthy and complex litigation;
(b) plaintiffs’ counsel financed the litigation;
(c) the defendants contested liability; and
(d) plaintiffs’ counsel assumed the risk of not only delayed but possible non-payment of fees.
Her Honour concluded that the result in this case had indeed been outstanding (hard to argue with that) and that the “four factors” of risk set out above (which come from the Walker case now under appeal to the Supreme Court) had all been met. In fact, Justice Horkins said that the case “cries out for a premium”.
So, having found that plaintiffs’ counsel was entitled to a premium, how should it be quantified?
Counsel for the plaintiff sought to draw a mathematical relationship between past cost premiums and the amount of the judgment. But Justice Horkins quite properly pointed out that while one could argue that there should be a correlation between the result achieved and the amount of the premium, no such link can be made between the risk and the premium.
Her Honour rejected a mathematical approach to quantifying premium. In the result, she allowed a premium of $350,000 in this case.
Unfortunately, there was no particular process by which this figure was arrived at. All Justice Horkins said, by way of explanation, was this: “When I compare the criteria of risk and result in this case to others, I am of the view that a premium of $350,000 is justified.”
While today’s ruling provides a useful discussion of when costs premiums will be awarded, until the Supreme Court hears the Ritchie case, parties will continue to have difficulty predicting the quantum of such awards.