Addendum to this post
Debra Rolph of LawPRO has added a comment to this post, asking the following question:
The judgment ends with the following paragraph:”43 These reasons apply to the costs scheme in place in Ontario at the time costs were fixed in this case. Since that time the costs scheme has been modified in a number of ways. Whether or not the reasoning in this judgment applies to the costs scheme currently in place will be an issue for the courts as the occasion arises.”Can anyone think of recent changes to the costs scheme to which this judgment would not apply?
In last week’s decision of Brockenshire J. in Authorson v. The Attorney General of Canada, His Honour said, “Class counsel argued that since Rule 49 now provides for costs awards of full indemnity, there is nothing preventing the court from exercising the broad discretion granted by s. 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43 or by the law of equity.”
(We think that the reference to Rule 49 is an error; it is Subrule 57.01(4)(d) that allows a court “to award costs in an amount that represents full indemnity”.) In the Authorson case, the plaintiffs were found to be entitled to costs on a “full indemnity” basis, but that phrase was interpreted by Brockenshire J. to mean “the total of hours times rates”, which was $2.1 million. This was a far cry from the $75 million in costs which the plaintiffs had been seeking, based on their contingency fee retainer.
This change to Subrule 57.01(4) was enacted by O.Reg. 42/05 and came into force on July 1, 2005. The same regulation amended Subrule 57.01(1), by adding clauses (0.a) and (0.b). The amendments allowed a court to consider, in exercising its discretion to award costs, “the principle of indemnity” along with “the amount of costs that an unsuccessful party could reasonably expect to pay”.
Those provisions were not in force at the time that costs were being fixed by Brockenshire J. in Walker v. Ritchie (see paragraph 20 of today’s S.C.C. reasons for the text of Rule 57.01 as it then read). Justice Rothstein said, in paragraph 21 of the reasons in Ritchie, that “the scheme in place at the time costs were fixed in this case was not one of full indemnity.”
As a result of last year’s amendments, awarding costs on a “full indemnity” basis is now an option open to the court (although this would still be an award of costs on a “substantial indemnity” scale).
So, to answer Ms. Rolph’s question with a question, can a court still award a costs premium, even after today’s decision, on the basis that it is thereby awarding costs on a “full indemnity” basis? If the phrase, “full indemnity” is interpreted to mean “hours times rates”, as it was in Authorson, then the answer would seem to be “No”.
The Original Post
In a decision released minutes ago, the Supreme Court of Canada has struck down a costs premium award in Ritchie v. Walker. The ruling is a major victory for defendants in Ontario.
This case involved a claim for damages for catastrophic personal injuries suffered by a 17-year old girl whose car collided with a tractor trailer. After a sixteen-day trial, Superior Court Justice John Brockenshire found liability and awarded damages of almost $5 million. In addition, he awarded costs of $440,167.90 plus a premium of $192,600.00.
The premium was based on the fact that the plaintiffs were impecunious and their counsel had carried the lawsuit for four years, without payment. Justice Brockenshire took into account the risk of non-payment in awarding the premium.
The Ontario Court of Appeal held that premiums could not be added to awards of costs on a partial indemnity basis but were, in principle, available where costs are awarded on a substantial indemnity basis (as was the case in relation to some of the defendants here, who had not accepted an offer to settle made by the plaintiffs).
The Supreme Court of Canada granted leave to appeal on the issue of the costs premium. Today, the Court held that risk of non-payment to the plaintiffs’ lawyer was not a relevant factor under the costs scheme in Rule 57.01(1) of the Rules of Civil Procedure and that therefore, the costs premium given by Brockenshire J. could not stand.
The Court rejected the argument that the scale of costs (partial indemnity or substantial indemnity) made a difference to the availability of a premium. In either case, costs are to be fixed or assessed according to the criteria in Rule 57.01(1) and those criteria do not include the plaintiff’s impecuniosity.
Significantly, the Court emphasized the importance of predictability and consistency in costs awards in similar cases. As the headnote to the decision put it: “Unsuccessful defendants should expect to pay similar amounts by way of costs across similar pieces of litigation involving similar conduct and counsel, regardless of what arrangements the particular plaintiff may have concluded with counsel, since a defendant has no knowledge of these private arrangements and thus has no means of measuring the risk of engaging in litigation.”
The Court considered that access to justice was adequately promoted by the availability of contintency fee arrangements between impecunious clients and their lawyers.
In an interesting observation, Justice Rothstein, who wrote the decision, said that the more risk a case carries with it, the more defensible it is to the defendant. Risk premiums would therefore encourage plaintiffs to pursue the least meritorious claims, an objective which should not be promoted.