Costs Math

In Riddell v. Conservative Party of Canada, Alan Riddell, former Conservative candidate for the riding of Ottawa South, is embroiled in a dispute with his party. There has been a series of interlocutory motions. A recent one was decided by Mr. Justice Denis Power of the Ontario Superior Court. In that ruling, the applicant, Mr. Riddell, was successful. Justice Power made some observations regarding the quantum of costs that are a useful reminder to the practising bar.

Mr. Riddell’s counsel’s actual hourly rate was $390. He argued for a substantial indemnity rate of $300 or, failing that, a partial indemnity rate of $280.

However, Justice Power noted that, while he had “no difficulty whatsoever” with the time expended or the actual hourly rate charged, “[t]he substantial indemnity rate should be one and one-half times the partial indemnity rate. Such a calculation would give rise to an absurdity [in this case] since the result would be $420 per hour which is, of course, $30 more than the actual billing rate of senior counsel. In my opinion, given an actual rate of $390 per hour, an appropriate partial indemnity rate would be approximately $230 per hour and thus, the substantial indemnity rate would be $345 per hour.”

Justice Power had in mind the definition of “substantial indemnity costs” in Rule 1.03(1) of the Rules of Civil Procedure: “‘substantial indemnity costs’ mean costs awarded in an amount that is 1.5 times what would otherwise be awarded in accordance with Part I of Tariff A”. As we have mentioned in previous posts, “substantial indemnity costs” is, as the definition indicates, a function of “partial indemnity costs”, not the other way around. “Partial indemnity costs” are supposed to be calculated in accordance with Part I of Tariff A, which is a regulation under the Courts of Justice Act. However, Part I says only that, “[t]he fee for any step in a proceeding authorized by the Rules of Civil Procedure and the counsel fee for motions, applications, trials, references and appeals shall be determined in accordance with section 131 of the Courts of Justice Act and the factors set out in subrule 57.01(1)”.

The latter subrule lists a number of factors to be taken into account by the court (e.g., experience of the lawyer, hours spent, the amount that an unsuccessful party could reasonably expect to pay, the complexity of the proceedings, etc.) There is no direct correlation in subrule 57.01(1), between the actual hourly rate charged to the client and the amount recoverable as partial indemnity costs, although “the rates charged and the hours spent” are among the factors that a court can consider. Indeed, it was held in Mantella v. Mantella, that counsel who has negotiated a reduced hourly rate with a client might be entitled to recover the entire hourly rate as partial indemnity 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.

In the Riddell case, Justice Power allowed a partial indemnity rate of $230 per hour. This rate was about 60% of the actual hourly rate of $390 (and, as His Honour said in the passage quoted above, would produce a substantial indemnity rate of $345). However, there is no indication in his reasons, that Justice Power arrived at the partial indemnity rate by reference to the actual rate. In fact, as the Mantella case indicates, that would not have been the correct approach. Instead, the actual hourly rate is properly viewed as a limiting factor on what can be awarded by way of costs (the successful party not being entitled to recover more than he or she is actually being charged by his or her lawyer).

Thus, we feel that it would not be correct to interpret Justice Power’s decision to mean that partial indemnity costs should be approximately 60% of counsel’s actual hourly rate. Rather, the actual rate doesn’t enter the analysis at all, except to establish a ceiling for the costs award.

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