In Crete v. Carleton Condominium Corporation #47, Madam Justice Giovanna Toscano Roccamo delivered very comprehensive costs reasons following a trial by jury in which the plaintiff’s action had been dismissed. The decision is instructive with respect to several aspects of the law of costs. In particular, Her Honour declined to award substantial indemnity costs to the defence, even though an offer to consent to a dismissal without costs had been made. Her reasons articulate her view as to the circumstances in which such an award can properly be made.
(Our post perhaps wanders a bit off-topic towards the end. Those determined enough to make it that far will find, under the heading, “Access to Justice”, some musings about the relationship between contingency fee agreements and risk.)
This was an occupier’s liability case. The 85 year old plaintiff fell and injured herself in the lobby of the condominium building in which she resided. At trial, the jury found that the defendants were not liable. It also assessed damages at $2,533.83.
It appears that both parties filed the costs outline contemplated by Rule 57.01(6) and Form 57B and the successful defendant filed a bill of costs (Form 57A). Both parties’ costs outlines evidently calculated costs on a partial indemnity and substantial indemnity basis.
Partial and Substantial Indemnity Rates
Her Honour was critical of the failure, on both sides, to detail in the outlines the “actual fees charged to the client as required by Form 57A”. She requested more information from both parties.
(Form 57B, the costs outline, is supposed to be given to every other party and brought to the hearing. So, it is prospective. It sets out what the party intends to ask for in costs, if successful. The form does contemplate that the party preparing the form set out the partial indemnity rate being sought and the “actual rate”, which is described as “the rate being charged to the client” for each person for whose time expenditure a claim is being made. Thus, while the form does not, in so many words, require that a party set out “the actual fees charged to the client”, parties are supposed to identify who provided services, how many hours are being claimed in relation to each timekeeper from the opposing party and at what rate. Presumably, the resulting product would indeed equal the actual fees charged.)
When provided with the additional information that she had requested from the parties, Justice Toscano Roccamo discovered that the rates charged by counsel for the defendant were less than the amount claimed by the defence for substantial indemnity costs and more closely approximated the partial indemnity rates claimed.
When counsel for the defendant provided a recalculated (and reduced) version of the various scales of costs, the amount claimed for partial indemnity costs still exceeded the actual fees when multiplied by 1.5. (Rule 1.03 defines “substantial indemnity costs” as “costs awarded in an amount that is 1.5 times what would otherwise be awarded in accordance with Part 1 of Tariff A”.)
Justice Toscano Roccamo said:
I accept the latest figures for the defendants’ actual fees at $127,195 and substantial indemnity fees at $114,485.70 as the benchmarks against which to determine a partial indemnity fees. Substantial indemnity costs may be set at 1.5 times the partial indemnity costs claimed, but must have regard to the factors set out in Rule 57.01(1), including appropriate indemnity under Rule 57.01(1)(o.a.) in circumstances where counsel is subject to a fee arrangement with a client. In the circumstances of this case, I adopt the reasoning in Mantella v. Mantella,  O.J. No. 2085 noting the actual amount charged to a client limits what may be claimed for partial indemnity fees, not the substantial indemnity costs. Therefore, I fix an appropriate gross partial indemnity fee to the defence in this matter at $82,400.48.
The passage from Mantella to which Toscano Roccamo J. was referring is (we think) this one:
In this case, because of the rates at which counsel undertook Ms. Murray’s defence, there is little difference between partial indemnity and full recovery 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 other words, actual rates are a “ceiling” on partial indemnity costs. The court is to fix the partial indemnity rate, having regard to the factors set out in Rule 57.01, and then multiply by 1.5 to derive a substantial indemnity rate. The partial indemnity rate cannot exceed the actual rate, but can equal it. (However, presumably the indemnity principle referred to at the beginning of the passage quoted from Mantella would also prevent an award of substantial indemnity costs of 1.5 times a partial indemnity rate that matches the actual rate.)
In this case, the partial indemnity figure arrived at by Justice Toscano Roccamo, multiplied by 1.5, would have resulted in an amount less than the defendants’ actual legal fees but more than the amount claimed by the defence on a substantial indemnity basis.
Defendant’s Offer to Consent to Dismissal Without Costs
Regular readers will have seen earlier posts about some recent decisions in which defendants have been awarded substantial indemnity costs after successfully defending at trial, as a result of having previously offered to consent to dismissal without costs: see, for example, our post on the Flying J case.
In this case, the defendants had offered, in the fall of 2007, to consent to a dismissal without costs. They made no other offer. On the basis of their offer (and the jury’s assessment of damages at an amount less than the monetary jurisdiction of Small Claims Court), the defendants sought costs on a full indemnity or a substantial indemnity basis. However, Justice Toscano Roccamo J. rejected that request.
Her Honour noted that the plaintiff had made several offers to settle and that the defendant had, in fact, solicited an offer from the plaintiff but made no offer itself (other than one for dismissal of the claim). She was critical of the defendants’ approach, saying that it “arguably amounted to an invitation to the plaintiff to negotiate against herself, as it contained no element of compromise and sought nothing short of capitulation on the part of the plaintiff”.
She reviewed the caselaw dealing with awards of substantial indemnity costs and concluded that “[i]n most cases, an offer of payment by the defendant to a plaintiff of some amount would appear to be an important consideration”. Her Honour made the further observation, that to warrant an award of substantial indemnity costs, one or more of the factors in Rule 57.01(1) should be present (e.g., where a party’s conduct has tended to lengthen unnecessarily the duration of the proceedings).
Justice Toscano Roccamo summed up her views in a departure from the Flying J series of decisions:
I prefer the view that, unless the circumstances of a case trigger consideration of a number of the factors in Rule 57, including conduct of the kind described in Rule 57.01(1) (e) or (f), a defendant will not be awarded enriched costs over and above partial indemnity fees in the absence of any reasonable offer to settle a plaintiff’s claim by payment of some amount. Even then where the plaintiff’s conduct has not been found to be on balance egregious, a court may decline to award costs sanctions throughout the proceedings or prior to the defendant’s offer to settle; see St. Louis-Lalonde v. Carleton Condominium Corporation No. 12,  O.J. No. 4164 (S.C.J.).
Her Honour then reviewed, in some detail, a number of circumstances specific to the conduct of this lawsuit. We have not summarized them in detail here. She faulted the defence’s approach to various aspects of the litigation (having to do with such things as requests to admit and expert witnesses) and ruled that the defendant was entitled to costs on a partial indemnity basis only.
In the assessment that followed, Justice Toscano Roccamo reduced the defendant’s claim for fees by about one-quarter and reduced or disallowed many of the disbursements. She went on to offset against the costs that were payable by the plaintiff the costs of some interlocutory motions in which the plaintiff had been successful. The net result was that the plaintiff owed costs of $62,245.73.
Access to Justice
Counsel for the plaintiff had urged Her Honour to take into account the plaintiff’s modest means. Justice Toscano Roccamo noted that she had received no evidence on this point. She went on to observe that although contingency fees promote access to justice by permitting cases such as these to be tried, “where claims are successfully advanced in such cases, the reality is that plaintiff’s counsel are often buffered by contingency fee arrangements which recognize the risk taken and carrying costs assumed by plaintiff’s counsel. With experienced counsel, the risks and gains of loss and success can balance out over time”. In this case, had the plaintiff been successful, her counsel would have been seeking costs of some $88,000 plus fees and disbursements. Her Honour concluded that her assessment of costs accorded with what she saw as “the overriding principle of proportionality articulated by the Court of Appeal in Boucher v. Public Accountants Council“.
Risk and Contingency Fees
Justice Toscano Roccamo’s remark about the risks of losses and wins balancing out over time is interesting. This is a rationale that has frequently been invoked as a justification for “risk premiums” in party and party costs. Such premiums, of course, are no longer allowed in this jurisdiction. However, it is also one of the rationales for contingency fee agreements: see Re Cogan.
It is our impression though, that the top plaintiffs’ personal injury firms engage in a form of “triage”, whereby the riskiest cases are usually filtered out at the front end (or the retainer is based on an hourly rate. This leads us to wonder just what role “risk” plays in contingency fee arrangements.
We have been told that the practice (in Ottawa, at least) is for the plaintiffs’ bar routinely to obtain pre-approval of contingency fee arrangements that allow them to retain, in addition to a percentage of the damages recovered in the litigation, any costs awarded to the plaintiff. Such applications are brought under s. 28.1(8) of the Solicitors Act. That section provides:
A contingency fee agreement shall not include in the fee payable to the solicitor, in addition to the fee payable under the agreement, any amount arising as a result of an award of costs or costs obtained as part of a settlement, unless,
(a) the solicitor and client jointly apply to a judge of the Superior Court of Justice for approval to include the costs or a proportion of the costs in the contingency fee agreement because of exceptional circumstances; and
(b) the judge is satisfied that exceptional circumstances apply and approves the inclusion of the costs or a proportion of them.
While a contingency fee itself does not require court approval for any particular percentage amount (unless the solicitor is seeking fees in an amount that exceeds the damages recovered by the client: see s. 28.1(6) of the Solicitors Act, in which a “joint” application to court is also required), approval is required under s. 28.1 for the solicitor to retain costs in addition to a percentage of the damages.
It seems to us that it strains credulity to imagine that contingency fee pre-approval applications are really being made “jointly” by the solicitor and client; we’ve never been involved in one of these applications but, so far as we know, there is no requirement that the client receive independent legal advice about the pre-approval application.
(And we’re also given to understand that the bar for the “exceptional circumstances” required by subparagraph (b) of s. 28.1(6) to be shown, is fairly low.)
But we digress. The point is that risk is something that is very much a function of the facts of a particular case. And how much risk there really is often cannot be determined until the end of the case. (Although, in fairness, the lawyer can also be unsure of what the real risk is of losing, in the early stages of the case, when the fee arrangement is being negotiated. It can probably also be fairly said, that risk that diminishes over the life of the case, is often a result of the lawyer’s own efforts. Still, it seems to us that even at the front end, the risk associated with litigation varies greatly from case to case.)
Also relevant to the analysis (possibly) would be the amount of risk being assumed by the lawyer with his or her other cases, taken as a whole. So, a lawyer with 100 cases with an average likelihood of recovery of , say, 55% would, we think, have a stronger argument for a one-third contingency fee than would another lawyer having the same number of cases but with an average likelihood of success of 85 percent. The former could legitimately argue that the lower-risk cases are funding the higher-risk ones. But should a lawyer who takes on few high-risk cases be entitled to the same contingency fee?
There is an interesting discussion of the relationship between risk and contingency fees on a Harvard Law School blog, called “f/k/a”. (We think, but don’t know, that that stands for “formerly known as”.) The article, written in four parts by David Giacalone (apparently, a former lawyer who writes about issues of legal ethics), begins with these colourful words:
Many members of the personal injury bar argue that you have to be a tort-reformin’, insurer-lovin’, consumer-hatin,’ ethics whore — or a dupe of the above — to assert that contingency fees should relate to the risk being taken by the lawyer in a particular case. I don’t know if the tort lawyers really believe their own propaganda, but they do profess this belief, while reminding the world that they “earn” their above-hourly-fee premum precisely because they are taking the huge risk of working hard, and fronting litigation expenses, without being compensated at all, or enough.
In support of his thesis, that contingency fees should reflect the level of risk being assumed, Mr. Giacalone refers to the website of a Toronto law firm, Polten & Hodder, which has a “frequently asked questions” page on the subject of contingency fees. (The links to Polten & Hodder in the f/k/a article are not active but the page in question can be accessed here. Polten & Hodder, who say that they sometimes charge contingency fees themselves, recommend that the client consider retaining a lawyer to negotiate the contingency fee: “Don’t laugh [they say]. If a small up front fee saves you $100,000.00 in fees down the road, it is money well spent.”)
Finally, Mr. Giacalone gives a graphic illustration of the disconnect that can occur between risk and contingency fees in another post on his blog: “98% Win Rate: Where’s the Risk?” He recounts having seen a law firm’s advertisement near his home. The “giant billboard” touted the services of a local personal injury law firm by saying:
Over 98% Win Rate!
Put the odds in your favor.
Mr. Giacalone wonders how a one-third contingency fee can be justified by a practice in which only two percent of cases taken on by the firm turn out to be unsuccessful.
All of which brings us back to Justice Toscano Roccamo’s observation in Crete, that “[w]ith experienced counsel, the risks and gains of loss and success can balance out over time”. This is conventional wisdom, but is it true? We suspect that the balance is much more heavily tipped in the direction of wins than losses, at least at firms specializing in personal injury litigation. (One would certainly have to question the expertise of a specialized plaintiffs’ firm that took on an equal number of winners and losers…)
If we’re right about this (and of course, we have no hard data on the point and the percentage would obviously vary from firm to firm), should contingency fees be more directly connected to degree of risk assumed?