S.C.C. to Hear Costs Premium Case

Yesterday, the Supreme Court of Canada granted leave to appeal the Ontario Court of Appeal’s decision in Walker v. Ritchie, on the issue of a costs premium ordered to be paid by a defendant. The case arose out of a 1997 motor vehicle accident, in which the plaintiff suffered catastrophic injuries. At trial, damages were assessed at more than $5 million. In addition to costs of over $500,000, the defendants were ordered to pay a costs “premium” of $200,000.

(Clicking on the case name above will take you to the Supreme Court’s decision, granting leave to appeal. However, no reasons are given by the court for these rulings, so the link will not provide you with much information.)

The Court of Appeal decision disallowed a small part of the premium (which had been awarded on top of partial indemnity costs) but upheld the portion of the premium that had been made in addition to substantial indemnity costs.

The rule laid down by the Court of Appeal, as to the circumstances in which a premium will be added to an award of substantial indemnity costs, was as follows:

“[A] premium ought to occur only rarely and only when both factors – risk and result – cry out for an award in excess of substantial indemnity costs.  The risk must be based on evidence that the plaintiff lacked the financial resources to fund lengthy and complex litigation, plaintiff’s counsel financed the litigation, the defendant contested liability and plaintiff’s counsel assumed the risk not only of delayed but possible non-payment of fees.  In our view, it is not necessary that the plaintiff be proved to be impecunious but it must be shown that the litigation was beyond the plaintiff’s financial means.  While risk must be present, it alone does not justify a premium – counsel for the plaintiff must also achieve an outstanding result.”

On the upcoming appeal to the Supreme Court of Canada, counsel for the appellant (the defendant at the trial) is expected to argue that the law provides for awards of damages and costs, but that a premium falls into neither category. The appeal will deal with awards of premiums in principle, not just on the facts of this case.

Over the last year or two, costs have become an increasingly important aspect of civil lawsuits in Ontario because of the amount of money that is often at stake. Costs premiums, once unheard-of, are now commonly sought by plaintiffs’ counsel, on the basis of the risk assumed in the litigation and the result achieved at trial. It is to be hoped that the Supreme Court will clarify this area of the law.

The appeal will be heard sometime in 2006.

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