Costs Premium Refused

In the wake of the case that we forwarded last week, Russett v. Bujold, another decision was released today that deals with the issue of “risk premiums” on awards of costs. In Grass v. Women’s College Hospital , attached, Madam Justice Susan Lang provides a useful summary of the “premium” cases (at paragraphs 22-33).

This particular case was somewhat unusual, in that it proceeded all the way to the Supreme Court of Canada, before being sent back for a new trial. It was a medical malpractice case in which damages had been agreed at $1.3 million: the only issue was liability. In the second trial, the defendant was found liable. Today’s decision dealt with interest and costs.

Plaintiff’s counsel had entered into an agreement with their clients, providing for a “premium” (as between solicitor and client) of 20% of the damages in addition to partial indemnity costs. Justice Lang estimated that this solicitor-client premium would amount to about $340,000 (in addition to costs recovered from the defendant). Before Lang J., plaintiffs’ counsel were seeking a further premium from the defendant, in the amount of $265,000.

Justice Lang reviewed the caselaw (although not the Russett decision of Justice Power, released last week). She noted that in some cases, a premium has been awarded in recognition of the risk that counsel assumes in conducting the litigation with no certainty of being paid. (Russett was one such case.)

In other cases (such as Bakhtiari v. Axes Investments Inc.), the premium is given because of perceived misconduct by the party paying the costs.

Justice Lang noted that “Medical malpractice litigation, by its nature, carries an inherent risk and requires a certain level of skill. That alone does not justify an award of costs.”

Her Honour posed some interesting questions about premiums:

1. if plaintiffs are entitled to recover premiums from defendants, is the reverse true, such that successful defendants can be paid premiums for having had to defend the case for a long time?

2. who is to be the beneficiary of the premium? In this case, it appears thatn that the plaintiffs’ legal bill was not going to be reduced by the amount of any premium recovered from the opposing party.

3. if a premium is to be awarded, on what basis should it be calculated? Here, plaintiffs’ counsel was seeking 6.3% on docketed fees of $670,000 and disbursements of $124,000. Justice Lang elected not to give a premium but said that if she had been disposed to do so, she would have calculated it at 6% and then allowed half of that rate: 3%. (In last week’s Russett decision, a premium of 9% was sought and while Power J. declined to apply this approach, the premium of $25,000 that was actually ordered was in the range of 9 percent.) In endorsing this approach in Grass, Lang J. followed Bakhtiari v. Axes Investments, where Justice Lane said this:

In his affidavit, Mr. Outerbridge set out his qualifications, as a law firm manager and an author, to express an opinion on the cost to his firm of carrying the case from early 1995 to the present without payment. He said that the cost exceeded $350,000. He was not cross-examined, nor was any contrary evidence filed from others knowledgeable in the field. He asks for a premium of $350,000 over the fixed costs to defray that cost and to acknowledge the risk borne by the firm and the social utility of encouraging such firms to carry deserving cases through until judgment. I have already reviewed this claim and found that such a premium was warranted in this case. Dealing with the amount, I observe that the parties have agreed on the PJI calculation which employed a rate of 6% on the non-pecuniary damages. This seems to be a helpful estimate of the cost of money during the period, although some borrowers would pay more. There is no evidence of the actual rate of interest charged by the plaintiffs’ counsel’s bankers. This is not, however, a purely arithmetical calculation, but a method of testing the requested figure. At a nominal rate of 6%, using 3% because of the timing of the accumulation, the cost of carrying the accumulating fees ($1.12 million) and disbursements (approx. $200,000), would alone exceed the requested premium, leaving nothing for the risk and the social utility aspects. On this basis, the requested $350,000 is not unreasonable, and I allow it.)

4. In a worrying comment, Justice Lang obsreved that “There is, however, a growing expectation on the part of defendants that they may be called upon to pay such a premium.”

In the end, Lang J. did not award a premium in this case. However, she did fix partial indemnity costs at $350,000, plus disbursements of $120,598.27.

We hope that this Update will be useful to you.

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