Divisional Court Says Partial Indemnity Costs To Be Calculated On Basis of Costs Subcommittee’s Rates, Not Counsel’s Actual Rates

Posted on February 20, 2013 by Stephen Cavanagh

UPDATE: Just a few days after the decision in Geographic Resources was released, Regional Senior Justice Charles T. Hackland has handed down his costs ruling in the widely-publicized case of Guergis v. Novak et al.  Justice Hackland too endorsed the Mantella principle (and in doing so, also followed another decision, Marcus v. Cochrane, in which Heather Williams was the winning counsel):

The plaintiff also challenges the hourly rates employed by defence counsel. The hourly rates employed by government defendants reflect the significantly discounted rates allowed under Treasury Board guidelines. The argument is that these rates, while discounted to meet Treasury Board guidelines, are nevertheless full indemnity rates and I am asked to discount these rates by a further amount of approximately 40% to reflect what would be a partial indemnity scale. I decline to give effect to this argument. In my opinion, the question of what constitutes an appropriate hourly rate for any claim for costs is determined by referring to the criteria in Rule 57.01 and not by the terms of the retainer between counsel and his or her client. This is subject to the proviso that costs must not be awarded in excess of counsel’s hourly rate in noncontingency fee situations. I would follow the decisions of this court in Mantella v. Mantella, [2006] O.J. No. 2085 (S.C.J. at para. 7 and Marcus v. Cochrane, [2012] O.J. No. 1663 (S.C.J.) at paras. 22-23.

The original post follows.

My partner Heather Williams has just received a decision from Justice Catherine Aitken, sitting as a judge of Divisional Court, that addresses an important costs issue. In Geographic Resources Integrated Data Solutions Ltd. et al. v. Peterson et al., Ms. Williams was retained by LawPRO on behalf of some of the defendants in this action. She successfully opposed a motion to amend the claim, which motion was heard by Master MacLeod. An appeal of that order was heard by Justice Aitken, sitting in Divisional Court. It was the costs of the appeal that were in issue in the most recent ruling.

The defendants were seeking payment of their costs of the appeal, on a partial indemnity basis. They argued that the partial indemnity rates set out in the “Information for the Profession” table published by the Costs Subcommittee of the Civil Rules Committee, should be the basis of calculating their costs. Using that approach, the defendants submitted that an award of costs in the amount of $10,026.89 was appropriate.

However, this figure was the same as the amount that was actually charged to the client, LawPRO. The issue in the case was: does that fact make any difference to the fixing of costs? The answer, it turns out, is “no”.

Counsel for the plaintiffs submitted that the partial indemnity costs should be computed as 60% of actual costs, which, in this case, would have been $6,117.09. (The partial indemnity costs that the plaintiffs themselves had sought in their Form 57B totalled $10,116.82. That sum had been calculated as 60% of their “full indemnity”, which presumably means “actual”, rates.)

In making their argument for costs of $10,026.89, the defendants relied upon Mantella v. Mantella 2006 CanLII 17337 (ON SC), (2006), 27 R.F.L. (6th) 76 (S.C.J.), a decision of Justice Corbett. In that case, His Honour said this:

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.

While our office has relied upon the Mantella case with some success in a number of Superior Court cases, for the proposition that our clients’ partial indemnity costs could equal the actual fees charged, the Geographic Resources decision is the first time, to our knowledge, that the Mantella principle has been considered by an appellate court. Justice Aitken held that Mantella had not been “trumped” by older Court of Appeal cases upon which counsel for the plaintiff had relied and she applied the decision here.

Her Honour’s approach makes it clear that the fixing of costs is, for the most part, an objective, not a subjective exercise. She began by looking at the Costs Subcommittee’s “Information for the Profession”, which can be found immediately before Rule 57 in the Carthy or Watson & McGowan editions of the Rules.

That table sets out maximum partial indemnity hourly rates for counsel of various levels of seniority, up to 20 years plus, for which the maximum is $350.00 per hour.

Continue reading →

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Threshold Motion Results in Dismissal of Action (But Jury Awards $58,000.00 for Loss of Competitive Advantage)

Posted on February 19, 2013 by Stephen Cavanagh

Here’s a somewhat puzzling couple of decisions. In Jennings v. Latendresse, 2012 ONSC 6982 (CanLII), Justice John Cavarzan heard a threshold motion after the jury in this MVA trial had retired. In the decision linked to in the previous sentence, he granted the motion. However, what is odd is that he then proceeded to dismiss the entire action.

This would not be surprising if the only claim had been one for non-pecuniary damages, to which the Insurance Act threshold would apply. However, in reasons subsequently released at 2013 ONSC 1017 (CanLII), in which he dealt with the issue of costs, His Honour said that although the jury had found that the plaintiff was “not entitled to non-pecuniary general damages nor any past income loss”, it had awarded to the plaintiff “the sum of $58,000.00 for loss of competitive advantage and marketability”. Yet the second set of reasons reiterated that the action had been dismissed outright, notwithstanding the award for loss of competitive advantage.

Costs were awarded on a partial indemnity basis, but with no submissions having been made on behalf of the plaintiffs. Justice Cavarzan noted that Rule 49 did not apply because the plaintiff had failed to recover judgment. But why that would be so, in the face of the jury’s award, is escaping me.

It has been suggested to me by a prominent local defence practitioner, that the proper interpretation of this decision is that loss of competitive advantage is a form of non-pecuniary general damages and therefore, the threshold ruling would bar this claim too. I have my doubts about this position, but the lawyer in question assured me that she intends to cite the Jennings decision as authority for it in the future!

(There is also the oddity of the jury having found that the plaintiff had recovered, yet also finding that she would still suffer a loss of competitive advantage.)

 

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“Declining Prospects”: A Book Review

Posted on January 6, 2013 by Stephen Cavanagh

This is something new for this blog: a book review. I am posting it because I have just finished reading a book that I think will be of interest to many of the blog’s readers.

The book, published in 2012, is Declining Prospects: How Extraordinary Competition and Compensation Are Changing America’s Major Law Firms, written by Michael H. Trotter, a partner at the Atlanta firm of Taylor English LLP. The latter is one of what Mr. Trotter calls “New Model” law firms that are increasingly taking business away from the large business law firms.

Although the focus of the book is more on the transactional side of business law, I found many of Mr. Trotter’s insights and analyses to be applicable to litigation firms too. The sorts of changes that he describes are undoubtedly coming to litigation practices too; they might just take a bit longer to arrive.

The book is a fascinating and very well-documented study of the rise of the major law firms in the United States and, if not their fall, at least a profound upheaval that he says is now underway and is likely to accelerate in the coming years. I think that much of what he has to say is relevant to the national (and international) firms in Canada. If I were a partner (or even more so, an associate!) at one of those firms, even one practising in litigation, I’d be paying close attention to what Mr. Trotter has to say.

(Frankly, the book is also very relevant to small firms and even sole practitioners, although it might actually be good news for many of them, which is not the case with the large firms.)

In a nutshell, Mr. Trotter posits that large business law firms in the United States, which have become immensely profitable, are going to experience a significant downturn in their revenues as a result of a number of factors and that this will force them to re-think their entire business model. Of course, most of what he has to say would apply to those firms’ Canadian equivalents too.

Mr. Trotter charts the meteoric rise of Big Law in the U.S., from post-World War II to the present. Since 1985, he says, the gross revenues of the top 50 firms have increased by more than 1,300% and Profits Per Partner (“PPP”, an acronym that appears many times in the book) for those firms has increased by about 450 percent.

For the most part, those firms are organized on what Mr. Trotter calls, “the New York model”: “a large and highly leveraged firm with relatively few equity partners and a relatively large number of lawyer-employees, high charges by the hour or otherwise, and high billable hour requirements–all supported by a large staff of non-lawyer support personnel.” He notes that overhead for large law firms typically ranges from 50-70 percent. In order to achieve the level of profitability that they have, with that level of expenses to cover, those firms are usually  highly-leveraged (at least two associates to each equity partner and often ratios of 5:1 or even 6:1), billing at very high hourly rates and with billable hour targets of 2,000 hours per year or more.

One of the biggest drivers of cost for law firms, Mr. Trotter notes, has been salaries of associate lawyers. In 1960, a first-year associate at a major New York law firm was paid about $6,000 ($44,222 in 2010 dollars) but in 2008, starting salaries in New York reached $160,000. Firms paid ever-increasing salaries in order to attract the best law school graduates. Even such high salaries as these were justifiable because of the profitability of first-year lawyers billing 2,000 hours at the rate of $250 that he says is commonplace today. Continue reading →

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Senior Partner and Junior Associate

Posted on November 25, 2012 by Stephen Cavanagh

The CCLA’s “Montebello at Mont Tremblant” Civil Litigation conference was held this weekend. This was the conference’s first year at its new location. It was a great success and congratulations go to our own Heather Williams who co-chaired the conference … Continue reading →

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Judge Finds that Insurer Can’t Incorporate Statutory Conditions’ One-Year Limitation Period Into Policy as Contractual Term

Posted on November 16, 2012 by Stephen Cavanagh

Mr. Justice Michael Quigley has handed down a rather significant ruling in which he dealt with the recurring issue of the limitation period that applies to property insurance policies. His decision represents, in my view, a marked departure from the traditional caselaw in this area.

In Boyce v. The Co-operators General Insurance Company, 2012 ONSC 6381 (CanLII), the plaintiffs were husband and wife and operated a women’s fashion boutique in Merrickville. Just before Hallowe’en, 2010, they discovered a foul odour emanating from the store. The police concluded that they had been victims of vandalism.

The store was insured by The Co-operators. The insurer denied the claim, contending that  the smell had been caused by a skunk and that this was not covered under their policy. In the denial letter to the insureds, Co-operators had said that “any legal proceeding against the insurer is ‘absolutely barred’ unless commenced within one year after the loss or damage occurs”.

The insureds sued Co-operators but the statement of claim was not issued until February 17, 2012, more than one year after the loss (but less than two years). On this motion, Co-operators moved before Justice Quigley for summary judgment, arguing that the claim was prescribed by the one year limitation period.

The insurer argued that although the Limitations Act, 2002 makes the limitation period two years for most claims, the one year limitation period contained in s. 148 of the Insurance Act is expressly preserved by the Limitations Act, 2002. (Section 148 sets out the statutory conditions for policies to which Part IV of the Act applies: “insurance against the loss of or damage to property arising from the peril of fire in any contract made in Ontario except [and then a number of exceptions are listed, including “where the peril of fire is an incidental peril to the coverage provided”]”)

Justice Quigley noted that the policy in question was a multi-peril one but that it listed the “Statutory Conditions” (which included statutory condition 14, containing the one-year limitation period) and added the following provision:

The Statutory Conditions apply to the peril of fire and as modified or supplemented by forms or endorsements attached apply as Policy Conditions to all other perils insured by this Policy.

The insurer also submitted that s. 22 of the Limitations Act, 2002, did not prohibit an agreement with the insured, varying the limitation period, because that section does not apply to “business agreements” which, it said, this was.

The plaintiffs, on the other hand, argued that the claim was governed by the two-year limitation period in s. 4 of the Limitations Act, 2002. They said that the one-year limitation period contained in statutory condition 14 did not apply to all-risk policies, such as the one in question.

Justice Quigley found for the plaintiffs (the insureds). Not only did he dismiss Co-operators’ motion, he expressly found that the two-year limitation period applied. Thus, unless the ruling is disturbed on appeal, The Co-operators will not be able to raise a limitation defence at trial.

His Honour referred to the Supreme Court of Canada’s decision in KP Pacific Holdings Ltd. v. Guardian Insurance Company of Canada, [2003] 1 S.C.R. 433, which is certainly the leading authority in this area. That case had considered whether fire should be viewed as an “incidental peril” in a multi-peril policy. Dealing with a B.C. statute, the Supreme Court ruled that the policy in question was governed by the Act’s general provisions, rather than those dealing with “fire insurance”.

Justice Quigley concluded that fire was an “incidental peril” in the Co-operators’ policy and that therefore, Part IV of the Insurance Act did not apply. The remaining question was whether the limitation period had been varied by agreement pursuant to s. 22 of the Limitations Act, 2002.

Turning his attention to that issue, Justice Quigley referred to a decision of Justice Beth Allen in Bell Canada v. Plan Group Ins., 2012 ONSC 42 (CanLII), in which Her Honour had dealt with the requirements for “agreements” under s. 22 of the Limitations Act, 2002. Justice Quigley extracted the following principles from the Bell Canada case:

My reading of that decision suggests that an “Agreement” under s. 22 must include the following:

1. specific reference to the statutory limitation period;

2. clear and unequivocal language that the parties are intending to vary the application of the statutory protection contained in the applicable limitation period; and

3. provisions which clearly alert the prospective claimant that they are foregoing a statutory right to a longer limitation period within which to make a claim.

Applying those criteria to the case before him, Justice Quigley found that the steps taken by The Co-operators had fallen well short. He said that the policy language “misleadingly suggests that the limitation period contained in the ‘statutory conditions’ were mandated by legislation, not by contract.” Continue reading →

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Broker Liable to Property Owner for Insurer’s Denial of Coverage Based on Vacancy Exclusion

Posted on September 14, 2012 by Stephen Cavanagh

In Newbigging et al. v. M. Butler Insurance Brokers Ltd.et al., 2012 ONSC 5174 (CanLII), Superior Court Justice Theresa Maddalena dismissed an appeal from a decision of a Small Claims Court judge who had awarded damages against an insurance broker. At trial, the broker had been held liable to a couple who owned a rooming house. The rooming house had suffered water damage while the building was unoccupied. The insurer, Lloyd’s Underwriters, denied coverage, relying on a vacancy exclusion, which read as follows:

“This peril does not include loss or damage…[o]ccurring while the building is under construction or vacant even if permission for constructions or vacancy has been given by us.”

As a result, the insureds sued the broker, alleging that he had failed to explain the vacancy exclusion to it. The broker countered by arguing that the insureds were the authors of their own misfortune because they had failed to read the policy or ask any questions about it.

The insureds admitted having received the policy and having acknowledged, signed and returned it to the broker. They also admitted that they had not read the policy. However, they took the position that they had relied on the expertise of the broker. The insureds also contended that the policy for the rooming house was a new one for them and that they had only had homeowner’s insurance before this.

Justice Maddalena found that the Small Claims Court trial judge had correctly applied the law as laid down in the well-known Court of Appeal decision in Fine’s Flowers Ltd. , et al. v General Accident Insurance Co., of Canada et al. (1979) 17 O.R. (2d) 529. At the Small Claims Court trial, it was found that the insureds had “looked to [the broker] to provide coverage for a rooming house” and that the broker had “advised that this required a special rental policy”. It was also found that “[t]he agent made specific recommendations about a specialized rental policy for the rooming house and thus had an obligation and duty to advise of the specific exclusions under the policy.”

In dismissing the broker’s appeal, Justice Maddalena said that “[t]he trial judge thus correctly concluded…I do find that the defendant did breach his obligation in not telling the Plaintiff that at any time this place was vacant, under the definition, that there would be limitations to coverage. It put the Plaintiff at risk of having the place vacant…I do find the loss is directly related to the failure to meet the obligation of the insurance agent to let him know about the vacancy gaps in the policy…”

This decision is difficult to accept. Both Justice Maddalena and the trial judge seem to have placed a great deal of emphasis on the fact that the insureds were inexperienced and that this risk required a specialized “rental policy”. That reasoning might be easier to accept if the basis for the denial of coverage had been an esoteric provision found only in such policies. But a vacancy exclusion is a standard provision in most homeowner’s policies and the insureds admitted that they had had such coverage before. Following the reasoning in this case to its logical conclusion, an insured can avoid being bound by the terms of the insurance contract by not reading the policy. This places a heavy onus on the broker, to explain every single detail of the policy to the insured, including such common provisions as a vacancy exclusion.

 

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Rule 76 Cases Between Regular Trials and Small Claims Court for Costs Purposes

Posted on September 14, 2012 by Stephen Cavanagh

Worth noting: Justice Kevin W. Whitaker has held, in Moore v. CHRY Community, 2012 ONSC 5122 (CanLII), that for purposes of awarding costs, actions tried under simplified procedure occupy a position between Small Claims Court trials and trials held under ordinary procedure in the Superior Court:

I accept the submissions of the plaintiff that costs awarded under the Simplified Rules have in a number of cases been significantly lower than under the ordinary provisions and further that this understanding should properly inform the reasonable expectations of the parties. It is appropriate for purposes of determining costs to consider these types of proceedings as occupying a half way house between regular trials and those in the Small Claims Court.

His Honour also noted that “Where the law is unsettled or unclear, costs orders may be otherwise reduced.”

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Court of Appeal Says Breach of Covenant to Insure Gives Rise to Remedy In Damages

Posted on August 1, 2012 by Stephen Cavanagh

In Papapetrou v. 1054422 Ontario Ltd., the Court of Appeal dealt with a question that has hitherto received practically no attention from the courts: what are the consequences of a named insured party breaching a covenant to have another party made an additional insured under the named insured’s insurance policy? The Court held that the party in breach (the named insured) became liable in damages to the party to whom the promise was given. The measure of damages was found to be the promisee’s cost of defending an action brought against it by a third party.

In my view, there are a number of problems with the Court of Appeal’s decision. I do agree with its finding, that the breach of the covenant to insure is to render the promisor liable in damages to the promisee. If the Court meant to limit those damages to the promisee’s defence costs, then I disagree. What seems more likely is that it expected that issue to be dealt with in another court, at a later date.

The second and probably more significant difficulty that I have with this decision is the Court having construed the scope of the covenant to insure by referring to an indemnity or “hold harmless” covenant contained within the same contract. It seems to me that this approach is simply wrong and is likely to lead to a number of problems in other cases.

Background

This dispute arose out of an accident in which the plaintiff, Papapetrou, had slipped and fallen at a building managed by The Cora Group, a defendant in the action. The owner of the building, 1054422 Ontario Limited, was also sued.

(Somewhat confusingly, the Court of Appeal’s reasons speak only of The Cora Group, even though the motion from which the appeal was taken had been brought by both The Cora Group and 1054422 Ontario Limited.)

Collingwood Landscape Inc. had contracted with either 1054422 or Cora Group (the Court of Appeal said it was the latter but the motions judge’s reasons indicate that it was the former) to provide winter maintenance and snow removal services at the building. Under the terms of the contract, Collingwood was required to “include the Owners as an additional insured [sic]” in its commercial general liability insurance policy. (The wording of the actual covenant to insure is not clear. The passage quoted in the previous sentence appears in quotations in the Court of Appeal’s reasons. How the property manager, The Cora Group, qualifies as “the Owners” is not explained, but presumably, the word was defined in the contract. The motions judge’s reasons say that the contract “also required them [Collingwood] to name the owners (1054422 Ontario Limited and The Cora Group Inc.) as additional insureds under the policy.”) Continue reading →

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C.A. Says Conviction for Careless Driving Doesn’t Allow Auto Insurer to Deny Coverage On the Basis of Intentional Act

Posted on June 24, 2012 by Stephen Cavanagh

In Savage v. Belecque, released last week, the Court of Appeal considered whether Allstate Insurance had been justified in denying coverage to a young driver and to his mother, the owner of the car, on the basis that the act that had caused the plaintiff’s injury was an intentional one. It upheld the ruling of the judge hearing a motion for summary judgment, that Allstate owed a duty to defend and to indemnify.

The injured plaintiff was a 14-year girl. She was on skates. She had spoken with a passenger in the back seat of the Belecque car and had asked for a cigarette. The car was either stationary or moving very slowly. The passenger grabbed her jacket through the window as, apparently, a bit of horseplay. The driver accelerated, dragging the plaintiff for some distance, at which time she fell. The driver decided to turn around and go back and spun the car rapidly in so doing. He did not see the plaintiff, still on the ground, and struck her in the course of this manoeuvre.

Allstate had both an auto policy covering the car and a homeowner’s policy that covered the parents of the driver. It denied coverage on the basis of late notice of the claim and also on the basis that the injury had been the result of an intentional act.

Allstate’s position had been rejected by the motions judge, Mr. Justice Gregory Ellies and Allstate appealed. No appeal was taken from the finding that adequate notice of the claim had been given, so the main issue was whether the motions judge had erred in holding that Allstate had not been entitled to deny coverage on the basis that the act giving rise to the claim was an intentional one.

It was conceded that the auto policy did not contain an exclusion for claims arising from intentional acts. However, Allstate relied on s. 118 of the Insurance Act, which provides as follows:

Unless the contract otherwise provides, a contravention of any criminal or other law in force in Ontario or elsewhere does not, by that fact alone, render unenforceable a claim for indemnity under a contract of insurance except where the contravention is committed by the insured, or by another person with the consent of the insured, with intent to bring about loss or damage, but in the case of a contract of life insurance this section applies only to insurance undertaken as part of the contract whereby the insurer undertakes to pay insurance money or to provide other benefits in the event that the person whose life is insured becomes disabled as a result of bodily injury or disease.

The young driver had been convicted of careless driving and Allstate relied on this fact in support of its argument that the plaintiff’s injury had resulted from an intentional act. However, the Court of Appeal agreed with the motions judge, that this was not a basis for the application of s. 118:

Since that conviction only related to Michel’s [the driver’s] execution of the impugned manoeuvres, in light of the other evidence no inference could be drawn that Michel had any intention to cause damage or loss to Amy [the plaintiff].

(The “other evidence” referred to in this passage was in the form of affidavits. The Court of Appeal accepted that such evidence was properly receivable on the motion because not only Allstate’s duty to defend, but also its duty to indemnify, were in issue. The Court of Appeal agreed that none of that evidence pointed to an intention to cause harm. It also rejected the argument, that a claim for punitive damages pointed to an allegation of intentional act. The Court found both a duty to defend (based on the pleadings} and a duty to indemnify (based on the evidence).)

The motions judge, Justice Ellies, had awarded to Allstate’s insureds costs on a full indemnity basis, in the amount of $180,168.29, which had been the amount claimed. It said that “[t]here is no principle of law requiring a judge to reduce a requested costs award automatically or by a certain percentage on an unfounded assumption that the claimed amount must be inherently excessive.” It also acknowledged that the motions judge had “specifically considered and explained why counsel’s hourly rates charged to the Belecques as individual litigants might reasonably be higher than those charged by counsel to a corporate insurer”.

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Costs Decision Might Dictate New Approach to Rule 49 Offers

Posted on June 22, 2012 by Stephen Cavanagh

In what could turn out to be a very significant decision, Madam Justice Giovanna Toscano Roccamo has awarded the costs of a nine-week trial to the plaintiffs in a personal injury action, even though the jury’s award was less than the defendant’s offer to settle. Her Honour’s decision was based on the form of the offer to settle. The offer was for a lump sum, plus interest and costs and she ruled that that offer did not satisfy the requirements of Rule 49. On that basis, she held that the plaintiffs were entitled to costs throughout, in the amount of $578,742.28.

The reasons have not yet been released on CanLII, but a PDF is attached below.

In Elbakhiet v. Palmer, the main plaintiff had been injured in a car accident on July 7, 2007. Her complaints were of soft tissue injuries, depression etc.

On February 10, 2012, the defendant served an offer to settle for $145,000 plus prejudgment interest in accordance with the Courts of Justice Act and costs in an amount to be agreed upon or assessed.

On April 27, 2012, after nine weeks of trial, the jury awarded damages totalling $144,013.07 (not including Insurance Act deductibles). The damages were for non-pecuniary loss, future income loss, future care costs and three FLA claims. When prejudgment interest was added, the total (again, excluding deductibles) was $153,999.37.

There was an issue as to whether the defence offer had been made within the time provided by Rule 49.03 but Her Honour ruled that it had been.

However, Justice Toscano Roccamo accepted the argument of counsel for the plaintiffs, that “because the Defendants offered payment of all of the Plaintiffs’ damages in one lump sum, it [the defence offer] lacks certainty on its face in presenting no clear formula for the calculation of prejudgment interest under s. 128 of the Courts of Justice Act, which provides for different rates of interest for different types of claims.”

The defendant argued that its intention had been to pay interest at the rate of 5.0% on the entire offer of $145,000 but the plaintiffs submitted that this could not be divined from the wording of the offer itself.

Citing the minority decision of Justice Carthy in the Court of Appeal’s decision in Rooney (Litigation Guardian of) v. Graham (2001), 53 O.R. (3d) 685 (C.A.), the trial judge said:

In evaluating a Rule 49 offer, I must be satisfied that the terms of the offer are fixed, certain and capable of clear calculation in order to attract potentially severe costs consequences under Rule 49. Uncertainty or lack of clarity in any aspect of an offer may prevent a party from showing that the judgment obtained was “as favourable as the terms of the offer to settle, or more or less favourable” as the case may be, under Rule 49.10 (3).

In the following passage, Her Honour appeared to require that a Rule 49 offer be broken down among various heads of damages (and presumably, among various plaintiffs):

Where a plaintiff’s claim is a mixed one, as is the case before me, or involves different heads of damages and an offer is presented as a lump sum, a court is unable to calculate a fixed dollar amount in prejudgment interest without a breakdown of the differing heads of damages that attract different rates of interest.

Accordingly, she awarded to the plaintiffs their costs of the entire action, fixed at $578,742.28.

This decision is troubling. Rarely have I seen an offer to settle (on the plaintiffs’ or the defendants’ side) that would satisfy the criteria outlined in this decision. (In fact, according to the reasons, the plaintiffs’ own offer, in this very case, would not have qualified. It would have required “payment by the defendants of all claims for damages and prejudgment interest in the total amount of $600,000 plus costs on a partial indemnity basis to the date of the offer and on a substantial indemnity basis thereafter as agreed or fixed by the court”.)

If it is in fact the law, that to be effective, offers to settle must be broken down, not just among plaintiffs but among heads of damages too, that would seem to require that a number of “mini-offers” be made, one for each head of damages, for each plaintiff. How would such offers be compared with the outcome at trial?  Will awards for each head of damages be compared with the relevant provision of the offer? What if the award for one head is much more favourable than the offer but for another head, is less favourable? Can the various parts of the award be netted against each other to compare the overall outcome?

It seems to me that to adopt the approach endorsed by Justice Toscano Roccamo would be to invite the sorts of distributive costs awards that the Court of Appeal has repeatedly discouraged (see, for example, Pearson v. Inco Ltd., 2006 CanLII 7666 (ON CA)).

There might be a further issue in this case. The award of partial indemnity costs was, as mentioned, $578,742.28. The award to the plaintiffs was only $144,013.07 (before the application of $50,000 in deductibles). According to s. 3(1) of the Contingency Fee regulation to the Solicitors’ Act:

 In addition to the requirements set out in section 2, a solicitor who is a party to a contingency fee agreement made in respect of a litigious matter shall ensure that the agreement includes the following:

1. If the client is a plaintiff, a statement that the solicitor shall not recover more in fees than the client recovers as damages or receives by way of settlement.

And, to similar effect, s. 7 of the same regulation:

Despite any terms in a contingency fee agreement, a solicitor for a plaintiff shall not recover more in fees under the agreement than the plaintiff recovers as damages or receives by way of settlement.

Numerous decisions have held that an award of costs cannot exceed what the party receiving the costs has actually had to pay his or her lawyer (see, for example, Baird v. Botham, 2010 ONSC 3057 (CanLII), at para. 11). If the plaintiffs had entered into a contingency fee agreement, they presumably could not have had to pay their lawyers more than $144,013.07. If that is so, it is difficult to understand how partial indemnity costs in this case could reach $578,742.28.

This decision raises some important issues and its impact potentially extends well beyond the realm of personal injury law. It is my understanding that the defendant will probably seek appellate review of the costs decision, so further guidance might be forthcoming. In the meantime though, litigants and their lawyers would do well to give careful consideration to Justice Toscano Roccamo’s ruling in preparing offers to settle.

 

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