Boucher et al. v. Public Accountants Council for the Province of Ontario et al.

[Indexed as: Boucher v. Public Accountants Council for the Province of Ontario]

71 O.R. (3d) 291

[2004] O.J. No. 2634

2004 14579

Docket No. C40044

Court of Appeal for Ontario,

Abella, Cronk and Armstrong JJ.A.

June 22, 2004

Civil procedure -- Costs -- Costs grid -- Partial indemnity costs -- Fixing costs of abandoned application -- Factors in assessing costs -- Court to consider result produced and whether result is fair and reasonable -- Overall objective of fixing costs is to fix amount that is fair and reasonable for unsuccessful party to pay in particular circumstances, rather than amount fixed by actual costs incurred by successful litigant -- Error in principle to grant award of costs on partial indemnity basis that is virtually same as award on substantial indemnity basis -- Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 37.09(3), 57.01(1), (3), (3.1).

In earlier proceedings, the appellants, who were Certified General Accountants, and two other parties sought to have the court appoint disinterested persons to hear their applications for public accounting licences. Central to these proceedings was the allegation that the Public Accountants Council for the Province of Ontario ("PA Council") was controlled by the Institute of Chartered Accountants of Ontario ("CA Institute"), which was authorized by the Public Accountancy Act, R.S.O. 1990, P.37, to appoint 12 of the 15 members of the PA Council. Lax J. stayed the earlier proceedings on the basis that the court lacked jurisdiction to make the order requested. Lax J. fixed costs against the appellant in the amount of $97,563.

The appellants commenced the immediate application and alleged reasonable apprehension of bias against the PA Council in its review of applications for licences to practise public accounting by members of the Certified General Accounting Association of Ontario. By court order, the material for the application before Lax J. was used in the new application.

The respondents moved to have the application quashed; however, before the application was heard, it was abandoned. The respondents moved for costs pursuant to rule 37.09(3) on a substantial indemnity basis. Epstein J. fixed the costs on a partial indemnity basis, including disbursements and GST as follows: PA Council, $88,896.45; individual respondents, $60,033.96; and CA Institute, $38,752.10 for a total of $187,682.51. (This sum was only $14,528.86 less than the amount claimed on a substantial indemnity basis.)

The appellants appealed and raised the grounds that (1) costs should have been referred for assessment and not fixed; and (2) the costs, which were calculated in accordance with the costs grid, were excessive.

Held, the appeal should be allowed.

Epstein J. did not err in fixing costs rather than having costs referred to an assessment officer. There is now a presumption that costs shall be fixed by the court unless the court is satisfied that it has before it an exceptional case. If a judge is able to effect procedural and substantive justice in fixing costs, he or she ought to do so. There was no basis upon which to interfere with the motion judge's discretion not to refer the costs for assessment. [page292]

However, the costs award calculated in accordance with the costs grid was excessive. While it was appropriate to do the costs grid calculation, it was also necessary to consider the result produced and determine whether in all the circumstances the result is fair and reasonable. Subrule 57.01(3) lists a broad range of factors that the court may consider in exercising its discretion to award costs, and the fixing of costs is not simply a mechanical exercise. The fixing of costs does not begin or end with the calculation of hours times rates. The overall objective is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular circumstances, rather than an amount fixed by the actual costs incurred by the successful litigant.

Awarding $187,682.51 was not fair and reasonable in the circumstances of this case; the costs were so excessive as to call for appellate interference. In deciding what is fair and reasonable, the expectation of the parties concerning the quantum of a costs award is a relevant factor. Consideration should be given to the fact that the costs in the earlier proceeding were fixed in the amount of $97,563 by Lax J. While there were differences between the two proceedings, the foundation upon which the two applications were prosecuted was based on the control of the PA Council by the CA Institute. The fact that all parties were satisfied to have the same evidentiary record in both cases suggested that there was much in common between the two applications. Further, the respondents filed no evidence, conducted no cross-examination and advanced substantially the same arguments in support of the motions to quash. Finally, there was no proportionality between the costs claimed on a substantial indemnity scale and the costs awarded on a partial indemnity scale. The granting of an award of costs said to be on a partial indemnity basis that is virtually the same as an award on a substantial indemnity basis constitutes an error in principle in the exercise of the motions judge's discretion, particularly when the judge rejected a claim for a substantial indemnity award. These factors suggested that the amounts awarded on a partial indemnity basis should be significantly reduced. A fair and reasonable award, taking into consideration all the factors discussed above, was as follows: PA Council, $30,000; individual respondents, $20,000; CA Institute, $13,000, for a total of $63,000, inclusive of disbursements and Goods and Services Tax.

APPEAL from an order of Epstein J. dated November 29, 2002, allowing costs for an abandoned application pursuant to rule 37.09(3) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

Cases referred to

Boucher v. Public Accountants Council for the Province of Ontario, [2000] O.J. No. 3126, [2000] O.T.C. 694 (S.C.J.); Canadian Pacific Ltd. v. Matsqui Indian Band, 1995 145 (SCC), [1995] 1 S.C.R. 3, 122 D.L.R. (4th) 129, 85 F.T.R. 79n, 177 N.R. 325, [1995] S.C.J. No. 1; Hamilton v. Open Window Bakery Ltd., [2004] 1 S.C.R. 303, [2004] S.C.J. No. 72, 235 D.L.R. (4th) 193, 316 N.R. 265, 2004 SCC 9, 40 B.L.R. (3d) 1; Lawyers' Professional Indemnity Co. v. Geto Investments Ltd., [2002] O.J. No. 921, [2002] O.T.C. 78, 17 C.P.C. (5th) 334 (S.C.J.); Murano v. Bank of Montreal (1998), 1998 5633 (ON CA), 41 O.R. (3d) 222, 163 D.L.R. (4th) 21, 41 B.L.R. (2d) 10, 22 C.P.C. (4th) 235, 5 C.B.R. (4th) 57 (C.A.); Stellarbridge Management Inc. v. Magna International (Canada) Inc. (2004), 2004 9852 (ON CA), 71 O.R. (3d) 263, 187 O.A.C. 78, [2004] O.J. No. 2102 (C.A.); Toronto (City) v. First Ontario Realty Corp. (2002), 2002 49482 (ON SC), 59 O.R. (3d) 568, [2002] O.J. No. 2519 (S.C.J.); Wasserman, Arsenault Ltd. v. Sone, 2002 45099 (ON CA), [2002] O.J. No. 3772, 164 O.A.C. 195, 38 C.B.R. (4th) 119 (C.A.); Zesta Engineering Ltd. v. Cloutier (2002), 2003 C.L.L.C. 210-010, 2002 45084 (ON CA), 21 C.C.E.L. (3d) 164, [2002] O.J. No. 3738 (C.A.), supp. reasons (2002), 2002 25577 (ON CA), 21 C.C.E.L. (3d) 161, [2002] O.J. No. 4495 (C.A.), revg 2001 28294 (ON SC), [2001] O.J. No. 621, 2001 C.L.L.C. 210-024, 7 C.C.E.L. (3d) 53 (S.C.J.) [page293]

Statutes referred to

Courts of Justice Act, R.S.O. 1990, c. C.43, s. 131 Public Accountancy Act, R.S.O. 1990, c. P.37 Public Officers Act, R.S.O. 1990, c. P.45

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 37.09(3), 57.01, 58

David E. Wires, for appellants. Michael D. Lipton, Q.C., for the Public Accountants Council for the Province of Ontario. Cynthia Amsterdam, for Douglas J. Whyte, Alastair Skinner, Gilbert H. Riou, Ralph T. Neville, Ronald W. Mikula, Barry G. Blay, David H. Atkins, Jennifer L. Fisher, Jerald D. Whelan, Priscilla M. Randolph, Bryan D. Meyer and Thomas A. Hards. Robert D. Peck, for The Institute of Chartered Accountants of Ontario.

The judgment of the court was delivered by

[1] ARMSTRONG J.A.: -- This case is another chapter in the long simmering dispute between the Certified General Accountants and the Chartered Accountants concerning the practice of public accounting in Ontario. At issue in this litigation was the control of the licensing granting authority, the Public Accountants Council for the Province of Ontario, by a majority of members who were Chartered Accountants.

[2] The appellants, who are Certified General Accountants, brought an application for judicial review against the Public Accountants Council. The appellants alleged reasonable apprehension of bias against the Council in its review of applications for licences to practise public accounting by members of the Certified General Accountants Association of Ontario.

[3] Before the appellants' application was heard it was abandoned. The respondents then moved to have their costs fixed by a judge of the Divisional Court on a substantial indemnity basis. After a two-day hearing, Epstein J. fixed the respondents' costs, on a partial indemnity basis, at $187,682.51 inclusive of disbursements and Goods and Services Tax. The appellants now appeal from this costs order pursuant to leave granted by this court on May 22, 2003. [page294]

Background of the Proceedings

[4] The judicial review application had its genesis in the prior proceeding of Boucher v. Public Accountants Council for the Province of Ontario, [2000] O.J. No. 3126, [2000] O.T.C. 694 (S.C.J.) before Lax J. of the Superior Court. In the earlier proceeding, the appellants and two other parties sought to have the court appoint disinterested persons to hear the appellants' applications for public accounting licences. The appellants claimed that the court could do so under the Public Officers Act, R.S.O. 1990, c. P.45. The proceeding was stayed by Lax J. on the basis that the court lacked jurisdiction under the Public Officers Act to make the order requested.

[5] In granting the stay, Lax J. said [at paras. 17 and 37] in obiter dicta:

The particulars of bias described by the applicants are sympathetic, compelling and disturbing. They are offensive to fundamental notions of fairness. They invoke a primordial judicial instinct to intervene and second-guess what appears to be a flawed legislative scheme and what is a flawed process. . . .

Professional discipline is not in issue here, but professional licensure by an apparently biased tribunal is. Although the Court lacks jurisdiction to grant the proposed remedy under section 16 of the Public Officers Act, there may be other creative ways for the applicants to have their concerns addressed.

[6] Lax J. suggested that the appellants had other specific courses of action available to them which they could pursue.

[7] The appellants then commenced their judicial review application, naming as parties the same respondents with the addition of the Institute of Chartered Accountants of Ontario who had been an intervenor before Lax J. In their application, the appellants sought a broad range of remedies, including a declaration that the Public Accountants Council is institutionally biased in its granting of licences to practise public accounting. Central to the appellant's allegations of reasonable apprehension of bias is the fact that the Public Accountancy Act, R.S.O. 1990, c. P.37 authorizes the Institute of Chartered Accountants of Ontario to appoint 12 of the 15 members of Council.

[8] At the request of the appellants, Lax J. made an order that the materials used in the application before her should be filed in the judicial review application in the Divisional Court. However, this judicial review application was not one of the courses of action suggested by Lax J.

[9] The respondents moved to quash or stay the judicial review application as being premature on the basis that the appellants' [page295] applications for licence before the Public Accountants Council had not yet been adjudicated on the merits.

[10] The appellants then brought a motion to consolidate the motions to quash with two pending statutory appeals arising from the Council's refusal to grant licences. The consolidation motion was dismissed.

[11] The motions to quash were scheduled to be heard on May 27, 28 and 29, 2002. On May 8, 2002, counsel for the appellants advised by letter that they had received instructions to withdraw the application for judicial review and agree to the dismissal of the motions to quash on a without costs basis. The respondents insisted on the payment of their costs of the application and the motions to quash and advised that they would continue to prepare for the motions to quash pending resolution of the matter. The appellants served their notice of abandonment on May 17, 2002. The respondents then brought their motion to have their costs fixed.

[12] The motions judge fixed the costs of the application for judicial review and the motions to quash on a partial indemnity basis including disbursements and GST as follows:

Public Accountants Council of Ontario $ 88,896.45

Individual Respondents $ 60,033.96

Institute of Chartered Accountants of Ontario $ 38,752.10

Total $187,682.51

Grounds of Appeal

[13] The appellants raise the following grounds of appeal:

(i) the motions judge erred in fixing the costs of the abandoned application rather than referring them for assessment; and

(ii) the costs awarded are excessive in that they are approximately 178 per cent of the costs awarded in the proceedings before Lax J. that involved substantially the same parties and issues without deduction for any amount claimed.

Did the motions judge err in fixing costs?

[14] The appellants accept that the respondents are entitled to their costs of the abandoned application pursuant to rule 37.09(3) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, which provides: [page296]

37.09(3) Where a motion is abandoned or is deemed to have been abandoned, a responding party on whom the notice of motion was served is entitled to the costs of the motion forthwith, unless the court orders otherwise.

However, the appellants submit that those costs ought not to be fixed by a judge in accordance with the costs grid established by rule 57.01(3). The appellants rely upon rule 57.01(3.1), which states:

57.01(3.1) Despite subrule (3), in an exceptional case the court may refer costs for assessment under Rule 58.

Rule 58 sets out a code of procedure for the assessment of costs by an assessment officer.

[15] The motions judge concluded, correctly in my view, that there is now a presumption that costs shall be fixed by the court unless the court is satisfied that it has before it an exceptional case. The appellants submitted to the motions court and to this court that the case at bar is such a case. The motions judge, in deciding that this was not an exceptional case, said [at para. 52]:

Only if the assessment process will be more suited to effect procedural and substantive justice should the Court refer the matter for assessment. There must be some element to the case that is out of the ordinary or unusual that would warrant deviating from the presumption that costs are to be fixed. Neither complex litigation nor significant amounts in legal fees will be enough for a case to be exceptional. The judge should be able to fix costs with a reasonable review of the work completed without having to scrutinize each and every docket. If that type of scrutinizing analysis is required, then perhaps, the matter would fall within the exception and be referred to assessment: BNY Financial Corp.-Canada v. National Automotive Warehousing Inc., [1999] O.J. No. 1273 (Commercial List, Gen. Div.) (BNY Financial).

[16] I agree with the motions judge that if a judge is able to effect procedural and substantive justice in fixing costs, she ought to do so. See Murano v. Bank of Montreal (1998), 1998 5633 (ON CA), 41 O.R. (3d) 222, 163 D.L.R. (4th) 21 (C.A.) at p. 245 O.R., per Morden A.C.J.O.

[17] The appellants argued before us that an abandoned motion falls into the category of an exceptional case because the judge fixing the costs does not have the benefit of a hearing involving the presentation of evidence and legal argument. While there is no doubt that the judge who has heard a case is in the best position to determine a just costs award, it does not follow, that in the circumstances which exist here, the motions judge was obliged to decline the task.

[18] I also observe that rule 57.01(3.1) is discretionary. It provides that in an exceptional case, the trial judge may refer costs for assessment. It is not required that she do so. This is a somewhat complex case with several parties and a number of counsel, [page297] including one party with two senior counsel. Although another judge might have exercised his or her discretion under rule 57.01(3.1) differently, I see no basis upon which to interfere with the motions judge's discretion not to refer the costs for assessment.

Was the costs award excessive?

[19] The motions judge's decision is entitled to a high degree of deference. The standard of review for interfering with the exercise of the discretion by a judge of first instance was articulated by Lamer C.J.C. in Canadian Pacific Ltd. v. Matsqui Indian Band, 1995 145 (SCC), [1995] 1 S.C.R. 3, [1995] S.C.J. No. 1, at p. 32 S.C.R.:

This discretionary determination should not be taken lightly by reviewing courts. It was Joyal J.'s discretion to exercise, and unless he considered irrelevant factors, failed to consider relevant factors, or reached an unreasonable conclusion, then his decision should be respected. To quote Lord Diplock in Hadmor Productions Ltd. v. Hamilton, [1982] 1 All E.R. 1042, at p. 1046, an appellate court "must defer to the judge's exercise of his discretion and must not interfere with it merely on the ground that the members of the appellate court would have exercised the discretion differently".

[20] In a more recent case, Arbour J. said in Hamilton v. Open Window Bakery Ltd., [2004] S.C.J. No. 72, 2004 SCC 9, at para. 27:

A court should set aside a costs award on appeal only if the trial judge has made an error in principle or if the costs award is plainly wrong (Duong v. NN Life Insurance Co. of Canada (2001), 2001 24151 (ON CA), 141 O.A.C. 307, at para. 14).

[21] The appellants point out that the costs awarded in these proceedings are approximately 178 per cent of the costs awarded in the proceedings before Lax J. that involved the same parties and similar issues. The respondents, on the other hand, argue that the proceedings before Lax J. were significantly different from the abandoned judicial review application. However, it is to be noted that the same record was used in the judicial review application. When pressed in argument, counsel for the respondents had some difficulty in explaining the extent to which the factual substrata of the two applications differed. At the heart of both applications is the assertion that the Public Accountants Council of Ontario is effectively controlled by the Institute of Chartered Accountants of Ontario.

[22] Counsel for the appellants submitted that there was much duplication of the work done by the three sets of counsel for the respondents. They also drew attention to the fact that the Public Accountants Council retained another senior counsel to prepare their factum, resulting in a duplication of services. We were [page298] assured by counsel for the respondents that the bills of costs submitted to the motions judge were appropriately adjusted to take into account such duplication.

[23] The respondents also submitted that the appellants were the authors of their own misfortune. The appellants said that they abandoned their application for judicial review because the Ontario Red Tape Commission recommended changes to the Public Accountancy Act; and a panel appointed under the Agreement on Internal Trade found that the Act offended provisions of the Agreement. The appellants claimed that the reports of these two bodies addressed the issues of concern to them, causing them to abandon their application for judicial review. However, the respondents observed that the report of the panel appointed under the Agreement on Internal Trade was released on October 5, 2001 and the Red Tape Commission report was released on December 10, 2001. It was several months later that the appellants abandoned their application. The respondents submit that the lion's share of the costs were generated in this period of delay, and particularly after February 2002, when the dates for the motion to quash were fixed for May 2002. Although this delay caused some concern to the motions judge, she concluded [at para. 67] that:

In the circumstances of this case I do not find that the timing of the events that took place in the spring of 2002 leading up to the abandonment of the application was in bad faith or amounted to an abuse of the process of the court.

[24] The appellants submit that the motions judge accepted the bills of costs that were presented to her without any deductions. The bills were prepared in accordance with the calculation of hours times dollar rates provided by the costs grid. While it is appropriate to do the costs grid calculation, it is also necessary to step back and consider the result produced and question whether, in all the circumstances, the result is fair and reasonable. This approach was sanctioned by this court in Zesta Engineering Ltd. v. Cloutier, 2002 25577 (ON CA), [2002] O.J. No. 4495, 21 C.C.E.L. (3d) 161 (C.A.) at para. 4 where it said:

In our view, the costs award should reflect more what the court views as a fair and reasonable amount that should be paid by the unsuccessful parties rather than any exact measure of the actual costs to the successful litigant.

See also Stellarbridge Management Inc. v. Magna International (Canada) Inc. (2004), 2004 9852 (ON CA), 71 O.R. (3d) 263, [2004] O.J. No. 2102 (C.A.) at para. 97.

[25] Zesta Engineering and Stellarbridge simply confirmed a well settled approach to the fixing of costs prior to the establishment of [page299] the costs grid as articulated by Morden A.C.J.O. in Murano v. Bank of Montreal at p. 249 O.R.:

The short point is that the total amount to be awarded in a protracted proceeding of some complexity cannot be reasonably determined without some critical examination of the parts which comprise the proceeding. This does not mean, of course, that the award must necessarily equal the sum of the parts. An overall sense of what is reasonable may be factored in to determine the ultimate award. This overall sense, however, cannot be a properly informed one before the parts are critically examined.

[26] It is important to bear in mind that rule 57.01(3), which established the costs grid, provides:

57.01(3) When the court awards costs, it shall fix them in accordance with subrule (1) and the Tariffs.

Subrule (1) lists a broad range of factors that the court may consider in exercising its discretion to award costs under s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43. The express language of rule 57.01(3) makes it clear that the fixing of costs is not simply a mechanical exercise. In particular, the rule makes clear that the fixing of costs does not begin and end with a calculation of hours times rates. The introduction of a costs grid was not meant to produce that result, but rather to signal that this is one factor in the assessment process, together with the other factors in rule 57.01. Overall, as this court has said, the objective is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding, rather than an amount fixed by the actual costs incurred by the successful litigant.

[27] In considering whether the amounts claimed in the bills of costs were appropriate, the motions judge said [at paras. 69-70]:

Here there is another point of departure between the applicants and the respondents. The respondents take the position that they are entitled to claim reimbursement for all the time spent and disbursements incurred in responding to the application for judicial review and in preparing the motion to quash. Conversely, the applicants contend that the factual background and the issues raised in the judicial review and the motion to quash are the same, or at least nearly the same, as those fully argued before Lax J. As a result, the time necessary for the respondents to respond to the judicial review application and to prepare for the motion to quash was, [or] should have been, minimal. It follows that the costs fixed should similarly be minimal.

While it is apparent that the various proceedings have centred on the same complaints about the same licensing regime, the issues in each proceeding have differed. For example, the relief claimed in the matter before Lax J. was different than that claimed in the judicial review application. This different perspective requires a different analysis and different research. In addition, the various proceedings were spread over time and each new matter necessitated new preparation even in respect to issues that were the same or similar as those raised in earlier challenges to the licensing system. [page300] In these circumstances I do not consider it appropriate effectively to give the applicants a credit for costs ordered and paid in earlier proceedings.

I agree with what Nordheimer J. said in Basedo v. University Health Network, [2002] O.J. No. 597 (Sup. Ct.) that "it is not the role of the court to second-guess the time spent by counsel unless it is manifestly unreasonable in the sense that the total time spent is clearly excessive or the matter has been overly lawyered." As mentioned earlier, counsel for the respondents filed substantial material in support of the detailed bills of costs. In addition, they took me through the various entries, in a general fashion, to explain the nature of the work done and why it was necessary. I have conducted my own detailed review of the functions performed, time spent and amounts claimed. In my view, the amounts for fees and disbursements, on a partial indemnity basis, are appropriate.

[28] With respect, I disagree with the motions judge. The total amount of $187,682.51 was not a fair and reasonable sum to award in the circumstances of this case, even given the respondents' separate bills of costs, which produced totals of $88,896.45, $60,033.96, and $38,752.10. It is my view that the costs awards in this case are so excessive as to call for appellate interference.

[29] While I accept that the bills of costs accurately reflect the time spent by all of the lawyers in this matter, it is inconceivable to me that the total amounts claimed are justifiable. In this regard, I accept the submission of the appellants that:

(a) the record in this application was the same record filed in the earlier proceedings;

(b) the respondents filed no evidence;

(c) the respondents conducted no cross-examination of any witness;

(d) the notices of motion to stay filed by the respondents were substantially the same; and

(e) the arguments to be advanced on the return of the motions to quash were substantially the same.

[30] In addition, I note that the amount claimed on a substantial indemnity scale, including disbursements and Goods and Services Tax, was in total only $14,528.86 more than the total partial indemnity award. In the result, the respondents received an award which is tantamount to a substantial indemnity award. This is significant in view of the fact that the motions judge expressly rejected the respondents' submission that they be awarded their costs on a substantial indemnity basis. [page301]

[31] The similarity of the amounts claimed on a substantial indemnity basis and on a partial indemnity basis appears to arise because the hourly rates applied were not significantly different on either scale.

[32] The Public Accountants Council employed four lawyers. One of the two senior counsel on the file charged three different hourly rates on a substantial indemnity basis -- $350, $385 and $425. On a partial indemnity basis, he claimed $350 per hour. The time spent by the other senior counsel was listed at a rate of $300 per hour on both a substantial indemnity scale and on a partial indemnity scale. In addition, one of the two junior counsel charged the same rate on both a substantial indemnity basis and on a partial indemnity basis. The second junior counsel docketed only 17 hours and the difference between the two rates produced a total differential of only $295.

[33] Counsel for the Institute of Chartered Accountants charged his time on the substantial indemnity scale at $400 per hour and at $350 per hour on the partial indemnity scale.

[34] There were three counsel for the individual respondents. The senior counsel charged hourly rates on a substantial indemnity basis of $330 and $350. Her partial indemnity rate was $300. For the first junior, the substantial indemnity rate was $230 and the partial indemnity rate was $225. The second junior had minimal time on the file and her time was claimed at rates of $85 on a substantial indemnity basis and $60 on a partial indemnity basis.

[35] In Wasserman, Arsenault Ltd. v. Sone, 2002 45099 (ON CA), [2002] O.J. No. 3772, 164 O.A.C. 195 (C.A.), at para. 4, this court referred to a judgment of the Superior Court in Lawyers' Professional Indemnity Co. v. Geto Investments Ltd., [2002] O.J. No. 921, 17 C.P.C. (5th) 334 (S.C.J.), where Nordheimer J. observed at para. 16:

As a further direct consequence of the application of the indemnity principle, when deciding on the appropriate hourly rates when fixing costs on a partial indemnity basis, the court should set those rates at a level that is proportionate to the actual rate being charged to the client in order to ensure that the court does not, inadvertently, fix an amount for costs that would be the equivalent of costs on a substantial indemnity basis when the court is, in fact, intending to make an award on a partial indemnity basis.

[36] In my view, the granting of an award of costs said to be on a partial indemnity basis that is virtually the same as an award on a substantial indemnity basis constitutes an error in principle in the exercise of the motions judge's discretion, particularly when the judge rejected a claim for a substantial indemnity award. This court took a similar view in Stellarbridge at para. 96. [page302]

[37] The failure to refer, in assessing costs, to the overriding principle of reasonableness, can produce a result that is contrary to the fundamental objective of access to justice. The costs system is incorporated into the Rules of Civil Procedure, which exist to facilitate access to justice. There are obviously cases where the prospect of an award of costs against the losing party will operate as a reality check for the litigant and assist in discouraging frivolous or unnecessary litigation. However, in my view, the chilling effect of a costs award of the magnitude of the award in this case generally exceeds any fair and reasonable expectation of the parties.

[38] In deciding what is fair and reasonable, as suggested above, the expectation of the parties concerning the quantum of a costs award is a relevant factor. See Toronto (City) v. First Ontario Realty Corp. (2002), 2002 49482 (ON SC), 59 O.R. (3d) 568, [2002] O.J. No. 2519 (S.C.J.) at p. 574 O.R. I refrain from attempting to articulate a more detailed or formulaic approach. The notions of fairness and reasonableness are embedded in the common law. Judges have been applying these notions for centuries to the factual matrix of particular cases.

[39] Turning to what the quantum should be in this case, I would give consideration to the fact that the costs in the earlier proceeding were fixed in the amount of $97,563 by Lax J. While I accept, as the motions judge did, that there were differences between the two proceedings, the foundation upon which the two applications were prosecuted was based on the control of the Public Accountants Council of Ontario by the Chartered Accountants. The fact that all parties were satisfied to have the same evidentiary record in both cases suggests that there was much in common between the two applications.

[40] No doubt there was much more work to be done in respect of the second application. However, having expended partial indemnity costs of nearly $100,000 in response to the first application, I am confident that counsel were not starting tabula rasa when served with the application for judicial review. They would have been fully informed of the licensing application procedure, the make up and operation of the Public Accountants Council, the statutory regime and the issues that divided the Institute of Chartered Accountants for Ontario and the Certified General Accountants of Ontario. I simply cannot accept that counsel for the respondents did not take advantage of the work already done on the first application to better inform themselves in their approach to the second.

[41] I also take into account the other factors referred to in para. 29 above, i.e., the respondents filed no evidence; conducted no cross-examination; and advanced substantially the same arguments in support of the motions to quash. [page303]

[42] Finally, I consider that there is no proportionality between the costs claimed on a substantial indemnity scale and a partial indemnity scale.

[43] These factors suggest that the amounts claimed on a partial indemnity basis call for a significant reduction. The appellants submitted that the award to each of the three groupings of respondents should be $2,500 for a total of $7,500. I do not accept that submission.

[44] In my view, a fair and reasonable award, taking into consideration all the factors discussed above, would be:

Public Accountants Council of Ontario $ 30,000.00

Individual Respondents $ 20,000.00

Institute of Chartered Accountants of Ontario $ 13,000.00

Total $ 63,000.00

These figures are inclusive of disbursements and Goods and Services Tax.

Disposition

[45] In the result, I would allow the appeal, set aside the costs award of the motions judge and in its place substitute the award set out in para. 44 above.

[46] I would also order that the appellants are entitled to their costs of the motion for leave to appeal and the appeal, fixed on a partial indemnity basis in the total amount of $12,000, including disbursements and Goods and Services Tax.

Order accordingly.