Court File and Parties

Court File No.: 500/03

Released: 20070418

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

Re: McNaughton Automotive Limited v. Co-operators General Insurance Company

Before: Cunningham, A.C.J., E. Macdonald and Swinton JJ.

Counsel: T. H. Rachlin, Q.C., Michael E. Eizenga and Michael G. Robb for the Respondent (Appellant) Co-operators Gabrielle Pop-Lazic for the Respondent on Appeal McNaughton Russell M. Raikes and John D. Goudy for the Law Foundation of Ontario

Heard: By written submissions

COSTS ENDORSEMENT

SWINTON J:

[1] Co-operators seeks costs of the appeal and the motion for leave to appeal in the amount of $98,748.20 inclusive of disbursements and GST. As well, it seeks an order that it be awarded costs of the certification motion on a partial indemnity scale, such costs to be fixed by Haines J. or assessed.

[2] McNaughton, the respondent on appeal, seeks its costs of the certification motion and the appeal and the motion for leave to appeal. The Law Foundation of Ontario also made submissions on costs, as the Class Proceedings Fund gave financial support to McNaughton in this proceeding. It takes the position that there should be no costs of the appeal and motion for leave to appeal, while McNaughton should have its costs of the certification motion or, in the alternative, there should be no costs awarded in respect of that motion.

Background

[3] This case has an unusual history. Haines J. initially denied the motion for certification under the Class Proceedings Act, 1992, S.O. 1992, c.6 (CPA) on the basis that McNaughton did not have a sustainable cause of action, given his interpretation of Statutory Condition 6(7) of O.Reg. 777/93 made under the Insurance Act, R.S.O. 1990, c. I.8. The Court of Appeal overturned his decision on the substantive issue on June 18, 2001, and leave to appeal to the Supreme Court of Canada was denied on March 7, 2002. McNaughton was awarded costs of the appeal to the Court of Appeal and the motion for leave to appeal to the Supreme Court of Canada.

[4] When the certification motion was heard again, Haines J. held that there was a reasonable cause of action, given the Court of Appeal’s decision. Having considered the requirements for certification, he granted the motion to certify on August 14, 2003. He ordered costs payable to the applicant on a partial indemnity basis.

[5] Subsequently, the Court of Appeal reversed its interpretation of the statutory condition and overruled McNaughton in David Polowin Real Estate Ltd. v. The Dominion of Canada General Insurance Co.(2005), 2005 21093 (ON CA), 76 O.R. (3d) 161. Co-operators then obtained leave to appeal the order certifying the McNaughton application as a class proceeding. This Court allowed the appeal, holding that Co-operators was not barred by issue estoppel or the doctrine of abuse of process from relying on the Polowin decision. Given that decision, there was not a reasonable cause of action for the remaining members of the proposed class. The certification order was set aside, and the motion for certification was dismissed.

Costs of the Appeal and Motion for Leave to Appeal

[6] Co-operators served an offer to settle the appeal on March 2, 2006, in which it offered to pay McNaughton $1,500.00; to waive all costs awarded to it to date; and to pay costs to McNaughton of the proceeding to date on a partial indemnity basis. The offer remained open to the beginning of the hearing of the appeal before the Divisional Court. Co-operators submits that it should be awarded costs on a partial indemnity basis to March 2, 2006 and on a substantial indemnity basis thereafter, relying on S & A Strasser Ltd. v. Richmond Hill (1990), 1990 6856 (ON CA), 1 O.R. (3d) 243 (C.A.).

[7] A court has a broad discretion over costs under s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43. In exercising its discretion in the context of a class proceeding, the court should have regard to the underlying goals of the Class Proceedings Act and s. 31 of that Act, as well as the factors in Rule 57.01(1) (Robertson v. The Thomson Corporation, 1999 14780 (ON SC), [1999] O.J. No. 908 (Gen. Div.) at p. 2 (Quicklaw)). Section 31 states that the court may consider whether the class proceeding was a test case, raised a novel point of law or involved a matter of public interest. In Caputo v. Imperial Tobacco Ltd. (2005), 2005 63806 (ON SC), 74 O.R. (3d) 728 (S.C.J.), Winkler R.S.J. stated that special weight must be given to these three factors in determining costs in a class proceeding (at para. 32).

[8] While McNaughton received funds from the Class Proceedings Fund, this does not affect the award of costs to be made in these proceedings. The issues of entitlement, scale and quantum of costs must be determined on their own merit as between the parties, without reference to the Law Foundation (Garland v. Consumers’ Gas Co. (1995), 1995 7179 (ON SC), 22 O.R. (3d) 767 (Gen. Div.) at p. 772).

[9] A successful party has a reasonable expectation that costs will be awarded. However, in special circumstances, a court may determine that no costs should be awarded, or even that costs should be awarded to the losing party. McNaughton submits that this is one of those exceptional cases in which costs of the motion for leave to appeal and for the appeal should be awarded to it, even though it was unsuccessful. The Law Foundation submits that there should be no costs of the appeal and leave to appeal, given s. 31 of the CPA and the circumstances of this case.

[10] This appeal raised novel issues of law with respect to the application of the doctrines of res judicata and issue estoppel in the context of class proceedings. As well, this appeal raised the novel issue of the privity between a proposed representative plaintiff or applicant and the members of the proposed class where a legal issue affecting the merits of the proceeding is decided prior to certification. This proceeding was the first in which the Court heard a challenge to a certification order on the basis of a change in the law which did not affect the proposed representative plaintiff or applicant, but which might affect the proposed class.

[11] The appeal also raised a matter of broad public interest, in that it clarified the scope and finality of substantive decisions made in favour of a proposed representative applicant or plaintiff prior to the certification of a class proceeding.

[12] Given that the appeal raised novel issues of public importance, two of the factors in s. 31 of the CPA, there will be no order of costs for the appeal or the motion for leave to appeal.

Costs of the Certification Motion

[13] The parties have agreed that this Court should determine the entitlement to costs of the certification motion and the scale, while the issue of how the quantum should be determined will be referred back to Haines J. Both parties seek their costs of the certification motion. The Law Foundation submits that Haines J.’s order of costs to McNaughton for the certification motion should not be disturbed or, in the alternative, that there should be no costs awarded.

[14] This is an unusual situation, as McNaughton was successful on the motion for certification because of the state of the law at the time the motion was decided. It has been unsuccessful on this appeal, because the law has changed with the Court of Appeal decision in Polowin.

[15] In his reasons for costs released September 15, 2000, Haines J. declined to award costs in respect of the statutory interpretation application and in respect of the certification motion. He observed that the interpretation of the statutory condition raised a novel question of law, and that the proceeding was not unreasonable. Therefore, he made no order as to costs (McNaughton Automotive Ltd. v. Co-operators General Insurance Co. (2000), 2000 22409 (ON SC), 50 O.R. (3d) 300 (S.C.J.) at 307).

[16] McNaughton was ultimately unsuccessful on the certification motion and should not be awarded costs of the motion. However, this proceeding clearly raised a novel issue of law, the interpretation of Statutory Condition 6(7), which has twice been determined by the Court of Appeal. The class proceeding, had it gone forward, would have had a significant impact on insureds and insurers, and would have provided access to the courts for many whose claims might not otherwise be asserted. In the circumstances, there will be no order of costs for the certification motion.

Swinton J.

Cunningham A.C.J.

E. Macdonald J.

Released: April , 2007