Court of Appeal for Ontario

Date: March 22, 2019 Docket: C65599

Judges: Rouleau, Trotter and Zarnett JJ.A.

Parties

Between

Georges Benarroch, Credifinance Capital Corp., and Donabo Inc.

Applicants (Appellants)

and

Fred Tayar & Associates P.C., Fred Tayar, Colby Linthwaite

Respondents (Respondents)

Counsel

For the appellants: Eli Karp

For the respondents: Colby Linthwaite, acting in person and for the respondents Fred Tayar & Associates P.C. and Fred Tayar

Heard: February 22, 2019

On appeal from: The costs order of Justice Markus Koehnen of the Superior Court of Justice, dated March 3, 2018.

Decision

Rouleau J.A.:

OVERVIEW

[1] The appellants appeal, with leave, from a costs award of $60,583.05, awarded on a partial indemnity basis. The award was made against them following the dismissal of their application to assess the accounts of the respondents (their former lawyers) after they had been paid and over a year after some of the accounts were issued.

[2] The appellants maintain that the application judge's award is excessive because it did not take into account the fact that the respondents were representing themselves on the application. Had the application judge properly applied this court's decision in Fong v. Chan (1999), 46 O.R. (3d) 330 (C.A.), he would have awarded a lower amount for costs.

[3] For the reasons that follow, I would allow the appeal. Although I agree with the appellants that the application judge misapplied Fong, I disagree that the award should be "nominal". As I will explain further, Fong provides that, in cases such as this one, a "moderate" or "reasonable" allowance should be made to account for the loss of time related to the preparation and presentation of the case.

FACTS

[4] On February 7, 2018, the application judge dismissed the appellants' application to assess the accounts of the respondents. Following the dismissal of the application, submissions on costs were sought and received.

[5] The respondents prepared a costs outline in which they claimed, on a partial indemnity basis, $60,583.05 in fees, disbursements, and HST.

[6] In their written submissions, the appellants argued that, absent evidence of opportunity costs due to the time they spent responding to the application, the respondents could not recover any amount as costs.

[7] The respondents then filed reply submissions in which they included the affidavits of two lawyers who had been involved in the response to the application. The lawyers deposed that they had to turn away remunerative work because of the time they spent on their defence to the application.

[8] After receiving the respondents' affidavits, the appellants filed a sur-reply, in which they argued that the respondents had not proved that they had incurred opportunity costs, as the affidavits' "vague statements" were insufficient. They claimed that the respondents had not demonstrated that the work required to respond to the application could not have been carried out during evenings and weekends. Had this been the case, there would have been no reduction in the hours available to serve clients during the business days and clients would not have been turned away. The appellants also challenged the costs sought for tasks that would have been performed by a client. They did not, however, seek to cross-examine the lawyers on their affidavits on either ground.

[9] During their submissions to the application judge, the appellants maintained that if costs were to be awarded, they should total no more than $5,860.

[10] In a response to the sur-reply, the respondents claimed solicitor-client privilege to explain why they could not give additional details on the opportunity costs they incurred.

THE COSTS DECISION

[11] The application judge disagreed with the appellants. He accepted that the respondents had lost the opportunity to bill other clients because of the time they spent responding to the application. He rejected a "never ending forensic inquiry" into the time the lawyers could have spent working on evenings and weekends: at para. 10. He also found that partial indemnity rates between $300 and $350 per hour were "moderate" or "reasonable", per Fong, given the lawyers' experience.

[12] The application judge further rejected the submission that some of the time claimed in the bill of costs should be excluded because it was for work that would normally be carried out by a client. The application judge found that all of the work devoted to the file was appropriately carried out by a lawyer. He went on to add, however, that if some of the time should have been discounted because it was in fact time that would normally be expended by a client rather by a lawyer, he would nonetheless make the same award on the basis that substantial indemnity costs would normally apply in the circumstances. The justification for a higher scale of costs, in his view, was the fact that the application was "entirely without foundation": at para. 20.

ISSUES

[13] The appellants argue that the application judge erred in:

(a) accepting that there had been any lost opportunity costs; and

(b) his interpretation of Fong.

As a result, the appellants maintain that the costs award ought to be set aside or reduced to a nominal amount of $5,000.

STANDARD OF REVIEW

[14] A costs award is entitled to deference, as the trial judge is best placed to make this determination. An appellate court can only set such an award aside "if the trial judge has made an error in principle or if the costs award is plainly wrong": Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303, at para. 27.

[15] As I will explain below, the application judge erred in principle when he treated the respondents as counsel rather than as self-represented litigants.

ANALYSIS

(a) Did the application judge err in accepting that there were lost opportunity costs?

[16] The appellants maintain that the application judge should not have allowed the respondents to file reply affidavits in which they claimed to have suffered lost opportunity costs. Further, as in their sur-reply, they submit that even if received in evidence, the affidavits did not establish lost opportunity costs. According to the appellants, the respondents could have done much of the work to respond to the application during the evenings or weekends. Had they done so, they would not have had to turn away clients, as the billable time available during business hours would not have been reduced.

[17] I would dismiss this ground of appeal. It was open to the application judge to accept the reply evidence tendered by the respondents. The appellants suffered no prejudice, as they were given the opportunity to cross-examine on the affidavits and to make submissions in response.

[18] I also see no basis to interfere with the application judge's finding that the respondents had suffered lost opportunity costs. Fong and later cases, such as Mustang Investigations v. Ironside, 2010 ONSC 3444, 103 O.R. (3d) 633 (Div. Ct.), stipulate that self-represented litigants must show that they incurred an opportunity cost by forgoing remunerative activity. In doing so, they do not suggest that claims for lost opportunity costs should become complex hearings where the self-represented claimant is called upon to account for every minute of the day and prove every penny of revenue that was lost. On the record before him, it was open to the application judge to find that the respondents had in fact turned away business and suffered a loss of revenue as a result.

(b) Did the application judge err in his interpretation of Fong?

[19] In Fong, this court explained that self-represented litigants do not have an automatic right to recover costs. The trial judge retains "a discretion to make the appropriate costs award, including denial of costs": at para. 25. The court went on to hold as follows:

[S]elf-represented litigants, be they legally trained or not, are not entitled to costs calculated on the same basis as those of the litigant who retains counsel. … [A]ll litigants suffer a loss of time through their involvement in the legal process. The self-represented litigant should not recover costs for the time and effort that any litigant would have to devote to the case. Costs should only be awarded to those lay litigants who can demonstrate that they devoted time and effort to do the work ordinarily done by a lawyer retained to conduct the litigation and that, as a result, they incurred an opportunity cost by forgoing remunerative activity: at para. 26.

[20] In its discussion of the appropriate award that should be made in these circumstances, the court stated:

[A] self-represented lay litigant should receive only a "moderate" or "reasonable" allowance for the loss of time devoted to preparing and presenting the case. This excludes routine awards on a per diem basis to litigants who would ordinarily be in attendance at court in any event. The trial judge is particularly well-placed to assess the appropriate allowance, if any, for a self-represented litigant: Fong, at para. 26.

[21] The appellants argue that, since Fong, the case law has evolved such that only a nominal amount of costs is to be awarded to a self-represented litigant, even where lost opportunity costs have been proven. In that regard, the appellants rely on the statement in Mustang Investigations that, "[s]imply stated, no proof of opportunity costs, no nominal costs available": at para. 27; see also Tiago v. Meisels, 2012 ONSC 5090, at para. 9, leave to appeal refused, 2012 ONSC 6829 (Div. Ct.). The appellants submit that the rates between $300 and $350 per hour awarded by the application judge are anything but nominal.

[22] In the alternative, the appellants argue that, even if self-represented litigants are entitled to a "moderate" or "reasonable" amount for lost opportunity costs rather than a "nominal" amount, the application judge's award of $60,583.05 does not qualify as moderate or reasonable. That figure represents reimbursement for all of the time spent by the lawyers, at rates as high as $350 per hour. The appellants submit that what is "moderate" or "reasonable" should be assessed in light of costs that could be awarded to self-represented lay litigants in similar circumstances.

[23] For their part, the respondents maintain that all the time included in the bill of costs was spent working on the application as lawyers and that the rates claimed are appropriate partial indemnity rates. In the respondents' submission, partial indemnity rates are, by definition, reasonable.

[24] In my view, the application judge erred in his interpretation and application of this court's decision in Fong. His award thus cannot stand.

[25] As Fong makes clear, self-represented litigants, including lawyers, "are not entitled to costs calculated on the same basis as those of the litigant who retains counsel": at para. 26. By awarding the respondents their costs on a partial indemnity basis, without making any adjustment for time that the respondents would have had to devote as "clients" if they had hired external counsel, the application judge effectively treated the respondents as counsel rather than as self-represented litigants. This approach constituted an error for several reasons.

[26] A basic principle in civil litigation is that successful litigants are normally awarded costs to indemnify them for the expenses they sustained: see British Columbia (Minister of Forests) v. Okanagan Indian Band, 2003 SCC 71, [2003] 3 S.C.R. 371, at para. 21. Litigants receive no compensation for the time that they have devoted to the case or to the preparation of materials necessary to instruct the solicitor retained for the file. Similarly, litigants are not compensated for the time they may spend attending the proceedings.

[27] Fong explained that, where a litigant is self-represented, some compensation may be awarded for lost opportunity costs, even in the absence of payments made to a lawyer. That compensation, however, is not for the time and effort that any litigant would have devoted to the case. It is only for the work done by the self-represented litigant over and above the normal involvement of a client, and provided it concerns work that would ordinarily be accomplished by a lawyer. The self-represented litigant must also show that an opportunity cost was incurred because some remunerative activity was forgone.

[28] Where the self-represented litigant is a lawyer, he or she will not recover anything for the time spent on the matter that would necessarily have been devoted to the case had outside counsel been retained. There will likely be no clear way to differentiate between time devoted by the lawyer that would have been spent on the matter as "client" and time devoted in lieu of retaining an outside lawyer to deal with the matter. Some time is clearly either "client time" or "lawyer time", but much of the time will be a blend of both.

[29] For example, in the present case, the respondents devoted considerable time to the reconstruction of the complete file, as the original file for which the appellants sought an assessment was no longer available. This function would normally be undertaken by the client. Indeed, the client will typically assemble the materials related to the claim and deliver the file to the lawyer.

[30] At the other end of the spectrum, the time devoted to a cross-examination on an affidavit filed by the opposing party is a function usually carried out by the retained lawyer, with limited involvement from the client.

[31] Other categories of work are more difficult to label, as they have elements of both client involvement and lawyer work. One such category is the drafting of affidavits. This task typically involves time spent by the client providing the factual information that will go into the affidavit. However, it also involves the lawyer drafting and reviewing the affidavit, as well as filing it in court. Where the lawyer is self-represented, it will be impossible to determine with mathematical precision how the time spent by the lawyer is to be allocated as between his or her role as "client" and "lawyer". This difficulty is one of the reasons why, in Fong, this court suggested that a trial judge, or in this case the application judge, is better placed than an assessment officer to set the amount of costs for a self-represented party: at para. 26. It also explains the court's use of an "allowance" rather than an award based on an hourly rate.

[32] A further caution made in Fong is that an award of lost opportunity costs should be "only a 'moderate' or 'reasonable' allowance for the loss devoted to preparing and presenting the case": at para. 26. This signals that the court should avoid a straight application of a lawyer's hourly rate. Regular hourly rates are of course relevant, as would be the daily rate of a self-represented labourer or the lost profits of a self-employed business person. These amounts should be taken into account in the analysis of a proper costs award, but they cannot be recovered as they would if a lawyer had been hired as external counsel.

[33] In summary, as explained in Fong, a trial or application judge retains the discretion to award or not to award costs. Where the judge determines that an award is warranted and, based on the record, the judge is satisfied that lost opportunity costs have been suffered because the self-represented party has forgone remunerative activity, the judge is either to assess and fix "moderate" or "reasonable" costs, or to provide clear guidelines to an assessment officer as to the manner in which costs are to be assessed.

[34] Where, as here, the self-represented party is a lawyer, the lawyer will be treated in substantially the same way as any other self-represented litigant. In other words, the self-represented lawyer will receive no compensation for the time that the lawyer would have devoted to the matter as a client if external counsel had been retained. In addition, the lawyer will not necessarily recover his or her regular or even partial indemnity rate for all of the time devoted to the work ordinarily done by a lawyer retained to conduct the litigation. He or she will only get an "allowance" for the lost opportunity to devote the time to remunerative activities.

[35] As is clear from the preceding discussion, although I have concluded that the award cannot stand, I disagree with the appellants' submission that only nominal costs should be awarded. The case law cited by the appellants, which refers to "nominal" costs, does not signal a change in the law since Fong. Where there is little evidence of lost opportunity costs, any award the court may decide to make will likely be in a nominal amount. However, where the self-represented party has demonstrated that the lost opportunity costs were significant, as here, an award for an amount greater than mere nominal costs is justified.

REMEDY

[36] As I have determined that the application judge's award of costs cannot stand, a new amount for costs needs to be determined. In my view, it is preferable that this court set the amount rather than returning the matter for a new hearing.

[37] Having reviewed the materials filed, I am of the view that a significant amount of the time being claimed was for the participation of the respondents as parties to the proceeding. In addition, although the accounts that the appellants were seeking to have assessed involved a significant amount, the issues involved in the proceeding were relatively straightforward. Taking this into account, and weighing it against the fact that considerable time was in fact devoted by the self-represented lawyers on this matter, I consider that a costs award of $20,000, all-inclusive, is appropriate in the circumstances.

DISPOSITION

[38] As a result, I would set aside the application judge's costs award and substitute a costs award to the respondents in the amount of $20,000, inclusive of disbursements and HST. The appellants are entitled to their costs of the appeal, including the costs for the leave application. Although the parties agreed to a different amount, in my view, given that the appellants were not entirely successful, an appropriate award of costs to the appellants is $10,000, inclusive of disbursements and HST.

"Paul Rouleau J.A."

"I agree G.T. Trotter J.A."

"I agree B. Zarnett J.A."

Released: March 22, 2019

"PR"