DATE: 20050330
DOCKET: C39868
COURT OF APPEAL FOR ONTARIO
BORINS, FELDMAN and SIMMONS JJ.A.
B E T W E E N :
CELANESE CANADA INC.
Kenneth R. Peel
for the appellant
Plaintiff (Respondent)
- and -
CANADIAN NATIONAL RAILWAY COMPANY
William G. Scott and
Christopher M. Hubbard
for the respondent
Defendant (Appellant)
Heard: December 17, 2004
On appeal from the judgments of Justice Richard G. Byers of the Superior Court of Justice dated March 15, 2003 and June 25, 2003.
BORINS J.A.:
I
[1] This is an appeal by the Canadian National Railway Company (“CN”) from a judgment in favour of Celanese Canada Inc. (“Celanese”) for damages of $300,632.82 plus prejudgment interest. CN also seeks leave to appeal, and if leave is granted, appeals from the costs judgment against it in the amount of $191,124.42. The main issues in this appeal are whether the trial judge erred in the exercise of his discretion in his determination of prejudgment interest and costs.
II
[2] By way of background, this case arose out of an accident that occurred on February 13, 1995 when ten railcars loaded with a component known as “TA” that CN had delivered to Celanese on February 7, 1995 and had placed on the Celanese siding, rolled down the siding and struck and damaged Celanese’s plant as well as a high voltage power line. As a result, production at the plant was halted for twenty-four hours. Celanese claimed damages of $300,633, comprised of property damage of $174,481 and a business interruption loss of $126,152. One element of the business interruption loss was $63,210 for loss of profit on lost production.
[3] This case was tried commencing on February 23, 2003 in Belleville, where the accident occurred. CN denied that it was negligent, but contended that if it were negligent then Celanese was contributarily negligent. CN also relied on a Siding Agreement entered into with a predecessor of Celanese, claiming that the provisions of clause 12 exempted it from liability for the damages sustained by Celanese. It relied, as well, on clause 10, contending that if it was negligent and Celanese was contributarily negligent, Celanese’s loss should be borne by the parties equally. Of the amount claimed, CN did not dispute that Celanese had incurred damages of $237,423. However, it contested Celanese’s claim of $63,210 for loss of profit on lost production.
[4] Following a six day trial, the trial judge found that it was CN’s negligence that caused the accident of February 13, 1995 and awarded Celanese virtually the full amount of its claim, $300,632.82, together with prejudgment interest of 3.3 per cent per annum calculated from the date of the accident. Subsequently, the parties delivered written submissions with respect to prejudgment interest and costs. The bill of costs of the successful party, Celanese, was $191,124.42. This amount included disbursements and GST, as well as the costs of an unsuccessful motion for summary judgment brought by CN one week before the trial commenced. As Celanese had delivered an offer to settle on January 22, 2003 for $290,810 that was rejected by CN, subsequent to that date it calculated its lawyers’ fees and its costs of the summary judgment motion on a substantial indemnity scale. After considering the parties’ written submissions, the trial judge required counsel for the parties to attend to make oral submissions on prejudgment interest and costs.
[5] On June 25, 2003, the trial judge released written reasons for fixing the prejudgment interest rate at the prescribed rate of 3.3 per cent per annum to be calculated from “the date of the accident”. He fixed the successful plaintiff’s costs in the full amount of its bill of costs. Giving effect to Celanese’s rejected offer to settle, the trial judge awarded costs before that date on a partial indemnity scale and, thereafter, on a substantial indemnity scale.
III
[6] CN raised a number of grounds of appeal, contending that the trial judge erred:
(i) In finding that the negligence of CN was the cause of the accident.
(ii) In failing to find that Celanese was contributarily negligent.
(iii) In assessing Celanese’s business interruption loss at $63,210.
(iv) In failing to interpret clause 12 of the Siding Agreement as transferring the risk and responsibility for the railcars to Celanese subsequent to their delivery to the Celanese siding, thereby relieving CN of liability.
(v) In failing to apply clause 10 of the Siding Agreement.
(vi) In ordering that prejudgment interest on the entire amount of $300,632.82 awarded to Celanese be calculated from the date of the accident.
(vii) In fixing Celanese’s costs in the amount of $191,124.42.
[7] In respect to the trial judge’s findings on negligence and damages, I am satisfied that he made no palpable or overriding error in his understanding and application of the evidence which, in my view, supported his findings. As for the trial judge’s interpretation of clause 12 of the Siding Agreement, the trial judge correctly found that it does not exclude CN from liability for negligence. Had CN intended to contract out of liability for its own negligence, clear and unambiguous language to that effect was required. As the trial judge found no contributory negligence on the part of Celanese, clause 10 of the Siding Agreement did not apply.
[8] However, I am satisfied that the trial judge erred in the exercise of his discretion in respect to the commencement date of the prejudgment interest and the amount at which he fixed the costs awarded to Celanese.
IV
[9] CN appeals from the following formal order of the court in respect to prejudgment interest on the award to Celanese of $300,632.82:
- THIS COURT ORDERS that the prejudgment interest rate shall be 3.3% per annum, to commence the date of the accident, February 13, 1995.
[10] The following provisions of the Courts of Justice Act, R.S.O. 1990, c. C.43 (“CJA”) are relevant to the award of prejudgment interest in this appeal:
- (1) In this section and in sections 128 and 129,
“date of the order” means the date the order is made, even if the order is not entered or enforceable on that date, or the order is varied on appeal, and in the case of an order directing a reference, the date the report on the reference is confirmed;
“prejudgment interest rate” means the bank rate at the end of the first day of the last month of the quarter preceding the quarter in which the proceeding was commenced, rounded to the nearest tenth of a percentage point;
“quarter” means the three-month period ending with the 31st day of March, 30th day of June, 30th day of September or 31st day of December.
- (1) A person who is entitled to an order for the payment of money is entitled to claim and have included in the order an award of interest thereon at the prejudgment interest rate, calculated from the date the cause of action arose to the date of the order.
(3) If the order includes an amount for past pecuniary loss, the interest calculated under subsection (1) shall be calculated on the total past pecuniary loss at the end of each six-month period and at the date of the order.
- (1) The court may, where it considers it just to do so, in respect of the whole or any part of the amount on which interest is payable under section 128 or 129,
(a) disallow interest under either section;
(b) allow interest at a rate higher or lower than that provided in either section;
(c) allow interest for a period other than that provided in either section.
[11] Under s. 127(1) of the CJA, as this action was commenced on July 21, 1997 the prejudgment interest rate applicable to the action is 3.3 per cent per annum. Section 128(1) provides that prejudgment interest is to be “calculated from the date the cause of action arose to the date of the order” that attracts the interest. The date of the order “that attracts the interest” is the date of the release of the reasons for judgment awarding Celanese $300,632.82, which is March 15, 2003. However, s. 128(1) is modified by s. 128(3) that applies to an award, as in this case, “for past pecuniary loss”, whereby interest is to be “calculated on the total past pecuniary loss at the end of each six‑month period and at the date of the order”. Overall, under s. 130 the decision as to the date, rate and award of interest is a discretionary exercise by the trial judge, entitled to deference absent clear error.
[12] Before the trial judge and this court, counsel for CN argued three points: (i) pursuant to s. 127(1) of the CJA, the appropriate rate of prejudgment interest is 3.3 per cent per annum; (ii) although it is common practice for the court to average the prejudgment interest rate where there has been a significant fluctuation in the rate, as arguably there is in this case, Celanese’s delay in bringing the case to trial should not be rewarded by averaging the prejudgment interest rate from when the action was commenced until the date of the order as requested by Celanese; and (iii) because Celanese’s claim was for pecuniary damages, the accrual date for prejudgment interest is governed by s. 128(3).
[13] Because the trial judge interjected at the commencement of counsel’s submissions to state that “[the prejudgment interest rate is] going to be 3.3 [per cent] from the date the cause of action arose” [emphasis added], counsel for CN focused his argument on his third point.[^1] He drew the court’s attention to the fact Celanese had suffered no real loss on the date of the accident, February 13, 1995. Rather, the different components of Celanese’s claims for the costs of repairing its building and its business losses were not known until they were quantified at different times many months after the accident. He referred the court to s. 128(3) of the CJA, stating, in effect, that the purpose of the provision is to ensure that a party is not rewarded through the accrual of prejudgment interest on a loss before it has been incurred. Counsel emphasized that until Celanese paid for the repair of the damage to its building and was able to quantify its business losses it had not lost the use of money “on which the interest is intended to provide some compensation”.
[14] The trial judge found it unnecessary to hear submissions from Celanese. He gave the following oral ruling in respect to prejudgment interest:
I think the Rule should be applied just the way it’s worded, unless there’s some real substantial reason not to do it, and I don’t see that in this case. I did the same thing on fixing the interest rate [at 3.3 per cent per annum]. So the Rule basically says it’s when you start your action; that’s when the rate is fixed, and that’s what I did. I could have used some of the same arguments that counsel used − “Oh well, that’s not fair. We should really put the higher rate because they were negotiating” and this and that.
Once I start to get into the file, like that, and trying to figure out when the claim was actually paid and what parts of it were paid and when they got the proper invoices, I think that it’s not appropriate for me in this case to do that.
The cause of action Rule is there to avoid that necessity unless there’s some real compelling reason, and I’m not in a position to say that there was some overwhelming delay in this case. So the interest will run from the date of the action. [Emphasis added]
[15] Subsequently, in his written reasons fixing costs, the trial judge added;
I am now to fix the costs in this case. In the course of the oral argument I fixed the interest rate at 3.3% and its commencement, date to be the date of the accident. As I have already said, one of the factors that influenced me to choose the lower rate was delay on the Plaintiff’s side . [Emphasis added]
[16] In reviewing the reasons given by the trial judge in resolving the prejudgment interest issue, it is apparent that he gave different reasons on different occasions. When, at the outset of oral submissions he fixed the rate of prejudgment interest at 3.3 per cent per annum “from the date the cause of action arose”, it appears that he applied the provisions of s. 127(1) and s. 128(1) of the CJA. In his oral reasons delivered in the course of oral submissions, the trial judge ruled that the interest rate of 3.3 per cent per annum would accrue from “when you start your action” as that is “the way [the Rule] is worded”. Presumably, by using the word “Rule” the trial judge meant s. 128(1) of the CJA. In his written costs judgment, the trial judge commented that in the course of oral argument he had “fixed the interest rate at 3.3% and its commencement date to be the date of the accident”. It would therefore appear that the trial judge indicated three different dates for the commencement of prejudgment interest: (i) the date the cause of action arose; (ii) the date of the commencement of the action; and (iii) the date of the accident. In the formal order, from which this appeal is taken, the interest rate is fixed at 3.3 per cent per annum, with interest accruing from the date of the accident, February 13, 1995. As the accrual date does not conform with either s. 128(1) or s. 128(3) of the CJA, I assume that in fixing the accrual date as he did the trial judge was exercising his discretion under s. 130(1).
[17] The purpose of s. 128(3) is to achieve fairness in the payment of the prejudgment interest on pecuniary damages by ensuring that a plaintiff will not recover a windfall that would otherwise result were s. 128(1) to be applied. It does so by providing a formula for the accrual of interest on pecuniary damages as they are incurred, in lieu of requiring the court to conduct a series of individual calculations. Section 128(3) accords with the underlying compensatory principle for awarding prejudgment interest, which is to compensate a party for the loss of the use of its money: S. M. Waddams, The Law of Damages, 4th ed. (Toronto, Ont.: Canada Law Book, 2004) at 7‑23. Two recent decisions of this court support the proposition inherent in the Courts of Justice Act that to avoid a windfall to the plaintiff, interest should not be awarded until an expense is actually incurred: Tridan Developments Ltd. v. Shell Canada Products (2002), 2002 20789 (ON CA), 57 O.R. (3d) 503 at para. 23 (C.A.); Stellarbridge Management Inc. v. Magna International Inc. (2004), 2004 9852 (ON CA), 71 O.R. (3d) 263 at para. 81 (C.A.).
[18] There is no doubt that under s. 130 of the CJA trial judges enjoy a wide discretion to allow prejudgment interest at a rate higher or lower or for a period other than what is prescribed by s. 128 where they consider it just to do so, and that an appellate court may interfere with the discretionary decision of a trial judge only where it is satisfied that there has been a wrongful exercise of discretion in that he or she has attached no weight, or insufficient weight, to relevant considerations. See, e.g., Stellarbridge Management Inc., supra, at para. 85. Although Prof. Waddams describes s. 130 of the CJA as providing the court with an overriding discretion in determining an award of prejudgment interest, he maintains that this discretion should be exercised in favour of calculating interest only from the date each loss was incurred, whether the loss be classified as general or special damages: The Law of Damages, supra, at pp. 7‑25 to 7‑26. Applying Prof. Waddams’ opinion to this case, in the exercise of his discretion the trial judge should have given effect to s. 128(3) in his award of prejudgment interest on the pecuniary damages sustained by Celanese.
[19] In my view, the trial judge erred in exercising his discretion under s. 130 of the CJA in ordering that the prejudgment interest on Celanese’s pecuniary damages was to commence from the date of the accident. It would appear that in so ordering, the trial judge gave effect to s. 128(1) which speaks in terms of prejudgment interest accruing “from the date the cause of action arose”. As Celanese’s claim was for pecuniary damages, its entitlement to prejudgment interest under s. 128(1) was governed by s. 128(3). However, the transcript of the dialogue between counsel and the trial judge, as well as the trial judge’s reasons, provide no indication that he considered the appropriate principles that apply to the function or purpose of prejudgment interest on pecuniary damages explained by the authorities and contained in s. 128(3). Consequently, it is appropriate for this court to interfere with his award of prejudgment interest.
[20] As the various components of Celanese’s claim were not determined until different dates subsequent to the date of the accident, it is possible that the award of prejudgment interest has resulted in a windfall to Celanese. As the trial judge declined to make a finding in respect to when the losses sustained by Celanese were known and quantified, I am not in a position to give specific effect to s. 128(3). Although I would not interfere with the statutory interest rate of 3.3 per cent per annum fixed by the trial judge, I would direct that it be calculated in conformity with s. 128(3) “on the total past pecuniary loss at the end of each six‑month period and at the date of the order” awarding Celanese $300,632.82. If the parties cannot agree on the relevant dates and make the interest calculation, they should ask the trial judge to do so.
[21] I would add the following observation. The statutorily prescribed prejudgment interest rate of 3.3 per cent per annum awarded by the trial judge appears to be below the average interest rate calculated from either the date of the cause of action, the date of the commencement of the action or the date of the accident. It was submitted by counsel for Celanese that as the low statutory rate of interest fixed by the trial judge effectively offset any windfall arising from the trial judge’s failure to order that interest accrue in accordance with s. 128(3), this court should not interfere with the trial judge’s order that interest accrue from the date of the accident. Although, on the surface, this argument appears attractive, given the absence of any findings by the trial judge necessary to test its validity, it is impossible to give effect to it.
V
[22] The bill of costs that the trial judge approved was in the amount of $191,124.42. Excluding GST, $143,782.50 was claimed for lawyers’ fees and $36,620.87 for disbursements. The significant elements of the fees were: pleadings ‑ $7,000; examinations for discovery ‑ $19,517; motion for summary judgment ‑ $7,922.50; trial preparation to January 22, 2003 when Celanese delivered its offer to settle ‑ $23,878; trial preparation after January 22, 2003 ‑ $21,695; trial preparation during trial ‑ $13,750; counsel fees at trial ‑ $40,500.
[23] I would note that in reviewing the bill of costs I have found two apparent mathematical errors in respect to the total amount claimed for fees. The amount claimed for pleadings omitted $2,944.50 for the work of two lawyers and a law student.[^2] As well, the amount claimed for fees for preparation during trial omitted senior counsel’s fee of $23,805. Including these amounts, lawyers’ fees in the bill of costs amounted to $170,532 rather than $143,782 and the bill of costs, including disbursements and GST, would have been almost $220,000. It seems that these errors in addition escaped the notice of counsel for the parties and the trial judge. In fairness to Celanese, I have included these fees in re‑calculating its bill of costs.
[24] Subsequent to the examinations for discovery, Celanese was represented by senior counsel, Mr. Scott, and junior counsel, Mr. Hubbard. At the relevant times, Mr. Scott, a lawyer with experience of twenty years, calculated his counsel fees on a partial indemnity scale on an hourly rate of $350 and on a substantial indemnity scale on an hourly rate of $450, and calculated his per diem trial counsel fee on a substantial indemnity scale at the rate of $4,000 for each of the six days of trial. Mr. Hubbard, a lawyer with experience of two years, calculated his fees using hourly rates of $150 on a partial indemnity scale and $250 to $275 on a substantial indemnity scale and a per diem rate of $2,750 for the trial.
[25] Turning to the costs grid in the Rules of Civil Procedure, for lawyers of Mr. Scott’s experience, it prescribes for fees other than counsel fees, hourly rates of up to $350 and up to $450 on a partial indemnity scale and a substantial indemnity scale respectively. As well, it prescribes a block daily counsel fee on a substantial indemnity scale of up to $4,000 and a weekly block counsel fee at the same rate of up to $17,500. (On a partial indemnity scale, the costs grid prescribes a block daily counsel fee of up to $2,300 and a block weekly counsel fee of up to $9,500.) As for lawyers of Mr. Hubbard’s experience, his respective hourly fees are up to $225 and up to $300. As block counsel fees at trial are not based on a lawyer’s experience, he was entitled to claim the same daily and weekly counsel fees as Mr. Scott. However, as I will discuss, it appears that the costs grid does not provide for more than one trial counsel fee.
VI
[26] Counsel for CN’s major objection to the bill of costs before the trial judge and this court was that it is excessive. Anticipating the decisions of this court in Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 14579 (ON CA), 71 O.R. (3d) 291 and Moon v. Sher, 2004 39005 (ON CA), [2004] O.J. No. 4651, he told the trial judge that the bill of costs was “beyond anything that would have been imagined by the parties as a proper cost at the time”. In critically examining the bill of costs, counsel raised the following objections:
(i) As Celanese’s offer to settle of January 22, 2003 was delivered so close to the scheduled trial date and was only about $10,000 less than its claim, it did not constitute a serious attempt to compromise. Consequently, the trial judge should not have awarded costs on a substantial indemnity scale after the date it was delivered.
(ii) As the real amount in issue was about $63,200 for production losses, costs claimed of $191,124.42 were excessive and disproportionate to the amount in issue.
(iii) Senior counsel’s fees for preparation and for trial exceeded the maximum amounts permitted by the costs grid.
(iv) Costs of the motion for summary judgment should not be on a substantial indemnity scale as the motion judge found that the motion was not unreasonable.
(v) The costs grid should not apply to the lawyers’ services prior to January 1, 2002 when it came into effect.
(vi) Preparation fees were excessive as the case was not complex. In particular, fees for preparation during the trial should not be allowed as the per diem block fee in the costs grid for counsel fees at trial is intended to encompass preparation time as well as trial time. However, there was no dispute that counsel for Celanese performed the services that were docketed.
(vii) A junior counsel fee should not be awarded as the case did not require two counsel.
(viii) Fees claimed for two expert witnesses totalling $26,289.83 were excessive.
VII
[27] From the trial judge’s comments in the course of oral submissions, it is clear that he was troubled by the amount of the bill of costs. (No doubt he would have been more troubled had the errors in addition to which I have referred been known.) For example, he commented:
It’s awful high. It’s a lot of money… Maybe I’m a small town lawyer, or a small town judge, but I mean, that’s an enormous amount for a $300,000 lawsuit.
Later, in commenting on the fees charged by large Toronto law firms[^3], the trial judge added:
Everybody knows how high the rates are in Toronto … [I]t’s scary. No average person can afford to litigate at this kind of level.
Further, in admitting that he was unfamiliar with bills of costs of this magnitude, the trial judge observed:
I don’t do a lot of these big costs bills. I usually just fix them [the costs].
[28] Because the trial judge’s costs reasons do not suggest that he engaged in a critical examination of the bill of costs, particularly given the specific objections raised by CN’s counsel, it is helpful to return to the dialogue between counsel and the trial judge that took place during submissions where the trial judge made what appears to be conclusory comments in response to three of CN’s objections. With respect to whether effect should not be given to Celanese’s offer to settle, he said: “Well I think [the plaintiff] complied with the rule and you get your substantial indemnity costs from the time of the offer.” Although the trial judge seemed to be very concerned with the fact that both parties had junior counsel, asking several times “what’s the practice in Toronto about juniors”, he acknowledged that both junior counsel “made a contribution” to the trial.[^4] Expressing his concern about whether counsel were entitled to a fee for preparation while the trial was in progress, the trial judge observed, “[s]o some of your block fee trial time of necessity includes some preparation time …” Later, he repeated that “the flat rate surely includes some preparation time”.
[29] The trial judge’s reasons for fixing costs in the amount of the bill of costs are rather sparse. After observing that in the course of submissions he had ruled that Celanese was entitled to fees on a substantial indemnity scale after the date of the offer to settle that was rejected by CN, he concluded as follows:
Defendant CN now complains about the total amount of the bill, the use of junior counsel, and the costs of the experts. At first blush the bill is enormous, mainly because of the high hourly rate of pay. Who can possibly afford to pay this much for a Lawyer?
In a different case with different parties I could easily be persuaded that to charge almost $200,000.00 to collect $300,000.00 is simply unconscionable and is not to be condoned by the Courts.
However, these two parties decided to retain these two, downtown Toronto, expensive, Law Firms. They obviously could afford to pay them.
Surely the new costs grid is designed in part to recognize that in some cases the parties can pay higher fees and choose to do so, and surely it also recognizes that some cases, even cases where the amount of money at stake is not that great, need the kind of skill and experience that these Law Firms can bring to the table.
In my view, this was one of those cases.
CN’s real position throughout this lawsuit was to say “prove it if you can”, and it fought tenaciously over every detail. CN made no serious attempt to settle this case and in the end the Plaintiff was completely successful.
The experts were necessary and their fees were reasonable.
Only a Plaintiff with money to risk could have carried this case to completion, an average person simply couldn’t afford it and CN would have won by default.
In my view, but for the skill and determination of both Mr. Scott and Mr. Hubbard, this case would not have been won at all. Their bill is a high one but they earned every penny of it and I allow it in full. [Emphasis added]
VIII
[30] In my view, the trial judge made a number of errors in fixing costs that are sufficient to justify interference by this court. In the context of the principles discussed in Boucher, supra and Moon, supra, the trial judge erred in principle in concluding that the costs grid requires the losing party to pay the costs of a successful party who is able to pay the high fees charged by “downtown Toronto, expensive Law Firms”, particularly where the losing party has “made no serious attempt to settle” the case. Rather, his concern should have been whether the amount of costs awarded reflected a fair and reasonable amount that should be paid by the unsuccessful party in the particular proceeding, rather than an amount that reflected the actual costs of the successful party. As Armstrong J.A. pointed out in Boucher at para. 37, “[t]he 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.” As this court indicated in Moon at para. 35, the rejection of an offer to settle does not justify an unreasonable and excessive bill of costs. In addition, at para. 33 of Moon, this court said that while a client may enter into any financial arrangement with its lawyer that is acceptable to it, the client should not expect the losing party to compensate it for costs that the court finds are unreasonable. In fairness to the trial judge, he did not have the advantage of this court’s articulation of the principles in Boucher and Moon.
[31] Specifically, the trial judge erred in awarding Celanese substantial indemnity costs subsequent to the delivery of its offer to settle, in accepting the rate of senior and junior counsel’s counsel fees, in accepting the total fee claimed for counsel fee at trial and in awarding costs for the motion for summary judgment on a substantial indemnity scale. However, I am satisfied that he did not err in allowing a junior counsel fee, in accepting the full amount of the fees paid to the two expert witnesses and in applying the costs grid to the legal services rendered before it came into effect.
IX
[32] Turning first to Celanese’s offer to settle for $290,810, that was delivered on January 22, 2003, about a month before the trial commenced. Relative to Celanese’s claim for $300,633, this represented a compromise of about $10,000 or about 3 per cent. As the offer was rejected, under rule 49.10(1) of the Rules of Civil Procedure, Celanese was presumptively entitled to partial indemnity costs to the date the offer to settle was served and substantial indemnity costs from that date, “unless the court orders otherwise”. Indeed, Celanese prepared its bill of costs on the premise that the court would apply the rule and award substantial indemnity costs subsequent to the delivery of its offer. As I have indicated, during the course of oral submissions the trial judge rather peremptorily ruled that because Celanese had “complied with the rule” it was entitled to substantial indemnity costs “from the time of the offer”. In ruling that Celanese had complied with the rule, the trial judge meant that it had obtained a judgment more favourable than the terms of its offer to settle.
[33] Three decisions of this court have considered the circumstances in which it is appropriate for the court to depart from the application of rule 49.10(1) where a plaintiff is successful in recovering more than the amount contained in its offer to settle: Niagara Structural Steel (St. Catharines) Ltd. v. W.D. LaFlamme Ltd. (1987), 1987 4149 (ON CA), 58 O.R. (2d) 773 (C.A.); Data General (Canada) Ltd. v. Molnar Systems Group Inc. (1991), 1991 7326 (ON CA), 6 O.R. (3d) 409 (C.A.); Walker Estate v. York Finch General Hospital (1999), 1999 2158 (ON CA), 43 O.R. (3d) 461 (C.A.), aff’d 2001 SCC 23, [2001] 1 S.C.R. 647. These cases considered whether an offer to settle must contain an element of compromise to engage rule 49.10(1). As I understand these cases, they stand for the proposition that an element of compromise is not an essential feature of an offer to settle, but where fairness is a relevant consideration its absence can be a factor for the court to consider in deciding whether to order “otherwise” under rule 49.10(1).
[34] Walker Estate was one of a number of lawsuits against the Canadian Red Cross Society (“CRCS”) by persons who had received HIV‑tainted blood from it. In Walker Estate, the parties agreed to damages and the trial proceeded on the issue of liability. The plaintiffs’ offer to settle was for the amount of damages agreed upon, $800,791, minus $100. The plaintiffs were successful and were awarded damages of $800,791. Because the estate was in technical compliance with rule 49.10(1), it was awarded solicitor and client costs subsequent to the date of its offer. In reversing this award, this court observed that by reason of the agreement on damages, the plaintiffs’ claim had become a liquidated claim at the time the offer was made. The court continued at p. 480: “We think it may fairly be stated that the reduction in the amount agreed upon (a reduction of less that 1/8,000th of this amount) was such that the offer did not reflect any real element of compromise.”
[35] After referring to both the policy of encouraging settlements inherent in Rule 49, and, as discussed in Niagara Structural Steel and Data General, the policy of employing the Rule fairly where a settlement offer does not contain an element of compromise, this court concluded at p. 481:
We are satisfied that the circumstances of the case before us bring it within the scope of the discretionary exception. There was no element of compromise in the offer – a discount of less than 1/8,000th of a liquidated claim so clearly falls short of what could amount to a compromise that it is not necessary to express an opinion on at what point there would be an element of compromise. The offer amounted virtually to a statement that if the full claim was not paid the CRCS would automatically be obliged to pay solicitor and client costs from the date of the offer.
The absence of compromise is to be considered together with the fact that the CRCS was relying upon a defence of substance. The CRCS, in fact, was successful in defeating the claim based on a failure to warn and, with respect to the negligent screening issue, it had succeeded on this issue in the earlier case of Pittman Estate v. Bain, supra.
Related to the foregoing is the consideration that to award solicitor and client costs in the circumstances of this case could well inhibit defendants from agreeing to the amount of damages before trial, which has the effect of turning the claim into a liquidated one. No doubt in the present case much additional trial time was saved by the CRCS’s agreement on this issue. Such agreements should be encouraged. If offers of the kind in this case are held by the courts to be a proper basis for solicitor and client costs, these agreements will be less frequent. [Emphasis added]
[36] Although the present case is not as extreme as Walker Estate, in my view the offer to settle for about 3 per cent less than the plaintiff’s claim for $300,633 did not reflect a real element of compromise, particularly as the parties were in agreement as to damages of $237,423 and CN was relying on a defence of substance, notwithstanding that it was unsuccessful. Liability was very much in issue, as was the amount of $63,210 representing alleged production losses. Given these factors, in the circumstances of this case, a more significant element of compromise was required to encourage the defendants to agree to the amount of damages before trial and to entitle the plaintiff, who recovered damages that exceeded the amount of its offer, to have the benefit of the presumptive aspect of rule 49.10(1) entitling it to costs on a substantial indemnity scale.
[37] From the trial judge’s reasons, it is clear that as he did not consider that in the circumstances of this case the plaintiff’s offer to settle failed to contain a true element of compromise, he did not factor this into his exercise of discretion as permitted by rule 49.10(1). However, in fairness to him, like the trial judge in Walker Estate, the Data General principles had not been brought to his attention. Consequently, Celanese is to have its costs on a partial indemnity scale throughout the proceedings.
X
[38] In the bill of costs, Mr. Scott, who was senior counsel, calculated his fees at the rate of $350 an hour on a partial indemnity scale and $450 an hour on a substantial indemnity scale. As a lawyer of 20 years experience, the costs grid amounts that he was entitled to bill were “up to $350 per hour” and “up to $450 per hour”, respectively. Thus, he applied the maximum rate permitted by the costs grid. It is to be noted, in this regard, that rule 57.01(3) requires the court not only to fix costs in accordance with the costs grid, but also in accordance with rule 57.01(1) which lists a number of factors that the court may consider in exercising its discretion as to costs and their amount. In this regard, it is now accepted that “the maximum rate is reserved for the most experienced counsel doing the most important cases”: Independent Multi‑Funds Inc. v. Bank of Nova Scotia, [2004] O.J. No. 1885 at para. 15 (Ont. S.C.); Banihashem‑Bakhtiari v. Axes Investment Inc. (2003), 2003 32527 (ON SC), 66 O.R. (3d) 284 at para. 38 (Ont. S.C.), varied on other grounds (2004), 2004 36112 (ON CA), 69 O.R. (3d) 671 (C.A.). This case is not in that category. Considering the factors in rule 57.01(1), as well as the trial judge’s opinion about the performance of counsel, in my view, a partial indemnity rate of $250 an hour is appropriate for Mr. Scott’s fees.
[39] Mr. Scott spent 107.3 hours on various matters including pleadings, examinations for discovery and trial preparation for which he claimed fees on a partial indemnity scale of $350 an hour. As this rate is to be reduced by $100, this results in a reduction of $10,730. He spent 81.1 hours on other matters, including trial preparation both before and during the trial for which he claimed counsel fees on a substantial indemnity scale of $450 an hour. As this rate is to be reduced by $200, this would result in a further reduction of $16,220. I will have more to say about the appropriateness of a counsel fee for trial preparation during the trial.
[40] Given that the costs grid prescribes an hourly fee of up to $225 on a partial indemnity scale for a lawyer of Mr. Hubbard’s experience, there is no reason to interfere with the hourly fee of $150 for trial preparation and other services that he rendered before Celanese served its offer to settle. However, for services that he rendered thereafter, he claimed substantial indemnity hourly fees of $250 and $275. As the costs grid provides for an hourly fee of up to $300 on a substantial indemnity scale, I would reduce Mr. Hubbard’s hourly fees by $50 and $75 respectively to adjust them to the partial indemnity scale. This results in a reduction of $1,825 for trial preparation after service of the offer to settle, $2,750 for preparation during the trial and $600 for preparing costs submissions.
XI
[41] Because they are related, it is convenient to consider the appropriateness of a fee for preparation during a trial together with the proper amount of counsel fees at trial. It is to be recalled that Celanese included in its bill of costs a fee of $13,750 for trial preparation during trial that, but for the mathematical error, was intended to be $37,555. This is in addition to the counsel fee at the six day trial in the amount of $40,500, which Mr. Scott claimed at the maximum substantial indemnity scale of “up to $4,000”. Mr. Hubbard’s daily counsel fee for the trial was claimed at $2,750 on the same scale.
[42] The costs grid provides for a maximum daily counsel fee on a partial indemnity scale of up to $2,300 and a weekly counsel fee on the same scale of up to $9,500. Unlike other fees that may be claimed where the fee is based on a lawyer’s experience, counsel fees at trial under the costs grid are block fees. Consequently, in theory, Mr. Hubbard, with two years’ experience, could claim the same counsel fee as Mr. Scott, with 20 years’ experience.
[43] It was submitted by counsel for CN that because the counsel fee at trial is a block fee, it encompasses both the fees of senior and junior counsel as well as fees for preparation during the course of trial. He argued that on the basis of a 5.5 hour court day, a block fee of $2,300, or about $420 an hour, is more generous than the maximum fee of $350 an hour for a person of Mr. Scott’s seniority, and must, therefore, be intended to include out of court work performed during a trial, such as preparing witnesses, research and preparing closing argument. Counsel for Celanese disagreed and pointed out that it was necessary to engage in extensive preparation during trial as they had been caught short in their preparation, expecting that the case would settle.
[44] Given the issues with respect to counsel fee at trial raised by counsel for CN, it is somewhat surprising that they have not attracted more judicial consideration. In Buchanan v. Geotel Communications Corp. (2002), 26 C.P.C. (5th) 87 (Ont. S.C.), where Ferguson J. was required to consider how the costs grid should be applied to a trial that lasted more than a week, whether the block fee applies no matter how many counsel appear and whether the block fee precludes a preparation fee during the trial, he expressed some frustration in reconciling daily and weekly fees, stating at para. 71: “I frankly don’t understand the thinking behind the numbers in the Grid.” After much analysis, he resolved the issues as follows:
(1) The daily rate in the costs grid should be used for a one day trial, but for a longer trial the daily rate should be based on the weekly rate. Thus, as the trial with which he was concerned had lasted 8 days, the daily rate was calculated by dividing the weekly rate by 5.
(2) The costs grid permits a separate counsel fee for each counsel reasonably attending at trial, based on the role played by counsel and his or her experience.
(3) The costs grid allows for counsel fees for reasonable preparation throughout a trial.
[45] In Dybongco‑Rimando Estate v. Lee, [2003] O.J. No. 534 (S.C.), in a case where more than one counsel appeared for the successful party, J. W. Quinn J. understood the block fees in the costs grid “to be per counsel and not global amounts” and that they did not include a counsel fee for preparation during trial, which he allowed because he considered it to be appropriate.
[46] However, in Banihashem‑Bakhtiari v. Axes Investment Inc., supra, being of the view that the costs grid takes into account that there may be more than one counsel, but does not include preparation time during trial which may be separately charged, Lane J. took a different approach to the calculation of counsel fees at trial. In fixing the costs of a lengthy trial in which costs were awarded on a substantial indemnity scale, at paras. 47‑49, Lane J. stated:
As to the amount chargeable for the two counsel actually attending at the trial, that is not governed by the hourly rate, but by the counsel fees at trial grid which allows "up to" $4,000 per day or $17,500 per week for substantial indemnity costs. Here, again, the maximum is reserved for the most experienced lawyer in the most difficult and important case. In my opinion, there is but one amount available for all counsel representing the same party. Is there authority under the grid system for two counsel fees? Under the former tariff there was a discretion to permit an additional fee for junior counsel where warranted, but the present tariff is silent on the point. I do not think that means that no fee for a second counsel is allowed; rather, the tariff limits the total amount. In considering what "up to" means in the counsel fee grid, the court can allow a fee to second counsel where that expense is warranted by the nature of the case, as it is here, subject to the maximum total counsel fee set out in the grid.
This conclusion is supported by certain characteristics of the counsel fee. First, it is per day and a day in trial court is normally about 5 to 6 hours maximum; indeed the tariff for motions and appeals both declare a half day to be two hours, although the trial tariff does not. If the top hourly rate is $450, then a normal court day of, say, 5.5 hours, would be $2475. Second, preparation for trial is not included in the counsel fee; it is specifically included among the matters to which the hourly rates are applicable. While the situation may differ on a partial indemnity costs basis, on a substantial indemnity costs basis the hourly rates are therefore applicable to the time spent in the evenings and weekends during the trial preparing for the following days. Third, even assuming that the intention was to be more generous for time actually spent at trial, there is clearly room for a fee for more than one counsel. Fourth, the length and complexity of trials have increased significantly in recent years and second counsel are now more frequently seen than in the past. It makes sense to provide for this development, and it appears that the tariff does so. Finally, the weekly rate represents a significant discount on the rate for five days, reflecting either the notion that there is some economy involved in spending an entire week at the same trial, as opposed to appearing in five one-day trials, or, perhaps more likely, an effort to keep the cost of litigation within a more manageable range. This reinforces the point that the sum is a maximum.
In the light of the above considerations, I can see no basis for refusing to allow fees for a second counsel in this case, but the fees should not be allowed at the docket rate. This is particularly so if the result would be to exceed the daily or weekly maximum. These considerations do not apply to students or law clerks for whom there is no separate rate for time at trial. The proportion of the maximum counsel fee actually awarded is governed by the same considerations as govern hourly rates. In my view the maximum is appropriate for the combination of Mr. Outerbridge and Ms. Sefton in the light of all the Rule 57 factors and other circumstances of the case. Counsel fees will therefore be awarded at $17,500 for each of the three complete weeks and $4,000 daily for the 24 other days, for a total of $148,500. As noted, time spent on preparation during the trial is additional at the hourly rate. Trial attendance by law clerks and students is allowed at their hourly rates. [Emphasis added]
[47] Lane J.’s conclusion that the costs grid does not allow for a second separate counsel fee at trial has been followed by most trial judges: Young v. Toronto Star Newspapers Ltd., [2003] O.J. No. 5092; Genest Murray Desbrisay Lamek v. Furbacher, [2004] O.J. No. 1568; Manielly v. Moran, [2004] O.J. No. 2128; Russett v. Bujold, [2004] O.J. No. 2433. These cases fall in line with Lane J.’s analysis by limiting the number of counsel fees at trial claimed, and their amount, on the principle that the daily counsel fee in the costs grid represents a maximum.
[48] However, there are two cases that reject Lane J.’s approach and award multiple counsel fees for counsel appearing on the trial. In Walker v. Ritchie, [2004] O.J. No. 787 (S.C.), at para. 19, Brockenshire J. was unable to accept Lane J.’s conclusion “that the tariff…prevents two counsel from together billing more than the maximum allowed for ‘counsel fee’” by the costs grid. He gave no reasons for his opinion. In the second case, Anderson v. St. Jude Medical Inc., [2004] O.J. No. 3102 at para. 18 (S.C.), Cullity J. declined to follow the reasoning of Lane J. in Axes Investments. Like Brockenshire J., Cullity J. gave no reason as to why. However, he added that in other cases he had allowed a second reduced counsel fee where he believed that the attendance of two counsel was reasonable.
[49] It is worthwhile to note that in Independent Multi‑Foods Inc. v. Bank of Nova Scotia, [2004] O.J. No. 1885 (S.C.), Lane J. had the occasion to comment on Brockenshire J.’s views in Walker. At para. 16, Lane J. stated:
As to counsel fee, the defendant had two counsel present much of the time. My attention was drawn to the decision of Brockenshire J. in Walker v. Ritchie to the effect that the grid permits two or more counsel and each has a separate limit. With great respect to my brother Brockenshire, I maintain the view, which I have expressed before, that the grid permits more than one counsel where the case makes a second counsel desirable, but only up to the limit set out in the grid.
[50] In reviewing the authorities, and absent clarification or amendment of the costs grid by the Civil Rules Committee, I am prepared to follow Lane J.’s analysis and conclusion in Axes Investments that where it is appropriate for a party to be represented by more than one counsel the cost grid does not allow for a second separate counsel fee at trial. Although the language used in the costs grid does not clearly state that the daily fee is to be a maximum in cases where there is more than one counsel, the mathematics lend support to that proposition. Proceeding on the basis that a day in court is 5.5 hours, and using the substantial indemnity per diem counsel fee of $4,000, this would work out to an hourly fee of over $700, which significantly exceeds the top hourly fee provided by the costs grid. On this analysis, it seems that the per diem counsel fee rates make an allowance for a second counsel fee within the maximum, particularly when a discount is applied to any rate available to a second counsel. Given the language in the costs grid of a single “counsel fee”, the principle applies equally for counsel fees at trial on a partial indemnity scale, although I concede that the mathematics are less compelling.
[51] The analysis of Lane J. in Axes Investments has become the more common approach adopted by the Superior Court, albeit it is far from universal. I simply have not read in any of the contrary decisions any compelling reasons for allowing separate counsel fees at trial. In any event, as Armstrong J. stated in para. 37 of Boucher, in the final analysis the court must step back and consider the total amount of costs applying the “overriding principle of reasonableness”.
[52] Applying Axes Investments, to this case, I would adjust the counsel fee for this six day trial to $9,500 for the first week and $2,300 for the sixth day, for a total of $11,800.[^5] Consequently, the amount claimed in the bill of costs for counsel fee at trial should be reduced by $28,700. However, I would add that given that historically a fee for a second counsel is awarded in an appropriate case and, in many cases, is abundantly deserved, the omission from the costs grid of a discrete fee for a second counsel at trial, as well as on appeal, likely reflects an oversight on the part of the Civil Rules Committee that should be corrected.
[53] I turn to the counsel fee for preparation during trial. Counsel for Celanese docketed 107.9 hours, which amounts to about 18 hours a day for each trial day. This appears somewhat excessive at first glance, however, the time was divided between two lawyers. I am satisfied that it was necessary for counsel to engage in this mid‑trial preparation and to claim costs for doing so. In paras. 30 and 31, I made reductions to Mr. Scott’s and Mr. Hubbard’s hourly rates.
[54] As for the summary judgment motion, the motion judge found that it was reasonable for CN to bring the motion. Consequently, Celanese as the successful party is not entitled to costs on a substantial indemnity scale under rule 20.06(1). Consequently, I would reduce the costs claimed by $3,500.
[55] As I have indicated, the trial judge did not err in allowing a counsel fee for junior counsel. As well, I agree with his conclusion that the expert witness fees paid by Celanese were reasonable and necessary disbursements. Nor did he err in applying the costs grid to legal services rendered before it came into force. As this court held in CBC Pension Plan (Trustee of) v. BF Realty Holdings Ltd. (2002), 2002 15157 (ON CA), 166 O.A.C. 226, since the costs grid is a procedural enactment, it applies retroactively unless there is evidence of actual prejudice (beyond the fact that services were rendered before the costs grid came into force.)
XII
[56] In its bill of costs, the total amount claimed for counsel fees by Celanese is $143,782.50. The total of the reductions that I have made is $64,812.50. However, I have added counsel fees of $26,749.50 to the bill of costs, not included as a result of a calculation error. The result is an adjusted counsel fee of $105,720, exclusive of disbursements and GST. I have summarized the adjustments made to the bill of costs in Schedule A that is attached to these reasons. As I have earlier indicated, I would not interfere with the disbursements.
[57] It now remains to decide whether a counsel fee of $105,720 represents an amount that is fair and reasonable for CN, as the unsuccessful party, to pay in the particular circumstances of this case. In my view it does, and I do not propose to make any further reductions. Although only about $63,000 was in issue, this case had its complexities. Celanese was required to establish liability for the accident and to prove the disputed production loss. It was appropriate for Celanese to be represented by two counsel. There is no suggestion by CN that Celanese’s counsel devoted excessive time to their preparation, except during the trial. This is not a case like Moon, supra, that was “over‑lawyered”. As the trial judge observed, it was through the skill and determination of Mr. Scott and Mr. Hubbard that the case was won. Although perhaps somewhat high, the adjusted costs award including disbursements and GST meets the reasonableness test.
XIII
[58] In the result, I would grant leave to appeal costs and vary the amount of costs fixed by the trial judge to conform with these reasons. As well, I would allow the appeal from the award of prejudgment interest and vary the award in accordance with these reasons. Otherwise, I would dismiss the appeal. As success is divided, there will be no costs.
“S. Borins J.A.”
FELDMAN and SIMMONS JJ.A.:
[59] We have read the reasons for decision of Borins J.A. and we agree with his conclusion that the appeal should be allowed with respect to the amount of costs fixed at trial. However, we do not agree fully with his reasons. In our view, the trial judge’s error was in accepting the bill of costs of the respondent without conducting an analysis of the reasonableness of the amount awarded against Canadian National. We do not agree with our colleague that the hourly rate claimed by senior counsel should be reduced by $100. In our view he was entitled to claim the top rate of $350 per hour on the partial indemnity scale and the trial judge made no error in accepting the rate claimed. Finally, we do not agree with our colleague’s disposition on the issue of prejudgment interest.
[60] With respect to the partial indemnity rate for senior counsel, in our view the trial judge made no error in accepting the full $350 hourly rate claimed by senior counsel, Mr. Scott. As Borins J.A. noted, the trial judge specifically found that it was due to counsels’ skill and determination that this case was won for their client.
[61] Although there is case law from the Superior Court that suggests that the maximum rate in the costs grid is reserved for the most experienced counsel and the most important cases, we do not agree that only a small, elite group of lawyers in the province arguing the most financially significant cases is entitled to that rate. Instead, the trial judge is to assess the seniority of counsel and the significance of the case in monetary, jurisprudential and procedural terms, and to decide on a case-by-case basis the appropriate rate for senior and junior counsel on the applicable scale.
[62] While we would not reduce the hourly rate for Mr. Scott, we agree with Borins J.A. that the counsel fee he calculated of $105,720.00 represents a fair and reasonable amount of costs for CN to pay in the circumstances of this case. While the calculated amount would have been higher after applying the increased senior counsel rate, we would reduce the total amount to accord with the result reached by our colleague.
[63] On the issue of prejudgment interest, we see no basis to interfere with the disposition made by the trial judge in the exercise of his discretion. He chose the rate of 3.3 percent applied from the date of the accident instead of averaging the higher rates over the period and applying the averaged rate from the date each head of damage occurred. Even without doing a detailed calculation, it appears that by applying the lower 3.3 percent rate from the date of the accident, rather than the higher average rate from the latest date when Celanese’s loss could have been determined, any potential windfall to Celanese by calculating from the date of the accident is offset. The trial judge was entitled to take this approach rather than prolong the process by requiring further evidence to determine the dates for the calculation of prejudgment interest. We would not interfere with the trial judge’s disposition of prejudgment interest.
[64] In the result, we would grant leave to appeal costs and vary the amount of costs fixed by the trial judge to $105,720.00 for the counsel fee on the partial indemnity scale. We would dismiss the balance of the appeal. We agree with Borins J.A. that, as success was divided, there should be no costs of the appeal.
RELEASED: March 30, 2005 (“SB”)
“K. Feldman J.A.”
“Janet Simmons J.A.”
Schedule A
Claimed
Reductions
Additions
Pleadings
$ 7,000.00
$ 2,000.00
(S)
$ 2,944.50
487.50
Discovery of Documents
705.00
110.00
(S)
Examinations of Discovery
19,517.00
4,870.00
(S)
Pre‑Trial Conference
4,720.00
110.00
(S)
Trial Scheduling
195.00
Summary Judgment Motions
7,922.50
3,500.00
Trial Preparation to January 22, 2003
23,878.00
3,640.00
(S)
Trial Preparation after January 22, 2003
21,695.00
5,240.00
1,825.00
(S)
(H)
Trial Preparation during trial
13,750.00
10,580.00
2,750.00
(S)
(H)
23,805.00
Trial
40,500.00
28,700.00
Reviewing trial judgment
450.00
200.00
(S)
Bill of Costs and Submissions
3,450.00
200.00
600.00
(S)
(H)
$143,782.50
$ 64,812.50
$ 26,749.50
Counsel Fee
Claimed
$143,782.50
Additions
26,749.50
$170,532.50
Less Reductions
64,812.50
$105,720.00
(S) = Mr. Scott
(H) = Mr. Hubbard
[^1]: Subsequently, in the course of argument, the trial judge rejected Celanese’s request that the prejudgment interest rate be averaged from the date of the accident to the date of his order, which would have resulted in a higher rate.
[^2]: Although I have added $2,994.50 for the preparation of pleadings to Celanese’s bill of costs, in Schedule A which summarizes adjustments that I have made to it, I have reduced this amount by $487.50 as the lawyers involved in the preparation of the pleadings calculated their costs at the maximum partial indemnity hourly rate. See discussion in paragraph 29.
[^3]: Each party was represented by “a large” Toronto law firm.
[^4]: Each party was represented by senior and junior counsel.
[^5]: In awarding counsel fees at the maximum daily and weekly rates permitted by the costs grid, I acknowledge that I have not reduced the fees to reflect that this is not an instance of the most experienced counsel doing the most important case. I have not done this out of fairness to counsel, recognizing that while a block fee of $2,300.00 a day may be adequate for one counsel, it is usually inadequate for two counsel. In my view, it would be helpful for the Civil Rules Committee to clarify precisely what is included in the daily and weekly block counsel fees at trial.