1465778 Ontario Inc. et al. v. 1122077 Ontario Ltd. et al. [Indexed as: 1465778 Ontario Inc. v. 1122077 Ontario Ltd.]

82 O.R. (3d) 757

Court of Appeal for Ontario,

Feldman, Blair and LaForme JJ.A.

October 25, 2006

Civil procedure -- Costs -- Entitlement to costs -- Pro bono counsel -- No prohibition existing on award of costs in favour of parties represented by pro bono counsel in private actions which do not involve issues of general public importance -- Award of costs belonging to party and not to pro bono counsel but pro bono counsel may make fee arrangements with their clients to permit costs to be paid to counsel.

The appellants were successful in setting aside a default judgment and an order for security for costs. They were represented on the appeal by counsel acting pro bono. Counsel asked for costs of the appeal fixed in the amount of $4,500.

Held, costs should be awarded to the appellants in the amount of $4,500.

There should be no prohibition on an award of costs in favour of pro bono counsel in appropriate cases, even in private actions that do not involve public law, the Canadian Charter of Rights and Freedoms or similar issues of general public importance. Allowing pro bono parties to be subject to the ordinary costs consequences that apply to other parties has two positive consequences: (1) it ensures that both the non-pro bono party and the pro bono party know that they are not free to abuse the system without fear of the sanction of an award of costs; and (2) it promotes access to justice by enabling and encouraging more lawyers to volunteer to work pro bono in deserving cases.

Where costs are awarded in favour of a party, the costs belong to that party, not to counsel. However, pro bono counsel may make fee arrangements with their clients that allow the costs to be paid to the lawyer.

Any unfairness that might arise by awarding costs in favour of a pro bono party where that party would be unable to pay costs ordered against it should be addressed on a case-by-case basis. The concern for levelling the playing field for pro bono and non-pro bono litigants does not require, however, that the parties be placed in equal positions in every case. The policy objective of facilitating access to justice may be of sufficient importance to warrant placing the pro bono litigant in a more favourable position in some cases. The question of unfairness particularly arises with interlocutory costs awards that are ordered to be paid forthwith immediately. If a pro bono party has unsatisfied costs orders outstanding, there may well be potential unfairness in obliging a non-pro bono party who is [page758] unsuccessful on an interlocutory motion to pay costs of a motion immediately without offset. The correct approach is for the judge in each case to be apprised of the status of outstanding costs orders and then weigh the access to justice issues together with the particular circumstances of the interlocutory matter, including the conduct of the parties and the relative importance of the motion within the context of the litigation. The judge will then have the discretion to make the order that fits the circumstances, including ordering costs payable to the pro bono party, reducing the amount of those costs or limiting the order to disbursements, making the costs payable only at the end of the case or making no order at all.

To the four recognized purposes of costs awards (indemnifying the winning party; encouraging settlement; deterring frivolous actions and defences; and discouraging unnecessary steps that unduly prolong the litigation) should be added a fifth: facilitating access to justice. The profession sees the availability of costs orders in favour of pro bono counsel as a possible tool to reduce the unnecessary financial sacrifice associated with taking on pro bono work and, therefore, to increase the number of counsel who may be willing and able to accept pro bono cases.

RULING on costs from the orders of Festeryga J. dated July 3, 2003, of Harris J. dated July 31, 2003 and Matheson J. dated January 15, 2004, of the Superior Court of Justice.

Cases referred to

British Columbia (Minister of Forests) v. Okanagan Indian Band, [2003] 3 S.C.R. 371, [2003] S.C.J. No. 76, 233 D.L.R. (4th) 577, [2004] 2 W.W.R. 252, 114 C.R.R. (2d) 108, 2003 SCC 71, 43 C.P.C. (5th) 1, 21 B.C.L.R. (4th) 209; Brockie v. Ontario (Human Rights Commission), [2004] O.J. No. 1285, 185 O.A.C. 366, 129 A.C.W.S. (3d) 1172 (C.A.); Fellowes, McNeil v. Kansa General International Insurance Co. (1997), 37 O.R. (3d) 464, [1997] O.J. No. 5130, 49 O.T.C. 339, 17 C.P.C. (4th) 400, 76 A.C.W.S. (3d) 270 (Gen. Div.); Fong v. Chan (1999), 46 O.R. (3d) 330, [1999] O.J. No. 4600, 181 D.L.R. (4th) 614 (C.A.); Jacks v. Victoria Amateur Swimming Club, [2005] B.C.J. No. 2086, 2005 BCSC 1378, 143 A.C.W.S. (3d) 47 (S.C.); Lavigne v. Ontario Public Service Employees Union (No. 2), [1991] 2 S.C.R. 211, [1991] S.C.J. No. 52, 3 O.R. (3d) 511n, 48 O.A.C. 241, 81 D.L.R. (4th) 545, 126 N.R. 161, 4 C.R.R. (2d) 193, 91 CLLC 14,029, affg (1989), 67 O.R. (2d) 536, [1989] O.J. No. 95, 31 O.A.C. 40, 56 D.L.R. (4th) 474, 37 C.R.R. 193, 89 CLLC 14,011 (C.A.), revg (1987), 60 O.R. (2d) 486, [1987] O.J. No. 653, 41 D.L.R. (4th) 86 (H.C.J.); MacKay Homes v. North Bay (City), [2005] O.J. No. 3263, 141 A.C.W.S. (3d) 376 (S.C.J.); R (on the application of Corner House Research) v. Secretary of State for Trade and Industry, [2005] All E.R. 1 (C.A.); Rogers v. Greater Sudbury (City) Administrator, Ontario Works (2001), 57 O.R. (3d) 467, [2001] O.J. No. 3346, [2001] O.T.C. 630, 107 A.C.W.S. (3d) 554 (S.C.J.); Skidmore v. Blackmore, [1995] B.C.J. No. 305, 2 B.C.L.R. (3d) 201, 122 D.L.R. (4th) 330, [1995] 4 W.W.R. 524, 27 C.R.R. (2d) 77, 35 C.P.C. (3d) 28 (C.A.); Spatone v. Banks, [2002] O.J. No. 4647, 118 A.C.W.S. (3d) 335 (S.C.J.); Walker v. Ritchie, [2006] S.C.J. No. 45, 2006 SCC 45, 353 N.R. 265, J.E. 2006-1997, 151 A.C.W.S. (3d) 23

Statutes referred to

Canadian Charter of Rights and Freedoms Courts of Justice Act, R.S.O. 1990, c. C.43, s. 131 [as am.] Legal Aid Act 1988 (U.K.), 1988, c. 34, s. 18 Solicitors Act, R.S.O. 1990, c. S.15, s. 36

Rules and regulations referred to

Federal Magistrates Court Rules 2001 (Cth.), rule 12.07(3) (Aus.) Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 56.01(1), 57 [as am.], 57.01, 57.03(2), 59.03(6) Supreme Court Rules 1970 (N.S.W.), rule 66A.9 (Aus.) [page759]

Authorities referred to

Major, J."Lawyers' Obligation to Provide Legal Services" (1995) 33 Alta. L. Rev. 719 Orkin, M., The Law of Costs, looseleaf (Aurora, Ont.: Canada Law Book, 2005) Peysner, John"A Revolution By Degrees: From Costs to Financing and the End of the Indemnity Principle" [2001] 1 Web JCLI

Susan Chapman, for appellants. Joseph Dallal, for respondents. Paul B. Schabas and Sophie Nunnelley, amici curiae for Pro Bono Law Ontario. Jeffrey S. Leon and Laura F. Cooper, amici curiae for The Advocates' Society. James Vigmond, amicus curiae for Ontario Trial Lawyers Association.

The judgment of the court was delivered by

[1] FELDMAN J.A.: -- At a hearing before this panel on December 1, 2005, the appellants were successful in setting aside three orders that (1) did not allow the appellant Cavalieri, as the sole shareholder of the plaintiff numbered company, to represent the company in the litigation; (2) ordered security for costs against Cavalieri; and (3) dismissed the application. When the court read its endorsement, counsel for the appellants asked for costs of the appeal. Counsel for the respondent objected on the basis that counsel for the appellant was acting pro bono, through the auspices of the Advocates' Society pro bono program.

[2] The costs issue raised is whether, in a private action that does not involve public law, the Canadian Charter of Rights and Freedoms or similar issues of general public importance, the court can or should make costs orders in favour of a party represented by counsel acting pro bono. Because of the significance of the issue to the legal profession and the public, the court adjourned the costs issue and invited representatives of the profession to act as amici curiae. These amici submitted briefs and made oral submissions advising the court on the policy considerations that inform the issue, as well as the positions taken by the profession.

[3] I would like to thank all counsel for their assistance in this matter. I include counsel for both parties who are also assisting the court on this issue at their own expense and in the best tradition of the bar. [page760]

Issues

[4] The questions raised are:

(1) Is pro bono counsel entitled to ask for costs or does volunteering to act pro bono mean that the services are offered for free and no remuneration or reimbursement is allowed?

(2) If an award of costs is made in favour of the party represented by pro bono counsel, do the costs belong to the party or to the lawyer?

(3) Is it fair to award costs in favour of a party with pro bono counsel, if that party is unable to pay costs ordered against it?

(4) Is it appropriate for the court to develop a set of rules or criteria regarding the availability of costs in favour of pro bono litigants in non-public interest cases?

Positions of the Parties

[5] Mr. Rosenstein of Pape Barristers acted pro bono on the appeal on behalf of the appellants, and was successful in setting aside the default judgment and order for security for costs, the breach of which led to the dismissal of the application. He also obtained an order allowing Mr. Cavalieri, the sole shareholder of the numbered company, to represent his company in the litigation. He asked for costs of the appeal fixed in the amount of $4,500. Based on his bill of costs, that amount represents a substantial reduction from a partial indemnity award. His position is that there is no reason why pro bono counsel should be denied their costs, and that recent case law and the principles in s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43 and Rule 57 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 support this submission.

[6] Mr. Dallal on behalf of the respondents opposed the request for costs. He provided detailed written submissions following the original hearing for the purpose of allowing the court to consider all sides of the issue. He also presented a practical compromise submission if costs were to be awarded in this case.

[7] His first position is that where lawyers agree to act pro bono, they have no expectation of payment. They are making a contribution to the administration of justice as part of their professional obligation as lawyers, again in the best tradition of the bar. Therefore, the potential for a costs award is contrary to the concept of acting pro bono. I add at this point the question [page761] whether, if costs are available, counsel considering a pro bono retainer may factor into their decision the potential for the recovery of costs.

[8] Mr. Dallal also submits that in the "loser pay" costs regime, a party represented by pro bono counsel needs no indemnification from the losing party for legal fees incurred because that party is not paying counsel. This case, an ordinary commercial dispute, can be distinguished from recent case law that has allowed costs in favour of pro bono counsel acting in Charter cases, where there is a significant public interest component to the subject of the litigation.

[9] Although there are other purposes to an award of costs besides indemnification, specifically to encourage settlement, prevent frivolous or vexatious litigation and to discourage unnecessary steps, in cases such as this one, the playing field is not level. The impecunious party has an effective immunity from paying costs ordered in interlocutory matters and at the conclusion of the case.

[10] A further argument is that if costs are to be awarded, then the financial terms of the retainer of the pro bono lawyer should be disclosed, including whether there is indemnity from another source or any contingency fee arrangement. An anomalous situation is created if the only parties with an interest in litigating the issue of costs are the pro bono lawyer and the losing party.

[11] Finally, Mr. Dallal submits in the alternative, that the court should make all costs of interlocutory proceedings payable only at the end of the litigation rather than forthwith, because only the non-pro bono party would be able to pay forthwith. He suggests that this resolution will have two advantages. First, it will discourage interlocutory motions and create a more level playing field for the balance of the litigation. Second, it will prevent the problematic situation in which costs are awarded forthwith against a pro bono litigant who is unable to pay, entitling the opposing party to seek security for costs and ultimately, when such security cannot be paid, dismissal of the application.

[12] On the alternative submission, Mr. Rosenstein responded in his written reply submission that the proper way to deal with a party unable to satisfy interlocutory costs orders is under rule 56.01(1)(c), security for costs.

[13] Amicus curiae briefs were filed and oral representations made on behalf of three legal organizations with a special interest in advocacy issues: the Ontario Trial Lawyers Association, Pro Bono Law Ontario and The Advocates' Society. In response to the issues raised, all three refer to the noble tradition of the bar to take on cases without remuneration when the need of a potential [page762] litigant comes to its attention. This tradition was discussed by Major J. in a speech titled "Lawyers' Obligation to Provide Legal Services" delivered to the National Conference on the Legal Profession and Professional Ethics at the University of Calgary in 1994 ((1995) 33 Alta. L. Rev. 719) where he said:

It has long been part of the duty and tradition of the legal profession to provide services gratuitously for those who require them but cannot afford them. The profession, recognizing its commitment to the larger principle of justice, has traditionally not let such cases go unanswered merely because the individual is impecunious. Instead, the profession has collectively accepted the burden of such cases, thereby championing the cause of justice while at the same time, sharing the cost that such cases entail. This is a tradition which dates to the very inception of the profession in medieval Europe in the thirteenth century.

[14] All amici submit, however, that it is not inappropriate for counsel who volunteer to act pro bono to be able to be reimbursed for their services to some extent by costs awards. They also agree that the potential for such awards would encourage more lawyers to take on pro bono cases and thereby increase access to justice for many people in Ontario.

[15] The Ontario Trial Lawyers Association also adopts the view that the purposes of costs awards in litigation other than indemnity apply equally to cases where a party is represented by pro bono counsel. It is therefore inappropriate to remove from the process the potential sanction of a costs order to promote settlement, to prevent litigants from causing needless delays and to allow the court to control its process.

[16] Pro Bono Law Ontario ("PBLO") takes a somewhat more radical position. Established in 2002, its mission statement is:

To improve access to justice by providing strategic guidance, training and tailored technical assistance to law firms, law associations, legal departments and other groups that are dedicated to addressing the legal needs of low income and disadvantaged individuals as well as the communities and charitable organizations that serve them.

[17] PBLO works to promote a pro bono culture within the legal profession by developing and enhancing the pro bono capacity of the bar. Lawyers have an obligation to ensure that everyone who needs it has access to justice, and acting "pro bono publico", in the public good, helps to fulfill that objective. Pro bono legal services are offered without the expectation of payment to people who cannot afford a lawyer, in order to increase access to justice. The underlying charitable motivation distinguishes pro bono work from contingency fee or class action arrangements. However, because some lawyers are not in a position to absorb the financial obligations attached to pro bono work easily, the court's [page763] recognition of the potential for costs awards may allow or encourage more lawyers to offer their services.

[18] The position of PBLO is that there should be no special rule either for or against costs where parties are represented by pro bono counsel. In some cases, pro bono counsel may choose not to seek costs or may elect to donate any costs received to charity. However, because costs serve several normative functions within the litigation process, it is important that the court retain its discretion to make costs orders to control its own process and ensure that the system works fairly. To that end, the court should recognize access to justice as a fifth purpose underlying an award of costs that will be particularly relevant in pro bono cases. In that context, other costs remedies such as security for costs orders should be equally available to defendants with pro bono counsel who are sued, for example, by an impecunious plaintiff.

[19] Further, where a party represented by pro bono counsel is unsuccessful, PBLO suggests that access to justice considerations may weigh against making a costs award against that party. The fear of such an adverse costs award may deter parties with limited means from litigating issues that are legitimately important to them. On the other hand, PBLO recognizes that other considerations in the specific litigation may lead the court to conclude that an adverse costs award is appropriate.

[20] Although the issue before the court involves private litigation, PBLO also refers to cases such as Charter litigation, which seek to advance the public interest. In public interest cases, there is more reason for a court to avoid penalizing the pro bono litigant. It may even be appropriate for the court to grant costs, or at least disbursements, to an unsuccessful pro bono party. In England, for example, there is a limited practice of granting "pre- emptive costs orders" or "protective costs orders" ("PCOs") in public interest cases where the applicant has no private interest in the case. In R (on the application of Corner House Research) v. Secretary of State for Trade and Industry, [2005] All E.R. 1 (C.A.), the English Court of Appeal explained these orders as follows at para. 6:

The general purpose of a PCO is to allow a claimant of limited means access to the court in order to advance his case without the fear of an order for substantial costs being made against him, a fear which would inhibit him from continuing with the case at all.

[21] PBLO concludes its submissions by suggesting that the court should develop criteria for awarding or denying costs in pro bono cases on a case-by-case basis that will serve the traditional purposes of costs awards, but also reflect an overriding concern for access to justice. [page764]

[22] As I mentioned earlier, The Advocates' Society's position is that it is not inconsistent with the charitable objective of taking on pro bono work that counsel be able to request and accept an award of costs, if successful. The Society points out that it would be a windfall in the context of our "loser pay" system, for an unsuccessful party to avoid paying costs just because the opposite party is represented by pro bono counsel. Or, looking at the issue another way, in some cases, it will be appropriate for the unsuccessful party to bear a portion of the costs of the litigation instead of the whole burden falling on volunteer pro bono counsel.

[23] On the other hand, there could be cases where a costs order ought not to be made. One such case may be where the pro bono party would not have been able to pay costs if unsuccessful, and would not have expected to do so. The Society's view is that this may be a relevant consideration for the court. In other words, the Society agrees with the respondent in this case that it may be problematic to have an uneven playing field, where one party is impecunious and represented by pro bono counsel, while the other has retained counsel in the ordinary way.

[24] The Society accepts that the law in this area should develop on a case-by-case basis, but within the framework of allowing the court to apply ordinary costs principles, while also reacting to specific issues raised in the pro bono context. Such an approach will have a salutary effect on facilitating access to justice and will improve the efficiency of the administration of justice.

Legislative and Case Law Background

[25] By s. 131 of the Courts of Justice Act, costs of a proceeding are in the discretion of the court but that discretion, although very broad, is to be exercised in accordance with the provisions of an Act or the Rules of Civil Procedure. Section 131(1) provides:

131(1) Subject to the provisions of an Act or rules of court, the costs of and incidental to a proceeding or a step in a proceeding are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid.

[26] Traditionally the purpose of an award of costs within our "loser pay" system was to partially or, in some limited circumstances, wholly indemnify the winning party for the legal costs it incurred. However, costs have more recently come to be recognized as an important tool in the hands of the court to influence the way the parties conduct themselves and to prevent abuse of the court's process. Specifically, the three other recognized purposes of costs awards are to encourage settlement, to deter frivolous actions and defences and to discourage unnecessary steps [page765] that unduly prolong the litigation. See Fellowes, McNeil v. Kansa General International Insurance Co. (1997), 37 O.R. (3d) 464, [1997] O.J. No. 5130 (Gen. Div.), at pp. 467 and 472 O.R.

[27] In British Columbia (Minister of Forests) v. Okanagan Indian Band, 2003 SCC 71, [2003] 3 S.C.R. 371, [2003] S.C.J. No. 76, at paras. 25 and 26, LeBel J. discussed the natural evolution of the law in recognizing these policy objectives:

As the Fellowes and Skidmore [infra] cases illustrate, modern costs rules accomplish various purposes in addition to the traditional objective of indemnification. An order as to costs may be designed to penalize a party who has refused a reasonable settlement offer[.] . . . Costs can also be used to sanction behaviour that increases the duration and expense of litigation, or is otherwise unreasonable or vexatious. In short, it has become a routine matter for courts to employ the power to order costs as a tool in the furtherance of the efficient and orderly administration of justice.

Indeed, the traditional approach to costs can also be viewed as being animated by the broad concern to ensure that the justice system works fairly and efficiently. Because costs awards transfer some of the winner's litigation expenses to the loser rather than leaving each party's expenses where they fall (as is done in jurisdictions without costs rules), they act as a disincentive to those who might be tempted to harass others with meritless claims. And because they offset to some extent the outlays incurred by the winner, they make the legal system more accessible to litigants who seek to vindicate a legally sound position. These effects of the traditional rules can be connected to the court's concern with overseeing its own process and ensuring that litigation is conducted in an efficient and just manner. In this sense it is a natural evolution in the law to recognize the related policy objectives that are served by the modern approach to costs.

[28] As part of the recognition that costs serve a purpose beyond indemnification, the courts began to award costs in favour of litigants who were traditionally viewed as disentitled to costs. For example, costs have been awarded in cases where the litigant was self-represented (Skidmore v. Blackmore, [1995] B.C.J. No. 305, 2 B.C.L.R. (3d) 201 (C.A.) and Fong v. Chan (1999), 46 O.R. (3d) 330, [1999] O.J. No. 4600 (C.A.)); where the winning party was a law firm represented by one of its partners who was not charging fees (Fellowes, McNeil, supra); where counsel was salaried (Solicitors Act, R.S.O. 1990, c. S.15, s. 36); and where the responsibility for a party's legal fees was undertaken by a third party (Lavigne v. Ontario Public Service Employees Union (No. 2) (1987), 60 O.R. (2d) 486, [1987] O.J. No. 653 (H.C.J.)).

[29] Costs have also been awarded to counsel acting pro bono in Charter or public interest cases such as Rogers v. Greater Sudbury (City) Administrator, Ontario Works (2001), 57 O.R. (3d) 467, [2001] O.J. No. 3346 (S.C.J.). In that case, Epstein J. awarded costs payable forthwith on an injunction application. She stated at para. 21: [page766]

Through granting, when appropriate, cost awards payable forthwith during the course of what is frequently protracted litigation, the financial burden assumed by the lawyers doing pro bono work is reduced. Orders of this nature would allow more lawyers to accept this kind of retainer thereby increasing the opportunity for people, such as Ms. Rogers, to have access to justice. As well, applicants who may suffer irreparable harm as a result of the application of a law that is the subject of a legitimate Charter challenge have increased opportunity to seek interlocutory relief since counsel acting for them have a chance of being paid promptly for the often very expensive process of preparing for and arguing a motion for an interlocutory injunction.

[30] There have also been some recent instances, both in Ontario and in British Columbia, where costs orders have been made in favour of pro bono counsel in non-public interest cases. See for example, MacKay Homes v. North Bay (City), [2005] O.J. No. 3263, 141 A.C.W.S. (3d) 376 (S.C.J.); Spatone v. Banks, [2002] O.J. No. 4647, 118 A.C.W.S. (3d) 335 (S.C.J.); and Jacks v. Victoria Amateur Swimming Club, 2005 BCSC 1378, [2005] B.C.J. No. 2086, 143 A.C.W.S. (3d) 47 (S.C.) In Brockie v. Ontario (Human Rights Commission), [2004] O.J. No. 1285, 185 O.A.C. 366 (C.A.), this court reversed a decision of the Divisional Court that denied costs to pro bono counsel, holding that "[s]uch a policy would act as a severe penalty to lawyers acting in the public interest by making it possible for litigants of modest means to access the courts" [at para. 6].

[31] Finally, rule 57.01 of the Rules of Civil Procedure sets out the factors a court may consider when deciding on a costs award. It provides:

57.01(1) In exercising its discretion under section 131 of the Courts of Justice Act to award costs, the court may consider, in addition to the result in the proceeding and any offer to settle or to contribute made in writing,

(0.a) the principle of indemnity, including, where applicable, the experience of the lawyer for the party entitled to the costs as well as the rates charged and the hours spent by that lawyer;

(0.b) the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed;

(a) the amount claimed and the amount recovered in the proceeding;

(b) the apportionment of liability;

(c) the complexity of the proceeding;

(d) the importance of the issues;

(e) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding;

(f) whether any step in the proceeding was,

(i) improper, vexatious or unnecessary, or

(ii) taken through negligence, mistake or excessive caution; [page767]

(g) a party's denial of or refusal to admit anything that should have been admitted;

(h) whether it is appropriate to award any costs or more than one set of costs where a party,

(i) commenced separate proceedings for claims that should have been made in one proceeding, or

(ii) in defending a proceeding separated unnecessarily from another party in the same interest or defended by a different solicitor; and

(i) any other matter relevant to the question of costs.

(2) The fact that a party is successful in a proceeding or a step in a proceeding does not prevent the court from awarding costs against the party in a proper case.

[32] All the amici agree that these factors, which reflect the four principles referred to in Fellowes and in Fong v. Chan of indemnity, encouragement of settlements, discouragement of frivolous actions and defences, and discouragement of unnecessary steps in the litigation, can be applied in pro bono cases. PBLO submits that access to justice should be added as a fifth purpose.

[33] In its brief, the Advocates' Society submits that costs should be available to pro bono parties based on the factors set out in rule 57.01(1) as well as on the principles of access to justice and the efficient administration of the courts. However, it argues that while the court should encourage access to justice through pro bono litigation, it should be mindful of considerations that may uniquely arise in such cases. It is important that there always be the potential for costs consequences to ensure that both parties adopt appropriate litigation strategies. However, an award of costs in favour of a successful pro bono party will not always be appropriate. For example, an award might not be made in a case where there was never an expectation that the pro bono party would be able to pay costs if unsuccessful.

Analysis

Issue 1: Can pro bono counsel seek costs?

[34] It is clear from the submissions of the amici representing the views of the profession, as well as from the developing case law in this area, and I agree, that in the current costs regime, there should be no prohibition on an award of costs in favour of pro bono counsel in appropriate cases. Although the original concept of acting on a pro bono basis meant that the lawyer was volunteering his or her time with no expectation of any reimbursement, the law now recognizes that costs awards may serve purposes other than [page768] indemnity. To be clear, it is neither inappropriate, nor does it derogate from the charitable purpose of volunteerism, for counsel who have agreed to act pro bono to receive some reimbursement for their services from the losing party in the litigation.

[35] To the contrary, allowing pro bono parties to be subject to the ordinary costs consequences that apply to other parties has two positive consequences: (1) it ensures that both the non-pro bono party and the pro bono party know that they are not free to abuse the system without fear of the sanction of an award of costs; and (2) it promotes access to justice by enabling and encouraging more lawyers to volunteer to work pro bono in deserving cases. Because the potential merit of the case will already factor into whether a lawyer agrees to act pro bono, there is no anticipation that the potential for costs awards will cause lawyers to agree to act only in cases where they anticipate a costs award.

Issue 2: Does the costs award belong to pro bono counsel or to the litigant?

[36] Where costs are awarded in favour of a party, the costs belong to that party. See Mark M. Orkin, Q.C., The Law of Costs, looseleaf (Aurora: Canada Law Book, 2005) at 204 and Rules of Civil Procedure, rule 59.03(6). However, pro bono counsel may make fee arrangements with their clients that allow the costs to be paid to the lawyer. This ensures that there will be no windfall to the client who is not paying for legal services.

Issue 3: Is it fair to award costs in favour of a pro bono party if that party would be unable to pay costs ordered against it?

[37] The case law makes it clear -- and the submissions of the amici support the proposition -- that although it is open to a judge to award costs to a successful pro bono party, such an award is not mandatory and will depend on the rule 57.01 factors, considerations of access to justice and the need to maintain a level playing field between the parties.

[38] This is particularly true with respect to interlocutory costs awards that are ordered to be paid forthwith. If a pro bono party has unsatisfied costs orders outstanding, there may well be potential unfairness in obliging a non-pro bono party who is unsuccessful on an interlocutory motion to pay costs of a motion forthwith without offset.

[39] The effectiveness of the system relies on the fact that all parties are at risk to pay costs if they are unwilling to consider a reasonable settlement, or if they unnecessarily bring or oppose [page769] motions. In its recently released decision in Walker v. Ritchie, [2006] S.C.J. No. 45, 2006 SCC 45, denying a risk premium to plaintiff's counsel as part of the losing defendant's costs obligation, the Supreme Court of Canada affirmed the concept that all defendants must face the same risk of costs (at para. 28):

Unsuccessful defendants should expect to pay similar amounts by way of costs across similar pieces of litigation involving similar conduct and counsel, regardless of what arrangements the particular plaintiff may have concluded with counsel.

[40] The same proposition applies to unsuccessful plaintiffs. However, if the pro bono party is effectively immune from any real obligation to pay interlocutory costs because of impecuniosity, then the purpose of the costs rule is undermined.

[41] The issue of the costs obligations of impecunious parties represented by pro bono counsel presents a delicate problem from the point of view of the profession, as its members not only have a collective obligation to provide services pro bono in appropriate cases, but they also, of course, act for clients who may be litigating against a pro bono party. In that context, the amici have been careful to encourage the court to maintain flexibility and to develop the principles on a case-by-case basis. I agree with that approach. As Mr. Dallal, counsel for the respondent, points out, the situation may become somewhat anomalous if the pro bono party has nothing at stake regarding the costs and the real adversaries on that issue are the non-pro bono party and the pro bono lawyer.

[42] The concern for levelling the playing field for pro bono and non-pro bono litigants does not require, however, that the parties be placed in equal positions in every case. As the approaches adopted in some foreign jurisdictions illustrate, the policy objective of facilitating access to justice may be of sufficient importance to warrant placing the pro bono litigant in a more favourable position in some cases. For example, although s. 18 of the English Legal Aid Act 1988 (U.K.), 1988, c. 34 permits courts to make a costs award in favour of successful litigants represented by Legal Aid, these litigants are normally not required to pay costs when unsuccessful. See John Peysner"A Revolution By Degrees: From Costs to Financing and the End of the Indemnity Principle" [2001] 1 Web JCLI. Similarly, in Australia the rules of the Federal Magistrates and New South Wales courts permit litigants represented by pro bono counsel to seek costs awards. See Federal Magistrates Court Rules 2001 (Cth.), rule 12.07(3) and Supreme Court Rules 1970 (N.S.W.), rule 66A.9. Although there is no comparable statutory context in Ontario, these provisions support the principle that litigants represented by pro bono counsel should not be denied access to the costs regime. [page770]

[43] There are provisions in the rules that can be used to level the playing field when costs are awarded to a pro bono party. For example, rule 57.03(2) allows the court to dismiss a party's proceeding, strike the party's defence or "make such other order as is just" where that party fails to pay the costs of a motion as ordered. Rule 57.01(4)(b) allows the court to award only a percentage of assessed costs. These two rules can be used by the court to reduce an award of costs to a pro bono party who wins an interlocutory motion, where that party has failed to pay costs previously ordered against it.

[44] The correct approach, then, is for the judge in each case to be apprised of the status of outstanding costs orders, and then weigh the access to justice issues together with the particular circumstances of the interlocutory matter, including the conduct of the parties and the relative importance of the motion within the context of the litigation. The judge will have the discretion to make the order that fits the circumstances, including ordering costs payable to the pro bono party, reducing the quantum of those costs or limiting the order to disbursements, making the costs payable only at the end of the case, or making no order.

Issue 4: Should the court develop a set of rules governing the availability of costs awards in favour of pro bono parties?

[45] I agree with the submission of PBLO that the list of the purposes of costs awards should now include access to justice as a fifth consideration. It is clear that the profession sees the availability of costs orders in favour of pro bono counsel as a tool to potentially reduce the necessary financial sacrifice associated with taking on pro bono work and to thereby increase the number of counsel who may be willing and able to accept pro bono cases. This will facilitate access to justice.

[46] Because of the discretion accorded to judges to award and fix the quantum of costs (subject to s. 131 of the Courts of Justice Act, the Rules of Civil Procedure and the Supreme Court's decision in Walker), they have the necessary scope to respond to any potential unfairness that may arise as a result of the parties' unequal abilities to pay costs, and the fact that the pro bono party is not paying a lawyer. They also have the flexibility to craft a costs order that addresses the potential unfairness where the circumstances, including all the other relevant factors, call for it.

[47] Where a case is brought to assert a Charter claim or other matter of general public importance, different considerations may apply when deciding whether to award costs in favour of the pro bono party. In those cases, for example, it may be appropriate [page771] for the court to consider potentially insulating the pro bono party from exposure to costs, or limiting the party's exposure, in order to facilitate the resolution of an important public interest issue by the court. The principles that will be applied in this type of litigation will also develop as the cases arise.

[48] The legal profession in Ontario has a history of commitment to ensuring access to justice and providing pro bono services through its members. That history is reflected in today's litigation environment where it is both appropriate and necessary that costs awards be available to successful pro bono litigants in ordinary private law cases both at the end of the case and on interlocutory motions. The principles that will guide the exercise of the court's discretion in deciding when such costs will be awarded should be developed over time on a case-by-case basis.

The Award in this Case

[49] This matter came before the Court of Appeal primarily as an appeal from an order dismissing the appellants' application without a determination on the merits. Because the appellant was successful in having that order set aside, the issue of the availability of an arbitration clause in a franchise agreement may now be able to be heard on the merits. In the ordinary course, costs would follow the event of a successful appeal and would be ordered payable by the respondents on the partial indemnity scale. The appellants were represented by pro bono counsel on the appeal only. Is there any reason in this case why the ordinary order should not be made?

[50] The respondents point to the fact that the appellants are impecunious and that it was because they were unable to pay a costs order that the case was dismissed. However, that costs order has also been set aside. In my view, there is no reason why the losing party should not be ordered to pay costs of this appeal forthwith. If an issue with respect to future costs orders arises as the litigation progresses, either with pro bono counsel or with an in-person litigant, it can be addressed by the judge who hears the issue. I do not find it appropriate at this stage not to make the costs order payable forthwith.

[51] Pro bono counsel has asked for $4,500 on the partial indemnity scale. The respondent suggests $2,000. Costs of $1,500 were fixed on a motion to extend the time for bringing this appeal to be payable in accordance with the order of the panel. In the circumstances, I would order total costs to the appellants in the amount of $4,500, inclusive of disbursements and GST.

[52] There will be no costs of the appeal relating to the general issue of costs in pro bono cases. Again, I thank all counsel for [page772] advising the court of the position of the profession and for all of their very helpful assistance on this important issue.

Order accordingly.