Burke v. Hudson's Bay Company, 2008 ONCA 690

CITATION: Burke v. Hudson's Bay Company, 2008 ONCA 690

DATE: 20081010

DOCKET: C44742

COURT OF APPEAL FOR ONTARIO

Doherty, Weiler and Gillese JJ.A.

BETWEEN:

Peter Christopher Burke, Richard Fallis and A. Douglas Ross, personally and in a representative capacity

Representative Plaintiffs (Respondents/Appellants by way of cross-appeal)

and

The Governor and Company of Adventurers of England Trading into Hudson’s Bay and Investors Group Trust Company Ltd.

Defendants (Appellants/Respondents by way of cross-appeal)

J. Brett Ledger, Christopher P. Naudie and Craig T. Lockwood for the appellants/ respondents by way of cross-appeal

David C. Moore and Kenneth G.G. Jones for the respondents/appellants by way of cross-appeal

HEARD: December 10, 2007

On appeal from the order of Justice Colin L. Campbell of the Superior Court of Justice, dated April 20, 2007, with reasons reported at (2005), 51 C.C.P.B. 66, and (2006), 54 C.C.P.B. 43.

GILLESE J.A.:

OVERVIEW

[1] In a decision released on May 20, 2008, this court allowed the appeal of the defendant Hudson’s Bay Company (“HBC”) and dismissed the cross-appeal of the representative plaintiffs Peter Christopher Burke, Richard Fallis and A. Douglas Ross (the “Representative Plaintiffs”). The court indicated that if the parties were unable to reach agreement on the matter of costs, they were to make brief submissions on the same. As agreement was not reached, the parties filed written submissions.

[2] In its original costs submissions, HBC submitted that the litigation had been adversarial in nature and that had the Representative Plaintiffs been successful, there would have been no benefit for the tens of thousands of HBC employees who remained in the HBC pension plan. Thus, it argued, the usual rules of civil procedure should apply in determining costs. Accordingly, as the successful party, it sought costs on a partial indemnity basis, payable directly by the Representative Plaintiffs in their personal capacity, and not from the pension fund (the “Fund”). On that basis, HBC requested costs of approximately $690,000.00. This consisted of trial costs of approximately $579,000, and costs of the appeal and cross-appeal of approximately $112,000.

[3] The Representative Plaintiffs submitted that the costs of both parties should be paid from the Fund on a substantial indemnity basis or, alternatively, that each side should bear its own costs. If an order of costs were to be made against the Representative Plaintiffs, they argued that the quantum sought by HBC was excessive.

[4] The court considered the parties’ costs submissions and made a preliminary determination that costs of both sides should be paid from the Fund (the “Preliminary Determination”). The court advised the parties of its Preliminary Determination and asked for further submissions as to the appropriate scale and quantum of such costs.

[5] Both parties filed supplemental submissions. In these submissions, the court was advised that in light of its Preliminary Determination, the parties had agreed that they should recover their respective costs on a full indemnity basis from the Fund. However, this agreement was contingent on the understanding that it was without prejudice to HBC’s right to appeal the Preliminary Determination, should HBC decide to take that step.[^1]

[6] In its supplemental submissions, HBC states that it has incurred legal fees and disbursements of $2,509,071.79 in relation to this matter since 1994. Of that sum, $1,415,363.82 has already been paid out of the Fund. For convenience, hereafter I will refer to HBC’s total legal fees and disbursements as $2.5 million and the amount of the fees and disbursements already paid from the Fund as $1.4 million.

[7] By order dated January 13, 2004, Ground J. ordered that both parties to the litigation were to be responsible for their own costs in prosecuting the action through to trial, subject to further court order (the “Ground order”). In the course of preparing its supplemental submissions, HBC discovered that of the $1.4 million that has been paid from the Fund, approximately $685,000 of that sum was paid between the date of the Ground order and the conclusion of trial. Some of those legal expenses had been paid directly from the Fund and others had been paid by HBC but HBC had subsequently been reimbursed from the Fund. All payments made from the Fund after the Ground order were as a result of inadvertence. Relying on the pension plan documentation, HBC argued that but for the terms of the Ground order, the expenses were permissibly paid from the Fund.

[8] HBC asks for an order for costs of slightly in excess of $1 million from the Fund, which is the balance owing for fees and disbursements on a full indemnity basis. It also asks for a declaration approving the $1.4 million of prior payments made out of the Fund on account of legal fees and disbursements.

[9] In its supplemental submissions, the Representative Plaintiffs seek an order for costs payable from the Fund of $363,224.85. This consists of approximately $43,000 for the appeal and cross-appeal, and approximately $320,000 for the trial costs. These sums do not include costs that have already been paid from the Fund pursuant to prior court orders. The Representative Plaintiffs take no issue with, and raise no objection to, certain of HBC’s fees having already been paid from the Fund. Counsel for the Representative Plaintiffs fully accepts that the payments were made through inadvertence.

REASONS FOR THE PRELIMINARY DETERMINATION

[10] In Kerry (Canada) Inc. v. Ontario (Superintendent of Financial Services) (2007), 2007 ONCA 605, 282 D.L.R. (4th) 625, at paras. 10-12, this court explained that public policy dictates that costs are to be made payable from a pension fund in two categories of cases. Those two categories are where the proceedings are brought: (1) to ensure the due administration of the pension trust fund; or (2) for the benefit of all of the beneficiaries. Apart from those two categories of cases, the usual costs rules of civil litigation should apply.

[11] In my view, the present case falls squarely within the first category and, as explained more fully below, within the spirit of the second.

[12] In advancing this case, the Representative Plaintiffs sought to determine whether HBC, as an employer who terminated the employment of a significant number of employees through sale of a part of its business (the “Transferred Employees”), was obliged to administer its ongoing pension plan in a way that recognized the contributions made by the Transferred Employees to the surplus funds in its ongoing pension plan. The legal issues were novel in a number of respects including the appropriate division of actuarial surplus, given that the Transferred Employees had been transferred to a successor pension plan and assets sufficient to meet accrued liabilities had been transferred to the successor plan but no pension plan wind-up (whole or in part) had been ordered.

[13] Thus, in substance, the litigation was aimed at ensuring the proper administration of trust funds in an ongoing pension plan. The problem was created by ambiguities in the plan documentation. It required extensive interpretation of documents and the determination of a number of novel legal questions. The core issue that divided the parties was real and there was significant merit to both sides. Furthermore, in a very real sense, this case was about surplus entitlement and, historically, costs in surplus cases have been awarded from the fund.[^2] This consideration is even more pronounced in the present case, as there was no other way in which surplus entitlement could have been decided. The Transferred Employees raised the issue of surplus in the proceedings before the Superintendent of the Pension Commission of Ontario but the Superintendent decided that he had no jurisdiction to deal with the issue and that it should be dealt with by the courts.

[14] As mentioned, I also see this case as falling within the spirit of the second category. Had the Representative Plaintiffs been successful, the result would have been of benefit to all of the Transferred Employees. That is very different from the situation in Kerry where it was unclear what level of support the plaintiffs had from plan members and, had the plaintiffs been successful, the benefit would have gone to only a particular class of members.

[15] Finally, there is a question of fairness that is properly addressed through costs. It is clear that the direct contributions deducted from the Transferred Employees’ pay, together with the additional contributions made by HBC in relation to those employees, contributed to the surplus which had accumulated in the Fund at the time of the Northern Stores sale. The 1200 Transferred Employees were involuntarily removed from the Fund by reason of transfer to the new employer. They had no say in the sale agreement or division of plan assets. It is a just result that some of the surplus funds be used to resolve a very legitimate and reasonable debate over entitlement to that surplus.

THE SCALE OF COSTS

[16] As the parties agreed between themselves that full indemnity was the proper scale on which to award costs, no submissions were made on this point apart from reference to this court’s recent decision in MacKinnon v. Ontario Municipal Employees Retirement Board (2007), 2007 ONCA 874, 88 O.R. (3d) 269. In MacKinnon at para. 91, this court ordered certain costs (but not all) in a pension dispute payable on a full indemnity basis from the pension fund.

[17] For the reasons already given, the court is satisfied that, in principle, full indemnity costs are warranted in the circumstances of this case. However, it is important to note the strictures on such a costs award that were identified in MacKinnon. At para. 92, after ordering costs on a full indemnity basis, this court stated that it did not wish to be taken as suggesting there were no “checks and balances” on such costs awards and that “[a]t a minimum, such costs are to be reviewed by the court and are limited to those that have been reasonably incurred.”

[18] I would reiterate those admonitions here. It is important to keep in mind that pension funds, although held in trust, operate differently from other trust funds. For example, in estate litigation, there are generally parties who have the right to scrutinize expenses being charged to the estate. Those people provide “checks and balances”, both in the courtroom and outside, in addition to those provided by the court. As pension plan members generally have limited (or no) ability to scrutinize or challenge expenditures from the pension fund, similar checks and balances may not exist in respect of pension trusts. Accordingly, even when a court has determined that costs should be payable from a pension fund on a full indemnity basis, the court must take steps to satisfy itself of the reasonableness of such costs.

QUANTUM OF COSTS

[19] On a full indemnity basis, HBC is seeking costs of $280,000 for the appeal and cross-appeal, and approximately $2.23 million for the balance of the proceedings. As has been mentioned, the Representative Plaintiffs seek full indemnity costs of $43,000 for the appeal and cross-appeal, and $320,000 for the balance of the proceedings. The costs of the Representative Plaintiffs for the proceedings apart from the appeal and cross-appeal do not include costs that have been paid already pursuant to prior court orders.

[20] This court is obviously well-positioned to consider the reasonableness of the costs of the appeal and cross-appeal. Those sought by the Representative Plaintiffs meet such a test and I would so order. In my view, however, the amounts sought by HBC are excessive. After allowing for the fact that the costs of an appellant are higher and keeping in mind the Rule 57.01 factors, I would order costs to the appellant of $140,000 for the appeal and cross-appeal, payable from the Fund. In arriving at this figure, I am mindful of the following consideration: that this was a one-day appeal, the same counsel appeared both at trial and on appeal, the amount sought on a partial indemnity basis and the amount awarded opposing counsel on a full indemnity basis. All of these considerations are made in the context of an appreciation of the usual range of costs awarded on appeal.

[21] In my view, however, this court is not in a position to properly consider the reasonableness of the costs sought in relation to the balance of the proceedings, including the trial. As I will explain, a determination as to the reasonableness of the costs of these proceedings, apart from those associated with the appeal and cross-appeal, is best left to the trial judge.

[22] First, it goes without saying that the trial judge is uniquely positioned to determine the reasonableness of the trial costs. This court does not have the benefit of a costs decision from the trial judge because that matter was to be addressed following the conclusion of the remedies hearing. However, the remedies hearing did not take place as it was overtaken by this appeal and cross-appeal.

[23] Second, the costs are very large and differ significantly between the parties. I recognise that I am comparing “apples and oranges” in making that statement because the costs sought by the Representative Plaintiffs for the proceedings (apart from the costs of the appeal and cross-appeal) do not include costs already paid from the Fund pursuant to prior court orders whereas the figure advanced by HBC represents the full costs of those proceedings. Further, I understand that HBC has borne sole responsibility for many expensive aspects of these proceedings, including the production of thousands of documents, unusual and extensive cross-examinations and examinations for discovery, and the extensive actuarial and other expert evidence. At the same time, however, the costs submissions before the court are, of necessity, little more than summaries of the work that went into this complicated and lengthy case. In the circumstances, this court cannot review the costs in any meaningful way.

[24] Finally, counsel for the parties have indicated that they have no objection to this matter being decided by the trial judge.

DISPOSITION

[25] Accordingly, I would order that costs of the appeal and cross-appeal, fixed at $140,000, be paid to HBC from the Fund and that costs of the appeal and cross-appeal, fixed at $43,000, be paid to the Representative Plaintiffs from the Fund. Further, I would order that both parties are entitled to their costs of the balance of the proceedings payable from the Fund on a full indemnity basis, so long as such costs meet the test of reasonableness. For the reasons already given, I would refer that matter to the trial judge to be decided in accordance with these reasons.

[26] I would decline to make the declaration requested by HBC in respect of the prior payment of fees to it from the Fund. Although the Representative Plaintiffs took no objection to those payments, being fully satisfied that they were made through inadvertence, in my view this court is not in a position to make the requested declaration. The primary task of the court at this time is to fix the costs of the appeal and cross-appeal. In light of the result on appeal, this court was obliged to consider also the matter of trial costs. The requested declaration goes beyond the scope of such matters. Even if the court has jurisdiction to make the requested declaration, in my view it would be inadvisable to do so.

RELEASED: “OCT 10 2008”

“EEG” “E.E. Gillese J.A.”

“I agree K.M. Weiler J.A.”

“I agree Doherty J.A.”

[^1]: The court was subsequently advised that HBC has decided not to take that step. [^2]: See, for example, Schmidt v. Air Products 1994 CanLII 104 (SCC), [1994] 2 S.C.R. 611, at p. 675, where the costs of all parties were paid from the pension fund on a solicitor-and-client basis.