COURT OF APPEAL FOR ONTARIO

CITATION: Eastern Power Limited v. Ontario Electricity Financial Corporation, 2012 ONCA 366

DATE: 20120531

DOCKET: C49598

Laskin, Armstrong and Lang JJ.A.

BETWEEN

Eastern Power Limited

Plaintiff (Appellant)

and

Ontario Electricity Financial Corporation

Defendant (Respondent)

R. Nairn Waterman and Bruce W. Cameron, for the appellant

Timothy Pinos and Emily Larose, for the respondent

Heard: October 26, 2009

On appeal from the judgment of Justice Denise E. Bellamy of the Superior Court of Justice, dated September 26, 2008, with reasons reported at 2008 ONSC 48132.

COSTS ENDORSEMENT

A. background

(1) The Trial

[1] In 1994 the appellant, Eastern Power, an independent producer of electrical power, entered into a 20-year power purchase agreement with Ontario Hydro, the predecessor of the respondent, Ontario Electrical Financial Corporation (OEFC). Under the agreement, Eastern Power agreed to sell to Ontario Hydro, at specified rates, electricity generated from its landfill site in the Keele Valley in Vaughn, just north of the city of Toronto.

[2] In 1998, Eastern Power sued Ontario Hydro claiming numerous breaches of the power purchase agreement. It sought damages of $121 million. After a 23-day trial, Bellamy J. dismissed all of Eastern Power’s claims but one: a claim for an inter-area transmission credit. However, she declined to award any damages for this breach of contract because she concluded that there was no reliable and credible evidence from which to calculate those damages.

[3] The trial judge awarded OEFC its costs of the action in the amount of $1,072,525.47 for fees and disbursements, exclusive of GST.

(2) The Appeal

[4] Eastern Power appealed the trial judgment on one ground: The trial judge erred in not awarding damages for Ontario Hydro’s failure to include an inter-area transmission credit in the rates paid to Eastern Power. Eastern Power sought damages of $8.5 million or a new trial on damages.

[5] We agreed with Eastern Power’s position, and ordered a new trial on damages.

(3) Costs Submissions

[6] The parties filed lengthy written submissions on both the costs of the appeal and the costs of the trial.

B. costs of the appeal

[7] Eastern Power seeks its costs of the appeal on a partial indemnity basis in the amount of $128,305.65. This amount consists of fees of $100,000, disbursements of $21,774.91 and GST of $6,530.74. OEFC submits that Eastern Power should be awarded no costs of the appeal or, at most, $50,000 in costs.

[8] Eastern Power was successful on the appeal and is therefore entitled to its costs on a partial indemnity basis. However, the amount it seeks in fees is excessive. This was a one-day appeal on a narrow issue.

[9] We accept that the issue was factually complex, that Eastern Power had to respond to OEFC’s argument on liability, and that each party was represented by an experienced senior counsel and a junior counsel. Nonetheless, we think that a fair and reasonable costs award is the amount proposed by OEFC, $50,000 inclusive of disbursements and applicable taxes.

C. costs of the trial

(1) The trial judge’s award

[10] The trial judge’s costs award of $1,072,525.47 accounted for a Rule 49 offer to settle made by OEFC four years before trial. OEFC proposed a dismissal of the action without costs, which Eastern Power declined to accept. The trial judge, therefore, held that OEFC was entitled to its costs of the action on a partial indemnity basis up to the date of the offer, and on a substantial indemnity basis after the date of the offer.

[11] To calculate the counsel fees portion of her costs award, the trial judge essentially took the actual fees billed by OEFC’s law firm. She then applied a 60 per cent rate to its partial indemnity award and a 90 per cent rate to its substantial indemnity award. Those rates produced fees of $165,216.17 and $680,000, or a total counsel fee of $845,216.17. She awarded disbursements of $227,309.30. Her total costs award of $1,072,525.47 was exclusive of GST.

[12] In this court, Eastern Power submits that the trial judge’s costs order should be set aside because it was premised on a result overturned by our decision. Eastern Power points out that the two considerations the trial judge relied on – Eastern Power was entirely unsuccessful at trial, and OEFC’s offer to settle – no longer apply.

[13] Thus, Eastern Power asks that we reverse the trial judge’s costs order and make an award in its favour, consistent with the principle that the successful party is entitled to costs. Eastern Power asks that we fix its trial costs on a partial indemnity basis in the amount of $845,000 for fees, $328,227.96 for disbursements and $56,695.85 for GST, for a total of $1,229,923.81.

[14] OEFC takes the position that we ought to maintain the costs order of the trial judge or decline to award trial costs. It argues that despite Eastern Power’s success on appeal, it was predominantly unsuccessful at trial. OEFC contends that if we are not inclined to make either of these dispositions, then we should remit the matter to the trial judge hearing the damages action.

[15] We do not agree with the position of either party. In the light of the outcome of this appeal, neither position produces a fair and reasonable outcome. Having regard to the guidance in rule 57.01(1) and the overriding principle of fairness and reasonableness, we prefer a third alternative. We decline to order trial costs in favour of Eastern Power. Instead, we maintain a trial costs order in favour of OEFC - but not the order made by the trial judge. In its place, we substitute a lesser award in favour of OEFC to reflect the reality of the situation that would have been before the trial judge given Eastern Power’s success on appeal.

(2) Analysis

(a) Costs follow the cause

[16] Traditionally, costs will be awarded to the successful party. Thus when a party succeeds on appeal, that success ordinarily must be imputed as success at trial. However, on the particular facts of this case, Eastern Power’s success on appeal does not transform it into the successful party at trial. Eastern Power advanced six claims worth a total of approximately $121 million. Five of those six claims were dismissed, and its successful claim is worth, at most, $8.5 million.[^1] Despite Eastern Power’s argument to the contrary, OEFC was the overwhelmingly successful party at trial.

[17] Costs should flow from OEFC’s success. In our view, Eastern Power’s success on the narrow issue of the inter-area transmission credit does not detract from that entitlement. Nor does it entitle Eastern Power to an award of costs. It does, however, merit some consideration.

[18] Eastern Power’s limited success should be reflected in the quantum of the award to OEFC. However, this does not mean we are making a distributive costs award. This court has restricted the use of distributive costs awards to the rarest of cases and has noted that “[i]ndividual issues can be dealt with more appropriately under the general discretion and explicit guidance set forth in rule 57.01(1)”: see Armak Chemicals Ltd. v. Canadian National Railway Co. (1991), 1991 ONCA 7060, 5 O.R. (3d) 1, at pp. 8-9; Murphy v. Alexander (2004), 2004 ONCA 15493, 236 D.L.R. (4th) 302.

[19] Thus, the unavailability of a distributive costs award does not preclude the court from considering Eastern Power’s limited success. Indeed, the general principles that govern costs decisions require us to consider the peculiar features of a given case. Therefore, although we would award trial costs to OEFC and decline to award costs to Eastern Power, in doing so, and in arriving at our ultimate order, we have considered Eastern Power’s success on the narrow inter-area transmission credit issue.

(b) Relevant rule 57.01 factors

[20] Three of the factors listed in r. 57.01 support a reduced trial costs award in favour of OEFC:

• The amount of costs that an unsuccessful party could reasonably expect to pay in relation to the steps in the proceedings for which costs are being fixed;

• The amount claimed and the amount recovered in the proceedings; and

• The conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceedings.

(i) Reasonable expectations

[21] Even though Eastern Power’s success on appeal does not change OEFC’s status as the successful party, it does change the expectations of the parties on the amount of the award to which OEFC ought to be entitled. One would reasonably expect that a party who succeeds on five of six issues would be entitled to a smaller costs award than a party who succeeds on all six issues.

(ii) The amount claimed and the amount recovered

[22] As we previously mentioned, Eastern Power claimed an aggregate amount of $121 million in damages; the inter-area transmission credit is valued at $8.5 million. Awarding Eastern Power’s trial costs based on success on approximately seven per cent of its total claim would be unreasonable. At the same time, however, an award to OEFC should reflect that it was not wholly successful at trial.

(iii) Unnecessary lengthening of the proceedings

[23] Eastern Power sued OEFC for breach of confidentiality and alleged interference with contractual relations. It abandoned those claims before trial, but after discoveries.

[24] Eastern Power also sued OEFC for negligent misrepresentation. It maintained that claim throughout the trial only to abandon it in closing submissions. The trial judge found that “at least 50%, if not more, of the entire trial and trial preparation was devoted to negligent misrepresentation issues.” Thus, by proceeding with this claim Eastern Power forced OEFC to expend significant time and expense that it otherwise would not have incurred.

[25] These three factors support the exercise of this court’s discretion to make a reduced trial costs award in favour of OEFC, while declining to award costs to Eastern Power. Beyond these specific factors, the overriding principle in assessing costs is that the award must be fair and reasonable: Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 ONCA 14579, 71 O.R. (3d) 291 (C.A.), at para. 24. And a fair and reasonable result in this case is a reduced trial costs award to OEFC. The remaining question is the amount of that award.

(c) The amount of trial costs

[26] To arrive at an appropriate amount we have reduced the trial judge’s award in two ways. The first change is to the scale of the award. The trial judge’s award included a substantial indemnity component to reflect that Eastern Power had declined an offer to settle that was more favourable than the outcome it ultimately achieved. This portion of the award is no longer justified in the light of Eastern Power’s success on appeal. We have therefore converted the substantial indemnity portion of her award to a partial indemnity figure. The trial judge’s substantial indemnity award of $680,000 in counsel fees (at a 90 per cent rate) is reduced to a partial indemnity figure of $453,333.33 (at a 60 per cent rate) for a total fee award of $618,549.50.

[27] Second, we have further reduced the fee portion of the trial judge’s costs award by 15 per cent, resulting in an amount for counsel fees of $525,767.07. This reduction reflects the effect of the various cost factors discussed above, including Eastern Power’s success on the single issue argued in this court: damages relating to the inter-area transmission credit. OEFC is, therefore, entitled to trial costs of $525,767.07 in counsel fees and $227,309.30 in disbursements, for a total of $753,076.37.

D. conclusion

[28] Eastern Power is entitled to its costs of the appeal in the amount of $50,000, inclusive of disbursements and applicable taxes.

[29] OEFC is entitled to the costs of the trial in the amount of $753,076.37 exclusive of applicable taxes.

[30] We apologize to both parties for our delay in issuing this costs endorsement.

“John Laskin J.A.”

“Robert P. Armstrong J.A.”

“S.E. Lang J.A.”

[^1]: Damages for Eastern Power’s claim regarding the inter-area transmission credit are yet to be assessed. The figure of $8.5 million is the amount of damages claimed by Eastern Power on this appeal.