Court of Appeal for Ontario

DATE: 20211122 DOCKET: C68300

Feldman, Harvison Young and Thorburn JJ.A.

Parties and Counsel

BETWEEN

MDS Inc. and MDS (Canada) Inc. c.o.b. MDS Nordion Plaintiffs (Respondents)

and

Factory Mutual Insurance Company c.o.b. FM Global Defendant (Appellant)

Counsel: Paul J. Pape, David E. Liblong, Shantona Chaudhury and Cristina Senese, for the appellant, Factory Mutual Insurance Company Brian J.E. Brock, Q.C., for the respondents, MDS Inc. and MDS (Canada) Inc. Glenn A. Smith and Nina Bombier, for the intervener, Insurance Bureau of Canada

Heard: April 15, 2021 by video conference

On appeal from the judgment of Justice Janet Wilson of the Superior Court of Justice, dated September 9, 2020, with reasons reported at 2020 ONSC 1924 (damages) and 2020 ONSC 4464 (interest and costs).

Costs Endorsement

[1] This appeal was about whether the appellant insurer, Factory Mutual Insurance Company (“FM Global”), was required to provide insurance coverage for losses arising from an unplanned shutdown of the Atomic Energy of Canada Limited (“AECL”) Nuclear Research Universal (“NRU”) reactor located in Chalk River, Ontario on May 14, 2009.

[2] The respondent MDS Inc. is a global health science company. The respondent MDS (Canada) Inc. is its Canadian subsidiary. They are together referred to as “MDS”. MDS agreed to buy radioisotopes from AECL to be produced at the NRU reactor. FM Global issued MDS an all-risk insurance policy (“the Policy”).

[3] The central issues at trial were (i) the interpretation of the corrosion exclusion in the Policy and (ii) whether MDS’ business losses arising from the shutdown of the NRU reactor were payable pursuant to the exception to the exclusion for physical damage caused by corrosion.

[4] The issues raised on appeal were (i) the standard of review to be applied to the interpretation of the Policy, (ii) the interpretation of the Policy and in particular, whether the term “corrosion” was ambiguous and should be interpreted to mean “the anticipated and predictable process of corroding” and whether the exception to the exclusion for “physical damage” in the Policy was ambiguous and should be interpreted to include loss of use; and (iii) if there was coverage, whether compound prejudgment interest at the rate of actual borrowing costs should have been ordered given that this was not contemplated in the Policy agreement.

[5] The appeal was allowed. The corrosion exclusion was held to apply. The term “physical damage” in the exception to the exclusion clause was held not to apply to economic losses caused by the inability to use the equipment during the shutdown. MDS’ losses were not covered by the Policy and coverage was therefore denied.

[6] The court ordered costs of the appeal to the appellant, FM Global. Those costs were agreed to by the parties.

[7] In keeping with this court’s decision in St. Jean v. Cheung, 2009 ONCA 9, at para. 4, and Hunt v. TD Securities, 66 O.R. (3d) 481 (C.A.) at para. 188, since the appeal was allowed, the trial judge’s decision on costs was set aside.

[8] The parties were unable to agree on the quantum of costs to be awarded to FM Global for trial costs and written submissions were therefore received from the parties.

[9] FM Global seeks trial costs in the amount of $561,103.95 (fees of $241,284 plus HST at a partial indemnity rate and disbursements of $255,268.17 plus HST). This sum reflects costs detailed in the appellant’s Bill of Costs that was provided to the trial judge.

[10] By comparison, the amount of costs awarded by the trial judge to MDS was $1,266,105.48 (including fees of $1,104,242.36 at a partial indemnity rate and disbursements of $161,863.12).

[11] FM Global seeks an award of costs that is approximately 25 percent of the costs awarded to MDS by the trial judge.

[12] While not all issues analyzed at trial were raised on appeal, FM Global was entirely successful on appeal and is therefore entitled to its reasonable costs of the trial.

[13] Section 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43, provides that costs of a proceeding are within the discretion of the court. We have considered the factors set out in r. 57.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. In particular, the importance of the issues, the conduct of the parties, the principle of indemnity including the lawyers’ experience, rates charged and hours spent, the fact that the appeal was neither improper nor vexatious, and the amount the losing party could reasonably expect to pay.

[14] First, the issues pursued at trial and on appeal were both complex and important. Over CA$56 million was at stake and several experts were engaged by each of the parties to determine the claim. Moreover, this court’s interpretation of the Policy was of precedential value as the claim involved a standard form policy that is used by insurers throughout the insurance industry across North America.

[15] Second, FM Global’s counsel’s hourly rates, as indicated in their submitted docket entries, were very reasonable. Further, the fees requested by FM Global reflect a partial indemnity rate. Therefore, it is unnecessary and inappropriate to take the approach the trial judge used to calculate MDS’s counsel’s partial indemnity costs, which was to reduce its full indemnity bill by 50 percent.

[16] Third, we agree that FM Global should be allowed to recover the disbursements for expert advice regardless of whether the expert reports were introduced at trial or relied on by the trial judge.

[17] Each of the parties engaged multiple experts, and the court itself appointed an expert. All expert fees were incidental to the litigation. The experts quantified the losses and responded to issues raised by the opposing parties’ experts.

[18] FM Global’s expert accounting firm, Matson, Driscoll & Damico (“MDD”), analyzed MDS’ expert reports. MDD’s expert advice concerned the quantification of loss from the date of the shutdown for the entire duration of the outage and the quantification of prejudgment interest. Although the expert report was not introduced at trial, the amounts were reasonably incurred to respond to the issues raised by MDS.

[19] We note that reasonable expert fees for expert reports reasonably necessary for the conduct of the proceeding are recoverable whether or not the expert is called to give evidence: Charlesfort Developments Limited v. Ottawa (City), 2021 ONCA 542, at para. 6, leave to appeal S.C.C. requested, 39818. Nonetheless, the fact that the expert was not called to give evidence is a factor to be taken into account in determining the reasonableness of the overall fees charged: Charlesfort, at para. 7.

[20] The reasonableness of retaining the expert is to be considered at the time the expense is incurred not in hindsight: Fan (Guardian ad litem of) v. Chana, 2011 BCCA 516, 345 D.L.R. (4th) 453, at para. 56. Neither the retainers nor the amounts charged are, in our view, untoward.

[21] Disbursements for a retainer to Claims Services International Ltd. and Granitetown Services Inc. to locate the Chief Nuclear Officer at AECL, who was a key witness for FM Global, were reasonably incurred. Further, the expert fees for a r. 53 expert, Dr. Revie, to interpret and analyze MDS’ expert reports were also reasonably incurred even though not relied on by the trial judge.

[22] For these reasons, as requested, FM Global is awarded its partial indemnity costs and disbursements in the amounts of $561,103.95 (including fees of $241,284 plus HST and disbursements of $255,268.17 plus HST).

“K. Feldman J.A.”

“A. Harvison Young J.A.”

“J.A. Thorburn J.A.”