SUPREME COURT OF CANADA

Citation: Walker v. Ritchie, [2006] 2 S.C.R. 428, 2006 SCC 45

Date: 20061013

Docket: 31001

Between:

Donald J. Ritchie and Harold Marcus Limited

Appellants

and

Stephanie Suzanne Walker, Gary Walker, Rosemary Walker,

Laura Walker, Alyssa Walker and Christine Walker, an infant

by her litigation guardian, Gary Walker

Respondents

Coram: McLachlin C.J. and Bastarache, Binnie, LeBel, Deschamps, Fish, Abella, Charron and Rothstein JJ.

Reasons for Judgment:

(paras. 1 to 43)

Rothstein J. (McLachlin C.J. and Bastarache, Binnie, LeBel, Deschamps, Fish, Abella and Charron JJ. concurring)

Walker v. Ritchie, [2006] 2 S.C.R. 428, 2006 SCC 45

Donald J. Ritchie and Harold Marcus Limited Appellants

v.

Stephanie Suzanne Walker, Gary Walker, Rosemary Walker,

Laura Walker, Alyssa Walker and Christine Walker, an infant

by her litigation guardian, Gary Walker Respondents

Indexed as: Walker v. Ritchie

Neutral citation: 2006 SCC 45.

File No.: 31001.

2006: May 10; 2006: October 13.

Present: McLachlin C.J. and Bastarache, Binnie, LeBel, Deschamps, Fish, Abella, Charron and Rothstein JJ.

on appeal from the court of appeal for ontario

Civil procedure — Costs — Risk premiums — Plaintiffs’ counsel carrying lengthy personal injury litigation without remuneration because plaintiffs lacked financial resources to pay — Defendants not admitting liability — Whether plaintiffs’ costs award payable by unsuccessful defendants may be increased to take into account risk of non‑payment to plaintiffs’ counsel — Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rr. 49, 57.01(1).

In a personal injury suit concerning a motor vehicle accident, counsel for the impecunious plaintiffs carried the litigation in the face of the defendants’ denial of liability through its four‑year duration without remuneration. During the litigation, the plaintiffs had issued an offer to settle pursuant to Rule 49 of the Ontario Rules of Civil Procedure, but the defendants had rejected the offer. At trial, the defendants were found liable. As the plaintiffs’ award exceeded their Rule 49 offer, they were entitled to partial indemnity costs for the litigation up to the date of service of the offer and substantial indemnity costs from that point onward. On the basis of the risk of non‑payment to the plaintiffs’ counsel and of the result achieved, the trial judge held it was appropriate to award a premium of $192,600. The Ontario Court of Appeal upheld the risk premium awarded by the trial judge. The propriety of a risk premium between a lawyer and client is not challenged in this appeal. At issue is whether the plaintiffs’ costs award, payable by the unsuccessful defendants, should be increased to take into account the risk of non‑payment to the plaintiffs’ counsel.

Held: The appeal should be allowed.

The risk premium should be set aside. The risk of non‑payment to the plaintiffs’ lawyer was not a relevant factor under the costs scheme in Rule 57.01(1) of the Ontario Rules of Civil Procedure at the time costs were fixed in this case. [42]

Rule 57.01(1) guides a court’s determination of the quantum of a costs award. While indemnification is one of the cornerstones of a costs award, the scheme in place at the relevant time was not one of full indemnity. Rather, the quantum a party would receive as an indemnity was governed by the factors set out in Rule 57.01(1) and the Tariff. Risk of non‑payment to plaintiff’s counsel is not an enumerated factor under that rule. While the words “any other matter relevant to the question of costs” in clause (i) of Rule 57.01(1) are broad, they are not unlimited. An examination of the factors that were expressly included in clauses (a) to (h) reveals some common features among them and provides guidance as to matters that might be considered relevant in clause (i). In that context, the application of the limited class rule would suggest that the framers of clause (i) did not intend it to include the risk of non‑payment to plaintiff’s counsel as a relevant factor to consider. 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, since a defendant has no knowledge of these private arrangements and thus has no means of measuring the risk of engaging in litigation. There is no basis for a difference in approach under Rule 49 to the issue of a risk premium as between an award of partial or substantial indemnity costs. Lastly, requiring unsuccessful defendants to pay a premium to the plaintiffs in personal injury cases is not compelled on the theory of promoting access to justice. The opportunity for counsel to charge his or her own client a risk premium, or now a contingency fee, encourages competent counsel to take on the cases of impecunious clients. [24] [28] [30] [40]

Cases Cited

Applied: Finlayson v. Roberts (2000), 2000 CanLII 16890 (ON CA), 136 O.A.C. 271; considered: City of Burlington v. Dague, 505 U.S. 557 (1992); referred to: Lurtz v. Duchesne (2005), 2005 CanLII 5080 (ON CA), 194 O.A.C. 119; McIntyre Estate v. Ontario (Attorney General) (2002), 2002 CanLII 45046 (ON CA), 61 O.R. (3d) 257; Stribbell v. Bhalla (1990), 1990 CanLII 6999 (ON SC), 73 O.R. (2d) 748; Desmoulin (Committee of) v. Blair (1994), 1994 CanLII 333 (ON CA), 21 O.R. (3d) 217; British Columbia (Minister of Forests) v. Okanagan Indian Band, [2003] 3 S.C.R. 371, 2003 SCC 71; Hamilton v. Open Window Bakery Ltd., [2004] 1 S.C.R. 303, 2004 SCC 9.

Statutes and Regulations Cited

Canadian Charter of Rights and Freedoms.

Class Proceedings Act, 1992, S.O. 1992, c. 6.

Courts of Justice Act, R.S.O. 1990, c. C.43, s. 131(1).

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rr. 49, 49.10(1), (2), 57.01(1), (3).

Solicitors Act, R.S.O. 1990, c. S.15 [am. 2002, c. 24, Sch. A].

Authors Cited

Sullivan, Ruth. Sullivan and Driedger on the Construction of Statutes, 4th ed. Markham, Ont.: Butterworths, 2002.

APPEAL from a judgment of the Ontario Court of Appeal (Catzman, Gillese and Lang JJ.A.) (2005), 2005 CanLII 13776 (ON CA), 197 O.A.C. 81, 25 C.C.L.I. (4th) 60, 31 C.C.L.T. (3d) 205, 12 C.P.C. (6th) 51, [2005] O.J. No. 1600 (QL), reversing in part a decision of Brockenshire J. (2004), 2 C.P.C. (6th) 163, [2004] O.J. No. 787 (QL). Appeal allowed.

Earl A. Cherniak, Q.C., and Andra L. Maxwell‑Baker, for the appellants.

Ronald G. Slaght, Q.C., and Rebecca Jones, for the respondents.

The judgment of the Court was delivered by

Rothstein J. —

I. Introduction

[1] This appeal involves the appropriateness of an increase to a costs award, payable by the unsuccessful defendants to the plaintiffs, on the basis that counsel for the impecunious plaintiffs carried the risk of non‑payment through the course of the litigation. This Court is asked to determine whether this risk was a relevant consideration within the costs scheme in place in Ontario at the time costs were fixed in this case. I conclude that it was not.

II. Facts

[2] Stephanie Walker suffered serious personal injuries as a result of a motor vehicle accident. Ms. Walker and her family (the “plaintiffs”) initiated litigation against Donald Ritchie, a truck driver, and his employer, Harold Marcus Limited (the “defendants”). The defendants denied liability throughout the course of the litigation and did not admit facts. The matter took four years to proceed to trial and involved issues the trial judge described as complex. During the litigation, the plaintiffs issued an offer to settle pursuant to Rule 49 of the Ontario Rules of Civil Procedure, R.R.O. 1990, Reg. 194. The defendants rejected this offer.

[3] At trial, the defendants were found 100 percent liable for the accident. Brockenshire J. awarded the plaintiffs $5,168,317 in damages, inclusive of pre‑judgment interest. As the plaintiffs’ award exceeded their Rule 49 offer, the plaintiffs were entitled under Rule 49 to partial indemnity costs for the litigation up to the date of service of the offer and substantial indemnity costs from that point onward.

III. Decisions Below

A. Ontario Superior Court of Justice (2004), 2 C.P.C. (6th) 163

[4] Brockenshire J. awarded $577,879.69 to the plaintiffs for fees and disbursements, inclusive of G.S.T. He did so after reviewing the bill of costs submitted by the plaintiffs, which included claims for disbursements and fees for each step in the litigation.

[5] Brockenshire J. noted that a “huge amount of time went into this file” (para. 13). Nevertheless, he found that most of the hours claimed by the plaintiffs’ counsel in the bill of costs were reasonable. This determination was based primarily upon the complexity of the proceedings and the fact that the plaintiffs were put to their proof on every issue because of the defendants’ refusal to admit facts. Moreover, Brockenshire J. held that it was appropriate for the hourly rate for the plaintiffs’ primary counsel to be set at the highest level on both the partial indemnity and the substantial indemnity scales under the Tariff. As Brockenshire J. stated: “the top rate is for the most experienced lawyer in the most complex and important cases” (para. 18).

[6] In addition, Brockenshire J. also ordered the defendants to pay a premium of $192,600, inclusive of G.S.T. He found that counsel for the plaintiffs had carried the litigation for four years without remuneration because the plaintiffs could not afford it. Liability was not admitted, and as such, plaintiffs’ counsel faced the risk of non‑payment. On the basis of this risk and the result achieved, Brockenshire J. held it was appropriate to award the premium.

B. Ontario Court of Appeal (2005), [2005 CanLII 13776 (ON CA)](https://www.canlii.org/en/on/onca/doc/2005/2005canlii13776/2005canlii13776.html), 12 C.P.C. (6th) 51

[7] Gillese and Lang JJ.A., for a unanimous panel, upheld the risk premium of $192,600 awarded by Brockenshire J. A premium payable by defendants had been upheld by the Ontario Court of Appeal previously, where the defendant was required to pay substantial indemnity costs: Lurtz v. Duchesne (2005), 2005 CanLII 5080 (ON CA), 194 O.A.C. 119. Gillese and Lang JJ.A. held that a risk premium can be awarded against a defendant where the plaintiff is entitled to substantial indemnity costs under Rule 49, but rejected the argument that premiums are available when the plaintiff is only entitled to partial indemnity costs.

[8] Gillese and Lang JJ.A. emphasized that risk premiums should rarely be awarded. The imposition of such a premium can only be justified where there is both risk of non-payment and an “outstanding result”.

[9] They defined risk as having the following features: (1) the plaintiff lacked the financial resources to fund lengthy and complex litigation; (2) plaintiff’s counsel financed the litigation; (3) the defendant contested liability; and (4) plaintiff’s counsel assumed the risk not only of delayed but possible non‑payment of fees.

IV. Analysis

A. Development of Risk Premiums as Between Plaintiff and Plaintiff’s Counsel

[10] While this case does not concern fee arrangements between solicitor and client, it is first necessary to provide some background about these arrangements before turning to the question of whether a risk premium should be payable by an unsuccessful defendant.

[11] As between solicitor and client, fees for litigation may be payable without regard to the outcome of the case or may be contingent on the result obtained. A contingency fee arrangement is typically used by plaintiff’s counsel where there is the prospect of receiving a damages award. If the plaintiff’s case is lost, the lawyer receives no payment. If the plaintiff’s case is won, the lawyer receives a pre‑determined percentage of the damages award or a fixed fee. Thus, where counsel expends time and incurs disbursements on behalf of a client, that lawyer assumes the risk of non‑payment for those services and disbursements should the litigation prove unsuccessful. To compensate for this risk, a contingency fee will typically be higher than that which would have been payable had counsel billed the client irrespective of the outcome.

[12] Prior to 2002, and at the time applicable to this case, contingency fee arrangements were barred in Ontario. Contingency fee arrangements had been seen as violating the rule against champerty, as it was considered undesirable for lawyers to have a pecuniary interest in the outcome of their clients’ litigation. As a means of promoting access to justice, contingency fee arrangements are now permitted in Ontario, but are regulated by the Solicitors Act, R.S.O. 1990, c. S.15 (as amended by S.O. 2002, c. 24, Sch. A). See also McIntyre Estate v. Ontario (Attorney General) (2002), 2002 CanLII 45046 (ON CA), 61 O.R. (3d) 257 (C.A.).

[13] Even before the introduction of contingency fee arrangements, lawyers still represented impecunious plaintiffs. Given the plaintiff’s impecuniosity, efforts to enforce a debt for fees and disbursements against the plaintiff might prove fruitless. However, where the plaintiff successfully received a damage award, he/she would now have the means to pay counsel. In Stribbell v. Bhalla (1990), 1990 CanLII 6999 (ON SC), 73 O.R. (2d) 748 (H.C.J.), Osborne J. (as he then was) held it was not champertous for an impecunious plaintiff to pay his counsel fees out of his damage award. In his view, such a payment by the plaintiff was necessary to ensure access to justice and to ensure that deserving actions be prosecuted by competent counsel.

[14] In Desmoulin (Committee of) v. Blair (1994), 1994 CanLII 333 (ON CA), 21 O.R. (3d) 217 (C.A.), Austin J.A. upheld a risk premium payable by a plaintiff to his counsel out of his award of damages. The plaintiff was impecunious. Counsel pursued the lengthy personal injury litigation without being paid and obtained a large judgment in favour of the plaintiff. After the successful conclusion of the trial, plaintiff’s counsel rendered a bill to the client, a portion of which represented an amount over and above counsel’s hourly rate. This premium was added by counsel to take into account the risk of non‑payment borne by counsel. Austin J.A. held that the premium was justified as the taking on of litigation on behalf of impecunious plaintiffs should be encouraged in appropriate ways. The plaintiff did not qualify for legal aid but could not otherwise fund the litigation, as contingency fee agreements were not permitted in Ontario at the time. Austin J.A. emphasized that premiums should only be assessed where there “was a very real risk of an adverse finding on the issue of liability”: Desmoulin, at p. 223.

[15] As indicated, when counsel took on the plaintiffs’ claims in this case, contingency arrangements were not permitted. The trial judge found plaintiffs’ counsel carried the litigation, in the face of the defendants’ denial of liability, through its four-year duration with no remuneration due to the impecuniosity of the plaintiffs. According to Desmoulin, it appears plaintiffs’ counsel may have been entitled to charge the plaintiffs a risk premium.

[16] The propriety of a risk premium between lawyer and client is not challenged in this appeal. At issue is whether the plaintiffs’ costs award, payable by the unsuccessful defendants, should be increased to take into account the risk of non‑payment to the plaintiffs’ counsel.

B. Ontario Costs Scheme at the Relevant Time

[17] Costs awards made by trial judges should be accorded a high degree of deference: British Columbia (Minister of Forests) v. Okanagan Indian Band, [2003] 3 S.C.R. 371, 2003 SCC 71, at paras. 42-43; Hamilton v. Open Window Bakery Ltd., [2004] 1 S.C.R. 303, 2004 SCC 9, at para. 27. However, as LeBel J. stated in Okanagan Indian Band, at para. 43: “An appellate court may and should intervene where it finds that the trial judge has misdirected himself as to the applicable law”. In this case, the Court must look to the law governing costs in Ontario.

[18] Ontario courts have discretion over costs; however, that discretion is not unlimited. Section 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43, 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.

[19] Thus, the determination of whether risk of non‑payment to plaintiff’s counsel was an appropriate consideration requires an examination of the relevant Ontario legislative scheme governing the fixation of costs, which is contained in the Rules of Civil Procedure.

[20] Rule 57.01(1) sets out the factors a court is to consider when exercising its discretion over costs. At the time costs were fixed in this case, Rule 57.01(1) read:

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,

(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;

(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.

[21] Rule 57.01(1) guides a court’s determination of the quantum of a costs award. While indemnification is and always has been one of the cornerstones of a costs award, the scheme in place at the time costs were fixed in this case was not one of full indemnity. An entitled party did not simply send its lawyer’s bill to the other side. Rather, the quantum a party would receive as an indemnity was governed by the factors set out in Rule 57.01(1) and the Tariff. Rule 57.01(3) provided: “When the court awards costs, it shall fix them in accordance with subrule (1) and the Tariffs.”

[22] At the time costs were fixed in this case, the fee portion of the Tariff consisted of a costs grid with two scales: “partial indemnity” and “substantial indemnity”. Each scale set hourly or daily maximums for various steps in the litigation process taking into consideration the experience and expertise of counsel.

[23] Where a plaintiff makes an offer under Rule 49 and the plaintiff obtains a judgment as favourable or more favourable than that offer, the plaintiff is entitled to costs on the partial indemnity scale up to the point of offer and on the substantial indemnity scale from the point of offer onward unless the court orders otherwise. In this way, Rule 49 acts as a settlement incentive for a defendant to accept a reasonable offer. This settlement incentive under Rule 49, however, works both ways. If a defendant makes an offer to settle and the plaintiff obtains a judgment as favourable or less favourable than the offer, the plaintiff is entitled to costs on the partial indemnity scale up to the date of the service of the offer, but the unsuccessful defendant is entitled to costs on the partial indemnity scale from the point of offer onward unless the court orders otherwise. Rules 49.10(1) and 49.10(2) provide:

49.10 (1) Where an offer to settle,

(a) is made by a plaintiff at least seven days before the commencement of the hearing;

(b) is not withdrawn and does not expire before the commencement of the hearing; and

(c) is not accepted by the defendant,

and the plaintiff obtains a judgment as favourable as or more favourable than the terms of the offer to settle, the plaintiff is 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.

(2) Where an offer to settle,

(a) is made by a defendant at least seven days before the commencement of the hearing;

(b) is not withdrawn and does not expire before the commencement of the hearing; and

(c) is not accepted by the plaintiff,

and the plaintiff obtains a judgment as favourable as or less favourable than the terms of the offer to settle, the plaintiff is entitled to partial indemnity costs to the date the offer was served and the defendant is entitled to partial indemnity costs from that date, unless the court orders otherwise.

C. Does Risk of Non-Payment to Plaintiffs’ Counsel Fall Within Rule 57.01(1)(i)?

[24] Risk of non‑payment to plaintiffs’ counsel is not an enumerated factor under Rule 57.01(1). Can it be said that such risk falls within clause (i) as “any other matter relevant to the question of costs”? While these words are broad, from the scheme of Rule 57.01(1) I infer they are not unlimited. If the court’s discretion to consider costs was unlimited, there would have been no need for clauses (a) to (h). On the contrary, I think the enumerated considerations in clauses (a) to (h) provide guidance as to matters that might be considered relevant in clause (i).

[25] Indeed, the Latin maxim ejusdem generis, or the limited class rule, is helpful in determining legislative intent when a court is faced with a list of items followed by a general term. As R. Sullivan explains in Sullivan and Driedger on the Construction of Statutes (4th ed. 2002), at pp. 175-77, the scope of the general term may be limited to any genus or class to which the specific items all belong. An examination of the factors that were expressly included at the time the costs award was fixed in this case reveals some common features among them.

[26] First, the factors in place at the relevant time could be described as neutral. They applied to either a plaintiff or a defendant and typically either increased or decreased a costs award against one of those parties. Risk of non‑payment to plaintiff's counsel lacks such neutrality. Taking risk into consideration would result in an increase in the costs awarded only against the defendant.

[27] Second, the enumerated factors in place at the relevant time fell within one of two categories. They dealt either with the nature of the case or the conduct of the parties in the litigation. Parties to litigation have knowledge about the nature of the case and can control their own conduct in the litigation. Therefore, the parties are capable of predicting, generally, how such factors would affect a costs award against them, and may thereby be guided as to whether or not to settle or to proceed. By contrast, a risk premium is a financial arrangement between the plaintiffs and their counsel. It is not a matter about which the defendant would normally have knowledge, nor is it a matter about which the defendant is entitled to know. The risk premium does not fall within either of the categories of knowledge or control. It is a function of either the plaintiff’s financial circumstances or simply the fee agreement between the plaintiff and counsel.

[28] Application of the ejusdem generis rule would suggest that it was not the intention of its framers that clause (i) would include the risk of non-payment to plaintiffs’ counsel as a relevant factor to consider in an award of costs against an unsuccessful defendant. 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.

[29] In the Ontario Court of Appeal, Gillese and Lang JJ.A. concluded that the specific arrangement between plaintiff and counsel was not to be considered when an award of partial indemnity costs was ordered. Thus, a risk premium could not be assessed against a different unsuccessful defendant in this case. (At trial, an award of damages and partial indemnity costs including a risk premium was made against the Wawanesa Mutual Insurance Company. The Court of Appeal reversed on the issue of risk premium and that aspect of the decision was not appealed to this Court.) At para. 113 of their reasons, Gillese and Lang JJ.A. stated:

A defendant has no knowledge of the private arrangements between the plaintiff and his or her counsel and thus has no means of measuring the risk of engaging in litigation. Defendants would be unable to gauge their exposure to costs when deciding whether and how to defend as exposure would be dependent, at least in part, on the financial means of the plaintiff. This difficulty would be compounded by the fact that many plaintiffs would happily agree to any amount of premium if the premium were to be paid by the losing party. In situations where a party realistically understands that his or her exposure for costs is limited to an award on a partial indemnity basis, counsel ought not to be concerned that the normal elements of costs will be inflated by a private arrangement made between the other side and his or her counsel.

[30] I agree with that reasoning. However, I see no reason why it would not be applicable when the court, under Rule 49, makes an award of costs on the substantial indemnity scale as opposed to the partial indemnity scale. Substantial indemnity costs were defined simply as costs payable on a higher scale than partial indemnity costs. As their name suggests, they were not intended to fully indemnify a party for any amount it may have undertaken to pay its counsel. I therefore see no basis for a difference in approach to the issue of a risk premium as between an award of partial or substantial indemnity costs.

[31] In Finlayson v. Roberts (2000), 2000 CanLII 16890 (ON CA), 136 O.A.C. 271 (C.A.), Carthy J.A. found that a risk premium was not assessable against the unsuccessful defendant when costs were awarded pursuant to Rule 49. At para. 25 he stated:

A premium fee does not fit with rule 49 concerns and is unfair to a defendant. On the date of an offer to settle, the risk of refusal is of future costs which can be measured against general experience. A defendant has no knowledge of private arrangements between the plaintiff and her counsel, and thus has no means of measuring the risk of refusing the plaintiff’s offer. . . . To inflict [a risk premium] upon the defendant under rule 49 turns the rule from one that induces and encourages settlements, to a rule that penalizes a defendant for not accepting an offer by imposing what may be a totally unexpected obligation in an unknown amount. It also introduces the added difficulty presented by typical plaintiffs who would happily agree to any amount of premium that an insurer pays to counsel.

[32] Finlayson was distinguished in Lurtz on the basis that in Finlayson liability was admitted and the risk premium was pursuant to an agreement and not necessarily because the plaintiff was impecunious. However, I see nothing in Carthy J.A.’s reasons that purports to limit his view to cases where liability is admitted or to cases in which the risk premium agreement is not as a result of the impecuniosity of the plaintiff. As I read Finlayson, its reasoning can and should be applied to any assessment of costs flowing from a Rule 49 offer to settle. Carthy J.A. concludes at para. 28 of Finlayson:

I therefore conclude that what is commonly known as a “risk premium” should not be included in a solicitor and client assessment under rule 49.

Carthy J.A.’s approach, with which I am in substantial agreement, provides strong reasoning as to why a risk premium is not to be included in an award of substantial indemnity costs under Rule 49.

[33] The assessment of risk premiums against unsuccessful defendants has been rejected in the United States. While there are different considerations as between the United States and Ontario cost schemes, the risk analysis by the United States Supreme Court is instructive. As pointed out by Scalia J. for the majority of the Court in City of Burlington v. Dague, 505 U.S. 557 (1992), where payment to plaintiff’s counsel is dependent upon the plaintiff achieving a favourable result, counsel’s risk of non-payment is directly related to the plaintiff’s risk of losing his/her case. Scalia J. determined that a plaintiff’s risk of loss is a product of two factors: (1) the factual or legal merits of the plaintiff’s case; and (2) the difficulty in establishing those merits. He explained that assessing costs against the defendant for the first component of risk leads to undesirable consequences while the second component of risk is already subsumed in the costs award without the need for a premium.

[34] In my view the same reasoning applies to the Ontario costs scheme. As to the legal and factual merits of the plaintiff’s claim, the more risky a case is to the plaintiff, the more defensible it is to the defendant. The threat of a risk premium would incline defendants with meritorious defences to settle. This increased tendency to settle brings with it an undesirable corollary effect — it would encourage plaintiffs to pursue the least meritorious claims. Encouraging plaintiffs to pursue the least meritorious claims is not an objective which the costs scheme should promote.

[35] As to the difficulty of establishing the legal and factual merits of the plaintiff’s claim, the complexity of the legal and factual issues in a particular case and the unwillingness of a defendant to admit liability or facts make it more difficult for the plaintiff to prove his/her case. This necessarily increases the risk of the plaintiff achieving an unfavourable result, and in turn, increases the risk to a lawyer whose payment is contingent upon that result. Moreover, these factors often lead to protracted litigation requiring additional time on behalf of plaintiff’s counsel thereby increasing counsel’s investment in the matter. Complexity may also require a more experienced or expert counsel to achieve a favourable result, whose investment of time is more valuable.

[36] These factors, however, should already be taken into account by a court when it fixes costs. Complexity, length, result, and a failure to admit are enumerated factors under Rule 57.01(1) and experience and expertise of counsel were taken into consideration according to the express terms of the Tariff. Indeed, in this case the trial judge noted that while the costs award was “substantial” it was fair and reasonable. A full reading of his reasons indicates that he considered all of the above factors in arriving at that award. Compensating for these factors again through the addition of a risk premium arguably constitutes a double count in the costs award against the unsuccessful defendant.

D. Do Access to Justice Considerations Make Risk of Non-Payment a Relevant Factor Under Rule 57.01(1)(i)?

[37] The plaintiffs argued that risk premiums payable by defendants encourage counsel to take on the cases of impecunious plaintiffs and therefore promote access to justice. They rely on Okanagan Indian Band in arguing that access to justice makes risk of non-payment to plaintiffs’ counsel a relevant consideration under the Ontario scheme.

[38] Okanagan Indian Band involved an interim award of costs payable by the government to enable the Indian Band to engage in the litigation. LeBel J. emphasized that a defendant should only be required to carry the burden of ensuring an opponent’s access to justice in the most exceptional of circumstances. One of the requirements of the test is that the plaintiff “no other realistic option exists for bringing the issues to trial”: Okanagan Indian Band, at para. 40.

[39] Personal injury cases involve the prospect of receiving a favourable judgment out of which an impecunious plaintiff can pay a lawyer’s fee. Thus, if successful, counsel will receive payment for the disbursements made and services rendered, i.e. what counsel would have received on an ongoing basis had the client been financially capable of paying. In addition to the delay in payment, however, such counsel bears the risk of non‑payment if success is not achieved. This requires a further incentive for counsel to be willing to take on such cases. In other words, counsel will look to be compensated for providing the additional service of financing the litigation at his/her own risk.

[40] This is the concern that the Ontario courts first responded to by permitting counsel to charge plaintiffs a risk premium. In addition, it is now met through legislation permitting counsel to charge contingency fees: see the Solicitors Act and the Class Proceedings Act, 1992, S.O. 1992, c. 6. The opportunity for counsel to charge his or her own client a risk premium, or now a contingency fee, encourages competent counsel to take on the cases of impecunious plaintiffs. Such a charge is not dependent upon the amount the plaintiff recovers from the opposing party in a costs award. The appropriate source of encouragement lies with the client not with his or her opponent. Requiring unsuccessful defendants to pay a premium to the plaintiffs in personal injury cases is not compelled on the theory of promoting access to justice.

[41] The plaintiffs have also argued that risk premiums payable by unsuccessful defendants are required to provide access to justice to impecunious plaintiffs who, even if successful, will receive no or minimal damages given the nature of their case, such as a challenge under the Canadian Charter of Rights and Freedoms. In the absence of the prospect of a significant damage award out of which fees may be charged, there is little incentive for competent counsel to take on such cases. Nonetheless, I have difficulty placing serious weight on this argument. There are a number of other alternatives that bring these cases to trial. For example, plaintiffs in such cases may qualify for some form of legal aid, receive funds to pursue the litigation from a private source, find counsel to take on the case on a pro bono basis, or, in rare cases, be entitled to an interim costs award. While there may be a plaintiff who is unable to secure one of these alternatives, the costs scheme does not aim at perfection. Risk premiums cannot be justified on this basis.

V. Conclusion

[42] I conclude that risk of non‑payment to the plaintiffs’ lawyer was not a relevant factor under the costs scheme in Rule 57.01(1) at the time costs were fixed in this case. The appeal is allowed with costs and the premium in the amount of $192,600 is set aside.

[43] These reasons apply to the costs scheme in place in Ontario at the time costs were fixed in this case. Since that time the costs scheme has been modified in a number of ways. Whether or not the reasoning in this judgment applies to the costs scheme currently in place will be an issue for the courts as the occasion arises.

Appeal allowed with costs.

Solicitors for the appellants: Lerners, Toronto.

Solicitors for the respondents: Lenczner Slaght Royce Smith Griffin, Toronto.