COURT FILE NO.: CV-09-387984

DATE: 20120403

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Her Majesty the Queen in Right of Ontario

AND: Rothmans Inc., Rothmans, Benson & Hedges Inc., Carreras Rothmans Limited, Altria Group, Inc., Philip Morris U.S.A. Inc., Philip Morris International, Inc., JTI-Macdonald Corp., R.J. Reynolds Tobacco Company, R.J. Reynolds Tobacco International Inc., Imperial Tobacco Canada Limited, British American Tobacco p.l.c., B.A.T Industries p.l.c., British American Tobacco (Investments) Limited, and Canadian Tobacco Manufacturers’ Council

BEFORE: Conway J.

COUNSEL:
David R. Byers, Adrian C. Lang and Lesley Mercer , for British American Tobacco p.l.c. (“PLC”)

Charles F. Scott and Shaun Laubman , for B.A.T. Industries p.l.c. (“ Industries ”)

Craig P. Dennis and Richard Fernyhough , for British American Tobacco (Investments) Limited (“ Investments ”)

Christopher M. Rusnak and Rob Frank , for Carreras Rothmans Limited (“ Carreras ”)

Guy J. Pratte, Ira Nishisato and Cindy Clarke , for R.J. Reynolds Tobacco Company and R.J. Reynolds Tobacco International Inc. (collectively, the “ RJR defendants ”)

William Manuel, Lise Favreau, Ronald Carr, John Kelly, Edmund Huang and Kevin Hille , for Her Majesty the Queen in Right of Ontario ( the “Crown”)

HEARD: Written submissions

ENDORSEMENT On COSTS

Conway J.

[ 1 ] I released my decision on January 4, 2012, dismissing the jurisdiction motions of PLC, Industries, Investments, Carreras and the RJR defendants (the “ Jurisdiction Challenging Defendants ” or “ JCDs ”). [1] The parties have filed their costs submissions, which I have now reviewed. This is my decision on costs.

The Proceedings

[ 2 ] I will first provide a brief overview of the steps involved in the proceedings. [2]

[ 3 ] The JCDs brought the jurisdiction motions in January 2010 and filed affidavit evidence to support the motions. The Crown filed its responding record in August 2010. The record included an affidavit of Fabian Esprit, a law clerk in the Crown’s office, and attached voluminous documents as exhibits.

[ 4 ] The Crown cross-examined the BAT defendants’ [3] fact and expert witnesses in the United Kingdom for 7 days in December 2010. The Crown cross-examined the RJR defendants’ fact witness in the United States for one day.

[ 5 ] In the winter/spring 2011, the Crown brought a refusals motion before the Master against PLC, Industries, Carreras and Investments. The Master ordered that many of the refused questions had to be answered. [4] Industries, Carreras and Investments appealed. Perell J. reversed the Master’s decision and ordered that none of the questions had to be answered. [5] The Divisional Court denied leave to appeal Perell J.’s decision. [6]

[ 6 ] The jurisdiction motions were originally scheduled for April 2011 and were rescheduled to August 2011. At a case conference in July 2011, I decided that the August hearing would be used to argue preliminary issues on the admissibility of evidence on the jurisdiction motions and that the substance of the motions would be argued in November 2011. [7]

[ 7 ] The evidentiary hearing lasted 7 days. At the same time I heard another evidentiary matter, the Crown’s Malik motion, [8] which took 1½ days of the 7 day hearing.

[ 8 ] I released my decision on the evidentiary issues on September 20, 2011. [9] I dismissed the Malik motion. I struck portions of the Esprit affidavit, but not the whole affidavit as the JCDs had sought. I ruled on the authenticity and admissibility of documents attached to the Esprit affidavit. [10] I ruled that some were authentic as documents in possession, some were admissible for the truth of their contents, and some were neither authentic nor admissible.

[ 9 ] The Crown filed a revised factum after my ruling. Industries and Investments brought motions to strike the factum as not being in compliance with my September 20 ruling and as an abuse of process. I did not strike the Crown’s entire factum, but only some paragraphs that were an attempt to re-argue my September 20 rulings.

[ 10 ] The substantive hearing of the jurisdiction motions started on November 23, 2011 and lasted 8 days.

[ 11 ] I dismissed the jurisdiction motions in their entirety.

Positions of the Parties

[ 12 ] The Crown has claimed its costs for all of the steps leading up to the substantive hearings except the refusals motions and appeals, the Malik motion, and the time re-preparing its factum after the evidentiary hearing. It claims that it was successful in having the JCDs’ jurisdiction motions dismissed and that it is entitled to its costs as the successful party.

[ 13 ] The Crown claims fees on a partial indemnity basis of $564,050, plus disbursements of $152,520, and fees of $3,500 for costs submissions, for a total of $720,070 , payable jointly and severally by all JCDs.

[ 14 ] The JCDs’ position is two-fold. First, they argue that the costs claimed by the Crown are excessive and beyond their reasonable expectations. They submit that the Crown is only entitled to fees of $167,565, plus disbursements of $5,250, for a total of $172,815 .

[ 15 ] Second, the JCDs claim that they are entitled their costs of all steps except for the substantive hearing of the jurisdiction motions. They submit that the steps leading up to the substantive hearing were all separate proceedings for which costs would otherwise have been awarded were it not for the agreement of counsel to defer the costs issue until the hearing of the jurisdiction motions. The JCDs collectively claim costs for these steps of $942,118 . [11]

Separate Proceedings or Part of the Jurisdiction Challenge?

[ 16 ] I reject the JCDs’ attempt to cast each of these steps as separate proceedings and to have me award costs based on the parties’ success on each step.

[ 17 ] The JCDs brought motions to challenge this court’s jurisdiction over them. All of the ensuing steps – from preparation of the Crown’s responding record to the substantive hearing itself – were part of this jurisdiction challenge. In my view, all of the preliminary steps were integrally related to, and for the purpose of, the jurisdiction challenge. While the parties may have had varying levels of success on these preliminary steps along the way, ultimately the Crown was successful in defeating the JCDs’ jurisdiction challenge.

[ 18 ] In the circumstances of this case, the JCDs’ approach of awarding costs according to the parties’ relative success on each issue or step within that challenge amounts to a distributive award. The Ontario Court of Appeal has made it clear that distributive awards are to be avoided: see Armak Chemicals Limited v. Canadian National Railway Co. (1991), 5 O.R. (3d) 1, [1991] O.J. No. 1535 (C.A.), at para. 19 ; Skye v. Matthews , [1996] O.J. No. 44 (C.A.), at para. 15 ; and Pearson v. Inco Ltd. (2006), 79 O.R. (3d) 427, [2006] O.J. No. 991 (C.A.), at para. 5 . I see no reason to make a distributive award in this case.

[ 19 ] Indeed, the effect of the JCDs’ submissions is that they would receive almost $1 million in costs on jurisdiction motions that they lost. I reject this position. It is unreasonable. The Crown’s position is more reasonable. It does not claim costs for the refusals motions and appeals, the Malik motion, and the time re-preparing its factum after the evidentiary hearing, but otherwise claims costs of the jurisdiction motions on which it succeeded. That is a fair position to take.

[ 20 ] I will award costs of the jurisdiction motions to the successful party – the Crown.

Cross-Examinations

[ 21 ] The JCDs argue that the Crown is not entitled to claim costs for the cross-examinations of its fact and expert witnesses. The JCDs claim their own costs for these cross-examinations.

[ 22 ] Rule 39.02(4) (b) of the Rules of Civil Procedure , R.R.O. 1990, Reg. 194 provides that the cross-examining party is liable for the partial indemnity costs of every adverse party on the motion, regardless of the outcome of the proceeding, “unless the court orders otherwise”. The rule is designed to discourage unnecessary cross-examinations by requiring a party to bear the costs regardless of the outcome of the proceeding. However, the rule contains the exception that the court may order otherwise.

[ 23 ] I am exercising my discretion to order otherwise, for three reasons. First, the JCDs did not contest the court’s jurisdiction solely on the basis of the statement of claim. They filed evidence in which the affiants flatly denied any connection between the JCD in question and the Province of Ontario. The Crown had to establish that it had a “good arguable case” for each JCD in order to succeed on the motions. [12] It was perfectly reasonable and indeed to be expected that it would attempt to do so by cross-examining the affiants.

[ 24 ] Second, I relied on all of the evidence, including the cross-examinations and answers to undertakings, in determining the authenticity and admissibility of documents. [13] Those documents assisted the Crown in establishing a good arguable case and succeeding on the jurisdiction motions.

[ 25 ] Third, I accept the Crown’s submission that it had to cross-examine the BAT defendants’ U.K. expert since the BAT defendants had decided to cross-examine the Crown’s expert. [14] The BAT defendants argued that this court had no jurisdiction because any judgment would be unenforceable in the U.K. It was reasonable for the Crown to have cross-examined their expert – and to have retained their own experts – to challenge this position.

General Costs Principles and Rule 57 .01 Factors

[ 26 ] The overriding principle in awarding costs is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding, rather than an amount fixed by the actual costs incurred by the successful litigant: see Boucher et al. v. Public Accountants Council for the Province of Ontario et al. (2004), 71 O.R. (3d) 291 (C.A.) .

[ 27 ] In exercising my discretion under s. 131 of the Courts of Justice Act , R.S.O. 1990, c. C-43, I may consider, in addition to the result in the proceeding, the factors in rule 57.01(1).

[ 28 ] I have taken the following factors into account in determining the costs award to the Crown for the jurisdiction motions.

Reasonable Expectations of the Unsuccessful Party

[ 29 ] Is a significant costs award for the jurisdiction motions within the reasonable expectations of the JCDs? The answer to that question is yes.

[ 30 ] The stakes were high. The Crown brought a $50 billion health care costs recovery action against 14 defendants. The JCDs, 6 of the 14 defendants, challenged the jurisdiction of the Ontario courts over them. Had they succeeded, it would have ended the Crown’s action against them.

[ 31 ] The battle was hard fought, on both sides. There were 18 counsel on the motions. There was affidavit evidence filed separately by each JCD, as well as expert evidence. There was responding documentary evidence to be analyzed for each JCD. There were 8 days of cross-examination. There were innumerable facta and books of authorities.

[ 32 ] The jurisdiction motions were argued over several months and took 15 days of court time. [15] In addition, there were numerous case conferences dealing with procedural and scheduling issues.

[ 33 ] The JCDs claim that the Crown’s costs are excessive and outside the range that they might have expected to pay. I do not see how the JCDs can make that submission when they seek enormous costs for the issues on which they claim success.

[ 34 ] There is no doubt that if the JCDs had been successful in challenging the court’s jurisdiction, they would have claimed costs well in excess of what the Crown is seeking.

[ 35 ] The JCDs should reasonably have expected that the Crown would oppose the jurisdiction motions vigorously and that the JCDs would face a significant costs award if they did not succeed on the motions.

Complexity

[ 36 ] The jurisdiction motions were complex. The unique nature of the Crown’s cause of action had to be considered, as did the underlying legislation. The statement of claim was lengthy and intricate. The evidentiary record spanned decades and covered 6 defendants. There was expert evidence on the enforceability of any judgment in both the U.K. and the U.S. The issues argued included whether service was permissible under Rule 17, whether the statement of claim was drafted adequately, what the “good arguable case” test was on a jurisdiction motion, and whether a “meaningful connection” test applied.

[ 37 ] The costs award must reflect the complexity of the motions.

Importance of the Issues

[ 38 ] All parties acknowledge the importance of the issues.

Conduct of the Parties that Tended to Shorten or Lengthen the Proceedings

[ 39 ] Both sides claim that the other’s conduct unnecessarily lengthened the proceedings. They are both right. I give one example. In its revised factum following my September 20 endorsement, the Crown sought to re-argue certain admissibility issues that I had decided against the Crown. On the other hand, Industries and Investments overreached by seeking to strike the Crown’s entire revised factum, not just the re-argument portions. They both contributed to additional time and expense in the proceedings.

Principle of Indemnity; Hourly Rates

[ 40 ] The JCDs argue that the Crown’s hourly rates are improper and do not reflect the principle of indemnity. They argue that the Crown has not provided its actual rate as required by Form 57B or a benchmark for determining a proper indemnity amount, such as internal charge back rates, rates charged to the Crown’s insurers or rates paid to external counsel.

[ 41 ] The JCDs have cited two cases: Chiefs of Ontario v. Ontario , [2007] O.J. No. 4068 (S.C.) and Jourdain v. Ontario , 2008 CarswellOnt 7613 (S.C.) and used rates from those cases to come up with their proposed hourly rates for Crown counsel in this case.

[ 42 ] The JCDs argue that the hourly rates for Mr. Carr and Mr. Kelly (each 38 years of practice), should be reduced from $350 to $175; for Mr. Manuel (34 years of practice) from $350 to $150; and the other lawyers scaled accordingly.

[ 43 ] I have several difficulties with this approach.

[ 44 ] First, the JCDs are proposing rates for the Crown’s senior counsel that are 50% of those being claimed by the JCDs’ counsel with comparable years of experience. Indeed, the JCDs’ proposed rate of $175 for a 38 year lawyer was the rate for a 10 year lawyer in the Jourdain case. [16] That is both unfair and unreasonable.

[ 45 ] Second, costs are not to be reduced simply because they are being claimed by the Crown. Section 131(2) of the Courts of Justice Act recognizes the unique position of the Crown in litigation:

In a proceeding to which Her Majesty is a party, costs awarded to Her Majesty shall not be disallowed or reduced on assessment merely because they relate to a lawyer who is a salaried officer of the Crown, and costs recovered on behalf of Her Majesty shall be paid into the Consolidated Revenue Fund.

[ 46 ] Third, Swinton J. held in the Chiefs case that evidence of the actual cost of the legal services is not required when fixing costs in favour of the Crown and that it is an error to do so. She noted that while the principle of indemnity is an important one, it is not the only consideration in the award of costs. She noted that under rule 57.01, rates are to be considered “where applicable”: see Chiefs , at paras. 10-17.

[ 47 ] Bearing these concerns and the fundamental principle of costs awards in mind, as set out in Boucher , I do not propose to focus on the Crown’s hourly rates or to adjust them as proposed by the JCDs. [17] Rather, the better approach, and the one I propose to take, is to focus on whether in the circumstances the costs claimed by the Crown are fair and reasonable and fall within the reasonable expectations of the JCDs.

Reasonableness of Costs Claimed

[ 48 ] I have reviewed carefully the work effort of the Crown as set out in its bill of costs. For the most part, it is reasonable.

[ 49 ] The Crown claims costs for 6 counsel who appeared on the jurisdiction motions as well as one lawyer and one law clerk who worked on the responding record and facta. The JCDs argue that the Crown’s case was “substantially overstaffed”. I reject that submission. The staffing is reasonable given the magnitude and complexity of the motions, the volume of evidence to be analyzed for each of the JCDs and the fact that there were 12 counsel for the JCDs on the other side.

[ 50 ] According to the Crown’s submissions, the total number of docketed hours on the motions was 3766 hours. [18] However, it has claimed costs based on 2118 hours, representing only 56% of the actual docketed time.

[ 51 ] In their submissions, the JCDs state that the hours are “clearly artificial” and without any “demonstrated justifiable basis”. They impugn the legitimacy of these hours. I reject this submission. There is no basis for me to conclude that Crown counsel did not spend the time set out in its bill of costs.

[ 52 ] Further, the Crown’s numbers are not inconsistent with those of the JCDs. The JCDs’ bills of costs indicate that they worked an aggregate of 2611 hours, excluding time spent on the substantive hearing of the jurisdiction motions. [19] Again, I do not see how the Crown’s hours can be seen as unreasonable given the hours spent by the unsuccessful parties.

[ 53 ] I do not accept the JCDs’ submission that I should reduce the Crown’s costs of searching the Legacy Website for documents and information about the JCDs. Given the consequence of losing the motions, it was reasonable for the Crown to conduct significant due diligence to respond to the motions, even if the Crown ultimately did not rely on some documents or they were ruled inadmissible. [20] I also will not reduce the Crown’s time for its original factum simply because the Crown did not succeed fully on the evidentiary issues, nor will I reduce the Crown’s costs for attending case conferences.

[ 54 ] As mentioned, the Crown has not claimed any hours for the refusals motions and appeals, the Malik motion and for re-preparing its factum after the evidentiary hearing, to reflect its lack of or limited success on those steps in the proceedings.

[ 55 ] There are, however, two areas for which I will reduce costs. [21] The Crown claims $111,250 in fees for the evidentiary hearing. While the Crown did resist the JCDs’ efforts to have the whole Esprit affidavit struck, I did strike certain hearsay portions of the affidavit. I also did not accept many of the attached documents as authentic or admissible. I will reduce the fees for the evidentiary hearing to $65,000 to reflect the Crown’s partial success on this issue.

[ 56 ] The Crown also claims $25,375 in fees for the motions to strike. While the Crown did resist having its whole factum struck, the motion was precipitated by the Crown seeking to reargue my evidentiary rulings and I did strike portions of the Crown’s factum. I will reduce the fees for the motions to strike to $12,000 to reflect the Crown’s partial success on this issue.

What is a Fair and Reasonable Costs Award for the Jurisdiction Motions?

[ 57 ] After making those two adjustments, I have stepped back and considered the objective of a costs award, general costs principles and the rule 57.01 factors in the context of these lengthy, complex and intensely litigated jurisdiction motions.

[ 58 ] The Crown has provided me with examples of certification motions in which significant costs awards have been made. The Crown submits that its costs are comparable to recent costs awards of similar complexity and length in Ontario. [22] I agree that certification motions are a useful comparator for these unique jurisdiction motions.

[ 59 ] Overall, I consider a fair and reasonable costs award for the jurisdiction motions, and one within the reasonable expectations of the losing parties, to be $425,000 plus disbursements. I exercise my discretion accordingly.

Joint and Several Liability for Costs

[ 60 ] The Crown seeks to hold all JCDs jointly and severally liable for the costs award.

[ 61 ] I agree with the JCDs that costs should not be joint and several as between the RJR defendants and the BAT defendants. While there was overlap in their positions, there were sufficient differences between them that it would not be fair to hold them responsible for one another’s costs. [23]

[ 62 ] However, I will hold the BAT defendants jointly and severally liable for their portion of the costs, in view of the overlap in factual and legal issues among them, their adoption of common arguments and their corporate relationships within the BAT group.

[ 63 ] The Crown has provided a breakdown of disbursements as between the RJR and BAT defendants and I will allocate disbursements accordingly.

Costs Decision

[ 64 ] The Crown is entitled to costs of the jurisdiction motions on a partial indemnity basis in the amount of $425,000, plus disbursements of $152,520, for a total of $577,520 . These costs are payable by the JCDs as follows:

• The BAT defendants are jointly and severally liable for $340,000 in fees plus $75,833 in disbursements, for a total of $415,833 .

• The RJR defendants are liable for $85,000 in fees and $76,687 in disbursements, for a total of $161,687 .

[ 65 ] These costs are payable within 30 days.

Conway J.

Date: April 3, 2012

[^1]: Ontario v. Rothmans Inc. , 2012 ONSC 22 , [2012] O.J. No. 19.
[^2]: Counsel agreed to defer the issue of costs for the steps leading up to the substantive hearing on the jurisdiction motions until the end of that hearing, so I must consider all of those steps in determining costs.
[^3]: The term “BAT defendants” refers to PLC, Industries, Investments and Carreras.
[^4]: Ontario v. Rothmans Inc. , 2011 ONSC 1083 , [2011] O.J. No. 1210.
[^5]: Ontario v. Rothmans Inc. , 2011 ONSC 2504 , [2011] O.J. No. 1896.
[^6]: Ontario v. Rothmans Inc. , 2011 ONSC 3685 , [2011] O.J. No. 2811 (Div. Ct.).
[^7]: The parties agreed that my rulings on admissibility would form part of the jurisdiction motions and would not be appealed until the conclusion of these motions.
[^8]: In the Malik motion, the Crown sought to introduce into evidence the British Columbia and New Brunswick jurisdiction decisions and the Crown’s affidavit from the New Brunswick hearing.
[^9]: See Ontario v. Rothmans Inc. , 2011 ONSC 5356 , [2011] O.J. No. 4163 for my reasons on the evidentiary issues and on the Malik motion.
[^10]: The Crown sought to admit into evidence a reduced number of documents from those originally attached to the Esprit affidavit.
[^11]: Alternatively, the JCDs submit that costs of the jurisdiction motions be ordered in the cause. I am not satisfied that this order would be more just. I am fixing costs at the end of the jurisdiction motions, in accordance with rule 57.03(1)(a).
[^12]: See discussion in Ontario v. Rothmans Inc. , 2012 ONSC 22 , [2012] O.J. No. 19, at paras. 36-38 .
[^13]: See Ontario v. Rothmans Inc. , 2011 ONSC 5356 , [2011] O.J. No. 4163, at para. 65 .
[^14]: The Crown and the RJR defendants agreed that they would not cross-examine each other’s U.S. experts. It was reasonable for the Crown to have retained a U.S. expert given that the RJR defendants had filed expert evidence challenging the enforceability of any judgment in the U.S.
[^15]: This excludes the court time for the refusals motions and appeals and the Malik motion, for which the Crown is not claiming costs.
[^16]: I also note that the rates used by the JCDs are from cases that are 4 and 5 years old.
[^17]: Given my approach, this is not to be taken as this court’s endorsement or approval of the Crown’s hourly rates.
[^18]: This excludes the time spent on those steps for which the Crown is not seeking costs, namely the refusals motions/appeals, the Malik motion and re-preparing its factum after the evidentiary hearing.
[^19]: The Crown claims 600 hours (reduced from 1149 docketed hours) for the substantive hearing. I had (for comparison purposes) only Industries’ hours for the substantive hearing – 330 hours, for which it did not claim costs. I do not find the Crown’s hours for the substantive hearing unreasonable when one of the 6 JCDs alone had almost half those hours for the substantive hearing.
[^20]: In Apotex Inc. v. Egis Pharmaceuticals , Henry J. stated, at para. 32, that the time to view the decision to commit services to the project is before the hearing, not on the basis of hindsight.
[^21]: Although I have rejected a distributive costs order and am not awarding any costs to the JCDs, I am entitled to take into account the Crown’s limited success on these issues in determining my costs award to the Crown: See rule 57.01(4). See also Skye v. Matthews , at paras. 19-21 .
[^22]: See, for example, Toronto Community Housing Corp. v. Thyssenkrupp Elevator (Canada) Ltd. , 2011 ONSC 7588 ; Fresco v. Canadian Imperial Bank of Commerce , 2010 ONSC 1036 ; Lambert v. Guidant Corp. , 2009 23379 (ON SC) .
[^23]: For example, there were two different facta prepared for the RJR and BAT defendants. There was only one day of cross-examinations for the RJR witness and seven days for the BAT witnesses. The RJR defendants did not participate in the refusals motions or appeals or the motions to strike. There were different enforceability issues as between the U.S. and U.K. experts. While I am not making a joint and several award, I have considered all of the circumstances and do not think it is unreasonable for the RJR defendants to be responsible for 20% of the overall costs award.