COURT FILE AND PARTIES

COURT FILE NO.: CV-09-383998-CP
DATE: 20131108
SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Mark Dugal, Aaron Murphy, Harlen Bomberry, John O’Malley, Gaetan Siguoin, Armand Charbonneau, Paul Mitchell, Steven Moffatt, John Vasconcelos and David Thompstone as Trustees of the Ironworkers Ontario Pension Fund and Leonard Schwartz, Moving Parties / Plaintiffs

AND:

Manulife Financial Corporation, Dominic D’Alessandro, Gail C.A. Cook-Bennett, Arthur R. Sawchuk and Peter Rubenovitch, Responding Parties / Defendants

Proceeding under the Class Proceedings Act, 1992

BEFORE: Justice Edward Belobaba

COUNSEL: Dimitri Lascaris, Michael Wright, Daniel Bach and Amanda Darrach for the Trustees of the Ironworkers Ontario Pension Fund and Leonard Schwartz

Patricia Jackson, Andrew Gray, Sarah Shody and Laura Redekop for Manulife Financial Corporation

Linda Fuerst for Dominic D’Alessandro

Eric Block and Daniel Dawalibi for Peter Rubenovitch

HEARD: June 5, 6 and 7, 2013

costs award

Introduction

[1] Over the past several months, I have released five decisions, certifying proceedings as class actions, that now require costs awards.[^1] Normally, costs awards are routine and can be easily adjudicated. Not so in the world of certification motions. Here, excess appears to be the norm in every aspect of the proceeding – in the time spent by legal counsel, the volume of material filed with the court, the number of days scheduled for the oral hearing and the over-litigation of most issues. No wonder, then, that the costs that are typically sought by the successful party are in the hundreds of thousands of dollars. No wonder, also, that the number of class actions on an annual basis is declining. Access to justice, even in the very area that was specifically designed to achieve this goal, is becoming too expensive.

[2] Most members of the class action bar, whether acting for plaintiffs or defendants, agree that a “no costs” rule would be much more sensible. Like them, I also wish that the recommendations on costs as set out in the Ontario Law Reform Commission’s Report on Class Actions[^2] had been accepted. Instead, the provincial legislature decided to adopt the views of the Attorney-General’s Advisory Committee[^3] and continue the “costs follow the event” convention for the very different world of class actions as well. I was a member of that Advisory Committee. I now realize that I was wrong and that the OLRC was right. I understand that the provincial Law Commission is undertaking a review of the Class Proceedings Act,[^4] including the costs provisions. Hopefully, our mistake will be corrected.

[3] In the meantime, costs will continue to be awarded to the successful party on a certification motion and judges will continue to explain or try to explain their decision. Given the large costs claims and the subjectivity of the required analysis – recall the Rule 57.01(1) factors and the admonition of the Court of Appeal that costs awards should reflect what would be fair and reasonable to the losing party –many of the cost award decisions, although wordy, use unreliable metrics and are analytically unclear. In my view, more transparency is needed.

[4] For my part, I want to make clear how I will approach and determine costs awards in certification motions, now and in the future. I will, of course, continue to consider and apply the factors set out in Rule 57.01(1) and the various (and obviously binding) directions of the Court of Appeal. But the Rule 57.01(1) factors and the Court of Appeal directions can only take you so far. Consider, for example, the directions of the Court of Appeal that were provided in Pearson v Inco.[^5] I have taken the liberty of juxtaposing these directions with my commentary, added in italics.

(i) A motion for certification is a vital step in the proceeding and the parties expect to devote substantial resources to prosecuting and defending the motion.

I understand this direction. Class actions often involve claims in the many millions of dollars and will therefore be rigorously prosecuted and defended. It follows from this that the costs awards (even on a partial indemnity basis) will be substantial.

(ii) The costs must reflect what is fair and reasonable; and the costs expectations of the parties can be determined by the amount of costs that an unsuccessful party could reasonably expect to pay.

I understand this as well. My difficulty on certification motions, where the amounts being sought by the successful party are so large, is deciding what the unsuccessful party should reasonably expect to pay. It would be of some assistance to know what losing parties have been required to pay on average over the last five or ten years. It would also be of some assistance to know the average percentage that these awards reflect, expressed as the amount awarded divided by the amount sought. In this way, I would be better able to decide what the unsuccessful party could reasonably expect to pay.

(iii) The costs should, if possible, reflect costs awards made in closely comparable cases, recognizing that comparisons will rarely provide firm guidance.

Here again, a sensible direction, at least on its face. The difficulty stems from the fact that the metrics involved in assessing “closely comparable cases” are not always reliable. For example, in comparing costs awards, some judges assume that a certification motion that required three or four days of hearing must have been more complicated and necessarily justified a higher costs award than one that was completed in just one or two days. The reality, however, is that a growing number of judges (myself included) spend many hours in advance of the scheduled hearing date, carefully reviewing the material and the (lengthy) written submissions and therefore require only a day or two in court. Same complicated motion: very different use of court time. Thus, the “days in court” metric can be completely unreliable. Add to this, the Court of Appeal’s caution (above) that comparisons with closely comparable cases “will rarely provide firm guidance” and the third direction loses much of its value. In my view, there would be more value in knowing the average costs awards and average percentages awarded. This kind of information, as I have already noted, would be of assistance in helping me decide what amount the losing party should reasonably be expected to pay.

(iv) A fundamental object of the Class Proceedings Act is to provide enhanced access to justice.[^6]

This direction contains a very important reminder. If class actions are to survive and provide enhanced access to justice, the costs awards on certification motions should not work to undermine this fundamental objective. They should not price the class proceeding out of existence. That is why it is important, in addition to the s. 57.01(1) factors, to consider the costs awards made to date and the proportionality between amounts sought and amounts awarded. This historical information would provide some measure of predictability (and constraint) and thus help ensure the continued viability of class proceedings.

[5] In an effort to further the ‘access to justice’ objective and make my own decision-making process more transparent and predictable, I will adopt the following procedure in deciding costs awards in conventional certification motions – that is, in certification motions that do not fall within s. 31 of the CPA (i.e. test cases, novel points of law or matters of public interest):

➢ I will generally be content with costs outlines certified by counsel. I will not require either side to submit actual dockets. If they wish to do so, that is up to them.

➢ I will (briefly) review the certified costs outlines to ensure that the hourly rates being charged by counsel fall within the range set out by the Rules Committee in its Information to the Profession.

➢ I will also review the costs outline for any obvious excesses in fees or disbursements.[^7] Apart from any obvious excesses, I will accept the costs outline as is. I will not drill down into any of the detail.

➢ If the unsuccessful party wants to argue unreasonableness (beyond hourly-rate compliance or obvious excesses) it should submit its own certified costs outline showing what it actually spent (on a partial indemnity scale) on the certification motion. If a parallel costs outline is not submitted by the unsuccessful party (and none is required) I will probably conclude that the amount being requested by the successful party is not unreasonable.

➢ I will consider seriously historical costs awards in similar cases. Such comparisons can never be determinative but, as I have already noted, they provide useful guideline as to what amounts or percentages have been awarded in the past. As it happens, I have reviewed the costs awards in certification motions over the last six years[^8] and I will make use of the following information:

Costs Awards Over the Last Six Years

I. Where the costs sought were under $500,000

Average Award
(including fees and disbursements)

Percentage
amount awarded / amount sought

For Plaintiff
$169,250
63%

For Defendant
$148,870
50%

Overall
$163,000
59%

II. Where the costs sought were over $500,000

Average Award
(including fees and disbursements)

Percentage
amount awarded / amount sought

For Plaintiff
$496,118
62%

For Defendant
$341,000
39%

Overall
$388,728
46%

➢ For example, where the costs sought were less than $500,000, the average all-inclusive award for the successful defendant was $148,870; and where the costs sought were more than $500,000 it was $341,000. Would this information be of some assistance in deciding what the losing defendant should reasonably be expected to pay? I think it would be.

➢ As I conclude my costs review, I will stand back and reassess the amount that is before me (after the reductions or removals of any excesses.) I will again review the factors set out in Rule 57.01(1), the admonitions of the Court of Appeal, and the historical costs awards data as set out above, and come to a final amount that, in my view, is fair and reasonable to both sides, always remembering that the fundamental objective of the Class Proceedings Act is access to justice.

➢ In cases where the final fees or disbursement amount is dramatically above the norm, I will consider making a costs award in two parts: a portion that is payable immediately and a further portion that is payable in the cause.[^9]

[6] I don’t know how this approach will play out. It will likely result in lower than expected costs awards. But if it also results in leaner and more focused certification motions, a greater measure of predictability for the participants, and in the overall, the continuing viability of the class action vehicle, that is all to the good.

[7] I now turn to the costs award herein.

Analysis

[8] In reasons released on July 25, 2013, I granted leave under s. 138.8 of the Securities Act[^10] and certified the proceeding as a class action.[^11] Given the enormity of the damages claim and the complexity of the legal issues, I expected the costs claim to be substantial. And it was.

[9] The plaintiffs ask for $436,222 in fees on a partial indemnity basis and $746,135 in disbursements (mainly for expert reports) for a total of $1,182,357. The plaintiffs say that in terms of the damages being claimed, this is the largest securities class action certified on a contested basis since Part XXIII.1 of the Securities Act came into effect in 2005. According to the plaintiffs, the costs being sought herein are reasonable and appropriate.

[10] The defendant Manulife (none of the individual defendants filed separate costs submissions) submits that the fees request should be cut in half to $218,111 and disbursements should be reduced to $200,000 for a total of $418,111.

[11] Certification motions in securities cases are almost always complex and therefore expensive. The stakes are high. The leave motion requires some review of the merits. The materials that are filed are necessarily voluminous. Expert reports are essential and expensive. In short, I am prepared to acknowledge that this particular leave and certification motion genuinely falls within the medium to high range of costs awards. Having said this, I am not necessarily persuaded that the actual amounts being sought herein are amounts that are fair and reasonable to the losing party.

[12] Consider for example the $746,135 claim in disbursements. Even though the expert reports of Messrs. Jarrell, Chambers and Winokur were very helpful in my analysis of the legal issues, the amount being claimed for disbursements is, by any reasonable measure, excessive – and certainly not in the realm of what the unsuccessful party would reasonably have expected. As with fees, the concept of proportionality applies to disbursements as well.[^12] In my view, an award of more than $200,000 in disbursements, almost all for extremely high-priced expert reports,[^13] should only be granted in exceptional circumstances. This was, to be sure, a hard-fought and legally challenging certification and leave motion that required nuanced expert opinion evidence. to help the plaintiffs clear the preliminary merits hurdle. But on the facts herein, the most that I could allow for disbursements is about $350,000 and only on the following terms: $250,000 payable forthwith and the $100,000 balance payable to the plaintiff in the cause.

[13] However, let me regroup and proceed in a more systematic fashion. As I explained in the introductory portion of these reasons, it is important to restore some measure of transparency and predictability to certification-motion costs awards, at least to the costs awards that I must decide. Turning then to the framework set out above.

[14] Hourly-rate compliance. The hourly-rates that were assigned to the younger members of the plaintiffs’ legal team do not accord with the rates set out in the Rules Committee’s Information to the Profession. A reduction of $53,395 is needed to bring the hourly-rate charges in line with the well-known “grid.”[^14] The fees sub-total is therefore reduced to $382,827. On an intuitive basis, still too high.

[15] Obvious excesses. I have already noted the excess in the disbursements claim. The tentative award here will be $250,000, with the balance of $100,000 being made payable to the plaintiffs in the cause. I further reduce the $250,000 by the following: $3187 for legal research and $4579 for travel and meals (because no details were provided.) The final disbursements award will therefore be $242,234. I see no other obvious excesses. I note that counsel for the defendant provided me with the costs outline that they will present to the court (a total of $178,147) if they are successful in appealing my certification decision. However, I also note that counsel for the defendant declined my invitation to provide a certified outline of the costs that were actually incurred, on a partial indemnity basis, on the leave and certification motions herein.

[16] Closely comparable costs awards. The plaintiff notes that to date there have been no contested costs decisions involving leave and certification motions. The most that the plaintiff can do is to point to seven “similarly large and complex certification motions” and argue that in these cases fees of $400,000 to $600,000 were awarded. The defendant, in turn, distinguishes six of the seven cases and does soon a persuasive basis. In the seventh case, Toronto Community Housing,[^15] the court awarded $400,000 in fees and $34,673 for disbursements for a total of $434,673. (I pause to note that this is very close to the $418,111 that is being advanced by the defendant.) In some cases, a review of “closely comparable costs awards” can be helpful. In this case, not so much. There may be more value in considering the historical averages.

[17] Historical averages. Over the last six years, in cases where costs of more than $500,000 were sought, the plaintiff was awarded on average $496,118 and the defendant $341,000. This suggests that the appropriate range on a relatively complex certification motions (such as the one herein) is roughly $350,000 to $500,000 all-inclusive. This is a costs range that would be fair and reasonable to the losing party.

[18] Final review. Standing back and considering again the factors under Rule 57.01(1) (especially the complexity of the proceeding), the various admonitions of the Court of Appeal about making sure that the costs award is fair and reasonable to the losing party, and the current and historical comparisons as set out above, I find it fair and reasonable to fix the costs at $467,234 all-inclusive - $225,000 in fees and $242,234 for disbursements I remind the parties that a further $100,000 for disbursements will be payable to the plaintiffs in the cause.

Disposition

[19] Order to go fixing costs at $467,234 payable forthwith by the defendant Manulife to the plaintiffs and a further $100,000 payable to the plaintiffs in the cause.

[20] Class counsel will understand that all costs awards paid to counsel must be taken into account in the final calculation and approval of any legal fees.

Belobaba J.

Date: November 8, 2013

[^1]: Dugal v Manulife Financial, 2013 ONSC 4083; Rosen v BMO Nesbitt Burns, 2013 ONSC 2144; Crisante v DePuy Orthopaedics, 2013 ONSC 5186; Brown v. Canada (Attorney General) 2013 ONSC 5637; and Sankar v Bell Mobility, 2013 ONSC 5916.

[^2]: Ontario Law Reform Commission, Report on Class Actions, (Toronto: Ministry of the Attorney General, 1982).

[^3]: Report of the Attorney General’s Advisory Committee on Class Action Reform, (Toronto: Ministry of the Attorney General, 1990).

[^4]: S.O. 1992, c. 6.

[^5]: Pearson v Inco Ltd., 2006 7666 (ON CA), [2006] O.J. No. 991 (C.A.)

[^6]: Ibid., at para. 13.

[^7]: An obvious fees-related excess: too many counsel at the cross-examinations or at the hearing. An obvious disbursement excess: charging for “legal research.” In my view, lawyers (who are already billing very high, monopoly-based, hourly rates for their legal knowledge) should not be charging for “legal research.” Customers should not have to pay anyone who charges by the hour, whether lawyers or plumbers, to learn on the job. Legal research is obviously essential, but it should not be a chargeable disbursement.

[^8]: I acknowledge the work of counsel for DePuy in Crisante v DePuy, supra, note 1, who provided me with a a very useful costs chart showing amounts sought and amounts awarded in certification motions since May, 2007. I edited this down to 36 contested costs awards - 20 awarding costs to the plaintiffs and 16 awarding costs to the defendants. I divided the awards into two categories based on the amounts sought (fees plus disbursements): Category One – amounts sought under $500,000 (23 awards, 16 for the plaintiffs and 7 for the defendants) and Category Two – amounts sought over $500,000 (13 awards, 4 for the plaintiff and 9 for the defendant.) I then calculated the average award and average percentage (amount awarded divided by amount sought) in the two categories, for plaintiffs, defendants and overall. The results are set out above. (I remind the reader that the amounts include fees and disbursements.) I acknowledge the statistical deficiencies, but I nonetheless find the information to be of some assistance.

[^9]: See, for example, Lipson v Cassels, Brock & Blackwell, 2013 ONSC 6450 at para. 29. Justice Perell awarded the plaintiff $298,582 in costs - $148,582 payable forthwith and $150,000 payable to him in the cause.

[^10]: R.S.O. 1990, c. S.5.

[^11]: Dugal v. Manulife, supra, note 1.

[^12]: See the discussion in Bombardier Inc. v. AS Estonian Air, 2013 ONSC 4209, at paras. 10 to 12.

[^13]: Quaere, why the plaintiffs felt compelled to retain one of the most expensive American experts (Professor Jarrell) when other stock market economists with similar expertise were readily available north of the border, and at much lower hourly rates. I do not deny any party the right to retain any expert they want, but there is always the risk (as here) that the charges will be found to be excessive or otherwise outside the bounds of what the losing party should reasonably be expected to pay.

[^14]: This is the sum of the following reductions: Bach, $180 not $225; Darrach, $190 not $225; Yap, $140 not $225; Robb, $225 not $300; Kalloghlian, $160 not $225; Selig, $170 not $225; and Nematollihi, $130 not $225. Total reduction: $53,395.

[^15]: Toronto Community Housing Corp. v. Thyseenkrupp Elevator (Canada) Ltd., 2011 ONSC 7588, [2011] O.J. No. 5866 (S.C.J.)