SUPERIOR COURT OF JUSTICE - ONTARIO
COURT FILE NO.: 05-CV-30446
DATE: 20140307
RE: HERVÉ POMERLEAU ONTARIO INC.
AND
THE CORPORATION OF THE CITY OF OTTAWA
BEFORE: Justice Albert Roy
COUNSEL: David Elliott/Christopher McLeod, for the Plaintiff
Ronald Caza/Alyssa Tomkins, for the Defendant
HEARD: Written Submissions
costs ENDORSEMENT
[1] Before assessing cost in this matter, I have reviewed the costs submissions of all the parties including the jurisprudence attached. I have considered the principles set out in section 131 of the Courts of Justice Act, rule 57.01 and rule 49.10.
[2] A number of Court of Appeal decisions have stated that the objective in assessing costs is to fix an amount that is fair and reasonable for the an unsuccessful part in particular proceedings, rather than an amount fixed by actual costs incurred by the successful litigant. Recently, the Ontario Court of Appeal in Davies v. Clarington (Municipality) 2009 ONCA 722, (2009), 100 O.R. (3d) 66, found at Tab C of the Plaintiff's material states at paragraph 52:
As can be seen, the overriding principle is reasonableness. If the judge fails to consider the reasonableness of the costs award, then the result can be contrary to the fundamental objective of access to justice. Rather than engage in a purely mathematical exercise, the judge awarding costs should reflect on what the court views as a reasonable amount that should be paid by the unsuccessful party rather than any exact measure of the actual costs of the successful litigant. In Boucher, this court emphasized the importance of fixing costs in an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding…
[3] The successful Defendant here argues that costs should be awarded on a substantial indemnity basis because of repeated allegations of bad faith on the part of the Plaintiff toward the Defendant. In my decision, I commented that the Plaintiff's language may well have been exaggerated and colorful but I made no findings that the Plaintiff conducted the litigation in a reprehensible or outrageous manner. As was stated by the Court of Appeal in Davies v. Clarington at paragraph 45;
a distinction must be made between hard-fought litigation that turns out to have been misguided, on the one hand, and malicious counter-productive conduct, on the other. The former, the thrust and parry of the adversary system, does not warrant sanction: the latter well may.
The conduct of the litigation by the plaintiff in this matter would not justify an award of costs to the defendant on a substantial indemnity basis.
[4] It's argued by the Plaintiff that the quantum of the Defendant’s cost is excessive. The Plaintiff states that the hours billed by the Defendant's counsel are out of proportion to the hours billed by the Plaintiff's counsel. In my opinion, it would be wrong to consider the hours billed by respective counsel in isolation. As was stated earlier, the Courts cannot engage only in a mathematical exercise or start second-guessing the hours billed by counsel. I have to consider a number of factors in arriving at a reasonable costs award for both parties.
[5] In this matter, the financial risk to the Defendant was much greater than to the Plaintiff. The Defendant was facing a damage award claimed by the Plaintiff of some $15 million plus costs. The only risk to the Plaintiff was the legal costs. It is obvious in these circumstances that a defendant would have to invest more resources for discoveries, experts, and trial preparation. Further, the Plaintiff amended its damage claim. From the evidence heard at trial, it is obvious that the defense raised was very thorough and effective, resulting in the dismissal of the Plaintiff's claim.
[6] I also have to consider that the Defendant has a special arrangement with counsel that the fees billed would be at a blended rate of $171 per hour. The agreement further provided that if the costs awarded by the Court were in excess of the blended rate charged by counsel to the Defendant, such excess would be shared by counsel and the Defendant. Given the experience at the bar of both counsel for the Defendant, it is obvious that the blended rate charged is much below what both parties would expect on a partial or substantial indemnity.
[7] The Defendant made an offer to settle to the Plaintiff to pay $250,000. The offer was never accepted and the Plaintiff’s claim was dismissed. The Defendant argues that they should be entitled to a costs award on partial indemnity basis to the date of the offer and on a substantial indemnity basis thereafter. I adopt the reasoning from this Court by my brother Robert J. Smith J in Dunstan v. Flying J Travel Plaza 2007 819 (ON LRB), [2007] O. J. No. 4089; 2007 CarswellOnt 6806, found at Tab 2 of the Defendant's book of authorities and I quote at paragraph 13:
Again, I agree with the reasoning of Carthy J. in the Strasser decision that the court in exercising in discretion pursuant to Rule 57.01(1) may find it appropriate to award costs on a substantial indemnity basis from the date of the defendant's offer to settle, if the defendant made an offer to settle and the plaintiff did not recover a judgment of any value after trial. I therefore order that costs be awarded to the defendant on a partial indemnity basis as claimed from September 15, 2005 until its offer to settle on February 26, 2007 and on a substantial indemnity scale from February 26, 2007 until April 27, 2007.
This is especially applicable in these circumstances when the Plaintiff has carried on this litigation for some over nine years and surprisingly has made no offer to settle.
[8] Plaintiff's counsel argues that the Defendant should not be awarded costs in excess of the amount paid to their counsel. They rely on s. 20 (2) of the Solicitors Act, R.S.O. 1990, c. S.15 which reads as follows:
However, the client who has entered into the agreement is not entitled to recover from any other person under any order for the payment of any costs that are the subject of the agreement more than the amount payable by the client to the client’s own solicitor under the agreement.
[9] In fact, it appears quite clear from the case law that a successful party is not entitled to costs over and above is obligation to his client. In Clark v. Nash, [1990] B.C.J. No. 727, the British Columbia Court of Appeal said and I quote:
In the end counsel are not in disagreement about the law. They agree that the entitlement to costs depends upon there being an obligation on the part of the client to pay the solicitor. The award of costs is an indemnification in relation to that obligation. The costs cannot exceed the amount of the obligation.
That principle has been approved by our Courts including the Court of Appeal in Wasserman, Arsenault v. Sone, [2000] O. J. 1201. In the decision of Lawyers’ Professional Indemnity Co. v. Geto Investments Ltd., [2002] O. J. No. 921; 2002 CarswellOnt 769, our Court said this at p. 5 para. 17 and I quote:
I would also observe, given this basic principle that is central to any award of costs whether on a partial or substantial indemnity basis, that it is not appropriate for counsel to seek payment at rates that are over and above those that are actually being charged to the client. As a matter of fact, I would go further and say that there is a positive obligation on counsel, who are operating under a special arrangement regarding their fees, to reveal that special arrangement to the court.
Counsel for the Defendant has disclosed the special agreement they have with the Defendant. They categorize the agreement as a contingency type arrangement. I disagree with counsel that this is a contingency agreement. Nor would I categorize it as Plaintiff counsel has a risk premium which have been referred to in the Supreme Court of Canada decision in Walker v. Richie, 2003 17106 (ON SC), [2003] O. J. No. 18; 2003 17106, and usually involves counsel representing an impecunious Plaintiff. It would appear from the case law that the only exception to this principle is found under the legal aid act. It is unfortunate that the court is not given more discretion under rule 57 where in limited circumstances when it would be in the public interest to award costs over and above the obligation of the client to his solicitor. I can visualize circumstances when the impact of an offer under rule 49 would be meaningless because of an agreement between the client and his solicitor thereby prolonging the litigation.
[10] Therefore, in the circumstances and assessing the costs that are just and reasonable, I will be following the principle set out in a decision of this Court in Mantella v. Mantella 2006 CarswellOnt 3176; 2006 17337 (ON SC), [2006] W.D.F.L. 2686, 27 R.F.L. (6th) 76 found at Tab 4 of the Defendant reply submissions, p. 2 , para. 7:
however, in fixing partial indemnity costs the court does not look at the actual fee arrangements between solicitor and client and discount that arrangement to ensure that recovery is partial. Rather, the court considers the pertinent factors lay down in the rules in fixing the amount of recovery appropriate on a partial indemnity basis. So long as the amount is equal to or less than the actual fees and disbursements charged, then the amount arrived at by reference to the factors listed in the rules will be the amount of the award, whether that represent 50% of the actual fees, or 75% or even hundred percent of the actual fees. If counsel is prepared to work at rates approximating partial recovery costs that his counsel's choice. There is no reason why the clients recovery ought to be reduced because they has negotiated a favorable rate with counsel, so long as the total of the indemnity does not exceed the fees actually charged.
[11] The Plaintiff further states that the Defendant’s disbursements of $109,000 as compared to the Plaintiff's $13,000, is excessive. Again, considering the risk factor faced by the Defendant, it is not surprising that they would have incurred costs for additional resources to defend the action. I note that there is approximately $30,000 for outside professional help plus $40,000 for an expert report dealing with the Plaintiff's claim for losses. I would fix the Plaintiff’s disbursement at $100,000.
[12] Finally, one of the factors that I have to consider in determining what is fair and reasonable amount for cost is the reasonable expectation of the unsuccessful party. The Plaintiff is a large and very successful general contractor who's been in business across Canada for many years. They are represented by experienced counsel. Would their reasonable expectation as to cost be that the defendant also represented by experienced counsel, defending a $15 million claim, be billed at less than 50% of the going rate for experienced counsel, in other words at 171 per hour instead of over $400 per hour. I have no doubt that the Plaintiff's reasonable expectation is that the defendant were paying their counsel at the going rate just like they were.
[13] Accordingly, I would fix the cost as follows:
[14] Costs incurred prior to the Defendant’s offer fixed on a partial indemnity basis as follows:
pleadings $7000;
discoveries $175,000;
case conference $1800;
Pre-trial $2000.
All of these costs do not include the GST.
[15] Costs incurred after the offer which are fixed on a substantial indemnity basis at $250,000. That amount has to be reduced to $188,000 which was the Defendant's obligation to their counsel. That amount does not include the GST.
Justice Albert Roy
Date: March 7, 2014
COURT FILE NO.: 05-CV-30446
DATE: 20140307
ONTARIO
SUPERIOR COURT OF JUSTICE
RE: HERVÉ POMERLEAU ONTARIO INC.
AND
THE CORPORATION OF THE CITY OF OTTAWA
BEFORE: Justice Albert Roy
COUNSEL: David Elliott/Christopher McLeod, for the Plaintiff
Ronald Caza/Alyssa Tomkins, for the Defendant
costs ENDORSEMENT
Roy J.
Released: March 7, 2014