COURT FILE NO.: 08-CV-351249 PD1
DATE: 20140430
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
ANGELA HAUFLER, SUZANNE HAUFLER, WALTER HAUFLER
David Sloan, for the Plaintiffs/Respondents
Plaintiffs/Respondents
- and -
HOTEL RIU PALACE CABO
SAN LUCAS
Robert L. Love and Katherine Ayre, for the Defendant/Applicant
Defendant/Applicant
HEARD: In Chambers
Michael G. Quigley J.
REASONS FOR COSTS
Overview
[1] In the spring of 2006 Angela Haufler sustained a serious leg injury during an all-terrain vehicle (“ATV”) excursion while on vacation in Mexico with her mother and friends. She was immediately flown back to Canada for treatment of the injuries she suffered. Sometime later, she commenced an action for damages against Rancho Tours, the ATV excursion operator, as well as Hotel Riu Palace Cabo San Lucas, a member of the international Riu chain of hotels, and the particular hotel where the vacationers were staying. Since she was still a minor at the time, her mother, Suzanne Haufler, brought the action on her behalf as her litigation guardian, and on her own under the Family Law Act. Her father’s claim was under the Family Law Act.
[2] In that action the plaintiffs claimed damages of $3.5 million. They alleged negligence against Rancho Tours in the supply of a defective ATV, as well as inadequate instruction in the use of such vehicles before the excursion began. However, Rancho Tours did not respond to the claim and is presumed to be bankrupt. The other defendant, Hotel Riu, was sued on the basis of the plaintiffs’ claim that the ATV excursion was arranged through it, and thus that it had breached a duty of care it owed to the plaintiffs as guests at its hotel.
[3] In response, Hotel Riu brought a motion to stay this action on the basis that the courts of this province have no jurisdiction over it. On September 13, 2013, I granted the defendant hotel’s motion to stay the action on the basis that this court lacked jurisdiction.
[4] It is important that over seven years passed since that accident occurred before this motion was heard. The reason so much time passed was that the motion was delayed in anticipation of the seminal decision of the Supreme Court of Canada in Club Resorts Ltd. v. Van Breda1 (“Van Breda”). That decision was only released in 2012, but it consolidated the legal tests applicable in Canada for the assumption of jurisdiction over an action.
[5] Based on the application of the test articulated in Van Breda, I found that this action lacked the requisite “real and substantial” connection between the subject matter and Ontario, as the forum asserting jurisdiction. My reasons for judgment are reported at 2013 ONSC 6044, [2013] O.J. No. 4398.
[6] It remains for the court to award costs. The Hotel Riu defendant now seeks substantial indemnity costs in the sum of $85,445.61, inclusive of disbursements and HST, based on the costs outline it filed. Counsel for the plaintiffs counters that the plaintiffs could not reasonably have expected to pay more than $30,000 in costs for the hearing of this half-day pre-trial jurisdiction motion.
Guiding Principles
[7] While the general rule is that costs follow the event, under s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43, the court always retains discretion to award costs according to the circumstances of each particular case. The process is not a mechanical exercise and a trial or motions judge may consider a broad range of factors in exercising this discretion as described in Rule 57.01. The leading jurisprudence establishes that if it is possible to effect procedural or substantive justice by fixing costs, the judge ought to do so.[2]
[8] Nonetheless, the court should not simply fix costs reflecting those incurred by the successful party, even though the principle of indemnity remains paramount. The overall objective should be for the court to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular circumstances of the case before it.[3]
[9] Moreover, I am required to balance the principles of indemnity and access to justice against each other. To remain consistent with the fundamental objective of access to justice, the Court of Appeal has emphasized that this court must assess the amount that is reasonable in the circumstances, rather than according to any exact measure of actual costs incurred by the successful litigant.[4]
[10] Proportionality is also an overarching principle, not wholly independent from notions of access to justice. In assessing costs, I must take account of the importance of the matter and the amount involved, as well as the complexity of the proceeding. The requirement that the concept of proportionality should guide all interpretation and application of the Rules is codified under subrule 1.04(1) of Ontario’s Rules of Civil Procedure.
[11] As I previously mentioned, an important consideration in fixing costs is whether the total claimed by the successful party in fees is a fair and reasonable amount to be paid by the unsuccessful party in the particular circumstances of the case. Costs must reflect with proportionality the actual issues argued, rather than an uncritical reliance on billable hours.[5] Indeed, plainly our courts are increasingly recognizing that the hourly costs approach to determining costs awards as against the losing party is now and is becoming an increasingly problematic element of litigation.[6] Lane J. of this court made the point well in Multi-Funds Inc. v. The Bank of Nova Scotia[7] when he observed that:
As between a lawyer and a client, this approach may be acceptable; certainly it is now almost universal, but the client, unlike the opposite party, has the option of seeking a less expensive lawyer. Combined with our system of requiring the loser to pay costs to the winner, measured by what the winner has spent, this approach is proving an enormous obstacle to access to justice in our courts. What middle class person would dream of financing an action, however meritorious, against an opponent capable of spending the sums illustrated by the Bill of Costs of the Bank, when the penalty for losing is financial disaster? It is time for this ruinous system to be revisited. Many jurisdictions do without costs altogether. Perhaps Ontario should join them. As a start, we could stop measuring costs by what the winner has spent, and move to a predictable fixed fee system.
[12] That same learned jurist raised concerns three years later in Walsh v. 1124660 Ontario Ltd.,[8] that the current system of awarding costs may also have disconcerting implications for the public’s confidence in the administration of justice:
If costs awards, to be paid by the losing party, reach the level, as they have done in Ontario, that they can bankrupt an ordinary person, never mind an impecunious one, there is a danger that confidence in the justice system will be undermined and it will increasingly be seen, and not without good reason, as a system for business and the wealthy, but not for the mass of people whose tax dollars fund the system. The loser-pay costs system can act as a serious barrier to justice, deterring deserving as well as frivolous cases.
[13] While it is incontrovertible that the matter of costs must be approached in a way that discourages actions that are frivolous, the costs of litigation should not go beyond the resources of persons of average means. While it remains true that any person – with or without means – should not be permitted to launch frivolous claims without fear of financial implications, the practice of requiring the losing party to pay the preponderance of costs incurred by the successful party can be a serious impediment to access to justice in many circumstances, given that the losing party has no control over the opponent’s financial expenditures. As such, wherever possible, the court must “seek to balance the indemnity principle with the fundamental objective of access to justice” when awarding costs.[9]
[14] Fortunately, the discretionary nature of costs awards can assist in moderating the potential for injustice that may flow from a mere blind mechanical approach to calculating costs between parties.
The Offer to Settle
[15] Before proceeding further, it is important to note that the defendant claims to have made a Rule 49 offer on February 16, 2012 to discontinue this motion without costs initially, and then only with costs on a partial indemnity scale to be agreed upon and disbursements, provided the plaintiffs discontinued their claim against Hotel Riu.
[16] Plainly, I am entitled to take into account any genuine and continuing effort to settle the case in affixing costs, but in my view this offer was not an offer that ought to give effect to a presumptive costs entitlement under Rule 49.10, and it should not attract the cost consequences that are stipulated in that rule.
[17] In reaching my conclusion, I have considered the object of Rule 49.10. It seems evident to me that its purpose is to encourage reasonable offers that promote some element of compromise, but to also apply a cost penalty upon an offeree who rejects a settlement offer that turns out to be as favourable, or more than a judgment awarded at trial or following a hearing.
[18] Above all, in my view the defendant’s offer is deficient for the purposes of activating the costs consequences contemplated in Rule 49 because the offer lacked the requisite degree of compromise. An offer to withdraw the pre-trial jurisdiction motion in exchange for a release of the matter contains no compromise or concession whatsoever. While I might have felt differently had the plaintiffs’ action been entirely unmeritorious, the basis of the claim was unclear; indeed the case was interrupted in anticipation of a key and now governing Supreme Court decision that altered the legal terrain against which jurisdiction questions would be decided. In this context, I am not persuaded that the offer in question can be said to have contained an element of compromise in the context of an action alleging significant damages and losses, notwithstanding the favourable cost consequences that accompanied it.
[19] I find support for the view that the offer did not contain the requisite element of compromise in Lederer J.’s pithy conclusion in Living Water (Pressure Wash Services) Ltd. v. Dyballa regarding a similar offer to concede the results of a motion on the basis that there would be no costs. He notes there, correctly in my view, that:
The costs consequences of an offer made pursuant to Rule 49 of the Rules of Civil Procedure are meant to encourage settlement. This was not an offer to settle. It was an invitation to capitulate.[10]
[20] While a lack of compromise may not be fatal to the prospects of the costs consequences of Rule 49.10, the Court of Appeal has been clear that where fairness is a relevant consideration, its absence is a proper factor to take into account in deciding whether to order “otherwise.”[11]
[21] Indeed, the court must make reference to the amount contained in the formal judgment that disposed of the action in its determination as to the applicability of Rule 49.10 and compare the offer accordingly.[12] However, this requirement shows that the kind of offer meant to engage Rule 49.10 is one where there is a measure of monetary success at the end of the trial or hearing relative to the amounts claimed. It should not apply, at least in my view, where the offer to settle called upon the plaintiffs to raise the white flag of surrender before the court even considered whether it would take jurisdiction to hear the matter at all. This pre-trial jurisdiction motion arose long before any discussion might have been had, or reasonable assessment might have been made of the appropriate quantum of damages on the basis of which some compromise might have yielded a monetary settlement, either without costs or alternatively with partial indemnity costs. That offer cannot be said to be more favourable than the ultimate judgment which was a stay of the action for want of jurisdiction.
[22] I am reinforced in this view by the comments of Roccamo J. in Crete v. Carleton Condominium Corp. No. 47, [2008] O.J. No. 74 (S.C.J.), who confirms the principle that Rule 49.10 should apply when a defendant exceeds its offer to settle and where the plaintiff has recovered a judgment in some value:
As previously observed by other courts, most recently by Smith J. in Dunstan v. Flying J Travel Plaza, 2007 819 (ON LRB), [2007] O.J. No. 4089 (S.C.J.), the drafters of Rule 49 did not provide for costs consequences in favour of a defendant that serves an offer in Form 49 for dismissal of the action without costs. Rule 49.10(2) only provides for partial indemnity costs to a defendant from the date of an offer in Form 49 where the plaintiff obtains judgment in some amount, whether as favourable as or less so than the terms of the defendant’s offer.
[23] Moreover, in reaching this conclusion, I find support in the line of cases that hold that a single sum offer inclusive of costs cannot be effective in circumstances where the court is unable to determine whether the offeree recovered more or less than the amount offered.[13] This seems to me to be a clear signal that the comparison for “what is more or less favourable” must be between the offer to settle and the amount awarded in the judgment – it is not between pressing on with the claim and folding one’s tent and surrendering. Allowing for this type of offer to satisfy the presumptive costs consequences under Rule 49.10 would invite abuse of the mechanism, the consequences being that the offering party need risk nothing and offer nothing to secure substantial indemnity in the event of success. This is clearly contrary to the underlying rationale of the rule.
[24] That an offer such as this could attract the costs consequences under Rule 49.10 would be unfair given that the nature of this motion provides for strategic asymmetry between the parties, which allowed the defendant to make an offer with absolutely no downside for itself, and only the potential for reward. I do not say this to criticize the defendant’s offer, but rather to highlight the reasons Rule 49.10 should not apply to determine the costs consequences of such an offer, when a pre-trial jurisdiction motion provided for a final determination of the issue.
[25] For the foregoing reasons, I find the defendant has failed to establish the foundation for the application of Rule 49.10 and the offer made by the defendant on February 16, 2012 should not attract the cost consequences stipulated in Rule 49.10.
[26] If I am mistaken, I would decline to apply the rule regardless and find support for doing so with careful attention to the underlying policy of the rule and in the interest of comity enunciated in Crete. Indeed, Rule 49.10 provides that the court “may order otherwise.” The Court of Appeal has found that use of the exception should only be done “after giving proper weight to the policy of the general rule and the importance of reasonable predictability and the even application of the rule, the interests of justice require a departure.”[14]
[27] In the present case, the costs consequences stipulated in Rule 49.10 would not promote the policies that underlie the general rule, namely the encouragement of compromise, and would invite strategic exploitation. Furthermore, undue harshness would result, a result that would surely be contrary to notions of fairness and the interests of justice – both of which are proper principles for consideration under Rule 49.10.
Appropriate Costs in this Case
[28] I note that the action did not proceed very far prior to the launch of the jurisdictional motion which has resulted in a stay of the action. The parties also delayed the motion in anticipation of the Supreme Court’s decision in Van Breda which ensured the matter did not take up any more judicial resources than need be, or indeed require consumption of substantial resources between them. Significantly, witnesses were permitted to give evidence via written interrogatories. Taken together, the parties, including the unsuccessful plaintiffs, acted with regard for judicial efficiency and this should be acknowledged in apportioning costs.
[29] I am also cognizant that liability has not been assigned in this case, and that the issue of jurisdiction was an important and unsettled legal issue at the time this action was commenced. The present case involved a question of law that was in flux. The claim was commenced before Van Breda and the resolution was delayed until that decision was released. It is not desirable, in my judgment, to penalize one side or the other for participating in the determination of the jurisdiction issue in this case, given that the usual reason of deterring unmeritorious claims cannot be said to apply.
[30] In this regard, it is also important to note that discretion may be exercised to adjust the normal costs rule in actions involving novel legal issues. In Frank v. Farlie Turner & Co., LLC, for example, Perrell J. recognized that the court has “discretion to order no costs be paid when a case raises a novel issue of law.”[15] While this was not exactly a novel issue, the existing justifications for this recognized exception apply equally to the case at hand. The novelty must be such that the issue is “open” in the sense that existing case law is inadequate to resolve the issue such that the parties would not be warned from raising it.[16] As evidenced by the decision to hold off on the present motion until the release of Van Breda, the basis for exercising discretion in this way is present here. The very fact that the parties recognized the need to await its outcome makes the point.
[31] While the award of partial indemnity costs typically strikes an appropriate balance as to the burden of costs which should be borne by the winner, this cannot be done at the expense of putting litigation beyond the reach of the loser, particularly where the merit of the case was in flux at the time proceedings were instigated.
[32] There is support for the position that while courts should seek to avoid a situation in which litigants without means can ignore costs rules with impunity, hardship considerations may reduce costs where appropriate.[17]
[33] Finally, impecuniosity is a valid reason for exercising discretion in making a cost award.[18] This was a personal injury claim relating to a young teenager. Counsel for the plaintiffs advised in his response to the defendant’s costs submissions that she is now a post-secondary student with substantial student debt. She has no assets of any kind. That correspondence also claims that her mother, who served as her litigation guardian during her minority and the plaintiff’s father have now divorced and are similarly claimed by counsel to be without assets or meaningful income. Mr. Sloan argues that they should not be subjected to a significant and punitive costs award. Such an award against them could mean financial ruin or bankruptcy. In this regard, I note the following passage from the B.C. Court of Appeal:
It goes without saying, for what it is worth, that a corporate defendant, such as the defendant at bar, is in a better position to defray the costs of litigation, than a virtually penniless student such as the plaintiff at bar.[19]
[34] The legal fees claimed by the moving party as a result of bringing its motion involved correspondence, preparation of written materials and authorities for the jurisdiction motion, attending scheduling court on two occasions, and finally, the attendance by a senior and more junior lawyer for a half-day motion. The case was not overly complex, either legally or factually. It is also important to my mind that the legal issues involved here were not by any means unfamiliar to senior counsel for the defendant hotel, insofar as he was involved in another very similar matter for the same corporate defendant, at around the same time as this matter was commencing.[20]
[35] Here, counsel for the defendant, Hotel Riu, is seeking an award of substantial indemnity costs for $85,445.61 inclusive of disbursements and HST ($67,751.50 was the number provided for partial indemnity), a breathtaking sum in my estimation for a half-day motion given that counsel had previously prepared a similar motion involving the same defendant. Counsel for Hotel Riu indicated that costs were kept at a “modest” level due to significant time of more junior counsel with lower rates. To the extent this is so, it is laudable, except that the rates being charged for even junior lawyers at many large Canadian law firms, like this one, are also beyond the means of most ordinary litigants of reasonable means when reimbursement is sought on a substantial indemnity scale.
[36] However, and unfortunately, a detailed breakdown of the costs incurred was also not provided. I was provided with a list of fee items, a list of lawyers and clerks, the total hours claimed by each person, and their hourly rate. The fee items were not generally attributed to individuals who performed them and corresponding amounts of time were entirely lacking. These details are evidently the kinds of information that the rubric provided on Form 57B attempts to capture. The court should conduct a critical examination of the work undertaken when determining whether the costs claimed have been reasonably incurred. Unfortunately, I am left with less than ideal guidance in assessing the reasonability of the claimed costs here. Nonetheless, in my view, the costs sought are excessive. Even in Apotex Inc. v. Abbott Laboratories,[21] a costs endorsement I released less than a year ago in a complex patent litigation case, Abbott was granted costs on a substantial indemnity basis of only $65,000, after seeking almost $90,000; but that was for a specially booked summary judgment motion of substantial complexity that took a very long and full day to argue, that required a number of pre-motion conference attendances and that involved two banker’s boxes of motion records, a far cry from the simpler record that was before me on this case.
[37] Counsel for the unsuccessful plaintiffs counters that $30,000.00 would be a more reasonable costs award in a matter such as this. The party points out this was not a complex issue, written interrogatories replaced in-person testimony, and this motion took less than four hours to argue; however, it was not helpful that counsel for the plaintiffs did not submit a bill of costs relative to what he was charging to his own clients. The unsuccessful party is not required to reveal that information, but it left me with little guidance to craft a reasonable costs award in the circumstances of the case. I am not prepared to draw an adverse inference from the plaintiffs’ failure to assist the court in disclosing the fees billed by their own lawyer, as they were under no obligation to do so.[22] However, it would have assisted the court greatly in considering the reasonable expectations of the losing party.[23]
[38] There is some authority grounding the unsuccessful plaintiffs’ assertion that $30,000 with respect to fees might be regarded as typical or appropriate for a case such as this. In the earlier similar jurisdiction motion brought by Hotel Riu in Wilson v. Riu and Riu Hotels et al.,[24] the other case previously mentioned, Broad J. awarded $28,708.00 with respect to fees to the Hotel Riu defendant.[25] While there were co-defendants in that case, Thomas Cook Travel and Chukka Caribbean Adventures Limited, Broad J. points out at para. 12 that counsel for Hotel Riu “carried much of the load for preparation of the legal authorities and argument.” Those same circumstances are present here, but it was also exactly the same legal argument that had to be prepared for, even though the plaintiffs did not attend to oppose that motion. Further, while the facts are somewhat different, they also bear similarity to each other. However, it is also open to me to award costs according to the circumstances of each particular case assisted by the guidance provided by the factors enumerated under Rule 57.01(1) and the principles that I have outlined above.
Conclusion
[39] This was a relatively straightforward half-day pre-trial motion that disposed of the issue, and the case. Written interrogatories replaced in-person testimony. The issues were not overly complex here, in my view. I could have called upon counsel for the plaintiffs to submit a bill of costs to provide a comparator relative to the amounts claimed by the defendant, but with the time that has passed since the motion was argued, I would rather refrain from putting either party in a position where it needs to incur more costs.
[40] Accordingly, taking account of principles of indemnity, access to justice and proportionality, and also the impecuniosity of the plaintiffs, as well as the absence of clear case law based on full argument that could have signaled that this court lacked jurisdiction over the claim such that the plaintiffs would have been deterred from launching this action[26], I find that $20,000, inclusive of disbursements and HST, is an appropriate amount of costs to be awarded in favour of the defendant to be paid by the plaintiffs as the unsuccessful applicant on this motion.
Michael G. Quigley J.
Released: April 30, 2014