ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: C-9236-05
DATE: 2015-08-05
BETWEEN:
Brenda Mullin and Rhaili Champaigne
Plaintiffs (Respondents)
– and –
Randy Lagace and Allstate Insurance Company of Canada
Defendants (Appellants)
A. Patrick Wymes, for the Plaintiffs (Respondents)
Todd J. McCarthy, for the Defendants (Appellants)
HEARD: June 25, 2015
DECISION ON APPEAL
CORNELL J.
Introduction
[1] This is an appeal from a Certificate of Assessment of Costs dated February 6, 2015, pursuant to rule 62.01(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, O. Reg. 194, in which an assessment officer awarded the plaintiffs partial indemnity costs in an amount of $231,137.93 following the acceptance of an offer to settle that avoided the need for a trial. In accordance with the reasons that follow, the appeal is allowed and an order shall issue awarding the plaintiffs the sum of $102,000 inclusive of costs, HST, and disbursements.
Background
[2] The plaintiff, Brenda Mullin, was a passenger in a vehicle being driven by the defendant, Randy Lagace, at the time that a motor vehicle accident occurred. The plaintiff’s insurer, Allstate Insurance Company of Canada (“Allstate”), was added as a defendant after it was determined that Randy Lagace was uninsured at the time of the accident.
[3] This action proceeded in the ordinary course with production, discovery, interim motions and preparation of 10 requests to admit. Following a failed mediation, the parties participated in three pre-trial conferences.
[4] The original amount claimed was $1,000,000. Prior to the trial, the plaintiffs accepted Allstate’s offer to settle in an amount of $190,000 plus costs to be agreed or as assessed. The settlement figure was arrived at after taking into consideration the applicable $30,000 deductible.
[5] As the parties were unable to agree on costs, the plaintiffs submitted a claim for costs in an amount of $528,522.25, plus disbursements in an amount of $20,000. In his initial decision dated November 14, 2014, the assessment officer awarded costs in an amount of $162,733.38. After reviewing the objections filed by the parties, a Certificate of Assessment of Costs was issued in an amount of $231,137.93.
Agreed Facts
[6] The parties agreed that disbursements should be allowed in an amount of $15,000.
[7] Although numerous grounds of appeal are contained within the notice of appeal, counsel for Allstate indicated that the substantive ground of appeal was that of proportionality. It was acknowledged by both counsel that the reasons provided by the assessment officer did not expressly deal with the issue of proportionality.
Issues
[8] There are two main issues in this appeal:
Did the assessment officer commit an error in principle by not properly applying rules 57.01(1) and 58.06 of the Rules of Civil Procedure?
Did the assessment officer commit an error in principle by failing to consider the issue of proportionality in determining the appropriate amount for an award of partial indemnity costs?
Standard of Review
[9] In 432080 Ontario Limited v. Somra (1999), 1999 3061 (ON CA), 123 O.A.C. 312 (C.A.), at para. 2, the Ontario Court of Appeal stated the following:
The test to be followed by an appellate court in reviewing the decision of an assessment officer is well settled. The court is only concerned with questions of principle, and not mere questions of amount or the manner in which the officer exercised his discretion, unless the amounts are so inappropriate or the decision is so unreasonable as to amount to an error in principle: Eastwalsh Homes Ltd. v. Anatal Development Corp. (1995), 1995 453 (ON CA), 80 O.A.C. 141 (C.A.).
[10] In Rabbani v. Niagara (Regional Municipality), 2012 ONCA 280, 106 L.C.R. 235, the Ontario Court of Appeal provided further guidance on the approach to be taken on an appeal of this nature:
The standard of review on an appeal from an assessment officer’s decision is well established. The order below is discretionary. The hearing is an appeal, not an opportunity for the reviewing court to rehear the assessment and come to its own conclusion as to what is reasonable, absent an error in law, misapprehension of the evidence, palpable and overriding error on a factual matter, or an assessment amount that is so unreasonable as to constitute an error in principle. The assessment officer’s decision was entitled to considerable deference absent such error. See Samuel Eng & Associates v. Ho 2009 ONCA 150.
Analysis
Position of the Parties
[11] Allstate submits that the assessment officer committed an error in principle by failing to consider the issue of proportionality. Allstate states that partial indemnity costs in an amount of $231,137 can hardly be characterized as proportionate given the fact that the matter was settled prior to trial for the sum of $190,000.
[12] Counsel for the plaintiff Mullin responds by saying although the assessment officer did not expressly address the issue of proportionality, he did so by implication in that he considered the amount involved in the proceeding, the complexity of the proceeding, and the importance of the issues.
[13] Counsel for the plaintiff Mullin also points out and I agree that for the purpose of calculating costs, the amount that should be used in determining the result achieved should be $220,000, which represents the gross amount of the settlement prior to the application of the statutory deductible.
Rules of Civil Procedure
[14] In his decision of November 14, 2014, the assessment officer states the following, at para. 4:
Unlike a court, an assessment officer can only assess cost[s] pursuant to Rule 58.02 to 58.12 of the Rules of Civil Procedure. Rule 58.05 states:
(1) If costs are to be assessed, the assessment officer shall assess and allow,
(a) lawyer’s fees and disbursements in accordance with subrule 57.01(1) and the Tariffs; and
(b) Disbursements for fees paid to the court, a court reporter, an official examiner or a sheriff under the regulations under the Administration of Justice Act.
Students-at-Law and Law Clerks
(2) No other fees, disbursements or changes shall be assessed or allowed unless the court orders otherwise.
[15] The assessment officer goes on to say at para. 5: “An assessment officer has to consider the factors as per subrule 58.06(1)”.
[16] Although the assessment officer quotes rule 58.06(1), at no time does he refer to the requirements of rule 57.01(1) in determining the lawyers’ fees and disbursements. While it is true that the factors contained within rules 57.01(1) and 58.06(1) are similar, the fact remains that they are not identical. For example, rule 57.01(1)(b) indicates that the court may consider the apportionment of liability. This provision is absent from rule 58.06(1). On the other the other hand, rule 58.06(1)(d) states that the duration of the hearing is a factor to be taken into consideration, a factor that is not contained within rule 57.01. The principle of indemnity and the amount of costs that an unsuccessful party could reasonably expect to pay are included in rule 57.01, but are absent from rule 58.06. There is no obvious explanation for the differences contained within these rules. Having said that, the answer may lie in the fact that both rules are permissive in that the court under rule 57.01 and the assessment officer under rule 58.06 may consider the various factors listed in such rules.
[17] Although the assessment officer references the requirement to calculate lawyers’ fees and disbursements in accordance with rule 57.01(1), at no point in time does he expressly refer to considering the factors contained within such rule. In addition, the assessment officer states that he has to consider the factors as per rule 58.06(1) when, in fact, such rule simply indicates that the assessment officer may consider the factors contained in such rule.
[18] By failing to address the requirements of rule 57.01(1) and by misdirecting himself that he has to consider the factors listed in rule 58.06, the assessment officer committed errors in principle.
Proportionality
[19] For many years now, various concerns have been expressed about access to justice. When this subject arises, invariably the discussion focuses on the cost of legal representation and the time that it takes for claims to be adjudicated. Various efforts have been undertaken to address these concerns. These include expansion of the jurisdiction of the Small Claims Court, the creation and expansion of simplified claims, and limits on discovery. Such efforts also include the introduction in the interpretation section of the Rules of Civil Procedure that proportionality shall be a requirement when applying all of the Rules of Civil Procedure. Rule 1.1 states:
Proportionality
In applying these rules, the court shall make orders and give directions that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding.
[20] Prior to the inclusion of the proportionality rule in the Rules of Civil Procedure, the courts had embarked upon an effort to create and apply the principle in a variety of circumstances. In Culligan Springs Ltd. v. Dunlop Lift Truck (1994) Inc. (2006), 2006 13419 (ON SCDC), 211 O.A.C. 65 (Div. Ct.), the Divisional Court determined that the principle of proportionality should be applied whether it is the plaintiff or the defendant who is successful using the simplified procedure and that the parties’ reasonable expectations of the costs that they might be responsible for must be taken into consideration in determining the appropriate amount of costs.
[21] In Buchanan v. Geotel Communications Corp., [2002] O.T.C. 360 (S.C.), Ferguson J. stated at paras. 10 and 11:
Having said all that, the bottom line is that the proposed costs are excessive. They are excessive from two perspectives: costs of this magnitude will make litigation inaccessible as a method of dispute resolution; costs of this magnitude are also disproportionate to the value of the legal work reasonably necessary to represent a client in this dispute.
If counsel do not use more restraint in deciding how much to invest in litigation they will put both the bar and the courts out of business which will profoundly harm the public whom we both serve.
[22] In Patene Building Supplies Ltd. v. Niagara Home Builders Inc., 2010 ONSC 468, 96 C.L.R. (3d) 209, Parayeski J. addressed the subject in this manner, at para. 1:
… The plaintiff was successful, and should be paid its costs. Those costs should be on the partial indemnity scale. They should also bear some reasonable proportionality to the amount of money awarded to the plaintiff as damages. Those damages were for less than $15,000.00. Accordingly, the plaintiff’s request for $8,977.55, plus GST is excessive. This was a short and simple trial. The plaintiff is entitled to judgment for costs fixed at $5,000.00, inclusive of GST and disbursements, as against both defendants, that liability being joint and several.
[23] The most recent word on the subject comes from the Ontario Court of Appeal. In Elbakhiet v. Palmer, 2014 ONCA 544, 121 O.R. (3d) 616, leave to appeal to S.C.C. refused [2014] S.C.C.A. No. 427, the court considered an appeal from the trial judge’s costs award in a motor vehicle accident action. In that case, the plaintiff was seeking damages of approximately $1,900,000. The jury awarded just under $145,000. The trial judge awarded costs in an amount of almost $580,000. In addressing the award of costs by the trial judge, Rosenberg J.A. stated:
[35] … It was not fair and reasonable to award the respondents costs of almost $580,000 for a claim the jury valued at just under $145,000.
[36] In my view, because of these errors, the trial court’s decision on costs cannot stand. The trial judge made an error in principle in failing to give any consideration to the offers to settle and her award is wholly disproportionate to the amounts recovered. The trial judge’s decision to simply award the costs sought by the respondents failed to give any consideration to what amount would be fair and reasonable.
[38] I would allow the appeal and reduce the costs to be paid by the appellants to $100,000. In my view, this amount takes into consideration all the factors to be considered under Rules 49 and 57, including the complexity of the matter and the manner in which the litigation was conducted, and in particular that the offer to settle was virtually the same as the Judgment. This amount is more consistent with the objectives of fairness and reasonableness and especially gives some attention to the need for some proportionality [Emphasis added.]
[24] Among all of the factors that the court may consider in awarding costs, Patene Building Supplies Ltd. and Elbakhiet reference the fact that such award must be proportionate to the amount recovered. I make the observation that if rule 1.1 is to have any meaning, how could it be otherwise? In Patene, costs of $5,000 were awarded representing approximately one-third of the amount recovered at trial. In Elbakhiet, costs of $100,000 were awarded representing approximately two-thirds of the amount recovered at trial.
[25] In Elbakhiet, fees claimed in an amount of $580,000 were reduced to $100,000 following a trial where the sum of $145,000 was recovered. In this case, fees were claimed in an amount of approximately $528,000 following acceptance of an offer that provided that the plaintiffs would receive the sum of $190,000 ($220,000 prior to deductible) without the need for a trial. The plaintiff Mullin attempts to justify this amount based upon the fact that the assessment officer found that Allstate used delay tactics during the course of the litigation. While I agree that conduct, including conduct designed to delay the proceeding, can result in an increase in the amount of the costs to be awarded, the findings of fact necessary to support such a claim are not present in this case. In this regard, the assessment officer stated:
[9] I find it not unusual for a defendant like Allstate Insurance [to] use delay tactics and typically frustrates the process in order to force the claimant to either settle at a much lower amount or even withdraw the claim all together. This matter could have settled much earlier and less costly to both the plaintiff and defendant.
[11] The defendant constantly put up road blocks, admitted to very little; I agree with Mr. Wymes’ comments in his submission of the defendant[’s] “delay, deny, defend” tactics. Even, at the Examination of Discovery, the person being examined did not answer most of the questions asked by Mr. Wymes.
[26] There is no specific finding of fact by the assessment officer that Allstate actually engaged in conduct designed to delay the proceedings such that an enhanced award of costs should be made. The comment made by the assessment officer that it is “not unusual for a defendant like Allstate Insurance [to] use delay tactics” is not an express finding of fact, but is instead a sweeping generalization. The assessment officer’s findings that Allstate engaged in “delay, deny, defend tactics” is based upon the submissions of counsel rather than a specific finding that Allstate engaged in such conduct. If an enhanced award of costs is to be made for any reason, the factual findings required to support such an award must be clearly established on the evidence. That has not been done in this case.
[27] In this case, the assessment officer made no reference to rule 1.1 nor does he consider the principle of proportionality otherwise in either decision. By failing to do so with reference to the amount recovered, the assessment officer committed an error in principle.
Defendant’s Expectations
[28] Allstate points out that its full indemnity costs amounted to $78,869. It was submitted that this amount should be considered by the court in determining what Allstate’s reasonable expectations were when it came to determining an appropriate award for partial indemnity costs. I agree that it is a factor that should be taken into consideration, along with the other various factors that apply to an award of costs.
Complexity of the Proceedings
[29] The complexity of the proceeding is always a consideration in determining the costs to be awarded. The assessment officer found that the matter was “not overly complex”. There is no basis to interfere with this finding.
Conclusion
[30] Counsel for the plaintiff Mullin stated in his submission that it appeared that the court in Elbakhiet seemed to simply pull the costs award of $100,000 out of thin air. Concepts of fairness, reasonableness and proportionality are generic concepts that almost always involve a significant subjective component. My extensive review of the application of the proportionality principle to an award of costs indicates that the case law has yet to develop to the point where guiding principles have been well established.
[31] Given the current state of the law on this subject, the best that I can do is to interpolate and apply the approach taken by the court in Elbakhiet. The most notable difference in the two cases is that the $100,000 award in Elbakhiet was imposed following a trial. In view of the lack of other factors which might support an award of enhanced costs, then surely the award of costs in this case must be less than $100,000 given the fact that the action settled prior to trial. After taking into consideration all of the factors that may be considered in awarding costs, including the amount recovered and the objectives of fairness, reasonableness and proportionality, it is my opinion that an appropriate award of costs in this case is $77,000 for costs, HST in an amount of $10,000, together with agreed upon disbursements of $15,000, for a total award of $102,000.
Costs
[32] If the parties are not able to agree on the costs of this appeal, Allstate shall provide written cost submissions not to exceed two pages, within fourteen days of the release of this decision. The plaintiff Mullin shall have fourteen days to respond to such claim, such response not to exceed two pages. Allstate shall have seven days to reply to such response. If costs submissions are not received within this time frame, it shall be conclusively determined that the issue of costs has been settled.
The Honourable Mr. Justice R. Dan Cornell
Released: August 5, 2015
COURT FILE NO.: C-9236-05
DATE: 2015-08-05
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Brenda Mullin and Rhaili Champaigne
Plaintiffs (Respondents)
– and –
Randy Lagace and Allstate Insurance Company of Canada
Defendants (Appellants)
DECISION ON APPEAL
Cornell J.
Released: August 5, 2015