CITATION: Queen (in Right of Ontario) v. Turn-Key Construction Inc., 2017 ONSC 770
COURT FILE NO.: CV-16-0215
DATE: 2017-01-31
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
HER MAJESTY THE QUEEN IN THE RIGHT OF ONTARIO
Christopher P. Thompson, for the Applicant
Applicant
- and -
TURN-KEY CONSTRUCTION INC.
Douglas Treilhard, for the Respondent
Respondent
HEARD: January 5, 2017 at Thunder Bay, Ontario
Mr. Justice F. B. Fitzpatrick
Reasons For Judgment on Application for Indemnity
[1] On August 24, 2016, I made the following declaration in this matter:
Turn-Key Construction Inc. shall pay Her Majesty the Queen in Right of Ontario’s reasonable defence costs to date and going forward along with any costs for related cross or third party claims, and that Her Majesty the Queen in Right of Ontario is entitled to separate counsel to represent Ontario from counsel representing Turn-Key at Turn-Key’s expense, and that such counsel may be privately retained by Ontario, or be Crown counsel.
[2] The declaration also provided if the parties could not agree to what constitutes reasonable defence costs, they could return the matter to me. They could not agree. Accordingly, this is my decision on the quantum of reasonable defence costs to date and going forward in this action.
[3] The main action has now been settled. It was, however, made very complicated by the manner in which the plaintiff chose to proceed and frame its case. This is no fault of counsel for the Crown or counsel for Turn-Key or indeed any of the other defendants in this action. I make this assessment based on my review of the pleadings and my observations of a number of case management attendances overseen by myself on this file to date.
Position of the Parties
[4] Counsel for the Crown argues that Turn-Key should pay it $68,251.32 as reasonable defence costs to date. This was calculated by taking the hours spent on the file for two salaried Crown counsel, and multiplying the hours by a specific rate, $453.75 for Mr. Thompson (a 2002 call) and $371.25 for Mr. Schreiter (a 2009 call). Crown counsel further submits the Court should fix an hourly rate for Crown counsel for the future to minimize the possibility of further disputes on the quantum to be paid under the indemnity.
[5] Turn-Key resists the application based on a very simple proposition. It argues in its factum submitted to the Court:
Crown counsel for both the action and the application were salaried employees. Their fees are, therefore, entirely notional. The Crown is not actually out-of-pocket because it would have been paying counsel’s salaries regardless of this litigation.
Disposition
[6] I do not accept Turn-Key’s basic argument. I do so for a number of reasons. First, with respect, on a common sense basis, it completely ignores the reality of the Crown as a litigant. Second, the concept that the Crown incurs only notional costs in civil litigation because it uses in-house lawyers has been rejected on two fronts in the analogous circumstance where costs have been awarded to the Crown as a party in civil litigation.
[7] The first front is a statutory one as set out is section 131(2) of the Courts of Justice Act R.S.O. 1990 c. C. 43 the (“CJA”). The second is the case law where arguments like those made by Turn-Key are clearly rejected.
[8] I will deal first with what I view is a common sense response to Turn-Key’s position. The manner in which the Crown in Right of Ontario deals with its’ civil litigation problems is a notorious fact in my view. It uses both in-house and external counsel.
[9] The Crown has vast experience in assessing its needs as a civil litigant and has hired a number of salaried lawyers to do its work. Occasionally, it hires outside counsel to represent its interests. Counsel for Turn-Key candidly admitted that had the Crown retained outside counsel in this matter, it would not be making the argument that the Crown suffered no loss in this matter.
[10] In this case, the Crown engaged its salaried lawyers. In my view, it does not follow that this means the Crown is not out of pocket for their work. While it is certainly true that if the lawyers did not have to work on this file they would be engaged in other matters on behalf of the Crown, it is not logical to suggest that Turn-Key can obtain the benefit of a salaried lawyer model to avoid paying reasonable legal costs once it has agreed to indemnify the Crown for same. In order to test the logic of the assertion of Turn-Key, one only has to extrapolate that if some miracle occurred where all civil litigation against the Crown stopped, save and except this file, the Crown would still have had to pay somebody to defend its interest.
[11] Simply because the Crown has large and multifaceted legal needs requiring the engagement of many salaried lawyers does not support the argument that its fees are notional because if this case was not going ahead other cases would be serviced by these exact salaried lawyers. It seems to me that the more cases the Crown has to deal with, the more salaried lawyers it needs. Arguably, if the salaried lawyers were not working on this file, they would turn their attention to other matters which would reduce the Crown’s need for counsel services and could theoretically represent a saving for the Crown. In my view, the Crown therefore is out of pocket as the result of the efforts of its salaried lawyers to date on this very file.
[12] The Crown has made choices to maximize the use of taxpayer funds to defend and pursue their civil litigation interests in the most economic manner possible. The use of salaried or in-house lawyers has been an accepted means for entities that are regularly engaged in civil litigation, insurance companies for example, to take care of their legal work. It costs money to do this. There is a “loss” to such entities for the use of salaried lawyers. In this case, the Crown is in fact out of pocket for the time these lawyers had to spend on this file. The use of outside counsel would have made it much easier to resolve the question of reasonable defence costs. The fact that it is more difficult to make a decision as to quantum cannot be used as a shield by Turn-Key to avoid paying for what I view as an actual loss to the Crown.
[13] Crown counsel in submissions made the observation that an indemnity of the nature at issue does not guarantee that each and every penny spent by the beneficiary of the indemnity need be paid by the indemnitor. The right is to be indemnified for reasonable defence costs. I agree with that proposition. In my view, the Crown has suffered a loss for which it should be indemnified. The issue is simply determining the reasonable quantum.
[14] I am also of the view that in analogous circumstances, the Legislature and the common law gives support to the position that the Crown does suffer a loss even when it uses in-house lawyers for which it can be indemnified. First of all, the Legislature has recognized this by statute. This is contained in the provisions of section 131(2) of the CJA which provides:
(2) 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.
[15] I appreciate this section is specifically dealing with an award of costs in an action or application between the successful party and the opposing unsuccessful party which I agree is different from a right under an indemnity. It is interesting that the law of costs has always engaged concepts of indemnity in so far as quantifying what a losing party has to pay to a winning party. The recent adoption of the nomenclature “partial” and “full” “indemnity costs” is a recognition of the relationship. If you do not incur the costs, you cannot ask the other side to pay them.
[16] This argument was cleverly turned around by some litigants to attempt to minimize costs they had to pay the Crown when they were at the losing end of a costs award. However, looking at the plain language of section 131(2), it seems to me to squarely dispense with the idea that salaried Crown lawyers incur no real costs to the Crown. This is because the section expressly says that costs to Her Majesty shall not (mandatory language) be disallowed (treated as representing zero) simply on the basis that these type of lawyers happened to be successful in some civil matter. The section continues to set out that Crown costs are not to be reduced because a salaried lawyer is being used.
[17] I take it by analogy that section 131(2) is a legislative recognition that the Crown incurs a real cost in employing salaried lawyers. Despite the fact that they are on the “payroll” regardless of what they are working on, the Crown can and should be indemnified for legal costs in circumstances such as the one here.
[18] I also find support for this position in binding authority placed before the Court by Crown counsel. This was the decision of the Ontario Court of Appeal in Ontario v. Rothmans Inc., 2013 ONCA 353, [2013] O.J. No. 2367. While the case dealt with issues about the quantum to which the Crown could be entitled from a costs award, the “losing party” raised arguments that the Crown’s costs should be reduced significantly on the theory that only in-house counsel were engaged in the matter and, therefore, lower or no costs were incurred. For me this type of argument is analogous to that being made by Turn-Key in this matter.
[19] In particular, at paragraph 136 of Rothmans (supra), the Court of Appeal approved an approach to fixing costs of the Crown by treating costs as if they were incurred by outside counsel. The losing party had argued that the Crown had to provide proof of its actual costs of lawyers’ time in order for it to be indemnified for costs (para. 129). This argument was rejected by the Court (para 130). In my view this is both a recognition by the Ontario Court of Appeal that costs for the Crown are real and a rejection of the proposition that no indemnifiable costs are incurred where salaried lawyers are engaged.
The Quantum Payable
[20] In this matter, Turn-Key was not forced to contract with the Crown for the project at issue. No one forced them to agree to the indemnification provisions. But agree they did. They have conducted the litigation in a particular manner to date. The Crown is out of pocket as a result. The Crown should be indemnified for reasonable costs. Their costs are not notional.
[21] I was advised by counsel that they could not locate any decisions of any Court going through the exercise of fixing an amount of reasonable legal fees pursuant to an indemnification agreement. It appears matters of this type always settle.
[22] I was, therefore, left with the competing positions of the parties as to how to determine the proper amount of the quantum. The Crown simply urged me to recognize this was a complex matter and then take the time spent multiplied by an hourly rate for two lawyers and come up with an amount.
[23] Counsel for Turn-Key, while never conceding the first principle that there can be no indemnification for the expenditure of notional costs, argued in the alternative that the amounts he had spent on the file represented a more appropriate indication of a quantum that would represent reasonable fees in this case.
[24] Many decisions dealing with costs have recognized that determining a reasonable quantum of legal costs is not simply a mathematical exercise of multiplying rate times hours spent. I adopt that principle as a guiding one where a Court is called upon to determine an appropriate indemnification of reasonable legal fees. A consideration of the so called “nine factors” arising from jurisprudence involving Ontario assessment officers applying the Solicitors Act as outlined by the Ontario Court of Appeal in the seminal solicitor client assessment case Cohen v. Kealey and Blaney, [1985] O.J. No. 160 seemed to me to be a useful framework to apply to a matter such as this.
[25] In that case, Robins J. set out the considerations applicable on assessment as follows: the time expended by the solicitor, the legal complexity of the matters to be dealt with, the degree of responsibility assumed by the solicitor, the monetary value of the matters in issue, the importance of the matter to the client, the degree of skill and competence demonstrated by the solicitor, the results achieved, the ability of the client to pay and the client’s expectation as to the amount of the fee. In my view, it would be useful to apply these considerations to the matter at hand in order to determine the appropriate quantum of the indemnification. Obviously, in this matter, some of the factors are easier to apply than others. The application of the nine factors works very well when the solicitor and the client have the opportunity to testify. The clients were silent in this particular application. Nevertheless, applying the factors in this case assisted me in coming to a determination of quantum. The following are my views using the “lens” of the nine factors:
- The time expended by the solicitor
[26] Crown counsel have provided their hours expended on this file. They admit they are excessive. They have reduced them.
- The legal complexity of the matters dealt with
[27] This matter was essentially a collection action that was unduly complicated by the aggressive position taken by the plaintiff on collateral and largely speculative and irrelevant matters. Despite the position taken by Crown counsel on this matter I find this was a case of low to moderate legal complexity.
- The degree of responsibility assumed by the solicitor
[28] From my review of the time dockets of both Crown counsel and Turn-Key’s counsel, this case was one where the lawyers were front and centre. The lawyers on both sides assumed an appropriate degree of responsibility.
- The monetary value of the matters in issue
[29] The contractor who was suing the Crown and Turn-Key was looking for judgment in the order of $290,000.00. The parties did not disclose to me how the matter was settled. In the discussions to which I acted as trial management judge, this was the rough monetary range that was being discussed. This is not an unsubstantial amount of money.
- The importance of the matters to the client
[30] Clearly the Crown was a main target of the action. The Crown was of the view that its indemnity entitled it to a defence to be paid by Turn-Key. In my view, this made the matter very important to the client and one that they did have to engage their in-house counsel to diligently work to protect their interests.
- The degree of skill and competence demonstrated by the solicitor
[31] There was nothing in the materials that suggested that the work done by the Crown counsel was incompetent or a waste of resources. The fact that the Crown has reevaluated the time spent and reduced the fees they are seeking was important to me as evidence that any excess time that sometimes is indicative of a lack of skill or competence by a solicitor has now been adequately reflected in the amount sought by Crown counsel.
- The results achieved
[32] Ultimately the case settled. For me, that has to be considered a positive result. I do not know from the materials how that settlement happened. In my general experience, from the clients’ perspective, even a bad settlement beats a good trial any day of the week. It is important to note the matter never went beyond the exchange of documents stage.
- The ability of the client to pay
[33] I had no information on this particular factor. It was of no significance to my decision.
- The reasonable expectation of the client as to the amount of the fee
[34] I imagine Turn-Key does not relish the idea of having to have to pay two sets of lawyers on this file. I think it reasonable for Turn-Key to only have to pay for one Crown counsel looking at all the other factors in this file. In that regard, I am only considering the work of Mr. Thompson in considering the quantum. The amount charged by Turn-Key’s current counsel for work done to date would inform the view of Turn-Key as to a reasonable amount it could be expected to pay.
[35] I asked counsel during submissions to compare the amount of hours expended by Mr. Thompson with those spent by Mr. Treilhard. They indicated that after all the various reductions in hours were applied that the time spent was roughly equivalent.
[36] Taking all these factors into account, and considering the submissions of the parties, I have determined that the amount of reasonable legal fees for which the Crown ought to be indemnified pursuant to this application is the amount of $30,000.00, inclusive of HST plus disbursements. I understand Turn-Key did not dispute the payment of disbursements, but I would only allow those for Mr. Thompson, which is in the amount of $780.49. That amount covers all fees up to and including August 11, 2016.
[37] I understood counsel agreed that the “successful party” would be entitled to costs of this particular aspect of the application fixed in the amount of $4,000.00. I appreciate the submissions of counsel for Turn-Key that success could be measured in a variety of ways based on my decision. As I have ordered Turn-Key to pay the Crown an amount in excess of what was being urged upon me by its counsel, I am of the view that the Crown was successful on this portion of the application. I fix costs in the amount of $4,000.00, inclusive of HST and disbursements to be payable on this application by Turn-Key to the Crown.
[38] I have also been asked by the Crown to set an hourly rate for the purposes of determining reasonable legal fees in future. I decline to do that. I do so because I have specifically not relied heavily on the “hourly rate multiply by hours” approach to fixing quantum in this case. It was a factor, but not the only factor. I appreciate counsel are always anxious to have the Court validate, or not validate, particular hourly rates asked for by counsel. I think the rate Mr. Thompson was asking for was in the high range. However, in this matter I approached the quantum on a global basis. Given that the matter has now settled, I trust that there will not be a great deal more disputes about the fees payable on this file. I hope my decision is instructive for
the parties for any future issues about the continuing aspect of the indemnification. I remain seized of any further disputes about the quantum of the reasonable legal fees payable pursuant to my earlier declaration.
_______”original signed by”
The Hon. Mr. Justice F.B. Fitzpatrick
Released: January 31, 2017
CITATION: Queen (in Right of Ontario) v. Turn-Key Construction Inc., 2017 ONSC 770
COURT FILE NO.: CV-16-0215
DATE: 2017-01-31
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
HER MAJESTY THE QUEEN IN THE RIGHT OF ONTARIO
Applicant
- and –
TURN-KEY CONSTRUCTION INC.
Respondent
REASONS FOR JUDGMENT ON APPLICATION
Fitzpatrick J.
Released: January 31, 2017
/sab