Court File and Parties

COURT FILE NO.: CV-09-0097 DATE: 2018/11/28

ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:

SHEILA DONLEAVY and KENNETH EDWARDS Plaintiffs – and – ULTRAMAR LTD., KILPATRICK FUELS LIMITED and JOE BURNS Defendants

Counsel: R. Steven Baldwin, for the Plaintiffs Todd J. Burke, for the Defendant, Ultramar Ltd. Joseph Villeneuve, for the Defendants, Kilpatrick Fuels Limited and Joe Burns

HEARD: July 3, 2018

INTERIM ENDORSEMENT on costs

Corthorn J.

Introduction

1The plaintiffs’ action arose from an oil spill that occurred at their home in June 2008. The plaintiffs were successful at trial in their claims based in negligence; they were unsuccessful in their claims based in breach of contract.

2The plaintiffs’ success is tempered by the finding of 40 per cent contributory negligence. The damages awarded, totalling $780,000, will be reduced because of that finding. Of the damages awarded, $750,000 was agreed upon by the parties as representing the subrogated claim on behalf of the plaintiffs’ homeowner insurer (the “Insurer”). The remaining $30,000 was awarded to the plaintiffs personally.

3In the end, the damages payable total $468,000, with $450,000 to be paid to the Insurer and $18,000 to be paid, collectively, to the individual plaintiffs.

4The plaintiffs seek costs totalling $306,832.45, broken down as follows:

Partial indemnity fees
July 23, 2008 to June 10, 2016             $ 57,125.85
Substantial indemnity fees
June 11, 2016 forward                     $ 181,969.50
HST on fees                               $ 31,082.40
Disbursements (incl. HST)                 $ 36,654.70
Total                                     $ 306,832.45

5The plaintiffs rely on an offer to settle, made on June 10, 2016, as the triggering event for their entitlement to substantial indemnity costs subsequent to that date.

6The costs outline delivered by the plaintiffs (the “Costs Outline”) includes:

• The partial indemnity fees claimed for the period from July 23, 2008 to June 10, 2016;
• The substantial indemnity fees claimed from June 11, 2016 forward to the conclusion of the trial; and
• The total hours spent by timekeepers, the hourly rates upon which the fee portions of the costs claimed are calculated, and the rate actually charged by plaintiffs’ counsel.

7The reference in the Costs Outline to the “rate actually charged” by plaintiffs’ counsel is misleading, in particular because of the written and oral submissions made on behalf of the plaintiffs. For example, at para. 15 of the plaintiffs’ written reply submissions, the following statement is made:

For clarity, no amounts have been billed to the subrogating insurer pursuant to a fee arrangement between the subrogating insurer and counsel that no accounts are rendered pending a successful outcome of the proceeding. Nevertheless, the actual fee arrangement should not be a governing factor in the court’s determination of costs.

8The plaintiffs made the deliberate decision not to provide the defendants or the court with evidence as to the terms of the fee agreement between plaintiffs’ counsel and the Insurer upon which the solicitor-client fees charged are based (the “Fee Agreement” and the “Terms”, respectively). It is not known whether the individual plaintiffs have a written retainer agreement with plaintiffs’ counsel that is independent of the Fee Agreement.

9In this endorsement, I address the significance of the lack of evidence of the Terms of the Fee Agreement on the ability of the court to fix costs of the action.

10The defendants do not dispute the plaintiffs’ entitlement, in principle, to costs of the action. The defendants dispute the scale upon which costs are claimed and the quantum. In addition, the defendants each point to the plaintiffs’ failure to disclose the existence and/or the terms of the Fee Agreement:

• Kilpatrick Fuels Limited and Joe Burns submit that the Fee Agreement “may be relevant to considering costs”; and
• Ultramar Ltd. submits that “the Court is entitled to take into consideration any special rates or fee agreement … and the plaintiffs have obfuscated whether such fee arrangement exists.”

11The defendants do not take the position that the court is unable, without disclosure of either the Terms or a copy of the Fee Agreement, to fix costs. The defendants made submissions as to an approach to be taken by the court to fix costs in the absence of disclosure of the Terms.

12Fixing costs involves the exercise of discretion by the court. The fact that the defendants are prepared to have costs of the action fixed without the disclosure of Terms does not preclude the court from considering the issue of the plaintiffs’ deliberate decision not to disclose those terms.

The Issue

13The sole issue determined in this endorsement is whether the plaintiffs are required to disclose to the defendants and to the court the terms of a special fee arrangement that address calculation of the solicitor-client fees to be paid by the Insurer and by the individual plaintiffs to their counsel.

Disposition

14The plaintiffs shall deliver (a) evidence as to the terms of the Fee Agreement that address the basis upon which the fees potentially payable or to be paid to counsel for the plaintiffs are calculated, (b) the rates actually charged by plaintiffs’ counsel to the Insurer and/or to the individual plaintiffs, and (c) the rates that would be charged by plaintiffs’ counsel to the insurer and to the individual plaintiffs in the absence of the Fee Agreement.

Analysis

15The general principles to be applied by the court when exercising its discretion in fixing costs are set out in r. 57.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. The first principle is that of indemnity (r. 57.01(1)(0.a)). To properly apply that principle, the court must consider special fee arrangements between parties and their counsel, (Spiteri Estate v. Canada (Attorney General), 2014 ONSC 6167, [2014] O.J. No. 4953 at para. 60).

a) Obligation to Inform of Special Fee Arrangements

16The obligation to inform an opposing party and the court of a special fee arrangement rests not only on the party seeking costs; that obligation extends to counsel for the party seeking costs. At para. 17 of his decision in Lawyers’ Professional Indemnity Company v. Geto, [2002] O.T.C. 78 (S.C.J.), Nordheimer J. concluded that:

[T]here is a positive obligation on counsel, who are operating under a special arrangement regarding their fees, to reveal that special arrangement to the court. … The only way the court can have that information, and properly approach its task of fixing costs, is if the party seeking the costs discloses that information in its submissions.

17To reveal or disclose a special fee arrangement to the court requires something more than the revelation or disclosure of the mere existence of such an arrangement. Disclosure of the relevant terms of a special fee arrangement is required for the purpose of fixing costs pursuant to r. 57.01(1).

18I find that plaintiffs’ counsel was less than forthcoming with opposing counsel, even about the mere existence of the Fee Agreement. I make that finding for the following reasons.

19First, it appears that, prior to making costs submissions, the parties attempted to resolve the issue of costs. Included in Ultramar’s costs submissions is a copy of an email exchange between plaintiffs’ counsel and Ultramar’s counsel. The exchange is from January 2018.

20In an email sent to plaintiffs’ counsel, Ultramar’s counsel acknowledges receipt of the plaintiffs’ costs proposal. In addition, Ultramar’s counsel poses a question about hourly rates: “Given that this was a subrogated claim, please confirm the hourly rate your insurer client was charged for each timekeeper. Is it as set out in your Bill of Costs?”

21The response from plaintiffs’ counsel is, “the Bill of Costs includes partial and substantial amounts. The amounts set out are not actual and the actual amount will be greater than the substantial. The hourly rates are consistent with experience and less than urban counterparts.” A copy of the bill of costs to which counsel refer in their respective emails is not included in the documents before the court.

22The description provided of the Fee Agreement in plaintiffs’ counsel’s responding email makes no mention of the contingent nature of the agreement. That element was not disclosed until oral submissions—during reply submissions on behalf of the plaintiffs.

23Second, the existence of the Fee Agreement was not disclosed in the Costs Outline (dated June 1, 2018). A costs outline, and not a bill of costs, was filed because no decision has yet been made that the plaintiffs are entitled to their costs of the trial. A bill of costs is filed when an award of costs has already been made (r. 57.01(5) and Form 57A). A costs outline is filed by a party who intends to seek costs for a step in a proceeding (r. 57.01(6) and Form 57B).

24The Costs Outline is generally in keeping with Form 57B. I say “generally”, because the Costs Outline does not include a chart as prescribed by the form. Form 57B includes a chart to assist the parties and the court by comparing partial indemnity fees to the fees based on the timekeepers’ respective rates actually charged. The option exists to include substantial indemnity fees, if claimed, in the same type of chart.

25In the Costs Outline, partial indemnity fees claimed are set out in one chart (covering July 23, 2008 to June 10, 2016) and substantial indemnity fees claimed are set out in a separate chart (for June 11, 2016 forward). Neither chart includes the requisite comparison to the timekeepers’ respective rates actually charged.

26The Costs Outline purports to set out “the rate actually charged” by plaintiffs’ counsel. It does so in a third chart which precedes and is entirely separate from the charts of the partial indemnity and substantial indemnity fees claimed. The rates said to be actually charged for each timekeeper are identical to the rates included in the chart for the substantial indemnity costs claimed. Either the rates actually charged are incorrectly stated or the rates upon which the substantial indemnity costs are based are, in fact, full indemnity rates.

27Third, the contingent nature of the Fee Agreement was not disclosed until the plaintiffs’ written reply submissions were delivered. Even then, the contingent nature of the Fee Agreement was disclosed in the broadest of terms only (see para. 7, above).

b) Rate Actually Charged

28Form 57B directs a party who has retained counsel on the basis of a contingency fee arrangement to “state the rate that would have been charged absent that arrangement.” The hourly rates that would have been charged by plaintiffs’ counsel absent the Fee Agreement have not been disclosed in any way. The rates were not disclosed in either the written or oral submissions on the plaintiffs’ behalf.

29The oral submissions made by plaintiffs’ counsel included the following:

• Plaintiffs’ counsel does not have an actual hourly rate because there is no agreement with the client(s) as to such;
• The costs paid can exceed the contingency fee to be paid pursuant to the Fee Agreement;
• The fee ultimately rendered to the client will be greater than the costs potentially recoverable;
• It is not possible to know the actual hourly rate that will be charged to the plaintiffs;
• Absent a positive monetary judgment, there are no fees chargeable to the client;
• As a result, there can only be a notional rate and not an actual hourly rate; and
• Disbursements may only be charged to the client if disbursements are recovered as part of costs.

30The plaintiffs introduce the concept of a “notional rate”, specifically because the trial decision is under appeal. They submit that because the trial decision is under appeal, there is no “positive monetary judgment” that triggers an obligation on their part to pay their counsel for the work to the conclusion of trial. In making that submission, the plaintiffs (a) overlook the existence of the judgment that was signed in the action and (b) erroneously introduce the timing of their obligation to pay counsel for the work done as a factor to be considered in fixing costs of the action.

31A positive monetary judgment exists. The terms of the judgment were the subject of oral submissions made immediately prior to the hearing on the issue of costs. The judgment was signed and has, in all likelihood, been issued and entered (the latter for the purpose of the appeal, if for no other reason).

32Costs of an action are addressed at the conclusion of a trial, regardless of whether the trial decision is under appeal. That step is taken at the conclusion of trial so as to finalize the obligations as between the parties with respect to costs to that stage of the litigation.

33The obligation of the successful party to pay their counsel, and the terms upon which the extent of that obligation is calculated, are relevant considerations in the context of the principle of indemnity. The timing of the successful party’s obligation to pay their counsel for the work done to the conclusion of trial—whether that obligation arises at the conclusion of trial or, if the trial decision is appealed, at a later date—is not, however, a relevant consideration in the court’s exercise of its discretion in fixing costs of an action to the conclusion of trial.

34The Insurer and the individual plaintiffs are in a position to disclose the Terms to the defendants and to the court. That disclosure includes the calculation of the fees the Insurer and the individual plaintiffs would be required to pay to their counsel, based on the outcome at trial, assuming the trial decision were not under appeal.

35It matters not whether the obligation to pay the solicitor-client account must be fulfilled now or at a later date or a later stage in the litigation. The fact that the contingent nature of the Fee Agreement may be unusual or provide for deferral (because of an appeal) of the obligation on the part of the Insurer and the individual plaintiffs to pay their counsel, does not mean that the Terms are irrelevant to the exercise of the court’s discretion in fixing costs at this time.

c) The Case Law

36In Spiteri Estate, Master MacLeod (as he then was) discussed the general principles to be applied by the court in fixing costs. As noted in para. 15 above, Master MacLeod concluded that the principle of indemnity requires that the court consider special fee arrangements between parties and their counsel.

37Master MacLeod also concluded that a starting point when fixing costs is to determine the reasonable amount of party and party costs. Once that step is completed, and against the backdrop of the fees to be charged pursuant to a special fee arrangement, the court is in a position to determine whether the “reasonable fees” should be adjusted (Spiteri Estate at para. 64c). The plaintiffs rely on Spiteri Estate; ironically, they failed to deliver a costs outline that would permit the court to follow Master MacLeod’s decision in that case.

38The function served by the disclosure of rates actually charged is demonstrated by the following passage from another case upon which the plaintiffs rely. At para. 26 of his decision in James B. Walker & Co. v. DaimlerChrysler Canada Inc., 2015 ONSC 1429, 2015 CarswellOnt 3166, Price J. highlighted that, “[the] actual rates charged are relevant only as a limiting factor, in preventing the costs awarded from exceeding the actual fees charged.” Once again, the relevant principle is that of indemnity.

39The plaintiffs’ submission, quoted at para. 7 above, that “the fee arrangement should not be a governing factor in court’s determination of costs” is simply wrong.

40The importance of rates actually charged was highlighted by Lauwers J.A. in the costs portion of his decision in 790668 Ontario Inc. v. D’Andrea Management Inc., 2015 ONCA 557, 9 E.T.R. (4th) 24, at paras. 27 and 28. He relied on the actual hourly rates charged as a limiting factor when determining costs payable on a motion for summary judgment. At para. 23 of his decision, Lauwers J.A. said:

In my view, it was an error in principle for the motion judge to award partial indemnity costs in the full amount of the actual costs paid. While a court has discretion to determine the size of the discount to a party’s actual costs when awarding partial indemnity costs, with due consideration of the factors set out in r. 57.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, I am unable to see, on the facts in this record, a basis to depart from the ordinary rule of thumb that partial indemnity costs should be about one-third less than substantial indemnity costs.

41In reaching that conclusion, Lauwers J.A. referred to Boucher v. Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 291 (C.A.). He highlighted the Court of Appeal’s finding, at para. 36 in that decision, that it is an error in principle to award partial indemnity costs that amount to substantial/full indemnity.

42In summary, the rates actually charged, while not the singular determinative factor when costs of a step in a proceeding are fixed, are a factor to be considered—they are a limiting factor in fixing costs.

43The plaintiffs rely on the decision of Mew J. in Canfield v. Brockville Ontario Speedway, 2018 ONSC 3288, [2018] O.J. No. 2807. The plaintiffs submit that the decision supports their position that they are not required, for the purpose of fixing costs, to disclose the terms of the Fee Agreement at all.

44The plaintiffs in Canfield were successful at trial. As part of the costs hearing, plaintiffs’ counsel permitted defence counsel to review the contingency fee agreement pursuant to which plaintiffs’ counsel was retained by their client. In addition, an affidavit in the name of one of the plaintiffs was filed. In that affidavit the plaintiff disclosed that the fees payable to plaintiffs’ counsel would be either (a) an amount equal to 33 per cent of the total damages recovered by settlement or adjudication or (b) the costs payable by the defendant.

45Referring back to an earlier decision of his own, Mew J. said, “Consistent with the position taken by the court in Tossonian, the existence of a contingency fee agreement has no bearing on the determination of costs in this case” (Canfield at para. 40). The plaintiffs before me rely on this statement in support of their position that they are not required to disclose the terms of the Fee Agreement relevant to the calculation of solicitor-client fees. The plaintiffs’ reliance on that statement is, however, misplaced; it is important to carefully consider the decision in Tossonian v. Cynphany Diamonds, 2015 ONSC 766, 2015 CarswellOnt 1283.

46Tossonian is an employment law case in which the plaintiff was successful at trial, but recovered damages that fell within the jurisdiction of the Small Claims Court. The plaintiff had, as of the outset of trial, claimed damages totalling approximately $175,000. He was awarded damages of $13,520 (plus interest).

47On a motion for security for costs, at an earlier stage in the litigation, the plaintiff had disclosed that he and his counsel were operating on the basis of a contingency fee agreement. The agreement was not produced as part of that motion and was not produced as part of submissions with respect to costs at trial. The defendant took the position that the plaintiff should not be awarded costs of the trial, including because he had failed to disclose a copy of the contingency fee agreement.

48In that regard, Mew J. noted the following at paras. 16 and 17 of his decision in Tossonian:

[The] agreement has not been produced. Accordingly, the defendants argue, there is essential evidence lacking regarding the costs equation. Reference is made by the defendant to cases in which the court has declined to award costs in excess of fees and disbursements actually charged to the party claiming costs.

The defendants’ submissions ignore the fact that contingency fee agreements are ubiquous [sic] in modern litigation particularly in personal injury and many wrongful dismissal cases. Counsel have not directed my attention to any case in which the disclosure of a contingency fee agreement has been held to be a pre-requisite of a plaintiffs’ entitlement to recover partial indemnity costs of a proceeding. In the circumstances, the fact that the plaintiff had a contingency fee agreement with his lawyers is not a sufficient reason for not awarding him costs in this case.

49Tossonian addresses the issue of entitlement to costs and the impact, if any, of the existence of a contingency fee agreement on a successful party’s entitlement to costs. It does not go so far as to say that the existence of a contingency fee agreement is not relevant in any way whatsoever to the exercise of the court’s discretion in fixing the quantum of costs payable. Mew J.’s reference, in Canfield, to Tossonian does not take away from the substance of the latter decision.

50I note that in Spiteri, the plaintiff had a contingency fee agreement with his counsel. It is not clear whether a copy of that agreement was produced for the purpose of the costs hearing. Regardless, the plaintiff provided the court with three separate calculations of solicitor-client fees potentially payable pursuant to the agreement.

51The evidence before Master MacLeod in Spiteri included the fees payable calculated using both (a) the percentage contingency fee set out in the agreement (20 per cent, based on a sliding scale for contingency fees and the timing of resolution) and (b) the specified hourly rates applicable if the agreement were terminated prior to resolution of the claim. The latter rates were identified as “contingency rates” and were higher than the usual hourly rates charged. The evidence also included fees calculated on the basis of a third option—the fees payable had the matter not been conducted on the basis of a contingency fee agreement. The three calculations were set out in a chart format (see Spiteri at paras. 22-24).

52Like Mew J. in Tossonian, Master MacLeod commented on the prevalence of contingency fee agreements in litigation. At para. 25 of the decision in Spiteri, Master MacLeod said, “[contingency] fees are of course legal in Ontario and have been a feature of the litigation landscape for at least a decade.” He went on to say that, “[g]enerally speaking there is now a public policy in Ontario of encouraging alternative fee arrangements in order to ensure access to justice and to legal representation.”

53That public policy and the use of alternative fee arrangements, the latter to provide access to justice and to legal representation, are not intended to deprive opposing parties and the court of evidence relevant to the application of the principle of indemnity when costs of a step in a proceeding are fixed.

54I am not, by this decision, suggesting that disclosure of a complete copy of the document in which a special fee arrangement is set out is a pre-requisite to fixing costs. Evidence is, however, required of the fees that counsel is entitled to charge the client pursuant to the terms of that arrangement given the outcome of the step in the proceeding or of the action. That evidence may come from one or both of counsel (as in Spiteri) or the client (as in Canfield).

d) Conclusions

55I find that the initial failure of the plaintiffs and their counsel to disclose the existence of the Fee Agreement and thereafter the refusal to disclose the terms of the Fee Agreement relevant to fixing costs are both intentional. I also find that the completion of Form 57B in a manner that does not comply with the required format is also intentional. As a result of that non-compliance, the court is deprived of the ability to consider and apply the principle of indemnity when fixing costs of the trial.

56I am not prepared to fix costs in the absence of the relevant evidence.

The Fee Agreement

57I return to the description of the Fee Agreement provided by plaintiffs’ counsel. As noted at para. 28, above, plaintiffs’ counsel informed the court that they do not have an actual hourly rate because there is no agreement with the client as to such. If that is the case, then does the Fee Agreement comply with s. 2 of Contingency Fee Agreements, O. Reg. 195/04 (“the Regulation)? That section prescribes the terms that “[a] solicitor who is a party to a contingency fee agreement shall ensure” that the subject agreement includes.

58Those terms include:

a) “[That] the client has been advised that hourly rates may vary among solicitors and that the client can speak with other solicitors to compare rates” (s. 2(3)(ii)); and b) “[A] statement that outlines when and how the client or the solicitor may terminate the contingency fee agreement” (s. 2(9)).

59The requirements with respect to termination of the contingency fee agreement are specific and include “the manner in which the solicitor’s fee is to be determined in the event that the agreement is terminated.” Contingency fee agreements frequently include a termination provision that calls for counsel’s account to be delivered on a fee-for-service basis: see, for example, the contingency fee agreement in Spiteri.

60In summary, plaintiffs’ counsel was required to comply with s. 2 of O. Reg. 195/04 when they entered into the Fee Agreement with the Insurer and, if applicable, the plaintiffs. Given the description provided of the Fee Agreement, there is a real concern that the agreement does not comply with the Regulation. If the Fee Agreement does not comply with the Regulation, then the solicitor-client account to be delivered would have to be based on a fee-for-service basis. The evidence before the court at this time does not permit costs to be fixed against the backdrop of an account delivered or to be delivered to the plaintiffs on a fee-for-service basis.

61Before costs can be fixed, a determination must be made as to whether the Fee Agreement complies with the Regulation.

62Rule 57.01(7) mandates that the court shall “devise and adopt the simplest, least expensive and most expeditious process for fixing costs”. In the ordinary course, the issue of whether a contingency fee agreement complies with the Regulation would be determined by way of an application. The parties to such an application are the law firm, as the applicant, and the clients, as the respondents.

63Without having an opportunity to review the Fee Agreement, it is not possible for me to determine whether it complies with the Regulation. I recognize that it is neither cost-effective nor efficient to require plaintiffs’ counsel to proceed with an application that may not be necessary. Instead, plaintiffs’ counsel shall file with the court a copy of the Fee Agreement.

64Pending further order of the court and, if necessary, an opportunity for plaintiffs’ counsel to make submissions with respect to a permanent sealing order (whether in the context of this action or a separate application), the copy of the Fee Agreement filed shall be and remain sealed. The temporary sealing order includes that the copy of the Fee Agreement shall not be available to the defendants or to their respective counsel.

65If, on reviewing the Fee Agreement, I am satisfied that it complies with the Regulation, I shall advise plaintiffs’ counsel of the terms of the agreement that must, for the purpose of fixing costs, be disclosed to the defendants. I shall consider both a deadline by which such disclosure shall be made and the steps to follow thereafter. The steps to follow might, for example, include one or both of a telephone case conference and the opportunity for the parties to make further submissions.

66If, on reviewing the Fee Agreement, I find that it does not comply or I have concerns that it may not comply with the Regulation, I shall advise plaintiffs’ counsel of same. In that circumstance, plaintiffs’ counsel shall be given an opportunity to determine whether they wish to (a) bring an application for approval of the Fee Agreement or (b) proceed with the continuation of the costs hearing without first seeking that approval.

67In the former event, the application would be between plaintiffs’ counsel and their clients and be returnable before me. In the latter event, a case conference would be scheduled to take place by telephone to address the next steps in the process of fixing costs of the trial.

Summary

68I order as follows:

1. Plaintiffs’ counsel shall, no later than 10 days from the date of release of this endorsement, file with the court, in a sealed envelope, a copy of the Fee Agreement.
2. Pending further order of the court and, if necessary, an opportunity for plaintiffs’ counsel to make submissions with respect to a permanent sealing order, the copy of the Fee Agreement filed shall be sealed.
3. The temporary sealing order includes that the copy of the Fee Agreement shall not be available to the defendants or to their respective counsel.