Court File and Parties

COURT FILE NO.: CV-00-1075

DATE: 2021-11-22

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: BONNIE DAVIES, Plaintiff

AND:

THE CORPORATION OF THE MUNICIPALITY OF CLARINGTON, VIA RAIL CANADA INC., CANADIAN NATIONAL RAILWAY COMPANY, TIMOTHY GARNHAM, THE BLM GROUP INC., APACHE SPECIALIZED EQUIPMENT INC., APACHE TRANSPORTATION SERVICES INC., BLUE CIRCLE CANADA INC. and HYDRO ONE NETWORKS INC., Defendants

BEFORE: Regional Senior Justice M.L. Edwards

COUNSEL: Jeffrey Strype, Counsel, for the Class Member Zuber and the Non-Party Yorkfund Investment Inc.

Thomas J. Hanrahan, Counsel, for the Defendants VIA Rail Canada Inc. and Canadian National Railway Company

James M. Regan and Angelo G. Sciacca, Counsel, for the Defendants Apache Specialized Equipment Inc., Apache Transportation Services Inc. and Timothy Garnham

Alon Barda, Counsel, for the Defendant BLM Group Inc.

Stephen J. MacDonald and Weston Pollard, Counsel, for the Defendant Hydro One

Dylan E. Augruso and Jacky Cheung, Counsel, for the Non-Party BridgePoint Financial Services Inc.

Louis-Pierre Grégoire and Karina Labelle, Counsel, for the Non-Party Lexfund Inc.

Ron Aisenberg, Counsel, for the Non-Party Seahold Investments Inc.

HEARD: In Writing

COSTS ENDORSEMENT

Overview

[1] After a trial lasting in excess of 100 days, the Defendants were awarded costs that I fixed in the amount of approximately $3,434,000. Realizing that those costs were unlikely to be paid by Mr. Zuber, the Defendants sought to have the costs paid by various litigation loan providers. In my Reasons of September 28, 2021, I declined to make an award against any of the litigation loan providers. The litigation loan providers now seek their costs against the Defendants for the Defendants’ failed motion.

[2] In my Reasons of September 28, 2021, I expressed a preliminary view that the motion was a test case that involved novel arguments and urged the parties to consider their position as it relates to the cost of the motion. I have now received costs submissions of the various litigation loan providers reflecting costs demands as follows:

1. BridgePoint - $45,573.13;
2. Yorkfund/Strype Management - $108,129.70;
3. Lexfund - $54,214.30; and
4. Seahold - $30,088.00

All of the costs sought as reflected above are on a partial indemnity basis. The costs incurred by the Defendants totalled approximately $63,000.

It is worth observing as a preliminary comment that if this court were to apply the principles reflected in the Court of Appeal decision in Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291 (C.A.), that the reasonable expectations of the losing party (in this case the defendants) might have been to pay $50,000 in costs to each of the litigation loan providers . I come to this conclusion based on a comparison of the various bills of costs after making adjustments for the significant disparity in the hourly rates of the various counsel involved, both for the various loan providers and for the Defendants.

[3] The real issue that this court has to determine is whether or not the court should exercise its discretion to make any award of costs. The only basis, in my view, upon which this court can come to that determination, is if the Defendants can satisfy this court that the Defendants’ claims against the litigation loan providers amounted to a “novel case” or, alternatively, a “test case”.

The Legal Principles

[4] In Baldwin v. Daubney, (2006) 2006 CanLII 33317 (ON SC), 21 B.L.R. (4th) 232, Spence J. suggested the following test as the rationale for treating the novelty of a claim as a mitigating factor on costs as follows:

If the unsuccessful party says that he or she should be relieved from the costs rule because a novel issue was raised, it is not clear why that should be a relevant reason unless that element of novelty goes to the reasonable expectations of the party about the litigation. If the issue is truly open in the sense considered above, (i.e. that the law in the decided cases does not provide adequate guidance to resolve the issue), the litigant could reasonably say that he or she had no proper reason to expect to fail. But if all that the litigant can say is that there was no decided case directly on the point, that begs the question about reasonable expectations. The litigation in that situation is vulnerable to the response: although there are no decided cases directly on point, the law is clearly against your case, so you should reasonably expect to lose.

[5] The Court of Appeal in Das v. George Weston Limited, 2018 ONCA 1053, recently dealt with the question of whether or not a claim raised a novel legal point in the context of s. 31(1) of the Class Proceedings Act (“CPA”). In that regard the Court of Appeal observed, at para. 241 through 243, that s. 31(1) recognizes “the novelty of legal issues as potentially relevant to the fixing of costs. Legal novelty can be considered in fixing costs in all kinds of civil litigation: see Baldwin v. Daubney, (2006) 2006 CanLII 33317 (ON SC), 21 B.L.R. (4th) 232 (Ont. S.C.). Novelty takes on added importance in light of the CPA’s commitment to promote access to justice”. At para. 243, the Court of Appeal goes on to observe:

To impact on the costs assessment, a novel claim must have some potential merit. It must be a viable claim in the sense that it has some reasonable prospect of success…

[6] Finally, at para. 245, the Court of Appeal in Das states:

Novelty for the purposes of s. 31(1) is not an all or nothing thing, but rather operates along a continuum: Smith v. Inco Ltd., 2013 ONCA 724, 313 O.A.C. 156, at para. 29. For example, if a legal issue is novel in that, on the current state of the law, either party could have reasonably expected to be successful on the point, the novelty of the claim should play a significant role in fixing costs. However, if the legal point is novel in the sense that it has not been decided in the specific factual context in which it is raised, but the applicable case law and principles pointed strongly towards the outcome eventually arrived at in the proceeding, a claim of novelty will have little or no impact on the costs awarded against the losing party. In cases where there is an element of novelty to the claim, it is for the motion or trial judge to determine where the case fits along the novelty continuum.

Analysis

[7] There was no previously decided case that I was made aware of where a party sought to enforce a costs award against a litigation loan provider. The issue of whether or not the court could make an award of costs against a non-party was determined four years ago by the Court of Appeal in 1318847 Ontario Limited v. Laval Tool & Mould Ltd., 2017 ONCA 184. The Court of Appeal in Laval Tool confirmed the court’s inherent jurisdiction to award costs against non-parties. Applying the test set forth by the Court of Appeal in Laval Tool, I came to the conclusion that there was no basis for the court to exercise its inherent jurisdiction to require the litigation loan providers to pay the Defendants’ costs. To the extent that that issue had been previously decided by the Court of Appeal, it would be difficult to accept any argument that the issues presented by the Defendants in this case amounted to a novel issue.

[8] As it relates to the application of the CPA, and specifically the requirement for court approval of a litigation loan agreement, on that issue while I agreed with the position of the litigation loan providers that s. 33.1(2) had no application, I nonetheless was of the view that as a matter of common law the litigation loan agreements should have been approved by the court. As I observed in my Reasons, had there been such approval and had there been notice given to the Defendants as it relates to the claim by Mr. Zuber for payment of the accrued litigation loan interest, the Defendants may have been in a better position to consider their position as it relates to any offer that might have been made to Mr. Zuber. Specifically, in that regard, it is worth a recalling that Mr. Zuber had received approximately $500,000 in litigation loans from the various loan providers. By the time this matter came before the court the accrued interest was well in excess of $6,000,000. The ability of the parties to consider their respective positions concerning settlement was significantly impacted by the accrued interest on the litigation loans.

[9] The issues concerning court approval as it relates to the litigation loan agreements, in my view, presented a novel issue that will undoubtedly come before the court in future cases. Whether my Reasons have any impact on how litigation loan agreements will ultimately unfold in future litigation, only time will tell.

[10] The Court of Appeal observed in Hunt v. Worrod, 2019 ONCA 540, at para. 38 that:

Contrary to the submissions of the Hunt respondents, the LASA scheme is wholly unlike the framework that supports third-party funders in class proceedings. The legal framework governing third-party litigation funding is concerned with the potential harm to the administration of justice that may arise from a non-party profiting unduly from or unreasonably controlling another’s litigation: see Houle v. St. Jude Medical Inc., 2018 ONSC 6352, at para. 51.

[11] While the litigation loan providers in this case did not directly, or for that matter unreasonably control the litigation, the fact still remains that the quantum of accrued interest, at what can only be described as exorbitant interest rates, did have a direct impact on the ability of the Plaintiff to resolve this litigation. This was made abundantly clear in submissions that were made by Mr. Strype that were previously referenced in my earlier Reasons. As such, in my view, the litigation loan agreements that were the subject matter of my earlier Reasons fall within the same definition of potential harm to the administration of justice as referenced by the Court of Appeal in Hunt.

[12] The Court of Appeal in Das makes clear at para. 245, that where there is an element of novelty to the claim (in this case the claim by the Defendants for payment of their costs from the litigation loan providers), it is for the motion judge or trial judge to determine where the case fits along the novelty continuum. In my view, either party could have reasonably expected to have been successful on the issue before me, as reflected in my Reasons of September 28, 2021. As such, in my view, the novelty of the issue before me plays a paramount role in the fixing of costs. As such, I see no reason to depart from my original observation made at para. 117 of my Reasons that the motion before me was a test case that involved novel arguments. I therefore decline to make any award of costs.

Regional Senior Justice M.L. Edwards

Date: November 22, 2021