BARRIE COURT FILE NO.: CV-22-00001366-0000 / CV-15-00000874-0000
DATE: 2023-1106
CORRECTED DATE: 20231115
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
LAURA SELBY and DYLAN SELBY, by his Litigation Guardian, ROB SELBY
Plaintiffs
– and –
MARZARETTA NARAY and MENNO PYPER
Defendants
Joseph Campisi, for the Plaintiffs
Andrew Franklin, for the Defendants
HEARD: May 1st, 2023
Corrected Decision: The text of the original Endorsement was corrected on November 15, 2023 and the description of the correction is appended.
COSTS ENDORSEMENT
McCARTHY, J.
Introduction
[1] These two claims have now resolved save and except for the issue of costs and pre-judgement interest (PJI). The parties have provided the court with their respective written submissions on those outstanding issues.
[2] The disbursements component of the Plaintiffs’ costs demand has been resolved. It remains for the court to assess and fix the “fees” component of the costs award as well as the PJI on the settlement amount.
[3] There were two actions arising out of injuries sustained in one motor vehicle accident on July 28, 2014. They are referred to as the “Laura Selby action” and the “Dylan Selby action” respectively. The Laura Selby action was issued on July 24, 2015. The Dylan Selby action, derivative and limited to a claim under the Family Law Act, R.S.O. 1990, c. F.3. (FLA), was issued on October 27, 2022.
[4] On or about May 9, 2023, the Plaintiff accepted the Defendants rule 49 offer to settle dated May 4, 2023 (“the accepted offer”). It contained the following terms:
i. In the Laura Selby action, payment by the Defendants of:
a. $350,000 inclusive for all claims and damages;
b. Disbursements, as agreed upon or assessed;
c. Prejudgment interest on the $350,000, as agreed upon or assessed;
d. Costs on a partial indemnity basis, as agreed upon or assessed.
ii. In the Dylan Selby action, payment by the Defendants of:
a. $25,000 inclusive for all claims for damages;
b. Disbursements, as agreed upon or assessed;
c. Prejudgment interest on the $25,000 as agreed upon or assessed;
d. Costs on a partial indemnity basis, as agreed upon or assessed.
The Plaintiffs’ Position on Costs
[5] The Plaintiffs submit that the complexity of the proceedings coupled with the insurer for the Defendants employing hardball tactics throughout warrant a departure from the ‘industry standard’ method for calculating costs upon resolution. This industry standard which has grown up in the last number of decades has seen the issue of partial indemnity costs being resolved by the Defendant insurer agreeing to pay 15% on the first $100,000 tranche of any settlement, and 10% on any tranche above that amount.
[6] The Plaintiffs’ solicitor submits a detailed bill of costs, accompanied by sheathes of dockets and time entries, and claims a fees component of $146,699.63 including HST on the Laura Selby action and $16,339.20 on the Dylan Selby action.
The Defendants’ Position on Costs
[7] While not suggesting an actual figure in their submissions, the Defendants argue that the Plaintiffs’ proposed amount for costs is excessive and disproportionate to the settlement.
[8] The Defendants point to the amounts claimed in the respective actions ($1.8 million amended to $4.8 million in the Laura Selby action and $15,300,000 amended to $1,050,000 in the Dylan Selby action) compared to the amount of the actual settlement.
[9] The Defendants also point to the late issuance of the Dylan Selby action which delayed the Laura Selby action from proceeding to a pre-trial, onto a trial list and ultimately to a global resolution.
[10] Following up on the accepted offer, the Defendants’ proposed to settle costs for a total of $63,562.50 on May 25, 2023. Closer examination of this component of that offer suggests that they have applied a 15% factor to the net recovery for damages of $375,000 to arrive at an amount of $56,250. An application of 13% HST would then perfectly match their “inclusive” total offer of $63,562.50.
Costs in the Discretion of the Court
[11] Costs of and incidental to a proceeding or a step in a proceeding are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid: s.131 of the Courts of Justice Act, R.S.O. 1990, c. C.43 (CJA).
Discussion
(i) Proportionality vs. Indemnification
[12] The principals of proportionality and indemnity often compete for prevalence in the world of costs on civil matters.
[13] On the one hand, an award of costs should be proportional to the outcome of the action, in this case its ultimate resolution short of adjudication. The proportionality rule 1.04(1.1), Rules of Civil Procedure, R.R.O. 1990, Reg. 194, designed to assist the court in interpreting the rules of practice, requires that 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.”
[14] On the other hand, the principle of indemnity weighs in favour of a successful party receiving fair compensation for the legal costs it has incurred, thereby ensuring that the party is made as whole as is reasonably possible. Access to justice necessarily demands that indemnity plays a role in ensuring viable, affordable, equal, and timely access to justice.
(ii) Rule 57.01
[15] There are also the other factors found in rule 57.01 of the Rules of Civil Procedure which a court should consider when exercising its discretion to award costs: the complexity of the proceeding; the importance of the issues; the conduct of a party tending to shorten or lengthen the litigation; improper, vexatious or unnecessary steps; the reasonable expectation of an unsuccessful party in paying costs; a party’s denial or refusal to admit anything that should have been admitted; the commencement of separate proceedings where the claims could have been brought within one action.
[16] Rule 57.01 (7) provides a process for fixing costs:
The court shall devise and adopt the simplest, least expensive, and most expeditious process for fixing costs and, without limiting the generality of the foregoing, costs may be fixed after receiving written submissions, without the attendance of the parties.
(iii) Success
[17] In my view, it is specious to consider one party “successful” in a compromise settlement. Presumably both parties agreeing to a resolution of their dispute could claim a measure of success. While litigants are to be congratulated for achieving a resolution short of trial, this should not translate into one party being more successful than the other for the purpose of costs. In the present case, “success” is therefore a neutral factor.
(iv) Amounts claimed vs. Amounts recovered
[18] Both actions resolved for minute fractions of the amounts originally claimed. The Laura Selby action took the better part of 8 years to resolve. That is on the high end of what one should expect of personal injury litigation. Still, the Laura Selby action was set down for trial in late 2018. There was the complicating factor of the Covid pandemic when jury panels were effectively suspended. The Laura Selby action was adjourned from the May 2022 trial sittings on consent of both parties. There was then the insertion of the Dylan Selby action into the mix in October 2022. This entailed further delays given the need for the regularization of pleadings and discoveries on that action.
(v) The Conduct of the Defendants and Complexity of the Proceedings
[19] While the Defendants might have admitted liability for the accident at an early stage, they could not have practically done so without the Plaintiffs agreeing to limit their claims to within the $1 million third party coverage afforded by the Defendants’ insurance policy. That agreement was never achieved; often it isn’t. That should have come as no surprise to either party. In the circumstances, I am not persuaded that the Defendants’ failure to admit liability was unreasonable or caused undue delay of the litigation.
[20] I fail to see any extraordinary element of complexity in these twin actions which featured routine claims for general damages, loss of income, loss of caregiving capacity, and care costs. The Defendants took hard-nosed positions on whether the Plaintiff met the threshold of having sustained serious and permanent injuries. Their offers to settle were slow in coming. There was even an instance where they reduced an offer to settle. I am not persuaded, however, that any conduct by the Defendants, their insurer or defence counsel was untoward, deserving of sanction or admonishment. Litigation is a tough slog, personal injury litigation no less so. Parties are entitled to defend civil actions and to take principled positions. The insurers for the Defendants did not invent the threshold, the statutory deductible, the rules of civil procedure or the Covid 19 pandemic. I am not convinced that any conduct on their part served to delay the course of justice in this matter.
(vi) The Bill of Costs
[21] In support of their cost submissions, the Plaintiffs have filed a breathtaking three-volume book of documents featuring 31 tabs and many hundred pages of dockets and time entries most of them containing 8 items and spanning a period of almost 8 ½ years. To even begin to thumb through such a ponderous mass would quickly dishearten even the staunchest proponent of meticulous costs assessments. Thankfully, that exercise strikes me as not just onerous, but unnecessary. While I have no doubt that the dockets and time sheets are genuine, authentic, and contemporaneous, they are not determinative of the proper quantum of costs in this personal injury settlement.
[22] I am drawn to the sentiment expressed by L. Shaw J. in Block v. Brown, 2022 ONSC 3199, [2022] O.J. No. 2453. At paragraph 88 of her costs endorsement in respect of a personal injury claim which settled for a modest amount on the eve of trial, she wrote:
My role as a judge is to sit as an assessment officer assessing costs. I will not engage in a line-by-line assessment of the Bill of Costs submitted. Rather, I will look at the matter in its entirety and determine what is a reasonable amount for the unsuccessful party to pay. I have also considered the principle of proportionality but not to the exclusion of the principles of indemnity and access to justice.
Costs in Settled Personal Injury Actions
[23] I am of the view that the appropriate approach to costs in a personal injury action should be a nuanced and contextual one. In exercising my discretion on costs, I have kept the principles of proportionality and indemnification at the forefront of my mind.
[24] Unfortunately, what does not appear amidst the crush of materials filed by the Plaintiffs is a copy of the solicitor client retainer agreement or any indication of what Plaintiffs’ counsel intends on charging the clients for its services. There is reference to a “contingency fee agreement” being entered into in respect of the Dylan Selby action but no detail is provided.
[25] There is no mention whatsoever of a contingency fee agreement pertaining to the Laura Selby action. And it is that latter action which attracted the overwhelming bulk of the settlement funds (over 93%). In the absence of that detail, it is difficult for the court to give any weight to the rates charged and the hours spent by the Plaintiff’s lawyer because those items will never factor into what the Plaintiffs are expected to pay in fees under a contingency agreement.
[26] I can fairly take judicial notice of the fact that most personal injury lawyers enter into such contingency fee agreements with their clients whereby the payment of the fees of the lawyer are contingent upon recovering money from the Defendant either by way of resolution or judgment. Conventionally these personal injury lawyers will charge their clients a percentage of the amount recovered. This has generally been viewed as an acceptable, if sometimes unsavoury, arrangement between solicitor and client, principally because it allows persons of modest means, often dealing with injury or disability, to obtain specialized legal representation. The solicitor remains motivated to achieve a sizeable recovery, both for the benefit of her client and for the calculation of her fees.
[27] Nonetheless, the expectation is that the costs negotiated or recovered from the Defendants will serve to defray or offset the fees charged under the contingency arrangement. Absent an obligation of a Defendant to pay substantial or full indemnity costs to a successful claimant (a rare event), a Plaintiff will end up bearing some of the costs of his own lawyer at the end of the day. To take an example, under an agreement with a 30% contingency rate on a $100,000 plus costs settlement, the Plaintiff should expect to recover 85% of the net settlement after deduction of all fees. With a costs award of 15% (negotiated or awarded) being used to defray the contingency fees, the net after fees recovery to the Plaintiff client would be in the neighbourhood of $85,000. The principle of indemnity is still respected and advanced even if perfect indemnity is rarely achieved.
[28] The problem with the Plaintiffs’ claim for fees in this case is that such an award would represent approximately 39% of the overall net recovery for damages. At the same time, the most that the Plaintiffs’ lawyers would likely charge under a conventional contingency fee arrangement would be $123,750 (at 33%) or $112,500 (at 30%). Even at the more exorbitant rate of 35% (which might not survive the scrutiny of a rule 7.08 motion) the fees would amount to only $131,250 or $148,312.50 with HST added.
[29] To award the Plaintiffs the amount requested of over $163,000 inclusive of HST would not only be excessive but would serve to overcompensate the Plaintiff. This is contrary, even offensive, to the principle of indemnity. It would subvert the principle of partial indemnity which when fairly applied, results in a plaintiff who is a party to a contingency agreement having to pay a portion of the contingency fee out of the corpus of the settlement funds. In the absence of evidence to the contrary, I cannot conclude that the expectation of the Plaintiffs in this case would have been somehow different; if it was, then it would not have been reasonable.
[30] To this point, on May 2, 2023, Defence counsel emailed Plaintiffs’ counsel seeking confirmation that the Plaintiffs were prepared to settle the claims on the basis of payment of $500,000 for all damages plus $62,150 costs “w/HST” plus the disbursements as they presumably amounted to as of that date. Seven minutes after receiving the email, Plaintiffs’ counsel confirmed that this was “correct”.
[31] Assuming that the Plaintiffs themselves authorized the above offer to be made, this figure serves as the best evidence of what the Plaintiffs would have reasonably expected to recover in costs on a $500,000 net settlement: $62,150.00 inclusive of HST. Interestingly, this amount for costs is arrived at by applying the maligned industry standard of 15%/10% to the net settlement amount (i.e., ($15,000 on the first $100,000) + ($40,000 on the next $400,000) = $55,000. HST of 13% on that sub-total yields $7,150. The total would therefore be $62,150 for costs – the very amount confirmed as “correct” by Plaintiffs’ counsel.
[32] Nine days after confirming the numbers as “correct”, the Plaintiff accepted the Rule 49 offer of the Defendants but sought an additional $75,000 in costs.
[33] There is some evidence of what the insurer for the Defendants expected to pay in costs. Based on their offer made May 25, 2023, the Defendants appear to have tacitly acknowledged that, with settlement being achieved so close to trial, they would have to depart from the industry standard and increase the costs amount. Indeed, as noted earlier, the allotment for costs in that offer was based upon 15% of the total damages plus applicable HST. It would have been different story had the matter proceeded to trial. In that case, the amount the Defendants would have reasonably expected to pay in costs would entirely depend on the length of the trial, the result, the effect of any offers to settle and a slew of unforeseen rule 57.01 factors. Put another way, had the matter proceeded to trial, all reasonable expectations on costs exposure would have to be adjusted.
[34] But the matter did not proceed to trial. The Plaintiff did not better its own offer, which by operation of rule 49, would have given it a prima facie entitlement to substantial indemnity costs after the date of that offer. The amount for costs offered by the Defendants on May 25, 2023, is even slightly higher than the amount the Plaintiff was willing to accept on a lower net recovery on May 2, 2023.
[35] Nor can the Plaintiffs reasonably claim that they have tread along the moral high ground in an effort to resolve the matter for a reasonable sum. As late as November 2022, the Plaintiffs were still holding out for $1 million plus costs. That is nowhere near to the amount the claim ultimately settled for.
[36] That is not the end of the analysis however: there is another factor which bears consideration by the court. I note with interest and concern that counsel for the Defendants did not divulge the fees paid by the Defendants’ insurer to its own counsel these 8 years. It is, of course, not obliged to do so. In my view, however, this an appropriate case where the amount paid in legal fees by the settling insurer in defending a meritorious claim before finally relenting to resolve it on the eve of trial would be a relevant consideration for the court. Surely, the value of legal services for defending a claim and procuring a resolution short of trial should bear some resemblance to the value of the services provided by the Plaintiffs’ lawyers who managed the course of litigation along a parallel path, governed by the same laws and rules, if not the same motivations, as the Defendants.
[37] The practice of the court requesting that the respective parties on a motion or appeal set out their request for costs in the event they are successful is now a common practice and serves a number of purposes: it encourages the party to a agree on a cost amount for the successful party; it seeks to obviate the need for parties to argue costs after a decision is given; and it forces parties to “show their hand”, and to recognize that they might be responsible for the very quantum they are demanding should they be unsuccessful. Experience has taught us that this approach tends to attract moderate demands for costs.
Disposition on Costs
[38] In all of the circumstances, having regard to the complexity of the case, the routine nature and typical features of the litigation, the fact that a settlement was reached short of trial, that an agreement was reached on disbursements, that the reasonable expectations of the parties can be fairly gleaned from the offers exchanged, the principles of indemnity and proportionality, and other factors discussed above, I have arrived at the conclusion that the application of 20% to the overall net recovery for damages is a fair and reasonable method upon which to base an assessment of costs. This translates into costs for “fees” of $75,000.00. With HST of 13% added to this amount, the sum for costs of the action to be paid by the Defendants to the Plaintiffs, in addition to disbursements already paid, comes to $84,750.00.
[39] I find this to be a fair and reasonable amount for costs. Those costs are fixed and payable forthwith.
Pre-Judgement Interest (PJI)
[40] The Plaintiffs assert claims for PJI of $28,124.66 in the Laura Selby action and $584.49 in the Dylan Selby action. They have provided the court with an elaborate calculus in support of their claim.
[41] The Defendants suggest that PJI ought to be awarded in accordance with its May 25, 2023 offer: $6,000 in the Laura Selby action; and $625 in the Dylan Selby action. They offer no formula for the court to consider. They merely argue that the Defendants’ accepted rule 49 offer was made to reflect the risk on both past and future damages. PJI interest should not be awarded on the “entire damages amount”. The Defendants do not criticize the Plaintiffs’ calculus per se, just the foundation for its application.
[42] In its reply submissions, Plaintiffs’ counsel retorted that by making rule 49 offers of “all-in” numbers, the Defendants intentionally and strategically created risk for the Plaintiffs. The Plaintiffs argue that had the Defendants chosen to serve a rule 49 offer that allotted portions for specific heads of damage, the totality of the settlement funds would not have attracted prejudgment interest.
[43] The truth is that the parties have left the court in a hopeless position in asking it to “assess” pre-judgment interest on the settlement amount. PJI of course would not be payable on amounts for future pecuniary damages, be they for loss of income, care, or housekeeping.
[44] There is nothing upon which I can determine what heads of damages the all-inclusive settlement consists of. The tone of the Defendants’ position on general damages, the threshold, and the statutory deductible throughout the course of the litigation suggest to the court that very little of its offer would have been comprised of non-pecuniary or past loss of income damages.
[45] A fair disposition of the PJI issue is to award the Plaintiffs half the amount they are seeking. I am not prepared to embark upon a torturous unpacking of the settlement or worse, engage in some kind of post-settlement pseudo-apportionment of damages to the silos of past and future, pecuniary and non-pecuniary damages.
[46] The Defendants suggested amounts for PJI presupposes that a portion of the settlement notionally consisted of damages which would attract PJI.
[47] I would therefore award PJI to the Plaintiffs on the settlement total in the amount of $14,354.75
Rule 7.08 motion
[48] There shall be an order to go in accordance with the foregoing.
[49] The Plaintiffs may now proceed to serve and file their motion for approval of settlement under rule 7.08 before me in writing.
[50] Should any matters be left unresolved because of this endorsement, or should either party require the direction or advice of the court prior to the rule 7.08 motion being filed, either party may request a virtual case conference before me by contacting my judicial assistant at bev.taylor@ontario.ca
McCARTHY J.
Released: November 6, 2023
November 15, 2023 - Correction
- My role as a judge is not to sit as an assessment officer assessing costs. I will not engage in a line-by-line assessment of the Bill of Costs submitted. Rather, I will look at the matter in its entirety and determine what is a reasonable amount for the unsuccessful party to pay. I have also considered the principle of proportionality but not to the exclusion of the principles of indemnity and access to justice.