Law of Costs on a Notice of Application (ROCP)

Smiles First Corporation v. 2377087 Ontario Ltd., 2017 ONSC 5081 (CanLII)

[3] The Applicants submit that, in accordance with the decision of the Court of Appeal for Ontario in Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291, the guiding objective for the court when deciding costs is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding, rather than an amount fixed by the actual costs incurred by the successful litigant. The Applicant submit that they had prepared a Bill of Costs to be submitted that the hearing of the application in an amount, on a partial indemnity scale, of $27,075.28 inclusive of disbursements and HST. They submit that an award of partial indemnity costs of $27,000 represents a fair and reasonable amount of costs that the applicants could reasonably have expected to pay in this application as the unsuccessful litigant. They deny that 237 incurred unnecessary costs as a result of steps taken by the Applicants which are alleged to have been improper or unnecessary.

Boucher v. Public Accountants Council for the Province of Ontario, 2004 CanLII 14579 (ON CA)

[28] With respect, I disagree with the motions judge. The total amount of $187,682.51 was not a fair and reasonable sum to award in the circumstances of this case, even given the respondents' separate bills of costs, which produced totals of $88,896.45, $60,033.96, and $38,752.10. It is my view that the costs awards in this case are so excessive as to call for appellate interference.

[29] While I accept that the bills of costs accurately reflect the time spent by all of the lawyers in this matter, it is inconceivable to me that the total amounts claimed are justifiable. In this regard, I accept the submission of the appellants that:

(a) the record in this application was the same record filed in the earlier proceedings;

(b) the respondents filed no evidence;

(c) the respondents conducted no cross-examination of any witness;

(d) the notices of motion to stay filed by the respondents were substantially the same; and

(e) the arguments to be advanced on the return of the motions to quash were substantially the same.

[30] In addition, I note that the amount claimed on a substantial indemnity scale, including disbursements and Goods and Services Tax, was in total only $14,528.86 more than the total partial indemnity award. In the result, the respondents received an award which is tantamount to a substantial indemnity award. This is significant in view of the fact that the motions judge expressly rejected the respondents' submission that they be awarded their costs on a substantial indemnity basis. [page301]

[35] In Wasserman, Arsenault Ltd. v. Sone, 2002 CanLII 45099 (ON CA), [2002] O.J. No. 3772, 164 O.A.C. 195 (C.A.), at para. 4, this court referred to a judgment of the Superior Court in Lawyers' Professional Indemnity Co. v. Geto Investments Ltd., [2002] O.J. No. 921, 17 C.P.C. (5th) 334 (S.C.J.), where Nordheimer J. observed at para. 16:

As a further direct consequence of the application of the indemnity principle, when deciding on the appropriate hourly rates when fixing costs on a partial indemnity basis, the court should set those rates at a level that is proportionate to the actual rate being charged to the client in order to ensure that the court does not, inadvertently, fix an amount for costs that would be the equivalent of costs on a substantial indemnity basis when the court is, in fact, intending to make an award on a partial indemnity basis.

[36] In my view, the granting of an award of costs said to be on a partial indemnity basis that is virtually the same as an award on a substantial indemnity basis constitutes an error in principle in the exercise of the motions judge's discretion, particularly when the judge rejected a claim for a substantial indemnity award. This court took a similar view in Stellarbridge at para. 96. [page302]

[37] The failure to refer, in assessing costs, to the overriding principle of reasonableness, can produce a result that is contrary to the fundamental objective of access to justice. The costs system is incorporated into the Rules of Civil Procedure, which exist to facilitate access to justice. There are obviously cases where the prospect of an award of costs against the losing party will operate as a reality check for the litigant and assist in discouraging frivolous or unnecessary litigation. However, in my view, the chilling effect of a costs award of the magnitude of the award in this case generally exceeds any fair and reasonable expectation of the parties.

[38] In deciding what is fair and reasonable, as suggested above, the expectation of the parties concerning the quantum of a costs award is a relevant factor. See Toronto (City) v. First Ontario Realty Corp. (2002), 2002 CanLII 49482 (ON SC), 59 O.R. (3d) 568, [2002] O.J. No. 2519 (S.C.J.) at p. 574 O.R. I refrain from attempting to articulate a more detailed or formulaic approach. The notions of fairness and reasonableness are embedded in the common law. Judges have been applying these notions for centuries to the factual matrix of particular cases.

United States of America v. Yemec, 2007 CanLII 65619 (ON SCDC)

[30] At para. 22 of his decision the motion judge stated that there is a "plethora of cases standing for the proposition that costs on a substantial indemnity basis can and should be awarded when there is a finding of want of adequate or accurate disclosure, regardless of whether such was occasioned willfully or through inadvertence". This court is of the view that this statement, presented as a general rule, is incorrect in law. While this statement does properly recognize a judge's discretion to award costs, it disregards the high threshold of willful misconduct identified by the Supreme Court of Canada in Young v. Young, 1993 CanLII 34 (SCC), [1993] 4 S.C.R. 3, [1993] S.C.J. No. 112 ("reprehensible, scandalous or outrageous conduct") which would justify the highest level of costs, reserving such costs for "rare and exceptional cases to mark the court's disapproval of the conduct of the party in the litigation" (see Hunt v. TD Securities Inc. (2003), 2003 CanLII 3649 (ON CA), 66 O.R. (3d) 481, [2003] O.J. No. 3245 (C.A.) at pp. 508-09 O.R.).

[31] There does not appear to be a plethora of cases in support of the motion judge's proposition. The one case cited by him, Delphi Solutions Corp. v. Sendrea, 2004 CanLII 66287 (ON SC), [2004] O.J. No. 1941, 238 D.L.R. (4th) 766 (S.C.J.), is an endorsement of Juriansz J. awarding costs against plaintiffs who were found to have been careless in failing to make full and fair disclosure when requesting an ex parte Anton Piller order. He stated that the "manner with which the plaintiffs applied for the Anton Piller award may be described as casual" [at para. 4]. Juriansz J. had set aside the ex parte order and ordered costs on a substantial indemnity basis in an endorsement that speaks to the specific facts of the case. It does not support the broad inclusive statement made in the motion judge's reasons.

[32] Having said this, this court is of the view that despite the incorrect statement of law made by the motion judge, he did not err in the application of the law when one takes account of the facts of this case as found by him. He held that the appellants had failed to establish a strong prima facie case of fraud and dishonesty. Moreover, contrary to the appellants' submissions, the motion judge found as fact at para. 22 of his reasons that the appellants did not inadvertently fail to provide full and frank disclosure to the court in their request for the ex parte orders and in advancing on the motion a position contradictory to the evidence in their possession. The appellants have failed to [page761] show any palpable and overriding error in this finding of fact. Therefore this court has no basis to interfere with it.

[33] Based on his findings of fact, it was within the motion judge's discretion to award costs on a substantial indemnity basis. Furthermore, the jurisprudence supports the proposition that based on such findings of fact it is a proper and correct exercise of the court's discretion (see Delphi Solutions Corp. v. Sendrea, supra, and Yang v. Mao (1995), 1995 CanLII 7052 (ON SC), 23 O.R. (3d) 466, [1995] O.J. No. 1323 (Gen. Div.)). This court finds no error in the motion judge's decision on the level of costs awarded.

[41] It is evident from its reasons that the Court of Appeal not only examined the lawyers' bills of costs in some detail at both the substantial indemnity and partial indemnity levels, but also examined the proceedings in question in the context of the immediate results as well as in the context of the overall litigation. At para. 29 of its decision the court listed its reasons for finding that the costs award was not justifiable.

[42] In Andersen v. St. Jude Medical, Inc., supra, the Divisional Court considered the quantum of costs granted on a class certification motion totaling, with disbursements, $610,700.85, an amount designated by the court to be probably the largest award for a class certification motion in Ontario.

[43] Lax J. speaking for the court reiterated at para. 22 that, "the magnitude of a costs award by itself did not constitute a principled basis upon which to interfere". She summarized the applicable principles as follows:

1. The discretion of the court must be exercised in light of the specific facts and circumstances of the case in relation to the factors set out in Rule 57.01(1):

Boucher, Moon and Coldmatic.

2. A consideration of experience, rates charged and hours spent (formerly a costs grid calculation) is appropriate, but is subject to the overriding principle of reasonableness as applied to the factual matrix of the particular case: Boucher. The quantum should reflect an amount the court considers to be fair and reasonable rather than any exact measure of the actual costs to the successful litigant: Zesta Engineering.

3. The reasonable expectation of the unsuccessful party is one of the factors to be considered in determining an amount that is fair and reasonable: Rule 57.01(1)(0.b).

4. The court should seek to avoid inconsistency with comparable awards in other cases. "Like cases, [if they can be found], should conclude with like substantive results": Murano at p. 249.

5. The court should seek to balance the indemnity principle with the fundamental objective of access to justice:

Boucher.

6. A discretionary decision of a case-management judge in a class proceeding is entitled to a very high level of deference: Khan and Bre-X.

[44] Finally, the court stated that a very large costs award must be carefully scrutinized to determine whether the judge exercised his or her discretion on proper principles and that the award is not "plainly wrong". In such cases, "there is a high obligation on the judge to adequately explain the basis for the award" (see para. 58).