The appeal considers, and sets aside, the trial judge's decision to fix a large portion of the costs on a full indemnity basis absent a finding of sanction-worthy conduct on the part of the party against which the cost order was made.
The Court's analysis is worth reading in full but some relevant passages follow:
The Applicable Rules
[10] The award of costs is governed by section 131 of the Courts of Justice Act R.S.O. 1990, c.43 and by rules 49 and 57.01 of the Rules of Civil Procedure R.R.O. 1990, Reg. 194.
[11] The general source of judicial discretion to award costs is found under s.131 of the Courts of Justice Act, as expanded by rule 57.01.
[12] Section 131 of the Courts of Justice Act says:
Subject to the provisions of an Act or rules of court, the 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.
[13] Rule 57.01 reads as follows:
In exercising its discretion under section 131 of the Courts of Justice Act to award costs, the court may consider, in addition to the result in the proceeding and any offer to settle or to contribute made in writing,
(0.a) the principle of indemnity, including, where applicable, the experience of the lawyer for the party entitled to the costs as well as the rates charged and the hours spent by that lawyer;
(0.b) the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed;
…
(c) the complexity of the proceeding;
…
(e) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding. (Emphasis added.)
[14] Rule 57.01(4) allows for elevated levels of costs:
57.01(4) Nothing in this rule or rules 57.02 to 57.07 affects the authority of the court under section 131 of the Courts of Justice Act,
...
(c) to award all or part of the costs on a substantial indemnity basis;
(d) to award costs in an amount that represents full indemnity.
[15] "Substantial indemnity costs" is defined in rule 1.03 as "costs awarded in an amount that is 1.5 times what would otherwise be awarded in accordance with Part I of Tariff A". This part of Tariff A was once the prescribed grid for "partial indemnity costs", but is no longer in effect. "Full indemnity costs" is not a defined term but is generally considered to be complete reimbursement of all amounts a client has had to pay to his or her lawyer in relation to the litigation: see M. Orkin, The Law of Costs, looseleaf, 2nd ed. (Aurora, Ont.: Canada Law Book, 1993) at para. 219.05.
[16] Rule 49 deals with a specific aspect of costs: it is a self-contained scheme that addresses the manner in which offers to settle are brought into play. Its objective is to promote an offer of compromise and visit a cost consequence upon an offeree who rejects an offer that turns out to be as favourable as or more favourable than the judgment awarded to a plaintiff at trial. The parts of rule 49 relevant to this analysis are:
49.02(1) A party to a proceeding may serve on any other party an offer to settle any one or more of the claims in the proceeding on the terms specified in the offer to settle
...
COSTS CONSEQUENCES OF FAILURE TO ACCEPT
Plaintiff's Offer
49.10(1) Where an offer to settle,
(a) is made by a plaintiff at least seven days before the commencement of the hearing;
(b) is not withdrawn and does not expire before the commencement of the hearing; and
(c) is not accepted by the defendant,
and the plaintiff obtains a judgment as favourable as or more favourable than the terms of the offer to settle, the plaintiff is entitled to partial indemnity costs to the date the offer to settle was served and substantial indemnity costs from that date, unless the court orders otherwise.
Defendant's Offer
(2) Where an offer to settle,
(a) is made by a defendant at least seven days before the commencement of the hearing;
(b) is not withdrawn and does not expire before the commencement of the hearing; and
(c) is not accepted by the plaintiff,
and the plaintiff obtains a judgment as favourable as or less favourable than the terms of the offer to settle, the plaintiff is entitled to partial indemnity costs to the date the offer was served and the defendant is entitled to partial indemnity costs from that date, unless the court orders otherwise.
...
49.13 Despite rules 49.03, 49.10 and 49.11, the court, in exercising its discretion with respect to costs, may take into account any offer to settle made in writing, the date the offer was made and the terms of the offer.
...
V. Analysis
[27] The parties take no issue with the general principles applicable to appellate review of costs decisions. The Supreme Court has made it clear that a costs award should be set aside on appeal only if the trial judge erred in principle or if the award was plainly wrong: see Hamilton v. Open Window Bakery Ltd., [2004] 1 S.C.R. 303, at para. 27.
(1) The Costs Award on an Elevated Scale
The Jurisprudential Framework
[28] The first issue is whether the trial judge erred in relying on the February 2005 offer as justification for an elevated costs award. This court, following the principle established by the Supreme Court, has repeatedly said that elevated costs are warranted in only two circumstances. The first involves the operation of an offer to settle under rule 49.10, where substantial indemnity costs are explicitly authorized. The second is where the losing party has engaged in behaviour worthy of sanction.
[29] In Young v. Young, [1993] 4 S.C.R. 3, at p. 134, McLachlin J., described the circumstances when elevated costs are warranted as "only where there has been reprehensible, scandalous or outrageous conduct on the part of one of the parties."
[30] The same principle was expanded upon in Mortimer v. Cameron (1994), 17 O.R. (3d) 1 (C.A.), at p.23, where Robins J. A., speaking for the court, set out the restricted circumstances in which a higher costs scale is appropriate with reference to Orkin at para. 219.
An award of costs on the solicitor-and-client scale, it has been said, is ordered only in rare and exceptional cases to mark the court's disapproval of the conduct of a party in the litigation. The principle guiding the decision to award solicitor-and-client costs has been enunciated thus:
[S]olicitor-and-client costs should not be awarded unless there is some form of reprehensible conduct, either in the circumstances giving rise to the cause of action, or in the proceedings, which makes such costs desirable as a form of chastisement. [2]
[31] The narrow grounds justifying a higher costs scale were further reinforced by Abella J.A. in McBride Metal Fabricating Corp. v. H. & W. Sales Co. (2002), 59 O.R. (3d) 97 where, at para. 39, she said:
:
Apart from the operation of Rule 49.10 (introduced to promote settlement offers), only conduct of a reprehensible nature has been held to give rise to an award of solicitor-and-client costs. In the cases in which they were awarded there were specific acts or a series of acts that clearly indicated an abuse of process, thus warranting costs as a form of chastisement.
See also: Walker v. Ritchie (2005), 197 O.A.C. 81 at para. 105, reversed on other grounds, [2006] 2 S.C.R. 428.
[32] At para. 14 of the reasons, the trial judge acknowledges the parties' agreement that rule 49 was not applicable to Blue Circle's February offer.
[33] This leaves egregious conduct, specifically the question whether in the circumstances of this case the settling defendants engaged in conduct worthy of sanction.
Strasser
[34] This takes me to Strasser, the case upon which the trial judge relied in awarding an elevated scale of costs following the February 2005 offer to settle and upon which Blue Circle heavily relies in this appeal.
[35] In Strasser, the plaintiff had originally claimed $1,000,000. After discovery, the defendant offered to pay $30,000. The plaintiff then reduced the claim to $70,000. The action was ultimately dismissed. In those circumstances, the trial judge awarded the defendant solicitor-and-client costs, throughout.
[36] In the plaintiff's appeal of the costs award, Carthy J.A., for the court, noted that although the defendant's offer was not a rule 49.10 offer, the language of rules 49.13 and 57.01 gives the trial judge discretion with respect to costs, and rule 49.13 specifically invites the judge exercising discretion to take into account any offer to settle made in writing. Carthy J.A. went on, however, to hold that the offer in Strasser could not, standing on its own, justify an award of solicitor-and-client costs. While the trial judge did not identify any evidence of reprehensible conduct, Carthy J.A., in upholding the award, was careful to note that during the costs submissions the trial judge did say "I think this case, in these circumstances, screams for solicitor-and-client costs:" p. 246.
[37] This court sought to clarify Strasser in Scapillati v. A. Potvin Construction Ltd. (1999), 44 O.R. (3d) 737, a case in which the defendant had served an offer to settle on the basis that the action be dismissed without costs and the trial judge subsequently dismissed the plaintiff's claim. Purportedly following Strasser, the trial judge awarded party-and-party costs to the date of the offer and solicitor-and-client costs thereafter.
[38] On appeal, this court started its analysis of the defendant's appeal of the costs award by observing, once again, that as the plaintiff's claim had failed, rule 49.10 had no application. Then, at p. 750, turning to Strasser, Austin J.A. had this to say:
[T]he principle upon which solicitor and client costs were awarded in Strasser is a very narrow one. The plaintiff had made a claim for $1 million, the defendant made an offer after discovery of $30,000 and the action was dismissed at trial. In the instant case, no similar offer was made. While the trial judge in the instant case made an award of solicitor and client costs, it does not appear from the record that she felt as strongly about it as the trial judge in Strasser who said "I think this case, in these circumstances, screams for solicitor and client costs."
[39] Thus interpreting Strasser as a case where egregious conduct was implicitly found, this court allowed the appeal as to costs, set aside the original costs award and substituted an award of costs on a party-and-party basis. For other cases in which comments have been made on the limited application of Strasser, see St. Louis-Lalonde v. Carlton Condominium Corporation No. 12 (2005), 142 A.C.W.S. (3d) 934 (Ont. S.C.) aff'd 155 A.C.W.S. (3d) 479 (C.A.), at para. 15, Dyer v. Mekinda Snyder Partnership Inc. (1998), 40 O.R. (3d) 180 (Ct. J. (Gen. Div.)).
[40] In summary, while fixing costs is a discretionary exercise, attracting a high level of deference, it must be on a principled basis. The judicial discretion under rules 49.13 and 57.01 is not so broad as to permit a fundamental change to the law that governs the award of an elevated level of costs. Apart from the operation of rule 49.10, elevated costs should only be awarded on a clear finding of reprehensible conduct on the part of the party against which the cost award is being made. As Austin J.A. established in Scapillati, Strasser should be interpreted to fit within this framework - as a case where the trial judge implicitly found such egregious behaviour, deserving of sanction.
James Morton
1100-5255 Yonge Street
Toronto, Ontario
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