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“Like a forest fire in this era of climate change, costs in class proceedings have gotten out of control.” These were the opening words of Justice Perell in his recent costs decision following a successful defence motion to stay the class proceedings in Heller v Uber Technologies Inc, 2018 ONSC 1690: http://canlii.ca/t/hr1br In two costs decisions released on the same day in two separate class proceedings, Justice Perell substantially reduced the costs claimed by the successful parties on the motions before him.
Justice Perell may well be right that the costs of class proceedings have spiralled out of control. Or it may simply be that class proceedings are high stakes litigation where substantial legal fees are entirely warranted and are within the reasonable expectations of all parties. I leave that debate for others. Instead, my own plea in this comment is for some certainty and predictability in costs awards, particularly in class proceedings.
A review of Justice Perell’s recent costs decisions demonstrates that litigants face significant variability in the costs awards they will receive or that will be made against them. Heller v Uber Technologies Inc and Paniccia v MDC Partners Inc represent the low watermark.
In Heller, the plaintiff had brought a proposed class proceeding against Uber, alleging that Uber had improperly classified Uber drivers as independent contractors rather than employees, and thereby deprived those employees of the benefits of the Employment Standards Act. Uber brought a successful motion to stay the proceedings, on the basis that the agreements giving rise to those disputes included arbitration clauses. The defendants’ lawyers charged their clients $292,829.94 in fees and disbursements and, after they were successful on the motion, sought costs in the amount of $158,000.00, representing approximately 54% of the fees and disbursements. Justice Perell in turn awarded only $65,000.00, representing approximately 22% of the fees and disbursements actually incurred.
The results were similar in Paniccia v MDC Partners Inc, 2018 ONSC 1775: http://canlii.ca/t/hr1bw. In that case, the plaintiffs brought a proposed global securities class action in Ontario arising out of alleged misrepresentations by MDC Partners and others. The defendants brought a motion to restrict the scope of the class to only Canadians who purchased shares of MDC Partners on the Toronto Stock Exchange. The defence motion was unsuccessful. The plaintiffs sought costs on a partial indemnity basis of approximately $158,113.56, inclusive of disbursements. Justice Perell ultimately awarded $64,279.31 representing a $50,000 counsel fee plus disbursements.
In both cases Justice Perell set out his view that costs in class proceedings are now out of control. While he acknowledged in Heller that the lawyers on both sides may have subjectively expected a large costs award, it was his view that such large costs awards were no longer reasonable:
…the subjective reasonable expectations of the losing party in a class action are no longer reasonable. In a class action, each side expects the other side to prosecute or defend without any sense of what’s reasonably necessary to obtain access to justice. Both sides over-litigate, knowing that over-litigating is what their foe will also be doing and knowing that the Court will not second-guess the lawyer’s decisions.
The remarkable feature of these decisions is not, in and of itself, Justice Perell’s conclusion that the legal fees in class proceedings are excessive. Rather, what is surprising is Justice Perell’s own deviation from his previous costs decisions. Indeed, as recently as September 2017 in Das v George Weston Limited, 2017 ONSC 5583: http://canlii.ca/t/h689v, Justice Perell awarded the defendants essentially the entirety of the very substantial quantum of costs they sought (over $2,300,000).
The proposed class proceeding in the Das case was brought against Loblaws and related companies by the victims of a factory collapse in Bangladesh. In essence, the claim against Loblaws was that one of its subsidiaries, Joe Fresh, had purchased clothes from a manufacturer who was located in that factory. Claims were also advanced against Bureau Veritas, a consulting service that Loblaws had retained to conduct a social audit of factories in Bangladesh.
The certification motion in the Das case was complicated. There were a series of motions heard along with certification, which were argued over nine days. The Court had before it 73 volumes of evidence and compendiums. There were 34 affidavits from 21 witnesses. Ultimately, Justice Perell concluded that while the Ontario Superior Court of Justice had jurisdiction simpliciter over the claims, the claims against the defendants disclosed no viable causes of action.
Following the unsuccessful certification motion, the Loblaws defendants sought $1.35 million in costs, and the Bureau Veritas defendants sought $985,601.60 in costs. Justice Perell awarded the defendants the entire amounts sought. In his decision, there was no suggestion of any need for restraint by either of the parties. Rather, Justice Perell accepted that it was a complicated motion and that the parties should be awarded costs appropriately.
As noted above, both of these viewpoints have merit. The reality of class proceedings is that they are extremely high stakes litigation often hotly contested on virtually every issue. As such, there is a good argument to be made that Courts should apply the usual costs rules in class proceedings, except where modifications are specifically called for under section 31 of the Class Proceedings Act, 1992, S.O. 1992, c. 6. Alternatively, it may be entirely reasonable to encourage restraint in class proceedings by not reimbursing every dollar spent by the parties. There are merits to this as well.
Whichever approach the Courts select, it should be a consistent approach so that counsel can properly advise their clients. The alternation between granting staggering costs awards and granting much more limited costs awards is not helpful in incentivizing appropriate litigation behaviour. It might be the case, for example, that if partial indemnity costs awards were limited to being only 20% of a party’s actual legal expenditures, parties would be incentivized to temper their legal expenditures, knowing that they will get only limited recovery of such costs. Yet without a consistent policy on costs from the Courts, it is difficult to know what expenditure is appropriate and what advice is to be given to clients. Similarly, it may well be that clients will instruct counsel to litigate a case by leaving no stone unturned, based on the perception that they will ultimately be successful and that the substantial investment of legal fees will be, in large measure, recovered down the line. It pulls the rug out from under clients if the Court then shifts to a much more modest costs regime.
While the decisions on which I have focused have been those of Justice Perell, the wide variation in costs awards is by no means limited to his decisions. While all of the judges appear to support the principle in Boucher v Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 291 (C.A.): http://canlii.ca/t/1hcgq that costs should reflect the fair and reasonable expectations of the litigants, this basic guiding principle seems to be the only thing upon which the judges agree. Some Courts have awarded costs on a roughly formulaic basis, granting partial indemnity costs at a rate of 60% of actual fees incurred. Other Courts continue to look to the tariffs set out in the Rules, which results in much smaller costs awards. And then there are cases where costs awards are based on neither approach but simply reflect the judge’s own rough and ready assessment concerning the complexity of the motion and the appropriate costs award.
Costs are, of course, discretionary and designed to address a number of competing objectives, including indemnification of successful parties and deterrence of inappropriate litigation conduct. However, to achieve these objectives, greater consistency in costs is required. Just as our clients increasingly demand litigation budgets, and lawyers have created rules of thumb to estimate what the fees will be in advance of a particular step, Courts should similarly be expected to provide consistent guidance as to the types of costs awards that might ultimately be expected in different categories of cases. By way of example, if the Courts wanted to discourage excessive litigation costs in relation to the certification motion, they could set a rough cap on partial indemnity costs of a contested certification motions at $250,000, with partial indemnity costs of other contested pre-certification motions capped at $100,000. While some parties might well choose to spend more, they would do so in the knowledge that further fees are not likely to be recovered. Without such clear guidance, it is arguable that parties are unlikely to be dissuaded from litigating aggressively, notwithstanding the threat of judicial admonition.
ABOUT THE AUTHOUR
Paul-Erik Veel, Lenczner Slaght
Any article or other information or content expressed or made available in this Section, is that of the respective author and not of the OBA.