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Explore the indemnity principle, purposes of awarded costs, party and special costs, offers to settle, security for costs, and more in civil procedure. Understand the mechanics and consequences of costs orders and how they promote access to justice.
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LAW 469-003 Civil Procedure Week 11: Costs and Access to Justice Gavin Cameron March 23, 2017
Takeaways • The indemnity principle • The purposes for which costs are awarded • Party and party costs • Special costs • Offers to settle • Mechanics and consequences • Security for costs • Interim costs • Special cost rules in class proceedings • Contingency fees
Overview of costs • Costs orders can arise after an application or after trial • They generally provide for one party to pay another party (or non-party) based on success on the application or in the action • Generally speaking, “costs” are an indemnity that the unsuccessful party in litigation may be required to pay to the successful party • Rule-based but the court has a wide equitable and discretionary jurisdiction in ordering costs • Power to order costs is now viewed as a tool in furtherance of the efficient and orderly administration of justice (and therefore a legitimate instrument of policy) • British Columbia (Minister of Forests) v. Okanagan Indian Band 2003 SCC 71 at para. 25
Overview of costs (cont.) • Costs are ordered in the exercise of the court’s equitable and statutory jurisdiction in order to: • Indemnify successful litigants in whole or in part for the costs incurred in establishing their legal rights • Promote reasonable access to the court • Encourage responsible behavior and deter misconduct • By both parties and counsel • Avoid injustice occasioned by reckless litigation • Encourage meaningful settlement offers and negotiation between the parties
Sources of jurisdiction • R. 14-1 (“Costs”) • Appendix B • R. 9-1 (“Offers to settle”) • Business Corporations Act • Security for costs against a corporation • Inherent jurisdiction
Overview of costs: practical considerations • Costs on the default scale are much less than full indemnity: sometimes only 15% to 20% of actual legal fees • Usually payable at the conclusion of the proceedings • Amount is agreed to or assessed by the Registrar • Our system referred to as “loser pays” system • Other jurisdictions, particularly in U.S., require parties to bear their own costs, regardless of outcome • Theory is that threat of costs may deter some worthy claims or defences, and impair access to justice
Costs terminology • “Costs follow the event” • Winner gets their costs • “Costs in the cause” • The successful party on the application gets the costs of the application if they succeed at trial; in other words, if you win the ultimate issue you are then awarded costs of the application or step at issue. If you lose at trial, you don’t receive costs for the step even though you won the application. • “Costs in any event of the cause” • The successful party on the application gets the costs of the application, regardless of the result at trial
Costs terminology (cont.) • “Costs thrown away” • Order that a party is entitled to costs wasted by some unnecessary step, e.g. adjournment of an application or trial • “Lump sum costs” • Court fixes an amount of costs, avoiding the need for their assessment or a bill of costs • Can apply to a single step (more common) or an entire proceeding (very unusual): R. 14-1(1)(c) and (d) • “Payable forthwith” v. “Payable after assessment” • Payable immediately, as is sometimes the case with lump sum costs; distinguished from payable only after the Registrar has assessed
Party and party costs • Default standard • Assessed by the Registrar according to a tariff (a prescribed schedule) found in Appendix B to the SCCR • Based on creating a bill of costs from a list of allowable items expressed in units. Each unit has a value set by a scale (A, B, or C). • Test for recovery on an assessment is whether “proper or reasonably necessary to conduct the proceedings” • R. 14-1(2)
The Default Cost Order • Party and party costs payable under “Appendix B” are the default for a successful party unless the court orders otherwise. R. 14-1(12) and (13). • “The general rule, therefore, is that, unless the court orders otherwise due to special circumstances, costs go to the successful party of a motion, but are not payable until after the conclusion of the trial, and only if that party is awarded costs at trial.” Araya v. Nevsun, 2017 BCSC 336 • In other words, “costs in the cause”, not payable “forthwith”.
The Default Cost Order - Mechanics • A party is entitled to prepare a Bill of Costs and identify the steps taken in the litigation and to claim “units” for those steps • The party is then paid an amount per unit based on the scale of costs • The scale of costs is fixed based on the “difficulty of the matter”: • Scale A for less difficult matters • Scale B for matters of ordinary difficulty • Scale C for matters of greater difficulty • Disbursements incurred in the action can also be claimed in the bill of costs
Disbursements • Expenses: part of “costs” but distinct from fee component • Recoverable under R. 14-1(5) • Also subject to assessment by the Registrar • Recoverable if • “necessarily or properly incurred” • reasonable in amount • Disbursements range from small expenses like photocopying or long distance phone calls to potentially large expenses • expert costs • witness travel costs
Unusual costs issues • Distributive costs • Court may award costs of part of the proceeding only: R. 14-1(15) • Bullock and Sanderson Orders • Cost shifting from successful defendants to unsuccessful ones where it was reasonable for the plaintiff to sue the successful defendant in the first place
Unusual Costs Issues (Continued) • Section 3 of the Negligence Act: • Unless the court otherwise directs, the liability for costs of the parties to every action is in the same proportion as their respective liability to make good the damage or loss. • If the Plaintiff is partially at fault, the amounts are set off against each other and, if necessary, against the damage award. • Potential for injustice where the division of fault is between a successful personal injury plaintiff and a defendant who has suffered no injury or damage. • Can relate to the exercise of discretion in respect of offers to settle. See Cornish v. Khunkhun, 2015 BCSC 832.
Special costs • A form of increased costs, awarded where: • Party engaged in “reprehensible” conduct • Scandalous or outrageous conduct; or • Milder forms of misconduct that are deserving of rebuke • Where substantive law or a contract provides for full indemnity, e.g. receivers • Unlike party and party costs, approaches full indemnity, and often based on the legal fees actually incurred by a party, rather than on costs allowed under Appendix B. • Court can order that whole proceeding or only certain steps be assessed as special costs • R. 14-1(1)(b)(i) and (ii)
Special costs (cont.) • Like party and party costs, assessed by the Registrar to determine whether “proper or reasonably necessary to conduct the proceedings” but also on basis of factors set out in R. 14-1(3)(b), including: • Complexity, difficulty or novelty of the proceeding and issues involved • Skill and specialised knowledge required of counsel • Amount involved • Time reasonably spent • Conduct of any party that tended to shorten or unnecessarily lengthen the proceeding • Other enumerated factors • Same factors govern the review of a lawyer’s bill under the Legal Profession Act.
Costs Against a Lawyer or a Non-Party • R. 14-1(33) permits the court to disallow a lawyer from collecting fees or make the lawyer personally liable for costs if the lawyer has unreasonably caused costs through delay, neglect or other fault. • Nazmdeh v. Spraggs – deterring zealous advocacy? Usurping the function of the Law Society? Concerns regarding Privilege? • Can also award special costs; see Pierce v. Baynham, 2015 BCCA 188 • Court has jurisdiction to award special costs against a non-party in special and unusual circumstances, such as where the non-party has engaged in fraudulent conduct, an abuse of process, or gross misconduct in the commencement and/or conduct of the litigation, or when the non-party is the “real litigant” • Lower v. Stasiuk
Special costs cases Nazmdeh v. Spraggs Henry v. British Columbia (Attorney General) Lower v. Stasiuk
Offers to settle • Governed by R. 9-1 • Codifies Calderbank jurisprudence • If a party makes a R. 9-1 compliant offer and obtains a result at trial that is better than the offer, at conclusion of proceedings the court has a discretion as to costs • Is meant to be a “punitive measure against a litigant for that party’s failure, in all of the circumstances, to have accepted an offer to settle that should have been accepted. Litigants are to be reminded that costs rules are in place to encourage the early settlement of disputes by rewarding the party who makes a reasonable settlement offer and penalizing the party who declines to accept such an offer”. • Highly discretionary • Desirable or insufficiently certain to achieve its purpose?
Offers to settle (cont.) • Purpose: use of threat of costs as an ex ante device to control parties’ behavior • Encourages early settlement of disputes by rewarding parties who make reasonable settlement offers and penalising those who do not accept reasonable settlement offers • Discourages prosecution or maintenance of doubtful claims and defences • Overriding consideration is whether accepting the offer would have resulted in a significant saving for a party or the court
Offers to settle (cont.) • A party can make an offer to settle and reserve the right to bring the offer to the attention of the court for consideration in relation to costs at the conclusion of all other issues in the action. • Formal requirements in R. 9-1(c); in writing; served on all parties of record; contains the “magic words”. • The offer is “without prejudice” and is not to be disclosed to the court until costs are in issue and it does not operate as an admission • The court may consider an offer in relation to costs, but is not obligated to do so (R. 9-1(4)) • Be aware that an offer to settle does not expire by reason that a counter offer is made (R. 9-1(8))
Offers to settle (cont.) • Note permissive considerations in R. 9-1(6) • Whether the offer ought reasonably to have been accepted, and when • Relationship between the offer’s terms and the judgment • Parties’ relative financial circumstances • Any other factor court considers appropriate
Offers to settle - consequences • Options available to the court include: • Deprive party of costs in whole or in part • Award double costs (but not double disbursements) • Award costs in respect of all or certain steps undertaken after the date of the offer • Award the defendant costs in respect of all or certain steps from the date of the offer, if an offer was made by a defendant and the plaintiff recovers an amount that does not beat the offer • “A plaintiff who rejects a reasonable offer to settle should usually face some sanction in costs. To do otherwise would undermine the importance of certainty and consequences in applying the Rule”: C.P. v. RBC Life Insurance
Offers to settle - consequences • Double costs are a creature of statute. Intended to augment the cost award to which a plaintiff would otherwise be entitled. A similar intent is behind the rule which makes double costs available to defendants when an action is dismissed. • “Such an award levelled the playing field between the parties and put each party at risk of a double cost award in circumstances in which they would ordinarily be entitled to an award of costs in their favour.” • Discretionary; and • Even if it ‘beats’ its offer, a defendant cannot receive ‘double costs’ if the Plaintiff achieved at least some success (ie. the case wasn’t dismissed in its entirety).
Ward v. Klaus • The plaintiff was awarded $433,103.63 at trial • More than a month before the trial, the defendant made an offer to settle for $493,234.04 • Three days before trial the defendant offered to settle for $595,000 • The plaintiff had assessed her damages at $975,000 and had made an offer to settle for $750,000 • The defendant sought an order that the plaintiff be deprived of costs and the defendant entitled to costs from the date of one of the two offers. On the basis of draft bills of costs in evidence, this would cost the Plaintiff approximately $149,000.
Ward v. Klaus (Continued) • The court reviewed the R. 9-1(6) considerations in turn. • The court notes that in considering whether the offer “should have been accepted” the review is undertaken without regard to the ultimate outcome. Here, the plaintiff’s assessment of her claim was $975,000. It could not be said that the plaintiff should have accepted either of the offers for significantly less • On the other hand, both offers were more than was awarded at trial and the plaintiff would have been better off accepting either. The relationship between the offer and final judgment is a mandatory consideration. While the difference between the offer and ultimate award was a matter to consider, it was not determinative
Ward v. Klaus (Continued) • With respect to financial circumstances of the parties, the plaintiff would not be completely impoverished if required to pay costs, but it would significantly reduce the value of her judgment. There was no financial information about the defendant, but he was likely indemnified by his insurer. As a result, the financial circumstances of the parties was not a material factor. • The court concluded that there must be some impact for the substantial offers made, which the plaintiff did not beat at trial • However, forcing the plaintiff to pay costs was too great a penalty given that it was not unreasonable for her to have rejected the offers • In the result, the court awards the plaintiff costs to the date of the first offer, and then each party to bear its own costs after
Ward v. Klaus (Continued) • “Importance of certainty and consequences in applying the Rule” • But, significant discretion. “Rule 9-1 gives the court a broad discretion to determine the consequence of a successful offer to settle. While the Rule is intended to reward the party who makes a reasonable settlement offer and penalizing the party who fails to accept it, the several options set out in Rule 9-1(5) allows the court to determine with greater precision the penalty or reward appropriate in the circumstances.” • In certain circumstances even a nominal offer can be reasonable and should be accepted to spare all parties the costs of an expensive trial.
Security for costs • Order that plaintiff post security for the defendant’s costs as a condition of permitting the claim to proceed • Parties are permitted to defend a claim without posting security • Involves two competing principles • Not allowing a plaintiff to gamble at litigation at another’s expense; and • Protecting the right of access to the courts, particularly for the poor • Power to make the order found in • Inherent jurisdiction (where the plaintiff is a natural person) • Business Corporations Act, s. 236 (where the plaintiff is a corporation)
Security for costs (cont.) • Usually ordered in one of the following circumstances • Corporate plaintiff • Non-resident, natural person plaintiff • Resident, natural person plaintiff, but only where • Plaintiff will prima facie be unable to pay costs if unsuccessful • If so, onus shifts to plaintiff to show no arguable defence or that he will be able to pay costs • Residual discretion to deny application • Jurisdiction should be exercised “sparingly”
Security for costs, corporate plaintiff: Carhoun & Sons v. Canada • Carhoun summarizes the legal principles governing applications against corporate plaintiffs. • The first step in the test for posting security for costs is the applicant must make out a prima facie case that the respondent would be unable to pay costs if the claim fails • If the applicant satisfies this requirement, the respondent may defeat the application by showing: • It has exigible assets that would satisfy an award of costs; or • There is no arguable defence to the claim • Further, the respondent can also resist an order on the basis that: • An order for security will deprive the respondent of the ability to pursue a valid claim; • Merits of the claim; • Delay in bring the application for security; or • The financial hardship that makes the respondent unable to pay costs is due to the actions of the applicant
Security for costs, ‘natural’ person: Iwasaki v. Redford BC (unlike some other Provinces) has no rule of court with respect to security for costs orders against individual litigants. Rather, where an individual claimant is concerned, the inherent jurisdiction of the court is relied on in respect of applications for security for costs A distinction is made between applications for security for costs in respect of a company as opposed to a natural person- in part to ensure individual access to the courts, despite impecuniosity. Very difficult to obtain an order for security for costs against an individual; such an order will be made only under special circumstances.
Iwasaki (Continued) No evidence that posting security would “stifle” the action, which amounted to “special circumstances”. Other special circumstances are failing to pay costs awards in the past, an exceedingly weak claim, and “egregious circumstances amounting to a likely abuse of the court’s jurisdiction”.
Quantum Of Security Where security for costs is ordered, the quantum of the order is a matter of the court’s discretion. Can be ordered posted in stages; can take into account the likelihood of settlement or certain steps not being taken. Draft bill of costs can be sufficient evidence.
Additional Security for costs cases • CFAR v. Canadian Jewish Congress (Week 5) • Kropp v. Swan-E-Set (leading case)
Interim costs • Employing inherent jurisdiction, court has power to order interim costs (i.e. costs payable in advance rather than at the conclusion of the proceeding) • “Absolute requirements” • Genuine impecuniosity and no other way for the issues to be tried. • Meritorious case • Unresolved issues of public importance which transcend the interests of the litigants • Note fierce pushback in Little Sisters (SCC): • “Advance costs should not be used as a smart litigation strategy” • “A last resort”, available only when otherwise “a court would be participating in an injustice”
Interim costs (continued) • Should the costs of private litigation be borne by taxpayers? • “Financial constraints put potentially meritorious claims at risk every day.” • Cap on the total amount payable, must accept external controls – amount of work naturally expanding to the maximum.
Costs in class proceedings • Special rules apply • Part 5 of the Class Proceedings Act (“CPA”) • General rule is no costs (trial or appeal) to any party to • An application for certification • A class proceeding • An appeal arising from a class proceeding • Discretionary exceptions for abusive conduct, improper steps or “exceptional circumstances” • Robson v. Chrysler, pre-certification jurisdiction challenge.
Costs in class proceedings (cont.) • Representative plaintiff is liable for costs; individual class members only liable for costs of determination of their own claims • All of this is in keeping with access to justice policy underlying the CPA
Costs in class proceedings cases Kerr v. Danier Leather [2007] 3 S.C.R. 331 Robson v. Chrysler
Contingency fees • Means of ensuring access to justice and funding litigation • Restrictions imposed by Legal Profession Act in order to protect clients and ensure fairness • Must be in writing • Legislated caps on the percentage fee (33.3% for personal injury) • Client may apply to the Registrar to have the agreement’s fairness examined: Mide-Wilson v. Hungerford • Settling too quickly? Ignoring duties to the court? “As the profession grows more and more ‘business-like’, it seems more important than ever that lawyers be, and be seen as, trustworthy, independent and free from conflicts.” • In class proceedings, contingency fees common for plaintiff’s counsel • Court must approve agreements and fees • Court can order how much class counsel will be paid: s. 38(7)
Mide-Wilson v. Hungerford Tomyn Lawrenson and Nichols • Client had wanted a contingency agreement, even though she had the resources to pay hourly rates. • Early settlement after pleadings drafted, a couple motions argued, and a mediation conducted. • Fee of nearly $20,000,000 (including taxes) on a $100,000,000 recovery. • Hold clients to their bargains, or dissuade lawyers from acting as venture capitalists?
