Authorson (Litigation Administrator of) v. Canada
PROCEEDING UNDER the Class Proceedings Act, 1992
Joseph Patrick Authorson, deceased, by his Litigation
Administrator, Peter Mountney and by his Litigation
Guardian, Lenore Majoros, Plaintiff, and
The Attorney General of Canada, Defendant
 O.J. No. 5179
57 C.C.P.B. 270
37 C.P.C. (6th) 115
154 A.C.W.S. (3d) 35
2006 CarswellOnt 8156
Court File No. 99-GD-45963
Ontario Superior Court of Justice
J.H. Brockenshire J.
Heard: By written submissions.
Judgment: December 20, 2006.
Civil procedure -- Costs -- Special orders -- Increase in scale of costs -- Court reviewed its earlier order in which it awarded a risk premium in a class proceeding in light of a subsequent Supreme Court of Canada decision -- Based on the subsequent decision it revoked the risk premium award as being inappropriate.
Civil procedure -- Judgments and orders -- Amendment, rescission and variation -- Court reviewed its earlier order in which it awarded a risk premium in a class proceeding in light of a subsequent Supreme Court of Canada decision -- Based on the subsequent decision it revoked the risk premium award as being inappropriate.
Legal profession -- Barristers and solicitors -- Compensation -- Measure of compensation -- Court reviewed its earlier order in which it awarded a risk premium in a class proceeding in light of a subsequent Supreme Court of Canada decision -- Based on the subsequent decision it revoked the risk premium award as being inappropriate.
Professional responsibility -- Professions -- Legal -- Lawyers -- Court reviewed its earlier order in which it awarded a risk premium in a class proceeding in light of a subsequent Supreme Court of Canada decision -- Based on the subsequent decision it revoked the risk premium award as being inappropriate.
Review by the court of an earlier order that it made respecting costs in a class proceeding -- Court previously awarded full indemnity costs to class counsel in the amount of $2.1 million -- It also awarded a premium of $1 million -- One of the cases that it relied upon to award the risk premium was an Ontario Court of Appeal decision -- That decision was appealed to the Supreme Court of Canada and was argued before that Court -- Court issued its earlier decision but invited counsel to make submissions once the Supreme Court rendered its decision -- Submissions were made once the Supreme Court issued its decision -- Counsel for the defendant submitted that the Supreme Court decision completely foreclosed any authority to award a risk premium to the successful party in a lawsuit -- Class counsel sought to distinguish the Supreme Court decision and submitted that it was given in a tort case where substantial indemnity costs had been awarded by reason of a Rule 49 offer to settle -- They submitted that the decision was limited to cases where substantial indemnity costs were awarded because of the operation of Rule 49 -- This was to be distinguished from this case because the award of full indemnity costs was based on an egregious breach of fiduciary duty rather than the operation of an offer to settle -- In addition, this case was an equitable case and the court retained its equitable jurisdiction to award costs in its discretion -- HELD: Previous order was amended so that the risk premium was revoked -- In equity the court could impose costs awards that did not fit the usual tariffs or rules -- However, that discretion was subject to the provisions of an act or rules of court -- Supreme Court limited that discretion -- Equity cases were therefore irrelevant -- Distinction suggested by class counsel was rejected -- Supreme Court decision removed the basis in the case law upon which the court could award the risk premium -- Decision stood for the proposition that on broad policy grounds successful plaintiff's counsel could seek compensation for undertaking the financing of litigation and the acceptance of risks involved in the litigation -- Such compensation, however, had to come from counsel's own clients rather than from the losing party, even though such compensation could be funded from the damage award to the plaintiff.
Statutes, Regulations and Rules Cited:
Class Proceedings Act, 1992,
Courts of Justice Act, s. 131
Ontario Rules of Civil Procedure, Rule 49, Rule 57, Rule 57.01(1)
Raymond G. Colautti, David G. Greenaway and Peter Sengbusch, for the Plaintiff
C. Scott Ritchie, Q.C. and A. Dimitri Lascaris, for the Defendant
1 J.H. BROCKENSHIRE J.:-- In my decision on costs released September 28, 2006, I awarded full indemnity costs to class counsel in the amount of $2,171,877 plus disbursements and plus a premium of $1,000,000. In my decision I had discussed the subject of a risk premium in paragraphs 56 to 67 both inclusive. In those paragraphs, I mentioned a number of cases, including Walker v. Ritchie  O.J. No. 1600 (C.A.). In paragraph 11 of my decision I mentioned that the Court of Appeal decision in Walker v. Ritchie, supra, upholding a risk premium (which by coincidence I had awarded) had been appealed to the Supreme Court of Canada and had been argued on May 10, 2006, but the decision was still under reserve. I had decided to complete my reasons in this case, but to make them subject to possible amendment when the Supreme Court of Canada decision became available. I confirmed that position in paragraph 76 of my decision and indicated that when the Supreme Court of Canada decision issued, counsel were invited to make submissions to me.
2 The Supreme Court decision issued October 13, 2006 and the same day Mr. Ritchie had a copy of the decision and his initial comments to me by fax. Mr. Greenaway responded with a brief letter on October 15th. On October 23rd I sent a memo to counsel, indicating firstly that I felt I had obligated myself to both the parties and to the Court of Appeal in my original decision, to revisit it on release of the Supreme Court of Canada decision, and invited counsel to give me more formal and fuller submissions on their respective positions. Those submissions have now been received and considered by me, together with the judgment of Rothstein J., unanimously concurred in by the other members of the Supreme Court of Canada in Walker v. Ritchie,  S.C.J. No. 45, 2006 SCC 45.
3 Very briefly, Mr. Ritchie, in his written submissions argued that the Supreme Court of Canada decision had completely foreclosed any authority to award a risk premium to a successful party in a lawsuit, payable by the losing party, and that the amendments to the rules on costs, mentioned as a caveat in paragraph 43 of the decision of Rothstein J., did nothing to permit risk premiums in Ontario.
4 The written submissions of class counsel argued that the Supreme Court decision in Walker v. Ritchie was given in a tort case where substantial indemnity costs had been awarded by reason of a Rule 49 offer to settle. The suggestion is that the finding of the Supreme Court should be limited to cases where substantial indemnity costs have been awarded because of the operation of Rule 49. The argument is that the Authorson case should be distinguished because in it the award of full indemnity costs was based on an egregious breach of fiduciary duty rather than the operation of an offer to settle, and further that Authorson was an equity case, and the court retains its equitable jurisdiction to award costs in its discretion.
5 Crown counsel, in reply, argued the Supreme Court decision spoke broadly about risk premiums, without limiting its prohibition to any particular type of case, and that I had based the risk premium award on risk and hardship rather than misconduct.
6 I agree with class counsel that there is a substantial line of cases indicating that in equity, the courts could impose cost awards that did not fit the usual tariffs or rules, in order to do justice as between the parties. However, s. 131 of the Courts of Justice Act makes that discretion subject to the provisions of an act or rules of court. Rule 57.01(1), before listing an imposing list of factors for consideration, provides that the court may consider those factors including "any other matter relevant to the question of costs". The "may", and the final "any other matter "would appear to leave it open to a court to apply the reasoning in the equity cases. However, the statutory interpretation analysis undertaken by Rothstein J. at paragraphs 24 to 28 of his decision, and accepted by the rest of the Supreme Court, severely limits the broad wording of the "any other matter" sub-clause to the subjects of the preceding sub-clauses in the section. Collaterally, his interpretation indicates that the distinguished jurists who authored the equity cases on costs, decided after the modern costs regime came in to effect, and purporting to operate outside of it, had erred. I therefore conclude that those equity cases do not assist the class position.
7 Class counsel goes back to the cases making a distinction between awards of substantial indemnity costs under Rule 49 and awards of such costs because of reprehensible conduct by the defendant; and to the judicial pronouncements, when risk premiums started to be allowed as against the losing parties, that such premiums were permissible where substantial indemnity costs had been allowed for reprehensible conduct but not where a substantial indemnity costs arose because of Rule 49. However, in the Court of Appeal decision in Walker v. Ritchie  O.J. No. 1600 the court, at paragraph 106, relied upon the decision of Rosenberg J.A. in Lurtz v. Duchesne  O.J. No. 354, where he permitted a premium on top of substantial indemnity costs in a Rule 49 case, based simply on the risk assumed and the result achieved. It appears to me that paragraph 108 in Walker, which stated that:
"... a premium ought to occur only rarely and only when both factors -- risk and result -- cry out for an award in excess of substantial indemnity costs."
was intended to apply only to the Rule 49 situation, leaving available the second option of "reprehensible, scandalous or outrageous behaviour" as a basis for a premium, as discussed in paragraph 105 of Walker.
8 However, as I read the decision of Rothstein J. in Walker v. Ritchie in the Supreme Court of Canada, he was not concerned with the particular details that might lead to the granting or the refusal of a risk premium, but rather with what parts of the remuneration of successful counsel should be passed on to the loser as a claim for costs and what part should be handled by the successful litigant, either directly out of his or her pocket, or out of an assistance scheme, or out of his or her damage award. He explains, in paragraph 34, that if it were otherwise, then the threat of a risk premium would incline defendants with meritorious defences to settle, which in turn would encourage plaintiffs to pursue the least meritorious claims. All of this would be directly counter to the policy which should be behind a costs scheme.
9 At paragraph 36, Rothstein J. points out that complexity, length, result, failure to admit, etc., and the experience and expertise of counsel are all matters to be taken into account in arriving at an award of costs, and adds that:
"Compensating for these factors again through the addition of a risk premium arguably constitutes a double count in the costs award against the unsuccessful defendant."
Mr. Ritchie, at paragraph 6 of his reply submissions on costs echoes that position.
10 Rothstein J. finished off his decision with the caveat that amendments to the Ontario costs scheme since the cost award in Walker may have changed the applicability of the reasoning in his judgment. I fail to see how the abandonment of the cost grid, or the specific importation in to Rule 57 of the principle of indemnity or the requirement that the reasonable expectations of the unsuccessful party be taken into account, both long established in case law, would have any effect on the principles of which he spoke in his decision. The specific proviso that full indemnity costs could be awarded, as has been done in this case, simply provides a further possible reason for not also having a risk premium awarded.
11 Class counsel, in their written submissions, argue that the egregious breach of fiduciary duty by the Crown would justify the risk premium that I had granted. Crown counsel argued that the breach of fiduciary duty was already considered as the basis for the substantial indemnity award, and if it was taken to be the supporting reason for a risk premium that would amount to in effect a double award of costs.
12 In my decision, starting at paragraph 52, I had considered the effect of the two settlement offers made by the class and also considered at some length the serious breach of a fundamental fiduciary obligation that went on for years, with the Crown then defending with great vigour the action of the class taken against it. In my discussion of the risk premium issue, after discussing other cases, I discussed the great deal of time that had been involved for class counsel in dealing with this case, their problems in financing the case, and the impossibility of the named plaintiffs being of any assistance in that financing. I pointed out that in addition to the complexity of the case, the result achieved had been an extraordinary judgment for damages. I concluded that, based on the case law, these issues -- the offers to settle, the risks undertaken, including the financing of the case, and the extraordinary result all entitled the class counsel to a risk premium under the case law as it then stood.
13 In my view, the decision of Rothstein J. quite simply removed the basis in the case law upon which I had founded my decision to award a risk premium payable to class counsel by the Crown. I take the decision of Rothstein J. as enunciating that on broad policy grounds, successful plaintiff's counsel should be able to seek compensation for undertaking the financing of litigation, and the acceptance of the risks involved in the litigation, but that such compensation is to come from their own clients, rather than the losing parties, even though such compensation (unless coming from some special assistance fund) may well be funded from the damage award to the plaintiffs.
14 The result of the foregoing review of my provisional reasons on costs, subsequent to the release of the reasons in Walker v. Ritchie by the Supreme Court of Canada, is that paragraphs 56 to 67, both inclusive, and sub-paragraphs (d) and (e) of paragraph 75 of my decision be taken as deleted, so that the award made to the class of a risk premium of $1,000,000 is revoked.
15 Incidentally, I also correct the erroneous case reference in paragraph 76 of my decision, to read Walker v. Ritchie. If counsel are not able to resolve any issue re the costs of this clearly unusual re-consideration, written submissions may be made to me.
J.H. BROCKENSHIRE J.