Justice Joan L. Lax’s decision in Antorisa Investments Ltd. v. 172965 Canada Limited et al. illustrates why legal fees are becoming such an important part of commercial litigation. Her ruling makes it clear that winners cannot expect to be indemnified by losers for unreasonably high legal expenses.
Here, Imperial Oil had successfully defended an action in which damages had been agreed, before trial, at $500,000. But its legal fees were so high (almost $1.1 million for a 10 1/2 day trial) that the costs award of $650,000 fell far short of full reimbursement. The shortfall of $443,331.69 was only $56,668.31 less than the full amount of the damages in dispute.
Justice Lax had dismissed the plaintiff’s action for damages arising out of its acquisition of a service station that it discovered, five years after the purchase, to be contaminated. Settlements were reached with some defendants but the trial proceeded against Imperial Oil. As mentioned above, the parties had settled the damages at $500,000 prior to trial. For a 10 1/2 day trial that Her Honour said “was not factually complex”, “was not unduly lengthy”, had only one expert witness and involved legal issues that were “imaginative but not novel”, the legal fees claimed on behalf of the successful defendant, Imperial Oil, totalled $1,093,331.69.
Her Honour noted that the fees charged by the plaintiffs’ solicitors were only $332,800 (less than a third of the fees billed to Imperial Oil by its lawyers) and called the difference “staggering”.
As mentioned above, Justice Lax ruled that $650,000 was an appropriate amount for Imperial Oil to recover for legal fees.
There were a couple of unusual circumstances here that were relevant to costs. First, there had been a contract between the plaintiff and Imperial Oil which Justice Lax interpreted to give Imperial Oil “a contractual right to be fully indemnified for legal fees if they are reasonable”. Secondly, Her Honour had found that the plaintiff had made unsubstantiated allegations of fraud against Imperial Oil which warranted a “punitive and deterrent” award of costs.
Despite these two unusual factors, both of which would have tended to increase the costs award, the amount that Lax J. determined to be reasonable ($650,000) was less than 60% of the actual fees billed to Imperial.
Her Honour was clearly troubled by the amount of time that had been spent on this case by Imperial Oil’s lawyers. She mentioned a multi-volume document brief that Imperial had filed at the opening of trial, saying she had “no doubt that countless hours were devoted” to its preparation but observed that “at the end of the day, there was only one document that really counted–the purchase agreement between the parties”.
After comparing the time spent by the law firms on each side of the dispute, Justice Lax said of Imperial’s lawyers, that “the only reasonable inferences are duplication and ‘overkill’ resulting in too many lawyers, clerks and students docketing extraordinary amounts of time to the file”. She went so far as to observe that “if I approach this from the point of view of a solicitor-client taxation of a bill, I am certain that this bill would never be taxed at the amounts claimed”.
Comment
This decision again brings into sharp relief the tension (and, we would say, the irreconcilability) of the principles of indemnity and reasonableness, found in subrule 57.01(1) of the Rules of Civil Procedure, governing costs awards. Formerly, clients involved in commercial litigation could have a reasonable expectation of recovering two-thirds to three-quarters of their legal bill in costs from the other side. Escalating hourly rates and the docketing of huge amounts of time by numerous timekeepers now makes it impossible to give any such assurance, as this case illustrates. Even with an indemnity agreement and unproven allegations of fraud, Imperial Oil was still left with legal fees of almost $450,000 for which it received no reimbursement, in a trial in which the damages were $500,000. Would the company have followed the same litigation strategy if it had known in advance that this would be the costs award? What should a law firm tell a sophisticated corporate client like Imperial Oil about the risks of a lawsuit like this one and, in particular, the amount that it can expect to receive in costs, if successful? Viewed from Imperial’s perspective, one would have to think that in fixing costs, courts are not giving much weight to “the principle of indemnity” in clause (0.a) of subrule 57.01(1).
Looking at the issue from the other side, the losing plaintiff in this case would probably have been shocked to be told at the outset of the lawsuit, that if it lost the case, it would face a costs demand for more than twice the damages claimed and more than three times what its own lawyers would charge. In recognition of the “reasonable expectations” principle in clause (0.b) of subrule 57.01(1), Justice Lax insisted on some objective limits being placed on the costs burden. Nevertheless, the plaintiff was probably dissatisfied with the costs award that was made by Justice Lax, since the fees allowed ($650,000) were still almost twice what the plaintiff’s own lawyers had charged.
Parties generally receive information about the other side’s legal expenses only at the end of a case. Perhaps the time has come to make at least some of this information available through the discovery process, thereby allowing litigants to make a more informed assessment of their positions.