In 1175777 Ontario Limited v. Magna International Inc., Madam Justice Carolyn J. Horkins of the Ontario Superior Court had to fix costs following a 14-day trial in which she had found for the defendants.

The plaintiff had sued Magna and its principals (including Frank Stronach) for $35 million, alleging that they had breached a contract to have the plaintiff build a factory for one of Magna’s subsidiary companies. The plaintiff also claimed that Mr. Stronach had conspired to injure it by arranging to have the plant built by one of the plaintiff’s competitors.

Justice Horkins dismissed the action. Counsel for the defendants sought costs on a substantial indemnity basis, in the amount of $528,307.12 for fees, plus disbursements of $319,130.32 and GST.

The plaintiff challenged the costs on a number of bases. It argued that the defendants should be limited to costs on a partial indemnity scale and that the award be much less than the amount claimed. In the course of her detailed reasons, Justice Horkins provided useful insight into the principles that will guide the courts in fixing costs in such cases. She criticized counsel for the plaintiff for spending too little time on the case. But she also observed that counsel for the defence should have delegated to law clerks some of the work that had been done by junior lawyers.

Substantial indemnity costs

The defence sought costs on the higher scale because the plaintiffs had pursued a claim for “conspiracy to injure”. Horkins J. said that while substantial indemnity costs are the exception and not the rule, such awards are not limited to cases in which allegations of fraud have been made. She reviewed a number of authorities that supported this view and concluded that, “[u]nfounded allegations of improper conduct are equally capable of attracting substantial indemnity costs, particularly when the allegations are seriously prejudicial to the character or reputation of the individual.”

Applying these principles to this case, Her Honour felt that substantial indemnity costs were warranted.

Complexity

Although the liability issue in this case was only of average complexity, Justice Horkins considered that, “[o]n a scale of one to ten, with ten being the most complicated, this damage claim was a ten.”

Her Honour praised the work of counsel for the defence. She said that the defendants’ case was “thoroughly planned and focused” and resulted in a trial of relatively short duration.

Comparison of time spent by counsel for both sides

Justice Horkins requested time dockets and invoices from the lawyers for both sides. She acknowledged that the legal fees incurred by the losing party were a relevant factor to consider under Rule 57.01, when assessing the reasonableness of the fees claimed by the winning side. In this case, there was a marked discrepancy between the fees charged to the two sides: $650,000 by counsel for the defendants and about $250,000 by counsel for the plaintiff.

Justice Horkins compared the time spent by both sides at various stages of the litigation. Interestingly, she actually criticized counsel for the plaintiff for spending too little time on such tasks as preparation for discoveries and for trial.

She did not think that the time spent on the plaintiff’s case provided her with much assistance as to what was “reasonable”.

Second counsel fee

Counsel for the plaintiff urged Horkins J. not to award a second counsel fee for the time spent by an associate lawyer who had attended the trial. Her Honour noted that the former practice of awarding a block fee for counsel fees at trial no longer exists. Such fees are now to be determined, like fees for other phases of the litigation process, “having regard to the rule 57.01 factors and the overriding reasonable and fairness test”. In this case, Her Honour found that it had been reasonable to have a junior counsel at trial and that a second counsel fee was warranted.

Hourly rates—failure to use law clerks

Lead counsel for the defendants was called to the Bar in 1983. At the time of trial, he was charging his client $650 per hour (although his rate had been as low as $330 during the life of the file). The defence sought the maximum partial indemnity rates set out in the guideline from the Rules Committee: $300 per hour during the period that defence counsel was of less than 20 years’ experience and $350 per hour thereafter. (The substantial indemnity rates would be derived by multiplying the partial indemnity rates by 1.5.)

Despite her high regard for the quality of the work done by the defence team, Her Honour felt that a reduction of the hourly rate of the lead counsel was warranted. This was partly because that lawyer had only just entered the “20 years plus category”. But a second reason for the reduction was the fact that the defence had used no law clerks in the conduct of the case. Justice Horkins said:

I do not propose to go through the voluminous dockets and identify the specific tasks that ought to have been assigned to a law clerk at a lower rate. It is reasonable to expect that the defendants would use law clerks. In a case of this nature an experienced law clerk would be preferred and so a rate of $80 would be anticipated. My best estimate is that use of a law clerk would have reduced the partial indemnity fees by about $10,000. This assumes the law clerk would have worked on the file throughout the litigation.

The defence fees were reduced to a partial indemnity figure of $302,171.75 (compared with a claimed amount, on a partial indemnity scale, of $352,204.75). As noted above, the corresponding substantial indemnity fee was derived by multiplying by 1.5, as contemplated by rule 1.03.

Disbursements

Justice Horkins ruled in favour of the defence with respect to the cost of various expert witnesses. While Her Honour agree that the cost of the defence experts’ reports was “on the high side”, she found that, in the circumstances of this case, it was warranted.

The cost of daily transcripts was also held to be reasonable and was allowed. Photocopying costs were reduced (voluntarily) by $5,000.