Addendum: Since our commentary on this case, Justice Gonsolus has released supplementary reasons on the issue of the costs premium. His Honour did not disturb the premium of $12,358 that he originally awarded. Instead, he revised the basis of the premium.
His Honour said that “I realize that in my comments concerning cost premiums, I have inadvertently misstated the general principles established by the case law. I wish to correct my error, or in the very least, my lack of clarity in relation to the case law”. His Honour proceeded to state, unequivocally, that “[a] cost premium cannot be awarded based upon risk.”
As we noted in our original post, the law seems fairly clear, that “risk premiums” cannot be part of an award of costs between parties. The premium that was originally awarded by Justice Gunsolus certainly seemed to have been based on the risk assumed by counsel for the plaintiff: “It is to be noted that counsel for the plaintiff, insofar as the plaintiff was left without the financial resources necessary to take this matter to trial, were required to fund the entire litigation without retainer. They further funded all disbursements and therefore undertook a substantial financial risk on behalf of the plaintiff. A review of all the principles relevant to justify a premium cost award justifies such an award in this case.”
As noted above, in his supplementary reasons, Justice Gunsolus acknowledged that the law does not permit risk premiums. However, he went on to say that “[a] premium is allowed in order to recognize permissible Rule 57.01 factors such as outstanding results achieved, the complexity of the matter and the importance of the issue.” Applying the criteria set out in R. 57.01 (such things as result achieved, importance of the issues, etc.), His Honour concluded that a premium was warranted here. He cited R. v. Maria Berendsen in support of his conclusion. That case, in turn, relied upon the Court of Appeal’s decision in Sandhu v. Wellington Apartments. In Maria Berendsen, a costs premium of $50,000 was given “in recognition of the complexity and importance of the issues”. In Sandhu, the Court of Appeal reduced by $300,000 a $350,000 premium that had been awarded at trial, although rather than express its disposition in terms of a “premium”, the Court of Appeal said, “In other words, the appellants are entitled to recover from the appellants $50,000 over and above the amount agreed to by the parties in the Minutes of Settlement.”
Thus, it appears that some courts are still willing to apply the factors enumerated in Rule 57.01 in order to justify a costs premium, but only in recognition of those factors, not that of risk.
Our original post follows:
In Pate v. Galway, Mr. Justice Drew Gunsolus has resurrected a concept that we haven’t seen in quite a while: premiums on awards of costs. The underlying decision (those reasons appear here) was a wrongful dismissal case that began more than ten years ago. The plaintiff was ultimately awarded damages of about $131,000. (The damages were of various sorts: general, special, Wallace, punitive and aggravated. The trial went particularly badly for the defence: Justice Gunsolus, after totalling up the damages, said, “I would order more, however, I am bound by the principles of proportionality.”)
Counsel for the plaintiff sought a 20% “risk premium” on costs, to reflect the fact that the law firm had funded both fees and disbursements in getting to trial and so, had assumed a considerable risk. Although no offers to settle had been made by either side, Justice Gunsolus awarded costs on a substantial indemnity basis, “[t]aking into consideration the success of the plaintiff in this matter and the conduct of the defendant.”
He then turned to the issue of the costs premium. He concluded that such a premium “is available when substantial indemnity costs are awarded” and cited as authority Sandhu v. Wellington Place Apartments. Since he had awarded costs on the substantial indemnity scale, he considered that he was free to give a 20% premium and did so. He calculated 20% of the total of the fees, disbursements and GST and added that amount to the costs award. This increased the costs from $61,791 (fees, disbursements and GST) to $74,149.
It is true that a costs premium was given in Sandhu, which was decided in 2006. However, later that year, the Supreme Court of Canada decided Walker v. Ritchie and struck down a “risk premium” on the basis that “The risk of non‑payment to the plaintiffs’ lawyer was not a relevant factor under the costs scheme in Rule 57.01(1) of the Ontario Rules of Civil Procedure at the time costs were fixed in this case.” At paragraph 30 of the Supreme Court’s reasons, the Court said that there was “no basis for a difference in approach to the issue of a risk premium as between an award of partial or substantial indemnity costs”. On the basis of Walker, the costs premium in Sandhu was overturned by the Court of Appeal in 2008.
Rule 57.01 has been amended since Walker and it was thought for a while that the case might be distinguishable on that basis. However, the Court of Appeal held, in Ward v. The Manufacturers Life Insurance Company, that “the concerns underlying the decision in Walker apply equally to the new language of Rule 57.01″.
We haven’t heard much about risk premiums since then. It seems to us that Justice Gunsolus is mistaken in his statement, that such premiums are available where costs are awarded on a substantial indemnity basis.
Oddly, His Honour was aware of the Supreme Court’s decision in Walker v. Ritchie as it is cited in a footnote.
Justice Gunsolus also awarded prejudgment interest at 5.3% per annum, for 10.67 years. (Although 5.3% was the appropriate rate for a proceeding commenced in the first quarter of 1999, it is striking that that is more than ten times the rate of interest provided for at present by the Courts of Justice Act. Given that His Honour specifically mentioned that the defendant had “had the benefit of these funds for the 10.67 year period”, we would have thought that some consideration might have been given to averaging the rates over the last ten and a half years.)
In addition, His Honour does not appear to have calculated interest (on special damages, at least) at the end of each six-month period, as required by s. 128(3) of the Courts of Justice Act or to have used the shorthand approach, endorsed by the Court of Appeal in Borland v. Muttersbach, of applying one-half the rate otherwise applicable.