In First Capital (Canholdings) Corporation v. North American Property Group, 2012 ONSC 1359 (CanLII), Mr. Justice Robert Smith had to address the following issue: “Should partial indemnity costs be ordered at hourly rates in excess of the maximum rates set out as guidelines by the Costs Subcommittee in its Notice for the Profession?” He concluded that they should. (Justice Smith sits in Ottawa, so I assume that the motions with respect to which costs were being awarded were heard in that city.)
On these motions, the successful plaintiff sought partial indemnity costs of $35,000, inclusive of fees, disbursements and HST. (This was a commercial real estate case and both parties had brought motions. Justice Smith found that the plaintiff had had partial success on its own motion and complete success in opposing the defence motion. The plaintiff was acknowledged to be entitled to costs on a partial indemnity basis.)
The claimed costs, in the amount of $35,000, were made up of hourly rates for two lawyers. The first was called to the bar in 2002, had an actual rate of $610 per hour and claimed $455 per hour. The second was called to the bar in 2007. His actual rate was $415 per hour and he claimed partial indemnity costs at a rate of $309 per hour. (Both lawyers were seeking 75% of their actual rate.)
Justice Smith observed that the issues involved in the case “were not overly complex” but were important to the parties.
His Honour was not prepared to consider partial indemnity costs calculated as 75% of actual rates. He noted that, under rule 1.03 (1), substantial indemnity rates are defined as being 1.5 times times the partial indemnity rates and that “the substantial indemnity rate would also be slightly less than the full indemnity rate”. On that basis, Justice Smith observed that 60% of the full indemnity rate would have produced partial indemnity hourly rates of $366 and $249, respectively.
However, even on that basis, the hourly rates claimed by the two plaintiff’s counsel exceeded the maximum partial indemnity rates for lawyers of their years of experience that are set out in the “Information for the Profession” published by the Costs Subcommittee of the Civil Rules Committee, that was effective July 1, 2005. Since both lawyers had less than 10 years’ experience, the maximum partial indemnity rates for both, set out in the Information Notice, was $225. (And the Information Notice also specifies that the maximum rates should be reserved for the most complicated matters and for more experienced counsel within each category.)
In the result, Justice Smith allowed partial indemnity rates for the two lawyers at $335 per hour and $200 per hour. He felt that the schedule of rates that appears in the “Information for the Profession” had become out of date and needed to be adjusted for inflation. This and the other factors that he took into account were set out as follows in his reasons:
I will approve partial indemnity hourly rates that are higher than the maximum hourly rates established in the Information Notice for Mr. Gray for the following reasons:
(a) the maximum hourly rates used in the Information Notice should be increased for inflation from at least 2005;
(b) the maximum hourly rates in the Information Notice are intended to provide guidance and are not mandatory;
(c) the amount involved in the dispute was substantial as the matter involved a commercial dispute related to a shopping centre worth 31 million dollars;
(d) both parties retained well respected Toronto firms where hourly rates and office overhead costs are higher than the provincial average. I also infer that both parties would be incurring similar full indemnity costs and their reasonable expectations of the unsuccessful party would be to pay partial indemnity costs in excess of the maximum in the Information Notice in these circumstances; and
(e) Mr. Gray has been called to the Bar for almost ten years (nine and one half years) which is almost the full ten year period.
There are a couple of interesting things to note about this decision. First, the Rules Committee actually looked at updating the “Information for the Profession” in 2010, to address concerns that it was falling out of date. However, the Committee decided to defer any decision and to date, no changes have been made.
Secondly, the Bank of Canada has a handy tool for calculating inflation. Using the Bank’s calculator, I was able to determine that since 2005, inflation has averaged 1.97% per year and the total aggregate of inflation since then is 14.62 percent. Thus, on an hourly rate of $225, the inflation-adjusted rate for 2012 would be $257.91.
Third, Justice Smith felt that the senior lawyer of the two, who had been practising for 9 1/2 years, was at the upper end of the first category (“less than 10 years”). However, the hourly rate that was awarded to that lawyer ($335) was not only well above the partial indemnity rate recommended by the Information Notice for lawyers of his experience ($225 per hour), it exceeded the recommended rate for lawyers having between 10 and 20 years of experience ($300 per hour) and was not far off the rate recommended for lawyers having 20 years of experience or more ($350 per hour). Adjusting these rates for inflation since 2005 would produce figures of $257.91, $343.87 and $401.19.
Finally, Justice Smith attached quite a bit of importance to “the sophistication of the parties and to account for the reasonable expectations of the unsuccessful party where both retained Toronto counsel”. Rule 57.01(1)(0.b) does permit the court to take into account, “the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed”.
In this case, the defendant had not filed a costs outline, as required by Rule 57.01(6) and so, it is not clear on what basis Justice Smith would have been able to determine what the defendant’s “reasonable expectations” were. But he did note that “both parties retained well respected Toronto firms” [Torys for the plaintiff and Lenczner Slaght for the defendant] and His Honour might have inferred that the costs expectations on both sides would have been similar.
But what would have happened if only one party had retained Toronto counsel and the other had retained, say, Ottawa counsel? Would the rising tide have lifted all boats, such that successful Ottawa counsel would have been entitled to the sort of increase that was awarded in this case? Or, if the Toronto firm had been successful, would it have been stuck with costs on the level that the client of the Ottawa lawyer would reasonably have expected? In 2008, in Barkley v. Vogel, Mr. Justice James E. McNamara concluded that an hourly rate of $375.00 on a full indemnity basis, for a lawyer of about ten years’ experience, would not “have been either fair or reasonable in this region [the East Region] over the relevant time frame”. His Honour fixed a partial indemnity rate of $180.00 per hour in that case. In doing so, he said:
In fixing an appropriate rate, at the end of the day, quantum must be guided by the overriding principle of reasonableness, that is, the reasonable expectation of both parties. The Plaintiffs have brought their action in Brockville, which is part of this court’s east region. While I share the view of Plaintiffs’ counsel that the Plaintiffs were entitled to retain any lawyer of their choice, principles of fairness would dictate that the parties would expect that things like hourly rates would bear some resemblance to what would be considered reasonable in the area where the case was tried.
Today’s decision by Smith J. suggests that the venue matters less (or not at all) where both lawyers are from Toronto.