For defendants, success is often bittersweet due to the costs of
mounting a defence and the reputational harm caused by the
plaintiff's allegations. This reputational harm is amplified
when the allegations include fraudulent, criminal, unethical or
unprofessional conduct. To help compensate for this elevated
reputational harm and deter against unfounded accusations of
dishonest conduct, plaintiffs that fail to prove such claims may be
ordered to pay costs on the substantial indemnity scale to
Given that reputational harm is further amplified in the class
actions context, one might expect that substantial indemnity awards
could be made if representative plaintiffs fail to prove
allegations of dishonest or fraudulent conduct. However, in Hodge v. Neinstein, Justice Perell
held that, in such cases, substantial indemnity awards are not
available to defendants that defeat motions for certification.
"If it is vindication a defendant wants, then he or she
should consent to certification and prove that the representative
plaintiff's claim is without merit."
- Justice Perell in Hodge v. Neinstein.
As discussed in
our previous blog post on the Hodge v.
Neinstein proceedings, the representative plaintiff
alleged the defendants had systematically breached the contingency
fee provisions in the Solicitors Act in a manner that was
fraudulent, illegal, unethical and unprofessional. Justice Perell
dismissed the motion for certification because the action lacked
common issues and was not the preferable procedure. Nonetheless,
the representative plaintiff continued to attack the
defendants' integrity during the motion for costs.
No Substantial Indemnity Costs
In Justice Perell's view, the defendants' success at
certification offered no vindication with respect to the
plaintiff's allegations. The merits of the case were not
decided at the certification motion – neither the facts,
their legal implications nor the availability of affirmative
defences. To the extent that findings were made, they were only
made for the purposes of certification. Moreover, the alleged
illegal contingency fees could be the subject of individual civil
actions brought by class members (or complaints to the law
society). Therefore, there was no basis on which to award costs on
the substantial indemnity scale.
In cases where a defendant's integrity is at issue, the
nature of the allegations becomes another factor influencing the
defendant's litigation strategy. When subjected to false
allegations of dishonest or fraudulent conduct in a class
proceeding, defendants are left with deciding if
"vindication" is worth agreeing to certification and
spending the additional time and money required to disprove the
allegations at trial.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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