Canada: Insurers Beware: Costs Awards Need NOT Be Proportional To Damage Awards

Last Updated: May 20 2016
Article by Teneil MacNeil

The Ontario Superior Court of Justice has provided us with two reminders this May that costs awards need not be proportional to damage awards, as exemplified by the cases below.

In Mancini Associates LLP v. Guido et al., 2016 ONSC 2959 (CanLII), the Honourable Justice Diamond granted a damage award to the plaintiff in the amount of $29,413.15, plus pre-judgment interest, in addition to a cost award in the amount of $40,000, being an amount which was disproportionality high. Why? Because, says Justice Emery, upon whose comments Justice Diamond relied:

It ... has been held that proportionality should not automatically serve to reduce the costs to which a plaintiff is entitled simply because of the amount claimed is excessive in relation to the damages awarded. In this regard, I refer to Justice Daley in A & A Steelseal Waterproofing Inc. v. Kalovski, 2010 ONSC 2652 (CanLII) at para. 21 :

"Further, while costs awarded must be reasonable, it is not the case that the mere fact that costs exceed the damages awarded renders such an award inappropriate: Bonaiuto v. Pilot Insurance Co., 2010 Carswell Ont 1039. As has been stated, the fact that costs significantly exceed the amount at stake, at least in the main action, is regrettable but it is well known to counsel that this is one of the risks involved in pursuing or defending a case. As was noted by Lane J. in 163972 Canada Inc. v. Isacco, [1997] O.J. No. 838: "to reduce the plaintiff's otherwise reasonable costs on this basis would simply encourage the kind of intransigence displayed by the defendants in this case." These words are most apt in the circumstance of this case."

Likewise, in Corbett v. Odorico, 2016 ONSC 2961 (CanLII), the jury granted a damage award to the plaintiff in the amount of $141,500 (before deductions for collateral benefits, etc.), subsequent to which the Honourable Justice Hackland awarded costs in the amount of $159,249.90, plus H.S.T. and disbursements, having relied upon, inter alia, the following statement of the Honourable Justice McCarthy in the case of Aacurate v. Tarasco, 2015 ONSC 5980 (CanLII):

An over-emphasis on proportionality may serve to under-compensate a litigant for costs legitimately incurred. Assuming, as is often the case, that a successful Plaintiff's lawyer is working on an actual fees basis (as opposed to a contingency agreement), this will inevitably result in the Plaintiff having to fund her successful litigation out of the proceeds of judgment that a court found she was entitled to. This is patently unfair to litigants who have been wronged and who choose to invest their hard-earned resources into pursuing a legitimate claim. One does not say to one's lawyer, "I have only a modest claim. I am instructing you to do a mediocre job in advancing it." Few litigation lawyers would be attracted to a litigation landscape where they could not recommend giving a matter the time and effort it requires to be properly advanced because the principle of proportionality predestines a costs award that promises to turn a successful result in court into a net financial loss for their client. A pattern of such outcomes would result in an unintended but nonetheless real denial of access to justice; it will send a message to litigants that it is not worth one's while to pursue legitimate claims in court because one cannot possibly make it cost effective to do so. This is a denial of justice in the most fundamental sense. It tends to encourage those resisting legitimate but modest claims to take unreasonable positions, the logic being that any exposure to costs will be limited because of the size of the claim, regardless of the time and expense necessary to extract a judgment.

The above aside, it is significant to note that both of the above cases involved offers to settle (one being a valid Rule 49 offer, and the other being an offer considered under Rule 49.13) which impacted the costs awards, above. Further, and in the case of Corbett, the defendants made a nominal settlement offer, amounting to a total of $7.00, with respect to which Justice Hackland said this:

In the present case, the defendants did not make any offer that could be characterized as a "near miss". They made an offer, which if accepted, would have paid the plaintiff $7. This presented the plaintiff with the proposition that, on the eve of trial, she should walk away from her case with no compensation, or proceed through trial. In my view, to impose a rule arbitrarily limiting the amount of costs to some proportion of the recovery when there has been no offer of settlement, or only a nominal offer as in this case, would undermine the purpose of Rule 49, which is to encourage settlement by attaching costs consequences for failure to make or accept reasonable offers. It would also encourage the type of "hard ball" approach to settlement employed in this case.

The point to be made is that while costs awards must be reasonable, this does not necessarily equate to them being proportional to a plaintiff's damages. The result is that when assessing any one case, consideration must be had as to the potential effect of any and all offers to settle, as well as the factors set out in Rule 57.01 of the Rules of Civil Procedure, which include but are not limited to the following: the complexity of the proceeding; the importance of the issues; and the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding.

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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Teneil MacNeil
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