Limiting Cost Awards Encourages “hardball” Rule 49 Negotiations.
“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.” Justice Hackland, Corbett v. Odorico, 2016 ONSC 2961 (CanLII)
As Teneil MacNeil points out in her blog post “Insurers Beware: Costs Awards Need NOT Be Proportional to Damage Awards” (Ontario Insurance Litigation Blog, May 12, 2016), this May, the Ontario Superior Court of Justice has reminded us that cost awards are not required to be proportional to damage awards, as exemplified by the cases of Mancini Associates LLP v. Guido et al., and Corbett v. Odorico.
Proportionality – Not a Factor
In Mancini Associates LLP v. Guido et al., 2016 ONSC 2959 (CanLII), the Honourable Justice Diamond awarded damages in the amount of $29,413.15, as well as a cost award in the amount of $40,000. In doing so, Justice Diamond relied upon the comments of Justice Emery, who explained:
“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.”
Denial of Access to Justice
Likewise, in Corbett v. Odorico, 2016 ONSC 2961 (CanLII), the damage award granted to the plaintiff was $141,500 and costs were also granted in the amount of $159,249.90. The following comments by Honourable Justice McCarthy in the case of Aacurate v. Tarasco, 2015 ONSC 5980 (CanLII) offer an explanation as to why:
“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.”
When assessing any case, it is important to consider Rule 57.01 of the Rules of Civil Procedure: 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. As the above cases have shown, while costs awards must be reasonable, this does not necessarily equate to them being proportional to a plaintiff’s damages.