Costs and Class Actions

When I first started receiving referral work from American lawyers many years ago, I became aware that for the most part, American litigants are responsible for bearing their own legal costs.  I found many American lawyers surprised to find that this is not the case in Ontario. 

As Canadian litigants are well (and often painfully) aware, a court will have discretion at the end of a case to award costs as it sees fit.  In almost every case, costs are awarded in favour of the successful party. 

What is less commonly understood by non-lawyers is that “costs” to be paid by the losing party is not the same as requiring the losing party to pay all of the winning party’s legal expenses.  The normal rule is that the loser must pay what is referred to as partial indemnity costs – roughly a percentage, usually between 50% and 2/3, of the winning party’s legal expenses. 

This rule applies not only to cases that have been concluded by a trial, but also to motions.  Typically, the winner of a motion is also entitled to partial indemnity costs. 

There are cases in which the level of costs indemnification is increased to an amount which is much closer to the winning party’s actual legal expenses.  This is referred to as substantial indemnity costs.  There is even a higher level, known as full indemnity costs, in which the winning party is awarded all of its legal expenses.  That type of order is exceedingly rare.

In fact, substantial indemnity costs are also rarely awarded.  They are mostly frequently awarded in the context of a Offer to Settle made by the winning party which the losing party failed or refused to accept.  Must less frequently, they can be awarded where the losing party has conducted the litigation in a way which the Court finds to be reprehensible. 

An additional consideration is brought to bear in the instance of a class action.  The Class Proceedings Act provides that in assessing costs on a motion to certify a case as a class action, the court may consider whether or not the action was a test case, raised a novel point of law, or involved a matter of public interest.  If any of those considerations apply, the court may well exercise its discretion not to award costs against a representative Plaintiff if he or she loses the motion to certify the case as a class action. 

This point is of great importance to a representative Plaintiff, for reasons made clear in the recent decision of the Ontario Superior Court in Seed v. Her Majesty the Queen in Right of the Province of Ontario.

The problem highlighted by that case is quite simply the extent to which costs can be run up in a certification motion. 

In most class actions, a representative Plaintiff will be putting himself forward on behalf of any number of potential class members in a piece of litigation where the Plaintiff himself may only have a very small amount of money at stake.  Lawyers acting for Plaintiffs in class actions will act on a contingency fee basis, so that the representative Plaintiff will not be looking at a huge legal bill from his own lawyer if the motion for certification, and therefore the action, fails.  However, if the motion fails, and unless the court exercises its discretion not to award costs because the point was novel or for one of the other reasons listed in the Class Proceedings Act, the representative Plaintiff may be looking at a huge adverse costs award.  That is why most representative Plaintiffs take steps to ensure that there is some type of war chest that has been built up through contributions from potential class members, which can be used to satisfy such a costs award.  There are other funding options as well but the point is that a representative Plaintiff with a few thousand dollars at stake does not wish to be exposed to an adverse costs award in the hundreds of thousands of dollars.

In the recent decision in the Seed case, the court had to fix the costs payable by the losing party to the winning party.  In the result, the court awarded over $107,000 plus disbursements.  The judge went on to say:

There is a wide range of costs awards for certification motions.  The award in this case falls at the low end of the range…

In the Seed case, the losing party was the Ontario government, so the award was obviously affordable.  However, had the result gone the other way, a costs award of this size may well have been a very painful one to sustain.  As the court pointed out, the amount of the award was on the low end of the usual range.  Costs payable by the losing party on a certification motion are usually much higher.  Representative Plaintiffs should make sure they are well protected from this eventuality.

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