Spending $1 to Recover a Nickel: Are There Cost Consequences?

In the Newlands Estate case¹, three siblings were estate trustees and executors of their father’s estate.  They disagreed on whether a painting worth approximately $30,000 formed part of the estate.  The painting was in the possession of one of the trustees who claimed that it was gifted to him. The court found, however, that the father routinely let his children keep assets of value that belonged to him on the understanding that they would rely on appraisals to balance out differing values after his death. The painting was one such asset. On that basis, the court found that the child who had possession of the painting was entitled to keep it as long as he paid the estate $30,000.

This is all background to the interesting question – how much did each side pay in legal fees fighting over a $30,000 painting and how did the court deal with the parties’ respective claims for costs?

The court’s comments underscore the disproportionate use of resources:

“As I set out in my Decision, I am sure that the last thing the parties’ father would ever have wanted or expected is that his three children would come to this Court, two against one, fighting to the point where the intervention of this Court was required. That aside, I am even more certain that he would have been unbelievably disappointed to know that his children had spent almost half a million dollars over a painting worth, on the evidence before me, at most $30,000; the applicants, in their capacities as co-Estate Trustees, had spent $243,636 on a full indemnity basis up to the hearing of the application and John had spent virtually the same amount; $238,7021. As I said in my Decision, “[e]ven in Estates Court, where emotion often clouds judgment, I have never seen anything even remotely close to this case”.

Ultimately, after taking into account various offers to settle, carefully reviewing each party’s cost outline and the arguments made by counsel, the judge awarded costs to the successful party on a substantial indemnity scale fixed at $203,589 and payable by the unsuccessful parties, personally (not the estate). The court only modestly discounted the amount requested.

We have no doubt that the lawyers warned their respective clients that the litigation costs being incurred along the way  were getting far out of line from what could be justified given the value of the asset.  The clients still continued the fight. The judge expressed dismay about why the litigants spent hundreds of thousands of dollars on this litigation, but the judge did not reduce the costs award to reflect the modest value of the asset that was the subject matter of the dispute.  This raises the question of whether the court should have reduced the cost award because the money spent was disproportionate to the relief awarded?

Do Courts Take Into Account Proportionality When It Comes Time To Making Cost Awards?

Rule 1.04(1.1) of the Rules of Civil Procedure provides: “In applying these rules, the court shall make orders and give directions that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding”.

Rule 57.01 outlines the factors a judge takes into account in exercising his/her discretion when awarding costs.  Of particular interest in this discussion are subrules 57.01(1)(e) and (f), which provide:

(e) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding;
(f) whether any step in the proceeding was,

(i) improper, vexatious or unnecessary, or
(ii) taken through negligence, mistake or excessive caution

The aforementioned Rules were not expressly considered in Newlands Estate.  But, they were in Patene Building Supplies Ltd. v. Niagara Home Builders Inc.² In Patene, a company bought building supplies to build homes.  The homes were either sold or rented out.  The builder did not pay the supplier and the supplier sued.  The builder was found liable for $14,139.60 and was ordered to pay $5,000 in costs.  The judge commented as follows:

I have carefully considered the written costs submissions made by counsel for the plaintiff and by Mr. Beam, who represents himself. Nothing in those submissions convinces me that I should deviate from the usual ruling on the issue of costs, i.e. that they follow the cause. The plaintiff was successful, and should be paid its costs. Those costs should be on the partial indemnity scale. They should also bear some reasonable proportionality to the amount of money awarded to the plaintiff as damages. Those damages were for less than $15,000.00. Accordingly, the plaintiff’s request for $8,977.55, plus GST is excessive. This was a short and simple trial. The plaintiff is entitled to judgment for costs fixed at $5,000.00, inclusive of GST and disbursements, as against both defendants, that liability being joint and several.

An alternate and interesting perspective can be gleaned from Justice Gray’s decision in Cimmaster Inc. v. Piccione³.  In that case it was the unsuccessful party’s conduct that unduly complicated and lengthened the proceedings and resulted in higher legal costs. The court stated that it would be unfair to penalize the successful party because of some “notional concept” of proportionality.

The Court of Appeal for Ontario dealt with this issue in Elbakhiet v. Palmer⁴ O.J. No. 3302, 121 O.R. (3d) 616, 242 A.C.W.S. (3d) 39, 323 O.A.C. 300.  Note it was Most Recently Distinguished: Fonseca v. Hansen | 2016 ONCA 299, 2016 CarswellOnt 6304, 266 A.C.W.S. (3d) 104, 348 O.A.C. 112 | (Ont. C.A., Apr 26, 2016)].  This was a personal injury action in which the jury awarded $144,013.  The trial judge found that the case involved complex issues of causation and was significantly important to all parties. The trial judge awarded substantial indemnity costs of $578,742.28, inclusive of disbursements and taxes.

The Court of Appeal overturned the costs order.  One of the factors considered was proportionality. In paragraph 35 the Court of Appeal stated:

The respondents sought damages of approximately $1.9 million, most of it in relation to loss of future earnings and cost of future care totalling approximately $1.6 million. The jury awards for those items were approximately $94,000. The amounts claimed and the amounts recovered were completely different. Rule 57.01 required those facts to be taken into consideration, not discounted because the trial judge believed the case was worth potentially more. It was not fair and reasonable to award the respondents costs of almost $580,000 for a claim the jury valued at just under $145,000.

Conclusions

While Rule 1.04(1.1) is not always mentioned when considering costs, it is clear that to a number of judges, litigants should not receive cost awards disproportionate to the damage award received.  Clearly, this principle is not always applicable. In situations like in Newlands, where one party makes efforts to resolve the dispute and makes formal offers to settle that are not accepted, arguably it would be very unfair to punish the successful party for maintaining its correct position. The court in Newlands did not expressly say that it was basing its costs award on this consideration, but it is safe to assume that it was considered.  Nonetheless, litigants who spend disproportionately on legal fees should not be surprised when courts decline to enforce the “loser pays” principal in full.