In July 2015, the Ontario Courts released a decision in the case of Goldsmith v. National Bank of Canada, 2015 ONSC 4581, which included some surprising commentary as to what the Court considers reasonable legal fees to be for lawyers to charge their clients in the Toronto marketplace. Also in July 2015, we were asked to assist a group of fraud victims in responding to a claim for costs by defendants in a fraud action where they had to discontinue their claim because their former lawyers had improperly plead their case.
We often receive inquiries from fraud victims as to what are reasonable legal fees, and what is their risk of paying defendant costs if they make an allegation of fraud. We also receive inquiries as to whether a victim’s legal costs can be recovered against fraudsters as part of their civil litigation. Sometimes they are surprised to learn that they could be liable to pay costs to a fraudster if they are unsuccessful in their attempt at civil recovery. This blog provides some information to fraud victims on the law of costs in civil litigation generally, and as it applies to fraud cases specifically, and on what types of fees the Toronto Courts deem reasonable for lawyers to charge their clients.
Costs in Civil Litigation Generally
Ontario is a “loser pays” jurisdiction. This generally means that if a motion is brought, the unsuccessful party at the motion must usually pay the successful party within 30 days of the ruling of the motion. Likewise, if a trial takes place, the unsuccessful party is often ordered to pay the costs of the successful party with 30 days of the conclusion of the trial.
The law of costs is quite a complicated set of rules, which includes factoring in offers to settle made by either side. In Ontario it is possible for a plaintiff to be successful at trial, yet still be ordered to pay a defendant a net amount because a defendant’s offer to settle was greater than the award a judge ordered at trial. The complications of the law of costs is such that some legal commentators compare civil litigation with going to Vegas – that is, predicating recovery for bringing an action is like rolling dice – there is no guarantee of winning, and even winning (let alone losing) may be costly.
If one is to take away a general principle from this blog it is that the amount of costs ordered to be paid by an unsuccessful party at a motion or at trial is generally about 60% of what the Court considers reasonable litigation costs. What reasonable litigation costs are has recently been adjudicated in Goldsmith v. National Bank of Canada, 2015 ONSC 4581 (“Goldsmith”). In this case the Court held:
The objective of the costs award is to fix an amount that is “fair and reasonable” to the unsuccessful party “rather than an amount fixed by the actual costs incurred by the successful litigant.” Actual legal costs incurred are irrelevant and all the more so in an era where the legal profession continues to enjoy protection from market forces and where access to justice for most litigants remains illusory mainly because of the high hourly rates charged by lawyers.
The Grid (found in Rule 57 of the Rules of Civil Procedure) coupled with the judicial admonition in Boucher (a case holding that costs should be reasonable and proportional to the amount involved in the litigation) [are a] signal to the legal profession and its self-regulator [as to] what “reasonable” legal fees should look like.
[T]he Court of Appeal [has held] that…55 to 60 percent of “a reasonable actual rate” …more appropriately reflect[s] partial indemnity…But what is a reasonable actual hourly rate for a senior Toronto litigator? It is certainly not $900 or $1,000 per hour. This is obviously not market-pricing. What about $500 to $600 per hour? Is this more reasonable? No doubt – but if so, the Grid rates are actually up to date (i.e. the $350 maximum is pretty much in line with the Court of Appeal’s suggested 60 percent measure.)
The real question is this: how does one go about deciding what constitutes a “reasonable actual rate” in the context of a self-regulated profession that continues to enjoy the benefits of a monopoly, including monopoly-pricing? That is why the Rules Committee (or someone even more objective) should continue to set the Grid rates and should do so with one eye always on the public interest.
In any event, I will continue to apply the current Grid until it is changed (by the Rules Committee.) And I will apply the revised rates thereafter but only if they are “fair and reasonable” not just for lawyers but for the public they serve.
… The best way for an unsuccessful party to convince a court that the successful party’s costs request is unreasonable is for the former to present a certified copy of her own cost outline. This would provide much-needed credibility to complaints about excessive fees or, for example, the high cost of the defendant’s expert report.
From the forgoing, it is apparent the Toronto Courts still favour what is often referred to the Grid rates. The Grid rates for senior lawyers (partners and lawyers with 10+ years of experience) is somewhere between $450 to $600 per hour. The Grid rates for junior lawyers (associates and lawyers with less than 10 years experience) is somewhere between $200 to $450 per hour. If you are paying more than this, you are paying for a lawyer who has earned your trust and loyalty with exceptional skill. You are unlikely to recover their cost to you from the Courts.
Not commented on in the Goldsmith ruling is the use of multiple lawyers by large firms on a file. In most cases the Courts allow the costs claimed by one senior lawyer, one junior lawyer, and a clerk or a student. The Courts often do not allow costs being claimed by multiple senior and junior lawyers unless there is a specific reason to justify it. Again, if you are paying for three or more lawyers on your file, you are paying for a firm that has earned your trust and loyalty. You are unlikely to recover their cost to you from the Courts.
Also not commented on in the Goldsmith ruling is that the Courts, especially the procedural (Master’s) Courts, further discount the costs claimed for procedural motions seemingly quite randomly on the basis of what they determine a respondent would expect to pay. Often these reductions of partial indemnity cost awards by procedural Masters is not justified with any sort of discernable reasoning, and is granted significant deference by judges if the cost ruling is appealed.
It seems one of the reasons given by the Master’s Courts, especially in fraud cases, for their lenient cost awards against fraudsters is that the alleged fraud has not yet been judicially determined. Yet the Superior Courts are reluctant to go back and increase the inadequate cost award by a procedural Master after trial when the fraud has been proven. It appears the Master’s Courts are sending an implicit message to stay out of the procedural Courts unless absolutely necessary.
The bottom line is that fraud victims often feel quite ripped off and bewildered by the Master’s Courts when it comes to cost awards for procedural motions. The story is not as bad when it comes to Superior Courts motions and trials. The other unfortunate result is that insufficient cost awards in procedural motions as against fraudsters often have the side effect of emboldening fraudster defendants to take meritless positions both in bringing and responding to motions. The result is often delay and additional costs to fraud victims in their attempt to bring their case forward.
Victim Liability for Defendant Legal Costs
As mentioned above, we are currently assisting a group of fraud victims in a $9M investment fraud respond to claims for costs resulting from their discontinuance of an allegation of fraud against various defendants. The reasons for the discontinuance are beyond the scope of this blog. Suffice to say, the claim was improperly drafted by their initial lawyers, and the victims did not appreciate the risk they were taking with their allegations of fraud. When informed of the risks, some of the group decided to discontinue some of their claims, and they all decided to amend their claim. Some defendants are now seeking cost orders against some of the plaintiffs.
Ontario Courts have held that substantial indemnity costs (approximately 80% of what the Court considers reasonable market rates as discussed above) will be imposed at any stage of a proceeding when unsupported and unproven allegations of fraud and dishonestly are made: Royal Bank of Canada ats Boussoulas 2010 ONSC 5744 (“Royal Bank”). In the Royal Bank case, the Court deferred costs in favour of the primary defendant (the primary fraudsters) in a failed motion for a Mareva injunction, but ordered costs payable by the Royal Bank forthwith as against secondary defendants (alleged accessories to the fraud).
Ontario Courts have also held that substantial indemnity costs will also be imposed against plaintiffs in a group action for fraud where only some plaintiffs discontinue and other continue on with the allegations: Mele et al ats Thorne Riddel et al (1997), 32 OR (3d) 674 (GD). This is especially the case where claims of fraud are made against secondary accessory defendants who are professional persons. In alleging fraud against a professional person, not only does the action require the defendant to incur litigation costs, it also impugned the character or reputation of a person whose only asset is his or her integrity and knowledge.
Ontario Courts have further held that substantial indemnity costs will even be imposed against plaintiffs alleging fraud if they discontinue their action immediately after a defendant has served his or her defence: Goulin et al ats Goulin (1995), 26 OR (3d) 472 (GD). The Court held that unless a plaintiff can show there was a basis for alleging fraud and dishonesty by a defendant, a substantial indemnity cost order against plaintiffs alleging fraud should be made to punish improper and reckless allegations impugning the defendant’s character and integrity.
How the Courts compute substantial indemnity costs varies. As mentioned above in the Royal Bank case, the Court determined that substantial indemnity cost was 80% of reasonable market rates. In other cases, the Courts have held that substantial indemnity is 1.5 times the amount of partial indemnity costs: Victoria Order of Nurses for Canada et al ats Greater Hamilton Wellness Foundation 2012 ONSC 1527. The difference between 80% and 1.5 times partial indemnity may well be saying the same thing different ways when the math is completed.
The bottom line is that cases of fraud must be strictly pleaded and strictly proven. Especially in group cases, where there are multiple plaintiffs making multiple allegations against multiple defendants, the specific allegations by each plaintiff should be made against each defendant. Bare allegations of fraud by a group of plaintiffs against a group of defendants results in the plaintiffs taking a serious risk they will be liable to some of those defendants for costs. While the risk of alleging fraud against a primary defendant may not be high, the risk is significant when making allegations against secondary defendants, especially professionals, where evidence is not available that they were directly involved in the fraud of the primary fraudster.
Fraudster Liability for Victim Costs
Fraud victims should not be deterred by the foregoing from bringing a claim where they have evidence to support their allegations, they receive an opinion from their fraud recovery counsel as to the merits of their case, and they factor in the risks associated with litigation in budgeting their litigation expense. In fraud cases which are proven, the Courts will often order substantial indemnity costs in favour of fraud victims, and their investigation costs as well: Elekta Limited ats Rodkin et al, 2012 ONSC 2062.
For further information on the recovery of litigation and investigation costs by fraud victims, see: https://investigationcounsel.com/post/recovery-of-legal-and-investigation-costs-for-fraud-victims/ . For a discussion on obtaining punitive costs against fraudsters, see: https://investigationcounsel.com/post/a-fraud-victims-quest-for-punitive-damages/
Fraud victims should always seek an opinion from their fraud recovery counsel as to the merits of their case to insure they are informed about the specifics of the case they are building and to reduce the risk of adverse cost awards against them. For further information or to have your case assessed, please contact us.
Norman Groot, LLB, CFE, CFI – August 12, 2015