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Upward spiral of costs preventing access to justice in class actions

Class Acts
|Written By Kirk Baert
Upward spiral of costs preventing access to justice in class actions

In a recent decision on costs arising from a motion for certification, Justice Paul Perell of the Superior Court acknowledged the ever-upward spiral in costs awards in class proceedings are becoming an impediment to the viability of the class action regime.

The reason for these enormous costs awards is the tendency for the parties to the certification motion to use it as a road test for the merits of the litigation. The focus of the certification motion ought to be whether the certification criteria are satisfied and that the some-basis-in-fact evidentiary standard in this regard is very low. In ordering half of the costs awarded on the motion payable forthwith and the other half in the cause, Perell struck an appropriate balance between compensating the victorious parties to the motion for the costs they incurred and ensuring these motions are not prohibitively expensive, which will result in a chilling effect on the purposes of the class proceedings legislation.

Lipson v. Cassels Brock & Blackwell, was a costs decision arising from a proposed class action claiming a law firm negligently provided a tax opinion in support of a donation scheme. Participants in the scheme would donate both cash and resort timeshares to Canadian athletic associations in return for tax credits for their charitable donations. In the marketing of the scheme, a tax opinion prepared by Cassels Brock & Blackwell LLP was included in the promotional material. That opinion said it was unlikely the Canada Customs and Revenue Agency could successfully deny the tax credits. However, Canada Revenue ultimately disallowed the anticipated tax credits in their entirety.

To recover his losses, Jeffrey Lipson commenced a class action against Cassels Brock and a number of other defendants. After a two-day hearing, certification of the class action was denied on the basis the class’ claims were statute-barred under the Limitations Act, 2002. The Court of Appeal reversed the lower court’s judgment and certified the action.

At the motion for the determination of costs, the plaintiffs sought payment on a partial indemnity basis of $298,582.71. Cassels Brock submitted that Lipson should receive costs of $100,000 plus reasonable disbursements, some of which should be made payable in the cause.

Perell went further. Although he acknowledged the motion for certification was hard fought and called for a vigilant and concerted effort from class counsel, he commented that a $300,000 costs award for a certification motion for this case was excessive. A significant amount of the evidence went to the merits of this action, which is contrary to the purpose of the motion for certification, which is procedural in nature.

In the end, Perell ordered costs payable to Lipson of $298,582.71, with $150,000 of that payable in the cause. This amount provided fair compensation for the successful certification hearing, and preserved to the prosecution of the litigation the work effort of class counsel, much of which would be carried forward into the action.

Over the last few years, costs awards against unsuccessful parties in class proceedings have skyrocketed despite the potential chilling effect such awards can have on the purposes of the class proceedings legislation. A review of recent costs awards arising from motions for certification demonstrates this trend:

Martin v. AstraZeneca Pharmaceuticals PLC (2012)
$475,000 plus disbursements
McCracken v. Canadian National Railway Co. (2012) $475,000
Fresco v. CIBC (2010) $525,000
Lambert v. Guidant Corp. (2009) $650,000 plus disbursements
Ruffolo v. Sun Life Assurance Co. of Canada (2008) $215,000

Enormous costs awards at certification typically result from the tendency to use the certification motion as a road test for the merits of the litigation. By reducing the amount of costs awarded to class counsel and splitting the costs and by making half of the costs award payable forthwith and the other being payable in the cause, there is hope the tide is turning, and that both parties to the motion for certification will recognize a certification motion remains just a procedural motion and the merits of the litigation remain to be determined.