In Fairview Donut Inc. v The TDL Group Corp., Tim Hortons had claimed partial indemnity costs of $2,415,500, inclusive of taxes and disbursements. The total fees and disbursement billed by Tim Hortons’ solicitors were almost $3 million.
The plaintiff had acknowledged “the certification and summary judgment motions for which costs are sought were factually and legally complex, important to the parties and . . . in the circumstances, they could reasonably expect to be required to pay a meaningful costs award to the defendants.”
They submitted that $475,000, all-inclusive, would be “fair and reasonable, having regard to all relevant principles, including the potential adverse impact of a substantial costs award on access to justice.”
However, in his costs decision, Ontario Superior Court Justice George Strathy said it was his view an award of costs to Tim Hortons should be $1.85 million and described the case as having a “mountain of evidence” and being “off the chart” in terms of “its complexity, the amount at issue, and extent of work required of counsel.”
In the case, Tim Hortons’ franchisees claimed the company breached their franchise agreement and its duty of good faith and fair dealing by switching from fresh-baked goods to “Always Fresh” partially pre-baked goods. It also required them to introduce a lunch menu, which they claim increased their costs and forced them to sell the products at a loss.
“The franchisor engaged in extensive discussion and communication with its franchisees before the Always Fresh conversion and the change was supported by the majority of franchisees,” Strathy said in his summary judgment. “The franchisor informed the franchisees that the cost of raw materials would increase under Always Fresh, but that this would be offset by labour savings and other savings and conveniences. The experience of the franchisees over time has confirmed this assertion.”
Although the plaintiffs appealed Strathy’s decision, the Court of Appeal upheld it in December 2012, dismissing the appeal entirely. The Supreme Court of Canada refused leave to appeal.
The matter amounted to an 11-day hearing and 15 bankers boxes of documents.
“When you look at that it’s not surprising you’re talking about significant costs,” says franchise lawyer Jennifer Dolman of Osler Hoskin & Harcourt LLP. “Also keep in mind this is all partial indemnity costs so it doesn’t represent the full cost, it’s scaled down.”
Dolman points out the unique nature of the hearing that was before Strathy also suggests the costs would be high.
“He heard the motion for summary judgment together with the certification motion and that’s very unusual,” she says.
The parties had agreed to have the motions heard together but then the plaintiffs tried to change the schedule and wanted Strathy to defer the summary judgment motion. However given the agreement by the parties he decided efficiency would be achieved by hearing them together.
In his costs decision, Strathy outlined several factors he says had an impact on costs in the case:
“a) . . . the stakes of this litigation were enormous — the plaintiffs’ claim was for roughly $3 billion, an amount that had some air of reality and was not simply a scare tactic;
b) the defendants were entirely successful on the summary judgment motion, and while the action remains theoretically capable of being resuscitated by another franchisee, this is unlikely to happen, in my view;
c) the issues were factually and legally complex, as indicated by the “massive” record to which I adverted at paras. 394-5 of my reasons and the 11 days required for the hearing;
d) the issues were of great importance to both parties and went to the core of their relationship and their business;
e) the result was not simply procedural, it was substantive — there was a final determination of the parties’ rights.”
“Obviously this is very significant for franchisors in the class action context of deterring franchisees or any similar group from bringing lawsuits. They need to take into account cost consequences,” says Dolman.