Denial of costs for ‘shabby and high-handed’ behaviour

Denial of costs for ‘shabby and high-handed’ behaviour
When it comes to high-stakes litigation, it is not uncommon for the defence to take aggressive, calculatedly tactical, and highly adversarial positions in an effort to stave off the plaintiff’s attack. And there is rarely an area in which the stakes are higher than in class proceedings. The outcome of the action can have massive consequences for the defendant, either financially or in the manner in which it will be compelled to carry on business in the future. So it is not surprising that many defendants take a no-holds-barred approach to their defence of class proceedings.

Because the consequences can be so significant to the defendant, it can sometimes mean the field of battle morphs to something akin to Australian rules football. There are many cases in which a representative plaintiff has been awarded substantial costs when successful in a class action trial or on an interlocutory motion; but few decisions that touch on where the costs should lie when the action fails.

Will the plaintiff be held accountable to pay the defence costs, when the defence that has been mounted against the class is akin to trench warfare with an overlay of tactical strikes? I would argue the court should look well beyond the narrow issue of who is the ultimate victor, but should also consider how the victory was achieved, and whether the defendant’s precipitating conduct was worthy of sanction through the withholding of costs — even if the defendant is ultimately not found to be liable to the class for damages.

Justice Sarah Pepall, who is now sitting at the Ontario Court of Appeal, recently addressed this last issue in her Superior Court costs ruling following the long-overdue trial in Berry v. Pulley. Although the defendants won the trial, they received the equivalent of a five-game suspension for fighting: no costs were awarded to the victor.

Berry v. Pulley was a legacy of the early days of class actions in Ontario. It was commenced in 1997, and certified in 2001. The case wound its way through the courts, including a visit to the Supremes in Ottawa, and over a dozen written reasons for decision were released before the case finally made it to trial in 2012. The underlying fight was one of the perennial chapters in the in-fighting among Air Canada pilots arising from mergers of union lists — this one from 1995.

The defendants sought partial indemnity costs of $1.5 million as indemnity for costs actually incurred of a little over $2 million. They argued “to the victor go the spoils,” i.e. costs should follow the cause. The defendants also complained the plaintiffs’ conduct served to lengthen the proceeding. Particularly, the defendants argued the plaintiffs knew about some significant weaknesses in their case from about 2003-04, yet they proceeded to trial and lost on the very issues the defendants had argued were losers.

The trial judge correctly gave no weight to this second argument. In every case, it is the defendant’s job to identify areas of weakness in the opposite side’s case, and to press the advantages the weaknesses present. The fact the plaintiff chooses not to capitulate and exercises its right to have the court adjudicate on the issues it raises in the claim — particularly issues that have survived certification and a summary judgment motion — does not give rise to a heightened costs exposure for “unduly lengthening” the proceeding.

Pepall acknowledged that in the usual case, costs will follow the event. Class proceedings are governed by the Rules of Civil Procedure, with the additional factors set out in s. 31(1) of the Class Proceedings Act, 1992, to be applied in the assessment of costs, when appropriate. But ultimately the costs of any proceeding, including a class action, remain at the discretion of the judge.

The court is entitled to look at many factors, not just who was the victor or the defeated. One important factor the court may add to the mix is the behaviour of the defendant that precipitated the proceeding, as well as its conduct during the course of the action. In this case, the trial judge concluded the defendants’ egregious conduct was an important factor in the exercise of her discretion.

In the result, Pepall concluded “the Defendants’ conduct in their dealings with the Plaintiffs [was] shabby and high-handed.” Particularly, the defendants had taken active steps to prevent the implementation of the arbitral award that merged the union lists, and three of five subclasses of defendants were found to have engaged in unlawful conduct in that respect.

Pepall found this conduct was sufficiently offside as to warrant the defendants being deprived their costs of the action. Given this conclusion, the trial judge did not address the plaintiffs’ arguments that the “resistive tactics” engaged in by the defendants during the course of the litigation were another reason to deny them their costs of the proceeding.

The take-away lesson from this ruling is the court is not constrained by who won and who lost the proceeding in exercising its discretion regarding costs. Simply because a plaintiff is ultimately unable to establish a loss will not be the end of the inquiry.

The court is free to consider the entire factual matrix both precipitating the lawsuit, as well as what takes place in the course of the litigation. If the defendant’s conduct was illegal or offends the court’s sensibilities, the court can voice its disapprobation through the withholding of costs.

With this warning, defendants should also be cognizant of the fact a similar result may follow if, in mounting their defence to a class proceeding, they engage in high-handed and bullying tactics that tread on or cross the line beyond zealously defending their position, and instead result in unfairness in the proceeding, or otherwise tend to bring the judicial system into disrepute.

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