Restoring the cost balance intended by the framers

Restoring the cost balance intended by the framers
A recent decision from Ontario Court of Appeal Chief Justice Warren Winkler dramatically alters the landscape of class proceedings in this province by restoring a careful balance between plaintiffs and defendants with respect to costs awards.

Over the last few years, costs awards against unsuccessful plaintiffs in class proceedings have skyrocketed despite the potential chilling effect such awards can have on the purposes of the class proceedings legislation. Winkler appears to have drawn a line in the sand by restoring a careful balance in these proceedings to that which it was always intended to be: an effective tool for plaintiffs to seek collective redress.

McCracken v. Canadian National Railway Co. was a costs decision arising from a proposed class action claiming unpaid overtimeof $300 million against a federally regulated employer. The Court of Appeal overturned the motion judge’s order certifying the proposed action, and then went on to consider the quantum of costs of the appeal sought by the successful appellant, Canadian National Railway Co.

The appeal involved a two-day hearing, and each side raised a host of issues by way of appeal and cross-appeal. CN sought partial indemnity costs of the appeal in the amount of $300,000, which represented approximately one-third of the actual costs incurred ($931,464), which is in itself an astounding sum. The plaintiff and the Law Foundation of Ontario (which had approved the proposed class action for funding support from its Class Proceedings Fund) argued that no costs should be awarded for the appeal but if they were, the award should not exceed $50,000.

In fixing costs at $60,000, an amount significantly lower than what CN sought, Winkler held that in furtherance of the goals of the Class Proceedings Act, the court would consider whether any of the factors set out in s. 31(1) of the CPA — a test case, a novel point of law, a matter of public interest — apply. The chief justice held that the appeal involved novel points of law regarding how misclassification issues could be heard collectively, if at all. He also held the proposed action was animated by the public interest issue of whether or not a misclassification case could properly be made the subject matter of a class action. Finally, this public interest purpose was held to be consistent with the fundamental objective of the CPA of providing enhanced access to justice.

However, Winkler also recognized the CPA was never intended to insulate representative plaintiffs from the possible costs consequences of unsuccessful litigation. Class actions come at a cost to defendants, and the risk of adverse cost awards must factor into the decision to proceed with a class action. The chief justice’s significant reduction of the costs claimed by the defendant reflected his careful balancing of these factors.

This decision represents a bulwark to the high tide of astronomical costs awards made against unsuccessful plaintiffs in class actions. For example, in Fresco v. Canadian Imperial Bank of Commerce, the plaintiffs were ordered to pay $525,000 in costs upon an unsuccessful certification motion (although reversed when certification was ultimately granted by the Court of Appeal). In Ruffolo v. Sun Life Assurance Co. of Canada, the Ontario Court of Appeal sustained costs of $215,000 against the unsuccessful disabled plaintiffs. In both of these cases substantial costs were awarded, notwithstanding they both engaged s. 31(1) factors.

By re-affirming the existence of the s. 31(1) factors in a proposed class proceeding warrants a substantial reduction in the costs claimed by a successful defendant, Winkler restored the balance between defendants and plaintiffs that was originally intended by the drafters of the CPA. The drafters recognized that costs were the single most important issue in designing an expanded class action procedure in Ontario. They not only affect the efficacy of class actions, but also in fact determine whether the class action procedure will be utilized at all.

Faced with a vast imbalance of resources and the uncertainty of recovery, class proceedings necessarily involve substantial risk undertaken by the representative plaintiff and class counsel. The CPA was designed to reduce that risk by mitigating adverse costs awards ordered against the plaintiff where the proceedings advance the goals of the CPA.

Absent from this decision is any discussion of proportionality, although the end result reflects an affirmation of this principle. Rule 1.04(1.1) of the Rules of Civil Procedure states the court shall make orders and give directions that are proportionate not only the amount involved in the proceeding, but also to the importance and complexity of the issues.

For the sake of comparison, counsel in Smith v. Inco agreed the costs of the appeal arising from a class action trial lasting over 45 days should be fixed at $100,000. Although a defendant is certainly entitled to spend as much as it desires to fund its defence, a court is not obliged, nor is desirable, to pass these costs on to the unsuccessful plaintiff without limit. After all, McCracken was merely an appeal of a decision on a procedural motion, not the merits.

Although the drafters of the CPA adopted the traditional costs rules in the Rules of Civil Procedure, the s. 31(1) CPA factors were specifically designed to mitigate the risk to unsuccessful plaintiffs in order to advance the legislation’s primary goal of access to justice. Winkler’s decision in McCracken rejects the trend of applying the s. 31(1) factors narrowly. It stems the tide of escalating costs awards ordered against plaintiffs and restores the careful balance to costs awards in class proceedings that was intended by the legislation and the draftees.

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