Live By The Sword And Get Skewered On Costs When You Lose

By Alexander Woo Feb 05, 2018

Persampieri v. Hobbs was a personal injury action arising out a motor vehicle accident. The plaintiff was an 84 year old woman who happened to be a passenger in a vehicle rear-ended by the Defendant. This decision addresses the strategy employed by some insurers to resist all claims that do not appear to pierce the verbal threshold, and to force all such cases to verdict rather than to effect a compromised resolution. The decision provides an answer to what the proper measure of costs should be in such cases

At the outset of litigation, counsel for the Defendants advised counsel for the Plaintiff that the insurer was not prepared to pay any tort damages in respect of this claim. It maintained this position throughout the litigation – advising the Plaintiff that it would only be willing to accept a dismissal of the action without costs. Further, they indicated that the only alternative was to proceed to trial. After mediation, the Defendants served a Rule 49 offer for a dismissal of the action on a without costs basis. A few months later, the Plaintiff served her own Rule 49 offer of $20,000.00 plus partial indemnity costs and disbursements. The Plaintiff subsequently withdrew this offer and served a new Rule 49 offer of $10,000.00 plus partial indemnity costs.

As the parties could not come to agreement, the case proceeded to trial. There, the Plaintiff obtained a jury award of $40,000.00 for general damages, $25,000.00 for housekeeping, $2,000.00 for attendant care and $500.00 for medical and rehabilitation expenses. However, after applying relevant deductions for the statutory deductible and accident benefits, the jury award was reduced to $20,414.83.

The parties were unable to agree to costs, and as such, they were invited to submit written submissions in respect of this issue. The Plaintiff claimed $269.070.29 in total costs, inclusive of fees and disbursements on a partial indemnity scale to the date of the Plaintiff’s second Rule 49 offer and on a substantial indemnity scale thereafter. The Defendant argued that the amount claimed by the Plaintiff was disproportionate to the amounts recovered, and should accordingly be reduced. Ultimately, Justice Maryanne Sanderson awarded the Plaintiff $237,017.50 in total costs.

The Scale of Costs
As the Plaintiff had successfully beat her Rule 49 offer at trial, Justice Sanderson held that, pursuant to the cost consequences set out in Rule 49, she was entitled to her costs on a partial indemnity scale to the date of her Rule 49 offer and her costs on a substantial indemnity basis thereafter.

Proportionality in Costs Award
Justice Sanderson referred to a number of cases touching on the principle of proportionality in post-judgment costs awards.

She began by discussing the Court of Appeal’s 2017 decision in Cobb v. Long Estate. In Cobb, it was held that the Plaintiff’s costs award, on a partial indemnity scale, should not have exceeded $200,000.00 where the net judgment was just $22,136.30. Justice Sanderson interpreted Cobb as standing for the principle that “a costs award on a partial indemnity scale should not exceed 9.035 times the amount of the net Judgment”.

Justice Sanderson then cited Corbett v. Odoricco for the proposition that an overemphasis on proportionality could result in an under compensation for the Plaintiffs. In Corbett, it had been held that the imposition of a rule arbitrarily limiting the amount of costs to some proportion of the recovery undermined the purpose of Rule 49, which was to encourage settlement by attaching costs consequences for failure to make or accept reasonable offers.

This was confirmed in Aacurrate v. Tarasco, where it was held that a consistent overemphasis on proportionality would result in the unintended denial of access to justice. In the words of McCarthy J., it would “ send a message to litigants that it is not worth one’s while to pursue legitimate claims in court because one cannot possibly make it cost effective to do so”.

In light of aforementioned jurisprudence, Justice Sanderson held that “to unduly shave Plaintiff’s costs, especially substantial indemnity costs ordered under Rule 49.01(1), based solely or primarily on an undue emphasis on the application of the proportionality factor (reasonableness of costs ordered relative to the amount awarded) would be unfair”. She noted that to hold otherwise would be to sanction certain insurer litigation strategies, including;

“(1) discouraging Plaintiffs from pursuing legitimate but modest claims by refusing to make any meaningful offer to pay damages and forcing those Plaintiffs to trial in circumstances  where, because of defences the insurers have asserted, they cannot possibly be successful unless they call expensive medical and other evidence;
(2) then, raising the spectre of very serious adverse cost consequences of such trials;    
(3) then, even after Plaintiffs have chosen to take the serious adverse costs risks of such trials, and even after they have been successful at trial and have received costs awards under Rule 49.01(1) on a substantial indemnity scale;     
(4) attempting to unduly minimize the quantum of otherwise usual amounts of costs including substantial indemnity costs on the basis of proportionality”
In Justice Sanderson’s opinion, the sanctioning of such litigation strategies would “seriously jeopardize overall access to justice”.

As such, Justice Sanderson did not make any reductions to her costs award on the basis of proportionality alone. With the exception of excessive time spent by Plaintiff counsel at various stages of the litigation, costs were awarded based on the amounts claimed by the Plaintiff and in accordance with the cost consequences set out in Rule 49.

Justice Sanderson held that Rule 49 cost consequences are to be applied strictly, irrespective of the nominal amounts that have been awarded. Where costs have reasonably been incurred during the course of the litigation, and where a party has successfully beat their Rule 49 offer, they should be awarded their costs on a partial indemnity scale to the date of service of their Rule 49 offer and on substantial indemnity scale thereafter. It is anticipated that this will not be the final word on the subject, and that an appeal is being sought of this decision.

Alex Woo is the author of this blog and a member of the Appellate Advocacy team. If you have a question about a Rule 49 offer or this decision, please contact Alex.

 

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