Low Solicitor Client Charge Does Not Necessarily Provide Windfall to Losing Party in Action Obliged to Pay Costs by Nasyr Asmi
Apr 05, 2017
In this case, Her Majesty The Queen v. Traders General Insurance, 2017 ONSC 849, Justice Sanderson explores whether partial indemnity rates should be invariably determined by referencing the actual rate charged, or whether it is appropriate to give consideration to what a “reasonable” rate would have been in the circumstances when determining the partial indemnity rate.
In this particular case, Plaintiff’s counsel had charged the Motor Vehicle Claims Fund for his time at a rate of $176 per hour, far below the usual rate of a lawyer with that level of experience, which was 35 years. The rule of thumb approach to determining a partial indemnity rate is to multiply the actual rate charged by 2/3. In this case, the partial indemnity rate would have been $176 per hour x 2/3 = $117 per hour using the rule of thumb formula. However, Justice Sanderson considered whether the fact that Plaintiff’s counsel’s actual rate was already significantly discounted down to $176 per hour should be factored into determining the appropriate partial indemnity rate to be applied.
In the decision by the Ontario Court of Appeal in Inter Leasing Inc. v. Ontario Revenue (2014 ONCA 683), the Court did not limit itself to only considering a percentage of the actual rate when noting that partial indemnity costs might appropriately reflect “55-60% of a reasonable actual rate”. The Court’s use of the word “reasonable” is significant, as it indicates that the Court can consider something beyond the actual rate charged by counsel.
Justice Sanderson held that where the actual rate charged is lower than what a reasonable actual rate would be, the rule of thumb formula with respect to partial indemnity rates need not be inflexibly followed. She suggested that to fix a lower partial indemnity rate would be to ignore the overall goal of fixing reasonable costs for the unsuccessful party to pay in the circumstances, and would provide the unsuccessful party with an unwarranted windfall.
Justice Sanderson noted that the usual rate charged by Plaintiff’s counsel in the case at bar could have been $300 per hour, and that she would have had no issue approving a partial indemnity rate of 60% of that figure, which would be a partial indemnity rate of $180 per hour. However, Plaintiff’s counsel’s actual rate was already significantly discounted to $176 per hour, therefore to apply the typical 2/3 partial indemnity formula to the already reduced rate of $176 per hour would be unjust and would give the unsuccessful party a windfall gain. Justice Sanderson held that the applicable partial indemnity rate in this case should be $175 per hour. In so doing, she did not order costs payable at a rate higher than or even equal to the actual rate charged to the client.
This decision allows insurers and other institutions that leverage their volume referrals to obtain low hourly rates from their counsel to argue that the already reduced rates that they pay their counsel should be considered by the Courts. For example, if an insurer pays a lawyer at a reduced rate of $250 per hour when that lawyer’s market value is $350 per hour, an argument can now be made that the applicable partial indemnity rate should be calculated using the “reasonable” rate of $350 per hour. $350 per hour x 2/3 = $233 per hour partial indemnity rate, which means that the insurer should be able to recover almost all of the actual legal costs paid.
The decision also to some degree levels the playing field in the personal injury arena. Where defence counsel contract with their clients very low hourly rates for the volume of business, plaintiff’s counsel work on contingency fee agreements, and as such, their hourly rates are largely fictional. Plaintiff’s counsel invariably quote very high hourly rates which, on many lucrative contingency fee settlements still underestimates their actual hourly rates for services rendered. However, when it comes to assessing costs against unsuccessful defendants, these rates are invariably infinitely higher than the rates of the defendants.