The Ontario Court of Appeal recently dealt with an appeal from the stay of a proposed securities class proceeding. The costs awarded by the motions judge against the representative plaintiff were the whopping sum of $1,000,455.22. The cost order was challenged on appeal.

Facts:

The representative plaintiff, an Ontario resident, purchased securities offered by the defendant. The defendant did not conduct business in Ontario, although one of its independent subsidiaries did. The securities were not traded in Ontario but were traded in London, Hong Kong, and New York.

The plaintiff’s claim was based on misrepresentations in the offering prospectus, which he accessed and downloaded from his computer in Ontario. The securities were purchased in Hong Kong. The losses were said to be in the billions. The plaintiff appealed the stay of proceedings on findings of a lack of jurisdiction under common law and Part XXIII of the Ontario Securities Act.

The appeal was dismissed on jurisdiction and allowed in part on costs.

Costs Analysis:

The Class Proceedings Act at s. 31(1) requires any cost award to consider whether the proposed action was “public interest” litigation and/or because the action raised a novel point of law.

Public Interest Litigation:

To qualify, the class proceeding must have some specific, special significance for, or interest to, the community at large. This is an interest to others and not just to the members of the proposed class. Here none was found. No benefit was likely to Ontario investors, capital markets, and the financial system in creating in Ontario a universal jurisdiction for secondary market representations.

Novel Point of Law:

The issues raised were all jurisdictional. This was not found to be a novel point of law. The proper jurisdiction for Ontario residents to seek relief arising from their purchase of shares in foreign companies on foreign exchanges were dealt with and determined by the court in Kaynes (2014) and this law was not subsequently altered by the Court of Appeal in Kaynes (2016).

Entrepreneurial and Altruistic Class Proceedings:

The court found that class proceedings were generally entrepreneurial actions. Ensuring access to justice is a key reason for class proceedings especially where the individual claims are for small amounts.

The motion judge had made a distinction between two types of class actions: “entrepreneurial” and “altruistic”. He used the entrepreneurial categorization when imposing the costs.

This distinction was rejected by the Court of Appeal who found that the existing principles used in awarding costs are sufficient and there is no need to add this additional factor.

The Amount of Costs:

As always, the awarding of costs is a matter of discretion which is entitled to significant deference.

The Court of Appeal was however cognizant of the fact that almost half of the award was for disbursements, largely to pay experts.

Fees: The fees were left as awarded. A claimant seeking damages in this quantum must expect a vigorous defence especially on the jurisdictional issues. Given the volume of material filed, the extensive cross examinations and the voluminous expert opinion the fees claimed were reasonable. As the motions judge noted “the defendants did not commit more resources than were necessary”.

Disbursements: The test to determine an appropriate quantum is the same as that for fees. The disbursements must be fair and reasonable. The need for the expert evidence produced by the defendant was accepted. Here, however, the expert’s bills were awarded as paid in full. Three bills contained no particulars of the time spent or rate charged. This hampered any assessment of reasonableness by the court.

Where expert evidence is reasonably needed the courts will not reduce the fees charged on the principle of partial indemnification. They will, however, be reduced to what should reasonably have been spent to produce such evidence. This is supported by the language of the tariff which calls for “a reasonable amount” to be awarded. A reviewing court should consider what is fair in terms of hours and rates along with the overall total in assessing the cost of expert’s reports. The question to ask with respect to expert’s fees is “what is a reasonable amount for the losing party to pay”.

The court warned that a class action defendant does not have carte blanche to unreasonably spend money on experts. There is an obligation of reasonableness. After all, one of the principle purposes of class proceedings is ensuring access to justice.

The court then proceeded to invoke the principle of proportionality along with the matters discussed above to reduce the cost award to $800,000.00.

Take Aways:

• The court was clearly shocked and concerned by the quantum of the costs awarded;
• They cautioned that costs awards of this magnitude should be exceptional;
• Despite affirming that expert fees where needed should be paid in full, the principle of proportionality, reasonableness and access to justice will be considered in their assessment in class proceedings;
• Have your experts clearly set out the time spent and their hourly rate so as to enable the court to assess their reasonableness;
• Carefully consider the appropriate jurisdiction despite the inconvenience for the risks of large awards of costs are real and the only result is to have to start over in another jurisdiction.

Cost awards to class proceeding defendants can exceed even the seemingly large award in this case, for instance:

• Das v. George Weston Limited ($2.3 million)
• Fairview Donut v. TDL Group Corp ($1.85 million)
• Smith v. Inco Ltd.  ($1.8 million)

At Milosevic & Associates, we act as defense counsel in class action claims.  Our co-founder, David Milosevic, has completed a Master of Laws in Civil Litigation with a focus on class action litigation. We have the necessary skill and experience to defend even the most complicated class action lawsuits. If you are organization against whom a class action claim has been filed, call us at 416-916-1387 or contact us online to learn more about how we can help.