Costs Grid Consultation Paper

The Civil Rules Committee resolved to strike a Costs Subcommittee to attempt to determine possible solutions to the problems identified in the present system for fixing costs, including whether a block fee structure as generally proposed in the Superior Court report could be developed that would be responsive to the principle of indemnification, permit costs to be fixed in a speedy, simple and uniform way and result in awards that in most, if not all, cases are fair and reasonable.

The Costs Subcommittee of the Civil Rules Committee is seeking input concerning a possible block fee model for fixing the costs of proceedings. It is proposed to develop a model that will be fair, consistent, predictable and efficient. There is no suggestion of any change from the current requirement that judges fix costs in all but exceptional cases.

In January 2002, the Rules of Civil Procedure were amended to provide for the fixing of costs by a court hearing a proceeding, in accordance with Rule 57 and the Costs Grid set out in Part 1 of Tariff A. It is fair to say that no rule amendment in recent history has engendered such a level of controversy. The concerns with respect to the implementation of the Costs Grid led to a committee of the Superior Court of Justice being established. That committee, chaired by Justice Power, prepared a report in October 2002 entitled "Fixing Costs - An Alternative Approach". A copy of the Superior Court committee's report is attached as Appendix "A". The report proposed what has come to be described as a block fee structure for fixing costs. The report was circulated to the members of the Civil Rules Committee and to legal associations for comment.

At a meeting of the Civil Rules Committee on October 1, 2003, this report and commentary from legal associations and other members of the Bar were considered and debated. The Rules Committee did not reach any conclusion as to whether changes to the Costs Grid, such as suggested by the Superior Court report, should be recommended. While there appeared to be general agreement that there were some problems with the workings of the Costs Grid, there was no consensus on whether changes needed to be made or, if they did, what those changes should be.

The acknowledged problems generally tracked those set out in the Superior Court report. Principal among those are the concern that too much judicial time was being required in the costs fixing process. In many instances the amount of time being spent was out of proportion to what was involved in the underlying proceeding. Further, because the Costs Grid is based on an hours times rate approach, the quantum of costs being fixed varied widely and thus the outcome of the process had become inconsistent and unpredictable. This latter result is to the detriment of counsel who seek to advise clients regarding the costs consequences of taking any given step in a proceeding. Finally, the increased hourly rates reflected in the Costs Grid taken together with the number of hours being sought by counsel has resulted in a significant increase in the level of costs awards, which concerns members of the judiciary and, indeed, some members of the Bar.

At the October 1, 2003 meeting, members of the Bar generally agreed that the current process is unnecessarily time-consuming. General agreement was also expressed that a more summary procedure ought to be adopted that would permit costs to be determined expeditiously and without involving excessive judicial time. At the same time, however, some members of the Bar expressed a concern that the fundamental principle that costs are to represent an indemnity not be sacrificed in the interests of expediting the process. The fact is that the costs of litigation have increased and costs award must reflect that fact if they are to serve their function of providing a reasonable indemnification for the successful party with regard to that party's cost of employing counsel. There was also a concern that the Costs Grid appeared to be eliminating regional differences in the costs of litigation. In fact, the Costs Grid appears to be raising the level of costs award to "the highest common denominator" instead of providing a proper level of indemnification given prevailing local conditions.

The Subcommittee's mandate is to report back to the Committee as a whole as to whether it is possible, in the Subcommittee's view, to establish a block fee structure which would have due regard to the indemnity principle, reflect regional differences, have sufficient flexibility and discretion and have due consideration for the observations and concerns in the Superior Court report.

The Subcommittee was also to consider other possible solutions such as the recent Ottawa draft practice advisory. The Civil Rules Committee indicated that it would not vote on the principle of a block fee structure until it received and reviewed a model setting out the practical effects of such a structure. Even if the Subcommittee was not satisfied that a block fee structure could accommodate all the communities of interest, it was to return with the best model with an identification of its strengths and weaknesses.

It was agreed that the Subcommittee would consult with the Judiciary and the Bar before reporting back to the Civil Rules Committee. It was further agreed that Associate Chief Justice O'Connor, in consultation with Chief Justice Smith, Mr. John Callaghan and Mr. Don Jack, would appoint the members of the Subcommittee which was to reflect the various stakeholders.

The Subcommittee is composed of Justice Goudge (Chair), Justice Nordheimer, Master MacLeod, Ms. Kim Twohig (for the Ministry of the Attorney General), Mr. Don Jack, Mr. Ronald Slaght, Mr. Timothy Ray and Mr. John Callaghan. Mr. John Kromkamp serves a Secretary of the Subcommittee.

The Subcommittee has met on a number of occasions to discuss possible alternative solutions in keeping with its mandate. It was agreed that a block fee structure has distinct advantages in providing predictability for the parties, consistency of application, and ease and expedience in reaching a result in a summary procedure. At the same time, it was recognized that a block fee structure could not provide proper indemnification in any given case, nor could it reflect regional differences, if the block fees are a fixed amount. It was also recognized that any fee structure would not accommodate the particular costs of every party in every conceivable circumstance. Even so, it was agreed that a block fee structure might be established that would, in turn, lead to the development of a set of normative or benchmark fees representing the normal or typical fees for certain types of proceedings.

In order to accommodate both regional differences in local fee rates and to provide room for varying elements in a particular case, it appeared to the Subcommittee that, rather than establishing set fees, the proposed structure ought to be based on a range of block fees within which the normative fees would, over time, become established. It was agreed that such a structure would best achieve the desired goals. At the same time, however, it was recognized that the range of block fees could not be so broad as to defeat the intended purpose. For example, a range of block fees for all motions that extended from $0 to $100,000 might well be broad enough to accommodate every possible motion but the range would then be so broad that normative or benchmark fees would be unlikely to develop. That result would, in turn, be unhelpful to counsel and clients in being able to predict the likely costs award for a particular motion. Similarly, such a broad range would likely lead to extensive submissions and material being filed in an effort to push the determination to the higher end of the range thereby undermining the desire to expedite the process and reduce the judicial time necessary to make a proper determination. Another likely consequence of overly broad ranges would be inconsistent awards for comparable matters.

The Subcommittee's view is that it ought to be possible to develop ranges of block fees that would provide fairness and flexibility but still achieve predictability and efficiency. In an effort to articulate the underlying approach to fixing this costs structure, the Subcommittee agreed that the principle to be reflected is the amount that an unsuccessful litigant should reasonably be expected to pay to a successful litigant for that particular step in the proceeding. The ranges of block fees should be established with that principle in mind. The ranges of block fees would be intended to compensate for both court time and for preparation time. Finally, it was acknowledged that such a block fee structure would not cover all cases but that it ought to be fairly applicable in the vast majority of cases, leaving for argument and separate consideration those cases that reasonably fall outside of the established structure.

The Subcommittee considers that consultation with the Judiciary and with the Bar is both appropriate and desirable. As an initial proposal, the Subcommittee has modified that contained in the Superior Court report which, in turn, utilized the existing classifications in the Costs Grid. The following proposal deals only with partial indemnity costs.

The Proposal

The Subcommittee puts forward for comment the following proposal which is the best effort that can be made to meet the objectives set by the Rules Committee: a block fee structure which would have due regard to the indemnity principle, reflect regional differences, have sufficient flexibility and discretion, and have due consideration for the observations and concerns in the Superior Court report.

This proposal would replace the fee grid based on an hours times rate approach.

The proposed ranges attempt to reflect the amount that the losing party could reasonably be expected to be pay to the winning party in the vast majority of cases of this type. [Put another way, these ranges would accommodate costs awards reflecting approximately 60% of the reasonable solicitor-client cost to the winning party in most cases of this type.] The court would retain the discretion to fix a block fee outside these ranges in appropriate cases. There would be no change in the present practice of referring the issue of costs to assessment only in exceptional cases.

In fixing the fee the judge shall have regard to the following:

• The principle of indemnification.
• The amount that the losing party could reasonably be expected to pay to the winning party in this kind of proceeding.
• The hours spent, rates charged and experience of counsel.
• Regional differences in the cost of legal services.
• The factors set out in Rule 57.

As can be seen, the fees are based on classifications that are, in turn, predicated on the length of the hearing. Subcommittee members pointed out that the use of such broad-spectrum classifications dictates the need for the range of block fees to be equally expansive. The larger the range, however, the less likely that the results will be predictable and consistent. It was also pointed out that there may not necessarily be a nexus between the length of a hearing and the necessary preparation to conduct the hearing. For example, a motion respecting refusals at an examination for discovery may require a lengthy hearing but not require extensive preparation whereas a motion for summary judgment might be argued in less court time but require a substantial investment of time both to develop the record and to prepare for the hearing.

Conversely, if the range of block fees is too narrow then it will not allow for reasonable and fair compensation for a large enough array of cases. In addition, if there are too many classifications established, the structure will quickly become cumbersome and unworkable.

The proposal does not address the issue of substantial indemnity costs. That issue raises separate concerns. In particular, apart from specific instances in the rules where such costs are presumptively to be applied (e.g. Rule 20 motions and the application of Rule 49) and where different considerations may apply, should the Rules simply provide that an award of substantial indemnity costs is to provide substantial recovery for actual costs incurred except for those costs that were not reasonably necessary? In those specific instances in the rules where such costs are presumptively to be applied, should they be determined on the basis of the application of a multiplier (e.g. 1.5 times or 2 times) what would otherwise be the appropriate quantum of costs on a partial indemnity basis? Both of these approaches would eliminate the need for any separate block fee structure for substantial indemnity costs.

With all of these considerations and its mandate in mind, the Subcommittee seeks input on this proposal. Responses from interested parties on these, or any other, issues relating to the development of an improved model for the fixing of costs of proceedings, may be forwarded to the attention of John Kromkamp by fax at (416) 327-6153 or by email to John.Kromkamp@ontario.ca.

Responses should be received within 30 days.