Ontario Court of Appeal Affirms Reduced Costs Award in a Successful Defence Against a Class Proceeding

Successful defendants in class proceedings may see smaller costs awards in the wake of an Ontario Court of Appeal decision released November 29, 2013. In Smith v. Inco,¹ the Court of Appeal affirmed the costs order that Inco received from the trial judge, which was less than one-third of Inco’s claim.

While acknowledging that the plaintiffs’ cause of action was not strictly "new" and that the action was motivated in part by the plaintiffs’ private interests, the Court of Appeal found that both the "novelty" and "public interest" factors that may be considered in assessing a costs award under the Class Proceedings Act (the Act) should be considered on a spectrum. In this case, both factors resulted in a reduced costs award.

Background

The action, brought on behalf of 7,000 property owners in the Port Colborne area who claimed that their property values had been diminished by nickel emissions from a nearby Inco refinery, has a lengthy judicial history and has been before the Court of Appeal multiple times. After the Court of Appeal certified the action in 2006, it proceeded to a merits trial both in October 2009 and January 2010. The plaintiff class was initially successful and was awarded damages of $36 million at trial, but the Court of Appeal set aside the judgment and dismissed the action. The parties then went back before the trial judge to determine Inco’s costs.

Inco sought approximately $5.34 million in costs on a substantial-indemnity basis ($4.6 million on a partial indemnity basis), including $1.25 million for expert disbursements, and $275,000 in other disbursements. The trial judge determined that Inco’s costs claim was too high, and reduced it to approximately $3.5 million including disbursements. From there, the judge determined that a section of the Act² related to costs awards applied. The section allows judges assessing costs in class proceedings to consider whether the action raised a novel point of law or involved a matter of public interest.

In this case, the trial judge found that the action raised both a novel point of law and a matter of public interest, and he employed the section in the Act to further reduce Inco’s costs claim by 50 percent, to just over $1.7 million.

The Court of Appeal’s Consideration of Novelty and Public Interest

Inco appealed the costs order, arguing that the trial judge had made eight errors in his reasoning. The Court of Appeal expressly acknowledged the "considerable deference" owed to the trial judge’s costs award and affirmed the order. While the Court of Appeal considered and dismissed each of Inco’s eight arguments, the Court’s consideration of the issues relating to the "novelty" and "public interest" factors in the Act are of particular interest.

Novelty

The trial judge found that the case was novel, concluding that it was the first to deal with physical environmental damage caused to a large number of properties by industry, and was the first mass environmental damage action to be certified as a class proceeding and proceed to trial. Although the Court of Appeal acknowledged that the proceeding was grounded in a well-established cause of action, it found that the novelty consideration was engaged in this case since novelty "exists on a continuum" and the trial judge’s approach was consistent with finding a "middle ground of novelty."

Public Interest

The trial judge focused his analysis of the public interest factor on access to justice. He found that the proceeding advanced the Act’s three goals of access to justice, judicial economy, and behaviour modification, all three of which were matters of public interest. On appeal, the Court of Appeal rejected Inco’s argument that the action did not involve a matter of public interest and was simply individual property owners trying to obtain compensation for the perceived reduction in their property values. While acknowledging that the plaintiffs sought, among other things, to vindicate their own private property interests, the Court of Appeal noted that "[i]n many cases, there is a mix of private interest and public interest" and that the public interest component of that mix is sufficiently important to justify reduced costs awards to successful defendants in class proceedings.

The Court of Appeal’s reasons signal that it views many of the principles applied to costs in class proceedings to be settled. Those principles may continue to be applied to reduce the costs awards that successful defendants will be entitled to in class proceedings.

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¹ 2013 ONCA 724

² Section 31(1).