Introduction
The Rules of Court provide that a successful party in litigation is entitled to its costs (Rule 10.29(1)(a)). In the absence of litigation misconduct, allegations of fraud, or a contractual entitlement, the Court often turns to Schedule C to assess the quantum of those costs. However, the Court always retains discretion (pursuant to the Judicature Act and Rule 10.31) to award reasonable and proper costs taking into account the circumstances of the case.
Prior to the wholesale amendment of the Rules of Court in 2010, some debate was stirring about whether the tariff amounts set out in Schedule C (which was adopted in 1998) were out of date. However, when Schedule C was incorporated, virtually as-is, into the new Rules in 2010, that debate was quieted (on the understanding that the legislature had the opportunity to update Schedule C but declined to do so).
Now, close to 10 years later, the debate has begun again.
In several recent cases, the Court has accepted arguments that Schedule C is out of date and has awarded costs in larger amounts. Two differing methodologies have been adopted to do so: One is to apply an inflationary factor to Schedule C and the other is to award a percentage of actual solicitor-client costs.
The debate ultimately captured the attention of the Legislature. On March 17, 2020, Order in Council 28/2020 was released, having the effect of amending several portions of the Rules of Court, including a nearly wholesale revision of Schedule C, effective May 1, 2020. As will be discussed below, the revised Schedule C is likely to put to rest any and all arguments for inflationary adjustments - at least for another 10 years.
Cases
In mid-2018, Madam Justice D.L. Shelley issued a decision on costs in an especially complex and high-value commercial dispute (Weatherford Canada Partnership v Addie, 2018 ABQB 571). In that decision, a number of authorities on the issue of costs were reviewed and Shelley J. concluded that the “common approach” to costs when Schedule C is deemed inadequate is that the costs awarded should “approximate 40-50% indemnity of a winning party’s actual costs”, adjusted up or down depending on elements of misconduct, complexity, and the amount in dispute.
In early 2019, Madam Justice N. Dilts issued a decision on costs stemming from a coverage dispute (Intact Insurance Company v Clauson Cold & Cooler Ltd, 2019 ABQB 225). In that case, Dilts J. noted specifically the effect of Schedule C being out of date and the corresponding need to exercise discretion in awarding costs:
I will add as a general comment that until the disparity between Schedule C and the cost of service is rectified, Schedule C costs are likely of little relevance to a party’s assessment of risk: a successful party will only recover a fraction of its costs and, to an unsuccessful party, Schedule C costs may represent only an incremental cost to losing. In my view, the further removed Schedule C is from the real and reasonable costs of a party, the less likely that the risk of paying Schedule C costs will be a factor in the conduct of litigation and the evaluation of settlement.
Dilts J. went on to adopt the approach of Shelley J. and awarded costs equal to 40% of the successful party’s actual solicitor and own client costs.
Later in 2019, Madam Justice G.A. Campbell took a somewhat different approach to the issue. In R&R Consilium Inc v Talbot, 2019 ABQB 275, she noted that: “[g]auged against the actual legal fees incurred here [noted to be approximately $250,000], it is clear that the costs provided for under Column 5 of Schedule C are severely out dated and do not provide a fair currency money value for the efforts undertaken by the Applicants to obtain the relief they sought”. Campbell J. noted that the Court of Appeal previously held that the average cost of living from 1998 to 2015 had increased by approximately 39%. Accordingly, without any additional evidence, Campbell J. awarded costs of 2x Column 5 plus 40%.
Shortly thereafter, Madam Justice A.C. Woolley issued a costs decision in Geophysical Service Incorporated v Falkland Oil and Gas Limited, 2019 ABQB 314, where she noted the fact that the amounts set out in Schedule C had remained virtually unchanged since 1998. Woolley J. expressed hesitation in applying an inflationary adjustment, which is more properly viewed as a legislative function, however also observed that not doing so risks rendering Schedule C an “artifact” that does not achieve the true purpose of costs awards. Ultimately, after considering the alternatives, she held that using Schedule C is “the best way to ensure fairness between litigants and to accomplish the purposes of cost-shifting”. Aided by evidence showing an inflation rate of 45.6% from 1998 to 2018, Woolley J. adjusted Column 5 by that amount.
This reasoning has recently made its way into a personal injury claim. In Dirk v Toews, 2020 ABQB 16, following what was otherwise a very standard trial dealing with liability and damages arising from a motorcycle collision, Madam Justice J.R. Ashcroft was asked to rule on the issue of costs. The plaintiff argued for solicitor-client or enhanced costs on the bases that Schedule C is woefully out of date and, furthermore, that personal injury plaintiffs are a “special class” of claimants because the damages they are awarded are typically subject to numerous deductions pursuant to the Insurance Act and other statutes. Ashcroft J. did not accept the plaintiff’s arguments but did agree with the line of reasoning that Schedule C no longer approximates “partial but fair indemnification” for a successful litigant. On that basis, Ashcroft J. held that an inflationary factor of 1.614 (a figure supported by the plaintiff’s economic expert) would apply to all Schedule C costs that the plaintiff was entitled to.
As recently as this month, the Court has continued to comment on the necessity of applying an inflationary factor to Schedule C costs (GO Community Centre v Clark Builders and Stantec Consulting Ltd, 2020 ABQB 203: Mr. Justice W.N. Renke, after an extensive review of the caselaw, took judicial notice of a reasonable inflationary factor of 1.4).
New Schedule C
The amendments to the Rules of Court, effective May 1, 2020, make two important changes to Schedule C.
Firstly, the Columns applicable to the various monetary ranges have been updated and revised as follows:
Second, while the tariff items have remained the same, the amounts have all been increased by 30-35%. For example, the old tariff amount for pleadings under Column 1 was $1,000. It is now $1,350. The old tariff amount for production of an Affidavit of Records under Column 1 was $500. It is now $650.
This amendment represents the Legislature’s response to the growing concern about the currency of Schedule C and effectively puts an end to the uncertainty surrounding how the Court may address costs in a typical case.
To view the new Schedule C in its entirety, click here (starting at page 20).
Summary
Over the last few years, the Court has become increasingly receptive to arguments that Schedule C, even at its highest column, no longer reflects a reasonable approximation of the partial indemnity envisioned in the underlying rationale for costs awards. To address this disparity, absent legislative intervention, the Court turns to the discretion afforded to it by the Rules. That discretion has largely been exercised by applying an inflationary factor to Schedule C costs. It is important to note, however, that an inflationary factor is typically only applied where it is supported by an expert opinion (such as from an economist). It is usually not a matter where the Court will take judicial notice.
As this practice gained momentum, some plaintiff counsel began treating this inflationary adjustment as a given and were including it in their Bills of Costs during settlement negotiations. In many cases, an inflationary factor has only a marginal effect on costs since only a limited number of litigation steps have been undertaken. However, for claims in their later stages, this had the potential to increase costs by a fair margin.
The recent amendment should curtail this practice. The net result, however, is that litigants should now generally expect to pay 30-35% more for costs across the board.
Written by Judd Blitt