Docket: A-43-16
Citation:
2017 FCA 25
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CORAM:
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DAWSON J.A.
RENNIE J.A.
WOODS J.A.
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BETWEEN:
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NOVA CHEMICALS
CORPORATION
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Appellant
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and
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THE DOW
CHEMICAL COMPANY, DOW GLOBAL TECHNOLOGIES INC. and
DOW CHEMICAL
CANADA ULC
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Respondents
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REASONS
FOR JUDGMENT
RENNIE J.A.
I.
Introduction
[1]
Nova Chemicals Corporation (Nova) appeals from
the Judgment of the Federal Court which awarded The Dow Chemical Company, Dow
Global Technologies Inc. and Dow Chemical Canada ULC (collectively, Dow) $6.5
million for costs consequent to Dow’s success in an action for patent
infringement (2014 FC 844, affirmed 2016 FCA 216). The lump sum award was comprised
of $2.9 million for legal fees and $3.6 million for disbursements.
II.
Federal Court decision
[2]
In the Federal Court, Dow asked for costs above the
amounts provided by Tariff B of the Federal Courts Rules (S.O.R./98-106).
It sought a lump sum award of $6.5 million: $2.9 million in legal fees (which
represented 30% of its actual legal fees of $9.6 million) plus $3.6 million in
disbursements. In the alternative, Dow asked for a lump sum between $4.7 million
and $6.5 million, the former amount including the same disbursements, but with
the amount for legal fees based on Column V of Tariff B. Nova opposed,
contending that both the record and the evidence Dow had provided were insufficient
to substantiate Dow’s request for a lump sum. Nova requested that costs be
assessed, with specific directions to the assessment officer to address a number
of concerns raised by Nova.
[3]
In reasons cited as 2016 FC 91, the judge
characterized the trial proceeding as “an extremely
complex patent case involving much expert testimony.” He noted that
there were 22 allegations of invalidity, 33 days of discovery and 32 days of
trial. The written submissions at the end of the trial exceeded 700 pages in
length and the closing argument lasted three days. The judge noted that both
parties undertook extensive and scientifically-complex testing of the materials
that were at the heart of the patent dispute. The judge found legal fees allowable
under Column V of Tariff B, which would have awarded an amount equivalent to
11% of Dow’s legal costs, to be “totally inadequate.”
[4]
Based on these considerations, the judge
concluded that an increased award of costs was justified. The judge then
considered whether costs should be fixed as a lump sum, as urged by Dow, or assessed
by an assessment officer, as urged by Nova. He held that an assessment would “serve no purpose,” given the extensive submissions made
by both parties and the anticipated additional time and expense of an
assessment of costs. He concluded that an amount representing 30% of Dow’s
actual legal costs and approximately three times what would be available under
the Tariff was reasonable.
[5]
The judge then considered Nova’s submission that
Dow’s disbursements had not been “proven” as required
by subsection 1(4) of Tariff B. In particular, Nova objected to the lack of a supporting
affidavit and its inability to cross-examine and test Dow’s claim for a
disbursement of $1.6 million, said to represent the costs to Dow of testing the
infringing product in-house. The judge dismissed Nova’s objection, noting that,
similar to the practice on assessment, “the solicitor
could have established the amount of the disbursements” without an
affidavit. The judge was satisfied that the information provided by Dow,
specifically the Bill of Costs and the attached schedules, was sufficient to
allow him to determine the reasonableness of the amount. He awarded the full
$3.6 million in disbursements, holding that Dow had provided “sufficient detail” to allow him to grant the
disbursements on the basis that they were reasonable.
III.
Analysis
[6]
The decision of this Court in Hospira
Healthcare Corporation v. Kennedy Institute of Rheumatology, 2016 FCA 215, confirms
that the standard of review on appeal of discretionary decisions of the Federal
Court is that articulated by the Supreme Court of Canada in Housen v.
Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, namely of palpable and
overriding error in respect of findings of fact and mixed fact and law, and
correctness with respect to extricable questions of law. As described below,
Nova asserts two errors said to warrant this Court’s intervention.
[7]
First, Nova submits that costs awards should be
guided by the standards established in Tariff B, and that any departures from
the Tariff should be limited to exceptional cases. Nova also asserts that, by
itself, the fact that a successful party’s legal costs exceed the Tariff does
not justify departing from the Tariff. It contends that the judge erred in
awarding costs based on a percentage of Dow’s actual fees, in particular
because it alleges that the judge did not analyze whether the amount of time billed
by Dow’s lawyers was reasonable or warranted, or whether Dow’s actual fees (on
which the percentage amount was based) included improperly claimed items.
[8]
Secondly, Nova takes issue with the sufficiency
of evidence before the judge in respect of both the fees and disbursements
claimed. It submits that “[i]t is inappropriate for the
Court to award a lump sum on the basis of mere assertions of the amounts spent
without evidence or explanation,” and that the judge was not entitled to
conclude that Dow’s legal costs were reasonable merely because Nova did not
present information on its actual incurred legal fees. Nova also argues that the
judge was required to consider whether the services rendered for the fees
claimed were “reasonably necessary in the
circumstances,” and that the judge did not have evidence sufficient to conduct
a critical examination of the record in order to come to an informed decision
on this requirement. Nova submits that the evidentiary record before a judge
determining costs should be akin to that which would be put before an
assessment officer to properly exercise his discretion, and that, because the
evidence in this case was insufficient, the judge erred in not referring the
matter to an assessment.
[9]
Although Nova’s submissions point to concerns
that could have been better addressed by the judge, I am not persuaded that the
judge erred in awarding costs in a lump sum, or in fixing them as a percentage
of Dow’s actual expenses. Nor am I persuaded that the judge erred in allowing
the disbursement for testing without a supporting affidavit. Before explaining
why I reach these conclusions, it is important to review first principles.
A.
Lump sum awards – generally
[10]
Rule 400(1) of the Federal Courts Rules
gives the Court “full discretionary power over the
amount and allocation of costs”. This has been described to be the “first principle in the adjudication of costs”: Consorzio
del prosciutto di Parma v. Maple Leaf Meats Inc., 2002 FCA 417, [2003] 2
F.C.R. 451, at para. 9 [Consorzio].
[11]
Rule 400(4) expressly contemplates an award of
costs in a lump sum in lieu of an assessment of costs pursuant to Tariff B:
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400 (4) The Court
may fix all or part of any costs by reference to Tariff B and may award a
lump sum in lieu of, or in addition to, any assessed costs.
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400 (4) La Cour
peut fixer tout ou partie des dépens en se reportant au tarif B et adjuger
une somme globale au lieu ou en sus des dépens taxés.
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Lump sum awards have found increasing favour
with courts, and for good reason. They save the parties time and money. Lump
sum costs awards further the objective of the Federal Courts Rules of
securing “the just, most expeditious and least
expensive determination” of proceedings (Rule 3). When a court can award
costs on a lump sum basis, granular analyses are avoided and the costs hearing does
not become an exercise in accounting.
[12]
Lump sum awards may be appropriate in
circumstances ranging from relatively simple matters to particularly complex
matters where a precise calculation of costs would be unnecessarily complicated
and burdensome: Mugesera v. Canada (Minister of Citizenship &
Immigration), 2004 FCA 157, at para. 11.
[13]
As demonstrated by the facts of this case, there
are circumstances in which costs generated even at the high end of Column V of
Tariff B bear little relationship to the objective of making a reasonable
contribution to the costs of litigation. The Tariff amounts have been described
as inadequate in this respect, although this may be a significant
understatement in complex litigation conducted by sophisticated parties in the
Federal Courts. Nevertheless, an increased costs award cannot be justified
solely on the basis that a successful party’s actual fees are significantly
higher than the Tariff amounts: Wihksne v. Canada (Attorney General),
2002 FCA 356, at para. 11. The burden is on the party seeking increased costs to
demonstrate why their particular circumstances warrant an increased award.
B.
Evidentiary considerations
[14]
As a matter of good practice, requests for lump
sum awards should generally be accompanied by a Bill of Costs and an affidavit
in respect of disbursements that are outside the knowledge of the solicitor. In
most cases this will provide a proper starting point for the exercise of
discretion.
[15]
An award of costs on a lump sum basis must be
justified in relation to the circumstances of the case and the objectives
underlying costs. It is not a matter of plucking a number or percentage out of
the air. However, I do not agree with Nova’s submission that the evidentiary
record before a trial judge asked to award a lump sum must provide a level of
detail akin to that which would be required in an assessment conducted by an
assessment officer unfamiliar with the proceeding. To my mind, that would
defeat the purpose of a lump sum, to save time and costs to the parties that
would have otherwise resulted from the assessment process.
(1)
Legal fees
[16]
The practice of awarding lump sum costs as a
percentage of actual costs reasonably incurred is well established in the
jurisprudence. In Philip Morris Products SA v. Marlboro Canada Ltd, 2015
FCA 9, at para. 4, this Court observed that “when
dealing with sophisticated commercial parties, it is not uncommon for such lump
sums to be awarded based on a percentage of actual costs incurred.” As
noted by the Federal Court in H-D U.S.A., LLC v. Berrada, 2015 FC 189, there
appears to be a “[t]rend in recent case law favouring
the award of a lump sum based on a percentage of the actual costs to the party
when dealing with sophisticated commercial litigants that clearly have the
means to pay for the legal choices they make”: at paragraph 22, quoting Eli
Lilly & Co. v. Apotex Inc., 2011 FC 1143, at para. 36.
[17]
A review of the case law indicates that
increased costs in the form of lump sum awards tend to range between 25% and
50% of actual fees. However, there may be cases where a higher or lower
percentage is warranted.
[18]
When a party seeks a lump sum award based on a
percentage of actual legal fees above the amounts provided for in the Tariff, as
a matter of good practice the party should provide both a Bill of Costs and
evidence demonstrating the fees actually incurred. As well, a sufficient
description of the services provided in exchange for the fees should be given to
establish that it is appropriate that the party be compensated for those
services. What is required is sufficient evidence of the nature and extent of
the services provided so that a party can make an informed decision whether to
settle the fees or contest and that the Court can be satisfied that the actual fees
incurred and the percentage awarded are reasonable in the context of the
litigation.
[19]
While, as noted above, a judge fixing costs on a
lump sum basis has a wide discretion, the discretion is not unfettered. As
noted, it is not a matter of plucking a number out of the air. The discretion
must be exercised prudently. The criteria set forth in Rule 400(3), the case
law and the objectives that underlie awards of costs are all relevant
considerations. Efficiency in the administration of justice is one value that
underlies lump sum awards, but costs must also be predictable and consistent so
that counsel can properly advise and clients can make informed decisions about
litigation risks. The ability to forecast cost consequences also bears both on
the ability of parties to settle and on the question of access to the courts.
(2)
Disbursements
[20]
Disbursements must be, in the language of the
Tariff, “reasonable”. This requires that they be
justified expenditures in relation to the issues at trial. Where disbursements
are outside of the knowledge of the solicitor, they should generally be accompanied
by an affidavit such that the Court can be satisfied that they were actually
incurred and were reasonably required.
C.
Application
(1)
Legal fees
[21]
Nova submits that there was insufficient
evidence on the record to establish that the services for which Dow’s actual
legal fees were incurred were reasonable. However, the parties to this
litigation are sophisticated corporations which chose to engage in complex,
lengthy, contentious litigation. The judge considered that the award of a lump
sum award would avoid the parties incurring additional costs and time spent
were an assessment undertaken. I see no error of law or palpable and overriding
error of fact on the part of the judge in deciding to depart from the Tariff
amounts and to fix the increased award as a lump sum based on 30% of Dow’s
actual legal fees. The selection of the appropriate percentage of an increased
costs award is a matter for the judge, who, as here, is in a good position to
assess the evidentiary and legal complexity of the trial, the result of the
action, the conduct of the parties and other considerations relevant to the
assessment of costs. The judge turned his mind to the criteria under Rule
400(3), which remain useful beacons in the selection of a lump sum award. The
determination of a lump sum is not an exact science, but reflects the amount
the Court considers to be a reasonable contribution to the successful party’s actual
legal fees: Consorzio, at para. 8.
[22]
Further, the record before a trial judge hearing
a costs motion is not confined to the motion materials, but includes all of the
trial and pre-trial matters over which he or she presided. Here, the judge had
an intimate knowledge of the case. The judge was provided with both a Bill of
Costs, as well as a summary of Dow’s actual solicitor-client fees. The award of
30% of the fees incurred by Dow took into account Nova’s complaints that
certain steps ought not to have been part of the costs award, and avoided the
need for the parties to undertake the costly exercise of parsing out such
steps. The judge was satisfied that the percentage of fees requested as a lump
sum were actually incurred and reasonable in the circumstances.
(2)
Disbursements
[23]
Nova submits that affidavit evidence was
necessary to substantiate the in-house testing costs as such evidence was not
adduced at trial and was outside of the judge’s knowledge. More particularly, Nova
contends that the judge erred in finding that Dow’s solicitors would have been
able to substantiate the impugned disbursements as required under Tariff B
subsection 1(4), as the associated costs of in-house testing would be outside
of their knowledge.
[24]
Nova also submits that Dow should not have been
allowed to recover for overhead costs that may have been embedded in the
disbursement, and that the evidence lacked sufficient detail to determine
whether costs for those items were being claimed or were reasonable. It argues
that the judge erred in determining reasonableness of the disbursements based
on the irrelevant consideration of whether testing by a for-profit facility
would have been more costly.
[25]
In the ordinary course, disbursements of this
magnitude should be supported by affidavit evidence. In the unique circumstances
of this case, however, the judge had a sufficient basis on which to conclude
that the disbursement claimed by Dow for its testing was reasonable. The judge was
well positioned to assess the utility of the in-house testing in the course of
the trial. The question of testing, how and when it was to be done, the
measures necessary to protect intellectual property interests, the operational
aspects including supervision, costs and disclosure of results, were all the
subject of a contested motion, on which affidavit evidence was led. The judge also
heard testimony during the trial about the testing process and results, and
observed some aspects of the testing by video. Nova and Dow’s solicitors both
attended the testing, and were in a position to speak to the reasonableness, or
not, of the amount claimed on the costs motion. The judge was also aware that
some of the in-house testing was unnecessary and flowed from Nova’s initial
position that it could not reproduce one of the relevant polymers. Nova resiled
from this position at trial. In these circumstances, the judge was able to
assess the assertion that the testing costs were limited to the expenses incurred
for presentation at trial alone and were reasonable in the circumstances. The
judge also had one other point of reference by which he could gauge the
reasonableness of the disbursement: a cost estimate from an independent third
party.
[26]
I agree with Nova that, as a general
proposition, an in-house disbursement cannot be justified on the sole basis
that it would be more expensive to obtain the same service elsewhere. The costs
must still be both “reasonable” in the language
of the Tariff, and justified in relation to the issues at trial. The successful
party must not be over-compensated. Generally, ongoing overhead costs of a
party related to in-house testing should not be shifted to the other party.
However, the judge heard these concerns and was not satisfied that they altered
the reasonableness of the disbursement. In the particular circumstances of this
case, I see no error of law or palpable and overriding error on the part of the
judge.
IV.
Conclusion
[27]
I would dismiss the appeal with costs.
“Donald J. Rennie”
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“I agree
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Eleanor R. Dawson J.A.”
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“I agree
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J. Woods
J.A.”
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