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To Costs or Not To Costs – Is That the Question?


Written by on January 9th, 2014

Rebecca Case

Associate 

The Law Commission of Ontario has now released the scope of its review of Class Actions, and, as expected, this review will entail an examination of the costs regime in Ontario, see http://www.lco-cdo.org/en/class-actions-project-scope. Currently, costs in class proceedings follow the normal Ontario Rules of Civil Procedure and are awarded following the event to the successful party. There are special considerations in class actions such as where a class action raised a novel point of law, is a test case or involved a matter of public interest, as set out under s. 31 of the Class Proceedings Act, 1992 and whether the primary objective of class proceedings -- enhanced access to justice -- may be taken into account is debated, but the overall approach is still the standard “loser pays” regime.

This approach was not the regime recommended by the Ontario Law Reform Commission (“OLRC”) in its 1982 Report on Class Actions. The OLRC found: “In our view, the question of costs is the single most important issue that this Commission has considered in designing an expanded class action procedure for Ontario.”  It was their, “unanimous conclusion that class actions … should be governed by a set of costs rules different from those that now apply in Ontario”.  The OLRC recommendations included that:

s. 2(1) party and party costs should not be awarded to a party at the certification hearing or at the common questions stage of a class action, except

(a) at the certification hearing, where it would be unjust to deprive the successful party of costs, or

(b) in the event of vexatious, frivolous, or abusive conduct on the part of any party” Nonetheless, the legislature did not adopt the OLRC’s recommendations in this regard.

In the fall of this year, having released reasons certifying five separate class actions, Justice Belobaba then released costs reasons in each of these actions (2013 ONSC 6886; 2013 ONSC 6356; 2013 ONSC 6354; 2013 ONSC 6351; 2013 ONSC 6887). In his reasons Justice Belobaba expressed his concern over the rising costs of certification motions and the fact that class actions are becoming too expensive.  He then took the unusual step of disclosing that he had sat on the Attorney General’s Advisory Committee on Class Action Reform in 1990 that did not agree with the OLRC’s position on costs.  He followed this by admitting that he has now changed his mind. Justice Belobaba stated:

…I also wish that the recommendations on costs as set out in the Ontario Law Reform Commission’s Report on Class Actions had been accepted.  Instead, the provincial legislature decided to adopt the views of the Attorney-General’s Advisory Committee and continue the “costs follow the event” convention for the very different world of class actions as well.  I was a member of that Advisory Committee.  I now realize that I was wrong and that the OLRC was right.  I understand that the provincial Law Commission is undertaking a review of the Class Proceedings Act, including the costs provisions.  Hopefully, our mistake will be corrected.

Justice Belobaba started the above with the statement that, “Most members of the class action bar, whether acting for plaintiffs or defendants, agree that a “no costs” rule would be much more sensible.”  Yet access to justice arguments have been and continue to be made both in support of and against a costs regime. On the pro side, it has been argued that a costs regime increases access to justice by providing intermittent stages of funding to plaintiffs throughout a successful class action, such as following certification.  This also satisfies the indemnification purpose of costs.  Where defendants may use exhaustion of litigation funding as a strategy at any stage of the class action, plaintiffs can expect that their funding will be replenished and the purpose of costs awards discouraging frivolous defences may also be served. The threat of a costs award also holds all sides accountable for their conduct and reasonableness of their positions.

On the con side, it has been argued that a costs regime discourages access to justice and is untenable as an individual unsuccessful representative plaintiff cannot afford to pay costs and large costs awards may have a chilling effect on class actions, rendering the goals of the Class Proceedings Act, 1992, unachievable. This latter argument has tended to be countered recently by the assumption that a representative plaintiff is almost always indemnified either through the Class Proceedings Fund, a Third Party Funder or class counsel.  However, as arrangements between representative plaintiffs and counsel or a funder tend to be privileged and are not necessarily released when there is a settlement, there is no real evidence that is available to back up this assumption. Further, the reliance on an indemnifier has the potential to restrict the prosecution of class actions to those that are indemnified or funded and does not address the reality of the “chilling effect”.  With limited public funding and selective third party funders, few class actions that are not geared towards large damages are undertaken.

The core issue is really how to reconcile the purposes of costs with enhanced access to justice and not a binary choice between a costs or no costs regime.  The original OLRC recommendation, although termed “no costs” in fact provided for more leeway. It is and will always be a balancing act and it is hoped that the forthcoming review based on the experience over the past 20 years will reflect this reality. 

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