Saba Ahmad is a Litigator working on environmental, administrative and commercial matters in Toronto. Learn more at www.sabaahmad.com
In Gouett v. Mullins, 2016 ONSC 714, the Gouetts sued their neighbour, Mr. Mullins and Ms. Black, over access to their driveway. After a trial, Mullins and Black won. They sought $45,058.53 in substantial indemnity costs. That means the couple probably paid around $72,087.80 to their lawyer. They asked the Court to award them a “substantial” portion of their costs back from the Gouetts. But the judge ruled, as one would expect, that they could only get a “partial” award, in the amount of $32,326.11, because the losing party had not engaged in the kind of misconduct that is required to justify a higher award.
The unusual wrinkle in this case is that the judge further reduced the award on account of an insurance payment Mullins and Black had received, in the amount of $25,025.00. Apparently, at the outset of the dispute, the insurance company made the payment in respect of a claim by the homeowners. The couple had the option of using the funds to defend the Gouetts’ claim, or to accept it as compensation for the inconvenience of providing the Gouetts access.
The judge ruled that costs are for indemnity only and cannot be a source of profit to a successful party. Since Mullins and Black had already received $25,025 as payment towards their costs, they could not recover that amount again from the Gouetts.
The judge was careful to distinguish a Court of Appeal decision, which appeared on point, and which prevented a tortfeasor from benefiting from a victim’s insurance compensation. The judge noted that the Gouetts were not tortfeasors or wrongdoers, and no damages were awarded in the case. As such, the Court ruled the insurance payment could be deducted from his costs award, and the total amount the losing party had to pay was $7,3011.11.
This decision touches on many issues related to costs and the principles of indemnity, yet the reasoning seems incomplete.
Why would a payment of $25,025 from the insurance company render a costs award in the order of $32,326.11 a double recovery? The total legal bill was for around $72,000.00. Mullins and Black received $25,025 of that expense from their insurance company, and if they had received $32,326.11 from the Gouetts, they would still have been out of pocket by around $15,000.00. A partial indemnity award would not have been profitable for these victors.
In the decision, the judge stated that Mullins and Black were “entitled” to $32,326.11. The Court’s implicit meaning appears to be that they were “entitled” to that amount – and no more – from all sources. One hint as to why the judge decided that was his finding that a $7,3011.11 costs award seemed fair, reasonable and proportional in all the circumstances.
It seems somewhat arbitrary for the judge to have decided that the insurance payment was in respect of the recoverable costs, as opposed to the unrecoverable costs, born by the successful party. Other than the Court’s view of fairness and reasonableness, there is no explanation or justification for that aspect of the decision.
In the absence of a clearer rule, one would expect this question to arise again. And that is the most troubling aspect of the decision. Ontario has a lot of litigation over costs, which is very expensive for litigants. This case provides for an exception to an exception to a rule, when a winning party also got an insurance payment.
A bright-line, one-size-fits-all rule might result in minor injustice in some cases. But costs awards rarely seem “just”. And the ability to litigate secondary and tertiary questions of law with respect to costs seems to give rise to increased legal bills for all litigants, in virtually all cases.