



COURT OF APPEAL FOR ONTARIO

CITATION:
Eastern
    Power Limited v. Ontario Electricity Financial Corporation, 2012
    ONCA 366

DATE: 20120531

DOCKET: C49598

Laskin, Armstrong and Lang JJ.A.

BETWEEN

Eastern Power Limited

Plaintiff (Appellant)

and

Ontario Electricity Financial Corporation

Defendant (Respondent)

R. Nairn Waterman and Bruce W. Cameron, for the
    appellant

Timothy Pinos and Emily Larose, for the respondent

Heard: October 26, 2009

On appeal from the judgment of Justice Denise E. Bellamy
    of the Superior Court of Justice, dated September 26, 2008, with reasons
    reported at 2008 CanLII 48132 (ON S.C.).

COSTS ENDORSEMENT

A.

background

(1)

The Trial

[1]

In 1994 the appellant, Eastern Power, an independent producer of
    electrical power, entered into a 20-year power purchase agreement with Ontario
    Hydro, the predecessor of the respondent, Ontario Electrical Financial
    Corporation (OEFC).  Under the agreement, Eastern Power agreed to sell to
    Ontario Hydro, at specified rates, electricity generated from its landfill site
    in the Keele Valley in Vaughn, just north of the city of Toronto.

[2]

In 1998, Eastern Power sued Ontario Hydro claiming numerous breaches of
    the power purchase agreement.  It sought damages of $121 million.  After a
    23-day trial, Bellamy J. dismissed all of Eastern Powers claims but one: a
    claim for an inter-area transmission credit.  However, she declined to award
    any damages for this breach of contract because she concluded that there was no
    reliable and credible evidence from which to calculate those damages.

[3]

The trial judge awarded OEFC its costs of the action in the amount of
    $1,072,525.47 for fees and disbursements, exclusive of GST.

(2)

The Appeal

[4]

Eastern Power appealed the trial judgment on one ground:  The trial
    judge erred in not awarding damages for Ontario Hydros failure to include an
    inter-area transmission credit in the rates paid to Eastern Power.  Eastern
    Power sought damages of $8.5 million or a new trial on damages.

[5]

We agreed with Eastern Powers position, and ordered a new trial on
    damages.

(3)

Costs Submissions

[6]

The parties filed lengthy written submissions on both the costs of the
    appeal and the costs of the trial.

B.

costs of the appeal

[7]

Eastern Power seeks its costs of the appeal on a partial indemnity basis
    in the amount of $128,305.65.  This amount consists of fees of $100,000,
    disbursements of $21,774.91 and GST of $6,530.74.  OEFC submits that Eastern
    Power should be awarded no costs of the appeal or, at most, $50,000 in costs.

[8]

Eastern Power was successful on the appeal and is therefore entitled to its
    costs on a partial indemnity basis.  However, the amount it seeks in fees is
    excessive.  This was a one-day appeal on a narrow issue.

[9]

We accept that the issue was factually complex, that Eastern Power had
    to respond to OEFCs argument on liability, and that each party was represented
    by an experienced senior counsel and a junior counsel.  Nonetheless, we think
    that a fair and reasonable costs award is the amount proposed by OEFC, $50,000
    inclusive of disbursements and applicable taxes.

C.

costs of the trial

(1)

The trial judges award

[10]

The
    trial judges costs award of $1,072,525.47 accounted for a Rule 49 offer to
    settle made by OEFC four years before trial.  OEFC proposed a dismissal of the
    action without costs, which Eastern Power declined to accept.  The trial judge,
    therefore, held that OEFC was entitled to its costs of the action on a partial
    indemnity basis up to the date of the offer, and on a substantial indemnity
    basis after the date of the offer.

[11]

To
    calculate the counsel fees portion of her costs award, the trial judge
    essentially took the actual fees billed by OEFCs law firm.  She then applied a
    60 per cent rate to its partial indemnity award and a 90 per cent rate to its
    substantial indemnity award.  Those rates produced fees of $165,216.17 and $680,000,
    or a total counsel fee of $845,216.17.  She awarded disbursements of
    $227,309.30.  Her total costs award of $1,072,525.47 was exclusive of GST.

[12]

In
    this court, Eastern Power submits that the trial judges costs order should be
    set aside because it was premised on a result overturned by our decision. 
    Eastern Power points out that the two considerations the trial judge relied on
     Eastern Power was entirely unsuccessful at trial, and OEFCs offer to settle
     no longer apply.

[13]

Thus,
    Eastern Power asks that we reverse the trial judges costs order and make an
    award in its favour, consistent with the principle that the successful party is
    entitled to costs.  Eastern Power asks that we fix its trial costs on a partial
    indemnity basis in the amount of $845,000 for fees, $328,227.96 for
    disbursements and $56,695.85 for GST, for a total of $1,229,923.81.

[14]

OEFC
    takes the position that we ought to maintain the costs order of the trial judge
    or decline to award trial costs.  It argues that despite Eastern Powers
    success on appeal, it was predominantly unsuccessful at trial. OEFC contends
    that if we are not inclined to make either of these dispositions, then we
    should remit the matter to the trial judge hearing the damages action.

[15]

We
    do not agree with the position of either party. In the light of the outcome of
    this appeal, neither position produces a fair and reasonable outcome. Having
    regard to the guidance in rule 57.01(1) and the overriding principle of
    fairness and reasonableness, we prefer a third alternative. We decline to order
    trial costs in favour of Eastern Power.  Instead, we maintain a trial costs
    order in favour of OEFC - but not the order made by the trial judge. In its
    place, we substitute a lesser award in favour of OEFC to reflect the reality of
    the situation that would have been before the trial judge given Eastern Powers
    success on appeal.

(2)

Analysis

(a)

Costs follow the cause

[16]

Traditionally,
    costs will be awarded to the successful party.  Thus when a party succeeds on
    appeal, that success ordinarily must be imputed as success at trial. However,
    on the particular facts of this case, Eastern Powers success on appeal does
    not transform it into the successful party at trial. Eastern Power advanced six
    claims worth a total of approximately $121 million. Five of those six claims
    were dismissed, and its successful claim is worth, at most, $8.5 million.
[1]
Despite Eastern Powers argument to the contrary, OEFC was the overwhelmingly
    successful party at trial.

[17]

Costs
    should flow from OEFCs success. In our view, Eastern Powers success on the
    narrow issue of the inter-area transmission credit does not detract from that
    entitlement.  Nor does it entitle Eastern Power to an award of costs.  It does,
    however, merit some consideration.

[18]

Eastern
    Powers limited success should be reflected in the quantum of the award to
    OEFC. However, this does not mean we are making a distributive costs award.
    This court has restricted the use of distributive costs awards to the rarest of
    cases and has noted that [i]ndividual issues can be dealt with more
    appropriately under the general discretion and explicit guidance set forth in
    rule 57.01(1): see
Armak Chemicals Ltd. v. Canadian National Railway Co.
(1991), 5 O.R. (3d) 1, at pp. 8-9;
Murphy v. Alexander
(2004), 236
    D.L.R. (4th) 302.

[19]

Thus,
    the unavailability of a distributive costs award does not preclude the court
    from considering Eastern Powers limited success. Indeed, the general
    principles that govern costs decisions require us to consider the peculiar
    features of a given case. Therefore, although we would award trial costs to
    OEFC and decline to award costs to Eastern Power, in doing so, and in arriving
    at our ultimate order, we have considered Eastern Powers success on the narrow
    inter-area transmission credit issue.

(b)

Relevant rule 57.01 factors

[20]

Three
    of the factors listed in r. 57.01 support a reduced trial costs award in favour
    of OEFC:

·

The amount of costs that an unsuccessful party could reasonably
    expect to pay in relation to the steps in the proceedings for which costs are
    being fixed;

·

The amount claimed and the amount recovered in the proceedings;
    and

·

The conduct of any party that tended to shorten or to lengthen
    unnecessarily the duration of the proceedings.

(i)

Reasonable expectations

[21]

Even
    though Eastern Powers success on appeal does not change OEFCs status as the successful
    party, it does change the expectations of the parties on the amount of the
    award to which OEFC ought to be entitled.  One would reasonably expect that a
    party who succeeds on five of six issues would be entitled to a smaller costs
    award than a party who succeeds on all six issues.

(ii)

The amount claimed and the amount recovered

[22]

As
    we previously mentioned, Eastern Power claimed an aggregate amount of $121
    million in damages; the inter-area transmission credit is valued at $8.5
    million.  Awarding Eastern Powers trial costs based on success on
    approximately seven per cent of its total claim would be unreasonable.  At the
    same time, however, an award to OEFC should reflect that it was not wholly
    successful at trial.

(iii)

Unnecessary lengthening of the proceedings

[23]

Eastern
    Power sued OEFC for breach of confidentiality and alleged interference with
    contractual relations.  It abandoned those claims before trial, but after
    discoveries.

[24]

Eastern
    Power also sued OEFC for negligent misrepresentation.  It maintained that claim
    throughout the trial only to abandon it in closing submissions.  The trial
    judge found that at least 50%, if not more, of the entire trial and trial
    preparation was devoted to negligent misrepresentation issues.  Thus, by
    proceeding with this claim Eastern Power forced OEFC to expend significant time
    and expense that it otherwise would not have incurred.

[25]

These
    three factors support the exercise of this courts discretion to make a reduced
    trial costs award in favour of OEFC, while declining to award costs to Eastern
    Power. Beyond these specific factors, the overriding principle in assessing
    costs is that the award must be fair and reasonable:
Boucher v. Public
    Accountants Council for the Province of Ontario
(2004), 71 O.R. (3d) 291
    (C.A.), at para. 24. And a fair and reasonable result in this case is a reduced
    trial costs award to OEFC.  The remaining question is the amount of that award.

(c)

The amount of trial costs

[26]

To
    arrive at an appropriate amount we have reduced the trial judges award in two
    ways. The first change is to the scale of the award. The trial judges award
    included a substantial indemnity component to reflect that Eastern Power had
    declined an offer to settle that was more favourable than the outcome it
    ultimately achieved. This portion of the award is no longer justified in the
    light of Eastern Powers success on appeal. We have therefore converted the
    substantial indemnity portion of her award to a partial indemnity figure. The
    trial judges substantial indemnity award of $680,000 in counsel fees (at a 90
    per cent rate) is reduced to a partial indemnity figure of $453,333.33 (at a 60
    per cent rate) for a total fee award of $618,549.50.

[27]

Second,
    we have further reduced the fee portion of the trial judges costs award by 15
    per cent, resulting in an amount for counsel fees of $525,767.07. This
    reduction reflects the effect of the various cost factors discussed above, including
    Eastern Powers success on the single issue argued in this court:  damages
    relating to the inter-area transmission credit. OEFC is, therefore, entitled to
    trial costs of $525,767.07 in counsel fees and $227,309.30 in disbursements,
    for a total of $753,076.37.

D.

conclusion

[28]

Eastern
    Power is entitled to its costs of the appeal in the amount of $50,000,
    inclusive of disbursements and applicable taxes.

[29]

OEFC
    is entitled to the costs of the trial in the amount of $753,076.37 exclusive of
    applicable taxes.

[30]

We
    apologize to both parties for our delay in issuing this costs endorsement.

John Laskin J.A.

Robert P.
    Armstrong J.A.

S.E. Lang J.A.





[1]
Damages for Eastern Powers claim regarding the inter-area transmission credit
    are yet to be assessed. The figure of $8.5 million is the amount of damages
    claimed by Eastern Power on this appeal.


