



COURT OF APPEAL FOR ONTARIO

CITATION: MDS Inc. v. Factory Mutual
    Insurance Company, 2021 ONCA 837

DATE: 20211122

DOCKET: C68300

Feldman, Harvison Young and
    Thorburn JJ.A.

BETWEEN

MDS Inc. and MDS
    (Canada) Inc. c.o.b. MDS Nordion

Plaintiffs
    (Respondents)

and

Factory Mutual
    Insurance Company c.o.b.

FM Global

Defendant (Appellant)

Paul
    J. Pape, David E. Liblong, Shantona Chaudhury and Cristina Senese, for the
    appellant, Factory Mutual Insurance Company

Brian
    J.E. Brock, Q.C., for the respondents, MDS Inc. and MDS (Canada) Inc.

Glenn A. Smith and Nina Bombier, for the intervener,
    Insurance Bureau of Canada

Heard: April 15, 2021 by video conference

On appeal from the judgment of Justice
    Janet Wilson of the Superior Court of Justice, dated September 9, 2020, with
    reasons reported at 2020 ONSC 1924 (damages) and 2020 ONSC 4464 (interest and
    costs).

COSTS
    ENDORSEMENT


[1]

This appeal was about whether the appellant
    insurer, Factory Mutual Insurance Company (FM Global), was required to
    provide insurance coverage for losses arising from an unplanned shutdown of the
    Atomic Energy of Canada Limited (AECL) Nuclear Research Universal (NRU)
    reactor located in Chalk River, Ontario on May 14, 2009.

[2]

The respondent MDS Inc. is a global health
    science company. The respondent MDS (Canada) Inc. is its Canadian subsidiary.
    They are together referred to as MDS. MDS agreed to buy radioisotopes from
    AECL to be produced at the NRU reactor. FM Global issued MDS an all-risk
    insurance policy (the Policy).

[3]

The central issues at trial were (i) the
    interpretation of the corrosion exclusion in the Policy and (ii) whether MDS business
    losses arising from the shutdown of the NRU reactor were payable pursuant to
    the exception to the exclusion for physical damage caused by corrosion.

[4]

The issues raised on appeal were (i) the standard
    of review to be applied to the interpretation of the Policy, (ii) the
    interpretation of the Policy and in particular, whether the term corrosion
    was ambiguous and should be interpreted to mean the anticipated and
    predictable process of corroding and whether the exception to the exclusion
    for physical damage in the Policy was ambiguous and should be interpreted to
    include loss of use; and (iii) if there was coverage, whether compound prejudgment
    interest at the rate of actual borrowing costs should have been ordered given
    that this was not contemplated in the Policy agreement.

[5]

The appeal was allowed. The corrosion exclusion was
    held to apply. The term physical damage in the exception to the exclusion
    clause was held not to apply to economic losses caused by the inability to use
    the equipment during the shutdown. MDS losses were not covered by the Policy
    and coverage was therefore denied.

[6]

The court ordered costs of the appeal to the
    appellant, FM Global. Those costs were agreed to by the parties.

[7]

In keeping with this courts decision in
St.
    Jean v. Cheung
,
2009 ONCA 9, at para. 4, and
Hunt v. TD
    Securities
,
66 O.R. (3d) 481 (C.A.) at para. 188, since the appeal
    was allowed, the trial judges decision on costs was set aside.

[8]

The parties were unable to agree on the quantum
    of costs to be awarded to FM Global for trial costs and written submissions
    were therefore received from the parties.

[9]

FM Global seeks trial costs in the amount of $561,103.95
    (fees of $241,284 plus HST at a partial indemnity rate and disbursements of $255,268.17
    plus HST). This sum reflects costs detailed in the appellants Bill of Costs
    that was provided to the trial judge.

[10]

By comparison, the amount of costs awarded by
    the trial judge to MDS was $1,266,105.48 (including fees of $1,104,242.36 at a
    partial indemnity rate and disbursements of $161,863.12).

[11]

FM Global seeks an award of costs that is approximately
    25 percent of the costs awarded to MDS by the trial judge.

[12]

While not all issues analyzed at trial were
    raised on appeal, FM Global was entirely successful on appeal and is therefore
    entitled to its reasonable costs of the trial.

[13]

Section 131(1) of the
Courts of Justice Act
,
R.S.O. 1990, c. C.43, provides that costs of a proceeding are within the
    discretion of the court. We have considered the factors set out in r. 57.01(1)
    of the
Rules of Civil Procedure
, R.R.O. 1990, Reg. 194. In particular,
    the importance of the issues, the conduct of the parties, the principle of
    indemnity including the lawyers experience, rates charged and hours spent, the
    fact that the appeal was neither improper nor vexatious, and the amount the
    losing party could reasonably expect to pay.

[14]

First, the issues pursued at trial and on appeal
    were both complex and important. Over CA$56 million was at stake and several
    experts were engaged by each of the parties to determine the claim. Moreover, this
    courts interpretation of the Policy was of precedential value as the claim
    involved a standard form policy that is used by insurers throughout the
    insurance industry across North America.

[15]

Second, FM Globals counsels hourly rates, as indicated in their
    submitted docket entries, were very reasonable. Further, the fees requested by
    FM Global reflect a partial indemnity rate. Therefore, it is unnecessary and inappropriate
    to take the approach the trial judge used to calculate MDSs counsels partial
    indemnity costs, which was to reduce its full indemnity bill by 50 percent.

[16]

Third, we agree that FM Global should be allowed to recover the
    disbursements for expert advice regardless of whether the expert reports were introduced
    at trial or relied on by the trial judge.

[17]

Each of the parties engaged multiple experts, and
    the court itself appointed an expert. All expert fees were incidental to the
    litigation. The experts quantified the losses and responded to issues raised by
    the opposing parties experts.

[18]

FM Globals expert accounting firm, Matson, Driscoll & Damico
    (MDD), analyzed MDS expert reports. MDDs expert advice concerned the quantification
    of loss from the date of the shutdown for the entire duration of the outage and
    the quantification of prejudgment interest. Although the expert report was not
    introduced at trial, the amounts were reasonably incurred to respond to the
    issues raised by MDS.

[19]

We note that reasonable expert fees for expert reports reasonably
    necessary for the conduct of the proceeding are recoverable whether or not the
    expert is called to give evidence
: Charlesfort
    Developments Limited v. Ottawa (City)
,
2021 ONCA 542, at para. 6,
leave to appeal S.C.C. requested,
    39818. Nonetheless, the fact that the expert was not called to give evidence is
    a factor to be taken into account in determining the reasonableness of the
    overall fees charged:
Charlesfort
,
at
    para. 7.

[20]

The reasonableness of retaining the expert is to be considered at
    the time the expense is incurred not in hindsight:
Fan
    (Guardian ad litem of) v. Chana
,
2011 BCCA 516, 345 D.L.R.
    (4th) 453, at para. 56. Neither the retainers nor the amounts charged are, in
    our view, untoward.

[21]

Disbursements for a retainer to Claims Services International
    Ltd. and Granitetown Services Inc. to locate the Chief Nuclear Officer at AECL,
    who was a key witness for FM Global, were reasonably incurred. Further, the
    expert fees for a r. 53 expert, Dr. Revie, to interpret and analyze MDS expert
    reports were also reasonably incurred even though not relied on by the trial
    judge.

[22]

For these reasons, as requested, FM Global is awarded its partial
    indemnity costs and disbursements in the amounts of $561,103.95
(including fees of $241,284 plus HST and disbursements of
    $255,268.17 plus HST).

K. Feldman J.A.

A. Harvison Young
    J.A.

J.A. Thorburn J.A.


