



COURT OF APPEAL FOR ONTARIO

CITATION: Smith v. Inco Limited, 2013
    ONCA 724

DATE: 20131129

DOCKET: C57026

MacPherson, Watt and Pepall JJ.A.

BETWEEN

Ellen Smith

Plaintiff (Respondent)

and

Inco Limited

Defendant (Appellant)

Proceeding under the
Class
    Proceedings Act, 1992

Alan J. Lenczner, Q.C., Larry P. Lowenstein, Laura K.
    Fric and Lauren Tomasich, for the appellant

Kirk M. Baert, Celeste Poltak and Eric K. Gillespie, for
    the respondent Ellen Smith

Scott Hutchison and Aaron Dantowitz, for the respondent
    Law Foundation of Ontario

Heard: October 10, 2013

On appeal from the order of Justice J.R. Henderson of the
    Superior Court of Justice dated September 10, 2012, with reasons reported at 2012 ONSC 4749.

MacPherson
    J.A.:


A.

INTRODUCTION

[1]

The appellant Inco Limited (Inco) appeals from the order of Henderson
    J. of the Superior Court of Justice dated September 10, 2012, awarding Inco
    costs of $1,766,000 following a 45 day trial in a class action proceeding.  The
    appellant contends that the costs award should have been $5,340,563, and that
    the $3.6 million shortfall flows from three principal errors made by the trial
    judge: (1) he improperly reduced the appellants legal fees from $2.9 million
    to $2 million; (2) he erred by imposing a 50 per cent reduction on the legal
    fees and disbursements that he found were reasonable, pursuant to s. 31(1) of
    the
Class Proceedings Act
,

S.O. 1992, c. 6 (
CPA
); and
    (3) he erred by not awarding Inco costs on a substantial indemnity basis for
    the period after Incos valid and reasonable offer to settle.

B.

FACTS

(1)

The parties and events

[2]

The respondent Ellen Smith resides at 91 Rodney St. in Port Colborne. 
    Her home is one block away from Incos refinery.  Inco opened the refinery in
    1918 to refine nickel and other metals in response to increased demand for
    these metals during World War I.  For most of the twentieth century, the
    refinery was one of the most important industries in the Port Colborne area, its
    largest employer, and a major contributor to its growth and development.

[3]

Inco ceased refining nickel at the refinery in 1984.

[4]

In 2000, it was disclosed that the Ministry of the Environment had found
    higher than expected nickel levels in a soil sample from a property adjacent to,
    and downwind of, the refinery in the Rodney St. area.  In 2001, a person who
    lived in the Rodney St. area brought an environmental action against Inco and
    sought to have it certified as a class proceeding under the
CPA
.  This
    court certified the action as a class proceeding in 2006: see
Pearson v.
    Inco Ltd.
(2006), 78 O.R. (3d) 641.

[5]

The certified class consisted of the owners of approximately 7,000
    properties in and around Port Colborne, who collectively claimed that the value
    of their properties had been negatively affected by nickel emissions from
    Incos refinery.  The certified action was restricted to a claim of diminution
    of property values and sounded in nuisance, negligence, trespass and strict
    liability in accordance with the doctrine in
Rylands v. Fletcher
(1866),
    L.R. 1 Ex. 265 (Ex. Ct.), affd (1868), L.R. 3 H.L. 330 (H.L.).

[6]

In 2008, the plaintiff class applied to the Class Proceedings Committee,
    a statutory committee created by s. 59.2 of the
Law Society Act
,
    R.S.O. 1990, c. L. 8 (
LSA
), for funds from the Class Proceedings
    Fund (the Fund).  The Fund is administered by the respondent Law Foundation
    of Ontario (LFO) pursuant to s. 59.1 of the
LSA
.  The plaintiff
    class was granted funds for its action.

[7]

As the trial approached, both parties made offers to settle.  On June
    13, 2007, the plaintiff class offered to settle for $37.5 million plus costs
    and administration fees of $2.5 million.  On June 10, 2009, Inco offered to
    settle for $2 million plus costs which were acknowledged to be about $2
    million.  On September 25, 2009, the plaintiff class offered to settle for $10
    million plus costs and administration fees of $3 million.  None of these offers
    was accepted.

[8]

The trial on the common issues was held in Welland over 45 days between
    October 2009 and January 2010.  On July 6, 2010, the trial judge delivered his
    decision.  He found that Inco was liable to the class members in private
    nuisance and pursuant to the doctrine in
Rylands v. Fletcher
.  He
    assessed the damages at $36 million.

[9]

On appeal, this court set aside the trial judges decision: see
Smith
    v. Inco Limited
, 2011 ONCA 628,
107 O.R. (3d)
    321
.  The appeal was allowed on the following bases:

(1)

With respect to the nuisance
    claim, the plaintiffs failed to establish actual physical  harm or damage to
    their properties as a result of the nickel particles becoming part of the soil;

(2)

With respect to the
Rylands v.
    Fletcher
claim, Ontario law does not provide for strict liability based
    exclusively on the abnormal risk posed by a defendants activity, and
    furthermore Incos activities did not present an abnormal risk to nearby
    property owners because the nickel particles caused no damage and had no effect
    on the plaintiffs ability to use their properties; and

(3)

With respect to damages, the claimants
    had suffered no actual loss.

[10]

In
    an endorsement dated November 18, 2011, Doherty J.A. remitted the matter back
    to the trial judge to consider the costs issue, having regard to the reasons
    of this court in its decision allowing the appeal.

(2)

The trial judges costs decision

[11]

The
    trial judge began by setting out the positions of the parties, at paras. 2-5:

As the party that was ultimately successful, Inco requests its
    costs on a partial indemnity basis from the date of certification until the
    date of Incos offer to settle, June 10, 2009, and on a substantial indemnity
    basis thereafter.



Inco has delivered a Bill of Costs by which it claims costs on
    the above-mentioned scale in the total amount of approximately $5,340,000.00
    including disbursements.  For comparison purposes, if Incos Bill of Costs were
    recalculated on a partial indemnity scale throughout the relevant period, the
    total costs claim would be approximately $4,603,000.00 including disbursements.

LFO submits that s. 31(1) of the
Class Proceedings Act
applies as this action raised novel points of law and involved matters of
    public interest.  Therefore, LFO submits that Inco should receive no costs, or
    in the alternative that Incos costs should be substantially discounted.  LFO
    also submits that in any event the quantum of costs claimed is excessive and
    that the scale of costs should not be higher than partial indemnity.

[12]

The
    trial judge fixed costs at $1,766,000.  The central features of his award were
    the following: (1) he refused to award Inco fees on a substantial indemnity
    basis; (2) he accepted Incos disbursements claim of $1,532,000; (3) he reduced
    Incos claimed fees on a partial indemnity basis from $2.9 million to $2
    million; (4) this left a starting point for fees and disbursements of
    $3,532,000; (5) taking into account s. 31(1) of the
CPA
, he reduced the
    starting point set out above by 50 per cent; and (6) this left a final costs
    award of $1,766,000.

[13]

Inco
    appeals from this costs order and seeks an order awarding costs of $5,340,563.

C.

ISSUES

[14]

It
    is possible, at a level of generality, to view this as a single issue appeal 
    does the trial judges costs decision reflect an error in principle, or is it
    plainly wrong, such that this court should interfere?

[15]

However,
    the appellant, in its factum and in oral argument, identified eight alleged
    errors in the costs decision.  I find it useful to set these out as the issues
    to be determined on this appeal:

(1)

Did the trial judge err by failing
    to properly take account of this courts   reasons in allowing the appeal from
    the trial decision when he addressed the     matter of costs?

(2)

Did the trial judge err by failing
    to accord weight to the denial by the       Supreme Court of Canada of the
    plaintiffs motion for leave to appeal this   courts decision allowing the
    appeal from the trial judges decision?

(3)

Did the trial judge err in
    determining that the case raised novel points of law    pursuant to s. 31(1) of
    the
CPA
?

(4)

Did the trial judge err in
    determining that the case involved a matter of public   interest pursuant to s.
    31(1) of the
CPA
?

(5)

Did the trial judge err in
    lowering Incos fees from $2.9 million to $2 million?

(6)

Did the trial judge err by
    applying the s. 31(1) discount to Incos   disbursements?

(7)

Did the trial judge err by failing
    to take into account Incos offer to settle?

(8)

Did the trial judge err by taking
    into consideration the impact of a costs  award on the LFO?

D.

ANALYSIS

[16]

I
    propose to discuss the issues in the order raised by the appellant.  However,
    before doing so, I will discuss a preliminary issue  the standard of review.

[17]

This
    was a long (several years, including a 45 day trial) and complicated class
    action proceeding involving a great deal of evidence, several significant legal
    doctrines, and many millions of dollars.

[18]

However,
    this appeal is much narrower than the original action.  The subject matter of this
    appeal is the prosaic question of costs.  On this issue, the standard of review
    is crystal clear.  As expressed by a unanimous court in
Hamilton v. Open
    Window Bakery Ltd.
, 2004 SCC 9, [2004] 1 S.C.R. 303, at para. 27, [a]
    court should set aside a costs award on appeal only if the trial judge has made
    an error in principle or if the costs award is plainly wrong.  See also:
McDowell
    v. Barker
, 2012 ONCA 827, at para. 17.

[19]

Moreover,
    the standard of considerable deference to a trial judges costs award has
    been explicitly applied by this court to such awards in class proceedings
    cases: see
McNaughton Automotive Ltd. v. Co-operators General Insurance Co.
,
    2008 ONCA 597, O.R. (3d) 365, at para. 27.

[20]

Under
    this umbrella of deference, I turn to the arguments raised by the appellant.

(1)

Taking account of this courts
    reasons in allowing the appeal

[21]

The
    appellant asserts that the trial judge ignored Doherty J.A.s instruction that
    the trial judge was to determine the trial costs having regard to the reasons
    of this court.  Specifically, the appellant contends that the trial judge
    failed to assess costs on the basis that the plaintiffs case had no merit in
    law and did not establish damages; instead, he sought to justify what he had
    done previously, namely, decide in favour of the plaintiff class.

[22]

I
    do not accept this submission.  In my view, the trial judge was scrupulously
    faithful to the language in Doherty J.A.s endorsement returning the costs
    issue to him.  He carefully and comprehensively reviewed the relevant factors
    in his costs decision.  There is nothing in the wording of this decision to
    suggest that he was trying to retroactively justify his previous trial decision
    or do anything other than arrive at a fair costs award after a long and complex
    class action proceeding.

(2)

Supreme Court of Canadas denial of
    leave to appeal

[23]

The
    appellant submits that the trial judge erred in his treatment of the Supreme
    Court of Canadas refusal to grant leave to appeal in the main action.

[24]

The
    trial judge addressed this issue in this fashion, at para. 79 of his reasons:

I disagree with Incos submission that by dismissing the
    request for leave to appeal, the SCC has already determined that this case does
    not involve a matter of public importance.  If the Court had granted leave,
    then it would be clear that the SCC felt that this case involved a matter of
    public importance or an important issue of law.  However, I cannot assume that
    in dismissing the application for leave the SCC found that this case did not
    involve a matter of public importance.  The leave application could have been
    dismissed for any number of reasons, and unfortunately no reasons were
    provided.  Therefore, the SCC decision to deny leave is not determinative of
    this issue.

[25]

The
    appellant submits that this reasoning is flawed; it implicitly asserts that
    when the Supreme Court of Canada denies leave,
ipso facto
the appeal
    does not raise a question of public importance or a question involving an important
    issue of law
per
s. 40(1) of the
Supreme Court Act
, R.S.C.
    1985, c. S-26 (
SCA
).

[26]

I
    disagree.  Against the backdrop of several hundred applications for leave to
    appeal each year, the Supreme Court of Canadas long-standing practice has been
    to dispose of these applications without providing reasons.  The Court
    obviously does this under the umbrella of the statutory mandate in s. 40(1) of
    the
SCA
.  However, I would not stretch this reality to encompass the
    broad proposition implicitly advanced by the appellant, namely, that if the
    Court refuses leave, the appeal must not raise a question of public importance
    or an important issue of law.  In deciding whether a particular appeal deserves
    to be included on the limited docket of Canadas highest court, the Court may
    well consider a broad range of factors in addition to those set out in s. 40(1)
    of the
SCA
.  Accordingly, I agree with the trial judge that the
    Courts denial of leave is not determinative of the question of public
    importance.

(3)

Novel point of law

[27]

Section
    31(1) of the
CPA
provides:

In exercising its discretion with respect to costs under
    subsection 131 (1) of the
Courts of Justice Act
, the court may
    consider whether the class proceeding was a test case,
raised a novel point
    of law
or involved a matter of public interest.                                                                                               [Emphasis
    added.]

[28]

The
    trial judge found that the class action proceeding raised a novel point of
    law.  He reasoned, in part, at paras. 94-97:

Regarding the question of whether this case raised a novel
    point of law, Inco correctly submits that this case was grounded in nuisance,
    trespass and the doctrine in
Rylands v. Fletcher
, all of which are
    old, if not ancient, causes of action.  There is nothing novel about any of
    these causes of action.

However, even though this case was grounded in traditional
    causes of action, I find that this action was novel in two general ways. 
    First, this was one of the first cases to attempt to apply these traditional
    causes of action to modern environmental concerns.  I accept LFOs submission
    that this claim could be described as an environmental tort, which may be a
    way of describing the collective use of several traditional causes of action
    for the purpose of advancing environmental claims.

To my knowledge, this case was the first to attempt to deal
    with alleged physical environmental damage caused to a large number of properties
    by emissions from a refinery or industrial operation.  In that sense, this case
    was novel.

The second general way in which this case was novel is the fact
    that this claim for environmental damage was advanced through the vehicle of a
    class proceeding.  This case was the first mass environmental damage action to
    be certified as a class proceeding, and the first such action to proceed to
    trial.  I find that this case was also novel in that sense.

[29]

Like
    the trial judge, I do not think that there is always a bright line between old
    or settled and novel points of law.  Novelty exists on a continuum, and s.
    31(1) of the
CPA
permits costs awards to be made on a continuum, from
    full costs to reduced costs to no costs for the successful party: see
Ruffolo
    v. Sun Life Assurance Co. of Canada
, 2009 ONCA 274, 95 O.R. (3d) 709, at
    para. 35 (
Ruffolo
).

[30]

I
    do not fault the trial judge for finding that this case essentially came within
    a middle ground of novelty and for structuring his costs order accordingly. 
    The appellant emphasizes, and the trial judge recognized, that this case was
    grounded in nuisance, trespass and the doctrine in
Rylands v. Fletcher
,
    all of which are old, if not ancient, causes of action.

[31]

However,
    the fact that a claim is grounded in a well-established cause of action does
    not remove the possibility that the claim raises a novel point of law.  In
Ruffolo
,
    at paras. 34-44, this court upheld a trial judges determination that a breach
    of contract case could be novel for s. 31(1)
CPA
purposes,
    notwithstanding that breach of contract is a traditional cause of action.  This
    court also upheld the trial judges determination that this novelty was not
    sufficient to justify a total denial of the successful defendants costs.

[32]

The
    appellant asserts that the trial judge erred by saying that this case was the
    first mass environmental damage action to be certified as a class proceeding,
    and the first such action to proceed to trial.  I agree with the appellant
    that one other mass environmental damage action has been certified and
    proceeded to trial:
St. Lawrence Cement Inc. v. Barrette
, 2008 SCC 64,
    [2008] 3 S.C.R. 392 (
Barrette
).  However,
Barrette
was
    resolved under the framework of the
Civil Code of Quebec
, S.Q. 1991,
    c. 64, which provides for an entirely different liability regime than the
    common law that governs in Ontario.  Thus the issues raised by this case, which
    largely pertain to nuisance law and the doctrine of
Rylands v. Fletcher
in the context of a mass environmental tort, were not present in
Barrette
. 
    Similarly, while
Hollick v. Toronto (City)
, 2001 SCC 68, [2001] 3
    S.C.R. 158, made clear that environmental torts can be certified under the
CPA
,
    that case was not certified and did not proceed to trial.  Consequently,
    neither case raised the issues that were raised in this case during the trial.

[33]

Moreover,
    a review of this courts merits decision in
Smith v. Inco
further
    suggests that this case involved a moderate degree of novelty, at least with
    respect to the
Rylands v. Fletcher
claim.  While this court ultimately
    determined that strict liability based exclusively on extra hazardous
    activity should not be part of the law of Ontario, at least some leading
    authorities had previously endorsed this possibility: see
Smith v. Inco
,
    at para. 77.

[34]

As
    the LFO notes, at least one trial court decision has characterized this courts
    decision in
Smith v. Inco
as having clarified the nature and scope of
    strict liability in this province: see
Durling v. Sunrise Propane Energy
    Group Inc
., 2012 ONSC 6570, at para. 68.  While this is not determinative
    of the novelty issue, it does support the trial judges finding that this case
    raised an issue that was not previously adequately addressed by Ontario
    jurisprudence.

[35]

For
    these reasons, the trial judges conclusion that this case raised novel issues
    within the meaning of s. 31(1) of the
CPA
cannot be faulted.

(4)

Matter of public interest

[36]

I
    set out again s. 31(1) of the
CPA
:

In exercising its discretion with respect to costs
    under subsection 131 (1) of the
Courts of Justice Act
, the court may
    consider whether the class proceeding was a test case, raised a novel point of
    law, or involved
a matter of public interest
.                                                                                              [Emphasis
    added.]

[37]

The
    trial judge found that the class action proceeding involved a matter of public
    interest.  He reasoned in part, at paras. 80-88:

[T]his case was an important one for the enhancement of access
    to justice, one of the goals of the
CPA
or any class proceeding.

It has been recognized that access to justice is often
    difficult for individual claimants who each may have relatively small claims. 
    And, the problem is more acute if those individuals are vulnerable or
    disadvantaged....

The class members in the present case fall squarely within the
    segment of society that was intended to benefit from the enhanced access to
    justice provided by the
CPA
....



[M]any members of the class in this case were vulnerable
    members of society with limited incomes whose conditions may have been made
    worse by the alleged wrongs of Inco.  Individually, this group would have had a
    very difficult time mounting any litigation against Inco, and thus the class
    proceeding was a vehicle that provided access to justice for class members who
    had unresolved claims.



In addition to the
CPA
goal of enhanced access to
    justice, I accept that the other two goals of the
CPA
, judicial
    economy and behaviour modification, were also objectives that were advanced by
    this class action.  The judicial economy factor is obvious where approximately
    7,000 separate claims were heard in the context of one class action.  Further,
    behaviour modification, in my view, is one aspect of any tort claim.  Thus, I
    find that all three goals of the
CPA
were advanced in this case, and
    all three of those goals are matters of public interest.

[38]

The
    appellants core submission on this issue is that this class proceeding was all
    about private citizens seeking financial compensation from a corporation.  As
    expressed bluntly in its factum:

43. In this case, single family dwelling property owners wanted
    personal recompense for perceived diminution to their property values. 
    Monetary gain, not public interest, was the motivation.

44. There is no public interest component to this claim as it
    was framed and presented.

45. This case was purely and simply a claim by Port Colborne
    residential land owners to obtain monies for some notional diminution in the
    value of their property.

[39]

In
    my view, the public interest element of this case is not undermined by the fact
    that the class plaintiffs sought,
inter alia
, to vindicate their own
    private property interests.  In many cases, there is a mix of private interest
    and public interest.  This court has consistently recognized the importance of
    the public interest factor and the availability of reduced costs awards to
    successful defendants because of this factor in cases where plaintiffs sought
    to vindicate their individual pecuniary interests; see, for example,
Ruffolo
,
    and
McCracken v. Canadian National Railway Co.
, 2012 ONCA 797.

[40]

The
    appellant further contends that the trial judge erred by finding that the goal
    of behaviour modification was advanced because behaviour modification  is one
    aspect of any tort claim.  The appellant submits that behaviour modification
    does not apply to this case because there were no actual damages and thus no
    need for behaviour modification.

[41]

This
    is too narrow a view of the role of behaviour modification in class action
    proceedings.  This court examined the scope of behaviour modification in its
    certification decision in this case,
Pearson v. Inco Ltd
.  Rosenberg
    J.A. said, at para. 88:

[M]odification of behaviour does not only look at the
    particular defendant but looks more broadly at similar defendants, such as the
    other operators of refineries who are able to avoid the full costs and consequences
    of their polluting activities because the impact is diverse and often has
    minimal impact on any one individual. This is why environmental claims are well
    suited to class proceedings.  To repeat what McLachlin C.J.C. said in
Western
    Canadian Shopping Centres
,
supra
, at para. 26 Environmental
    pollution may have consequences for citizens all over the country.

[42]

I
    have addressed the appellants specific arguments about the public/private
    dichotomy and behaviour modification because they were made and deserve a
    response.  However, in my view, a simple fact stands as a complete answer to
    the appellants position on this issue.  The problem with the appellants position
    is that this court has already said  three times  that this case involves the
    public interest.

[43]

The
    whole tenor of Rosenberg J.A.s reasons in the original certification appeal,
Pearson
    v. Inco Ltd.
, suggests that this class action proceeding is almost a
    paradigmatic example of a case that reflects the three goals of the
CPA
 access to justice, judicial economy and behaviour modification.  To cite but
    one example, Rosenberg J.A. said this about the access to justice factor, at
    para. 84:

[I]t may well be the case that many of the people whose
    property values were most seriously impacted, such as the Rodney Street owners,
    are also the most vulnerable and least able to prosecute their individual
    claims.  Many of them are elderly persons and others on fixed incomes, as
    well as partially employed or unemployed persons, persons with disabilities and
    recipients of social assistance (reasons of motion judge,

at para.
    22).  Obviously, not all of these people would be property owners and
    would therefore not fall within the class in any event.  However, those
    who do would find it extremely difficult to mount an action against Inco.

[44]

Similarly,
    Rosenberg J.A. found, in the context of the
Pearson v. Inco
costs decision,
    that this case involved a matter of public interest within the meaning of s.
    31(1) of the [
CPA
]:
Pearson v. Inco Ltd.
, (2006), 79 O.R. (3d)
    427, at para. 8. He stated the following on the issue of public interest:

[9] I agree with Cullity J. in
Williams v.
    Mutual Life Assurance Co. of Canada
, [2001] O.J. No. 445, 6 C.P.C. (5th)
    194 (S.C.J.), at para. 24 that a case involves a matter of public interest
    within the meaning of
s. 31(1)
if the class
    proceeding has "some specific, special significance for, or interest to,
    the community at large beyond the members of the proposed class". Also see
Moyes v. Fortune Financial Corp
., [2002] O.J. No. 4298, [2002] O.T.C.
    883 (S.C.J.), at para. 6.

[10] So far as I am aware, this is the first
    environmental claim to be certified as a class proceeding in Ontario since the
    decision of the Supreme Court of Canada in
Hollick
,
supra
,
    upholding this court's decision refusing certification of the environmental claim
    in that case. The case is of significance to the community at large beyond the
    members of the proposed class since it concerns the important issue of whether
    claims alleging widespread pollution can be suitable for certification.

[45]

I
    agree with Rosenberg J.A.s reasoning; in my view, it applies with equal force
    to the merits adjudication of these same claims.

[46]

Finally,
    in the merits appeal,
Smith v. Inco
, this court recorded, at para. 28,
    that [t]he trial judge accepted that widespread public concerns about the
    potential adverse health effects associated with the level of nickel particles
    in the soil developed in early 2000 and continued thereafter. He did so after a
    thorough review of the evidence.

[47]

Later
    in the judgment, this court said, at para. 29:

We are not persuaded we should interfere with the trial judges
    findings of fact.  On those findings, the reaction to the higher nickel levels
    by various governmental agencies and Inco itself, as extensively reported in
    the media, caused widespread concern in the public about the potential adverse
    health effects of the nickel levels in the soil on their properties.

[48]

The
    fact that a matter caused widespread concern in the public is not tantamount to
    the matter being one of public interest under s. 31(1) of the
CPA
.
Nonetheless,
this courts acceptance that the facts
    underlying this case caused widespread concern among the public supports a
    determination that this case involved some element of public interest.

[49]

For
    these reasons, the appellant cannot demonstrate that this case does not involve
    a matter of public interest within the accepted meaning of those words in s.
    31(1) of the
CPA
.

(5)

Lowering Incos legal fees

[50]

The
    appellant submits that the trial judge erred by reducing its legal fees from
    the $2.9 million claimed in the Bill of Costs to $2 million.

[51]

The
    appellant submitted a Bill of Costs claiming costs on a partial indemnity scale
    of $4,603,000, including $2.9 million for fees, $1,257,000 for expert
    disbursements, and $275,000 for other disbursements, plus GST/HST.

[52]

The
    trial judge observed that after the trial, where the plaintiffs succeeded to
    the tune of $36 million, the parties agreed that the costs of the plaintiff
    class should be fixed at $4.3 million, including $3,150,000 for legal fees.

[53]

The
    trial judge referred to the leading cases dealing with costs, especially
Boucher
    v. Public Accountants Council for the Province of Ontario
(2004), 71 O.R.
    (3d) 291 (C.A.),
per
Armstrong J.A., at para. 24:

While it is appropriate to do the costs grid calculation, it is
    also necessary to step back and consider the result produced and question
    whether, in all the circumstances, the result is fair and reasonable.

[54]

The
    trial judge then reasoned, at paras. 71-72:

However, I must also consider that the agreement as to the fees
    of the plaintiff class (i.e. $3,150,000) must have taken into account the fact
    that the class members beat their outstanding offer of $10,000,000.00 plus
    costs by a large margin.  Therefore, the class members would have had the benefit
    of Rule 49.10(1), and thus a large portion of the agreed fees of the plaintiff
    class would have been on a substantial indemnity scale.  In addition, because
    of their extreme success at trial there was an argument open to the class
    members that they would be entitled to enhanced costs.  For these reasons, I
    find that the agreed fees of the plaintiff class in the amount of $3,150,000.00
    would have included a significant premium.

Therefore, in order to determine the reasonable expectations of
    the plaintiff class on a partial indemnity basis in the present case, this
    agreed figure of $3,150,000.00 for fees should be reduced.  If I accept that
    this figure represents substantial indemnity fees for the entire trial and most
    of the preparation for the trial, I can estimate that the fees of the plaintiff
    class on a partial indemnity scale would have amounted to approximately
    $2,000,000.00.  That is, the $3,150,000.00 agreed upon for the fees of the
    plaintiff class, on a mostly substantial indemnity scale, represents
    approximately $2,000,000.00 on a partial indemnity scale.  This I find to be
    the amount of fees that the plaintiff class could reasonably have expected to
    pay on a partial indemnity scale if Inco were ultimately successful.

[55]

The
    appellant asserts that there was no evidence to support the trial judges
    conclusion that I can estimate that the fees of the plaintiff class on a
    partial indemnity scale would have amounted to approximately $2,000,000; the
    appellant labels this conclusion speculation.

[56]

I
    disagree.  In light of the timing and amount of the plaintiff classs offer to settle
    and the agreed fees for the plaintiff class post-trial, the trial judges
    analysis strikes me as methodical, logical and reasonable.

(6)

The 50 per cent discount to claimed disbursements

[57]

In
    a very brief submission, the appellant asserts that the trial judge erred in
    applying a 50 per cent reduction to disbursements claimed by the appellant. 
    Its entire argument is set out in paragraphs 48 and 49 of its factum:

48. The Trial Judge allowed Incos total disbursements as
    submitted at $1,532,000 inclusive of all taxes.

49. It is illogical to apply any discount under section 31(1)
    of the
CPA
to disbursements for experts which the Trial Judge has
    deemed necessary and relevant.

[58]

The
    proposition in paragraph 49 misconceives what the trial judge did.  Having
    found that the appellants reasonable fees were $2 million and that all of its
    disbursements of $1,532,000 were reasonable, for a total of $3,532,000, he
    reduced this total amount by 50 per cent.  He concluded:

For these reasons, the award of costs to Inco should be
    reduced, but should not be eliminated.  In my view a fair approach is for Inco
    to have 50% of the costs that would have been awarded but for the application
    of s. 31(1) of the CPA.  Therefore, the costs awarded to Inco will be 50% of
    $3,532,000.00, for a total award of $1,766,000.00.

[59]

This
    is precisely the type of costs analysis that has been undertaken in several of
    the leading cases; s. 31(1) discounts are typically applied to the total amount
    of costs claimed by the successful party, including disbursements: see e.g.,
Ruffolo
and
McCracken
.

(7)

Incos offer to settle

[60]

The
    appellant contends that the trial judge erred by not awarding costs on a
    substantial indemnity basis for fees and disbursements incurred after its offer
    to settle.  The appellant concedes that rule 49.10 of the
Rules of Civil
    Procedure
, R.R.O. 1990, Reg. 194, does not apply in this case.  However,
    it argues that the trial judge retains the discretion to order substantial
    indemnity costs in appropriate cases and that he erred by refusing to do so in
    this case.

[61]

The
    trial judge agreed that Incos offer to settle was a factor he could consider
    in awarding costs.  However, he recognized this courts decisions in
Scapillati
    v. A. Potvin Construction Ltd.
(1999), 44 O.R. (3d) 737, and, especially,
Davies
    v. Clarington (Municipality)
,
2009 ONCA 722,
100
    O.R. (3d) 66, which held that, absent a rule 49.10 offer to settle, enhanced
    costs should be awarded only on a clear finding of reprehensible conduct on the
    part of the party against which the costs award is being made.  Applying these
    decisions, the trial judge found that the Class Proceedings Committee did not
    conduct itself in a reprehensible manner so as to justify an enhanced costs
    award in Incos favour. Accordingly, the trial judge did not award costs to
    the appellant on a substantial indemnity basis.

[62]

The
    appellant does not contest this finding.  Instead, it invites this court to
    revisit and reformulate the law enunciated in
Scapillati
and
Davies
. 
    We decline the invitation.  The law as set out in
Scapillati
and
Davies
is clear and settled, and was applied appropriately by the trial judge in this
    case.

(8)

The impact of a costs award on the LFO

[63]

The
    appellant contends that the trial judge erred by speculating about the impact
    that a costs award might have on LFOs financial resources, at para. 107 of his
    reasons:

Further, in any costs award the court must balance the chilling
    effect of a large costs award against the need to discourage frivolous and
    unnecessary litigation, as discussed by Armstrong J.A. in the
Boucher
case at para. 37.  The Fund is available for the purpose of facilitating access
    to justice for large groups of the population who may wish to pursue a class
    proceeding.  However, the Fund is not bottomless and a costs order that would
    cripple the Fund should not be made as it could unduly stifle subsequent
    claims.

[64]

I
    do not accept this submission.  In the very next paragraph, the trial judge
    said:

In that respect, I must also consider that Inco does not have a
    bottomless supply of money with which to defend claims.  Inco is clearly
    out-of-pocket for its legal fees and for its legal disbursements.  Inco should
    not be made to suffer the consequences of an inadequate costs order.

[65]

These
    two paragraphs strike me as a balanced, even-handed treatment of considerations
    a trial judge may address when making a costs analysis and award.

[66]

Furthermore,
    this court has previously acknowledged that [i]f the Fund were required to
    absorb steep costs awards imposed on litigants even though the proposed action
    displays the factors in s. 31(1) of the
CPA
, this would have an
    undesirable chilling effect on class proceedings:
McCracken
, at para.
    10.  The trial judge cannot be faulted for making a similar observation in this
    case.

E.

DISPOSITION

[67]

The
    appeal is dismissed.  The respondents are entitled to their costs of the appeal
    fixed as follows: the plaintiff class - $5,000; LFO - $5,000; inclusive of
    disbursements and HST.

Released: November 29, 2013 (J.C.M.)

J.C. MacPherson J.A.

I agree. David Watt J.A.

I agree. S.E. Pepall J.A.


