Ontario Superior Court Grants $1.85 Million Costs Award to Successful Defendants in a Class Action
In a significant costs decision released this week, Justice Strathy awarded Tim Hortons $1.85 million in partial indemnity costs for its successful defence of a proposed $3 billion class action brought against it by its franchisees. This significant award is a reminder of the financial risk to class plaintiffs in pursuing questionable claims in a class proceeding and may serve to deter future class actions as class counsel and class members realize they could be on the hook for substantial legal costs if they lose. This decision continues the debate about the appropriateness of costs awards in class actions (previously discussed on the blog here.)
In Fairview Donut Inc v The TDL Group Corp, Tim Hortons successfully brought a motion for summary judgment to dismiss the action in its entirety; this motion was heard at the same time as the certification motion. The franchisees alleged that Tim Hortons had breached the terms of its franchise agreement and its duty of good faith and fair dealing under s. 3 of the Arthur Wishart Act (Franchise Disclosure), 2000 and at common law by unilaterally changing how its baked goods were prepared and requiring all franchisees to offer a lunch menu. For more information on the substantive decision, please see this article.
At the costs hearing, Tim Hortons’ counsel claimed partial indemnity costs in the amount of $2,415,500, which represented roughly 81% of the fees billed at $2,983,179, inclusive of tax and disbursements. Franchisees’ counsel submitted that $475,000 would have been an appropriate costs award.
Justice Strathy chose to award $1.85 million in partial indemnity costs, which represents roughly 62% of the total fees billed. In coming to this number, Justice Strathy took into account five main factors:
- The sum of damages claimed by the plaintiffs was enormous at $3 billion and was “not simply a scare tactic”;
- Tim Hortons was entirely successful on the summary judgment motion, and another franchisee is unlikely to resuscitate the action;
- The issues were factually and legally complex and the factual record was “massive” with 11 days required for the hearing;
- The issues were of great importance to both parties; and
- The result was not merely procedural, as there was a final determination of the merits.
Justice Strathy dismissed each of the plaintiffs’ arguments for lower costs. The plaintiffs had argued that:
- The defendants’ billings were too high, but the plaintiffs chose not to disclose their own dockets;
- The defendants improperly claimed fees for several interlocutory motions, but costs on those motions were not decided and they were incidental to the main motions that decided the outcome; and
- The defendants’ claim in respect of discovery costs was too high, but the plaintiffs had requested full production and they could have reasonably predicted the impact that request would have on costs.
Although the $1.85 million costs award is large, it is not surprising. As Justice Strathy stated, “Th[e] case [is] off the chart . . . , in terms of complexity, the amount at issue, and extent of work required of counsel”. It was also unusual to have the Court hear both a motion for certification and a motion for summary judgment at the same time. Given all of the circumstances, both parties could have reasonably contemplated costs in the “order of magnitude” claimed by the defendants.