$1.2-million substantial indemnity costs order is cautionary tale for class counsel

Class counsel who pursue unmeritorious claims or who unduly complicate proceedings may face significant costs consequences, including costs on a substantial indemnity basis. This was the message clearly sent in Del Giudice v. Thompson, a privacy class action, in which Justice Perell of the Ontario Superior Court of Justice recently ordered the unsuccessful plaintiffs to pay substantial indemnity costs of $1.225 million to two successful defendants.

While we have previously reported on other large cost awards in class actions (see our posts on Yip v. HSBC and Hughes v. LCBO), this is one of the first cases in which the costs of a certification motion were awarded to a successful defendant on a substantial (rather than partial) indemnity basis.

Procedural history

In July 2019, Capital One announced that there had been unauthorized access to its customer databases. Shortly after the data breach became public, at least eight privacy class actions were commenced in Canada, including actions in Ontario, Québec and British Columbia. On April 30, 2020, Justice Perell awarded carriage in Ontario to the Del Giudice action.

Justice Perell bifurcated the certification motion so that the “cause of action” criterion would first be determined for each of the nineteen alleged causes of action. This was done with a view to avoiding (or reducing) the need for the parties to incur costs addressing the other elements of the certification test. On August 4, 2021, Justice Perell denied certification, finding that the nineteen alleged causes of action were all untenable.

Reasons supporting the significant cost decision

Justice Perell awarded costs on a substantial, rather than partial, indemnity basis because

1. the plaintiffs failed to respect the basic rules of pleadings
2. they made unwarranted allegations of unprofessionalism and improper conduct against the defendants’ counsel

In reaching these conclusions, Justice Perell rejected the arguments of plaintiffs’ counsel that they had simply been fulfilling their duties to advocate forcefully for their clients. Justice Perell noted that this obligation was qualified by the need for lawyers to advocate with “the arms of the warrior and not of the assassin.”

Failure to respect and comply with the basic rules of pleadings 

Justice Perell noted that the action had begun as a $10.9-billion proposed data breach class action which was subsequently redesigned into a $240-billion data misappropriation and data misuse case. The plaintiffs submitted that they were entitled to amend their pleadings as their understanding of the case evolved, and that they were entitled to advance every reasonable claim they had against the defendants. Justice Perell rejected this argument, noting that

• their Fresh as Amended Statement of Claim egregiously contravened the rules of pleadings
• it was plain and obvious that the pleading failed to disclose any legally viable causes of action
• the pleading improperly and inexplicably transformed a straightforward data breach case into a data misappropriation and misuse case that was largely unrelated to the facts that gave rise to the litigation

Justice Perell noted that he warned the plaintiffs on the carriage motion that the defendants would challenge their pleadings on technical grounds, but this warning was ignored.

Unwarranted allegations of unprofessionalism and improper conduct against counsel

Prior to certification, class counsel had advanced what Justice Perell characterized as the “unsubstantiated proposition” that the defendants’ lawyers had breached their professional obligations. Perell found instead that the “Defendants’ lawyers acted with professionalism and honourably” and that the plaintiffs’ submissions to the contrary were “without a scintilla of merit.”

Lessons learned

The cost decision in Del Giudice v. Thompson is an important reminder to class counsel (and all counsel) of the consequences of undue aggression, both with respect to opposing counsel and to the formulation of their claims. In an era where courts have repeatedly stressed the need for efficient litigation so as to promote access to justice, the decision is also a reminder that, in many circumstances, a narrow, focused claim is more advantageous than a sprawling one.