The Danger Zone: Pilot Class Defendants Denied Costs on Account of Bad Behaviour

The Ontario Superior Court of Justice released a costs decision denying the defendant class their costs in an action—despite their success on the merits—on account of their conduct during the litigation.

Berry et al v. Pulley et al was a class action commenced by a group of Air Ontario pilots against a group of Air Canada pilots. The plaintiffs alleged that members of the defendant class committed the torts of conspiracy, intentional interference with economic interests, and negligent misrepresentation. They also alleged that the defendants owed a fiduciary duty to the plaintiffs, which they breached.

After numerous court and administrative hearings spanning about 16 years, judgment was rendered in 2012. The defendant class successfully resisted the plaintiffs’ claim.

The Costs Regime in Ontario

In Ontario, traditionally, costs follow the cause. This means that when a defendant successfully defends the action brought against it, as a general principle, the defendant would be entitled to its costs in defending the action. While Ontario Courts have ample discretion to make costs awards, in the normal course costs are awarded on a partial indemnity basis, which means that successful parties recover only a portion of their actual legal costs (often in the range of 30-50%).

Modification for Class Proceedings

When the Ontario Law Reform Commission drafted the report that was the genesis of the Class Proceedings Act, it examined whether the traditional “loser pays” system should apply equally to class proceedings, or whether a no-costs regime best facilitates access to justice.

During the process of enactment, the Legislature rejected a no-cost regime for Ontario class actions. As a result, the normal regime, where the successful party also recovers part of its legal costs, applies to class proceedings but with a modest expansion of the factors a court may consider when awarding costs.

This modest expansion is found in s. 31 of the Class Proceedings Act. Section 31 permits a court to consider whether the class proceeding was a test case, raised a novel point of law, or involved a matter of public interest. Each of these factors can be used to revise (and almost always, reduce) the costs that are awarded to the successful party.

In this recent decision, Berry et al v. Pulley et al, Pepall J. held that the criteria in s. 31 of the CPA were not met. While the case had a unique procedural nature, and related to some novel points of law, she was not persuaded that the action raised a novel point of law sufficient to invoke the application of s. 31 of the CPA.

However, Justice Pepall also reviewed the factors relating to costs awards listed in s. 131  of the Courts of Justice Act (and its companion, Rule 57.01 of the Rules of Civil Procedure), and found that it was fair and reasonable for the defendants to bear their own costs, despite their success on the merits. While she found in favour of the defendants on the merits, and even though they had made previous offers to settle, she considered the defendants’ conduct in their dealings with the plaintiffs to have been shabby and high-handed.

While Peppall J. declined to repeat all of the findings regarding the defendants’ behaviour that she made in her decision on the merits, she did provide some examples of the defendants’ shabby dealings.

Justice Pepall found that, having committed to a merger of pilot seniority lists and binding arbitration, the defendants nonetheless worked to prevent the implementation of the arbitral award and the attendant list. In addition, she found that three of the subclasses engaged in unlawful conduct within the context of the plaintiff’s conspiracy claim. These subclasses engaged in unlawful conduct because, as union officers/members of local councils, they owed a duty of loyalty to the union and were obligated to act in the best interests of the union as a whole. The breach of their duty constituted unlawful conduct and, in Peppall J.’s cost decision, an example of shabby and high-handed conduct.

The Costs of Incivility

In addition to the shabby substantive conduct, Peppall J. expressed procedural dissatisfaction with the numerous hearings that occurred over 16 years.

Justice Pepall stated that her reasons—spanning more than 550 paragraphs—“attempt to outline this painful history garnered from in excess of 43 volumes of documents, months of evidence, evidence to be read into the court record from about 30 transcripts and testimony from approximately 20 witnesses.”

Weighting the defendants’ conduct heavily in the determination of a costs award is reflective of the purposes of the CPA: judicial economy, behaviour modification, and access to justice. It may be the case that a litigant’s conduct in the litigation falls within the type of behaviour the act seeks to modify.

Despite the fact that this decision was released this month, it has already been considered in a subsequent case. The courts’ interest in this area is something litigants should keep in mind when confronted with matters of courtesy and cooperation.