What happens after the trial…

Damages aren’t the only things employers need to worry about — costs can also be punishing, as Honda found out to the tune of $610,000

Stuart Rudner
The recent court decision in the case of Keays v. Honda Canada Inc. made headlines due to the extensive damages awarded to Kevin Keays. Specifically, Keays, who was found to have been wrongfully dismissed, was awarded 24 months’ notice, plus an additional $500,000 in punitive damages. The punitive damages portion of the award dwarfed any previous award of that type in a wrongful dismissal claim. Although this decision has met with some skepticism, it certainly came to the attention of HR professionals across the country.

Having decided upon the issue of liability, and the quantum of damages, the only task left for the trial judge was to determine the issue of costs. This was recently done and Honda was hit hard once again: it was ordered to pay $610,000 in costs to Mr. Keays.

The release of the costs decision in Keays provides a useful opportunity to review what happens in litigation after the trial. It is an element of litigation that is often ignored. At the early stages of litigation, parties are so far from trial that they focus on gathering evidence and, in most cases, considering settlement. If they actually get to trial, the parties are focused on winning; they live and breathe the trial for as long as it lasts. Then, of course, the trial reaches its conclusion and there is often a real letdown. Unlike the courtroom dramas on television, judgment is typically not rendered immediately by the trial judge. Instead, the trial is usually followed by a period of several months of waiting, not knowing when the judge’s decision will be delivered.

In most cases the judge will not even reconvene the parties to render a decision. Instead, it is faxed to their lawyers. This first portion of the decision will typically address liability and damages. It will not usually refer to costs, as this is something the parties must make submissions on once they know the outcome of the action. Although the parties already know who “won” by the time they make submission on costs, they should not downplay the importance of this step. As we see from Keays, costs awards can be substantial.

The general rule in civil litigation is that the victorious party is entitled to be reimbursed by the losing party for their legal costs. Legal costs include fees paid to their lawyers, disbursements, and, of course, GST. However, the manner in which this actually plays out can vary significantly from case to case.

Two levels of cost recovery

In Ontario, there are two “levels” of cost recovery: partial indemnity and substantial indemnity, known as “party and party costs” and “solicitor and client costs,” respectively. It is noteworthy that there is no “complete indemnity”; you will never recover all of your costs, no matter how successful you might be.

The default is partial indemnity, which will usually end up being about 50 per cent of the actual costs. Substantial indemnity costs can be awarded where the court feels one party should be ordered, for whatever reason, to reimburse the other for a larger portion of their costs than usual. This can occur where a party was unreasonably difficult during the course of litigation or took steps which added unnecessarily to the time and cost of litigation.

Offers to settle

Offers to settle can play a very important part in the costs award. Not surprisingly, the Rules of Civil Procedure have been drafted to encourage early settlement of litigation. As a result, there is a “penalty” built into the rules for parties who turn down offers and then achieve a lesser result at trial. For example: plaintiff offers to accept $50,000 to settle its claim, but defendant does not accept. At trial, plaintiff obtains judgment for $60,000; the plaintiff has “beaten” its offer, and the defendant would have been better off accepting it. As a result, the defendant is likely to be on the hook for substantial indemnity costs, at least from the time the offer was made.

Once the decision on liability and damages has been made, the parties will typically be invited to make submissions on costs if they cannot reach agreement. In some cases, it is possible for them to agree on the quantum without going before a judge. In fact, sometimes the parties will reach an agreement on costs before the decision on liability and damages is even rendered. For example, they might agree that whichever party wins will be entitled to a certain amount in costs from the other.

If no agreement can be reached, submissions must be made to the trial judge. This can be done orally, by reconvening all the parties in the courtroom or in writing. Each judge has her own preference in this regard. The delivery of submissions is often followed by another waiting period, until the decision on costs is released.

Judge very critical of Honda’s actions

In rendering the costs portion of his decision in Keays v. Honda, Justice John McIsaac did not miss the opportunity to confirm his disdain for the conduct of Honda, referring to its behaviour as outrageous, high-handed, and extremely egregious. Justice McIsaac considered factors such as:

•the outstanding success enjoyed by the plaintiff in the litigation;

•the single insulting offer advance by Honda;

•the complexity of the issues; and

•the reprehensible conduct of Honda toward a “decent and dedicated employee whose only ‘fault’ was his disability.”

The judge also referred to Honda’s refusal to deal directly with Keays’ lawyer during the course of events leading to termination, deeming it an “extremely aggravating circumstances in a society that places importance on the rule of law,” and commenting that “it is shocking to see such a degree of intransigence on the part of a corporation of Honda’s worldwide stature.”

The costs reflected 29 days of trial. Not surprisingly, given Justice McIsaac’s views of Honda’s conduct, he awarded costs at the substantial indemnity level. He also acceded to the request of Keays’ counsel for a premium.

Awarding a premium

A premium is something that is awarded in fairly limited circumstances. In this case, it was awarded due to the outstanding result achieved, as well as the “risk” taken on by plaintiff’s counsel due to the fact Keays could not afford to pay his legal fees during the course of litigation; Keays’ lawyers may not have been paid if he was unsuccessful. Justice McIsaac referred to the litigation as a “classic case of David and Goliath where the ‘little guy’ won against all odds.”

The plaintiff sought $575,000 in costs, plus a 25 per cent premium. Justice McIsaac awarded a total of $610,000, including disbursements and GST. Add this to the damages already awarded, and Honda has been ordered to pay one hefty price for its dealings with Keays.

However, the “battle” between David and Goliath is not over yet; the decision of Justice McIsaac is under appeal.

Stuart Rudner practices commercial litigation and employment law with Miller Thomson LLP’s Toronto office. He can be reached at (416) 595-8672 or by e-mail at [email protected].

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