The Court of Appeal’s costs formula: deceiving or desirable simplicity?

In 790668 Ontario Inc. v. D’Andrea Management Inc., the Court of Appeal held that partial indemnity rates (“PI”) should be calculated by applying a discretionary discount to “substantial/full indemnity” rates (“SI”/”FI”), the “ordinary rule of thumb” being a 1/3 discount. The Court rejected several decisions that calculated PI based on the rates outlined in the Costs Subcommittee’s Information for the Profession (the “Information Rates”).

Whether actual rates are the best starting point may be debatable, but it is helpful that the Court endorsed a simple default formula.

Under the Rules of Civil Procedure, PI is “awarded in accordance with Part I of Tariff A”; under Tariff A, legal fees are “determined in accordance with section 131 of the Courts of Justice Act and the factors set out in subrule 57.01 (1).” SI is “an amount that is 1.5 times what would otherwise be awarded in accordance with Part I of Tariff A.” FI costs are not defined, but are mentioned in R. 57.01(4)(d).

These provisions suggest that PI is determined first, pursuant to R. 57.01(1), and then multiplied by 1.5 to obtain SI. In theory, neither actual rates nor the Information Rates are transposed directly in this equation: they are only factors to consider under R. 57.01(1).

A common approach, previously upheld by the Court of Appeal, calculated PI as 60%, and SI as 90%, of FI. This distinguished SI and FI in that FI encompasses all costs, whereas SI represents “all costs reasonably incurred” (Stetson Oil).

Finally, the court may consider the non-binding Information Rates, which were “anticipated” to be maximum rates. At least one Court adjusted them for inflation – an increase of nearly 20%.

When comparing this background with the simplicity of the D’Andrea formula, one wonders if that simplicity is actually intended to be prescriptive, rather than deceivingly descriptive.

The D’Andrea calculation would run as follows:

1. Calculate: “Actual Rates”*66.67% = “Provisional PI”;
2. Evaluate Provisional PI in light of R. 57.01(1) and the Information Rates;
3. If Provisional PI is appropriate, this ends the PI calculation. SI will then be equal to FI (PI*1.5), which implies that all actual costs were “reasonably incurred”;
4. If Provisional PI is inappropriate, then it is modified accordingly – e.g., capped at the Information Rates, or otherwise modified. SI will equal PI*1.5, and differ from FI.

This calculation replaces arbitrary practices (like the 60-90-100 ratios), can be reconciled with the Rules, uses the Information Rates as maximums, distinguishes SI and FI conceptually – though in practice they may bear the same dollar amount – and balances certainty and discretion. Other formulas may achieve these goals just as well or better, but short of an amendment to the Rules, D’Andrea provides a welcome moment of clarity.