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Dollars and Sense: Who Pays Costs in Public Interest Cases?

When an environmental class proceeding is unsuccessful, should the representative plaintiff be ordered to pay the defendant’s legal costs; if so, what is the appropriate amount of costs that should be payable?

This important question has been addressed by the Ontario courts in a class proceeding brought against Inco Limited (“Inco”) in relation to historic nickel emissions from its Port Colborne refinery. The representative plaintiff was successful at trial, and $36 million were awarded to the class of 7,000 residents who were claiming damages for property value depreciation due to soil contamination.

In 2011, however, the trial judgment was reversed, and the damage award was set aside, by the Ontario Court of Appeal. In 2012, the Supreme Court of Canada declined to grant the plaintiff leave to appeal the appellate judgment. The plaintiff’s motion for reconsideration of the leave-to-appeal application is currently pending before the Supreme Court.

The question of costs was subsequently decided by the trial judge after a short hearing in which a CELA lawyer appeared as a witness to attest to the public interest aspects of the litigation.

In Ontario, the traditional rule is that “costs follow the event”, meaning that the losing party will generally be required to pay some or most of the winning party’s costs (although courts have discretion to award no costs in cases involving special circumstances). Therefore, Inco argued that as the winning party, it was entitled to $5.3 million for costs incurred during the litigation.

However, the trial judge, in a carefully considered decision, disallowed certain Inco cost claims and substantially discounted the overall amount of costs due to the public interest nature of the class proceeding and the novel points raised in the litigation. In the result, Inco was awarded $1.7 million in costs payable by the Law Foundation of Ontario, which had provided upfront financial assistance to the plaintiff from the Class Proceedings Fund established under the province’s Class Proceedings Act (“CPA”).

Inco then appealed this cost disposition to the Ontario Court of Appeal. In late 2013, Inco’s appeal was unanimously dismissed (with costs) by the Court, which found no errors of law or principle in the trial judge’s cost decision.

Undaunted, Inco then sought leave to appeal to the Supreme Court of Canada, but the Court refused leave in June 2014. Accordingly, the lower courts’ cost analysis in the Inco case remains intact and provides key guidance for prospective public interest litigants, particularly those who want to advance environmental claims under the CPA.

For example, while subsection 31(1) of the CPA stipulates that a court, when deciding costs, should consider whether the litigation was a test case, raised novel points of law, or involved matters of public interest, there is no guarantee that an unsuccessful representative plaintiff (or the Law Foundation of Ontario, if it provided financial assistance to the plaintiff) will be able to wholly escape paying costs if the action is dismissed. In short, plaintiffs should not expect to be fully immune from an adverse cost award merely because they believe that the class proceeding was commenced for public interest reasons.

This observation leads to the question of whether subsection 31(1) of the CPA should be amended by the Ontario Legislature to clarify what is meant by the phrases “test case”, “novel point of law”, or “matters of public interest”. In the alternative, the CPA could be amended to either cap the potential liability of representative plaintiffs, or establish a one-way cost rule under the CPA (i.e., successful plaintiffs can recover costs, but unsuccessful plaintiffs cannot be ordered to pay costs unless the action was frivolous and vexatious).

These options have various pros and cons, but unless such statutory amendments are debated and enacted, it seems likely that even the discounted cost quantum in the Inco case may have a chilling effect on plaintiffs’ willingness to consider launching environmental class proceedings in Ontario.