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Costs Awarded against Class Plaintiffs
Published in the September 2008 issue of Transportation Notes - View Article
On August 29th, the Ontario Court of Appeal refused leave to appeal a series of costs orders which were made in favour of successful insurers in class action proceedings relating to the rights of insurers in cases where insured automobiles are damaged beyond economical repair. The dispute began some seven years ago when the Court released its reasons for decision in the case of McNaughton Automotive v. Co-operators General Insurance Co. In McNaughton, the Court of Appeal held that where an insured automobile is damaged beyond repair and the insurer takes the vehicle as salvage, it is required to pay the insured the “actual cash value” of the automobile without subtracting the amount of any deductible under the policy.
The decision in McNaughton has been repudiated, both in legislation and in a subsequent decision of the Ontario Court of Appeal. However, while McNaughton was still good law, 37 actions were commenced to recover amounts allegedly withheld contrary to the McNaughton ruling. The claimants sought certification as a class action and the defendant insurers brought a series of motions seeking dismissal of the claims. All of the claims were dismissed on grounds not related to the substantive law decided in McNaughton.
The judge who oversaw the actions for a period of some six years made a number of costs orders in favour of the successful insurers. Most of these were made on a partial indemnity basis, but in a few cases the orders were on a substantial indemnity basis. The Law Foundation had provided support to the plaintiffs through the Class Proceedings Fund. As a result, the successful insurers were entitled to apply to the Law Foundation’s board for payment of any costs awarded to them. The Foundation was granted standing to apply, along with the plaintiffs, for leave to appeal the costs orders.
This application for leave to appeal has now been dismissed and the costs orders upheld in all respects. The Court of Appeal gave extensive reasons in justification of its refusal to grant leave and these raise some interesting issues which are summarized below.
First we would note that the insurers brought separate motions which raised differing issues. They were successful in persuading the judge that the court had no jurisdiction over plaintiffs residing out of Ontario, that some actions were filed out of time, that “actual cash value” meant something other than what the plaintiffs submitted, that all those insured under a particular Endorsement had no cause of action, that there was no possible claim for conversion, unjust enrichment or constructive trust and that one particular action was an abuse of process.
In response to the limitation defence, some plaintiffs pleaded that the insurers had deliberately concealed facts related to the existence of a possible cause of action. These pleas were found to justify an award of substantial indemnity costs. The plaintiffs attempted to avoid the heavy costs award by arguing that they had not plead civil fraud, but only equitable fraud. This argument was unsuccessful. While it is true that an unsuccessful plea of equitable fraud to defeat a limitation defence will not always justify an award of substantial indemnity costs, the result depends on what is actually plead. In this case, a number of the plaintiffs had crossed the line and alleged what amounted to fraud, dishonesty or deceit. The action which was commenced in an abuse of process also attracted substantial indemnity costs.
The balance of the successful defence motions attracted costs on a partial indemnity basis.
In an attempt to overturn all of the costs awards, the plaintiffs and the Law Foundation advanced several arguments. In the first place, they argued that the motions judge failed to give proper consideration to the underlying goals of the Class Proceedings Act. They went so far as to say that the judge’s reasons “do not address in any way the underlying goals” of the legislation. This the Court of Appeal characterized as a “somewhat surprising submission”. The motions judge appears to have taken account of at least one of the well-known objectives: permitting litigation to proceed although the amount at stake for each individual plaintiff is small and the resources and sophistication of the defendants is far greater than the plaintiffs. The plaintiffs also argued that the matters litigated were in the nature of a test case, that they raised novel points of law and involved matters of public interest. All of these arguments failed. McNaughton itself was a test case, but the issues at stake in the motions were decided against the background of settled law. Finally, the issues do not engage any broad public interest. All costs orders stand.
Good to see that a class action is not always a free lunch!
McNaughton v. Co-operators,
2008 ONCA 597