Issue must be ‘novel’ to avoid cost award

The losing side in litigation must show more than a specific issue has not been previously adjudicated to be considered “novel” and avoid a costs award, an Ontario Superior Court judge explained in a recent class action ruling.

“For an issue to be novel in the legally significant way that would justify the court in ordering no costs against the party who unsuccessfully advanced the issue, it is not enough that the issue is unprecedented or that the issue has not been decided before,” stated Justice Paul Perell in Mancinelli v. Royal Bank of Canada.

The Superior Court judge ordered the plaintiffs to pay nearly $100,000 in partial indemnity costs to the Bank of Montreal and nearly $96,000 in costs to TD Bank.

The costs award followed a decision by Perell where he declined to add the banks to a $1-billion class action alleging price fixing by 16 groups of financial institutions, because the limitations period had passed.

The plaintiffs argued that they did not discover the necessary evidence to add the banks to the class action until the spring of 2016 and there were novel issues related to discoverability and the investigation of conspiracy claims.

In attempting to set out a framework to decide if an issue is novel, Perell outlined criteria for a side to meet if it is seeking to avoid a costs award.

“The legally significant novelty of a legal issue is found in the circumstance that the existing case law is inadequate to resolve the issue and there would be no proper reason for the party advancing the issue to expect to fail,” he wrote.

Submitting that an action is novel because there is no past ruling directly on point is not sufficient, the judge noted.

“He or she may be met with the argument that although there are no decided cases, the law is clearly against the case, so the litigant should reasonably expect to lose and thus the case is not novel,” Perell wrote.

Whether an issue is considered sufficiently novel to avoid a costs award is still an area where there is a lot of discretion provided to a judge hearing such a motion, explains Craig Lockwood, a litigation partner at Osler Hoskin & Harcourt LLP in Toronto, who practises in the area of class action defence.

“There is not a strict legal test that has been adopted. Judges know it when they see it,” Lockwood says.

A section of the provincial Class Proceedings Act states that judges have discretion in the areas of costs if an action raises a test case, a novel issue or a matter of public interest.

“I think courts were initially bending over backwards to insulate plaintiffs from costs awards,” says Lockwood, as a result of access to justice concerns in this area.

“The jurisprudence is more developed now and the trend has shifted. A case must be truly novel or the normal costs rules apply,” he says.

The most recent Court of Appeal decision on how to determine if an action is novel is its 2013 ruling in Smith v. Inco Limited.

“I do not think that there is always a bright line between old or settled and novel points of law. Novelty exists on a continuum and s. 31 (1) of the CPA permits costs awards to be made on a continuum, from full costs to reduced costs to no costs,” wrote Justice James MacPherson for the three-judge panel. “The fact that a claim is grounded in a well-established cause of action does not remove the possibility that the claim raises a novel point of law,” MacPherson added.

Ultimately, the test to show novelty is still “nebulous,” says Margaret Waddell, a partner at Waddell Phillips in Toronto, who normally acts for the plaintiff side in class actions and other civil litigation. She agrees that there is no specific legal test.

“Costs remain in the discretion of the motion judge or trial judge,” says Waddell.

She concurs, however, with the principles set out by Perell in the Mancinelli decision. “For novelty, the issue is not just that the court has never dealt with it before. Can you drop this set of facts through a defined test or are you really in uncharted territory?” Waddell says.

If, as Perell notes, the existing case law is sufficient to deal with the specific facts in a case, Waddell says it will not be considered novel.

The subject matter of a legal action might also impact a judge’s decision on costs.

“If the court is sympathetic to your claim, it is more likely they will find novelty,” says Waddell.

Costs also might be reduced or not awarded at all if a case is brought in the public interest. Next month, the Court of Appeal is scheduled to hear an appeal of another case before Perell, where he awarded $2.3 million in costs to the defendants and rejected arguments about novelty and public interest.

Das v. George Weston Limited is a $2-billion class action related to the collapse of the Rana Plaza in Bangladesh in 2013. More than 1,000 workers were killed and a subsidiary of Loblaws purchased clothes from a manufacturer that operated out of the plaza.

The plaintiffs were funded by the Law Foundation of Ontario’s class proceedings fund. Perell dismissed the action, in part because he found the claims were governed by the law of Bangladesh and the plaintiffs had not disclosed a reasonable cause of action against the defendants.

“A matter of public interest is something more than a matter that might interest the public,” wrote Perell in his costs ruling.