Balancing the Costs of Justice: Exposure to Adverse Costs After an Unsuccessful Certification Motion —

Should a proposed representative plaintiff be exposed to adverse costs following an unsuccessful certification motion? Justice Glustein from the Ontario Superior Court of Justice answered this question in Davidson v. T.E.S. Contract Services Inc., 2024 ONSC 4362.

Background

Prior to this costs decision, Justice Glustein dismissed the Plaintiff’s motion for certification.

The defendant sought nearly $400,000 in partial indemnity costs. Class Counsel argued that costs should be reduced or there should be no order as to costs since there was no third-party funder, which meant that the end payor would be Class Counsel, the proposed representative plaintiff, or a combination of both.

The Concern About Personally Exposing a Representative Plaintiff to an Adverse Costs Order

Justice Glustein rejected Class Counsel’s suggestion that the Plaintiff would have to personally pay any costs. His Honour agreed with previous judicial statements that class counsel providing an indemnity for costs in retainer agreements is so widely accepted as the standard of practice that it is not typically part of the inquiry into the appointment of class counsel, and on the rare occasion when courts have been alerted to its omission, courts have opined that an indemnification against an adverse costs award is expected of class counsel. Accordingly, he gave no weight to the suggestion that the costs should be reduced because the Plaintiff might have to pay them.

Justice Glustein questioned whether counsel can even be permitted to act as class counsel if they cannot secure funding or are unwilling to indemnify the representative plaintiff. His Honour reasoned that a representative plaintiff could not bear the high costs often awarded in certification motions, which often reach six and seven figures. Although a class typically seeks significant damages on a class level, damages sought on an individual level are “dramatically smaller”.

Costs of the Unsuccessful Certification Motion

The court found that the partial indemnity costs sought by the defendant were reasonable. However, Justice Glustein reduced the costs sought for:

1. A successful production motion brought by the plaintiff; and
2. The defendant’s motion to strike the plaintiff’s expert reports, which the defendant did not pursue during the certification motion.

Once those deductions were accounted for, the Court awarded the defendant costs of approximately $333,000, which Class Counsel will likely need to pay given the Court’s pronouncements.

Conclusion

This decision is a cautionary tale to class counsel on the consequences of failing to indemnify the representative plaintiff(s) against adverse costs awards. Class counsel can avoid the issues raised in this decision by either agreeing to indemnify the plaintiff or seeking a third-party indemnification agreement, such as with the Class Proceedings Fund.

As this decision makes clear, class counsel owe a duty to advise representative plaintiffs about the potential for adverse costs and the availability of an indemnity agreement. Class counsel must address costs issues early in the proceedings to protect the interests of the clients. Indeed, this decision supports the view that indemnifying a plaintiff from adverse costs awards is part and parcel of class counsel’s role.

This decision also provides comfort to future plaintiffs who may be reluctant to act as representative plaintiffs for fear of being “on the hook” for a significant costs award.