Wednesday, October 14, 2015

Calling All Costs Scholars

Novartis Pharmaceuticals Canada Inc v Teva Canada Ltd 2015 FC 1123 O'Reilly J
            2,255,951 / deferasirox / EXJADE

I mentioned in an earlier post that the costs practice in the FC are “a hybrid [between the English and American rules] in which costs awards are big enough to fight over (thus increasing costs), but not big enough to make any difference to litigation strategy. That may be the worst of both worlds.” This is illustrated by O’Reilly J’s costs decision in Deferasirox , in which Novartis claimed its fulls costs were $950,468.40 in fees. O”Reilly J rejected Novartis’ claim for costs on a partial indemnity basis, and instead awarded costs on the upper end of Column IV, which is now more or less standard for patent litigation. This resulted in an award of $102,512.00 in fees, which is just under 11% of actual costs. (Though recovery on disbursements was $215,727.57 out of $242,642.55, or just under 90%). This is not to criticize O’Reilly J, whose decision strikes me as consistent with the current rules and practice, but it does suggest that it would be better to reform the rules, either to simplify matters by getting rid of costs awards entirely, or by increasing costs awards to something more nearly reflecting actual expenditures.

Much to its credit, the Federal Courts have recognized the shortcomings in the current costs rules, and the Rules Committee has issued a discussion paper asking a comprehensive set of questions about all aspects of the costs regime. (See here for a summary.) Presumably the Committee intends to ultimately recommend reform if consensus can be reached, but the stated aim of this discussion paper is to “spark debate and discussion about costs at the Federal Court and Federal Court of Appeal.” This modest initial goal is wise, as the question is a very difficult one. There is a substantial body of law and economics literature on costs shifting, and while I am not an expert on costs, I believe the main result is that neither the English rule (costs-in-the-cause) nor the American rule (each party bears their own costs) is generally better; which is superior depends on the nature of the litigation. (That does suggest that there is a prima facie case for applying different costs rules to different types of litigation, as raised by Q4, though the question of which types should be treated differently (Q5) is more difficult.) Given that even such a basic question has no clear answer, even in theory, this project will be as challenging as it is important.

Feedback is requested by 23 November 2015. That is a short time frame given the complexity of the issue, but as noted, this seems to be still only an initial step. See the discussion paper for contact details.

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