Friday, December 21, 2018

Reasonable Lump Sum Costs

Teva Canada Ltd v Janssen Inc 2018 FC 1175 Locke J
            2,203,936 / 2,435,146 / 2,738,706 / bortezomib / VELCADE

This is the costs decision from 2018 FC 754, in which Locke J granted Teva’s claim for compensation under s 8 of the NOC Regulations, dismissed the counterclaim for infringement, and awarded costs to Teva. The parties disputed whether costs should be awarded as a lump sum, or after an assessment [7]-[8].

Locke J’s general comments on lump sum costs are of interest (original emphasis):

[4] Though I am not convinced that there is support for Teva’s statement that lump sum awards are becoming the norm, I do accept that they have found increasing favour with courts because they save time and further the objective of securing “the just, most expeditious and least expensive determination” of proceedings (per Rule 3): Nova Chemicals Corporation v Dow Chemical Company, 2017 FCA 25 at para 11 [Dow].

[5] A lump sum award of costs is particularly appropriate in complex litigation between sophisticated litigants and in the context of commercial litigation: SNF Inc v Ciba Specialty Chemicals Water Treatments Limited, 2018 FC 245 at para 3 [SNF].* In dealing with lump sum, the efficiency of a set amount requires the Court to use a bit of a “broad sword” approach: SNF at para 9.

[6] Lump sum awards tend to range between 25% and 50% of actual fees, though there may be cases where a higher or lower percentage is warranted: Dow at para 17.

Within that range, he suggested that the higher end “seems to be appropriate mainly for situations in which the Court wishes to express its displeasure with the conduct of the losing party” [35]. With that said:

[38] I disagree with the assertion of the plaintiffs by counterclaim that elevated costs are reserved for exceptional cases where there is reprehensible, scandalous or outrageous conduct. Based on the authorities cited by the plaintiffs by counterclaim, this limitation applies only to awards of solicitor-and-client costs.

On the facts, Locke J held that a lump sum was appropriate in light of the complexity of the litigation [32], and an amount of 25% was appropriate [36]. However, he was concerned that he had no basis for assessing the reasonableness of Teva’s legal fees of $4.8 million, which appeared high even for a case of this complexity [32], [34]. He accordingly based the lump sum, not on the actual fees, but what he considered to be reasonable fees, In the absence of more detail, he accepted no more than $3.4 million as reasonable, and awarded $850,000 (inclusive of tax), that is, 25% of $3.4 million [36] (plus reasonable disbursements). This query as to the reasonableness of the fees was not related to the conduct of the litigation itself, which Locke J noted was efficient, and indeed “praiseworthy” [25].

Because of the uncertainty regarding the details of Teva’s fees, he compared this amount with the amount that might have resulted from a determination under the Tariff [33], and in particular the top of Column V, in light of the unusual complexity of the case [37]. The top end of Column V, based on Teva’s submissions, would have resulted in an award of about $990,000 (plus tax) [40], while the top of Column IV would result in about $780,000 (plus tax) [49]. This confirmed the reasonableness of the lump sum award of$850,000 (inclusive of tax) for fees, which was the amount actually awarded.

It’s interesting that in the end, Teva was awarded about 18% of its actual fees as the prevailing party in complex, well-run litigation — $850,000 (including tax) on actual fees of $4,778,473 (it’s not clear to me whether that includes tax).

There is also an interesting point on legal v technical complexity (original underlining, my italics):

[13] The plaintiffs by counterclaim also assert that it is the complexity of legal issues, not technical issues, which should be considered in determining costs. In support of this position, they cite MK Plastics Corporation v Plasticair Inc, 2007 FC 1029 at para 24, which cites TRW Inc v Walbar of Canada Inc (1992), 43 CPR (3d) 449, [1992] FCJ No. 606 (QL) at pp 456-7 (FCA). These precedents do not explain why the issues to be considered under this heading do not include technical issues, but I accept the effect of this jurisprudence. In any case, the technical complexity of the case is reflected in other factors such as the amount of work and the reasonableness of expert witness expenses.

Locke J's apparent concern regarding the validity of this distinction made no difference on the facts, as he found the legal issues in this case to be particularly complex [14], even for pharmaceutical litigation involving obviousness.

*Unfortunately, the costs decision in SNF v Ciba which was cited by Locke J, does not appear to have been posted on the FC website.

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