Bauer Hockey Ltd. v. Sport Maska Inc. (CCM Hockey) 2020 FC 862
In recent years we have seen costs awards turn away from the outdated and inadequate tariff, in favour of lump sum awards. This decision by Grammond J provides a nice summary of the principles that are emerging to guide the determination of quantum in awarding lump sum costs. Grammond J’s decision also clarifies the impact of an offer to settle on lump sum costs. I expect parties seeking or resisting lump sum awards will want to review this decision carefully, so I will just hit some highlights. This decision is consequent on Grammond J’s determination in 2020 FC 624 (here) that CCM had not infringed any valid claims of Bauer’s 748 patent.
● The tariff is dead
At least in complex patent cases. “Where the nature of the case is such that the parties are justified in expending a significant amount of legal fees, the tariff simply does not provide a level of indemnification sufficient to further the purposes of costs awards” [10].
● 25% of fees is the baseline
While there is “no rigid guideline. . . . In the interests of consistency and predictability, I proposed to set the starting point at 25% and to analyze whether the circumstances of a specific case warrant a higher or lower number” [14].
● Litigation conduct does not necessarily affect the percentage
This is not because litigation conduct is irrelevant to costs, but rather because a percentage costs award already captures an element of litigation conduct: “For example, if a party fails to admit facts that should have been admitted, this presumably results in an increase of the other party’s legal fees” [17].
● Do not reargue the merits
This further supports the view that litigation conduct does not necessarily affect the percentage of fees awarded. Parties are often tempted to argue that the other side should be penalized for having run an argument that was without merit, or for having failed to admit certain facts. However, “one should always remain conscious of the difficulties associated with judging litigation conduct. After a judgment on the merits is rendered, it is tempting to criticize steps taken by the parties in the proceedings with the benefit of hindsight. During the trial, however, parties must make decisions in a state of uncertainty” [18]. Further, trial judges “are not expected to keep a tally of penalties to be reflected in a costs award,” [20] and judging litigation conduct, in particular, pre-trial conduct, “requires information that is often unavailable to the trial judge” [20]. Moreover, “it does not assist a party to suggest that the case was close or that it did not expect to lose. Neither are costs awards a way to obtain an opinion on issues that the Court did not need to address in its judgment on the merits” [21]. See also his application of these principles to the facts [31]-[32].
I particularly like Grammond J’s pithy statement that a costs decision is not the occasion for an “autopsy of the trial” [20].
● Litigation conduct does not normally preclude a lump sum
“[Bauer] it asserts that CCM’s litigation conduct disentitles it from claiming a lump sum. I disagree with Bauer. Litigation conduct is taken into account when determining the percentage of recovery” [23].
● Complexity does not generally justify an increased percentage
Increased costs resulting from increased complexity will automatically be reflected in a higher costs award, even if the percentage itself is not adjusted [28].
● Percentage recovery doubled when Rule 420 applies
On this point, Grammond J clarified the law. Rule 420 provides that if a defendant makes an offer to settle that is refused, the defendant is entitled to doubled costs if the judgment is less favourable. Rule 420 was triggered in this case [40], but the case law was not clear as to how an offer to settle should be considered in the context of a lump sum costs award, and in particular whether it should be only one factor to be considered [37]. Grammond J noted that the purpose of Rule 420 is to provide an incentive to settlement, and “[t]his incentive will be ineffective if the doubling of costs is subject to unstructured discretion.” He therefore held that Rule 420 is indeed applicable in the context of lump sum costs, and “when rule 420 applies, the percentage of recovery should be doubled for the period after the refusal of an offer, save in exceptional circumstances” [38]. I am persuaded by Grammond J’s point that predictability is important to ensure that Rule 420 has the intended effect [36] [38]. It will be interesting to see whether other members of the court follow his lead on this point.
● A modest offer may nonetheless embody an element of compromise
The case law on Rule 420 requires a genuine offer that includes an element of compromise [39]. Grammond J held that the mere fact that the offer is very low does not in itself imply there is no element of compromise. (CCM’s offer in this case was $500k, against Bauer’s claim of $80m [41]; $500k is nonetheless substantially better than nothing, which is what Bauer ended up with.) “The parties’ decisions are based on their assessment of their chances of winning and the value of the claim. By nature, this assessment is probabilistic. By raising the stakes, however, rule 420 prompts the parties to be as objective as possible, although some uncertainty inevitably remains” [42].
The fact that the offer is less that the legal fees expended to the time of the offer is not relevant [40].
“[T]he doubling of costs provided by rule 420 does not depend on an after-the-fact evaluation of the reasonableness of the parties’ positions. All that matters is that the offer be genuine and contain an element of compromise. In this case, it did” [42]. On the facts, this led Grammond J to double the percentage award, from 25% to 50%, for the period after the refusal of the offer [43].
A final point of interest is that Grammond J denied Bauer’s request that the obligation to pay the cost award be spread evenly over a period of twelve months, in light of financial distress caused by the shutdown of the sports industry as a result of Covid-19 [60]. Grammond J noted that “[i]It must be assumed that the situation described by Bauer affects all players in the sporting goods industry, including CCM. One fails to see why the financial burden of the costs award should be borne, for the next year, by the party who won the case, even though it must be equally affected by the COVID-19 pandemic” [64].
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