Indemnity Principle for Costs Approved and Applied

Hospira Healthcare Corporation v. Kennedy Trust for Rheumatology Research 2018 FC 1067 Phelan J
            2,261,630 / infliximab / INFLECTRA

This is the costs decision arising from the declaratory judgment action in 2018 FC 259, in which Phelan J held Kennedy’s 630 patent to be valid and infringed: see here and here. Dissatisfaction with the outdated scale of costs set out in the Tariff had resulted in something of a trend towards awarding costs which go above the Tariff, either in the form of enhanced costs where appropriate, or a lump sum award. This decision reinforces that trend, both in the lump sum award of 50% of fees plus actual disbursements, and in Phelan J’s general comments regarding costs in complex litigation. There are two broad take-away messages. First, awarding costs on the Tariff scale of costs would have been unfair in this case, and by extension, will likely often be unfair in the context of complex litigation. Second, disruptive and unnecessary litigation tactics will have costs consequences, even if enhanced costs are not awarded on a line-by-line basis or on the motions themselves.

Phelan J began by noting that “Rule 400(1) gives the Court full discretionary power over the amount and allocation of costs” [5], and then continued:

[7] With respect to the approach to costs in complex litigation involving sophisticated large corporations, I concur with Justice Hughes in his cost decision in Air Canada v Toronto Port Authority, 2010 FC 1335, 196 ACWS (3d) 640, to favour the indemnity (whole or partial) principle and his reasoning in paragraphs 14 and 15.

Here are Justice Hughes’ remarks:

[14] Traditionally, the Federal Court of Canada has been laggard in comparison with other Canadian superior courts, such as Ontario, in escalating an appropriate scale of costs. Many cases in the Federal Court involve persons of limited means who engage the federal government in litigation of one kind or another. The scale of costs is usually modest in such circumstances or usually non-existent in cases such as immigration. Complex commercial cases are frequently those involving intellectual property such as patent infringement actions or applications made pursuant to Patented Medicines (Notice of Compliance) Regulations, SOR/93-133 as amended. Still costs in such matters are assessed largely with reference to the Tariff on one of the higher levels such as Column IV or V.

[15] Other jurisdictions, such as Ontario, have moved away from a tariff toward concepts of full indemnity or partial indemnity based upon the actual costs and disbursements incurred in the proceeding. The theory is that a successful party should not be penalized just because they become engaged in, or had to resort to, litigation. In so doing however, a Court has to be mindful that a party, while successful, may not have been entirely successful or, that the matter was a close call, or that it was one in which the assistance of a Court in its resolution was essential. Therefore an unsuccessful party should not be unduly punished by having to bear not only its own expenses but a large proportion of those of the other parties as well.

Phelan J continued:

[8] There is a public interest served by lump sum awards based on the indemnity principle, particularly in cases like these. Such awards show the real cost of initiating litigation – which Hospira/Celltrion did. Such awards also show the consequences of bringing multiple proceedings, failing to behave reasonably and efficiently in the conduct of the litigation – that there are real consequences to the various steps available in the litigation process.

[9] I intend to follow the indemnity principle, the issue remains as to what level of indemnity – 50% as proposed, 30% as a proposed alternative or some other percentage.

On the facts, Phelan J noted that Kennedy/Janssen had won on every major point [11], and had conducted the trial “with efficiency and effectiveness” [12]. 

Phelan J also noted that application of the Tariff, even the high end of Column V, would result in "an unfair discount" of less than 10% of reasonable fees. Consequently:

[13] While costs seldom are awarded on a full indemnity basis, it would be unsatisfactory to deprive Kennedy/Janssen’s clients of the fruits of their victory by a paltry cost award and would be a windfall of cost savings for the losing side. The disincentive to a losing party pursuing an unsustainable case would be eliminated where the cost award is so far removed from the reality of actual costs.

Regarding disbursements, Phelan J said there was nothing unreasonable or excessive about the disbursements, and he noted that “It is not for the losing party to tell the winning party how they could have succeeded by doing or spending less” [24].

In the result he granted Kennedy / Janssen’s motion for costs at 50% of fees plus actual disbursements [26]. In part this was due to the complexity of the litigation, but Hospira/Celltrion’s generally unreasonable conduct of the litigation was also a significant factor [20]-[22]. Phelan J warned that costs consequences should be taken into account “in terms of both the strategic and tactical decisions the clients and counsel must make and the potential consequences of their choices” [25].