SUMMARY OF THE PRINCIPLE
Litigation is a lengthy and expensive process. Complex litigation involving multiple parties and issues, often results in substantive legal fees and disbursements for all the parties involved. When a court action finally concludes, the judge will generally make a statement about costs, their amount, and which party has to pay them. Typically, costs are awarded to the successful party which allows them to recoup some portion of the money they spent either bringing or defending an action. The rationale behind a costs award is compensation and restitution—the successful party should be compensated by the other party for the time and expense of going to court.
However, the actual legal fees that a party spent on litigation is usually much higher than the statutory tariff that is normally used to set the amount of costs. This results in a successful party having paid much more in legal fees than they will recoup from the unsuccessful party through a costs award.
How costs are awarded, and the ability of a court to depart from the cost tariff, was discussed in the case of McAllister v Calgary (City), 2021 ABCA 25. This blog post will discuss the principles of McAllister and how the courts have applied McAllister in two recent Alberta decisions.
HOW THE PRINCIPLE WORKS
Until recently, costs awarded to the successful party generally followed Rule 10.31(1)(a) of the Alberta Rules of Court, which stipulates “reasonable and proper costs.” Schedule C, found within the Alberta Rules of Court, specifies the fees that may be recovered as costs. Although Schedule C is just one of many tools a judge can use to determine a costs award, it has long been regarded as the standard method of calculating costs—until McAllister v The City of Calgary [McAllister].
McAllister, a 2021 Court of Appeal decision, clarified that a costs award made with reference to Schedule C is only one of several options open to a court in awarding costs to a successful party. Initially, the trial judge rejected Mr. McAllister’s argument that a successful party should receive 40-50% of incurred legal fees. He awarded Mr. McAllister costs pursuant to Column 3 of Schedule C, resulting in a costs award of $70,294.70. Mr. McAllister’s actual legal fees amounted to $389,711.78, and he appealed to the Court of Appeal on the grounds that the costs award was unreasonable and did not provide him with a sufficient level of indemnification.
In its decision, the Court of Appeal specifically discouraged the practice of mechanically awarding the amounts set out in Schedule C of the Alberta Rules of Court. Frequently, the amounts listed in Schedule C only cover a small fraction of the legal costs incurred by the successful party. McAllister makes it clear that Courts may deviate from Schedule C costs and impose much higher costs awards in the range of 40-50% of the total out-of-pocket expenses incurred by the successful party. Subject to the trial courts’ discretion in each case, the Court stated that this increase in costs from the amounts set out in Schedule C should be awarded if legal fees were reasonably incurred, in the absence of any aggravating or mitigating circumstances. The rationale for departing from Schedule C in McAllister was that Schedule C did not cover the reasonable and proper costs incurred by Mr. McAllister. The main factor a court looks at when determining whether to depart from Schedule C costs is whether the costs incurred by the successful party were “reasonable costs, reasonably incurred.” In other words, departing from Schedule C requires some exceptional circumstances, such as complexity and misconduct during the litigation process.
The Court of Appeal cited several cases that previously endorsed a 40-50% level of indemnification. There are a handful of Court of Appeal cases before McAllister where higher partial indemnity costs awards have been upheld. Ultimately, McAllister provided an opportunity for the Court to clarify what had previously been encouraged in numerous decisions. McAllister is an example of a complex case where the strict application of Schedule C was not appropriate, and its significance lies in the resulting shift in the Court of Appeal’s approach to awarding costs.
TWO CASES SINCE MCALLISTER
The following two cases illustrate the principles in McAllister and how they have been applied by the courts.
- McAllister costs not awarded
Grimes v Governors of the University of Lethbridge [Grimes] centers on an appeal from an application for judicial review of the decision of the University’s Board of Governors. The application was filed by the Applicant, Austin Grimes, after he was handed a one-year suspension that arose from a dispute between the Applicant and his professor about her marking of an assignment handed in by the Applicant. The University was entirely successful on the judicial review application, and the Applicant lost on every issue.
With respect to costs, the University sought costs under the principles expressed in McAllister. The University argued that they were entitled to 70% of their Solicitor-Client costs, being $18,830.70. Although the Court of Appeal considered McAllister, costs were awarded under Schedule C. In his decision, Graesser J stated that departing from Schedule C for costs requires some exceptional circumstances, such as complexity and misconduct during the litigation process. In this case, the issues were not complex or complicated, and the Court did not consider it a particularly remarkable decision. It was a “routine judicial review” of an expulsion decision from a University and followed the normal course of a judicial review. Accordingly, the University’s costs were set on Column 1 of Schedule C with a 1.25% multiplier to account for inflation. The University was awarded $2,291.95, equivalent to 8.5% of their legal costs incurred.
Grimes provides an example of a case where Schedule C costs are more appropriate. There simply were no exceptional circumstances that would warrant a higher level of indemnification.
- McAllister costs were awarded
Ellingson v Hall [Ellingson] involves an equestrian center operated by the Defendants, where the Plaintiffs conducted business. In late 2022, the Defendants provided written notice to the Plaintiffs to vacate the premises by April 1, 2023. The termination date was later extended to April 30, 2023. The Plaintiffs sought an injunction prohibiting the Defendants from compelling them to leave the premises until 2025. The action was dismissed with costs to the Defendants, and the Plaintiffs vacated in April 2023.
Regarding costs, the Plaintiffs argued that the Defendants were entitled to Schedule C costs, whereas the Defendants submitted that they were entitled to Solicitor-Client costs which would result in a much higher costs award. The Court found that Solicitor-Client costs were justified because the Plaintiffs’ application was “frivolous and vexatious” and qualified as litigation misconduct. The Plaintiffs, among other things, tactically delayed their hearing, attempted to shield Ellingson from Questioning, and failed to accept a Calderbank Offer. In his decision, Gill J described their conduct as “reprehensible, scandalous, and outrageous.” In his view, the only way for justice to be done in these circumstances was for the Plaintiffs to fully indemnify the Defendants for their costs of defending the action.
Gill J referred to McAllister and stated that Schedule C costs do not necessarily represent an appropriate or satisfactory partial indemnification for reasonable and proper costs incurred. He deemed that this was one such situation where the Defendants were entitled to higher costs and awarded them on a full indemnity basis in the lump sum amount of $65,000, which accounted for 100% of their Solicitor-Client costs.
In all the descriptions given by the Courts on McAllister costs, Applications Judge W. S. Schlosser summarized it well in Brosseau Estate v Dubarry Estate:
“McAllister is simply a reminder that there are a wide range of choices on the costs menu, depending on the Court’s appetite and the circumstances of any particular case… it is not a shift from prix fixe to cart blanche.”
McAllister has potentially changed the landscape in Alberta on how costs are awarded. No longer will courts blindly follow the cost amounts set out in the Rules. Time will tell whether there will be a systemic shift in cost awards over the coming years as more cases apply the principles in McAllister. For now, McAllister serves as a reminder of the array of alternatives available to the Courts in determining the appropriate costs award to a successful party. It is important to keep in mind the potential significant cost consequences when bringing or defending an application.
Written by Jeremy Ellergodt with contribution from summer student, Xaviere Schneider.
 Ibid at para 27.
 Ibid at para 7.
 McAllister at para 65.
 Ibid at para 66.
 Ibid at para 41.
 Grimes v Governors of the University of Lethbridge, 2023 ABKB 287 [Grimes].
 Ibid at para 73.
 Ibid at para 65.
 Ibid at para 75.
 Ibid at para 15.
 Brosseau Estate v Dubarry Estate, 2023 ABKB 378 at para 21.