Executive Summary: Key Legal and Evidentiary Issues

• Reasonableness of costs claimed by the defendant following the plaintiff’s discontinuance of a proposed class action.

• Allocation of costs among multiple defendants in a complex, multi-party proceeding.

• Impact of class action litigation on access to justice and the chilling effect of high costs.

• Application of s. 31(1) of the Class Proceedings Act regarding cost reductions in cases promoting public interest or novel legal issues.

• The distinction between costs awarded for a party’s success versus costs awarded due to the other party’s discontinuance.

• Determination of appropriate partial indemnity costs in the absence of a judgment on the merits.

Facts of the case

The plaintiff, Maxwell Wallace, initiated a proposed class action against Questrade Inc. and eleven other discount brokerages, alleging improper retention of trailing commissions. Questrade maintained that it was differently situated from the other defendants, asserting that it rebated commissions directly to its clients, which would serve as a complete defense. The litigation began as part of a larger action but was later severed, resulting in a separate proposed class action against Questrade as the sole defendant.

Procedural background

The case involved extensive pre-certification proceedings. The plaintiffs delivered a certification motion record of approximately 2,450 pages, and Questrade, along with the other defendants, responded with their own evidence and submissions. Cross-examinations of the plaintiff and two expert witnesses were conducted, and written submissions were exchanged. The certification motion was scheduled for hearing but was adjourned, and Questrade was subsequently removed from the main action. The main action proceeded without Questrade, and certification was ultimately denied by Justice Belobaba, with subsequent appeals dismissed.

Cost submissions and arguments

Following the plaintiff’s decision to discontinue the action against Questrade, the defendant sought costs on a partial indemnity basis totaling $149,957.64. The plaintiff objected, arguing that the costs were excessive given Questrade’s limited involvement and suggesting a lower figure based on a proportional allocation among the twelve original defendants. The defendant countered that each defendant was required to respond fully to the entire record, regardless of the number of defendants, and criticized the plaintiff’s method of dividing costs as artificial.

Judicial analysis and policy considerations

Justice Morgan reviewed the costs submissions and found no evidence that Questrade’s claimed costs were inflated or unreasonable, noting the significant work required to respond to the plaintiff’s extensive motion record and to prepare for the certification hearing. The court considered the factors in s. 31(1) of the Class Proceedings Act, including access to justice and the potential chilling effect of high costs on future class actions. While the court acknowledged the importance of not discouraging class proceedings, it also recognized that the defendant had incurred substantial costs defending itself against unproven allegations.

Ruling and outcome

Justice Morgan determined that, although Questrade was not a successful party in the traditional sense, it was entitled to costs due to the plaintiff’s discontinuance. Balancing the interests of access to justice with the defendant’s legitimate expenses, the court reduced the requested costs by approximately 25%. The plaintiff was ordered to pay Questrade an all-inclusive amount of $110,000 in costs. The ruling reflects a compromise that recognizes both the burdens placed on defendants in class actions and the policy goal of ensuring that costs do not deter legitimate class proceedings. The amount awarded was $110,000 in favor of Questrade Inc., the successful party for the purposes of the costs application.