Executive Summary: Key Legal and Evidentiary Issues

• Justice Morgan varied a 2023 costs order after finding that Monkhouse Law Professional Corporation had not, in fact, agreed to indemnify the representative Plaintiff against an adverse costs award.
   
• Functus officio doctrine did not bar the variance because new facts about the absence of a costs indemnity emerged only after the original order was made.
   
• Class Counsel's evasive responses regarding the retainer agreement's indemnity provisions factored into the court's decision to add Monkhouse as a party liable for costs.
   
• Rule 59.06 of the Rules of Civil Procedure, combined with the court's inherent jurisdiction and case-management authority under the Class Proceedings Act, supported the variance.
   
• Monkhouse's conduct in defending the variance motion itself was found to be proper, precluding an elevated costs scale for that motion.
   
• A separate costs award of $30,000 was later ordered against Monkhouse for the variance motion, set at the midpoint between the parties' competing submissions.
   

Facts of the case

This consolidated article covers two related decisions of Justice E.M. Morgan of the Ontario Superior Court of Justice concerning the same class proceeding: Navaratnarajah v. FSB Group Ltd., 2026 ONSC 3314 (the Variance Motion decision, dated June 17, 2026) and Navaratnarajah v. FSB Group Ltd., 2026 ONSC 4246 (the costs of that motion, dated July 21, 2026).

Justice Morgan had certified an employment-related class action on August 11, 2021 (2021 ONSC 5418), with Surendraraj Navaratnarajah as the representative Plaintiff and Monkhouse Law Professional Corporation as Class Counsel. On May 31, 2023, the action was decertified (2023 ONSC 2574) after 66 of 69 potential class members opted out, leaving only the representative Plaintiff, one deceased class member, and one class member who could not be located. On July 6, 2023, Justice Morgan ordered the Plaintiff to pay the Defendants' costs in the amount of $100,000 (2023 ONSC 4024), on the assumption that Class Counsel would cover that liability under a standard indemnity arrangement, as is typical in Ontario class proceedings.

By 2026, the Defendants had still not been paid. Class Counsel had not discussed the matter with the Plaintiff and, in a September 18, 2025 email, said only that it would "work to convey" the Defendants' messages to its client "at the appropriate time." Meanwhile, the Plaintiff (through Monkhouse) sought leave to appeal the costs decision to the Divisional Court, which was denied on September 8, 2025 (2025 ONSC 4847). A further attempt to appeal that denial to the Court of Appeal was dismissed for delay on January 30, 2026, with costs of $750 (COA-25-OM-0396). Following that dismissal, Defendants' counsel wrote to Class Counsel on February 5, 2026, calculating that, with post-judgment interest of $15,526.35 and the $750 costs award added to the $100,000 principal, the total payable was $116,276.35 [figure as stated in Defendants' counsel's correspondence, not independently recalculated]. Class Counsel responded on February 9, 2026, stating it was "not retained by this client regarding 'collections'." When Defendants' counsel asked Class Counsel to confirm whether an indemnity provision existed in its retainer with the Plaintiff, Class Counsel declined to answer, characterizing the retainer as privileged. The Defendants then brought a motion to vary the 2023 costs order to make Class Counsel, rather than the Plaintiff alone, responsible for payment.

Policy and legislative provisions at issue

The motion engaged several procedural and statutory provisions. Costs are discretionary under section 131 of the Courts of Justice Act. Rule 59.06(1) of the Rules of Civil Procedure permits an order to be amended or varied where a judgment was obtained by fraud or where new and critical evidence is discovered that could not have been known through due diligence, and Rule 59.06(2) allows a party to bring a motion for such relief on the ground of facts arising or discovered after the order was made. Rule 57.07 permits a costs order against a party's solicitor for undue delay, negligence, or other default, though the court found this rule inapplicable to the circumstances here. Section 12 of the Class Proceedings Act, 1992 was also invoked, giving the court authority to make any order it considers appropriate respecting the conduct of a class proceeding to ensure its fair and expeditious determination. The court additionally referenced Rule 3.2-1, Commentary 6 of the Rules of Professional Conduct, which requires a lawyer to be prompt in reporting developments to a client. The original Notice of Certification had represented to class members, including the Plaintiff, that they would not need to pay legal fees out of pocket and would not be responsible for the Defendants' costs if the action failed.

Reasoning and analysis

Justice Morgan first addressed whether he was functus officio, given that a final costs order had already been entered. Drawing on Canadian Broadcasting Corp. v. Manitoba, 2021 SCC 27 and McLean v. Carr Estate, 1996 CanLII 11078 (NL CA), he held that functus officio is not a purely mechanical bar and that a court retains jurisdiction to revisit an order where new and critical evidence, not previously known, comes to light. He found that the erroneous assumption underlying the original costs order — that Class Counsel would indemnify the Plaintiff — constituted such new evidence, since it did not occur to him at certification to scrutinize the retainer agreement for a costs indemnity, as this is treated as standard in class proceedings.

The court reviewed authority establishing that indemnification of a representative plaintiff against adverse costs is expected practice for class counsel, including Azar v. Strada Crush Limited, 2019 ONSC 4436, Davidson v. T.E.S. Contract Services, 2024 ONSC 4362, and Poulin v. Ford Motor Company of Canada Limited, 2007 CanLII 56490. Justice Morgan noted that Class Counsel's responses to inquiries about the retainer's indemnity terms were evasive, including an assertion of privilege that the court found unconvincing, since any privilege belonged to the client rather than to Class Counsel, citing H.M.B. Holdings Limited v. Replay Resorts Inc., 2018 BCCA 263. The court concluded that Class Counsel's own conduct — including a lack of communication with the Plaintiff and an unwillingness to confirm the terms of the retainer — supported the inference that no adequate indemnity was in place.

Having found a jurisdictional basis to revisit the order, the court held that Rule 59.06, together with the court's inherent jurisdiction (Endean v. British Columbia, [2016] 2 SCR 162) and its case-management authority under section 12 of the Class Proceedings Act (Del Giudice v. Thompson, 2020 ONSC 3623), supported varying the costs order to add Class Counsel. The court distinguished Rule 57.07, finding that undue delay was not the primary basis for the motion, even though Class Counsel's litigation conduct had been criticized in earlier rulings.

In the subsequent costs decision concerning the Variance Motion itself, the Defendants sought costs on a substantial indemnity scale, citing the criticism of Monkhouse in the underlying ruling. Justice Morgan rejected an elevated scale, finding that Monkhouse's counsel had conducted the Variance Motion in a straightforward and professional manner, and that no reprehensible conduct within the meaning of Davies v. Clarington (Municipality), 2009 ONCA 722 and Young v. Young, [1993] 4 SCR 3 had occurred in that motion specifically. Faced with Monkhouse's proposed figure of $15,000 and the Defendants' proposed figure of $53,901.00 (the latter calculated on a partial indemnity scale), the court exercised its discretion under section 131 of the Courts of Justice Act to fix costs at a round figure roughly at the midpoint of the two submissions.

Ruling and overall outcome

In the Variance Motion decision (2026 ONSC 3314), Justice Morgan ruled in favour of the Defendants, FSB Group Ltd., FSB Insurance Ltd., and FSB Commercial Ltd., varying the prior costs order to add Monkhouse Law Professional Corporation as a party responsible, alongside the representative Plaintiff, for payment of the Defendants' previously ordered costs of $100,000. In the subsequent costs ruling on that same motion (2026 ONSC 4246), the Defendants again succeeded, with Justice Morgan ordering Monkhouse to pay the Defendants' costs of the Variance Motion in the all-inclusive amount of $30,000.