Executive Summary: Key Legal and Evidentiary Issues

• The court refused to consider a “without prejudice” settlement letter about costs, finding it protected by settlement privilege and outside the exception in Rule 422.

• Rule 422 was held inapplicable because the injunction motion did not finally determine all issues of liability and relief in the underlying trademark infringement action.

• The court exercised its discretion on costs under Rule 400, starting from Tariff B, and confirmed that the party seeking elevated or percentage-based costs must justify a departure from the default.

• The defendant’s request for lump sum costs based on 30% of its actual legal fees was rejected; instead, the court awarded costs at the high end of Column V of Tariff B.

• Allegations about each side’s litigation conduct were found insufficient to justify special or punitive costs, and the court declined to dissect counsel’s strategic choices.

• The court denied the request that costs be payable forthwith under Rule 401(2), finding the plaintiffs’ unsuccessful interlocutory injunction motion did not meet the threshold of a motion that should not have been brought or opposed.

Background and parties
This supplementary order on costs arises from Federal Court proceedings between Schlegel Health Care Inc., Homewood Health Inc. and Homewood Health Centre Inc. as plaintiffs, and Edgewood Health Network Inc. as defendant. The costs decision follows an earlier motion in which the court dismissed the plaintiffs’ motion for an interlocutory injunction brought in the context of a trademark infringement action against the defendant.

Facts and motion history
After the interlocutory injunction was dismissed, the defendant sought costs. In its Bill of Costs, the defendant requested lump sum costs of $212,428, composed of $190,000 in legal fees (30% of its total fees) and $22,428 in disbursements, or alternatively $83,295 calculated using the high end of Tariff B Column V ($60,867 in fees and $22,428 in disbursements). The plaintiffs relied on the interlocutory nature and moderate complexity of the motion and argued that costs should instead be based on Tariff B Column IV in the amount of $39,128.79 ($21,865.50 in fees and $17,263.29 in disbursements), or, at most, Column V in the amount of $78,130.74 ($60,867.45 in fees and $17,236.29 in disbursements). The plaintiffs also disputed a disbursement for Professor Moorthy of $5,164.86 because no invoice was filed in support, and the court agreed that this disbursement should not be allowed.

Settlement privilege and written offers to settle
In the written submissions on costs, the plaintiffs included a letter from the defendant marked “without prejudice” that discussed a proposal for settlement of costs following the motion decision. The defendant objected, arguing that the letter was covered by settlement privilege and inadmissible. The plaintiffs invoked Rule 400(3)(e), which allows the court to consider “any written offer to settle,” and referred to Rule 422. The court held that Rule 422 did not apply because there had been no determination of all questions of liability and relief, as the injunction motion was interlocutory and the underlying trademark infringement action remained undecided. The court concluded that the settlement letter did not fall within the Rule 422 exception to settlement privilege and would not be considered under Rule 400(3)(e).

Costs analysis under the Federal Courts Rules
The court noted that Rule 400(1) gives it full discretionary power over the amount and allocation of costs, and that Rule 400(3) lists factors such as the result, importance and complexity of the issues. The default position under Rule 407 is costs according to Column III of Tariff B, and the party seeking elevated costs must justify a departure. The defendant argued that a lump sum based on a percentage of its actual fees was appropriate, citing the complexity of the injunction motion, the plaintiffs’ conduct, the importance of the case, the sophistication of the parties, the inadequacy of Tariff compensation and its success on the motion. The court acknowledged that lump sum costs as a percentage of legal fees are increasingly awarded in intellectual property cases and referred to decisions where such awards were made after final determinations. It also noted that, on interlocutory motions in intellectual property matters, courts have sometimes used Tariff-based costs and sometimes percentage lump sums. The court emphasized that percentage lump sum costs are not automatic, and that high actual fees alone do not justify such awards.

Assessment of complexity, conduct and scale of costs
The court found that the complexity of the motion was already reflected in the defendant’s Bill of Costs. The defendant had three counsel at the motion hearing and used two counsel for discovery and examinations, and the Tariff accounts for these additional resources. On alleged conduct, the defendant pointed to issues with the plaintiffs’ notice of motion, unpursued issues, an affidavit served without exhibits, and reply representations; the plaintiffs, in turn, raised concerns about an addendum to a defendant’s affidavit. The court did not consider either party’s conduct improper so as to warrant costs consequences and stated that its role in awarding costs is not to perform an autopsy of the motion or retrospectively criticize legal strategies. While the court declined to award lump sum costs based on a percentage of fees, it accepted that certain factors supported departing from Column III of Tariff B: both sides are sophisticated commercial litigants, the defendant succeeded on all three branches of the interlocutory injunction test, and elevated costs on the Tariff provide more reasonable compensation without becoming excessive.

Outcome on costs and timing of payment
The court decided to award costs according to the high end of Column V of Tariff B. The defendant also sought an order that costs be payable forthwith under Rule 401(2). The court noted that such an order is available only where a motion should not have been brought or opposed, such as motions that are plainly ill-conceived, unsupported by admissible evidence, based on clearly incorrect law or otherwise an abuse of process. The court found that the plaintiffs’ motion did not meet this threshold: although the plaintiffs failed to demonstrate a serious issue, they faced a high “strong prima facie case” standard, and there were arguable issues requiring thorough analysis. The court reiterated that costs payable forthwith are the exception, not the rule, and declined to make such an order. In conclusion, the court ordered that the defendant, Edgewood Health Network Inc., is entitled to costs pursuant to Tariff B Column V in the amount of $78,130.00.