Deterrence Not Damages: The Punitive Rationale For Solicitor-Client Costs

ABSTRACT

This article discusses the proper use of solicitorclient costs in Canadian law. Traditionally, such costs were used to censure misconduct in litigation, not to compensate the victor. However, recent decisions from the liability insurance context offer a growing departure from this consensus. Such decisions have used solicitor-client costs not to condemn scandalous behaviour, but to preserve an insured's award of coverage from dilution by legal fees. The recent British Columbia decision in Tanious v. Empire Life Insurance Co., [2017] B.C.J. No 85, 2017 BCSC 85 marks the latest expansion of this trend, awarding full indemnity costs to a disability insurance claimant despite no misconduct by the defendant insurer.

This article offers three contributions in response to Tanious. First, it criticizes Tanious itself, arguing that full indemnity was not warranted in the absence of improper conduct. Second, it offers the first published critique of the aforementioned "duty to defend" exception, finding that a liability policy lacks both any express or implied term as might justify such differential treatment. Finally, this article offers an overarching theory for solicitorclient costs in Canadian law. Amidst our default costs regime of partial compensation, I argue that solicitor-client costs are only consistently justified only when responding to procedural misconduct. In theoretical terms, such a framework would legitimize the punishment of solicitor-client costs as a response to a defendant's own misconduct. In practical terms, returning full indemnity costs to a function of a party's own behaviour would preserve consistency and predictability of solicitor-client costs, and their exceptional power to deter.

INTRODUCTION

While some legal questions can appear little more than points of intellectual debate, few things impact litigants more tangibly than solicitor-client costs. Effectively the highest level of costs available, solicitor-client costs awards have been described variously as "punishment",1 a "penalty",2 a "chastisement", "punitive"3 and as a "rebuke".4 In short, their traditional use has been to discipline a party for procedural misconduct.5 While their effect is often severe,6 the unsuccessful litigant has only itself to blame for incurring the court's disapproval.7

However, recent decisions have departed from this consensus by using full indemnity to compensate a plaintiff, rather than censure a defendant. Arising out of the...