Show Me The Money: The Evolving Approach To Costs In The Federal Court

• Published date: 16 March 2021
• Subject Matter: Intellectual Property, Litigation, Mediation & Arbitration, Patent, Trials & Appeals & Compensation
• Law Firm: Gowling WLG
• Author: Mr Frédéric Lussier, Alexander Camenzind and Andrew Medico (Articling Student)

The costs of litigation in Canada follow the general principle that the "loser pays," meaning the successful party is able to recover some of the fees required to bring or defend the action. While a simple concept, the approach is complex and continually evolving.

Historically, costs in the Federal Court were based on Tariff B of the Federal Courts Rules. The Tariff sets a range of values for various steps in a proceeding, providing the quantum of costs. The Federal Court has recognized, however, that the Tariff no longer provides adequate level of partial indemnification, particularly in intellectual property cases.

Because of this, costs are now typically awarded as a "lump sum", based on the successful party's legal fees. But this is not a blank cheque: the Court requires fees to be "reasonable" in the circumstances. The Court has also taken different views in different cases regarding the proportion of fees awarded as costs. As a result, costs submissions are often the subject of significant dispute.

The increased prevalence of lump sum fee awards

Lump sum costs are not new to the Federal Court; the Rules have provided that possibility for a long time. However, lump sums gained increased traction following the 2017 decision in Dow v Nova, ¹ where the Federal Court of Appeal approved the application of a lump sum based on a percentage of fees incurred by the successful party. In doing so, the Federal Court of Appeal highlighted the disparity between the Tariff and the actual cost of litigating intellectual property cases, especially for patent infringement or impeachment.

Lump sums have since become more prevalent, but their application remains varied. Significant discretion is given to the Court to determine appropriate costs awards. In awarding a lump sum based on fees over the Tariff, the Court is recognising the disparity between Tariff amounts and the actual costs of litigating complex cases. In multiple instances, an award under the Tariff could be less than 10% of the actual fees incurred by the successful party. By bringing the compensation more in line with actual fees, lump sum costs better embody the principle of costs awards - the efficient and effective conduct of legal proceedings.

Since 2015, the Federal Court has awarded lump sum costs following a full decision on the merits in at least 20 cases involving substantive intellectual property disputes. While some decisions continue to apply the Tariff for costs awards, the Federal Court is trending towards lump-sum costs as the common approach.

Notably, the award of a lump sum based on fees has been found appropriate where the parties are "sophisticated commercial entities". This, in part, explains why more patent and trademark cases have seen lump sum costs awards, as cases that make it to decisions on the merits more often involve larger or more sophisticated litigants. However, the Federal Court has also recently used that fact to award lump sum costs based on a percentage of fees in a copyright case, where such costs awards have so far been less prevalent.²

In doing so, the Court attempts to...