A Distinction Between Legal Fees and Expert’s Fees, The Lawyer’s Daily (August 9, 2021)

(this article originally appeared in the Lawyer’s Daily on August 9, 2021)

By Nikolay Y. Chsherbinin

In most jurisdictions, an expert witness is not permitted to give opinion evidence at trial unless the party has served a report signed by the expert, which includes the substance of the expert’s proposed testimony, and the expert has been qualified as such at trial. The rationale behind this principle is to avoid trial by ambush and to ensure the subject matter of the expert’s testimony is appropriate. The fees of experts to prepare reports vacillate as much as the seven seas and are not subject to reduction based on the traditional distinction between substantial and partial indemnity costs.

A very recent case on point is Charlesfort Developments Limited v. Ottawa (City), 2021 ONCA 542, where the Court of Appeal for Ontario awarded the City of Ottawa approximately $500,000 in the expert fees. The court reminded that there is a distinction between disbursements, of which expert fees are considered, and legal fees. It re-affirmed that the fees of experts are subject to a reasonableness test and that “reasonably necessary” experts’ fees should not be arbitrarily reduced to reflect the fact that the award is intended to be only partial indemnification.

In Charlesfort, Charlesfort Developments Limited, a property developer in Ottawa, purchased a property it intended to redevelop for a condominium project. It commenced an action against the City of Ottawa for negligent misrepresentation after the City failed to accurately inform Charlesfort of the contents of a municipal easement. The trial judge agreed and awarded damages of around $4.5 million to Charlesfort for increased development costs, lost revenue and lost interest. The City successfully appealed and the court dismissed Charlesfort’s action. As part of its decision, the court invited written submissions regarding the costs of the appeal and of the proceeding below.

The City wished to recover, among others, $566,620.01 as disbursements for the proceeding below. The largest component of the disbursements sought was the amount of $478,860.26 for the fees of Deloitte & Touche, who were experts retained by the City. While emanating from one firm, the expert fees actually comprised four experts within their account. Charlesfort argued that the expert fees were excessive, particularly since none of the experts gave evidence. This occurred because the parties were able to come to a partial agreement on damages that obviated the need to call the experts. The parties’ agreement also eliminated a need for the trial judge to determine if the City would be given leave to call more than three experts, as prescribed by s. 12 of the Ontario Evidence Act.

In dismissing Charlesfort’s arguments, the Court of Appeal noted that a party is entitled to be paid appropriate amounts for expert reports “reasonably necessary” for the conduct of the proceeding, regardless of whether the expert is called to give evidence. In added that the mere fact that the expert is not called to testify does not mean that the expert report did not contribute to the advancement, or defence, of the claim. It pointed out that an expert report may help resolve certain issues in the proceeding and thus, promote settlement, or at least reduce the issues for trial. Nonetheless, the fact that the expert was not called to give evidence is “a factor” that must be taken into account in determining the reasonableness of the overall fees charged.

In considering the reasonableness of the expert fees, the court would take into consideration: the complexity of the action; the size of the lawsuit; whether the lawsuit could have precedential impact, if sustained; whether the expert report contributed to the advancement or defence of the action; whether it narrowed the issues for trial; whether the amount of fees is reasonable for the losing party to bear; reasonableness in the expenditure of funds on experts as an aspect of ensuring access to justice; and inter alia the general principle of proportionality.

In Charlesfort, the City paid $478,860.28 to its experts. The court viewed the fee charged by Deloitte & Touche to be “more than is reasonable for the other party to bear.” The court reached this conclusion, in part, by noting that the expert fees allowed to Charlesfort by the trial judge were about half what the City claimed. It also contrasted the amounts of fees charged by the experts to the fees to which counsel are entitled on a partial indemnity basis, which was $258,071.53. On that point the court, having observed that counsel must deal with all aspects of the claim and the experts’ tasks are narrowly confined, found that the size differential between the fees of experts (i.e. $478,860.26) and the legal fees (i.e. $258,071.53) is still noticeable. Ultimately, the court reduced the costs that the City sought to recover by $36,931 and awarded it an all-inclusive sum of $700,000 in costs for the proceedings below and $54,390.06 for the appeal.

Charlesfort is a reminder that the fees for the reports and testimony of experts are not to be treated in the same fashion as legal fees. While the fees of experts, just as legal fees, are subject to a reasonableness test, the fees of experts are not subject to further reduction based on the distinction between substantial indemnity costs and partial indemnity costs. This said, the fees of the expert are nonetheless subject to an overriding principle of proportionality pursuant to sub-rule 1.04(1.1) of the Ontario Rules of Civil Procedure. Put another way, the fact that a party may have paid its expert an exorbitant fee for their services does not mean that the losing party must pay that amount. The fees allowed must still be reasonable in terms of hours and rates charged in proportion to the matter at issue.

Even though the fees of experts, in essence, are awarded on a full-indemnity basis, the losing party must only pay what the court views as reasonable for the services provided.