Tag: Sartori v. Gates

The High Risk of Personal Injury Trials: The Costs and Disbursements Swing


As previously discussed, personal injury trials can be risky and expensive.  The British Columbia Supreme Court has a so-called ‘loser pays’ system which generally makes the losing side pay the winning side’s costs and disbursements (the hard expenses associated with running a trial such as court filing and expert witness fees).  Last month the BC Supreme Court, Victoria Registry, released reasons for judgement demonstrating this reality.
In this recent case (Sartori v. Gates) the Plaintiff was injured in 2005 when a truck owned by his friend accidentally struck him.  The Plaintiff sued for damages.  As the lawsuit progressed ICBC made a formal settlement offer of $230,000 plus costs and disbursements.
The Plaintiff presented his own formal offer of $600,000 plus costs and disbursements.   These offers were rejected and the claim proceeded to trial.  Ultimately a jury found the Plaintiff 33.3% at fault for the collision but accepted that he was injured and awarded damages.
When all the dust settled, the Plaintiff was awarded $234,000.  ICBC argued that since the final result was “within a knife’s edge” of their offer that the Plaintiff should be stripped of his post offer costs and disbursements.  This was a significant development because the Plaintiff spent over $120,000 in disbursements while advancing his claim.
Ultimately Mr. Justice Wilson found that this result would not be fair.  However, the Court disallowed disbursements associated with one of the Plaintiff’s expert witnesses and further reduced the disbursements the Plaintiff was entitled to by 1/3 to take into account the jury’s finding of fault and section 3 of the Negligence Act.  Some quick math reveals this results in about $40,000 of the real costs of advancing the claim not being recovered by the Plaintiff.  This large swing highlights the need to consider potential costs consequences when deciding whether to settle an ICBC claim or to proceed to trial.
This recent case is also noteworthy for a few other reasons.  ICBC argued that the usual rule of a winner receiving costs should not be followed given how close the settlement offer was to the jury verdict.   Mr. Justice Wilson rejected this argument providing the following useful reasons:

[42] The governing principle on the first issue, is R. 14-1(9).  The material words of that subrule, on this application, are:

… costs of a proceeding must be awarded to the successful party unless the court otherwise orders.

[43] The onus is on the defendant to persuade me why I should otherwise order….

[55] The plaintiff reminds me that the discretion conferred by the cost rules must be exercised judicially.  The parameters of that judicial duty were referred to in Stiles v. B.C. (Workers’ Compensation Board), and iterated consistently thereafter.  The court said:

… The discretion must be exercised judicially, i.e. not arbitrarily or capriciously.  And, as I have said, it must be exercised consistently with the Rules of Court.  But it would be a sorry result if like cases were not decided in like ways with respect to costs.  So, by judicial comity, principles have developed which guide the exercise of the discretion of a judge with respect to costs.  Those principles should be consistently applied; if a judge declines to apply them, without a reason for doing so, he may be considered to have acted arbitrarily or capriciously and not judicially.

[56] The Rules of Court mentioned in that extract are those cited above.  The “principles … developed …” or “purposes”, were referred to in Giles v. Westminster Savings and Credit Union:

The purposes for which costs rules exist must be kept in mind in determining whether appellate intervention is warranted.  In addition to indemnifying a successful litigant, those purposes have been described as follows by this Court:

•     “[D]eterring frivolous actions or defences”:  Houweling Nurseries Ltd. v. Fisons Western Corp. (1988), 37 B.C.L.R. (2d) 2 at 25 (C.A.), leave ref’d, [1988] S.C.C.A. No. 200, [1988] 1 S.C.R. ix;

•     “[T]o encourage conduct that reduces the duration and expense of litigation and to discourage conduct that has the opposite effect”:  Skidmore v. Blackmore (1995), 2 B.C.L.R. (3d) 201 at para. 28 (C.A.);

•     “[E]ncouraging litigants to settle whenever possible, thus freeing up judicial resources for other cases”:  Bedwell v. McGill, 2008 BCCA 526, 86 B.C.L.R. (4th) 343 at para. 33;

•     “[T]o have a winnowing function in the litigation process” by “requir[ing] litigants to make a careful assessment of the strength or lack thereof of their cases at the commencement and throughout the course of the litigation”, and by “discourag[ing] the continuance of doubtful cases or defences”:  Catalyst Paper Corporation v. Companhia de Navegaçao Norsul, 2009 BCCA 16, 88 B.C.L.R. (4th) 17 at para. 16.

[57] Giles is also authority for the proposition that the “usual rule” is that costs follow the event…

Here, this plaintiff did succeed.  The defendant’s argument is that he did not succeed to the extent of his aspirations.  Therefore, goes the argument, the defendant should have the costs of establishing that failure.

[81] In my opinion, that proposition is not a phenomenon contemplated by R. 14?1(14) or Forrest v. Gaidner.

[82] My conclusion on the first issue is that the defendant has not persuaded me that this is a case on which I should otherwise order.  The plaintiff is entitled to his costs, subject to the disallowance of one day of trial and disbursements associated with Dr. Hunt’s involvement.

Cost of Future Care Awards and Tax Gross Ups: Can Tax Planning Strategies Be Considered?


When Personal Injury Plaintiffs are awarded damages for costs associated with future medical care they are expected to invest the money and draw from this fund to pay for their future care needs over their lifetime.  The difficulty is that while personal injury damage awards are not taxable, investment income is.  To account for this Trial Judges have the ability to award further damages to set off these tax consequences.  This is called a “tax gross up” award.  Reasons for judgement were released this week by the BC Supreme Court, Victoria Registry, addressing this area of law.
In today’s case (Sartori v. Gates) the Plaintiff was awarded damages by a Jury which included $41,000 for cost of future care.  The Plaintiff applied for a tax gross up and presented an actuarial report which concluded that approximately $10,000 would be necessary to offset the investment tax consequences from the cost of care award.  ICBC presented contrary evidence arguing that an award of $3,000 would be appropriate.
The main reason for the difference in the economists opinions was whether the Court could consider tax minimizing strategies in quantifying a tax gross up award.  Ultimately the Court held that these can be considered, however, the whole of these strategies are not to be applied solely to the damage award for cost of future care.   Mr. Justice Wilson provided the following practical reasons:

[20]         In result, I find the tax free savings account benefits to be a lawful consideration in defining the tax gross up amount.  That said, however, Townsend is also authority (among many, many others) for the principle that, “compensation aims at restoring the victim to the position that person would have been in had no loss been incurred”.

[21]         A cost of future care award is founded on the theory that the tortfeasor must provide a fund from which the victim may draw to meet future expenses as they occur.  It is a presumption of law that the fund will be invested and will earn income.  According to the theory, as I understand it, the fund and its income, is a separate stand-alone phenomenon.  It appears to me that Mr. Szekely has treated it as such in his analysis.  Therefore, the tax benefits available to the plaintiff, by virtue of a tax free savings account, are exhausted in this separate stand-alone account.

[22]         Commencing 1 January 2009, the plaintiff has been entitled to the tax benefits of a tax free savings account.  It seems to me that if I assign all of the tax benefits, from a tax free savings account, to this stand-alone account, then I will not be restoring the plaintiff to the position he would have been in had no loss been incurred.  To put it in Mr. Wickson’s terms, adopting Mr. Szekely’s approach, fails to recognize the plaintiff’s right to use the tax free savings account for his “first slice” income.

[23]         I have considered the tax benefits of a tax free savings account as a legitimate factor in determining the tax gross up and having done so, I conclude that in this particular case, Mr. Szekely’s calculations are not applicable in the determination of the tax gross up amount…

[31]         Finally, the fund available to meet the plaintiff’s costs of future care is $41,333.33.  I find it is more probable than not that the income to be earned from the investment of this fund will be interest income.  Therefore, I make no allocation for capital gain or dividend income and assess the tax gross up at $10,025.

Contact

If you would like further information or require assistance, please get in touch.

ERIK
MAGRAKEN

Personal Injury Lawyer

When not writing the BC Injury Law Blog, Erik is the managing partner at MacIsaac & Company, based in Victoria, B.C. He is also involved with combative sports regulatory issues and authors the Combat Sports Law Blog.

“Work hard, be kind and enjoy the ride!”
Erik’s Philosophy

Disclaimer