Royal Bank of Canada Appellant (Plaintiff) - v. -, 2014 ABQB 756

Court of Queen ’ s Bench of Alberta Citation: Royal Bank of Canada v Learmonth, 2014 ABQB 756 Date: 20141209 Docket: 1403 03752 Registry: Edmonton Between: Royal Bank of Canada Appellant (Plaintiff) - and - Robin Learmonth and Kami Moncrief Also Known As Kami L. Moncrief Respondents (Defendants) _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice K.G. Nielsen _______________________________________________________

Appeal from the Order by S.L. Schulz, Master in Chambers Dated the 9 th day of July, 2014 Filed on the 10 th day of July, 2014 I. Introduction [ 1 ] The Royal Bank of Canada (the Royal Bank) sought to include an order for costs on a full indemnity basis in a redemption order in foreclosure proceedings. A Master ( 2014 ABQB 695 ) denied costs on a full indemnity basis. [ 2 ] The Royal Bank appealed. The appeal is allowed. II. Background [ 3 ] The Respondents entered into a mortgage with the Royal Bank.

The mortgage included the Royal Bank’s Standard Form Mortgage Terms pursuant to the Land Titles Act , RSA 2000, c L-4 registered as Instrument No 062 023 344 (the Mortgage). The Mortgage was a first charge on the subject property. [ 4 ] The Respondents defaulted on the Mortgage and the Royal Bank commenced a foreclosure action. The Respondents were noted in default.

The Royal Bank sought a Redemption Order, using a form of template Order. [ 5 ] The Respondents did not appear on the application before the Master, nor did they participate in this appeal. [ 6 ] The template Order as presented to the Master sought costs “on a solicitor and his own client, full indemnity basis”. The Master struck out the words “full indemnity basis” from the template Order as presented.

In the result, the Master awarded costs to the Royal Bank on a solicitor and his own client basis. [ 7 ] The following exchange occurred between the Master and counsel for the Royal Bank at the application: Master: Okay. I am prepared to give you solicitor and client costs, but not the full indemnity. So I am just crossing out the words full indemnity basis. Counsel: Even though the contract allows for it -- Master: Yes. Counsel: -- and that there is a difference between the two. Master: Yes. Counsel: Is there a reasoning for that? Master: Yes.

The Masters have discussed this, and we are prepared to allow solicitor and client costs. Here is your order as granted. [ 8 ] The Order as modified by the Master was granted on July 9, 2014 and filed on July 10, 2014 (the Order). Following the granting of the Order there was, apparently, discussion between the Master and counsel for the Royal Bank and it was agreed that the Master would provide written reasons for the decision. The Royal Bank filed a Notice of Appeal on July 16, 2014.

On July 16, 2014 the Royal Bank also filed an affidavit, exhibiting the terms of the Mortgage. [ 9 ] On November 12, 2014 the Master filed the Reasons for Judgment. [ 10 ] The Master stated in the written reasons that the Mortgage was not in evidence before the Court at the time of the application.

The Master referred to terms from a filed copy of the Approval of Mortgage and Cost of Borrowing Statement of Disclosure which was apparently available at the time of the application. Prior to the written reasons being issued, an affidavit was filed on behalf of the Royal Bank which included the Royal Bank’s Standard Mortgage Terms.

The complete terms of the Mortgage were apparently available to the Master prior to the filing of the Reasons for Judgment and are certainly available on this appeal. [ 11 ] The Master concluded that a term in the Mortgage which provided for recovery by the Royal Bank of costs on a full indemnity basis was an attempt to contract out of consumer protection legislation as set out in s. 21 of the Court of Queen’s Bench Act , RSA 2000, c C-31 and rule 10.9 of the Alberta Rules of Court , Alta Reg 124/2010. That is, that this was an attempt to avoid any review by the Court of the fees and disbursements sought.

The Master concluded that public policy dictated that the Court always retain its jurisdiction to review costs (para 13). She stated as follows: 10 The use of the phrase “all costs on the basis of solicitor as rendered to his own client with full indemnity” effectively allows the mortgagee to collect from the mortgagor whatever the mortgagee is charged by the law firm, without oversight by the Court as to the reasonableness of what has been charged.

In particular, this wording prevents the mortgagor, who is the one ultimately paying the law firm's account for fees and disbursements, from contesting the reasonableness of the fees and disbursements charged. This is clearly an attempt by the drafters of the document to oust the inherent jurisdiction of the Court to review the accounts rendered by the law firm. [ 12 ] The Master indicated at para 20 that “in the alternative” she would be prepared to award “solicitor and own client costs on a reasonable full indemnification basis”. III.

The Mortgage [ 13 ] The Mortgage contained the Royal Bank Standard Form Mortgage Terms which had been registered at the Land Titles Office.

Section 13.2(1) of the Mortgage is relevant to this appeal: 13.2(1) You also promise: To pay, on demand and as permitted by law, all of our costs and expenses, on a full indemnification basis, including all legal fees and disbursements, on a solicitor and own client basis, to (

i) Prepare the Registered Mortgage, including all necessary steps to advance and secure the Principal Amount, investigate title, pay a title insurance premium, register the Mortgage and to report to us; (ii) Collect the Outstanding Amount; (iii) Enforce the terms of the Mortgage, including efforts to make you keep your Promises; (iv) Do anything which you promised to do but did not do; (

v) Defend the validity of the Mortgage against anyone who contests it; and (vi) Prepare and give you a discharge of the Mortgage when you have paid all amounts owing under the Mortgage, as required by the Mortgage . IV. The Order [ 14 ] Paragraphs 3 and 14 of the Order are relevant to this appeal: 3.

There is outstanding, due and owing to the plaintiff under the mortgage the sum of $273,837.43, as at the 9 th day of July, 2014 (as set forth in the statement of secured indebtedness which is attached to this Order), plus costs on a solicitor and his own client, full indemnity basis , plus interest thereafter at the mortgage rate, plus other amounts chargeable under the mortgage (the “Indebtedness”).

Prior to the entry of this order the assessment officer shall check the amounts claimed in the statement of secured indebtedness, including the particulars provided in the affidavit of default and the plaintiff’s calculations. If the assessment officer returns this order unentered then the plaintiff may either submit a corrected order or seek the advice and direction of the court. The requirement for service of documents prior to this order, set out in rule 9.35(1)(a), is hereby revoked. 14.

The plaintiff is awarded costs of this action on a solicitor and his own client, full indemnity basis , which shall be assessed at a future date without notice unless the defendants filed a Statement of Defence, or filed a Demand of Notice, or appeared at the application where this order was granted, in which case, unless the defendants have approved the amount of costs sought, the plaintiff shall have such costs assessed on notice pursuant to Rule 10.37. V.

Position of the Royal Bank [ 15 ] The Royal Bank argues that the Master erred in declining to award it costs on a solicitor and his own client, full indemnity basis as the Respondents had entered into an agreement with the Royal Bank to pay costs to the Royal Bank on that basis if they failed to honour their obligations pursuant to the Mortgage. VI. Issue

[16] The Court must decide whether the Master erred in concluding that the Royal Bank was not entitled to recover costs on asolicitor and his own client, full indemnity basis. VII. Standard of Review [17] The standard of review on an appeal from a Master to a Judge is correctness on all issues: Bahcheli v Yorkton Securities Inc,2012 ABCA 166, 524 AR 382. VIII.

Legislation [18] The Master referred to s. 21 of the Court of Queen’s Bench Act, which provides: 21 Subject to an express provision to the contrary in any enactment, the costs of and incidental to any matter authorized to be takenbefore the Court or a judge are in the discretion of the Court or judge and the Court or judge may make any order relating to costs that isappropriate in the circumstances. [19] Rule 10.9 provides in part: 10.9 The reasonableness of ... a lawyer’s charges are subject to review by a review officer in accordance with these rules, despite anyagreement to the contrary. IX.

Analysis A Was the Royal Bank entitled to costs on a full indemnity basis? [20] In Vallieres v Vozniak, 2014 ABCA 384, [2014] AJ No 1288, the Court of Appeal noted that costs are presumptively assessedon

Schedule C (party and party), but a contract providing for a different scale of costs is a recognized exception to that general rule. [21] Wakeling J. (as he then was) in Alberta Treasury Branches v 1401057 Alberta Ltd (Katch 22), 2013 ABQB 748, 89 Alta LR(5th) 185 undertook an extensive review of the law of costs.

With respect to full indemnity costs and the payment of same, he stated(citations omitted): 33 The sixth costs principle is that, in the absence of a contractual term committing one party to pay the other's costs on a full-indemnity basis, costs are awarded to a successful party on a full-indemnity basis only in exceptional cases... 34 Contracts may contemplate the existence of litigation between the parties and allocate the burdens associated with it, includingprovisions obligating the payment of legal costs at stipulated levels under specified circumstances.

The seventh costs principle is that acourt may choose to hold a party to its promise... [22] The Royal Bank was entitled to the scale of costs as agreed to pursuant to the Mortgage Terms. B Did the Royal Bank seek to oust the Court’s jurisdiction to review costs? [23] Paragraph 3 of the form of Order refers to a review of the indebtedness of the Respondents by the assessment officer prior tothe entry of the Order.

Further, paragraph 14 of the Order provides that the costs would be “assessed at a future date”. [24] Therefore, it is clear that the Royal Bank always contemplated that its claim for solicitor and his own client costs on a fullindemnity basis would be reviewed by the review officer. [25] There was no basis for the Master to conclude that the Royal Bank sought to oust the jurisdiction of the Court to review itsclaim for costs.

C Is there a distinction between “solicitor and own client costs” and “fullindemnity costs”? [26] Costs generally fall into three different classifications: party and party costs, solicitor and client costs and solicitor and ownclient costs. [27] MM Orkin writes in The Law of Costs, 2d ed (Aurora, Ont.: Canada Law Book, 1987-) at 1-8: ...it has been said that costs on a higher scale than solicitor-and-client costs should not be awarded between opposing litigants. However,the concept persists.

The Newfoundland and Labrador Court of Appeal [Holloway v Holloway 2001 NFCA 17 , [2000] 6 CPC (5th) 34] has affirmed the existence of a third scale, namely, solicitor and own client costs, which it defined as follows: These will usually be the same as solicitor and client costs, but where circumstances justify, there will be added any furtherdisbursements, charges or fees that may arise out of the equities as between the solicitor and the client, except such as would result fromunreasonableness on the part of the solicitor.

[28] Orkin addressed the classification of full indemnity costs at 2-213: Full indemnity costs is not a defined term. Full indemnity costs should equate to an award of costs at actual rates... [29] In some jurisdictions, “full indemnity” is contemplated in rules of procedure. For example, Rule 57.01(4)(

d) of Ontario’sRules of Civil Procedure, RRO 1990, Reg 194 expressly allow courts to award costs “in an amount that represents full indemnity”. [30] Much ink has been spilled in Alberta on whether there is any real distinction between “solicitor and own client costs” and“full indemnity costs”. See for example, the discussion in Stagg v Condominium Plan No 882-2999, 2013 ABQB 684, [2013] AJ No1306. [31] The phrases “solicitor and own client costs” and “full indemnity costs” may in fact refer to recovery of costs on the samebasis.

That is, to fully indemnify the party receiving the costs. [32] It is clear, however, that if there is a distinction between these two classifications of costs, the greater recovery would bepursuant to an award of costs on a full indemnity basis. [33] It is also clear from the exchange between the Master and counsel on the application that the Master in this case was awarethat the Royal Bank took the position that there was arguably a difference between costs awarded on a solicitor and own client basis andon a solicitor and own client, full indemnity basis.

D Was the Royal Bank’s claim for costs an attempt to contract out of consumerprotection legislation? [34] The Master was concerned that a claim for costs on a solicitor and his own client, full indemnity basis was an attempt tocontract out of consumer protection legislation. [35] If indeed solicitor and own client costs are equivalent to full indemnity costs, then the same concern would apply equally tosolicitor and own client costs. [36] In Trinier v Shurnaik, 2011 ABCA 314, 515 AR 148, Côté J.A. for the Court held in relation to a similar covenant to paysolicitor and own costs on full indemnity basis: 36 These covenants about costs are not against public policy.

The Vendors' and Mortgagees' Costs Exaction Act was repealed by 1965c 98. [37] Côté J.A. held in that case that it was doubtful that the chambers judge had discretion to deny costs, given the covenants.However, he did address possible legal grounds to exercise discretion if it did exist, including misconduct, sharp practice, and pursuanceof trivia in order to incur costs. He found that no such ground applied in the circumstances. [38] In discussing full indemnity costs, Orkin writes at 2-213: ...That definition, however, is subject to the qualification of reasonableness.

As the Ontario Court of Appeal wrote [MacKinnon v Ontario Municipal Employees Retirement Board (2007), 2007 ONCA 874 , 288 DLR (4th) 688 at para 92]: 92 I wish to note that in ordering costs on a full indemnity basis, I do not wish to be taken as suggesting that there are no “checks andbalances” on such costs.

At a minimum, such costs are to be reviewed by the court and are limited to those that have been reasonablyincurred. [39] The Respondents entered into the Mortgage and agreed, in the event of default, to pay to the Royal Bank all “costs andexpenses, on a full indemnification basis, including all legal fees and disbursements, on a solicitor and own client basis”.

TheRespondents have not raised any arguments as to the validity or enforceability of any of the Mortgage terms. [40] Therefore, the Court should hold the Respondents to their promise to pay costs on a full indemnity basis unless there is a basisto find a basis for some exercise of discretion in this regard.

There was no evidence before the Court in this case which would providegrounds to exercise discretion. [41] The exchange between the Master and counsel which occurred at the hearing of the application suggests that the Masters mayhave discussed this issue and were prepared to allow only solicitor and client costs, or as indicated in the Master’s Reasons for Judgmentto qualify the full indemnity costs as only those that are reasonable. To the extent that the Master had predetermined this matter based ona policy, that decision was not correct.

Litigants are entitled to have their matters determined according to law. [42] Therefore, the Royal Bank is entitled to recover costs pursuant to its contract, the Mortgage, on a solicitor and own client, fullindemnification basis. Such recovery is subject to such review as is permitted by law. X. Conclusion [43] The Master erred in disallowing recovery by the Royal Bank of its costs on a solicitor and own client, full indemnificationbasis. The appeal is therefore allowed.

XI. Costs [ 44 ] The Royal Bank is entitled to costs on this appeal on a solicitor and own client full indemnification basis subject to review by a review officer. Heard on the 18 th day of November, 2014. Dated at the City of Edmonton, Alberta this 9 th day of December, 2014. K.G. Nielsen J.C.Q.B.A. Appearances: Steven M Shafir Witten LLP for the Appellant (Plaintiff) No Appearance for the Respondents (Defendants)