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Representation - LSO Tribunals - Costs. The Law Society of Upper Canada v. Watson [tribunal costs]
In The Law Society of Upper Canada v. Watson (Ont CA, 2026) the Ontario Court of Appeal dismissed an appeal, here relating to "the threshold requirement for an award of wasted costs against the appellant, the Law Society of Ontario (the “LSO” or the “Law Society”)[1] in a conduct application".
Here the court canvasses the history and the interpretation of R25 [SS: 'Costs'] of the Ontario Law Society Tribunal Hearing Division Rules of Practice and Procedure [now replaced by R15 of the "Law Society Tribunal Rules of Practice and Procedure"]:[21] For the reasons that follow, I conclude the only issues to be addressed are (2) and (5), namely whether the threshold for “wasted costs” under r. 25.01 was properly considered in this case. As I will explain below, this was not a judicial review of an alleged breach of procedural fairness, and therefore, I will not address issues (1), (3), and (4). With respect to issues (2) and (5), I conclude that, under r. 25.01(1)(a)(ii), the Hearing Division should have conducted a holistic, rather than a piecemeal, analysis of the LSO’s conduct, and the Hearing Division applied a higher standard of fault than required. Had the Hearing Division applied the correct test, it may have come to a different conclusion.
a. The Law Governing Costs Awards Against the LSO
1. The Rule 25.01 Framework
[22] As discussed above, the underlying proceeding was a costs decision made under r. 25.01(1)(a) of the Rules.[2] This subrule provided:25.01 (1) Costs may only be awarded against the Society,
(a) in a licensing, conduct, capacity, competence or non-compliance proceeding,
(i) where the proceeding was unwarranted; or
(ii) where the Society caused costs to be incurred without reasonable cause or to be wasted by undue delay, negligence or other default. [23] Accordingly, the subrule contemplates costs being awarded against the Law Society under two branches: the first branch, in r. 25.01(1)(a)(i), in which the licensee can establish that the proceeding was unwarranted at the outset, and the second branch, in r. 25.01(1)(a)(ii), in which (1) the Law Society, in the conduct of the hearing, caused costs to be incurred without reasonable cause or to be wasted by undue delay, negligence, or other fault, or (2) the proceeding becomes unwarranted at some point after commencement.
[24] The burden of establishing that a proceeding was unwarranted or that costs were wasted, rests with the party making that allegation, and the Law Society’s conduct must be analyzed at the time decisions were made without overly relying on hindsight: Law Society of Upper Canada v. Speciale, [1994] L.S.D.D. No. 222, at paras. 81-82.
[25] Finally, even if the tribunal concludes that proceedings were unwarranted, there is a residual discretion not to award costs based on the circumstances of the case: Speciale, at para. 85.
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4. The History of Rule 25.01
[39] Below, I consider the conclusions reached by the Divisional Court with respect to the threshold for r. 25.01. First, however, it is important to consider that threshold itself.
[40] The Hearing Division provided a detailed account of the evolution of the availability of costs in Law Society disciplinary proceedings. The analysis of costs in the civil context is distinct from costs in a professional regulatory setting. In the LSO context, costs do not follow the event but instead must be considered in the context of the LSO’s public interest mandate. In particular, relying on Speciale, the Hearing Division emphasized that the LSO must not be deterred by the risk of costs from “vigilantly fulfilling its mandate to protect the public interest”.
[41] The Hearing Division noted that the availability of costs to those subject to disciplinary proceedings was first recognized through the former s. 41 of the Law Society Act, which granted Convocation the discretion to award costs where disciplinary proceedings were unwarranted:Where it appears that disciplinary proceedings against a member or student member were unwarranted, Convocation may order that such costs as it considers just be paid by the Society to the member or student member whose conduct was the subject of the proceedings. [42] In Speciale, decided under the s. 41 standard, the Tribunal confirmed that the onus for establishing that a proceeding was unwarranted lies with the person seeking costs, on a balance of probabilities: at para. 81. The Tribunal in Speciale also cautioned against relying “slavishly” on hindsight reasoning: at para. 82. It further clarified that the LSO has an obligation to continue to exercise a reasonable degree of care, skill, judgment, and vigilance as the discipline process unfolds, and that a proceeding that initially was justified could become unwarranted if such reasonable care was not demonstrated: Speciale, at para. 83.
[43] The s. 41 standard was replaced by amendments to the Law Society Act that came into effect on February 1, 1999. The amendments removed any test for awarding costs against the Law Society from the Law Society Act itself and replaced it with s. 49.28(1) which provides for a general discretion on the part of the Hearing Division to award costs:Subject to the rules of practice and procedure, the costs of and incidental to a proceeding or a step in a proceeding before the Hearing Panel are in the discretion of the Panel, and the Panel may determine by whom and to what extent the costs shall be paid. [44] To accompany the reform, Convocation also approved new Rules of Practice and Procedure (the “1999 Rules”) governing the conduct of hearings. The 1999 Rules contained two provisions dealing with costs. The first, at r. 14.03, largely incorporated the “unwarranted” test of the old s. 41:In admission, conduct, capacity, professional competence or non-compliance proceedings, where it appears that the proceedings were unwarranted, the tribunal may order such costs as it considers just be paid to the person subject to the proceeding by the Society and any other party to the proceeding. [45] A new rule, r. 14.05, added a separate basis for awarding costs against any party, including the LSO. In addition to cases found to have been unwarranted, costs also could be awarded against the LSO where it caused costs to be wasted or incurred without reasonable cause in the new r. 14.05:(1) Where a party or non-party participant has caused costs to be incurred without reasonable cause or to be wasted by undue delay, negligence or other default, the tribunal may make an order awarding such costs as are just.
(2) An order under subrule (1) may be made by the tribunal on its own motion or on the motion of any party in the proceeding. [46] Rule 25.01 came into effect on July 1, 2009 and incorporated the substance of the former rr. 14.03 and 14.05 as rr. 25.01(1)(a)(i) and (ii), respectively. While rr. 14.03 and 14.05 dealt with costs against any party, r. 25.01(1) referred to costs awards against the LSO only. Costs against other parties were addressed in rr. 25.01(2) and (3).
[47] Thus, r. 25.01 established two branches under which costs may be awarded against the Law Society: the first branch (“unwarranted” costs) and second branch (“wasted” costs). The Hearing Division confirmed that r. 25.01 contemplated the scenario that a proceeding was warranted at the outset but became unwarranted due to unreasonable actions by the LSO. In Speciale, this had been captured by the test under the first branch since, at that time, there was no second branch.
[48] The Hearing Division clarified that, based on the language of r. 25.01, the first branch applies to pre-hearing conduct, while the second branch focuses on in-hearing conduct which includes the concept discussed in Speciale of proceedings which “become unwarranted” at some point after commencement. While, as a general matter, I agree that the first and second branches address pre-hearing and in-hearing conduct respectively, the two branches are not silos. The LSO’s conduct during the investigation can and should be considered as a contextual factor in determining whether costs were wasted under the second branch, as I discuss in more detail below.
5. The Interpretation of the Second Branch
i. A holistic approach
[49] When considering the second branch of r. 25.01(1)(a), it is important to focus on the text itself as the anchor for any interpretation: Québec (Commission des droits de la personne et des droits de la jeunesse) v. Directrice de la protection de la jeunesse du CISSS A, 2024 SCC 43, 498 D.L.R. (4th) 316, at para. 24, citing Mark Mancini, “The Purpose Error in the Modern Approach to Statutory Interpretation” (2022) 59 Alta. L. Rev. 919, at p. 927.
[50] It is noteworthy that the text of r. 25.01(1)(a)(ii) mirrors the language of r. 57.07(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, which allows for costs to be imposed personally against a party’s lawyer, and provides, in part:(1) Where a lawyer for a party has caused costs to be incurred without reasonable cause or to be wasted by undue delay, negligence or other default, the court may make an order… [51] The LSO argues, and I agree generally, that the matching language suggests an intention to interpret the provision similarly. As this court stated in Galganov v. Russell (Township), 2012 ONCA 410, 350 D.L.R. (4th) 679, at para. 16, “Rule 57.07(1) is therefore not concerned with the discipline or punishment of a lawyer, but only with compensation for conduct which has caused unreasonable costs to be incurred.”
[52] Courts have held that mere negligence can attract costs consequences in addition to actions or omissions which fall short of negligence: see Galganov at para. 18, citing Marchand (Litigation Guardian of) v. Public General Hospital Society of Chatham (1998), 16 C.P.C. (4th) 201 (Ont. Gen. Div.). Any assessment of negligence must be based on a breach of the objective standard of care of a reasonably competent lawyer in the same position: Galganov, at para. 43.
[53] The inclusion of “other default” suggests an open-ended set of actions or inactions by the LSO that could be the basis for a determination of “wasted costs.”
[54] As the court put it in Rand Estate v. Lenton, 2009 ONCA 251, 46 E.T.R. (3d) 183, at para. 5, the application of r. 57.07(1) requires an examination of “the entire course of litigation that went on before the application judge so that the application judge can put in proper context the specific actions and conduct of counsel.” While hindsight is not to be used, hindsight is distinguished from conducting a “holistic after-the fact examination”: Rand Estate, at para. 5. A similar holistic approach is required in the context of r. 25.01.
[55] The language chosen to indicate when a party will have an entitlement for costs against the LSO suggests that two inquiries should be made: (1) What was the impact of the LSO’s conduct; and (2) Was that conduct reasonable. That is, where the LSO’s actions or inactions are negligent or lead to undue delay, regardless of the LSO’s actual intent, wasted costs may result. Additionally, where the LSO acts unreasonably, then it may be liable for costs, irrespective of the outcome of the proceedings. In applying r. 25.01, the task is not to consider each step in the investigation or prosecution in isolation and deal with whether that step resulted in wasted costs. Rather, it is intended to be a holistic analysis of the specific steps taken both individually, and viewed as a whole, in the context of the case.
ii. The LSO’s role and the extreme caution principle
[56] The LSO argues that the analogy to r. 57.07(1) should include importing the “extreme caution” principle. This principle requires that awards must only be made sparingly, with care and discretion, only in clear cases, and not simply because the conduct of a lawyer may appear to fall within the circumstances described in rule 57.07(1): Galganov, at para. 22.
[57] While it is true that the text of r. 57.07(1) is similar, that is not the sole consideration: its context and purpose differs. The role of a lawyer in a civil proceeding and the role of the LSO in a disciplinary proceeding are not the same. The two costs schemes reflect this distinction.
[58] In interpreting and applying r. 25.01, it is important to bear in mind the distinct nature and mandate of disciplinary bodies such as the LSO. In Law Society of Saskatchewan v. Abrametz, 2022 SCC 29, [2022] 2 S.C.R. 220, Rowe J., writing for the majority, discussed the role of disciplinary bodies. He explained, “The purposes of disciplinary bodies are to protect the public, to regulate the profession and to preserve public confidence in the profession”: Abrametz, at para. 53. However, Rowe J. also noted that “[d]isciplinary proceedings are neither civil nor criminal, but rather sui generis”: Abrametz, at para. 54. In addition to protecting the public, “[d]isciplinary bodies have a duty to deal fairly with members whose livelihood and reputation are affected by such proceedings”: Abrametz, at para. 55, citing Gavin MacKenzie, Lawyers & Ethics: Professional Responsibility and Discipline (loose-leaf), at § 26:1.
[59] It is clear from this discussion that the LSO has a dual mandate to both protect the public but also to deal fairly with members whose livelihood and reputation are affected. This court has emphasized that nothing is to be gained by giving one of these functions priority over the other: MacKenzie, at § 26:1 (loose-leaf updated March 2026, release 1), citing W.D. Latimer Co. v. Bray (1974), 1974 CanLII 698 (ON CA), 6 O.R. (2d) 129 (C.A.). I note that while the court in Abrametz, unlike in this case, ultimately addressed the LSO’s specific duty of procedural fairness during a disciplinary hearing, the passages referenced above address a disciplinary body’s public interest mandate in the broader sense.
[60] The LSO argues that the Divisional Court’s decision sets an onerous and impractical burden on professional regulators, which will have the effect of deterring regulators like the LSO from vigorously investigating and prosecuting serious issues of professional misconduct.
[61] I would reject this characterization of the Divisional Court’s approach. In my view, the Divisional Court merely restated and reiterated the LSO’s public interest mandate to deal fairly with its members, which requires it to be neutral and rigorous in the investigation and prosecution of disciplinary cases.
[62] Similarly, I would reject the LSO’s call to import the extreme caution principle into the costs analysis. In the civil context, the extreme caution principle is part of a scheme in which the winning party, as a matter of course, will typically be awarded costs of the proceedings.
[63] The extreme caution principle was set out by the Supreme Court of Canada in Young v. Young, 1993 CanLII 34 (SCC), [1993] 4 S.C.R. 3, at pp. 135-136:The basic principle on which costs are awarded is as compensation for the successful party, not in order to punish a barrister… [C]ourts must be extremely cautious in awarding costs personally against a lawyer, given the duties upon a lawyer to guard confidentiality of instructions and to bring forward with courage even unpopular causes. A lawyer should not be placed in a situation where his or her fear of an adverse order of costs may conflict with these fundamental duties of his or her calling. [Emphasis omitted.] [64] While it is of course true that the LSO should not be deterred from bringing misconduct proceedings, the LSO has a dual mandate, to both protect the public and to deal fairly with its members. The default presumption of no costs against the LSO serves to protect its public interest mandate. To import the “extreme caution” principle into the text would be to downplay the LSO’s responsibilities to its members. The LSO does not have a “duty of commitment to the client’s cause” as do lawyers: Canada (Attorney General) v. Federation of Law Societies of Canada, 2015 SCC 7, [2015] 1 S.C.R. 401, at para. 8; Law Society of Ontario, Rules of Professional Conduct (Toronto: LSO, 2000), r. 3.4-1, commentary 2.
[65] The extreme caution principle is a reflection of this duty, which has been deemed to have constitutional status as a principle of fundamental justice. This is not to say that costs should be awarded against the LSO as a matter of course. To the contrary. The scheme is clear that costs do not follow the event. However, the balancing of the objectives of r. 25.01(1)(a) differs from that balancing under r. 57.07(1) of the Rules of Civil Procedure.
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[105] The test under second branch of r. 25.01(1)(a) involves both a consideration of reasonableness, and a consideration of whether costs were in fact wasted. A holistic analysis of reasonableness should be conducted, and this requires an assessment of the LSO’s conduct and its approach to its role from the beginning of the investigation. The hearing panel should consider whether the LSO correctly understood its public interest mandate to treat its members fairly. This should inform the analysis of whether the LSO’s positions on disclosure were unreasonable. The question is not whether each individual position taken by the LSO was defensible in a vacuum. As well, inadvertent conduct should be considered in assessing reasonableness. If the new hearing panel does not grant the costs award in its entirety, it must consider whether a partial costs award is appropriate.
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