The Applicant Appealed a Decision of the Review Officer, pursuant to Rule 10.26 (1) of the Rules of Court. The Applicant alleged that the Review Officer wrongly failed to enforce a Court Order requiring the Defendant, who borrowed money from the Applicant, to indemnify them for fees the Applicant paid its legal counsel to enforce its rights under the loan agreement. The Applicant loaned the Respondent $100,000.00 under a personal line of credit in 2006 and made three additional loans to a numbered company and the Respondent in 2008. Security for these loans consisted of a General Security Agreement between the Applicant and the Respondent and a mortgage by the Respondent in favour of the Applicant. The Respondent agreed to indemnify the Applicant for legal fees the Applicant incurred to collect outstanding amounts for the loan instruments. The Review Officer heard the parties and reduced the Applicant’s legal fees by fifty percent.

Wakeling J. stated that, pursuant to Rule 10.27, if the Decision of the Review Officer reflected an error of principle or if the award was inordinately high or low, the Review Officer’s Decision could be varied or revoked. The Court also held that a factual determination that was clearly wrong may also justify intervention.

The Court outlined the following general principles governing Court-Ordered Costs payable by one litigant to another:

1.      The Court of Queen's Bench of Alberta is responsible for settling, if asked to do so, the amount a lawyer is entitled to for the performance of legal services for a client or the amount one litigant must pay another litigant as a result of a Costs Order.

2.      The Court has discretion to issue a Costs Order.

3.      The Court, in exercising its discretion, must act in a principled manner. Rule 10.2(1) of the Rules of Court assists in determining what remuneration is reasonable.

4.      Absent exceptional circumstances, the unsuccessful party pays the successful party a sum intended to indemnify the successful party for all or a portion of its legal fees.

5.      In most cases, the successful party will only receive partial indemnity.

6.      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.

7.      Contracts may contemplate the existence of litigation between the parties and allocate the burdens associated with it, including provisions obligating the payment of legal costs at stipulated levels under specified circumstances. The Court may choose to hold a party to its promise.

8.      Legal service performed by a lawyer which increases the likelihood the purpose stipulated under the specified conditions will be achieved is a legal service specified in a fee indemnification agreement for which Respondent must indemnify the Applicant.

9.      A Party who is ordered to indemnify another party for its legal fees is not responsible for costs associated with unnecessary steps. A corollary to this principle is that a client who instructs a lawyer to take steps which would not normally be undertaken is responsible for the costs associated with the extraordinary measures.

10.  The Court has an overriding obligation to ensure that those who are obliged to pay for legal services are treated reasonably, taking into account all the circumstances.

The Court held that the Review Officer breached several of the general principles governing Costs. First, the Review Officer did not comply with the first principle. The Review Officer failed to recognize or give effect to the Court of Queen’s Bench’s Order stating that the Applicant is entitled to its costs on a Solicitor and Client basis.

Second, the Review Officer did not comply with the third principle in that he did not make his assessment in a principled manner. The Review Officer specifically failed to assess the matter before him on the merits and this omission constituted a legal error.

Third, the Court held that the Review Officer did not follow the seventh principle. The Respondent had agreed to indemnify the Applicant for the legal services the Applicant had incurred to protect its interest. The Review Officer failed to study the loan documents to determine the legal services which were indemnified.

The Court held that the Review Officer did not ask whether the Applicant sought indemnification for any costs associated with any unusual or unnecessary expense or for any step undertaken by its counsel which did not increase the likelihood the lender’s security interest would be protected. The Court held that if the Review Officer had asked the above questions, he would have found it necessary to review the tenth principle, to ensure that those who are obligated to pay for legal services are treated reasonably.

Pursuant to Rule 10.27(1)(c), the Court revoked all parts of the Decision of the Review Officer and directed another Review Officer to hear the case on its merits. The Court held that the Review Officer must make an individual assessment in accordance with the principles set out in this Decision. The Court allowed the Appeal by the Applicant.