Background
In 2008, the Law Society of Ontario (“LSO”) received a complaint alleging that lawyer Richard Keith Watson had misappropriated trust funds and improperly altered corporate records in connection with a concert series tied to the 2008 Beijing Olympic Games. Following investigation, the LSO authorized a conduct application in 2009 and proceeded to a hearing that spanned 56 days between 2011 and 2013. After the complainant’s cross-examination concluded, the LSO sought to withdraw the application. The Tribunal’s Hearing Division refused and instead dismissed all four allegations of professional misconduct against Watson. That dismissal was never appealed.
Watson then sought costs against the LSO under r. 25.01 of the Law Society Tribunal’s Rules of Practice and Procedure. That rule permits costs against the LSO on two grounds: (i) where the proceeding was unwarranted at the outset (“first branch”), or (ii) where the LSO caused costs to be incurred without reasonable cause or wasted by undue delay, negligence, or other default (“second branch,” also called “wasted costs”). A newly constituted Hearing Panel denied Watson’s costs motion on both branches, finding the proceeding was warranted and no costs were wasted. The Tribunal’s Appeal Division upheld that denial, and the LSO was awarded $83,500 in combined costs across the proceedings.
Watson appealed to the Divisional Court, which partially allowed the appeal in 2023. The Divisional Court found the LSO’s investigation and prosecution were tainted by procedural unfairness — particularly in the handling and disclosure of documentary evidence — and remitted the wasted-costs question to a newly constituted Hearing Panel for fresh determination. The LSO then appealed to the Court of Appeal for Ontario, arguing that the Divisional Court had improperly converted a costs analysis into a freestanding Baker procedural fairness inquiry and set an unduly onerous burden on professional regulators.
The Court’s Holding
Writing for the court, Sossin J.A. dismissed the LSO’s appeal and confirmed the Divisional Court’s remand order, though on a different legal rationale. The court held that the Baker procedural fairness framework was not the operative framework for a statutory costs appeal under r. 25.01. Because Watson was not seeking to have the Tribunal’s decision quashed for breach of the duty of procedural fairness — only to recover costs — the five-factor Baker analysis and its associated standard of review were inapplicable. The proper appellate standard is the Housen standard: correctness for extricable questions of law, and palpable and overriding error for findings of fact and mixed fact and law. Nonetheless, the court confirmed that evidence of one-sidedness, procedural flaws, and unfair treatment in the investigation legitimately informs the r. 25.01 costs analysis; such conduct may constitute the “negligence or other default” contemplated by the second branch without elevating the appeal into a Baker procedural fairness review.
On the substance of r. 25.01(1)(a)(ii), the court identified two errors in the Hearing Division’s approach. First, the Hearing Division analyzed each alleged misstep by the LSO in isolation rather than conducting the holistic, after-the-fact examination required by the rule — an approach mandated by the analogous language of r. 57.07(1) of the Rules of Civil Procedure and confirmed in Rand Estate v. Lenton, 2009 ONCA 251. Second, the Hearing Division applied a standard of fault higher than the rule requires: wasted costs may flow from objectively negligent conduct or from other default regardless of intent, and the LSO’s dual mandate — protecting the public and dealing fairly with members whose livelihood and reputation are at stake — must inform that assessment holistically.
The court also rejected the LSO’s argument that the civil-litigation “extreme caution” principle from Young v. Young should be imported into the r. 25.01 framework. Unlike a private lawyer bound by duties of loyalty and confidentiality to a client, the LSO is a public regulator with an obligation to be neutral and fair toward the members it investigates. Importing extreme caution would improperly subordinate the LSO’s duty of fairness to its prosecutorial function. Because the Hearing Division may have reached a different conclusion had it applied the correct holistic test and proper fault standard, the remand to a newly constituted panel was appropriate.
Key Takeaways
- A statutory costs appeal under r. 25.01 of the Law Society Tribunal Rules is not a Baker procedural fairness challenge; it is governed by the Housen appellate standards, and Baker’s five-factor framework does not apply.
- The “wasted costs” branch of r. 25.01(1)(a)(ii) requires a holistic examination of the LSO’s entire course of conduct — both individually and cumulatively — rather than a piecemeal assessment of each discrete step in isolation.
- The “extreme caution” principle applicable to cost awards against lawyers under r. 57.07(1) of the Rules of Civil Procedure does not apply to cost awards against the LSO, because the LSO’s dual public-interest mandate distinguishes it from private counsel.
- Evidence of investigative one-sidedness, disclosure failures, and procedural flaws is relevant to whether the LSO caused wasted costs under the second branch, even absent a freestanding procedural fairness challenge.
- The LSO’s pre-hearing investigative conduct, while primarily relevant to the first branch, may be considered as contextual background when assessing wasted costs under the second branch; the two branches are not hermetically sealed from each other.
Why It Matters
This decision is the most significant appellate guidance in Ontario on the threshold for costs awards against the Law Society in disciplinary proceedings. By rejecting both the Baker procedural fairness overlay and the extreme caution principle, the Court of Appeal recalibrates the costs framework in a way that may make it meaningfully easier for successfully defending members to satisfy the wasted-costs test. The requirement of a holistic analysis means that a pattern of investigative or disclosure missteps — none necessarily dispositive on its own — can collectively ground a costs award even where the initial decision to prosecute was justified.
The decision also carries broad relevance beyond the LSO. The court’s reasoning about the dual mandate of professional disciplinary bodies — simultaneously protecting the public and dealing fairly with members — applies to regulatory tribunals across Ontario and potentially across Canada. Regulators in health, engineering, and other licensed professions should treat this ruling as a clear signal that prosecutorial vigour does not excuse investigative impartiality, and that systematic disclosure failures or one-sided investigations carry real costs exposure when proceedings ultimately collapse.