In Ontario and most other Canadian jurisdictions, the losing party in a legal action faces the possibility of being ordered to pay for some or all of the winning party’s legal costs and disbursements.
Who gets paid and how much? This is up to the Court to decide.
What are Legal Costs?
Legal costs include the lawyers’, legal clerks’ and assistants’ fees for working on the action as well as disbursements. Disbursements are further costs associated with the action that might include any of the following: expert fees, travel costs, printing costs, office expenses, etc.
At the end of a legal action, the Court determines the amount of legal costs to be awarded and who will pay them (typically the loser).
In deciding how much to award in costs, the Court considers a number of factors. For example, the Court may consider what an unsuccessful party could reasonably expect to pay in a similar case, taking into account the winning lawyers’ experience, hourly rates and time spent on the file. The Court may also consider other factors, including:
- the complexity and importance of the case;
- the amount the plaintiff claimed compared to what the Court ordered to be paid; and
- whether one party is entirely at fault or if fault is somehow divided between the parties.
In addition, the Court may consider whether any step in the proceeding was unnecessary or whether a party was behaving unreasonably, and if that resulted in the legal action taking much longer than it should have.
Partial Indemnity Costs
In most cases the Court will award “partial indemnity” costs, which usually amounts to less than 50% of a lawyer’s fees. Disbursements are usually awarded at 100%, as long as they are not unreasonable.
Substantial Indemnity Costs
“Substantial indemnity” costs are approximately 150% higher than partial indemnity costs, but they are typically only awarded in the following circumstances:
- where the winning party made an offer to settle prior to trial and obtains a more favourable judgment than the offer at trial; and/or
- where there has been reprehensible, scandalous or outrageous conduct by the losing party.
Even substantial indemnity costs awards do not usually result in the successful party recovering all their costs of litigation.
The Court’s Discretion: Where Winning Parties Pay
The behaviour of the winning party may also affect the costs award. Although very rare, costs may be awarded against a successful party. For example, a winning party who appeared to play “hard ball” throughout the litigation and failed to make a reasonable offer to settle was ordered to pay more than $90,000 in legal costs to the losing party.
Offers to Settle
As mentioned, offers to settle play an important role in costs awards: making, accepting or refusing to accept offers to settle usually affects a cost award.
For example, if a plaintiff makes an offer to settle then beats the offer at trial, the plaintiff will be entitled to a regular cost award for the period leading up to the settlement offer, but a higher cost award for the period after the settlement offer.
Alternatively, if the defendant makes an offer to settle that the plaintiff does not beat at trial, the plaintiff would receive a cost award for the period leading up to the settlement offer, but the defendant would receive a cost award for the period after the settlement offer.
Thus settlement offers force litigants to carefully consider whether to take their actions through to trial.
It should be noted that, in order to have effect, offers to settle must meet important technical requirements.
Individuals interested in commencing litigation should be aware that, despite the “loser pays” system in Ontario, it is unlikely that a successful party will recover all of the money they have expended in funding the litigation. Good counsel, however, can work with their clients to better manage litigation costs by structuring the litigation to maximize the probability of success while minimizing risk. The importance of settlement offers and the adverse cost consequences of ignoring them should be considered to ensure that a party’s victory does not come at too high of a cost.