Loser Pays Winner’s Costs: A Whistle Stop Tour
In our court system, in civil litigation, the losing party generally pays a portion of the winning party’s costs (also known as a costs award). This rule serves many purposes – a few being that it partially compensates the winning party, acts as a deterrent for frivolous actions to be pursued, and encourages both parties to engage in offers to settle. The latter is one of the key purposes of a costs award, as encouraging settlements has been recognized as a priority in our justice system.
What do costs cover?
Legal costs include the lawyers’, legal clerks’ and assistants’ fees for working on the action as well as the disbursements. When lawyers bill their time for time spent on dealing with a litigation file, they are typically, among other activities, billing for drafting pleadings, conducting legal research, meeting with clients, reviewing documents and appearing in court.
The disbursements are additional costs related to the action that may include travel fees, printing/office expenses, expert fees, translation fees, etc.
How do costs awards work?
There are levels of costs award that the court will consider. These include partial indemnity costs, substantial indemnity costs and full indemnity costs. The most common costs award is partial indemnity costs, under which the successful party may recover a portion of their reasonable legal fees, often estimated at approximately 40% to 60%. However, the amount ultimately awarded depends on the circumstances of the case.
In Boucher v. Public Accountants Council for the Province of Ontario, 2004 CanLII 14579 (ON CA), the Ontario Court of Appeal emphasized that a costs award must be fair and reasonable in the circumstances, rather than simply reflecting the actual legal expenses incurred by the successful party. The Court confirmed that judges must consider factors such as proportionality and the reasonable expectations of the parties when determining an appropriate costs award.
Substantial indemnity is defined as being 1.5 times the amount of partial indemnity costs. In this case, substantial indemnity costs are awarded when there has been reprehensible conduct on the part of one of the parties. They can also be awarded when Rule 49 offers are rejected. A Rule 49 offer is a formal written proposal to encourage early settlement and imposes cost consequences on those who do not accept reasonable offers made before trial or a hearing. The Rule 49 offer can have consequences on either the plaintiff or the defendant.
In Davies v. The Corporation of the Municipality of Clarington, 2009 ONCA 722, the Ontario Court of Appeal explained that Rule 49 is designed to encourage parties to settle disputes by attaching potential costs consequences to the rejection of settlement offers. Where a party rejects an offer and subsequently obtains a less favourable result at trial, that decision may significantly affect the costs awarded. This highlights the importance of carefully considering reasonable settlement offers throughout litigation.
Full indemnity is 100% of the winning party’s reasonable fees being awarded. Costs are rarely awarded on this basis. Generally, full indemnity costs are only awarded when a party’s conduct is so egregious that the court wishes to express its disapproval of the conduct of the party or if a written agreement explicitly requires full indemnity if a dispute arises.
An award of cost is highly discretionary, and it is almost impossible to predict how a judge might exercise their discretion in awarding costs.
Conclusion
The bottom line is: If you want to litigate, you are going to have to fund the litigation out of your own pocket, at least in the first instance. If you end up “winning” the case, it is then determined as to how the losing side is to pay a portion of your costs.
Success in civil litigation requires careful consideration of potential cost awards throughout the process. This understanding helps parties make informed decisions about proceeding with litigation, settling cases, and conducting themselves throughout the legal process.
Understanding your potential costs exposure is an important part of making informed decisions about litigation. For further information or assistance, please contact Nadine Esaid, Associate Lawyer at Boardwalk Law, at [email protected] or 365.747.3614.
Frequently Asked Questions
Legal costs include the lawyers’, legal clerks’ and assistants’ fees for working on the action, as well as the disbursements. Disbursements are additional costs related to the action, such as travel fees, printing and office expenses, expert fees and translation fees.
The most common is partial indemnity costs. Under this award, the successful party may recover a portion of their reasonable legal fees, often estimated at approximately 40% to 60%. The amount ultimately awarded depends on the circumstances of the case.
Substantial indemnity costs are awarded when one of the parties has engaged in reprehensible conduct. They can also be awarded when Rule 49 offers are rejected. Substantial indemnity is defined as 1.5 times the amount of partial indemnity costs.
