Civil Litigation Law: The Cost Consequences

Cost Consequences of Litigation

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Litigation is expensive and time consuming. Luckily, if you are the successful party in litigation you are usually able to recover some of your legal fees and disbursements. Cost consequences are intended to discourage frivolous or vexatious claims and unreasonable conduct. If you initiate litigation and you are wrong, or alternatively, if you fight a lawsuit and lose, you will likely have to pay costs to the other party or parties. Additionally, unreasonable conduct and delay can increase costs. This is why it is crucial to consider the merits of your case prior to initiating litigation or settlement discussions, and to conduct yourself in a reasonable manner throughout the litigation process.

There are different cost consequences depending on whether you are litigating in the Superior Court or Small Claims Court, as outlined below. It is important to note that typically you are only able to recover a portion of your legal fees in either court.

Litigation Costs in Superior Court

Costs are typically awarded on a partial indemnity basis to the successful party, covering around 50% to 65% of reasonable legal fees plus reasonable disbursements. However, costs can be higher in some situations and can even be awarded to the unsuccessful party subject to the court’s discretion.

Costs may be awarded on a substantial indemnity basis where one of the parties unnecessarily lengthened or complicated the proceeding through unreasonable conduct, where a reasonable offer to settle was made or where the court deems appropriate. When costs are awarded on a substantial indemnity basis they cover around 75% to 85% of reasonable legal fees.

Rule 49.10 of the Rules of Civil Procedure encourages settlement by creating cost consequences for failing to accept a reasonable settlement offer.

Substantial indemnity costs can be awarded where the following criteria are met:

  1. The successful party made an offer to settle at least 7 days prior to the commencement of the trial;
  2. The offer was not withdrawn and did not expire prior to the commencement of the trial;
  3. The offer was not accepted; and
  4. The successful party received a judgment as favourable as the offer or more favourable.

The successful party will be entitled to partial indemnity costs up to the date the offer was made and substantial indemnity costs from that date forward.

Costs can be awarded on a full indemnity scale, but this is rare. For example, full indemnity could be applied where there has been a contractual breach and the contract specified that full indemnity would apply.

Litigation Costs in Small Claims Court

Cost consequences in Small Claims Court are lax in comparison to Superior Court. Legal fees will typically greatly exceed the amount awarded in costs. Costs are generally capped at 15% of the total amount claimed in the Plaintiff’s Claim plus reasonable disbursements as outlined in the Small Claims Court Rules and the Courts of Justice Act. For example, the successful party in a claim for $25,000 will be awarded $3,750 in costs for legal fees.

There are some circumstances where costs for legal fees may exceed 15%. If the successful party made a reasonable offer to settle, similar to Rule 49.10 of the Rules of Civil Procedure, the court may award the successful party up to double the 15% rule. For example, a successful party in this situation, who claimed $25,000, will be awarded up to $7,500 in costs for legal fees. Additionally, Rule 19.06 of the Small Claims Court Rules allows costs to exceed 15% where the matter was unduly prolonged or complicated by the unsuccessful party, but this is rarely applied.

Something to Think About

Whether you litigate in Superior Court or Small Claims Court, you are unlikely to recover all of your legal fees. It is important to consider the cost consequences, amongst other things, when deciding where to initiate a proceeding. See our article titled “Getting to Know the Ontario Civil Court System” for more information on the Superior Court and Small Claims Court.

Please contact Michael Paiva for more information about cost consequences, or if you require assistance with a litigation matter.