When clients first become involved in a legal action, many are confused about how the civil legal system works and whether or not they could be subjected to paying the other party’s costs. Every situation is different, but in Ontario it is the usual practice for the loser to pay the winner’s costs.
What are Costs?
In a lawsuit, costs include more than the lawyers’ fees. The costs associated with litigation are called disbursements; these could include expenses such as expert fees, engineer fees, travel costs, office expenses and more. At the conclusion of a trial, the successful party can expect the judge to order the unsuccessful party to pay a portion of the winner’s costs. This is called the costs award.
How are costs awarded?
In Ontario, costs are awarded on either a partial indemnity or a substantial indemnity basis. Partial indemnity costs are more common and they usually come to somewhere below 50% of your lawyer’s actual fees. Substantial indemnity costs are higher and are only awarded in certain instances. Substantial indemnity costs are awarded primarily where a plaintiff does better at trial than the settlement offer he or she made. In this case, the plaintiff will be entitled to substantial indemnity costs. Substantial indemnity costs may also be awarded where there has been reprehensible, scandalous or outrageous conduct on the part of one of the parties. However, such costs would not usually be awarded against a plaintiff in the absence of that kind conduct. Keep in mind that even substantial indemnity awards are not a total reimbursement of all fees.
The courts have the ultimate discretion as to whether and how much to award for costs. Depending on the circumstances, it is possible for the losing party to be awarded costs against the winning party. There are many things that affect a cost award, but offers to settle and the successful party’s behaviour during the litigation are two key factors.
How does an offer to settle impact costs?
Rule 49 of the Ontario Rules of Civil Procedure1 governs offers to settle and has had a significant impact on the conduct of litigation by encouraging settlements, thereby discouraging trials. The purpose of the rule is to encourage parties to make offers to settle, and to make them early. If the one making the offer then does better at trial, they will be rewarded with costs.
As an example:
- The plaintiffs make an offer and the defendant fails to accept it.
- The plaintiff obtains a more favourable outcome than the offer.
- The plaintiff is entitled to partial indemnity costs to the date of the offer, and substantial indemnity costs thereafter.
An alternative is:
- The defendant makes an offer and does worse than the defendant’s offer at trial.
- The plaintiff is only entitled to partial indemnity costs to the date of the offer.
- The defendant is entitled to partial indemnity costs thereafter.
Because of these significant cost consequences, each party has an incentive to make a reasonable offer early in the process, and to give serious considerations to offers made by the other party.
Fairness, access to justice, reasonableness, judicial efficiency and resource management must all be taken into account when assessing costs. Cost awards can encourage those in the right to pursue litigation and ensure that their victory will not come at an excessive cost. However, each party must keep in mind the implications of an offer to settle and how that could impact the final cost award.
Given the importance of cost awards, it is important that your lawyer helps you to understand the consequences of settlement offers. This is particularly true for personal injury clients who have been severally injured and may not be working as a result of their injuries. It is important they understand the nature of how settlement offers can impact final cost awards so that they can be active participants in their litigation matter and make informed decisions.