Cost Consequences: General Overview
*Article written by Hannah Goranson
Going to Court can be costly. Even before a decision is reached, one can incur lawyers' fees, as well as the expenses of preparing and submitting documents to the Court. These fees and expenses are called the 'costs' of litigation. It is very important to understand how these costs will end up being paid and who will end up paying them.
The General Rules:
The starting point is that the Court decides how the costs will be paid. The Court decides which party has to pay the costs and how much of the costs they will have to pay.
Costs are usually awarded either as 'partial indemnity' costs, or 'substantial indemnity costs'. For partial indemnity costs, the paying party has to cover up to 60% of the costs incurred by the other party; for substantial indemnity costs, the paying party has to cover up to 90%.
Generally, the Court will require the unsuccessful party to pay the partial costs of the successful party. The purpose of this is to compensate the successful party for having to bring the claim or defend against it. It also aims to discourage parties from bringing claims without merit.
The Court, however, is free to decide that the unsuccessful party does not have to contribute to the successful party's costs. In fact, under R 57.01(2) of the Rules of Civil Procedure the Court can make the successful party pay some of the costs of the unsuccessful party. This may occur, for example, if the successful party's conduct was poor or they created unnecessary expenses.
In deciding how to make a costs award the Court considers a number of factors. They include the parties' conduct, the cost of the lawyers and the complexity of the case. These factors are listed in R 57.01(1) of the Rule of Civil Procedure.
It should be noted that specific rules may apply depending on which Court the litigation is taking place in. For example, the Ontario Small Claims Court has its' own specific rules on costs.
Offers to Settle and Cost Consequences:
An important factor that will impact a costs award is whether either of the parties tried to settle before going to court. By making an offer to settle a party shows that they are taking to steps to reach a resolution. This is viewed positively by the Courts. Accordingly, the cost award may be better for a party if they made an offer to settle.
More specifically, making an offer to settle can trigger certain cost consequences if that offer is not accepted.
R 49 of the Rules of Civil Procedure provides for certain 'cost consequences' where an offer to settle: (a) is made at least 7 days prior to the hearing, (b) is not withdrawn or does not expire prior to the hearing, and (c) is not accepted by the other party.
The 'cost consequences' of rejecting a r 49 Offer to Settle may be different depending on which court the litigation is taking place at and which party made the offer to settle.
Where the litigation is taking place at the Ontario Superior Court level, the following rules apply:
a)Plaintiff's Offer to Settle:
The R 49 cost consequences will be triggered when:
- the Plaintiff made an offer to settle;
- the Defendant refused the offer; and
- the Judgement is as favourable or more favourable to the Plaintiff than the terms of the offer.
The cost consequences are as follows:
- the Plaintiff is entitled to partial indemnity costs up to the date the offer to settle was served; and
- the Plaintiff is entitled to substantial indemnity costs from the date the offer was served until the end of the dispute.
For example, the Plaintiff is bringing a claim against the Defendant for $100,000. The hearing is August 1. On July 1, the Plaintiff offers to settle for $75,000. The Defendant refuses. The Plaintiff gets a favourable judgement, that is equal to or better than the Defendant's offer (i.e. equal to or more than $75,000). The R 49 cost consequences are triggered. This means that: (a) the Defendant will have to pay partial indemnity costs (up to 60% of the costs) for all the costs the Plaintiff incurred up until July 1, and (b) the Defendant will have to pay substantial indemnity costs (up to 90%) for all the costs the Plaintiff incurred from July 1 to August 1.
b)Defendant's Offer to Settle:
The R 49 cost consequences will be triggered when:
- the Defendant makes an offer to settle with the Plaintiff;
- the Plaintiff refuses the offer; and
- the judgement is as favourable or less favourable than the Defendant's offer to settle.
This has two consequences:
- the Plaintiff is entitled to partial indemnity costs to the date the offer was served; and
- the Defendant is entitled to partial indemnity from that date.
For example, the Plaintiff is bringing a claim against the Defendant for $100,000. The hearing is August 1. On July 1, the Defendant offers to settle for $75,000. The Plaintiff refuses. The Plaintiff obtains a favourable judgement, but is in a worse situation than if he accepted the Defendant's offer (i.e. the award is $75,000 or less). As the Defendant made an offer to settle that was as favourable as the judgement, the R 49 cost consequences apply. This means: (a) the Defendant has to pay the Plaintiff's partial indemnity costs (up to 60% of the costs) until July 1, and (b) the Plaintiff has to pay the Defendant's partial indemnity costs (as well as its own costs) from July 1 to August 1.
Key Takeaway:
If facing a legal dispute, it is wise to consider the costs from the beginning. Specifically, it is important to consider how an offer to settle may impact the cost award. Making a fair and reasonable offer to settle may help limit the costs one has to pay. Alternatively rejecting a reasonable offer to settle comes with the risk of having to pay more costs at the end of the day. Consequently, employers and employees are both encouraged to turn their minds to offers to settle before litigation even starts.
