Today, legal costs often deter individuals and corporations from proceeding with litigation. Lawyers bill their time at anywhere from $200.00 to $500.00+ per hour, depending on their expertise and experience, and disbursements may spiral out of control if there are several parties to the action and boxes of documentation.
To facilitate access to the legal system, the government created rules which shift the responsibility for legal fees in civil matters. These fee shifting or cost shifting rules require an unsuccessful party to pay their own legal fees and to also pay a portion of the successful party’s legal costs. This puts the financial burden of the litigation on the unsuccessful or guilty party. However, a successful party’s entitlement to costs is not absolute.
There are numerous goals for the cost shifting regime, but the most common are:
- To indemnify or compensate successful parties who either commence or defend claims;
- To deter frivolous actions;
- To modify litigation behaviour; and
- To encourage settlement.
The courts have been granted wide discretion in determining what costs will be awarded to successful litigants. Some of the factors that Judges will consider are: the experience of the lawyers, the time spent; the amount claimed; the complexity of the proceeding; the importance of the issues and the conduct of any party. These factors may increase or decrease a cost award. For instance, if the successful party’s conduct unduly lengthened a proceeding, the court may refuse to award costs or limit the amount of a cost award. Ultimately a Judge will order costs in an amount that they consider to be fair and reasonable in the circumstances.
Under the Ontario Rules of Civil Procedure the court may award costs in the following amounts: on a full indemnity basis; a substantial indemnity basis and a partial indemnity basis. As a percentage, these cost amounts are, respectively, 100%, 90% and 60% of a parties total legal costs. A judge will consider the factors enumerated above and will thereafter make a determination as to the amount appropriate for a cost award. It should be noted that partial indemnity costs (60%) is the norm for costs awards, whereas full indemnity costs (100%) are a rarity.
Further, the fee shifting regime also takes into consideration whether or not a party has made an offer to settle. The rules provide that costs will be awarded up until the date of an offer to settle is made on a partial indemnity basis. Thereafter, a party will receive costs on a substantial indemnity basis. This impacts both when offers to settle are made and how reasonable they will be. If you do not “beat” your offer, you do not obtain additional costs.
An example of how settlement offers can impact cost awards from the defendant’s perspective is as follows:
Mr. X. commences an action against Mr. Y in January 2010. In September 2011, Mr. Y serves Mr. X with an offer to settle in the amount of $25,000.00. The trial for this action is finally argued in November 2011. Mr. X is successful at trial, but only obtains Judgment in the amount of $20,000.00. Therefore, Mr. X is entitled to his costs up until September 2011 on a partial indemnity basis. However, Mr. X did not “beat” Mr. Y’s settlement offer. Therefore, Mr. Y is also entitled to his costs from September 2011 and onwards on a partial indemnity basis.
In the above example, it is possible that the costs of the trial are greater than the costs leading up to the trial (the pleadings and discovery stages). Therefore, Mr. Y may be entitled to more costs than Mr. X. Had Mr. X accepted the settlement offer, not only would he have $5,000.00 more, since the settlement offer was greater, but he could have saved himself several thousand in legal fess and costs.
As a result of the foregoing, every litigant must consider not only the merits of their action and their own anticipated legal costs, they must also consider their opponent’s legal costs and the likelihood of legitimate settlement offers.
The current cost shifting regime is an effective tool to control litigation, to prevent frivolous lawsuits and to encourage settlement. However, it is not without its flaws. It has little to no impact on litigants who do not have the financial ability to pay a cost award, let alone a Judgment. Further, its impact is often limited with respect to government entities, insured parties or large corporations who see litigation as a cost of doing business.
As a result of the foregoing, if you seek legal advice and ask your lawyer “how much will this cost?” do not be surprised if the answer is “I don’t know.” It is virtually impossible to estimate how much time a lawyer will need to spend on a file or when and if it will settle.
At the best of times litigation is unpredictable. However, the current cost shifting regime does little to improve ones ability to estimate the likely cost of litigation.