Legal Costs: The New Fear Factor

Many factors are considered when determining whether legal proceedings should be commenced, including the merits, the evidence available and time constraints. However, for many clients a fundamental consideration is the cost of litigation and the possibility of a cost award.

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:

1. To indemnify or compensate successful parties who either commence or defend claims;


2. To deter frivolous actions;


3. To modify litigation behaviour; and


4. 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.

Devon Ryerse
Civil Litigation

Amendments to the Construction Lien Act

Builders and developers should be aware of the impact of recent amendments to the Construction Lien Act. The amendments were made by Bill 68, also known as the Open for Business Act 2010. Bill 68 was given royal assent on October 25, 2010.

The Bill impacted the Construction Lien Act in four significant ways:

I. Changes to Liening a Condominium Project
II. The End of the Affidavit of Verification
III. The Death of the Sheltering Statement
IV. Statutory Correction of the Definition of Improvement as set out in Kennedy Electric.

The highlights and practical impact of these changes follow.

I. Changes to Liening a Condominium Project

The Condominium Act makes any “encumbrance” against common elements of a condo enforceable against all the units of common interest after “registration”, meaning that before registration under the Condominium Act, the future condominium land can be liened using the regular process. After registration, every unit in a condominium needed to be liened if someone wished to lien the common elements. Clearly, this was prohibitively expensive for small contractors, as it would require that the personal identification number (PIN) and identities of every unit owner be known.

The Bill 68 solution to the high cost of liening condominium common elements is to require developers to publish their intent to register in a construction trade paper (The Daily Commercial News) at least five days, and not more than fifteen days before registration.

This notice requirement means that contractors will receive sufficient notice of pending registration and therefore be able to preserve their liens before it becomes too expensive to do so. From a practical standpoint developers should be aware of the notice requirements and contractors should pay attention to The Daily Commercial News.

II. The End of the Affidavit of Verification

Before Bill 68, the Construction Lien Act required any claim for lien to be verified by the person claiming the lien. Bill 68 did away with this affidavit requirement.

This means a couple of things. Firstly, a lien will no longer fail on the technicality of not properly serving an affidavit. Secondly, it gets rid of an antiquated sworn affidavit requirement that is impractical in the current electronic registration system for real property.

Bill 68 has replaced the sworn affidavit requirement with Affirmation of Facts statements that are optional to the lien party when creating the electronic construction lien document.

III. The Death of the Sheltering Statement

Previously, when a lawyer went about vacating a lien on the e-registration system they were required to certify through the use of certain form statements whether or not there were lien claimants sheltering under the certificate of action that was being vacated from title, and if that action was being dismissed in the process. These were known amongst lawyers as sheltering statements.

The sheltering statements were problematic for several reasons. Firstly, determining if there is a sheltering lien is a complicated legal task with broad implications. A lawyer from a mere review of title should not undertake such a task. Secondly, for condominiums, a lawyer had to search every single PIN in order to make the sheltering statement, which resulted in higher costs for the client. Lastly, from a practical standpoint lawyers were very reluctant to make a sheltering statement because of the uncertainty and potential liability to an aggrieved sheltering lien claimant.

Bill 68 corrected these problems by permitting a sheltered claim to continue, even if the original claim filed by a third party has been vacated by a court. This amendment should nullify sheltering statements, since no prejudice could result to the sheltered lien claimant as a result of the Certificate of Action being vacated.

IV. Statutory Correction of the Definition of Improvement as set out in Kennedy Electric.

Prior to Bill 68, improvement basically referred to (a) any alteration, addition or repair to land, or b) any construction, erection of installation on land.

Judges have interpreted the Construction Lien Acts definition of improvement to mean that the installation of machinery in a business operated in a building will not give rise to lien rights; particularly where the machinery is portable, since movable machinery does not become part of the building in which it is located, it does not improve the building.

This judicial definition of improvement led to some absurd results. One case that raised some eyebrows was Kennedy Electric. In this case a sub-subcontractor was hired to install a new F-150 assembly line at a Ford plant in St. Marys, Ontario. That sub-subcontractor was denied a lien action because the new assembly line was deemed by judges to not be an improvement. Many were surprised that the installation of machinery as massive as an assembly line would not constitute an improvement for the purposes of the Act. Bill 68 remedied the act to prevent results such as that in Kennedy.

In respect to any land, improvement now means (a) any alteration, addition or repair to the land, (b) any construction erection or installation on the land, including the installation of industrial, mechanical, electrical or other equipment on the land or on any building, structure or works on the land that is essential to the normal or intended use of the building structure or works, or (c) the complete or partial demolition of any building structure or works on the land

In sum, under the former definition of improvement, where services or materials were supplied in respect of a moveable manufacturing or similar installation that was not an integral part of the building, and which did not become a part of the building, lien rights did not arise, although portability was largely a factual determination. Now, improvement has been broadened to include “the installation of industrial, mechanical, electrical or other equipment” that is “essential to the normal intended use of the land, building or structure works”.

Charles P. Criminisi
Real Estate

Subrogation - Part 1 - What is Subrogation?

Subrogation is a common law right by which one person is substituted in place of another person. The substituted person is then entitled to exercise all the same claims, rights, duties and remedies that belonged to the original person. To put it more simply, if a person is subrogated to another person, then that person is said to “stand in that other person’s shoes”.

Although subrogation is a common law right, it can also arise (or be taken away) by Statute. Having said this however, subrogation most commonly arises in relation to policies of insurance and is based on the concept of indemnity. In other words, once an insurer indemnifies an insured by paying the insured’s claim, the insurer is then subrogated to their insured. The subrogation rights of the insurer may also be taken away, or modified, by the policy of insurance. Subrogation is not available to a volunteer or where the payment is gratuitous.

A good example of an indemnity situation involving a contract of insurance is the following: if you are having your roof replaced on your house and one of your roofer’s employees accidentally starts a fire which causes your house to burn down, then your insurer, after paying you to replace your home, can go after the negligent roofing company for the money that it paid to you to rebuild your house (and you hope that the roofing company also has insurance). The indemnification payment by the insurer to the insured is based on the terms of the insurance policy. Normally the indemnification is based on a replacement value of the property as opposed to the actual cash value (ACV) of the property at the time of the loss. However, in the subrogation action, the damages are limited to the ACV. In other words, damages in tort actions are generally assessed based on placing the plaintiff in the same position as he or she would have been in had the incident not occurred i.e. the actual cash value of the property at the time of the loss.

Subject to any insurance policies or Statutes modifying the subrogation rights of the insurer, the insurer is entitled to commence an action and pursue any cause of action available to its insured with respect to effecting complete or partial recovery of the loss against the negligent person. Since the insurer has the same rights as it’s insured, limitation periods as to when any legal action must be commenced also apply to the insurer.

The subrogated action may be commenced in the name of the insured or the insurer. Normally the claim is commenced in the name of the insured. This way, the insurer can also pursue any uninsured claims on behalf of the insured i.e. the deductible. In fact, the insurer has a legal obligation to pursue all the uninsured claims at the same time as pursuing the subrogated damages. The insurer owes a duty to the insured that they will act in good faith and diligently pursue the insured’s uninsured losses as well. If the recovery at the end of the day is insufficient to recover all the losses sustained by the insured, then the amount recovered is split on a pro rata basis between the insured and the insurer.

In addition, the insured is obligated to assist (non-financially) and cooperate with the insurer in its subrogated recovery efforts. If there are no deductibles or uninsured losses being pursued then the insurer and its lawyer have complete carriage of the action and the insured has no material interest in the lawsuit. The insurer can then negotiate and settle the action as they deem appropriate.

On the other hand, if the insured starts an action against the person who caused the damages, then the insured also has an obligation to protect the insurer’s subrogated interests. If the insured does not protect the insurer’s subrogated claim, then the insured is liable to the insurer for the difference between the actual amount recovered and what could have been recovered.

Paul H. Philp
Civil Litigation

Executor’s Compensation through the Eyes of a Beneficiary

Concerns of a Beneficiary:
A beneficiary under a Will often feels helpless with respect to the administration of the estate by the executor. Fortunately, as an interested party to the estate, a beneficiary has the ability to question particular decisions and claims made by the executor. A frequent point of contention is the amount of compensation the executor claims. Compensation is often stated as being five percent of the value of the estate. However, the true amount of compensation is more complicated and often fact specific.

The Usual Percentages:
The general accepted percentages of compensation are:

• 2.5% of capital receipts


• 2.5% of capital disbursements


• 2.5% of revenue receipts; and


• 2.5% of revenue disbursements

Although these percentages are generally used, particular attention should be made to the details of the estate. The following factors are considered when deciding upon an appropriate amount of executor’s compensation:

• Size of the estate


• Care, responsibility and risks assumed by the executor


• Time spent by the executor


• Skill and ability of the executor; and


• Results and degree of success by the executor
  

Approval of the Beneficiaries:
An executor may not take compensation unless they receive approval from all beneficiaries of the estate or the Court. Court approval of the compensation amount is granted through a Passing of Accounts application. During the application process the beneficiaries are given the opportunity to review detailed accounts of the estate, including the assets, transactions, distribution of funds and proposed compensation.

Other Considerations:

• Specific reference in the Will to compensation – The Will may prohibit or specifically state the amount of compensation the executor is able to claim.


• Pre-taking of compensation – A beneficiary may claim a loss of income or penalty related to compensation taken before approval was given.


• Executor is also the lawyer of the estate – Where a lawyer is acting as both the executor and the lawyer the services and fees should be accounted for separately to ensure that there is no overlap in compensation.


• Lawyer Fees – Any legal fees paid in relation to services that could have reasonably been provided by the executor may be deducted from the executor’s compensation claim.


• Preparation of income tax returns and estate accounts – In some cases, the cost of retaining an accountant or other professional to prepare tax returns or prepare estate accounts can be deducted from the executor’s compensation.


• Size of estate – The usual percentages may result in a compensation amount that is unreasonable when compared with the work involved. A beneficiary may argue a reduction in compensation for larger estates or with respect to larger assets of the estate.


• Assets transferred In Specie – Compensation may be reduced on those assets that are transferred to a beneficiary in kind. Example: transfer of the family cottage directly to a beneficiary.

David Henderson
Trusts, Estates and Wills

Small Claims Court: Why You Should Hire a Lawyer When Making a Claim

The purpose of the Small Claims Court is to provide a forum for litigants to resolve their disputes in a quick and cost-effective manner. While the procedures of the Small Claims Court are designed to allow for the ease of use of self-represented litigants, the process remains intimidating for many, especially those who are unfamiliar with the legal system. Hiring a lawyer to navigate the Small Claims Court system can serve to alleviate confusion with the process and could make the difference in the success of your case.

Many people are unsure whether they even have a case, or what the prospect for success of their claim may be. A skilled lawyer will be able to meet with you and assess your claim, answer your questions and provide a legal opinion which highlights the strengths and weaknesses of your claim.

If you do choose to proceed with your claim, a lawyer can assist you in drafting your pleadings in a clear and concise manner that best serves your case and makes your claim easy for the Judge to read and understand. A lawyer will present your case in an objective manner, which is beneficial for those who may have difficulty in organizing their case or who have a great deal of emotion attached to their claim. Furthermore, a lawyer can sort through the documentation related to your claim in order to identify those documents which are necessary to support your claim, and protect documents which are privileged and should not be disclosed.

Once your claim is filed, a lawyer familiar with the process can navigate through many of the procedural steps, including serving the claim on the defendants, assessing any defences which may be filed, and handling interlocutory steps like drafting motions and affidavits or noting defendants in default, if necessary.

In many cases the party on the other side of your claim will have hired their own lawyer to protect their interests. In this way, a lawyer acting on your behalf can serve to protect your rights and deal with opposing counsel directly. On the other hand, having a lawyer on your side to deal with an unrepresented defendant can make the process less stressful on you, as all communication with the defendant is done through your lawyer.

The Settlement Conference, a mandatory meeting between the parties before a judge to discuss the potential for settlement can be an intimidating situation for an inexperienced litigant. A lawyer acting on your behalf can effectively advocate on your behalf to a judge in the skilled and professional manner required by the Court.

Finally, a lawyer knows the best way to present your case at trial. There are Rules on the type and scope of questioning that can be asked, the evidence that is admissible, and procedures to follow while arguing your case before a Judge. An experienced Small Claims court lawyer can present your case in a well-prepared, organized manner that takes into account all of these procedural considerations.

The legal process is intimidating for the inexperienced litigant, no matter what level of Court. Retaining a qualified lawyer that act on your behalf or on behalf of your business and organize and draft your claim, represent your interests through the settlement conference, and advocate on your behalf at trial could be the difference in the success of your case.

Civil Litigation

"Freehold Condos" -- Behind the Misnomer

Homebuyers tend to be divided between those who seek the convenience of condominium living and those who seek maximum control over their monthly expenses and run screaming from the lack of control over condominium fees, which they believe is inherent in condominium ownership. Recognizing this tendency, real estate listings abound with references to 'freehold' condominiums as entities embodying the best of both worlds.

Generally, the term "freehold condo" is used by builders and by the real estate industry to describe (usually) a townhome in which unit owners are assigned responsibility for maintaining and repairing their individual condominium units -- with these individual units being defined in such a way as to encompass the exterior surfaces of the home. The condominium corporation in such a 'freehold condo', however, is still assigned responsibility for maintaining the common elements, which usual encompass the roadway(s) and any grounds not caught within the boundaries of the individual condo units.

For those who want to be free from a certain amount of 'yard work' but do not wish to be made responsible (through the collection of monthly maintenance fees) for the costs of maintaining and repairing their neighbours' homes, a townhome condominium complex that assigns responsibility to individual homeowners for the maintenance and repair of the interior and exterior of their or own townhome may be an ideal purchase. In this light, such 'freehold condos' may suit those home buyers who are concerned with limiting future increases in condominium fees.

With a traditional condominium, condominium fees greatly increase over time largely because, in such a condominium, the condominium corporation has been assigned the task of maintaining and repairing, at the very least, the exterior of the buildings in the complex. Generally, real estate salespersons and builders are using the term 'freehold condominium' to refer to condos where individual unit owners are responsible for the regular repairs and maintenance to their units. As such, the underlying expectation is that the condominium corporation will not need to greatly increase condominium fees over time to take into account the cost of repairing the condominium buildings. Increases in condo fees may (and likely, will) still occur. However, it is assumed that these increases would not reflect the significant cost of maintaining and repairing deteriorating buildings. Any increases are more likely to reflect inflationary pressures/increased labour costs and rising costs associated with the ongoing need for regulatory compliance.

The problem with blindly accepting the industry usage of the term "freehold condo" is that, at law, there is no such creature. Owners of homes described as "freehold condos" within different condominium complexes may have differing obligations to repair and maintain the exterior of their homes. Similarly, different condominium complexes containing homes described as "freehold condos" may have significantly differing common elements, the maintenance and repair costs of which will be reflected in differing condominium fees.

The fact is that if a home is part of condominium complex it is a condominium. It is not a freehold home. This is so regardless of the fact that may 'feel like' a free hold because the individual unit owners may be assigned the responsibility of maintaining and repairing their individual homes. In Ontario, the Condominium Act, S.O. 1998, c. 19., imposes numerous requirements on condominium corporation relating to the management of condominium property and broadly governs the respective rights and obligations of the condominium corporation and individual unit owners. More importantly (from the perspective of individuals interested in the 'freehold' aspect of so-called "freehold condos"), the Condominium Act allows each condominium corporation considerable leeway to determine through its declarations what repair and maintenance expenses will be incurred by the condo corporation (and paid for through the collection of condo fees) and what repair and maintenance expenses will be incurred and paid for by individual unit owners. Even among condominiums described as "freehold condos", there can be significant variation with respect to the potential for condominium fees to increase.

Thus, rather than simply accepting a salesperson's description of the listed property as a 'freehold condo', the prospective purchaser of such a condominium should request from the vendor a copy of the condominium declarations and bylaws as well as a copy of the status certificate and provide the same to his or her lawyer for review. The condominium declarations, in particular, will help to identify whether the repair or maintenance of any parts of the condominium units within a condominium complex is the responsibility of the condo corporation regardless of the salesperson's description of the listed property as a 'freehold condo'. For example, it is not terribly unusual for the declarations to provide that the unit owners are responsible for maintaining and repairing the exterior of their townhomes with the exception of the roof. The logic behind such a provision is that in a townhome it is very difficult to repair only one's own section of roof without affecting one's neighbour's roof. While the logic of such a provision is sound, the existence of such a provision within the condo declarations certainly makes the state-of-repair of rooflines throughout the complex a relevant consideration to a potential purchaser.

D. Dean Obradovic
Civil Litigation

Sure, You Have Auto Insurance, but Do You Have Enough?

Nobody is immune from the risk of an accident.

If you live in Ontario and own, lease or finance an automobile, it’s the law that you have auto insurance if you wish to operate the vehicle on public roadways. But aside from complying with legal obligations, obtaining an insurance policy on your vehicle helps to protect yourself and your family’s assets against claims made against you following a car accident.

Motor vehicle accident injuries can range from minor bruises to life-altering traumatic brain injuries and death. Injured individuals can make a wide range of claims against the at-fault drivers and owners of vehicles, including those for pain and suffering, past and future economic loss resulting from an inability or decreased ability to work, and many other expenses stemming from the injured person’s condition. Further, the person’s family can claim for expenses incurred for the benefit of the injured person and also for monetary damages for a loss of care, guidance and companionship.

Most often, standard motor vehicle policies are limited to $1 million in coverage. This means, in the absence of coverage issues, that the insurer will indemnify and defend the policy holder up to $1 million dollars plus legal costs and pre-judgment interest that has accrued on a claimant’s damages entitlement. The insurer will pay a claimant’s damages and will hire a lawyer to represent the policy holder’s interests.

However, insurers’ obligations to indemnify and defend are limited by the amount of coverage in a policy. For example, if a claim is asserted for $2 million, an at-fault driver will be personally responsible for any of a claimant’s damages in excess of their policy limits. The policy holder will not have the benefit of indemnity or a lawyer to defend against the remaining $1 million claim. The claimant will look to the at-fault driver’s assets to cover the remaining damages. Further, the driver or owner must pay for its own legal counsel.

Over the past couple of decades, the amounts of claims made by individuals involved in motor vehicle accidents have increased substantially. It is no longer the exception that claims are asserted for damages in excess of $1 million. With the recent changes of September 2010 in relation to Statutory Accident Benefits (insurance coverage that individuals claim against their own insurers), it is anticipated that claims will continue to increase against at-fault drivers.

There are a couple of ways to protect yourself and your family from these increasing claims. Firstly, for a modest increase in your premium, policy limits can be increased to amounts greater than $1 million. Secondly, an “umbrella policy” can be obtained, which has the effect of bringing in insurance coverage from your home insurance policy. In this way, drivers and owners of vehicles can protect themselves and prevent exposure to claims for damages that would otherwise be in excess of their policy limits and the significant legal costs and interest associated with motor vehicle accident cases.

Andrew Keesmaat
Civil Litigation