Cost awards are a critical component of Ontario’s civil litigation system. They represent the legal expenses that one party may be ordered to pay to another at the conclusion of a lawsuit or motion. Understanding how cost awards work is essential for anyone involved in litigation in Ontario, as they can significantly impact the overall financial outcome of your case and influence key strategic decisions throughout the legal process.
Ontario operates under what is commonly known as a “loser pays” system. This means that generally, the unsuccessful party must pay a portion of the successful party’s legal fees and expenses. However, the reality is more nuanced, with courts having broad discretion to determine who pays costs, how much they pay, and on what basis.
This comprehensive guide explores the principles, types, and practical implications of cost awards across all levels of Ontario courts, including the Superior Court of Justice, Small Claims Court, and Court of Appeal.
Table of Contents
Legal Framework for Cost Awards
Statutory Basis and Court Discretion
The authority to award costs in Ontario is rooted in statute. Section 131(1) of the Courts of Justice Act gives courts broad discretion to determine by whom and to what extent costs will be paid, subject to any specific Acts or rules of court.
This means a judge has the power to decide:
- If costs are payable
- Who must pay them
- How much should be paid
It’s important to understand that there is no absolute right to costs for a winning party. Costs are awarded at the discretion of the court, guided by established principles. In rare cases, a court could even depart from the norm and order a successful party to pay costs (for example, if the successful party behaved improperly during the litigation).
This discretion is not unlimited. The Courts of Justice Act and the court rules set out parameters and factors to guide judges in exercising their discretion. In the Superior Court of Justice, Rule 57 of the Rules of Civil Procedure contains the general principles and factors for costs. In family law cases, Rule 24 of the Family Law Rules governs costs, and in Small Claims Court cases, the costs provisions are contained in section 29 of the Courts of Justice Act and Rule 19 of the Small Claims Court Rules.
Purposes and Principles of Cost Awards
Ontario’s cost rules are designed to serve several important purposes:
1. Indemnification: The primary purpose is to partially compensate (indemnify) the successful party for the expense of litigation. In other words, costs help reimburse part of the winner’s legal fees so that a victory is not a hollow one.
2. Encouraging Settlement: Cost awards incentivize parties to settle disputes early rather than proceed to trial by making the consequences of refusing a reasonable offer more severe.
3. Deterrence and Sanctioning Misconduct: The cost system discourages frivolous, abusive, or meritless claims or defenses, and sanctions litigants who behave unreasonably or in bad faith during the case. The prospect of having to pay the other side’s costs helps deter parties from taking irrational positions or needlessly prolonging litigation.
4. Access to Justice: Cost awards promote access to justice by incentivizing efficient, proportionate proceedings and penalizing tactics that unduly delay or complicate matters.
Ontario’s Court of Appeal articulated these goals in Fong v. Chan (1999), noting that modern costs rules aim “to indemnify successful litigants for the cost of litigation; to encourage settlement; and to discourage and sanction inappropriate behavior by litigants.”
The overriding principle is that the amount of costs awarded should be “fair and reasonable” in the circumstances – both to indemnify the winner and to not exceed what the losing party could reasonably expect to pay. As the Court of Appeal explained in Boucher v. Public Accountants Council (2004), the goal is to fix an amount that is fair to both sides – “reasonable for the losing party to pay, rather than the actual costs incurred by the successful party.”
Governing Rules and Factors
When awarding costs, judges in the Superior Court (and on appeal) are guided by the Rules of Civil Procedure, particularly Rule 57.01. Rule 57.01(1) sets out a non-exhaustive list of factors the court shall consider in fixing costs, including:
1. The result of the proceeding – which party was successful, or whether success was divided.
2. The amounts claimed and the amounts recovered – the magnitude of the claims and the damages or relief actually obtained.
3. The complexity and importance of the issues – a case involving complex legal issues or significant public interest may justify higher costs.
4. Any conduct of a party that tended to shorten or lengthen the proceeding – cooperation, compliance with timetables, and other conduct that saved time and expense will favor that party on costs.
5. Any offer to settle made (Rule 49) – formal offers to settle can have specified cost consequences.
6. The principle of proportionality – the overall amount of costs should be proportionate to the nature of the case.
7. The parties’ expectations and legal rates – under the “principle of indemnity,” a key consideration is what amount the losing party could reasonably have expected to pay and what amount the winning party reasonably spent.
These factors give the court a flexible framework to craft an appropriate cost award. No single factor is determinative; the judge weighs all relevant factors.
Types of Cost Awards
Not all cost awards are equal. Ontario law recognizes several “scales” or levels of costs, which determine how much of the winning party’s legal expenses the losing party must cover:
Partial Indemnity Costs
This is the default scale in most cases. A partial indemnity award generally covers a portion of the actual legal fees incurred by the successful party – often roughly 50% to 75% of reasonable actual costs. In practical terms, partial indemnity might amount to about 60% (sometimes up to 66% or 75%) of the winner’s lawyer’s regular rates.
The idea is that the winner gets back part of their lawyer’s bill, but not all. Partial indemnity was historically called “party-and-party costs.” Under Rule 57, partial indemnity is ordinarily presumed unless there are special reasons to elevate the award.
Substantial Indemnity Costs
Substantial indemnity is a higher scale, intended to cover a greater share of the winner’s costs – approximately 1.5 times partial indemnity. In other words, if partial indemnity would equal 60% of actual fees, substantial indemnity might be about 90% of actual fees.
This scale was formerly known as “solicitor-and-client costs.” Substantial indemnity costs are not automatic; they are usually awarded only in certain circumstances that justify a departure from the normal partial indemnity rule.
Common situations that lead to substantial indemnity awards include:
1. Rejected settlement offers under Rule 49 – if a plaintiff made an offer to settle that the defendant refused, and the plaintiff ultimately did as well as or better than their offer, the plaintiff is presumptively entitled to substantial indemnity costs after the offer date.
2. Misconduct or unreasonable behavior – if the losing party acted egregiously (e.g., lied to the court, abused the process, or litigated in bad faith), the court may order costs on a substantial indemnity basis as a form of sanction.
Full Indemnity Costs
A full indemnity award (often called “solicitor-and-client costs” in older cases) is the highest scale – approaching 100% of the winner’s reasonable legal costs. On full indemnity, essentially the winning party is made whole (all legal fees and allowable disbursements are paid by the loser).
Full indemnity costs are very rare and reserved for exceptional cases. They typically require a finding of bad faith or other extreme misconduct. For example, in family law, if a court finds that a party has acted in bad faith, the Family Law Rules require full recovery costs against that party.
The Rules of Civil Procedure do contemplate full indemnity (Rule 57.01(4) allows a judge to award “costs in an amount that represents full indemnity”), but case law shows this is “rare and exceptional.”
Cost Awards in Different Courts and Contexts
Superior Court of Justice (Civil Cases)
The Superior Court of Justice (SCJ) is Ontario’s main trial court for civil matters above the Small Claims limit (currently $35,000) and for most serious litigation. In an SCJ civil case, the winning party is presumptively entitled to costs on a partial indemnity basis, covering a portion of their legal fees plus reasonable disbursements (out-of-pocket expenses for things like expert reports, court filing fees, transcripts, etc.).
Offers to Settle (Rule 49)
In SCJ cases, Rule 49 of the Rules of Civil Procedure provides a powerful mechanism to shift costs to a higher scale if a party refuses a reasonable settlement offer. In essence, if a party makes a formal offer to settle that meets certain conditions (it must be in writing, clear, and made at least 7 days before the hearing, and not withdrawn or expired), and the outcome of the case is as or more favorable to the offeror than the terms of that offer, then Rule 49.10 kicks in with cost consequences.
Specifically:
Plaintiff’s Offer: If a plaintiff offers to settle for a certain amount or terms, the defendant rejects it, and the plaintiff wins a judgment equal to or better than their offer, the plaintiff is entitled to elevated costs. The rule says the plaintiff shall receive partial indemnity costs up to the date of the offer, and substantial indemnity costs after the date of the offer.
Defendant’s Offer: If a defendant offers to settle, the plaintiff rejects it, and the ultimate judgment is equal to or less favorable than the defendant’s offer, then the plaintiff faces a cost penalty. In that scenario, Rule 49.10 provides that the plaintiff is entitled to their costs only up to the date of the offer, and the defendant is entitled to costs from the date of the offer onward.
It’s important to note that Rule 49 cost consequences are not absolute – the court retains discretion to depart from them in unusual circumstances if applying them would be unjust. But in general, Ontario courts enforce Rule 49 rigorously to promote settlement.
Proportionality and “Wrong Court” Considerations
The Superior Court also considers whether a case was appropriately brought in that court or should have been in a lower court or a simpler procedure. If a plaintiff sued in the SCJ but only recovered a small amount within the Small Claims Court limit, the court may limit the plaintiff’s cost recovery to what would be acceptable in Small Claims Court (or even deny costs) because the plaintiff chose the wrong forum.
Similarly, within the SCJ, if a claim was for a monetary amount under the threshold for Simplified Procedure (currently $200,000) but the plaintiff proceeded under the ordinary procedure, the rules impose cost consequences. Under Rule 76 (Simplified Procedure), there is a cap on costs recovery (no more than $50,000 in costs and $25,000 in disbursements can be awarded to any party).
Small Claims Court
The Small Claims Court is a branch of the SCJ that handles civil matters up to $35,000 in claim value. Small Claims has its own simplified procedure and its own rules on costs, which are much more restrictive than in higher courts.
Statutory Cap on Costs
In Small Claims Court, section 29 of the Courts of Justice Act imposes a hard cap on cost awards (for legal fees) in most cases. It states that, except in exceptional circumstances, the costs (excluding disbursements) shall not exceed 15% of the amount claimed. This means if you sue for money in Small Claims, the maximum you can usually recover for your lawyer’s or representative’s fee is 15% of the claim’s value.
Exception for Unreasonable Behavior
The 15% cap can be exceeded only if the court finds it “necessary in the interests of justice to penalize a party or party’s representative for unreasonable behavior in the proceeding.” In other words, if someone acted unreasonably – for example, they deliberately dragged the case out, ignored court orders, or filed a claim or defense that was frivolous – the judge can award more than 15% to penalize that conduct.
Representation Fees and Self-Represented Litigants
Rule 19 of the Rules of the Small Claims Court allows a “reasonable representation fee” for the successful party’s lawyer or paralegal, subject to the 15% cap. If a party is self-represented, they obviously don’t have lawyer fees, but the court may award a small sum (up to $500) as compensation for the inconvenience and expense of the self-rep litigant.
Disbursements
The 15% cap is only on legal fees or representation fees. Reasonable disbursements (e.g., court filing fees, process server fees, witness travel costs, etc.) are generally recoverable in addition to that cap.
Offers to Settle in Small Claims
The Small Claims Court Rules encourage settlement through Rule 14.07, which is analogous to Rule 49. It provides cost consequences for offers to settle. If a plaintiff makes an offer that the defendant doesn’t accept and the plaintiff wins an equal or better result at trial, the court may award the plaintiff up to twice the normal costs. If a defendant makes an offer that the plaintiff fails to beat, the court may award the defendant up to twice the costs from the date of the offer.
Family Law Proceedings
Cost awards in family law cases (divorce, child custody, support, property division, etc.) follow many of the same principles as civil cases, but the Family Law Rules set out a distinct framework.
Presumption in Favor of Successful Party
Rule 24(1) establishes that “a successful party is presumed to be entitled to costs.” This means if you won your family law motion or trial – i.e., you got the result you were seeking (or mostly so) – you should get your costs unless another provision or factor applies.
Factors and Reasonableness
Rule 24(11) lists factors that the court must consider in fixing costs. These include the importance and complexity of issues, each party’s behavior, any offers to settle, and any bad faith by a party. Family law judges are instructed to consider not just who won, but also “the reasonableness of each party’s behavior in the case” and the reasonableness of the costs being claimed.
Offers to Settle (Family Rule 18)
Family law has its own offer rule. If an offer to settle made under Rule 18 meets the criteria and is not accepted, and the outcome is as favorable to the offeror as the offer, the rule says the court “shall” consider this in awarding costs. Rule 18(14) provides that if a party makes an offer that the other party unreasonably fails to accept, the offering party is entitled to costs “full recovery of all costs incurred after the date of the offer,” unless the court orders otherwise.
Bad Faith = Full Recovery
Family law is unique in that it explicitly addresses bad faith conduct. Rule 24(8) says if the court finds that a party “has acted in bad faith,” the court must order that party to pay costs on a full recovery basis (full indemnity) immediately. “Bad faith” in family law generally means more than just being unreasonable – it implies a party acted with intent to deceive or abuse the court process.
Divided or Mixed Success
Family cases often involve multiple issues where each party might win some and lose some. Rule 24(6) provides that if success is divided, the court may order each party to bear their own costs or apportion costs as appropriate.
Appeals (Court of Appeal and Divisional Court)
When a case goes to an appeal in Ontario, costs are again in the discretion of the appellate court. Generally, the same principles apply on appeals: the successful party on the appeal is entitled to costs of the appeal, usually on a partial indemnity basis, unless there are factors that justify otherwise.
Scale and Quantum
Appellate courts usually award costs on the partial indemnity scale, unless there’s misconduct or an offer that warrants substantial indemnity. The amount of costs for an appeal is often less than for a full trial, because an appeal is typically shorter and focuses on legal arguments rather than extensive evidence.
Outcome of Appeal vs. Trial
If an appeal upholds the trial decision, usually the appellant (who lost the appeal) will be ordered to pay the respondent’s costs of the appeal. If an appeal overturns the trial decision, the appellant will usually get their costs of the appeal from the respondent, and often the appellate court will also address what happens to the costs of the trial.
Partial Success on Appeal
Sometimes appeals are mixed – e.g., an appellant might win on one issue but not others, or the outcome is modified but not a complete reversal. In such cases, the court has discretion to tailor the cost award.
Public Interest and Novel Issues
Appellate courts sometimes face cases that raise novel or public interest issues. If an appeal was brought in good faith to clarify the law, and especially if it’s a case of broad significance, the court has the discretion to depart from the usual loser-pays rule.
Security for Costs
Security for costs is a related, cost-related mechanism in Ontario litigation. It doesn’t decide who ultimately wins costs, but rather provides a way for a defendant (or respondent on appeal) to ensure they can recover their costs later if they win. Essentially, it means the plaintiff or appellant is ordered to deposit money (or a bond) with the court as “security” that can be used to pay the defendant’s costs if the plaintiff’s case is unsuccessful.
When Security for Costs Can Be Ordered
Under Rule 56 of the Rules of Civil Procedure (and Rule 61.06 for appeals), a judge may order security for costs in certain circumstances. The typical scenarios include:
1. The plaintiff is ordinarily resident outside Ontario.
2. The plaintiff has another proceeding on the same matter pending.
3. The plaintiff already has an outstanding costs order from another case that they haven’t paid.
4. The plaintiff is a corporation (or nominal plaintiff) with insufficient assets in Ontario.
5. There is good reason to believe the action is frivolous or vexatious, and the plaintiff has insufficient assets in Ontario to pay costs.
6. A statute entitles the defendant to security for costs.
To obtain security for costs, the defendant must bring a motion and demonstrate that one of the listed grounds applies. If the court is satisfied that, say, the plaintiff is out-of-province and it appears there’s a real risk the defendant won’t get their costs, the onus then may shift to the plaintiff to show why security should not be ordered.
If security is ordered, the court will set an amount and a deadline. The amount is typically tied to what the defendant’s expected legal costs might be up to certain stages or the whole case. If the plaintiff fails to put up the money (or bond) by the deadline, their action can be stayed (paused) or even dismissed.
Preparing and Arguing Cost Submissions
At the end of a motion or trial (or appeal), after the substantive decision, the issue of “who pays costs and how much” needs to be determined. Here are some practical tips on preparing cost submissions and advocating for either maximizing or minimizing a cost award:
Know the Procedure
In the Superior Court, typically after a judge gives a decision, they will direct the parties to address costs. Often, the judge will ask for written submissions within a certain schedule. In a simpler case, the judge might even invite oral submissions on costs immediately following the decision. Always check if the judge has specific directions or local practice guidelines for cost submissions.
Prepare a Costs Outline / Bill of Costs
The party seeking costs should prepare a clear statement of their legal fees and disbursements. In Ontario, there is a standard Costs Outline (Form 57B) in civil cases. This document will list the lawyer’s rate, hours spent, and total fees, as well as each category of disbursement, and then show the calculation of costs on a partial indemnity and (if applicable) substantial indemnity basis.
Cite Relevant Factors
In your cost submission, explicitly refer to the factors and arguments supporting your position. If you are the one seeking costs (the winner), emphasize factors that increase your entitlement. If you are the party who may have to pay costs (the loser), your submission will argue why costs should be reduced or even why each should bear their own.
Offers to Settle
If any formal Rule 49 offers (or Family Rule 18 offers) were made, spell out their impact. Attach a copy of the offer letter if required. If no formal offers were made, you can still mention any settlement discussions or informal offers as part of conduct, though formal offers carry more weight.
Maximize or Minimize Arguments
If you seek to maximize costs (you won): Emphasize anything that justifies a higher scale or larger amount – e.g., the opposing party’s bad conduct, the fact that you beat your offer, the complexity of the case, and the opponent’s ability to pay.
If you seek to minimize costs (you lost): Your goal is to convince the court to either deny, reduce, or limit the costs you have to pay. Key arguments might include that the case was close or split, the winner’s costs are excessive or disproportionate, or you are of limited means.
Special Considerations
If the case had multiple defendants or plaintiffs, and only some were liable, address how costs should be apportioned. For self-represented litigants seeking costs: note that while you cannot claim “legal fees” in the normal sense, you can claim out-of-pocket expenses (disbursements) and possibly some amount for your own time/labor.
Unreasonable or Bad Faith Conduct and Cost Consequences
Ontario courts take a dim view of unreasonable conduct or bad faith in litigation, and they will use cost awards to sanction and deter such behavior:
Unreasonable Litigation Tactics
If a party conducts the litigation in a manner that unnecessarily drags it out, causes needless expense, or is frivolous/vexatious, the court can penalize that party in costs. The Rules explicitly allow a judge to consider “any conduct of a party that tended to shorten or lengthen unnecessarily the duration of the proceeding.”
Bad Faith and Fraud Allegations
Alleging fraud or dishonesty is serious. If a party makes unfounded accusations of fraud, deceit, or other misconduct, and cannot prove them, courts often respond by awarding costs against that party on a higher scale (substantial or full indemnity).
Examples of Cost Sanctions
Ontario courts have indeed levied heavy cost sanctions in egregious cases. A recent example is Del Giudice v. Thompson (2021), a proposed class action that Justice Perell found to be an abuse. The court ordered the plaintiffs (and effectively their counsel) to pay $1.225 million in costs on a substantial indemnity basis to the defendants.
Costs Against Lawyers
In rare instances, if a lawyer’s actions (rather than the client’s instructions) caused costs to be wasted, the court can make that lawyer personally liable for costs. This is exceptional and usually requires a separate motion with the lawyer given a chance to respond.
Costs and Access to Justice
The final aspect of our guide is a broader discussion of the role of cost awards in the legal system – particularly how they impact access to justice and the deterrence of frivolous litigation.
Promoting Access to Justice
Access to justice means ensuring that people can use the legal system to resolve genuine disputes without undue barriers. Cost rules can both help and hinder this goal:
Positive Aspect: For a person who has a valid claim, the prospect of getting a cost award if they win can make it feasible to bring the case.
Negative Aspect: The risk of paying the opponent’s costs if you lose is a double-edged sword. It certainly deters people from bringing forward weak or borderline cases, but it may also deter some people with valid but uncertain cases because the financial downside is too high.
Discouraging Frivolous or Unmeritorious Litigation
Ontario’s cost regime is famously described as “loser pays.” This clearly deters frivolous lawsuits and defenses more than jurisdictions where each pays their own. If someone knows that losing a case means not only losing their claim but also paying the other side’s legal fees, they will think twice about suing on a trivial or dubious matter.
Proportionality and Fairness
The concept of proportionality in costs is part of access to justice. If legal proceedings become too costly relative to the issues, people won’t use the system. Judges thus try to award costs that are proportionate so as not to create absurd outcomes (like owing $100,000 in costs over a $50,000 dispute).
Public Interest Litigation
In cases that are truly in the public interest, courts have crafted exceptions to typical cost rules to not chill such litigation. Sometimes, they order that there be no costs either way regardless of outcome, especially if both sides are acting in a public capacity.
Summary
Cost awards in Ontario civil litigation serve multiple crucial functions:
1. Compensating the Successful Party: They provide partial reimbursement for the legal expenses incurred by the winning party.
2. Encouraging Settlement: The cost consequences of refusing reasonable settlement offers incentivize parties to resolve disputes without proceeding to trial.
3. Deterring Frivolous Claims and Misconduct: The prospect of paying the other side’s costs helps filter out meritless cases and discourages inappropriate litigation behavior.
4. Promoting Proportionality: Courts strive to ensure cost awards are proportionate to the nature and value of the case.
Understanding the principles, types, and factors affecting cost awards is essential for:
- Making informed litigation decisions
- Developing effective strategy
- Managing financial risks
- Achieving optimal outcomes
The Ontario cost system balances multiple objectives: compensating winners, encouraging settlement, deterring misconduct, and ensuring access to justice. While the general rule is “costs follow the event” (loser pays), courts maintain broad discretion to craft fair and reasonable cost awards based on the specific circumstances of each case.
Success in civil litigation requires careful consideration of potential cost awards throughout the process. This understanding helps parties make informed decisions about proceeding with litigation, settling cases, and conducting themselves throughout the legal process.
If you require legal advice, representation, mediation services, or have questions about real estate law, business law, civil litigation, or dispute resolution, contact us at Sukh Law.
Sukh Law publishes articles for information purposes only and is not intended to constitute legal advice.
