In addition to the various differences between civil litigation in Canada and in the United States that I summarized in my last two columns, important additional differences arise from Canada’s “loser pays” cost regime, the presumptive cost consequences of offers of settle and the notion of security of costs.
When a party to civil litigation in Canada, whether plaintiff or defendant, loses a case, that party will normally be ordered by the court to pay his/her/its adversary some of the legal costs that were incurred by the adversary in respect of the litigation. This “loser pays” regime normally applies to motions, trials and appeals and, as such, represents a significant deterrent to meritless claims, defences, motions and appeals.
The successful party will almost never receive full indemnification for its true legal costs. The extent of indemnification varies both from province to province and, even within a province, from case to case. For example, in Ontario there are effectively two scales of cost: partial indemnification and substantial indemnification. As their names indicate, neither scale of costs represents full reimbursement for all of a party’s actual legal costs.
Absent unusual circumstances (e.g., a plaintiff making an allegation of fraud and not proving it at trial), the most important factor that the court will consider in exercising its discretion to award costs, and on what scale, will be the presence of and the amounts of any offers to settle (offers are not disclosed to the court until the outcome of the motion, trial or appeal in issue has been decided). A plaintiff or defendant who has obtained a more favourable outcome than it had offered (i.e., “beat its offer”) is presumptively entitled to an enhanced cost award. For example, a plaintiff who wins its case might receive some 30 to 50 percent indemnification of its real legal costs on a partial indemnity scale. If that plaintiff also “beat its offer” it should receive indemnification on the higher substantial indemnity scale, perhaps some 60 to 75 percent of its real costs.
Such a “loser pays” costs regime, and especially when coupled with the presumptive costs consequences of offers to settle, is an effective means of obliging both sides in civil litigation to be reasonable. For example, a plaintiff prosecuting its case through trial in the face of a reasonable offer to settle tendered by a defendant runs a real risk that it may “win” at trial yet wind up paying the defendant (if the damage award is less than the defendant’s offer).
Another consequence of the “loser pays” regime is that, in certain circumstances, a defendant may obtain security for its anticipated costs. Notably, if a foreign (e.g., American) plaintiff has no assets in the Canadian jurisdiction in which it has commenced litigation proceedings, the court may order the plaintiff to post security for costs (e.g., by way of bond, payment into court or other arrangement).
Read Berkley Sells’ previous column.