A recent decision of the Ontario Superior Court[1] has drawn fresh attention to the issue of legal costs. This case resulted in an award of costs to the plaintiff of $546,000 for a trial lasting 11 days. While there are many features of this case which are distinctive, the sum awarded remains a vivid reminder of the high scale risks of litigation.

Costs to be Reflective of the Risk

The costs award is normally said to be “proportionate” to the sums in dispute. In this case, the plaintiff sued for $700,000; however, the defendant employer counter-claimed for $2.45 million based on allegations of fraud. These two competing claims then were used to rationalize the size of the costs award.

Allegations of Fraud & Trial Conduct

It is also an accepted rule that unproven allegations of fraud will attract the rebuke of the trial judge by an award of legal costs at the highest range.[2] In addition, the way in which the company defended the case was also found to be an influential factor in the assessment of the costs award. It refused to admit certain facts, yet, failed to contest the very same facts at trial. It produced a witness list of 25 persons, which caused a delay in the trial date. Ultimately it called only two witnesses. It also, at the outset of the claim, threatened the plaintiff with an expensive trial burden in an attempt to dissuade him from suing. It proceeded to make good on its bluster.

The company showed itself to be a text book example of how not to conduct a trial.

Contrast this case with a three day wrongful dismissal trial, with no such complications, in which the employer was successful and was awarded the comparatively modest sum of $18,000 in costs.[3]

Here are some guidelines on costs issues.

The Default Setting

The basic rule is that the successful party must pay the losing party’s “partial indemnity costs”. Such costs are generally accepted to be roughly 60% to 66% of the actual costs incurred. For this reason, even full success in a claim will not allow for a full recovery of costs.

Adjusted Setting – Offers to Settle

This default rule can be revised by either party making an “Offer to Settle”. If the plaintiff, for example, offers to settle a case for $50,000, it is open to the company to accept this offer at any time prior to trial and pay “partial indemnity costs”. If it does not do so and the case results in a trial award of a sum over $50,000, then the company must pay the full legal costs from the date of the offer forward.

The purpose of the rule is to encourage a reasonable and fair attempt to settle the case.

The defence might also make an offer as well. If the employer offers to settle the same case, for example, for $40,000, similar, but not identical results, will follow.

Firstly, in such an event, if the employee were to accept this offer, the company would have to pay partial costs to the date of the offer.

Should the case proceed to trial and the employee wins, the result critically must exceed $40,000. The definition of “winning” has now changed to be “win over $40,000”. If the judge awards a lesser sum, such as $35,000, it would be a disaster to the plaintiff employee. In such a case, the employee would not only denied costs (from the date of the offer forward) but would also have to pay the employer’s partial costs from the date of the offer to the end of trial.

Employer’s Strategy

Most companies do not want to endure the risk of trial. The mechanics of a reasonable offer to settle can buttress their negotiation position. Clearly, as in this recent case, counterclaims must be used cautiously and only when there is merit. This is certainly the case involving claims of fraud.

An Uneven Playing Field – Employer’s Ad

Generally, most employees cannot accept the same degree of risk as a well-funded company based on a simple question of resources. On one hand, the employee may be risking not only his or her claim but also their personal hard-earned assets. On the other hand, a company may put similar dollars at stake, but these sums would be paid from a corporate account. These are two distinctly different realities.

For that reason, the company’s offer must be scrutinized meticulously. Ironically, often a determined plaintiff employee would prefer that no settlement offers are made prior to trial. In that event, he or she would just need to recover a judgment, no matter the size, to be awarded costs.

Playing Poker with Employee’s Cards

Often plaintiff’s counsel will do a “risk analysis”. This involves an assessment of the difference between the offer made and the expected result. Suppose the offer of $50,000 is made. The first question posed would be – what is the expected recovery in court? Assume that sum is in the range of $75,000.

The next question would be what costs are at risk. The difference between “winning” and “losing” could be as much as $50,000 in costs.

This analysis then turns to the question of whether it is worth the risk of an adverse costs decision to obtain another $25,000? Often the answer is no.

Which Road to Hoe?

When starting a lawsuit, plaintiff’s counsel may often consider other forms of relief in which costs are not an issue. Human rights cases do not award costs in favour of the winner or against the loser.

In Unjust Dismissal cases under the Canada Labour Code, a successful employee can recover costs but cannot be ordered to pay costs should he or she lose.

Take Advice and Understand the Risks

Whether you be employer or employee, It is vital to understand all the risks you face in a lawsuit, including the question of costs. All settlement offers must be reviewed carefully, whether you are making an offer or receiving one.

Both views must be guided by proper and advice. For advice on this issue from either side, contact the offices of Toronto employment lawyers Grosman Gale Fletcher Hopkins. We regularly advise workplace parties on a wide range of legal workplace issues. Contact us online or by phone at 416 364 9599 to schedule a consultation.

[1] Ruston v Keddco

[2] That is, substantial indemnity costs

[3] Wickens v Chambers Insurance