Why is litigation expensive?
Litigation is expensive largely because of the amount of effort and attention to detail that is required. Litigation is not like your ordinary argument or business deal. Litigation requires a level of rigour unlike almost any other normal activity.
In litigation, the stakes are high for the parties and the Courts demand a high level of ‘proof’. The Courts do not rely on bald statements, or conjecture or guesses or estimates. In civil matters, the Courts require ‘proof on a balance of probabilities’ (50%) on actual evidence before the Court. In estate litigation, this often means written affidavit evidence with documents attached as Exhibits, all of which is subject to cross-examination.
This evidentiary burden is high because the Courts have enormous power to impose decisions on parties, so before they do so, they want to have all the facts before them and they genuinely want to try to make the right decision. Judges simply hate making rash, ill-formed decisions that could be wrong, unfair, or embarrassing.
As a result, in litigation the parties must spend enormous amounts of energy collecting and presenting the facts, and sometimes, in attacking the version of the facts presented by the other parties.
Initially, each party must pay their own costs.
Ontario follows the ‘loser pays’ rule. At the conclusion of litigation, the loser usually must pay the winner, in addition to any amount awarded, ‘a portion of the winner’s legal costs’. This portion usually ranges between 30% and 70% of the winners actual costs (it is not full indemnity). Thus, the winner must pay a portion of their own costs, and the loser must pay 100% of their own costs and a portion of the winner’s costs.
Estate litigation in Ontario now follows this rule. It is not the case that most legal fees for estate disputes will automatically be borne by the estate
In estate litigation, sometimes a portion of a party’s legal fees are borne by the estate.
- For instance, if the estate trustee acts reasonably and incurs reasonable legal expenses defending the estate (not defending themselves) their legal fees will be reimbursed from the estate.
- Conversely, an estate trustee is not always entitled to have their legal fees paid by the estate. In particular, when an estate trustee fights to defend their own personal interest (such as their inheritance from the estate) then their legal fees are not a cost of the estate.
- In estate litigation, if a party (for instance a beneficiary) is compelled to commence proceedings in order to force the estate trustee to perform their obligations properly, then that party has a strong argument that some (and perhaps all) of their legal fees should be reimbursed by either the estate trustee or the estate.
If your claim fails (or your defence is rejected) you may be liable for costs to the other side.
If you start a claim, you cannot just arbitrarily abandon or discontinue it without some potential liability to the defendant for costs.
The risk of being liable to the other side for ‘costs’ cannot be entirely eliminated but it can be controlled and we are vigilant to ensure that our clients do not incur unnecessary liability. In estate litigation, the over-arching requirement is that you “should be reasonable”:
- Do not to take unreasonable positions;
- Do not make unreasonable accusations;
- Do not take unnecessary steps or force unnecessary actions on the other side;
- Make reasonable offers to settle;
- Accept reasonable offers from the other side.
Partial Indemnity, Substantial Indemnity and Full Indemnity
If Party A is to receive ‘partial indemnity’ of their costs from Party B, Party A will likely recover approximately 20-40% of the actual amount they incurred in legal fees from Party B. In other words, Party A will have to pay 60-80% of Party A’s legal fees, and Party B will pay the remainder. Partial indemnity costs are the norm.
If Party A is to receive ‘substantial indemnity’ of their costs from Party B, Party A will likely recover approximately 50-80% of the actual amount they incurred in legal fees from Party B. In other words, Party A will have to pay 20-50% of Party A’s legal fees, and Party B will pay the remainder. Substantial indemnity costs are common where Rule 49 settlement offers are involved (see below) and to sanction ‘inappropriate behaviour’.
If Party A is to receive ‘full indemnity’ of their costs from Party B, Party A should recover 100% of the actual amount they incurred in legal fees from Party B. In other words, Party A will have to pay 0% of Party A’s legal fees, and Party B will all of them. ‘Full indemnity costs’ are not common outside the world of prior contractual agreements (for instance, in banking and loan agreements, mortgages, guarantees and the like).
Offers to settle
Settlement offers can dramatically affect “who pays who what costs”.
In Ontario, Rule 49 of the Rules of Civil Procedure establishes some very important tweaks to the basic rule that the “loser pays winner a portion of winner’s costs”.
To encourage settlement, Rule 49 changes the general rule for costs to:
A who party who achieves a better result at trial than they offered to settle for is usually entitled to recover from the other side partial indemnity costs to the date of their offer to settle, and substantial indemnity costs from that point forward.
Thus, a defendant, even if they ‘lose’ at trial, can recover ‘costs’ from the plaintiff.
Here is an example:
A sues B for $100.
B offers to settle by paying A $75. A rejects the offer.
A obtains judgement at trial against B for $50.
Note that “A has won their case against B”, but for less than they hoped.
A would receive $50 from B, but B would be entitled to recover back from A ‘partial indemnity costs to the date the offer was made, and substantial indemnity costs from the date of the offer to the end of trial’. So if B’s costs were $10 to the date of offer, and $20 from offer to trial, B might recover back from A $15 (30% of $10 + 60% of $20 = $15). Clearly, A would have been much better off to accept B’s offer, as A would have received $75, rather than netting $35 before paying their own lawyers, and this after enduring all the cost and stress of a trial.
We believe very strongly in using well thought out offers to settle to put pressure on the other side to settle. A good Rule 49 offer puts the receiving party under significant, enduring pressure, as they are now gambling that they will ‘beat your offer at trial’ by a wide margin to end up better off. A good Rule 49 offer should not be a ‘low ball’. It should be a very realistic assessment of the amount at risk.
To some degree the costs of litigation are out of your hands – they are, in part, dictated by the process and how the other side behaves.
However, you can dramatically affect your litigation costs by:
- Remaining focused on key issues and not getting distracted with petty squabbles;
- Taking and maintaining reasonable positions and not allowing yourself to be sucked into opposing everything that the other side puts forward;
- Providing your counsel with full, well organized factual records as early as possible. The most expensive part of litigation that you can control is ‘collecting your version of the facts’.
- Seeking early settlement, including through mediation and via reasonable offers to settle.