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The price is right…or is it? Judicial guidance on the “reasonableness” of costs in an action

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Legal fees and disbursements are important factors to be considered at every stage of litigation.  Before commencing litigation, a party must assess whether the potential costs justify making a claim at all—i.e. “Does the amount I’ll likely recover outweigh the costs I’ll likely incur in recovering it?”

Throughout the litigation, a prudent party will frequently revisit the question of whether a particular motion, response or position is warranted, in light of the associated costs and the likelihood of recovering those costs from the other party.  Critically, when making any offer to settle, a litigant must carefully consider whether the quantum of costs sought in the offer is reasonable, and whether the overall offer is enough of a “bargain” to be attractive to the other side.

In a recent decision, the Ontario Superior Court of Justice addressed the quantum of legal costs that a successful plaintiff can reasonably expect to recover in a wrongful dismissal action.  Although this decision followed a settlement (rather than a full trial), the judge’s assessment of costs provides a helpful illustration of how the court will assess the “reasonableness” of a litigant’s claim for legal fees and disbursements.

In Campbell v. Norbury, the Plaintiff sued her former employer for wrongful dismissal, and her former supervisor for intentional infliction of mental distress. The parties attended examinations for discovery, and were just days away from attending a pre-trial conference when the Defendants made an offer to settle based on $15,000, plus the stipulation that “the Defendants shall pay to the Plaintiff her disbursements and costs of this Action in an amount to be assessed or agreed, pursuant to the Rules of Civil Procedure.”  Although the Plaintiff accepted the offer shortly after the pre-trial, the parties were unable to agree to the quantum of costs and therefore requested that the pre-trial judge, Justice A.K. Mitchell, conduct an assessment of costs.

In her submissions to Justice Mitchell, the Plaintiff requested $15,110 for legal fees and $5,916.36 for disbursements (plus HST on both). The Defendants, on the other hand, argued that the Plaintiff was not entitled to any legal fees or disbursements because she settled for such a modest amount, and the payment of costs would be disproportionate to the quantum of the settlement.

Her Honour found that the wording of the Defendants’ offer to settle implied that the Plaintiff was entitled to some costs, and that it was not open to the Defendants to argue that no costs were warranted. Justice Mitchell did, however, agree with the Defendants that some of the Plaintiff’s claimed costs were excessive, and so those costs were disallowed. In that regard, Her Honour made the following observations regarding the costs that were disallowed:

(a)  The amendments to the statement of claim in the amount of $1,285.50 since such amendments plead additional causes of action not found in law. Ultimately, the amended claim was never issued.

(b)  The disbursements in respect of the expert report in the amount of $1,236.  The expert was retained to provide opinion evidence on the very issues which the trial judge and jury are to decide and, therefore, such a report would not be proper or admissible at trial in any event.

(c)  Medical record transcription in the amount of $337.  A cheque in the amount of $250 was paid on account of medical record transcription and thus the plaintiff has been reimbursed its costs.

(d)  On-line research in the amount of $357.97. Free services are available on-line.  Regardless, research properly forms part of the overhead of a firm and is not a separate disbursement.

(e)  The pretrial conference in the amount of $4,102.50.  The Offer was presented in advance of the pretrial conference despite the date of its acceptance.  Accordingly, the plaintiff is not entitled to the costs of the action following the date of the Offer, including the costs of the pretrial.

(f)   Costs of the motion for judgment in the amount of $769.50 were awarded in respect of the motion for judgment and have already been paid by the defendants to the plaintiff.  The plaintiff cannot recover twice.

Justice Mitchell ultimately determined that the Plaintiff was entitled to $9,716.50 for legal fees and $2,003.80 for disbursements (plus HST on both)—i.e. less than 2/3 of the fees claimed, and barely 1/3 of the disbursements claimed.

What can we learn from this decision?  Justice Mitchell has confirmed some basic principles of cost awards that litigants and their lawyers should bear firmly in mind:

  • A successful litigant will be entitled to reasonable costs of the action, subject to any agreement between the parties to the contrary.  Where a party has accepted an offer to settle that provides for that party to receive costs as “agreed or assessed”, it is disingenuous for the offeror to subsequently assert that no costs are payable.
  • When determining the appropriate quantum of costs, a judge will consider the reasonableness of a lawyer’s rates and hours of work, and particularly the usefulness of such hours and whether there was value or purpose associated with those hours.  In addition, the judge will consider the complexity of the action, the importance of the issues, the stage of the action, and other case-specific factors.
  • Disbursements will be carefully scrutinized and scrupulously assessed.  The party claiming a disbursement must show that the expense was reasonably necessary in the course of the action.  If the party cannot establish that, the disbursement will be reduced or denied.
  • In order to avoid the uncertainty associated with the court’s assessment of costs, a prudent party should either specify the amount of costs to be paid as part of an offer to settle or reach an agreement with the other party as to costs.
  • Although the quantum of damages claimed and the quantum of damages ultimately recovered (whether via court order or settlement) are important factors in assessing the reasonable quantum of costs, those factors are not determinative.  Moreover, proportionality is a less important factor in assessing costs in a settlement context as compared to the costs following a full trial.  In the Campbell case, the Plaintiff was awarded over $13,000 in costs and disbursements, despite having settled on “damages” of only $15,000.

Courts rarely award costs on a full-indemnity scale. Judges will scrutinize a claim for costs against a standard of reasonableness, and may exclude or reduce fees or disbursements that were incurred by the litigant. In that sense, a litigant should expect that a court will award the “price [that is] is reasonable” instead of the “price [the litigant believes] is right.”

Jennifer Heath


To learn more about the author of this article Jennifer Heath or our other employment lawyers, please contact us today.