Commercial Litigation and Dispute Resolution Blog

In the recent Court of Queen’s Bench of Alberta decisions of Weatherford Canada Partnership v. Addie, 2018 ABQB 571 and Remington v Crystal Creek Homes Inc, 2018 ABQB 644, the Court addressed how costs should be calculated following litigation. Although court costs are awarded at the end of court applications or trials and are almost always awarded in favour of the successful party, they should not be considered an afterthought. Determining court costs ought to be an important consideration for litigants and their counsel, and counsel can often take steps to significantly increase potential recovery and decrease potential exposure to awards of court costs. This post will address what court costs are, the ways they can be awarded, and steps that can be taken to address them.

What are court costs?

Court costs are the costs involved in handling a case by which Judges in all cases have the discretion to award court costs. All provinces in Canada and almost all common law jurisdictions have adopted the “English system” of “loser pays” court costs.

Historically, under the English system, successful litigants were awarded approximately 40-50% of their actual legal expenses. The purpose behind the policy was to:

• Discourage frivolous claims,
• Encourage settlement of meritorious claims, and
• Allow a party that has successfully defended a claim to recover a portion of its legal costs.

What factors inform how costs are awarded?

Judges have discretion to determine the amount of costs as well as the method for determining those costs based on several factors. Some of these factors include:

• The parties’ conduct during the litigation,
• The complexity of the case,
• The amount involved, and
• The importance of the case to the parties and society generally.

It is very unusual for a party to be awarded all of its legal costs—referred to as full indemnity or solicitor-client costs. Full indemnity cost awards are rare and generally reserved for exceptional cases where a party’s behaviour was dishonest, scandalous or outrageous.

In the vast majority of cases, judges award the successful party partial indemnity costs. In Alberta, judges frequently refer to a cost tariff known as Schedule C to the Alberta Rules of Court.  Unfortunately, Schedule C has not been updated for over 20 years. Because the costs listed in Schedule C are so out-of-date as compared to current legal costs, applying the tariff results in cost awards of only 10-15% of the actual legal costs incurred. As a result, judges have resorted to various approaches to arrive at cost awards approaching 40-50% of the actual amount expended.

In the recent case of Weatherford Canada Partnership v. Addie, 2018 ABQB 571, Justice Shelley surveyed a number of cases addressing costs in Alberta. She analyzed and summarized cases that used various methods to calculate costs including:

• A percentage of complete indemnity,
• An adjustment to the Schedule C tariff by changing the column, multiplying the column or applying an inflation factor to the tariff amount, and
• A hybrid approach where costs for different portions of the case are assessed differently.

When making cost awards today, judges frequently use all of the methods Justice Shelley analyzed in Weatherford.

What strategic steps should be taken to address costs?

There are certain measures that litigants can take to either increase their cost award if successful, or limit exposure to costs if unsuccessful. A plaintiff can make a formal offer to accept an amount less than the full amount of its claim. If the formal offer is not accepted and the plaintiff obtains a judgment larger than the offer amount, the Alberta Rules of Court provide that the plaintiff should receive double costs from the date of the offer onward.  Similarly, a defendant can offer to pay an amount less than the full amount claimed, and if the plaintiff is awarded less than the amount offered, the defendant is entitled to costs from the date of the offer onward even though it was unsuccessful in the case. The rationale behind these cost rules is designed to increase the likelihood of settlement.

Successful litigants should always advocate for a substantial award of costs. If a winning party does not ask for increased costs, they will also almost certainly be awarded costs under the tariff resulting in a disappointing recovery of only 10 or 15% of the actual costs incurred. Increased costs should be sought by explaining why the case was complicated and important and by pointing out any other factors that might support a higher costs award. Most importantly, the successful party should ask for cost recovery of at least 40% of the actual legal costs by inviting the judge to use any of the methods referred to by Justice Shelley in Weatherford to increase the costs award.

There have been several recent awards by Alberta courts where judges have increased costs using the various methods available to them. See for example, Remington v Crystal Creek Homes Inc, 2018 ABQB 644, where Justice Jones made a cost award of 40% of the legal costs actually incurred by the applicant. Interestingly, Justice Jones noted that when it was formulated 20 years ago, Schedule C was designed to provide 40-50% indemnity in a typical case. Because the amounts included in Schedule C are now 20 years out of date, substantial cost awards must be sought to achieve the level of recovery originally contemplated the last time Schedule C was revised..

Successful litigants should always ask for a substantial cost award and provide the judge with the information and rationale to justify and make such an award. With court costs—as with many other things in life—if you do not ask, you will not receive.