Considering Costs Awards

It is an inevitability that at some point, almost every small business will be involved in a commercial dispute of some kind. Disputes with suppliers over the terms of a contract, unpaid invoices, etc. are all an unfortunate part of any business. While the overwhelming majority of these disputes are resolved by the parties themselves, many business owners are forced to consider pursuing a legal remedy through the courts.

In assessing options, there are a number of factors to consider: preserving the relationship with a customer or client, the feasibility of recovery and the cost of litigation are all relevant factors in determining whether more formal steps are warranted.

A factor often overlooked or misunderstood is the court’s ability to award “costs”. Generally speaking, costs awards are intended to compensate the successful party for the expense incurred as a result of the proceedings. These costs may include legal fees and other expenses, often referred to as “disbursements” (travel expenses, experts, photocopies, long distance phone calls, applicable taxes etc.). Traditionally, there are two ways in which costs will be awarded – on a Solicitor and Client basis and on a Party and Party basis.

Solicitor & client – This is very rare; the successful party receives a full indemnification for the costs they have incurred. The party ordered to pay costs may be directed to pay for the entirety of the other side’s legal fees.  Lawyers often ask for costs on a Solicitor and Client basis but this remedy is seldom granted. An award of this type is traditionally reserved for circumstances in which the other side has conducted themselves in a manner considered “reprehensible” by the court. What will be deemed “reprehensible” behavior is a very high threshold which limits awards of this nature. 

Party and party – Commonly ordered to provide a “substantial contribution” or “reasonable contribution” toward the successful party’s costs. Traditionally this will be less than half of the actual costs incurred, but there is often heated debate over what is a “reasonable contribution” in the circumstances.

In determining the amount of costs on a party and party basis, the court will look at a number of factors including the amount involved, the number of days at trial, the complexity of the issue and attempts by either side to settle the matter before trial.

Successful litigants frequently inquire as to why they should be expected to bear any expense after having successfully prosecuted/defended their action. The rationale is that if the courts made every unsuccessful party entirely responsible for not only their own costs but those of the other side, very few people would be inclined to risk going to court at all. A “chilling effect” of this sort would impact access to justice and keep important disputes away from the courts.

In the Nova Scotia Small Claims Court, litigants are able to recover disbursements (like filing fees, photocopying etc.) only. An Adjudicator of the Small Claims Court does not have discretion to order costs for legal fees.

It is important to make a thoughtful assessment of recovery before entering into any litigation, but it is also important to appreciate the fact that just because one is successful at court, does not necessarily mean that there will be no expense incurred. 

This article is intended for information purposes only and is not intended to be legal advice.  We suggest you contact a legal professional for advice on your particular business and circumstance.