Civil Litigation: What Do “Costs” Really Mean?

The word “costs” can mean many different things. Generally speaking, “costs” typically refers to the price of a product or service. In the legal world, “costs” has a more specific meaning.

What Are “Costs”?

Costs are the amounts awarded to one party in a litigation matter if they are successful in the action. The intention is to award the successful party partial compensation for bringing (or defending) an action, the idea being that a party should not have to bear their own costs when they have been wronged. Essentially, a costs award is payable by the unsuccessful party to the successful party as compensation for their troubles.

Types of Costs:

There are three types of costs that can be awarded, and basically represent the maximum amounts you might expect to recover from the other side if you are successful in your litigation. The lowest level of costs are called party and party costs, the next level is solicitor and client costs, and the final level is solicitor and own client costs.

Party and Party Costs

In most cases, a costs award will be made on a party and party basis. Party and party costs are not designed to compensate the successful party for all of their legal bills. In fact, costs typically only cover a small percentage of the actual legal costs in a litigation matter. Instead, the court will look to the Rules of Court, where each step in the litigation matter is compensated for based on the fixed amount set out in the tables of Schedule C. The amount of costs awarded depend on the value of the claim. For instance, if your claim is over $50,000.00 but under $150,000.00, your claim will fall into column 2 of Schedule C, and you can expect to recover the amounts listed under those columns. Before setting your expectations too high, it is important to remember that a cost award is highly discretionary, meaning a judge can make any order with respect to costs that they think is appropriate given the circumstances.

While it may seem unfair to the successful party that they had to spend money in order to enforce their rights, there are principled reasons for only partially compensating successful parties for their efforts. The justification for only partially compensating successful litigants is an attempt by the justice system to strike a balance between the victorious party’s right to compensation and the losing party’s right to access to justice. If, for example, the courts awarded more than party and party costs on a consistent basis, litigants with legitimate questions for the courts may be prevented or dissuaded from continuing their matters when faced with the prospect of paying for their opponent’s entire legal bill, and the pursuit of justice could suffer as a result.

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Solicitor and Client Costs

The courts are typically hesitant to award more than party and party costs, and, the court should only depart from awarding party and party costs in rare and exceptional circumstances. Those rare and exceptional circumstances can include a prior agreement between the parties that contemplates costs, like a contract, or bad conduct by the losing party over the course of the litigation, or fraud by the losing party. Costs are not supposed to be a punishment for the losing party, although the characteristics of solicitor and client costs may make it seem like a punitive remedy. The award of solicitor and client costs are reserved for conduct in litigation that is reprehensible, scandalous or outrageous, and serves to voice the courts displeasure with the conduct of the party who the costs award is made against.

Solicitor and client costs come closer to fully indemnifying the successful party for their litigation costs and are a degree of compensation than party and party costs, although it still will not compensate you for all of your legal costs throughout the matter. Solicitor and client costs can compensate the successful party for all costs that can be said to be essential to and arising within the four corners of the litigation. That is legalese for it has to be related to the litigation to be included in solicitor and client costs, and not just approved by the client. Sometimes a lawyer will provide a service to a client that is not absolutely necessary to the action. This could include negotiations on your behalf, selecting appropriate witnesses, and other services that are not necessarily directly within the litigation matter, and those extra services cannot be included in solicitor and client costs.

As always, costs are in the discretion of the court, so the judge can essentially award costs as they see fit. They are not stuck in rigid categories, and can determine the amount of costs awarded based on the totality of the circumstances. Before initiating a lawsuit remember that judges can be unpredictable, and the expectation should never be that you will get all of your legal costs back from the other side.

Solicitor and Own Client Costs

The court, in extremely rare circumstances, can go beyond awarded party and party costs to complete indemnification by awarding solicitor and own client costs. Solicitor and own client costs, or full indemnification, can include costs for “frill and extras which the client should reasonably pay its own solicitor”, which were authorized by the client, but do not necessarily fall within the reasonable steps necessary for the litigation. Because the award of solicitor and client costs is already set at the high standard of conduct that is reprehensible, egregious, scandalous or outrageous, the award of solicitor and own client costs is practically impossible except where provided for by contract.

Many clients come to Ahlstrom Wright with the expectation that if they are successful in their matter, they will get all of their legal costs reimbursed by the other side. This is almost never the case without a prior agreement. Clients should manage their expectations before pursuing a lawsuit, and know that the costs that the court might award will not cover all of their legal fees. It may be helpful to analyze the situation from a cost-benefit perspective. The lawyers at Ahlstrom Wright see these kinds of issues every day, and can help you determine the risks of proceeding with litigation, the likely outcomes, and the cost. The lawyers at Ahlstrom Wright can also help you pursue alternative dispute resolution mechanisms, and reach resolutions that work for all the parties involved. Contact Ahlstrom Wright to determine your options. Ahlstrom Wright has offices in Sherwood Park, Alberta and Yellowknife, Northwest Territories.