In theory, costs are a non-issue while the act of litigation play out.

Costs, a monetary compensation payable by the loser to the winner of a lawsuit, cannot be determined until a judge declares a victor. That only happens as the curtain draws on litigation.

Canada's Supreme Court wrote:

"The characteristics listed by the court reflect the traditional purpose of an award of costs: to indemnify the successful party in respect of the expenses sustained either defending a claim that in the end proved unfounded (if the successful party was the defendant), or in pursuing a valid legal right (if the plaintiff prevailed). Costs awards (are) in the nature of damages awarded to the successful litigant against the unsuccessful, and by way of compensation for the expense to which he has been put by the suit improperly brought."1

But the boogeyman of costs inevitably raises itself from the get-go in litigation, with each side, especially those represented by lawyers, exchanging Defcon letters each ensuring the other that they'll seek costs when the dust settles. Lawyers are especially good at this when one of the parties is self-represented. Self-represented parties don't know that cost threats are usually meaningless: the winner is eligible to an award of costs whether claimed early, late or not-at-all. In fact, though the rules may vary in some jurisdictions, so entrenched is the rule that costs follow the event, that even if you don't plead costs, the court's will entertain your application if you win at trial.

A colleague sent us a real letter used in a file she was lawyer in and which shows the extent to which some lawyers will go to chill litigants even through their lawyers with this sword of costs and in this case (see image below "the ultimate taking advantage of costs letter), even personally attacking the lawyer herself. A quick suggesting of a referral to the local law society resulted in the letter being withdrawn. This type of tactic shows that the availability of costs and the threat thereof is not an after-judgment matter at all. Instead, many lawyers use it from the get-go to position, to intimidate and to chill the other side.

What Are Costs

Costs compensate the winner of litigation by providing him with an amount of money to offset the legal fees and expenses incurred to get the favourable judgment of a court of law. They are said to follow the event or to go to the ultimate victor of the litigation. As Justice Stromberg-Stein wrote in Vancouver v Zhang:

"The general rule with respect to costs is ... costs of and incidental to a proceeding shall follow the event unless the court orders otherwise. The court maintains residual discretion to depart from the general rule if it is fair and appropriate in the circumstances of the case."

In some ways, the logic of costs is questionable because a matter that has to go to court, especially when each side is represented by a lawyer, usually implies that a point in law, as it framed within the facts of the case, is uncertain and requires judicial interpretation. Why, then, punish the litigant for his and her investment in advancing the illumination of justice?

In BC Minister of Forests, Canadian Supreme Court judge Lebel wrote, at ¶25-26:

"[M]odern costs rules accomplish various purposes in addition to the traditional objective of indemnification. An order as to costs may be designed to penalize a party who has refused a reasonable settlement offer....

"Costs can also be used to sanction behaviour that increases the duration and expense of litigation, or is otherwise unreasonable or vexatious.

"In short, it has become a routine matter for courts to employ the power to order costs as a tool in the furtherance of the efficient and orderly administration of justice.

"Indeed, the traditional approach to costs can also be viewed as being animated by the broad concern to ensure that the justice system works fairly and efficiently. Because costs awards transfer some of the winner’s litigation expenses to the loser rather than leaving each party’s expenses where they fall (as is done in jurisdictions without costs rules), they act as a disincentive to those who might be tempted to harass others with meritless claims. And because they offset to some extent the outlays incurred by the winner, they make the legal system more accessible to litigants who seek to vindicate a legally sound position. These effects of the traditional rules can be connected to the court’s concern with overseeing its own process and ensuring that litigation is conducted in an efficient and just manner. In this sense it is a natural evolution in the law to recognize the related policy objectives that are served by the modern approach to costs."

Or the words of Ontario Court of Appeal judge Feldman in 146778 Ontario Inc.:

"Traditionally the purpose of an award of costs within our loser pay system was to partially or, in some limited circumstances, wholly indemnify the winning party for the legal costs it incurred. However, costs have more recently come to be recognized as an important tool in the hands of the court to influence the way the parties conduct themselves and to prevent abuse of the court’s process. Specifically, the three other recognized purposes of costs awards are to encourage settlement, to deter frivolous actions and defences, and to discourage unnecessary steps that unduly prolong the litigation."

The ultimate taking advantage of costs letterMore recently, in Catalyst Paper, the British Columbia Court of Appeal remarked:

"[C]osts rules should be utilized to have a winnowing function in the litigation process. The costs rules require litigants to make careful assessments of the strength or lack thereof of their cases at commencement and throughout the course of litigation. The rules should discourage the continuance of doubtful cases or defences. This of course imposes burdens on counsel to carefully consider the strengths and weaknesses of particular fact situations. Such considerations should, among other things, encourage reasonable settlements."

Practically speaking, when someone's wallet needs to be broken open to pay costs, they present as an aggregate of two things: the expenses or disbursements such as filing fees, witness fees, jury fees, transcripts and photocopying, and a contribution towards the successful litigant's legal fees - not to 100% but pursuant to a scale set out in the rules of court, often referred to as a tariff.

In Buckland, Justice Wilmer of the Court of Appeal of England noted that:

"What a successful party who has got an order for costs is entitled to recover falls, as is well known, under two headings.

"One heading covers his disbursements; that is to say, money which he has actually had to pay out to other people, such as witnesses, counsel, professional advisers and so forth.

"The other heading is described as costs. This is intended to cover remuneration for the exercise of professional legal skill...."

Many believe that costs means the loser pays the winner's legal bill or fees. This is not true as Justice Bean wrote in Dusome:

"[C]osts have nothing to do with legal fees.... [C]osts of a proceeding may be awarded to a party in spite of the fact that that party's solicitor may not in fact charge the party with any legal fees at all. This is, of course, exactly the situation which arises when the client's legal fees are paid by the ... Legal Aid Plan."

A History of Costs

Of the history of costs, we have written elsewhere. In summary, in R v Brown, Justice Chisholm wrote:

"The recovery of costs ... was unknown to the common law; the courts have no inherent power to award costs, which can only be granted in any case or proceeding by virtue of express statutory authority."

Orkin summarizes the history of costs as follows:

"In England, prior to the amalgamation of the chancery and common law divisions of the court, a distinction existed in the jurisdiction to award costs.

"At common law there was originally no right to costs, but from the Statute of Gloucester onward it was provided that first a successful plaintiff and later a successful defendant should have costs.

"The general rule was that such costs as the law allowed followed the event, but the court had no discretion to award or withhold costs. On the other hand the Court of Chancery had an absolute discretion as to all costs within its jurisdiction, proceeding not from any authority but from conscience and its inherent power...."

Orkin erred as to the initial statute being that of 1278. Costs first showed up in Statutes of the British Realm in 1267, the Statute of Malborough (see 1267: Costs Are Born ... and Borne (A History of Costs)).

In the Supreme Court of Canada, Justice Lebel wrote, in BC v Okanagan (¶19):

"The jurisdiction of courts to order costs of a proceeding is a venerable one. The English common law courts did not have inherent jurisdiction over costs, but beginning in the late 13th century they were given the power by statute to order costs in favour of a successful party. Courts of equity had an entirely discretionary jurisdiction to order costs according to the dictates of conscience.

"In the modern Canadian legal system, this equitable and discretionary power survives, and is recognized by the various provincial statutes and rules of civil procedure which make costs a matter for the court's discretion."

... continue to Part 2 of The Law of Costs: Justice's Boogeyman ....

Editor's note: End of Part 1 of The Law of Costs: Justice's Boogeyman.

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