Costs of Litigation

What is an Award of Costs?

An award of costs is an order by the court that a party to a litigation is to pay to the other party an amount for legal fees incurred in respect of the litigation.

Who is Entitled to an Award of Costs?

In civil litigation, it is common for the winner to be reimbursed by the loser for its costs incurred in respect of the litigation. The court has broad discretion to order that costs be awarded as a fixed amount, a percentage, or rather, that no costs be awarded.

In estate litigation matters, however, the costs of all parties to a litigation were historically paid out of the assets of the estate. The historical approach to costs has evolved in Ontario, and the rest of Canada alike, with respect to estate litigation. The courts have moved away from the traditional approach to a modern approach to costs which models that of civil litigation (i.e. the loser pays).

Why is an Award of Costs Made?

Historical Costs Awards in Estate Litigation

The historical practice of English courts was to award costs of all parties to an estate litigation matter payable out of the assets of the estate. The historical practice developed due to the public policy consideration for English courts to give effect to valid wills that reflect the intention of a competent testator. To do so, the English courts awarded the costs of all parties to be paid out of the estate where the litigation arose from either: (1) an ambiguity or omission in the testator’s will or other conduct of the testator; or (2) there were reasonable grounds upon which to question the will’s validity.

Modern Costs Awards in Estate Litigation

The courts now apply the civil litigation approach to costs in estate litigation matters whereby the loser pays either a portion, all, or none of the winner’s legal fees. Though more recently, the courts have also adopted a “blended costs” approach to costs in estate litigation in certain circumstances.

In McDougald Estate¹, the Court of Appeal for Ontario explained that the modern approach to costs in estate litigation correctly allows for courts at first instance to carefully scrutinize the litigation and, unless the court finds that one or more public policy considerations applies, to follow the costs rules that apply in civil litigation.² Most significantly, the Court of Appeal stated that “[g]one are the days when the costs of all parties are so routinely ordered payable out of the estate that people perceive there is nothing to be lost in pursuing estate litigation.”³

In Salter v Salter Estate⁴, Justice Brown scolded the parties for treating the assets of the estate “as a kind of ATM bank machine for which withdrawals automatically flow to fund litigation.”⁵ His Honour further explained that the “loser pays” principle of civil litigation brings needed discipline to the parties and that “given the charged emotional dynamics of most pieces of estates litigation, an even greater need exists to impose the discipline of the general costs principle of ‘loser pays’ in order to inject some modicum of reasonableness into decisions about whether to litigate estate-related disputes.”⁶

In Sawdon Estate⁷, the Court of Appeal suggested that there was nothing in the jurisprudence that would prevent a court from making a “blended costs” costs award from both the unsuccessful party and the estate.

A “blended costs” award was recently made in The Estate of Imgard Burgstaler (disability).⁸ Full indemnity costs were awarded to the winning party to an estate litigation. The structure of payment was such that the losing party was ordered to pay partial indemnity costs to the winning party and the difference was to be paid out of the assets of the estate. The court explained that the blended costs awards gave sufficient recognition to the general costs principle of “loser pays” and the “discipline” that the general principle is intended to encourage.⁹

How are Awards of Costs Determined?

In addition to the common law, costs awards are a product of legislation. In Ontario, section 131 of the Courts of Justice Act¹⁰ bestows discretion to the court to determine by whom and to what extent the costs of a proceeding shall be paid.

In the determination of costs, the court may have regard to the factors set out in Rule 57 of the Rules of Civil Procedure.¹¹ Below are the general factors as set out under Rule 57.01 of the Rules that the court may consider when making an award of costs in any civil litigation matter, including estates litigation:

1. the principle of indemnity, including, where applicable, the experience of the lawyer for the party entitled to the costs as well as the rates charged and the hours spent by that lawyer;
2. the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed;
3. the amount claimed and the amount recovered in the proceeding;
4. the apportionment of liability;
5. the complexity of the proceeding;
6. the importance of the issues;
7. the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding;
8. whether any step in the proceeding was,
1. improper, vexatious or unnecessary, or
2. taken through negligence, mistake or excessive caution;
9. a party’s denial of or refusal to admit anything that should have been admitted;
10. whether it is appropriate to award any costs or more than one set of costs where a party,
1. commenced separate proceedings for claims that should have been made in one proceeding, or
2. in defending a proceeding separated unnecessarily from another party in the same interest or defended by a different lawyer.
11. any other matter relevant to the question of costs.

As stated above, the court may make a costs award for a fixed amount, a percentage, or rather, that no costs be awarded to any party to a litigation. A percentage of costs is determined by a set costs grid enacted under the Rules. The percentages pertains to “partial indemnity costs” and “substantial indemnity costs”.

What are Partial Indemnity Costs and Substantial Indemnity Costs?

Partial indemnity costs is defined under the Rules to mean “costs awarded under the partial indemnity scale of a cost grid established by Part 1 of Tariff A”.¹²

Similarly, substantial indemnity costs is defined under the Rules to mean “costs awarded under the substantial indemnity scale of a cost grid established by Part 1 of Tariff A”.¹³

The cost grid established by Part 1 of Tariff A can be found here:

https://www.ontario.ca/laws/regulation/R01284

What about Full Indemnity Costs?

The court’s discretion to award full indemnity costs is preserved by Rule 57.01(4)(d) of the Rules. However, the court clarified in Zimmerman v McMichael Estate¹⁴ that full indemnity costs are reserved for those exceptional circumstances where justice can only be done by complete indemnity. This is clearly an exceptionally high bar. As such, we suggest that clients should never expect that all of a litigant’s costs will be awarded by the court to be paid on a full indemnity basis.

What are other Issues of Costs to a Litigation?

Assessment of an Award of Costs?

Rule 58 of the Rules governs the assessment of costs where a rule or order provides that a party is entitled to the costs of all or part of a proceeding and the costs have not been fixed by the court. Under such circumstances, an assessment officer will make the costs determination.

Security for Costs

Under Rule 56 of the Rules, the Court may make an order of security for costs. An order of security for costs will be made where: (a) the plaintiff or applicant is ordinarily resident outside Ontario; (b) the plaintiff or applicant has another proceeding for the same relief pending in Ontario or elsewhere; (c) the defendant or respondent has an order against the plaintiff or applicant for costs in the same or another proceeding that remain unpaid in whole or in part; (d) the plaintiff or applicant is a corporation or a nominal plaintiff or applicant, and there is good reason to believe that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent; (e) there is good reason to believe that the action or application is frivolous and vexatious and that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent; or (f) a statute entitles the defendant or respondent to security for costs. The party against whom the order of security for costs is made will be required to deposit security to the court in order to proceed in the litigation, unless the court orders otherwise. The court retains a discretion to vary the amount of security at any time.

Conclusion

As the courts in Ontario have adopted the “modern approach” to estate litigation, clients should never expect that all of a litigants' costs, or indeed any, will be paid out of the assets of the estate. Rather than the rule, an order that costs of litigation are to be paid out of the assets of the estate is now more likely the exception. As stated best by the Court of Appeal for Ontario in McDougald Estate, “[g]one are the days when the costs of all parties are so routinely ordered payable out of the estate that people perceive there is nothing to be lost in pursuing estate litigation [emphasis added].”¹⁵

For recent developments regarding costs decisions please read our blog post: Costs of Estate Litigation: Who Pays the Bill?

---

1. McDougald Estate v Gooderham (2005), 255 DLR (4th) 435, (Ont CA) (“McDougald Estate”)
2. Ibid
3. Ibid at para 85
4. Salter v Salter Estate (2009), 50 ETR (3d) 227 (Ont SC) ("Salter Estate")
5. Ibid at para 6
6. Ibid
7. Sawdon Estate v Watch Tower Bible and Tract Society of Canada, 2014 ONCA 101 (“Sawdon Estate”)
8. The Estate of Imgard Burgstaler (disability), 2018 ONSC 4725
9. Ibid at para 35-36
10. Courts of Justice Act, RSO 1990, c C 43
11. Rules of Civil Procedure, RRO 1990, Regulation 194 (the “Rules”)
12. Rule 1.03
13. Ibid
14. Zimmerman v McMichael Estate, 2010 ONSC 3855 (“McMichael Estate”)
15. Supra note 4

This overview is intended for the purposes of providing information only and is to be used only for the purposes of guidance. This information is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive. Whaley Estate Litigation Partners.