Legal system's losers
Canadian courts that award financially punitive
lawyers' costs create a `huge barrier' to legal
access, say judges and lawyers
BILL SANDFORD FOR THE TORONTO STAR
Peter Aunger and Christine Feaver, of the
Inverhuron and District Ratepayers
Association, battled mighty odds and a
system that penalizes losers when they took
on government departments backing a
radioactive waste dump near their home.
2007 04:30 AM
LEGAL AFFAIRS REPORTER
Middle-class Canadians who turn to
the justice system risk being wiped out financially
by a "loser-pay" costs system that urgently needs
reform, a growing number of judges and lawyers say.
The system, which began in England
more than 700 years ago, has long been seen as a way
of improving access to justice because the winner in
a courtroom showdown can recoup some or all of their
legal expenses from their opponent.
But with cost awards tied to
lawyers' hefty fees and the number of hours spent on
cases, these awards frequently stretch into tens and
hundreds of thousands of dollars.
Britain's highest-ranking judge has
described cost awards as the "Achilles heel" of
Justice Dennis Lane of Ontario's
Superior Court of Justice says the system, partly
aimed at deterring people from bringing baseless
lawsuits, is "ruinous."
"I have difficulty with the
proposition that in order to deter some frivolous
lawsuits, we saddle people who have the misfortune
to lose an arguable case with sums of money that can
be two or three times the average income of an
employed person," Lane said in an interview.
"I don't know that we ought to be in
the business of discouraging people from turning to
the courts because they fear the financial
consequences of losing. That's why we exist. We
exist so they can pursue their legal rights."
In Canada, costs are awarded to the
winner in most civil cases, although usually not the
full amount requested. Courts are guided by case law
in awarding costs, but they have complete discretion
in determining the final amount. In rare cases that
raise important public issues, judges sometimes
choose not to award any costs.
Courts have lately fixed principles
aimed at ensuring cost awards are "fair" and
"reasonable" and in keeping with what the loser
could expect to pay. Even so, the awards still soar.
On March 5, the Ontario Divisional
Court upheld an award ordering Jazz Air Inc. to pay
$160,000 in costs to Porter Airlines for a hearing
that lasted just a single day, even though Justice
Gladys Pardu noted the amount was "enormous."
And last year, Divisional Court
upheld a $610,700 award to lawyers representing
plaintiffs in a proposed class-action lawsuit
brought against a heart valve manufacturer. The
award was a record for a class-action case – and,
remarkably, only covered legal costs associated with
early, albeit complicated stages of the case, which
still has yet to settle or go to trial.
In certain jurisdictions, the usual
costs rule has been modified. In British Columbia,
for example, costs typically aren't awarded in
The issue of costs has been so troubling that
judges across Canada routinely slash bills presented
by the winning parties.
"The losing party is not to be treated as a money
tree, to be plucked willy-nilly by the winner of the
contest," Justice Gordon Killeen of the Ontario
Superior Court of Justice said in 2002 after a
lawyer presented the court with a $101,766 bill for
an eight-day jury trial.
The jury had only awarded his client $155,000 in
damages. Killeen decided the lawyer was entitled to
Tom Heintzman, a Toronto lawyer and
bencher of the Law Society of Upper Canada, said
when he discusses the "loser-pay" costs rule with
lawyers from countries that don't have legal systems
grounded in common law, the response is "amazement."
"People in those countries say to
me: `That's a huge barrier to justice. It would
never be permitted in our country,'" Heintzman
recalled in a paper presented at a recent legal
"The real impediment is the
uncertainty of the total costs of the action."
People who want to challenge the
government or other institutions with deep pockets
incur the greatest risk, Lane said. Three years ago,
he raised concerns about the loser-pay system in a
case that pitted a Toronto investment company
against the Bank of Nova Scotia.
Lane ruled for the banks, but would
not award the full amount it sought in costs,
including $64,200 for an expert witness. If costs
were set in the normal manner, the bank would have
been entitled to about $240,110 as partial
repayment. Lane allowed $100,000, including $34,200
for the expert.
"What middle-class person would
dream of financing an action, however meritorious,
against an opponent capable of spending the sums
illustrated by the bill of costs of the bank, when
the penalty for losing is financial disaster?" Lane
asked in his judgment.
But while cost awards can be ruinous
and "frightening," litigation could be even more
financially disastrous if there was no chance of the
winner being able to offset expenses through an
award, said Toronto lawyer Mark Orkin, author of a
leading textbook on the subject.
Lane said moving to a more
predictable "fixed"-costs system might be an option.
At present, costs are generally tied to how much the
winner has spent on lawyers, he said.
A fixed-costs system was introduced
in England and Wales three years ago for personal
injury cases involving damage claims of less than
For example, if a person sues for
injuries from a traffic accident and wins, they
would get a base fee of $1,600 for legal expenses.
In out-of-court agreements, legal costs end up as a
percentage of the settlement.
Plans are to expand the system to
other kinds of cases, including defamation, and to
set fixed fees for expert witnesses, said Robert
Musgrave, chief executive of the Civil Justice
Council of England and Wales.
Heintzman has suggested limiting
costs to no more than 30 per cent of the total
recovered by the winning party in a case.
He says another option is to allow
litigants to serve opponents with a "no-costs
notice" at the outset, offering to have claims tried
without any costs being awarded against the losing
Perhaps even more radically,
Heintzman suggests lawyers outline a budget for
clients, spelling out estimated costs of the
proceeding, to "bring home" the economic
consequences. At the end of the case, the losing
party could ask a court to award costs based on the
lawyer's initial estimate.
"The justice system is losing
customers because the costs are too unpredictable
and are potentially out of proportion to the amount
in issue," he said.
"Other businesses and institutions
tell their customers the cost of using them, so why
shouldn't the justice system?"