Ontario Costs Rules in Litigation

The General Costs Framework

The general rule in Ontario civil litigation is that costs follow the event — the successful party is entitled to costs from the unsuccessful party. This is codified in Rule 57.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, which provides that costs shall be awarded unless the court orders otherwise.

However, the court has broad discretion to determine the amount of costs and to whom they should be paid. Rule 57.01(1) lists factors the court may consider, including:

• The result of the proceeding and any offers to settle
• The experience and expertise of the parties' lawyers
• The complexity and importance of the issues
• The conduct of any party (including conduct that unnecessarily lengthened the proceeding)
• The amount of costs that an unsuccessful party could reasonably expect to pay
• Reasonable expectations about the costs the parties would bear

The foundational costs decision is Boucher v Public Accountants Council for the Province of Ontario (2004) 71 OR (3d) 291 (ONCA), which established the modern framework for costs assessment in Ontario and affirmed that the goal of costs is to achieve a fair and reasonable result, not full indemnification.

Partial Indemnity Costs

Partial indemnity costs (formerly called "party-and-party costs") are the default costs award in Ontario civil litigation. They are intended to compensate the successful party for a reasonable contribution toward their legal fees — not full reimbursement. In practice, partial indemnity costs are typically 50–60% of the receiving party's actual legal fees, though this varies with the nature of the case.

Courts set partial indemnity costs based on a reasonable hourly rate for the work done (considering the lawyer's experience and the market rate for similar work) applied to reasonable hours spent (considering the proportionality of the effort to the issues and amounts at stake).

The proportionality principle is central to costs in Ontario. A party that spends $500,000 in legal fees litigating a $100,000 claim will not recover $250,000–300,000 in partial indemnity costs — the court will scale the costs award to what was proportionate to the amounts and issues in dispute.

Substantial Indemnity Costs

Substantial indemnity costs (formerly "solicitor-and-client costs") are approximately 90% of the receiving party's actual legal fees. They are an exceptional award, reserved for circumstances where the losing party's conduct was reprehensible, scandalous, or outrageous — or where a Rule 49 offer to settle triggers an entitlement to enhanced costs.

Conduct justifying substantial indemnity costs includes:

• Fraud, misrepresentation, or deliberate concealment of evidence
• Abuse of the court process or vexatious conduct
• Breach of an undertaking to the court
• Pursuing a claim or defence known to be without merit
• Improper or exaggerated pleadings designed to harass

In Young v Young [1993] 4 SCR 3, the Supreme Court held that solicitor-client costs (now substantial indemnity) should be awarded only where there is a clear and unambiguous finding of reprehensible conduct. The mere fact that a party pursued an unsuccessful claim or defence does not justify enhanced costs.

The most common trigger for substantial indemnity costs in practice is the Rule 49 offer-to-settle mechanism, which is discussed below.

Rule 49: Offers to Settle and Costs Consequences

Rule 49 of the Rules of Civil Procedure creates a powerful costs incentive system for settlement. The rules differ depending on whether the defendant or the plaintiff makes the offer that is rejected.

The Rule 49 costs consequences apply automatically — the court does not have discretion to refuse them unless the offer was not made in good faith or there are exceptional circumstances. The leading case is Walker v Ritchie [2006] 2 SCR 428 (SCC), confirming that Rule 49.10 costs operate as near-automatic consequences except in extraordinary cases.

Key requirements for a Rule 49 offer to attract costs consequences:

• Must be in writing and signed by the party or their lawyer
• Must comply with the formal requirements of Rule 49.02
• Must be open for acceptance (not lapsed or withdrawn) at the time of judgment
• Must be served on the opposing party — not just communicated informally

Rule 49 does not apply to costs motions or interlocutory proceedings — it applies at the trial or final hearing level. Rule 49.13 grants the court discretion to consider offers made that do not comply with Rule 49's formal requirements when exercising its costs discretion generally.

Costs on Motions

Costs on motions are governed by the general costs framework. The general rule is that costs of a motion follow the event of the motion — the successful party is entitled to costs from the unsuccessful party. However, the motion judge has broad discretion:

• Costs in the cause — costs of the motion follow the result of the main proceeding
• No costs — where the motion raised genuine issues or where both parties had mixed success
• Costs to one party regardless of outcome — where the motion was necessary regardless of the result
• Costs thrown away — where an adjournment resulted from one party's default

On summary judgment motions, costs are significant because of the substantial work involved. If the motion is granted, the successful party typically receives partial indemnity costs. If the motion is dismissed, the respondent typically receives partial indemnity costs of defending the motion.

The court assesses motion costs based on proportionality — costs on a simple procedural motion will be modest ($1,500–5,000), while costs on a contested multi-day summary judgment motion can be $20,000–100,000 or more depending on the complexity and amounts at stake.

Disbursements

Costs orders include both legal fees and disbursements. Disbursements are out-of-pocket expenses incurred by counsel in advancing the litigation, including:

• Court filing fees and hearing fees
• Expert witness fees (can be very significant in complex cases)
• Process server fees and costs of service
• Transcript costs for examinations for discovery
• Travel and accommodation for out-of-town proceedings
• Document reproduction and discovery database costs
• HST on professional fees (recoverable as a disbursement where the client is not HST-registered)

Expert witness fees have become a significant issue in Ontario costs. Courts will scrutinize the reasonableness of expert fees and will reduce disbursements where the expert work was disproportionate to the issues or where multiple experts were retained for the same purpose. The losing party is not obligated to fund the winning party's expert shopping.

HST is recoverable as a disbursement only where the client is not entitled to claim an input tax credit — i.e., where the client is not an HST registrant or where the litigation costs are personal, not business-related. Lawyers must include HST on their costs claims where the client cannot recover it as an ITC.

Security for Costs

Under Rule 56, a defendant may move for an order requiring the plaintiff to post security for costs. The court may order security if:

• The plaintiff is ordinarily resident outside Ontario (Rule 56.01(1)(a))
• The plaintiff is a corporation without assets in Ontario to satisfy a costs award
• There is reason to believe the claim is frivolous and vexatious
• The plaintiff is a nominal plaintiff with no real interest in the outcome

The amount of security is at the court's discretion — typically pegged to an estimate of the anticipated costs of the proceeding to a specified stage. If the plaintiff fails to post the required security, the action may be stayed or dismissed.

Courts are cautious about using security for costs to deny access to justice. In Lavallee, Rackel & Heintz v Canada (Attorney General) [2002] 3 SCR 209, the court confirmed that security for costs orders must not effectively bar a meritorious claim by an impecunious plaintiff. The court balances the defendant's legitimate interest in protection from a costs award against the plaintiff's right to have their claim heard.

The Business Corporations Act creates a specific security for costs mechanism for derivative actions and oppression remedy applications — courts may require the applicant to give security for costs where the claim appears unlikely to succeed or where the applicant is motivated by an improper purpose.

Personal Costs Orders Against Lawyers

In rare circumstances, Ontario courts can order a lawyer to personally pay costs that would otherwise be borne by their client — or to reimburse costs that the client was ordered to pay. These orders arise under Rule 57.07 and the court's inherent jurisdiction over officers of the court.

The threshold is high. Personal costs orders against counsel require a finding that the lawyer caused costs to be incurred without reasonable cause, or that costs were wasted through the lawyer's fault — not merely poor judgment, but conduct amounting to abuse of process, bad faith, or breach of professional duty to the court.

Conduct attracting personal costs orders includes:

• Filing materials known to be false or misleading
• Pursuing motions known to be without merit for a collateral purpose
• Advising a client to take a position known to be in bad faith
• Improper communications with a judge (ex parte contacts)
• Deliberately causing adjournments through unpreparedness

In Menchella v Menchella (1999) 98 OAC 153 (ONCA), the court articulated the standard: a personal costs order requires that counsel's conduct be clearly reprehensible. Courts guard against using personal costs orders to chill legitimate advocacy or to second-guess counsel's strategic decisions.

Costs in Family Law

Family law costs are governed by Rule 24 of the Family Law Rules, O. Reg. 114/99, which is distinct from the general civil Rules of Civil Procedure. Under Rule 24(1), a successful party is presumptively entitled to costs. Rule 24(4) sets out factors including the reasonableness of the parties' positions, whether the case could have been resolved earlier, and the best interests of children.

Rule 18 of the Family Law Rules creates the family law equivalent of the Rule 49 offer to settle — an offer that satisfies the formal requirements can shift costs obligations. Courts apply Rule 18 to encourage settlement of family law proceedings and to discourage positional litigation.

Costs awards in family law proceedings involving children are particularly complex — courts are reluctant to award significant costs against a party whose primary concern was their children's best interests, even where their position was ultimately unsuccessful, to avoid deterring parents from raising genuine child welfare concerns.

Frequently Asked Questions