Wednesday, May 26, 2010

Double Costs at the Small Claims Court

Landmark decision by the Divisional Court. But first, some background.

Small Claims Court has always had a limited ability to award costs. s.29 of the Courts of Justice Act limits the costs to be recovered to 15% of the amount claimed, unless the Court thinks it necessary to punish a litigant for unreasonable behaviour in the course of the litigation. This has not been changed.

Note that it's the amount claimed, not the amount recovered. If a plaintiff claims $25,000, and only recovers $5000, then the s.29 cap is still 15% of the $25,000. (No guarantee on getting that full amount, but still useful. If you've got a strong case, it can be a good idea to inflate the amount of the claim to increase the Court's costs jurisdiction.) Also, if there's a counterclaim, that amount is considered cumulatively. If I sue you for $25,000, and you counterclaim for $25,000, then the maximum costs awardable is 15% of $50,000.

The Old Rules

Until July 2006, however, the Rules of the Small Claims Court set a dollar-figure cap for costs. If you retained a lawyer to represent you from start to finish, and you were completely successful in your claim after a full-day trial, then - aside from your disbursements (some of which will be awarded fully and some orders which you would find woefully inadequate) - you might have recovered $50 for preparing and filing the pleadings, and you might have recovered up to $300 as a representation fee. For paralegals or articling students the representation fee cap for your recovery was reduced to $150.

Let's do some hypothetical math here: Suppose your lawyer bills $200 per hour, and the trial took 4 hours. You're already $450 in the hole on your legal fees if you get that maximum, without even considering the many hours your lawyer spent prior to the trial preparing the case, preparing the pleadings, meeting with you, reviewing and preparing documents, etc. Thousands of dollars easily. At a time when the jurisdiction of the Small Claims Court was $10,000, a lawyer would often cost more than what you would get at the end of the day if successful.

But then there's Rule 14, which deals with Offers to Settle. If you make an offer to settle (which meets certain criteria) which the other party doesn't accept, then you do better at trial, you can get "double costs". So the above-noted $300 representation fee becomes $600. Nice, but still doesn't make much of a dent in the actual legal fees.

And everything was considered to be subject to the 15% provision from the CJA. After all, that's what s.29 meant, that despite the dollar amounts listed in the Rules, it couldn't exceed 15%.

The New Rules

The $300 costs maximum was replaced by "a reasonable representation fee". The $150 costs maximum for paralegals/students was replaced by "half of the maximum costs that may be awarded under section 29 of the Courts of Justice Act."

The double costs provisions from Rule 14 remained unchanged, however, as did s.29 itself (the 15%).

So the question becomes this: If, in the ordinary course, I can obtain a costs award for 15% of the claim amount, and I make a Rule 14 offer which is not accepted, then I do better at trial...what is the consequence of Rule 14? Can I get double the 15%? Or does the 15% cap 'trump' the double cost provision?

I was at a conference last year where this was discussed. Some Deputy Judges have found that the 15% cap is doubled by Rule 14. Some Deputy Judges have found that Rule 14 is subject to s.29, so 15% can not be exceeded.

At least one judge, in a clever bit of sophistry, held that the refusal to accept an offer that's better for you that what you eventually get at trial is inherently unreasonable conduct worthy of punishment, thus getting into the s.29 exemption for the 15% cap.

Thus, it wasn't established law.

More Recent Developments

As of January 1, 2010, the Small Claims Court has jurisdictions over claims of up to $25,000. Before, it was $10,000. When cost caps are determined by percentage of the claim amount, suddenly costs are looking a lot more significant.

The Landmark Case

Barrie Trim v. Heath et al., 2010 ONSC 2598 (CanLII)

BTM was sued in Small Claims Court for $10,000. In November 2007 they formally offered to settle the matter on the basis of a dismissal of the action without costs. The offer was not accepted, and the matter went to trial. The plaintiffs were successful at trial, but BTM appealed to the Divisional Court and the judgment was set aside. This decision by the Divisional Court regarded costs, both on the appeal and at the Small Claims Court.

BTM sought $3000 for its representation fee at the Small Claims Court - 30% of the amount claimed - and therefore the question became the effect of the November '07 offer. Ultimately, obtaining a dismissal of the action was clearly a more favourable result than was obtained in the offer, so the Divisional Court finally had to wrestle with the question of whether or not the current Rule 14 could relieve against the limit in s.29.

The Divisional Court looked at a persuasive Small Claims Court decision: "if the 15% “cap” could not be doubled under Rule 14.07 without offending s.29, then the effectiveness of the cost consequences aspect of Rule 14 is undermined and in many cases would be drained of any real meaning." The Court found this reasoning persuasive, and held that Rule 14 can relieve against the s.29 limit.

Food for Thought

I sue you for $25,000. You counterclaim for $25,000. I serve an offer to settle that involves you paying me $20,000, and you refuse to take it. At trial, I win the full amount of my claim and your counterclaim is dismissed.

I can be awarded a representation fee of up to ([$25,000 + $25000] * 15%) * 2, or $15,000.

That's not bad, actually. Considering that the Small Claims Court process is relatively brief and expedient, and considering that even at the Superior Court you're usually only looking at getting a contribution towards legal fees, we're starting to get into numbers in Small Claims Court that could actually reflect reasonable legal expenses - certainly a stark contrast to the $300 cap of four years ago.

With the expansion of the Small Claims Court jurisdiction, more and more claims for significant amounts of money will be made in the Small Claims Court venue. If a client comes to me with a $25,000 claim, I can now tell her that, with a good offer to settle, and if successful at trial, she might recover up to $7500 in legal fees, which could be a significant portion of the total fees. In the past, retaining a lawyer for Small Claims Court was a problem because, even if you win, you still lose after paying legal fees. Nowadays that is not necessarily the case.


This Blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

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