September 26, 2022

In Canada, at the end of a court proceeding, a judge will often order one party (usually the loser) to pay a portion of the other party’s costs. Costs are awarded at the judge’s discretion. As set out in s. 131 of the Courts of Justice Act, RSO 1990, c C.43: “… the costs of an incidental to a proceeding or a step in a proceeding are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid.” In order to assist the judge in exercising her discretion, and to provide some guidance to the parties when making arguments for costs, rule 57.01 sets out a non-exhaustive list of factors the court may consider when making a cost award.

There are multiple purposes of cost awards. They can be used to sanction a party for conduct during the proceeding, thereby discouraging improper behaviour. Cost awards also act as a deterrent, discouraging parties from bringing baseless claims by increasing the financial risk of doing so. However, in order to ensure that costs do not act as a barrier to accessing justice, the cost deterrent cannot be too strong: otherwise, parties with legitimate claims may chose not to advance them simply because there is some risk of failure.

In order to balance these policy considerations, parties are usually awarded a portion of their legal fees (usually 60% or less, referred to as “partial indemnity costs”). In some cases, the court will award a party a higher portion of their legal fees (referred to as “substantial indemnity costs”). Only in rare cases will a party recover the full amount of their legal fees (referred to as “full indemnity fees”).

The cost decision released in Falsetto v Falsetto et at, 2022 ONSC 5089, is an example of when substantial indemnity costs may be awarded. In that case, Salvatore alleged that his son, Sam, had stolen all of his money, committed elder abuse, and breached his fiduciary duty by wrongfully putting the properties Sam purchased (using the purportedly stolen funds) in his own name rather than in Salvatore’s name. As part of his lawsuit, Salvatore sought to recover $11.5 million in damages from Sam. After a six week trial, the judge found that there was no merit to any of Salvatore’s claims. Rather, the judge found that Salvatore had gifted the funds to Sam over a period of several years, as confirmed by multiple third party witnesses.

Having been entirely successful at trial, Sam sought to recover $1 million in costs, calculated on a substantial indemnity basis. Salvatore argued that he should only be required to pay $100,000 in costs because, in part, he was impecunious and had been successful on some interim motions.

In reaching his decision, the judge took into consideration the following factors:

(i) Sam was entirely successful at trial: Salvatore did not obtain any of the relief he was seeking.

(ii) Salvatore’s allegations against Sam were very similar to allegations of fraud, which were a serious attack on Sam’s integrity.

(iii) While not every unsuccessful allegation of fraud will result in an award of substantial indemnity costs, it is appropriate to do so where the claim of fraud is advanced knowing it lacks support. In this case, Salvatore understood that his allegations of fraud-like behaviour would be contradict by several independent witnesses (including bank clerks and his own lawyer who assisted with the transfers). Nevertheless, Salvatore proceeded with the claim.

(iv) Salvatore filed a misleading affidavit with the court on his motion to obtain a CPL on title to Sam’s properties. Misleading the court is conduct that should be sanctioned with a cost award.

(v) Sam made an $1.5 million offer to settle, which was not accepted. Salvatore then failed to obtain better results at trial than he would have had he accepted the offer.

(vi) Salvatore’s and Sam’s legal fees were roughly in line with each other, meaning Sam’s requests for costs was in line with what Salvatore could have reasonably expected to pay should he lose.

(vii) While the court may consider impecuniosity in determining the amount of costs, in this case, the judge found that Salvatore’s (relative) impecuniosity was outweighed by his “reprehensible and unfounded” accusations of fraud-like behaviour and deliberate misleading of the court.

In the result, Sam was awarded costs of $750,000 plus HST and disbursements of over $43,000.

The judge noted that Salvatore received a great deal of support, encouragement, and assistance in pursuing this lawsuit from his daughter, with whom he had recently begun living. However, since the daughter was not a party to the litigation, costs would not be awarded against her.

Whether Salvatore forgot that he had made the gifts to Sam, or changed his mind after moving in with his daughter and deliberately tried to revoke the gifts he had made, was irrelevant to the decision of costs. Either way, the court held that Salvatore should have spoken with the witnesses who ultimately testified in support of the gift prior to trial (including bank employees, his lawyer, and his accountant). Salvatore should also have tried talking to Sam to see if an agreement could be reached without the need for trial. Had he done so, Salvatore could have avoided not only having to pay his own extensive legal fees, but those of his son as well.