At the end of litigation, the unsuccessful party is usually ordered to pay part of the legal fees of the winning party. The ever-present threat of having to pay costs to the winning party can act as a powerful disincentive for making groundless or unsubstantiated claims. The risk of being on the wrong end of a cost award is even higher if one party alleges that the other side committed fraud.
Judges are given wide discretion to determine the appropriate amount of costs, if any, to be awarded at the end of litigation (or any step in the proceeding). Rule 57.01 of the Rules of Civil Procedure sets out the factors the court will consider in exercising its discretion, such as the complexity of the proceeding. In addition, the judge is guided by several underlying principles:
– the loser pays costs to the winner except in extraordinary circumstances;
– The court’s objective is “to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding, rather than an amount fixed by the actual costs incurred by the successful litigant”; and
– If one party alleges fraud and fails to withdraw or prove her claim, then a higher cost award will be justified.
Allegations of fraud can be raised in civil litigation – it is not restricted to criminal court cases. Fraud generally involves one party intentionally deceiving, concealing, or misleading another about some material fact in order to induce that party to part with something of value or surrender a right. In the context of estate litigation, examples include: forging a will to gain a greater interest in an estate; lying to or misleading a doctor in order to influence the outcome of a capacity assessment; and hiding estate assets or deliberately omitting them when applying for probate or reporting to the estate beneficiaries. The key factor here is intent – mistakes happen; fraud is planned.
Why does alleging fraud lead to higher cost award if unproven? This question was recently addressed in Baird v Kemp, Legear et al, 2020 ONSC 7567.
By way of background to the costs decision, the plaintiff was the successful party on a motion for summary judgment. As the successful party, the plaintiff sought her costs of the litigation. However, she argued that she was entitled to a higher cost award (called “substantial indemnity”) because the defendants had accused her of fraud but failed to prove it. The defendant denied that the substantial indemnity costs were justified in this case.
In reaching her decision on costs, Justice Vallee briefly reviewed the history of the fraud allegation:
– As part of their response to the claim, the defendants alleged that the plaintiff had engaged in fraud.
– The plaintiff was examined for discovery – the examination failed to produce support for the fraud allegation.
– Following the examinations, the plaintiff requested that the defendants withdraw the fraud allegation.
– The defendants offered to withdraw the fraud allegation and provide amended pleadings on the condition that the plaintiff would forgo costs.
– The plaintiff refused to forgo costs.
– The defendants did not withdraw the fraud allegation, but did not pursue the matter during the motion for summary judgment either.
The court found that the fraud allegation was still a “live” issue at the time of the summary judgment motion even though the defendants chose not to make submissions on that point. Having failed to withdraw the fraud allegation or prove it, the court held that a higher cost award was justified. Justice Vallee succinctly set out why:
Fraud allegations are serious because they allege unlawful conduct. If not proven or withdrawn, they are considered scandalous and reprehensible. They can expose an unsuccessful party to substantial indemnity costs. For this reason, parties who consider making fraud allegations ought to be reasonably confident that they can be proved.
When emotions run high, it is tempting to cast the opposing party as a villain whose intention was to lie, cheat, and steal. However, litigants will do well to hold back on these types of fraud allegations until a solid foundation has been established. There is a high bar for proving fraud, and the costs of failing to meet that bar is steep.