Thursday, September 5, 2013

Small Claims Court: Costs of a Successful Defendant

As increasing employment litigation is going through the Small Claims Court, let's consider the costs exposure of the plaintiff.

Since the costs provisions of the Small Claims Court were changed some time ago, there's been a bit of controversy, particularly surrounding the effects of offers to settle.

The Old Rules

Prior to July 2006, there were fixed amounts of costs to be awarded:  If you went to Small Claims Court with a lawyer, and you succeeded at trial, you could get $500 to your lawyer's fees.  This was set out in Rule 19.

There's also s.29 of the Courts of Justice Act, which - with certain exceptions - restricts costs awards to 15% of the amount claimed.  So if you sued for $1000 and succeeded, you could only get $150 toward legal fees.

Then there's Rule 14, which deals with offers to settle:  Essentially, it says that, if you make an offer to settle which meets certain conditions, and you do better than your offer at trial, you can get double costs - i.e. up to $1,000 toward your legal fees.  The wording is kind of important, so more specifically, it says this:  If a plaintiff makes an offer to settle (under certain circumstances) and obtains a judgment more favourable than the offer, double costs may be applied; conversely, if a defendant makes an offer to settle, and the plaintiff obtains a judgment less favourable than the defendant's offer, the defendant can get double costs.

However, Rule 14 remained subject to s.29 of the CJA, meaning that if you successfully sued for $1000, you were still capped at $150.  If you successfully sued for $6000, and had offered to settle for $5000, then doubling your costs brings you up to the 15% cap at $900.

The New Rules

The only thing that changed materially, for the sake of this discussion, was Rule 19.  (The Court's jurisdiction has increased significantly, too, which has important repercussions.)  Basically, the fixed costs were removed, and the Court was given jurisdiction to award a "reasonable representation fee", subject to s.29 of the CJA.

However, when we're talking about legal fees at the Small Claims Court, 15% of the amount claimed is seldom if ever more than a reasonable representation fee.  So what's the point of Rule 14, if you're already likely to get 15% or close to it?

A few Deputy Judges found creative ways of applying the s.29 exceptions.  But the 2010 Barrie Trim case was really the one that, thus far, has held the day.  The plaintiff had obtained judgment at the Small Claims Court, but the defendant successfully appealed to the Divisional Court.  Justice Healey, having dismissed the plaintiff's claim, then had to determine costs of trial, and determined that Rule 14 simply was not subject to s.29, and awarded double-costs because the defendant had served an offer to settle.

The Plaintiff applied for leave to appeal both the merits of the case and the costs award; the Court of Appeal was prepared to hear the costs appeal, but refused to hear the merits.  The Plaintiff decided not to pursue the appeal if they were only talking about costs.  Until the Divisional Court or Court of Appeal says differently, therefore, Justice Healey's conclusion is binding on the Small Claims Court.  However, the particular facts raise another problem in the case law.

The Remaining Controversy - S & A Strasser Ltd. v. Richmond Hill

The Strasser case was a 1990 decision from the Court of Appeal dealing with similar language to that in Rule 14, in context of a defendant seeking elevated costs where it had served an offer to settle.  And here's the crux:  The wording of Rule 14 (and its analogous language in the Rules of Civil Procedure at the time) tells us that the defendant gets higher costs where the plaintiff obtains judgment less favourable than the defendant's offer.

Deputy Judge Winny has consistently relied upon the Strasser decision as standing for the proposition that, where the plaintiff's claim is altogether dismissed, and the plaintiff therefore cannot be said to have obtained judgment, Rule 14 has no application.  (See, for example, Lockrey v. Kay).

I have been unable to find any cases decided by other Deputy Judges dealing with the question; however, this is not surprising.  There are relatively few Deputy Judges with any significant number of reported decisions; by contrast, Deputy Judge Winny is very prolific.

Justice Healey, in Barrie Trim, did not address this question.  (Incidentally, when he decided that the 15% cap did not apply to Rule 14, he was accepting reasoning put forward by Deputy Judge Winny in other cases.)  Had he addressed the question, it could have changed the result.

But it seems pretty bizarre, doesn't it?  If I'm being sued for $25,000, and I offer the plaintiff a thousand dollars to go away and the plaintiff refuses...then if the plaintiff only wins $500, then I can get costs of $7500.  Whereas, if I win altogether, I can only get costs of $3750.

Is there a contrary position?

Part of the challenge with Small Claims Court costs is that they're seldom worth fighting over to any significant extent.  How much do you want to pay your lawyer to fight over a couple thousand dollars in legal fees?

Still, I think there may be an answer to the contention that Strasser applies at the Small Claims Court.  The Court in Strasser dealt with other considerations:  In particular, the Superior Court deals with more costs - costs of proceeding from start to finish, rather than the costs of a hearing as at the Small Claims Court - and therefore the language of the Superior Court's equivalent to Rule 14 has a more significant 'timing' element:  Where the defendant serves an offer to settle, and the plaintiff later obtains judgment less favourable than the offer to settle, the plaintiff gets costs up to the date of the offer, which would obviously be absurd if the plaintiff's claim was altogether dismissed.  That's simply not true of representation fees at the Small Claims Court.

Furthermore, there are broad discretionary powers given to the Superior Court in relation to costs, including the power to take into account offers to settle, meaning that the Court can still give consideration to the fact that the successful defendant made an offer to settle, when deciding whether or not to award costs on an elevated scale:  The rules give a successful defendant a different opportunity to seek higher costs.  And that, in fact, happened in Strasser.

The Small Claims Court, by contrast, has very limited discretion to award costs over 15%.  If Rule 14 doesn't apply where a claim is dismissed altogether, then...well, the only other way in would be to argue that other exemptions in s.29 apply.

Further Footnote in Lockrey v. Kay

Deputy Judge Winny noted in Lockrey that "It is sometimes perceived that the Small Claims Court is incapable of hearing multi-day trials on consecutive days.  That perception is inaccurate."  That particular trial was heard over 3 days.

I should look for more of that type of work in Kitchener, if that's the case.  I've been told expressly by staff at other courthouses that they simply will not schedule more than one day for a matter, up front.

In practice, if it requires multiple days, that means that, at the end of the first day, you need to reschedule the second day...but there's a catch:  Deputy Judges are part-time, with certain scheduled sitting days, meaning that you need to get the next open day with the particular judge hearing  your trial.  The last time I had to do that, it was a delay of months.  That's a problem; it means a lawyer needs to spend more time preparing for the second hearing day, re-reviewing documents, and refreshing his or her memory on what happened during the first day of trial (which incidentally also requires preparation of a much more thorough record than would be needed for a consecutive-day trial).  It also changes the presentation of the case, requiring a greater effort to remind the Deputy Judge of the important elements of the case from the previous day.

This has tactical consequences.  I've had multiple matters involving the same parties which, by all rights, should have been heard together, yet ended up proceeding separately because it was a quicker route to a resolution.


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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