Legalese: December 2014

Everyone is concerned about the costs associated with hiring a lawyer. Choosing to pursue or defend a lawsuit comes at a cost and questions will naturally arise as to lawyer fees, disbursements and costs which will be associated with court proceedings. Knowing the implications of cost awards and the amount which you can possibly recover from your adversary are critical to your decision whether to retain legal counsel.

When a matter is brought before the court, the judge has full discretion to award court costs to either party. “Court costs” refers to the amount one party to the litigation may be ordered to pay to another party. It is not the same as the actual costs paid by the parties to their lawyers.

In most Canadian jurisdictions, whether to award any costs and the amount awarded remains in the discretion of the court. Unless there are extraordinary circumstances involved, costs are usually assessed in accordance with a schedule known as a tariff.

It is important to note that a successful party will almost never achieve a complete recovery of the actual costs associated with any particular case. The tariff of costs in Manitoba, for example, usually represents about 25 per cent of the actual costs of a litigant. In practical terms, that could mean that you spend $30,000 on actual legal fees, taxes and disbursements and obtain a cost award from the losing party of $7,500. It still cost you the net sum of $22,500, disregarding any monetary award you may have won in the suit.

An additional concern is that even if you are awarded court costs, you must still collect from the opposing party. Should that person or business go bankrupt or be insolvent, it will be impossible for you to collect on your judgment, so the cost award will be rendered meaningless.

For smaller matters, there are two good ways to avoid paying excessive legal fees and/or court costs. One is to try and reach a settlement with the other side, and the second is to bring your matter to Small Claims Court.

When retaining a lawyer you should consider the total cost, including the amount you will likely receive, net of fees and court costs; the downside if you lose; and whether your lawyer will take the case on a contingency or percentage basis. In some jurisdictions, lawyers are not allowed to take cases on a percentage basis. For smaller cases, this is often the preferred route, if possible. Contingency fees are good, from a client’s perspective, in that they limit your downside. If nothing is collected, then there is generally no legal fee. On the other hand, depending upon the rate negotiated with the lawyer, it can really limit your upside. If you succeed in collecting, your lawyer is going to take a significant portion of the winnings. Some factors which go into the percentage rate which a lawyer will charge you are the complexity of the case, the anticipated time it will take, the strength of your case and the amounts involved. If, for example, you have a $20,000 case which is very weak and will take a long time to complete, the percentage you will need to pay a lawyer to invest his or her time and energy into the case would be very high. If, on the other hand, you have a great case for $100,000 that is extremely strong and the timing is short, your lawyer should be prepared to accept a lower percentage.

If you are paying your lawyer on a traditional time-spent basis, my recommendation is that you insist on regular monthly or bi-monthly billing cycles so that there are no surprises. Generally speaking, litigation is about evaluating a case and constantly re-evaluating a case as circumstances change and the case evolves. For example, if you initially were to retain counsel on an hourly basis and two months into the case you discover that your adversary may not have funds to pay any potential judgment in your favour, you may wish to cut your losses and end the litigation.

The most important thing is that you have a clear understanding of the nature of the financial arrangement between you and your lawyer. Everything should be documented in writing, even if it’s a simple thing like an email. Remember that lawyers want your business and that usually things are negotiable – even their fees!