Many people believe that, if someone is awarded a judgment, the losing party will be required to fully reimburse the winning party for its legal fees. Generally speaking, this is rarely true. The purpose of this article is to briefly outline (a) how costs are typically awarded in British Columbia, and (b) how parties can proactively draft their contracts so that they have a chance to recover as much of their legal fees as possible should another party default on their obligations.

Costs at the Provincial Court and Supreme Court of British Columbia

In British Columbia, there are two courts in which you can bring a lawsuit: the Provincial Court of British Columbia (the “Provincial Court”) and the Supreme Court of British Columbia (the “Supreme Court”). Broadly speaking, the Provincial Court adjudicates cases that have a monetary value of $35,000 or less, whereas the Supreme Court adjudicates cases in excess of $35,000. Both courts handle the issue of costs differently.

Absent contractual language to the contrary, the Provincial Court will not award any legal fees to the victor of a lawsuit. While the Provincial Court will typically order the reimbursement of relatively minor disbursements in connection with commencing litigation, the Small Claims Act,[1] which is the statutory authority under which the Provincial Court operates, expressly prohibits the Provincial Court from ordering that one party pay counsel or solicitor’s fees to another party to the proceeding.[2] Generally speaking, this means that, if you start a lawsuit in the Provincial Court and you retain counsel, you should not expect any of those costs to be reimbursed.

At the Supreme Court level, an award of “costs” is usually awarded to the party who is successful at trial. However, a costs award is intended to be a partial indemnity for legal fees and time spent, plus a reimbursement for “proper” out-of-pocket expenses that the successful party incurred in starting or defending a lawsuit. The rules that govern costs are set out in Rule 14-1 and Appendix B to the Supreme Court Civil Rules.

The general rule at the Supreme Court is that costs will be determined on a tariff basis set out in Appendix B to the Supreme Court Civil Rules. The tariff system grants a scale of costs depending on whether the matter is of little, ordinary, or more than ordinary levels of difficulty, and attributes a monetary unit value to each scale. These unit values range from $60 to $170 depending on the difficulty of the dispute, and the court allows litigants to recover a certain number of units for certain steps involved in litigation. This is a complex way of saying that the tariff system will typically result in the recovery of a relatively small portion of the legal fees associated with litigation.

How do I get more of my legal fees paid for?

One way to recover more than a relatively small portion of your legal fees is to be proactive and to draft your contracts appropriately before a dispute arises.

Generally, parties are entitled to contract for full indemnification of legal expenses. For full indemnification of legal expenses to be awarded, the contract at issue must provide clear and unequivocal reference to indemnity for legal fees.[3]

The importance of the wording of the contractual entitlement to repayment of legal fees cannot be overstated. Two examples of this are:

1. In Scott Mayhew Contracting Ltd. v. Beech, 2013 BCSC 727, the BC Supreme Court refused to award legal fees on a solicitor-and-own-client basis because the contract at issue only provided that the plaintiff “may claim its legal costs for enforcing the terms of the contract”. The contract did not describe “legal costs” as “solicitor and own client costs”, nor did it say the defendant would be liable to indemnify the plaintiff for lawyer’s charges associated with the defendant’s contractual default. In reaching its decision not to award costs on a solicitor-and-own client basis, the court noted that, absent a clear and unequivocal reference to indemnify for legal fees, the phrase “legal costs” in a contract means ordinary costs as prescribed by the tariff system in the Supreme Court Civil Rules;
2. In Impact Recruitment Inc. v. John Volken Academy Society, 2020 BCSC 1416 – a decision in which the writer/Alexander Holburn Beaudin + Lang LLP was counsel for the victorious party – the BC Supreme Court awarded costs on a solicitor-and-own-client basis. In this case, the court found that the contract at issue expressly provided for a clear and unequivocal entitlement to recover all legal fees and disbursements incurred as a result of the defendant’s default under the contract. As a result, the plaintiff was entitled to full reimbursement of their legal fees from the start of the litigation until its conclusion.

Key Takeaways

Unfortunately, even if a party is victorious in litigation, they may not be entitled to recover all of the legal fees incurred in the pursuit of justice.

For the best chance at recovering all (or a significant portion) of the legal fees associated with litigation, parties must draft clear, well-written agreements, with an unequivocal entitlement to recover costs on a solicitor-and-own-client basis. Absent this language, the majority of legal fees will be unrecoverable and ultimately deduct from any award of damages a court may otherwise grant.

For advice on how to draft commercial agreements that protect your interests, please contact a member of Alexander Holburn Beaudin + Lang LLP’s Business Disputes or Corporate team.