Lawsuits cost: How you can lose money, despite being the winning party

The Cost of Lawsuits

The Cost of Lawsuits

Lawsuits – Avoid, if possible

Over the last year, I have written on several topics for the benefit of business owners and managers.  The topics varied from employment law, government regulation in the form of CASL and privacy, and contract law.

My goal is to provide information to assist you in avoiding lawsuits or compliance investigations (such as the case for CASL and privacy).  I haven’t really delved into why you should avoid lawsuits because the answer is obvious; it costs money… lots of money.  Lawsuits can also be very stressful. They create uncertainty and the potential damages of a loss can be disastrous.

Survey

But how much do lawsuits cost, really? According to the Canadian Lawyer Magazine, the 2016 national survey on costs highlighted the following as the national average:

after a large jump in 2015, the average estimated cost of a two-day trial fell by almost 20 per cent, standing at $25,517, down from $31,330 last year. At $56,963, the national average cost of a five-day trial was virtually unchanged over 2015, while the cost of a seven-day trial was down around four per cent at $78,737.

The survey also breaks it down further by region.  Western Canada, while not as high as Ontario, is higher than Atlantic Canada and Quebec.  Average costs in Western Canada are:

  • 2 day trial – $21,894 ($24,944 in 2015)
  • 5 day trial – $53,347 ($49,796 in 2015)
  • 7 day trial – $52,500 ($67,533 in 2015)

These costs likely don’t include any motions or other “side” matters.  These additional proceedings can quickly add up costing you another $5,000 to $10,000 depending on the number of proceedings performed.

These numbers are sobering.  Small business can ill afford these types of costs.  You should also remember that these are the costs just to get through trial.  If you are the defendant, then winning just means you don’t pay what the claimant seeks.

Costs awards

You are now undoubtably asking yourself about costs awards.  Shouldn’t the losing party pay for the winning party’s costs? The short answer is yes. The party who loses a matter will be responsible to pay a portion of the other party’s costs. But…..

Costs are assessed in accordance with a Tarif established in the court rules.  The rules establish four classes of proceedings, ranging from 1 through 4 (imaginative categories… I know).  Class 1 proceedings are essentially small claims matters.

Class 2 to 4 proceedings are for all other matters.  Class 2 proceedings are those where the award are more than $10,000 (small claims) and less than $150,000.  Class 3 proceedings are from $150,000 to $500,000.  And Class 4 proceedings are above $500,000.

For example, if a former employee sues you for wrongful dismissal and claims $200,000 in damages, but is awarded $125,000, then the matter is a Class 2 proceeding rather than Class 3.

The Tarif then sets out costs for specific steps throughout the litigation.  With the cost for each step increasing for each class of proceedings.  For example,  one half-day of trial for a Class 2 proceedings is $500.  It’s $750 for a Class 3, and $1,000 for a Class 4.

Comparison

So lets compare a 2 day trial for a Class 2 proceeding with the western average for a 2 day trial.

  • Preparing the pleadings $1,000.00
  • Discovery of documents $500.00
  • Examination for discovery – one full day – $1,000.00
  • Preparation for trial – two full days – $1,000.00
  • Trial – two full days – $2,000.00
  • Assessment of costs – $250.00
  • Pre-trial conference – $350.00

Total tarif award – $6,150.00

Actual costs (fees only) – $21,894.00

Even if you win, it will cost you over $15,000.00.  If you lose, you will be responsible for your fees, the costs award, and whatever damages were claimed.

These are the actual costs.  They do not take into account the loss of your time, productivity, and stress.

So Benjamin Franklin’s adage that an ounce of prevention is worth a pound of cure applies to legal matters.  Spend time up front making sure your business relationships are reduced in writing (contracts) and that you operate in compliance with all your obligations.  While these “legal” or “administrative” matters can be annoying, they very well may save you from a crippling legal event.

Disclaimer – Legalese

I am posting this article for informational purposes only. The content does not constitute legal advice or solicitation.  It does not create a solicitor client relationship (this means that I am not your lawyer until we both agree that I am). If you are seeking advice on specific matters, please contact Philippe Richer at richerp@tlrlaw.ca, or 204.925.1900. We cannot consider any unsolicited information sent to the author as solicitor-client privileged (this means confidential)



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