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Legal Notes: Indemnity awards are based on proportionality and court conduct

John Bleasby
Legal Notes: Indemnity awards are based on proportionality and court conduct

Full blown litigation through the courts is expensive.

Furthermore, it is never certain who will win. That’s why resolutions reached through negotiation, mediation and arbitration are preferred.

Claims made through the court also go beyond compelling arguments concerning actual damages. They can also include substantial claims for legal costs. Each party is hopeful of being repaid at least some of those costs at the expense of the other. In the legal world, it’s referred to as indemnity.

Indemnity awards can be broken down into three levels. The most common is partial indemnity.

“While partial indemnity costs amounts are not specifically defined, in most cases, when a court awards costs on this basis it results in compensation of between half and two-thirds of the reasonable (to be determined by the court) costs of the other winning party,” says Sultan Lawyers.

Indemnity awards can go higher, however.

“If a judge feels that one of the parties unnecessarily lengthened or complicated the proceeding, generally through what is deemed to have been unreasonable conduct, or where a reasonable settlement offer was refused, then costs can be awarded on a substantial indemnity basis,” Sultan says.

Substantial indemnity is considered 75 per cent or more and, although rarely assessed, full indemnity is 100 per cent.

It’s important to note that the court has the discretion to determine how much of any claimed legal costs are “reasonable.”

“One important factor that courts take into consideration when awarding costs to a successful litigant is proportionality,” write Nick Todorovic and Joe Gaylor of McLeish Orlando Lawyers LLP. “The time and expense devoted to a proceeding ought to be proportionate to what is at stake. Therefore, the amount of costs awarded against a party should be proportionate to the damages at issue.”

A recent ruling issued in July by Justice S.J. Woodley of the Ontario Superior Court in the case of Benoit Construction Inc. vs. Bawa Inc. and Hard at Work Inc. (HAW), illustrates how the court might consider the matter, particularly with respect to the conduct of the litigants.

As described by Anthony Burden, partner at Field LLP, Benoit was hired by HAW for framing and general construction work on a luxury home but was left unpaid. Before trial, Benoit offered to settle for $75,000 plus $15,000 in costs, an offer turned down by HAW.

At trial, Benoit obtained a judgment for nearly $145,000 plus interest. HAW’s counterclaim for $125,000 was dismissed. However, the parties could not agree on Benoit’s cost entitlement and returned to court.

There, Benoit claimed full legal costs of $228,826.01 plus $6,500 for cost submissions, which Burden notes was 1.4 times the award for damages. HAW counter-argued this amount was excessive and suggested $89,000 instead.

Justice Woodley observed that HAW had turned down a lower settlement offer before the matter ever went to trial in the first place.

“The court noted that Hard at Work’s conduct in its dealings with Benoit forced the claim forward and lengthened and complicated the proceedings at trial.”

Justice Woodley noted certain duplications in Benoit’s claims for legal expense and the fact that their lawyers charged more per hour than HAW’s. Nevertheless, even after adjustments, she awarded Benoit a total of $120,852.01, representing 80 per cent of Benoit’s recalculated legal costs and over 80 per cent of the actual judgment amount itself. 

Justice Woodley wrote in her decision, “As noted by Rule 57proportionality, the conduct of the parties, and the expectation of the losing party as to their liability for costs are also matters to be considered in a cost ruling.

“Based on the evidence at trial, HAW breached their contract with Benoit, refused to pay Benoit what they were promised, and then submitted an unsubstantiated and ill-advised counterclaim based on facts unproven at trial. HAW was wholly unsuccessful at trial and are responsible for the costs incurred by Benoit at trial on a substantial indemnity basis throughout the entirety of the court proceeding.” 

John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to

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