When a plaintiff alleges fraud and subsequently fails to sufficiently prove the allegations in court, the defence will invariably ask for increased costs. The common law in Canada is clear that where a plaintiff alleges a defendant has engaged in deceit, the court may order increased costs against the plaintiff when those claims are not proven or accepted. This is not automatic, and the court will carefully analyze the particular circumstances, including the conduct of all parties throughout the litigation process.

Levels of Costs in Ontario

In civil litigation in Ontario, costs are awarded on one of three bases: partial, substantial or full indemnity.

Partial Indemnity: Costs on a partial indemnity basis typically amount to approximately 50-75% of the total amount of a party’s incurred costs of litigation. This is the default basis upon which costs are awarded in Ontario.

Substantial Indemnity: Substantial indemnity is a higher calculation of costs, typically amounting to 1.5 times what would have been awarded if costs had been calculated on a partial indemnity basis. Substantial indemnity is mandated in certain circumstances, such as a case where a party rejects a reasonable offer to settle. It is also sometimes used as a punitive measure when a party acts unreasonably during litigation.

Full Indemnity: Full indemnity costs were introduced in 2005, and generally compensate a party for all reasonable costs incurred during the litigation. Full indemnity is not mandated in any case, but it remains available for use in cases where the court feels a party should not incur any costs of litigation, or to penalize irrational conduct.

Rule 57 of Ontario’s Rules of Civil Procedure provides Ontario courts with the discretion to award costs based on a number of factors (unless specifically mandated). These factors include the complexity of the proceeding and the conduct of the parties.

Dismissal of Fraud Allegation

The Royal Bank of Canada (RBC) in RBC v. Boussoulas alleged a broad-based fraudulent conspiracy that implicated not only the defendant but also his two sons. The claim, as against the sons, was dismissed. The sons claimed costs for the trial, on a substantial indemnity scale, of $134,049.45 (or $67,024.72 each) from RBC. 

Judgment was entered against the defendant father in the amount of $1,275,000. The submissions made on behalf of the defendant father repeated that he was, at the time of the trial, an undischarged bankrupt. RBC continued the action against him “for the purpose only of establishing the amount which the bank was entitled to claim in the bankruptcy (proposal) of the father as an unsecured creditor”. RBC continued the action despite warnings from the Divisional Court that RBC’s allegations contained both misstatements and overstatements, saying:

RBC was unrelenting in its goal to find fraud. It continued even with the concerns expressed by Mr. Justice Stinson and the Divisional Court. This unnecessarily lengthened the trial. It made the issues seem far more complex that they needed to be. Ultimately, it was left to the court to identify and define the parameters to the issues … and to find the limited nature of the fraud involved.

Given the manner in which RBC had conducted the litigation, the court was not prepared to award costs on a substantial indemnity basis. How RBC could continue, as it did, in the face of the observations of the Divisional Court is beyond explanation. Allegations of fraud are never taken lightly and the common law does not reward parties for making them too easily or too broadly. As a result, RBC was limited in its cost recovery to its partial indemnity claim.

The court was also not prepared to award costs of the trial, on a substantial indemnity scale, to either of the sons. The court saw no reason to go beyond the usual partial indemnity scale. These defendants joined their father in arguing that there was no fraud of any kind and supported submissions that had no substantive foundation. The two sons also filed Affidavits of Documents, claiming to have no relevant documents to produce. How this could be was never explained.

Takeaway for Litigants

This decision is a reminder that disproving allegations of dishonest conduct does not guarantee the defendant an award of special or increased costs. Courts will assess the conduct of all parties throughout the litigation to determine whether the plaintiff acted in a manner that was reprehensible or deserving of rebuke. Defendants will not benefit in an increased costs application where their own conduct contributed to the plaintiff’s continued pursuit of the claim.

If you have a question about civil fraud, employee fraud, or similar issues, the highly skilled Toronto corporate lawyers at Milosevic & Associates can help. We can provide you with advice and guidance suited to your unique situation. Call us at 416-916-1387 or contact us online to learn more about how we can help.