Going to court is expensive. It is so expensive that many commercially minded people would rather pay someone money that is not owed, or walk away from money that is owing, just to avoid legal costs.
While some business people take this practical approach, others want to stand up for the principle of the matter. Having principles can however be very expensive.
It is true that because legal costs are high, even a win may feel like a loss. Legal costs are sometime higher than the value of the dispute.
Lawyers have a saying that “costs follow the event”. In other words, normally the winner of legal proceedings will receive an order that their costs should be paid, by the losing party. We mention some exceptions below.
Here we should pause to think about what this means:
1. Just because a court orders that the losing party has to pay legal costs, does not mean that the losing party will actually pay. A debtor will rarely be punished for failing to pay legal costs.
2. If you win the action, but the plaintiff or defendant has no money, then a court order in your favour will not benefit you. This is something that must be considered and investigated early on, not after the proceedings are over.
3. Some people hide their assets and money in companies and trust or they just plain lie about what they own. This is so that they don’t have to make a payment. It can be costly to prove that someone owns something if they will not admit ownership. Look for Real Estate as it is not liquid, ownership must be registered and a writ can be registered on the title.
4. If the losing party does own something you might have to force a sale. This can be expensive, time consuming and risky.
5. What are costs anyway? Your actual legal costs may greatly exceed the amount of costs that a court is prepared to award to you.
5. How is the value of costs calculated? Just as you can have an argument about whatever it was that forced you into court in the first place, there may also be an argument about, how costs should be calculated. This argument about the calculation of costs can be a further source of legal costs, and frustration.
So what does all this mean?
1. It means that you should be sure to know what the other party owns before you get involved in legal proceedings.
2. If you are the defendant, you don’t get to choose if you will be involved in legal proceedings. In this case, you can however ask for a thing called “security for costs”. If you are given security for costs then the plaintiff may not be able to litigate unless they first prove that they will be able to pay your legal costs if they lose.
3. If you are a Plaintiff or Defendant you should make offers to settle early on before costs accumulate. To be effective, offers must generally be made pursuant to Part 5 of the Uniform Civil Procedure Rules.
For the reasons set out below both Plaintiffs and Defendants should use Part 5 offers as early as possible in proceedings.
If, for example, a Plaintiff makes an offer to settle and a defendant rejects that offer, then the court must order the defendant to pay the plaintiff’s costs calculated on the indemnity basis if:
1. the Plaintiff wins the proceedings and;
2. gets an order for at least as much what was offered.
An order of indemnity costs will be a significant penalty to the defendant and may be within 15% of the value of the actual costs incurred.
A defendant can also use Part 5. If a defendant makes an offer to a plaintiff which is not accepted and the plaintiff wins the action but does not get an order for a sum which is greater than the sum offered by the defendant, then the defendant will receive an order that the plaintiff pays the defendants cost, even though the plaintiff was successful.
The proper use of offers can help achieve early settlements and save all parties significant legal fees.