How does costs work in Ontario civil litigation — who pays the other side's legal fees?

Ontario civil litigation generally follows a "loser pays" costs regime, but the amount recovered is almost never 100% of actual legal fees. Courts award costs on one of two scales: partial indemnity (the default, roughly 50–60% of reasonable legal fees in practice) or substantial indemnity (roughly 80–90% of reasonable fees, reserved for situations involving misconduct, fraud, or a rejected offer to settle that was not beaten at trial).

The court has broad discretion in awarding costs and considers factors such as the complexity of the case, each side's conduct during the litigation, the outcome of specific issues, and any settlement offers made. Even a winning party can have their costs reduced if they took unnecessarily adversarial positions or ran up costs unreasonably.

Settlement offers made under Rule 49 of the Rules of Civil Procedure (or equivalent offers to settle) are especially important. If a plaintiff makes a formal offer to settle and the defendant ultimately obtains a result worse than what was offered, the plaintiff may be entitled to substantial indemnity costs from the date of the offer — a significant financial penalty.

Because partial indemnity rarely covers actual legal spend, litigation is always a financial risk for both sides. Understanding the likely costs exposure is essential to making informed decisions about whether to litigate, settle, or resolve a dispute another way.