How Legal Costs Work in Ontario: Partial vs. Substantial Indemnity Explained

You win your lawsuit — congratulations. Now your lawyer hands you a bill for $45,000. Will the other side pay that? Probably not all of it. Ontario's costs rules mean that even a winning party typically recovers only a fraction of their actual legal fees. Understanding how legal costs work in Ontario before the lawsuit starts can prevent a very unpleasant surprise at the end.

This article explains the basic framework: how courts decide who pays, what "partial indemnity" and "substantial indemnity" mean in practice, and when a full recovery is possible.

The Basic Principle: Costs Follow the Event

Ontario follows the common-law rule that costs generally follow the event — meaning the losing party pays some portion of the winning party's legal costs. This is not automatic; a judge exercises discretion. But the starting presumption is that the winner is entitled to a costs award.

The purpose is twofold: to partially compensate winners for the burden of litigation, and to deter frivolous or needlessly aggressive litigation.

The Two Main Costs Scales

The Ontario Rules of Civil Procedure (which govern Superior Court proceedings) set out two scales for measuring costs:

Partial Indemnity (the Default)

Partial indemnity is the standard costs award in most Ontario civil cases. It is meant to represent approximately 50-60% of what a reasonably competent lawyer would charge, though in practice courts often award less than that after reviewing a costs outline.

The key word is "partial" — you do not recover your full legal bill from the other side. If your actual fees are $50,000, a partial-indemnity award might reimburse you for $20,000 to $30,000. You absorb the rest.

This reality is one reason experienced litigators urge clients to consider settlement: even if you win at trial, you may net less than you would have accepted in an earlier settlement offer, once your uncovered legal fees are subtracted.

Substantial Indemnity

Substantial indemnity is a higher scale — approximately 1.5 times the partial indemnity rate, though courts have discretion. It is not the default. Courts award substantial indemnity costs in specific circumstances, most importantly:

• The losing party made reprehensible or scandalous conduct during the litigation (deliberate obstruction, misleading the court, serious impropriety)
• A Rule 49 offer to settle was made and the result at trial was no better than that offer (see below)

Substantial indemnity still does not mean full recovery. It is a higher award, not a complete one.

Full Recovery (Rare)

Courts can occasionally order costs on a full indemnity basis — meaning complete recovery of actual legal fees. This is reserved for the most egregious conduct: fraud, abuse of process, deliberate bad faith. It is uncommon.

Rule 49 Offers to Settle: The Costs Game-Changer

One of the most important costs tools in Ontario civil litigation is Rule 49 — the offer-to-settle rule.

Here is how it works:

1. At any point, a party can make a formal offer to settle in writing, in accordance with Rule 49.
2. If the plaintiff makes an offer and the trial result is at least as good as the offer, the plaintiff is entitled to partial indemnity costs before the offer, and substantial indemnity costs after the date of the offer.
3. If the defendant makes an offer and the trial result is no better for the plaintiff than the offer, the defendant gets partial indemnity costs after the date of the offer.

In plain English: if you make a fair offer early in litigation and the other side rejects it and does not do better at trial, they face a hefty costs penalty for rejecting your offer. This creates powerful financial incentives to settle reasonably.

The Rule 49 offer is therefore a strategic weapon — not just a settlement proposal. Savvy litigators make carefully structured offers at the right time to shift the costs dynamics.

What Goes Into a Costs Award?

When a judge awards costs, they typically consider:

• The result achieved relative to what was claimed
• The complexity of the matter
• The importance of the issues
• The conduct of the parties during litigation (delays, unnecessary motions, non-disclosure)
• The reasonable expectations of the parties about costs
• Offers to settle and whether they were unreasonably refused

The winning party submits a costs outline — a document setting out their lawyer's hours and rates — and the judge uses it as a starting point. Courts have broad discretion and frequently adjust downward.

Disbursements

Costs awards generally include not just legal fees but also disbursements — the out-of-pocket expenses incurred during litigation:

• Court filing fees
• Process server fees
• Transcript and reporting costs
• Expert witness fees
• Travel costs

Some disbursements (like expensive expert reports) can be significant. Make sure you understand likely disbursements when you assess the cost-benefit of litigation.

Costs in Small Claims Court

Small Claims Court has its own (simpler) costs rules. As of writing, costs are capped at a percentage of the amount claimed — verify the current cap with your lawyer or at ServiceOntario, as the rules have been updated periodically. Generally, Small Claims costs are much more modest than Superior Court costs, which reflects the simplified nature of that process.

Frequently asked questions