It Is Hard To Recover Legal Costs. But Not Impossible.

A common theme when meeting with a client about to start, or be drawn into, litigation is the client’s concern over the recovery of legal fees. A plaintiff who believes he or she has been wronged thinks it is only just that the defendant pays legal fees expended to right a wrong. A defendant who believes he or she is wrongly accused of something thinks the plaintiff should be responsible for the costs of defence. This concern exists whether the litigant is a person or a corporation.

Unfortunately, a successful litigant rarely recovers all their costs. Some reimbursement may come from an award of costs under the Tariff in the Queen’s Bench Rules of Court. However, this falls short of actual legal fees, notwithstanding a recent increase in the amounts contained in the Tariff.

There are some exceptions. So long as loan documents provide for it, usually a lender can get reimbursed for legal fees expended to recover a loan. If a litigant’s conduct during litigation is seen as reprehensible by the Court (i.e. unduly and purposely lengthening and increasing the cost of litigation for the other side by taking obstinate positions) a Judge may allow the innocent litigant to recover legal fees as a sanction against the offending party.

The decision in Hallmark Place Condominium Corporation v. Don McKenzie and McKenzies Consolidated Ltd., 2015 SKQB 260, dealt with the issue of legal fee recovery. In this case, the defendant condominium unit owner had not paid condo fees for many years, to a total of $38,422.76. The defendant’s unit was located within the plaintiff condominium corporation. A lien had been registered by the plaintiff against title to the unit for these unpaid fees. The defendant withheld payment due to issues he had with the plaintiff regarding repairs to his unit on account of water damage. The plaintiff did not deny responsibility for repair costs, but the defendant wanted to include the cost of improvements he made, not just repairs. Judgment for the unpaid condo fees was granted to the plaintiff and the defendant’s counter-claim was dismissed.

The issue that remained was whether the defendant was responsible for the plaintiff’s legal fees. They totaled $25,401.21. The plaintiff relied on s. 63 of The Condominium Property Act which allows a condominium corporation to recover from a unit owner costs incurred to register and discharge a lien for unpaid condo fees. The plaintiff also relied on its bylaws, which stated the plaintiff could recover its costs and expenses incurred remedying a violation, infraction or default under the bylaws. Further, s. 54 of The Condominium Property Act expressly states that a unit owner cannot withhold payment of condo fees, even if the owner has a claim against the condominium corporation. In continuing to withhold payment despite the legislation, the plaintiff said the defendant was guilty of reprehensible conduct.

The defendant countered by saying he withheld payment only as an act of desperation and it was the plaintiff who prolonged the litigation by not being willing to settle. Further, the defendant argued some of the legal fees incurred were not in enforcing the lien for condo fee arrears, but for responding to the defendant’s counter-claim. Finally, the defendant thought legal fees of $25,401.21 were disproportionate for the recovery of a $38,422.76 debt and he should not be made responsible for that amount.

Justice R.S. Smith did not find reprehensible conduct on the part of the defendant. He did, however, find that a condominium corporation is the type of litigant who should receive reimbursement of legal fees incurred to enforce bylaws. A condominium is a unique entity, comprised of unit owners who live together and owe duties to each other. Default by an owner in performing obligations for the condominium corporation, such as non-payment of condo fees, prejudices the other owners. Therefore, when a condominium corporation takes legal action against a unit owner to enforce performance of the bylaws, the unit owner should reimburse the corporation for this expense.

This presumption may be rebutted on the facts of a given case. Justice Smith found distinguishing facts here. Some of the plaintiff’s legal fees were not incurred enforcing the bylaws, they were incurred responding to the defendant’s counter-claim. Further, he found that legal fees of $25,401.21 were disproportionate to the amount that had been in dispute. Therefore, Justice Smith did not order complete indemnification. He ordered that the defendant was responsible to pay $20,300.00 of the plaintiff’s legal fees; roughly 80%.

The Hallmark Place decision is important as it expands the exceptions in which a litigant may recover legal fees expended in a lawsuit. More significantly, it gives confidence to condominium corporations facing defaulting unit owners that the corporation may be able to recover legal fees expended in remedying the unit owner’s default.