In most Ontario civil lawsuits, the losing party has to contribute toward the winning party’s legal costs — but usually only a portion of what the winner actually paid their own lawyer, awarded on a "partial indemnity" scale. A losing party can face a higher "substantial indemnity" cost award in specific situations, most commonly where they rejected a formal Rule 49 offer to settle that turned out better than the result they achieved at trial. Costs are always subject to the court’s discretion and are never automatic or guaranteed in a fixed amount.
- Ontario generally follows a "loser pays" rule — the losing party usually contributes to the winner’s legal costs.
- The default cost award is on a partial indemnity scale — typically well below the winner’s actual legal bill.
- Rejecting a formal Rule 49 offer to settle that turns out better than your result can trigger higher substantial indemnity costs.
- A plaintiff who beats their own compliant offer gets partial indemnity costs up to the offer date, then substantial indemnity after.
- Cost awards are always subject to the court’s discretion — there is no fixed formula that guarantees a specific amount.
- Factoring realistic cost exposure into your decision to settle or proceed is one of the most important strategic calls in litigation.
The "Loser Pays" Rule
Ontario civil litigation generally follows a "loser pays" principle: the unsuccessful party typically has to contribute toward the successful party’s legal costs. This is different from the American default, where each side usually bears its own costs regardless of outcome. In Ontario, the prospect of a cost award is meant to discourage weak claims and encourage realistic settlement — but it rarely means a full reimbursement.
Partial vs. Substantial Indemnity
Costs in Ontario are generally awarded on one of two scales. Partial indemnity costs — the default in most cases — are calculated at a reduced rate, typically well below what the winning party actually paid their own lawyer. Substantial indemnity costs are a higher scale, generally reserved for specific situations such as the offer-to-settle consequences described below, or conduct the court considers worth discouraging.
A plaintiff who wins at trial but never made a Rule 49 offer will typically recover partial indemnity costs for the whole case — a meaningful contribution, but still well short of their full legal bill.
How Offers to Settle Change the Math
A Rule 49 offer to settle is a formal, written offer made during the litigation, structured to trigger specific cost consequences depending on how the eventual result compares to it. The purpose is to encourage parties to make and accept realistic offers, rather than litigating positions that turn out worse than what was already on the table.
If you reject a formal settlement offer and the eventual result is less favourable to you than that offer, you can face enhanced cost consequences specifically because you turned it down. This is one of the sharpest financial risks in litigation, and it applies regardless of how strongly you believed in your case.
Plaintiff Offers vs. Defendant Offers
The cost consequences work somewhat differently depending on who made the offer. A plaintiff who makes a Rule 49-compliant offer and then obtains a result at trial that equals or beats it is generally entitled to partial indemnity costs up to the date of the offer, and substantial indemnity costs for the period after. A defendant whose offer is later beaten by the plaintiff does not get that same substantial indemnity uplift — the plaintiff generally keeps its partial indemnity costs up to the date of the defendant’s offer, with the defendant recovering its own partial indemnity costs after that point.
The Court Always Has Discretion
None of this operates as a rigid formula. Costs remain subject to the court’s overall discretion under the Rules of Civil Procedure, and a judge can depart from the usual defaults where the specific circumstances of a case justify it — including a party’s conduct during the litigation itself.
Before rejecting any formal settlement offer, get a clear-eyed assessment of your realistic range of outcomes at trial and how that compares to the offer — not just whether you feel you should win.
What This Means for Your Decision to Proceed
Understanding realistic cost exposure — both what you might owe if you lose, and what you risk by rejecting a reasonable offer — is a core part of deciding whether to settle or proceed to trial. See our guide on mediation vs. litigation in Ontario for how settlement-focused processes fit into that decision.
Weighing a settlement offer or facing a lawsuit in Toronto or the GTA? Call 416-274-2222 for a free, confidential consultation about your realistic cost exposure.
Frequently Asked Questions
No. The default cost award — partial indemnity — is typically well below what the winning party actually paid their own lawyer. "Loser pays" means a contribution, not a full reimbursement, in most cases.
A Rule 49 offer to settle is a formal, written settlement offer made during litigation. If the result at trial is less favourable to the party who rejected a valid offer than the offer itself, it can trigger enhanced cost consequences for that party, which is designed to encourage realistic settlement.
If you are the plaintiff and you obtain a result at trial that equals or beats your own Rule 49 offer, you are generally entitled to partial indemnity costs up to the date of your offer, and the higher substantial indemnity scale for costs incurred after that date.
Generally no — the Rules do not provide the same substantial indemnity uplift for a defendant whose offer is beaten by the plaintiff. The plaintiff still generally keeps partial indemnity costs up to the date of the defendant’s offer, with the defendant then recovering its own partial indemnity costs from that point forward.
No. Cost awards are always subject to the court’s overall discretion under the Rules of Civil Procedure, and a judge can order a different result than the usual default where the circumstances justify it.
Yes — carefully. A realistic assessment of your costs exposure if you lose, and the potential cost consequences of rejecting a reasonable settlement offer, should be part of any serious decision about whether to proceed to trial or resolve a claim earlier.