Some commercial contracts include a provision that if litigation arises, the losing party will pay the winner’s full legal costs — termed “solicitor-client costs”. It seems straightforward: you negotiate and sign a contract that appears to stipulate that if you end up in court and win, you get your legal fees covered by your contracting partner. A recent Alberta decision confirms that is not always how it works.
In the recent Alberta Court of King’s Bench (the “Court”) decision of La Caille North Point Inc v 2160806 Alberta Ltd, 2026 ABKB 434, Justice Silver declined to enforce a contractual provision, agreed to by the plaintiff and defendant, to award solicitor-client costs in the event of litigation.[1] The decision makes clear that even if there is agreement to pay solicitor-client costs, Courts retain discretion not to award costs on that basis if they are not justifiable and reasonable in the circumstances. Furthermore, it serves as an important practical reminder that how you document and present your legal costs can be a factor in the assessment of the reasonableness and justifiability of those costs.
Background: a land sale, a breach of contract, and a fight over who pays the winner’s legal fees
The underlying trial decision concerned a dispute between a vendor and purchaser of land. The plaintiff vendor was successful in its breach of contract claim against the defendant purchaser and was awarded damages of about $878,482 plus interest at trial.[2] The Court was then tasked with determining the appropriate costs award, as the parties were unable to reach agreement on same.[3] The La Caille decision summarized herein is the Court’s decision on costs.
The plaintiff argued that it should be awarded solicitor-client costs, relying on the contractual agreement between it and the defendant that stipulated such costs in the event of litigation.[4] Alternatively, the plaintiff sought costs using a three-times multiplier of the Schedule C tariff costs.[5]
The defendant, on the other hand, argued that the contractual term for solicitor-client costs should not be enforced because the plaintiff had engaged in improper conduct.[6] They also argued that awarding solicitor-client costs would create a “windfall” because the property’s value had increased after the transaction failed.[7]
What the Court decided: solicitor-client costs refused, party-and-party costs awarded instead
The Court ultimately exercised its discretion to depart from the parties’ pre-negotiated contractual term, finding that a solicitor-client costs award would be:
- unjustified in light of the lack of detail in the submitted bill of costs;
- disproportionate relative to the damages awarded; and
- harsh in the circumstances.[8]
Instead, the Court awarded costs on a party-and-party basis, with a two times multiplier applied to the Schedule C Tariff amounts (except for the second lawyer fees), for a total cost award of $378,270 plus reasonable disbursements.[9]
When can a court override a contractual solicitor-client costs provision?
The Court began its analysis by enunciating the general rule that courts should enforce contractual terms freely bargained between parties, including those that award solicitor-client costs if litigation ensues,[10] except in accordance with two narrow exceptions:
- for abusive forms of litigation or other litigation misconduct by the party seeking to rely on the contractual costs provision;[11] and
- where the resulting costs award is disproportionate, harsh, unreasonable, or unjustified in the circumstances.[12]
In other words, freedom of contract generally ought to prevail; however, courts retain residual discretion not to enforce a contractual costs term in these exceptional circumstances.
The Court clarified that litigation misconduct that justifies exercising discretion to depart from a negotiated term must relate to the conduct of litigation, not pre-litigation misconduct, as costs are not to punish the litigant for their “general character, conduct or motivations.”[13] This narrow exception serves the important purpose of ensuring that court procedures are not abused and the Court retains overriding authority to manage and supervise the process before them.[14]
The Court also instructed that the proportionality and reasonableness of a contractual costs award is to be considered against the amount claimed, the way the litigation was conducted, the amount awarded, the degree of success achieved, and other factors.[15]
Why the Court refused to enforce the contractual costs term: two key reasons
Although the Court ultimately declined to enforce the solicitor-client costs provision in the parties’ contract, it did not do so for the reasons advanced by the defendant.[16]
The Court disagreed with the defendant’s assertion that the plaintiff’s actions amounted to litigation misconduct that could be compensated by costs.[17] It found that the impugned actions did not increase costs or unnecessarily extend the trial.[18] Furthermore, the misconduct being relied upon was already addressed in the Court’s trial decision and the awarded damages.[19]
However, the Court did exercise its discretion to depart from the solicitor-client costs agreement for two key reasons:
- An award of solicitor-client costs in this case would equal, and potentially exceed (given the 18% interest rate specified in the contract), the damages awarded to the plaintiff.[20]
- The plaintiff’s Bill of Costs lacked sufficient detail and itemization to allow the Court to appreciate whether the “costs expended [were] both qualitatively and quantitatively proportionate to the action amount” and reasonable in the circumstances.[21]
Taking both of these factors into account, the Court determined that an award of solicitor-client costs would be “disproportionate and unduly harsh,”[22] thereby justifying its refusal to enforce the contractual provision.
As a result, the Court turned to a review of the factors under Rule 10.33 to fashion an appropriate costs award in the circumstances. It ultimately ordered costs under Rule 10.31(3)(b), being a party-and-party basis with a two-times multiplier applied to the Schedule C tariff.[23] The length of the trial, the substantial value of the claim, and the complexity of the legal issues justified an increase to the tariff amounts.[24]
Practical takeaways
La Caille confirms that a contractual solicitor-client costs provision is not guaranteed to be enforced. Here is what contracting parties and litigants should do to give that provision its best chance of being enforced:
1. Build your Bill of Costs from day one
The plaintiff in La Caille lost its contractual costs entitlement in part because its Bill of Costs lacked sufficient detail. Track legal fees and disbursements with specificity throughout the litigation. A well-documented and itemized Bill of Costs is a critical tool for any party seeking to recover legal fees, as it is the main method for justifying the claimed costs.
2. Watch the proportionality ratio
If your legal costs approach or exceed the damages you are claiming, that may be a sign of disproportionality of the costs award, regardless of your contractual entitlement.
3. Keep litigation conduct beyond reproach
While the Court in La Caille did not find litigation misconduct on the facts, the exception is real and can be invoked. Conduct that unnecessarily extends proceedings or increases costs, even if the party ultimately succeeds, can provide grounds for a court to override a negotiated costs provision.
Conclusion
The La Caille decision highlights that while courts will generally uphold contractual solicitor-client costs provisions, narrow exceptions do exist and can be applied in practice. Courts may depart from such provisions where there has been litigation misconduct by the party seeking costs, or the costs claimed are unreasonable, disproportionate, or would cause an unduly harsh outcome in the circumstances. In determining whether to exercise this discretion, courts will consider the circumstances of the litigation as a whole, including the manner in which the litigation was conducted, the proportionality of the costs relative to the amount in issue, the degree of success achieved, and the reasonableness and supporting detail of the Bill of Costs. If you are drafting a commercial contract and want to ensure your costs provision is enforceable, or if you are involved in litigation where a contractual costs term is in dispute, please contact a lawyer from our Miller Thomson’s Commercial Litigation group.
[1] La Caille North Point Inc v 2160806 Alberta Ltd, 2026 ABKB 434 at para 31 [La Caille].
[2] Ibid at para 15.
[3] Ibid at para 1.
[4] Ibid at para 2.
[5] Ibid at paras 2 and 16.
[6] Ibid at para 3.
[7] Ibid.
[8] Ibid at para 20.
[9] Ibid at pars 31-32.
[10] Ibid at para 6.
[11] Ibid at paras 6-8.
[12] Ibid at paras 9-10.
[13] Ibid at para 11 citing Driving Force Inc v I Spy-Eagle Eyes Safety Inc, 2022 ABCA 25 at para 73.
[14] Ibid at para 7.
[15] Ibid at paras 9-10.
[16] Ibid at para 4.
[17] Ibid at para 14.
[18] Ibid at para 13.
[19] Ibid.
[20] Ibid at para 17.
[21] Ibid at paras 19 and 30.
[22] Ibid at para 20.
[23] Ibid at para 31.
[24] Ibid at paras 27 and 31.
