Contractual Cost Clauses

For nearly 20 years, under the British Columbia Supreme Court Civil Rules, awards for the costs of a party’s legal fees have remained frozen in time. Under Appendix B – Party and Party Costs, a Scale B unit — i.e., a unit for a legal matter of “ordinary difficulty” — is worth $110. This stasis is notwithstanding that British Columbia’s Consumer Price Index rose by approximately 44% between 2007 and 2025. Within this regime, contractual clauses entitling parties to the recovery of all (or substantially all) their legal fees on a full indemnity basis have become increasingly valuable for clients and practitioners alike who want to see their cost awards keep pace with inflation.

The Distinction Between Tariff Costs and Contractual Costs

Typically, costs are awarded pursuant to the Rules of Court. They are normally granted on a party and party basis in accordance with a tariff. As discussed above, tariff costs amount to only a portion of a party’s actual legal expenses. 

To improve the chances of a more fulsome recovery of legal costs in the context of contractual disputes, parties may include a provision in their contracts for reimbursement by one party to the other party for the first party’s actual legal and other expenses. These are sometimes referred to as indemnity costs or contractual costs. Unlike costs under the Rules, entitlement to contractual costs exists because of the bargain the parties made, not because the successful party qualifies under the Rules. The fact that courts often address the contractual claim during the costs phase of the litigation can obscure that difference.

Establishing the Right

A party seeking its actual legal fees must first show that the contract creates that right. British Columbia cases continue to require the entitlement to full indemnification to be expressed clearly and unequivocally. However, what constitutes “clear and unequivocal” is not always clear and unequivocal. It behooves a drafter to err on the side of caution and make particularly clear that parties are entitled to recovery of all legal fees arising out of or in connection with a breach of an agreement on a full indemnity basis. 

In Scott Mayhew Contracting Ltd. v Beech, 2013 BCSC 727, a reference to "legal costs" was insufficient, in context, to establish an entitlement to actual legal fees. In that case, the Plaintiff was awarded costs at Scale B. However, more recently, in Apex Aluminum Extrusions Ltd. v KD Sales & Service Limited, 2024 BCSC 1776, the BC Supreme Court enforced language requiring payment of “all… legal fees connected with [an] account.”

In Royal Bank of Canada v 1343173 B.C. Ltd., 2025 BCSC 2124 the Court treated an obligation to pay “all fees (including legal fees)” as sufficient to ground an entitlement to legal fees on a solicitor-and-own-client basis.

The Court’s Residual Discretion to Consider and Override a Contractual Entitlement

In Eisler Estate v GWR Resources Inc., 2021 BCCA 247, the Court of Appeal for BC distinguished contractual costs from tariff costs quite simply: “A contract is a contract.” In making this statement, the Court of Appeal noted that nothing in the Court’s Rules purported to override a contractual obligation for reimbursement of legal fees and other expenses.

Nevertheless, more recent case law makes clear that, in extraordinary circumstances, the court retains residual discretion to override a contractual costs term. In Peace River Partnership v Cardero Coal Ltd., 2023 BCCA 351, the Court of Appeal noted that, while a contractual indemnity can clearly and unequivocally establish a right to indemnification, the court maintains the discretion to depart from the agreement. The Court of Appeal also noted that “[a]s to when that discretion should be exercised, we do not think it is helpful to enumerate a list of specific factors that would justify doing so”, but that the court must consider all relevant circumstances, such as degree of success and proportionality of expenses, viewed in light of the Supreme Court Civil Rules’ goals of a “just, speedy and inexpensive” trial. 

Similarly, in Halifax Financial Corporation v Edgemont Hollingsworth Heritage Revitalization Corporation, 2025 BCCA 95, the Court of Appeal upheld a decision to award less than full indemnity costs in a mortgage proceeding, notwithstanding a contractual right to the same. In the Halifax Financial decision, the Court of Appeal noted that the lack of complexity to the proceeding and the respondents' conduct generally favoured the court exercising its discretion to award less than full indemnity costs.

Additionally, in considering a cost award, the case law makes clear that a full indemnity cost award is not a blank cheque. Even where the clause applies and the court gives effect to it, the fees claimed remain subject to scrutiny for reasonableness. In Cardero Coal Ltd. v Carbon Creek Partnership, 2022 BCSC 1103, for example, the Court directed an assessment before the Registrar of the amounts payable under contractual indemnities.

Key Takeaways

Absent changes to the Supreme Court of British Columbia’s tariff cost regime, contractual costs clauses will only become more valuable. Salient questions to consider upon reviewing such clauses include:

• Does the agreement clearly create a right to recover legal fees on a full indemnity basis?
• Even if it does, do the circumstances justify the court departing from that bargain when making its costs order?
• Are the fees claimed reasonable?

For drafters of cost clauses, the safest course is to be explicit: identify legal fees and disbursements, make clear that the clause applies to enforcement proceedings, and state that recovery is intended on a solicitor-and-own-client or full indemnity basis.