The not-so-small costs of small-claims actions

B.C.'s Civil Resolution Tribunal offers an online option for small-claims disputes

To sue or not to sue can be an expensive question for small businesses, regardless of the answer.

How expensive depends on many factors including the legal issue, the size of the claim and the parties involved. It depends on how a small-business owner decides to pursue an action.

“The whole process is meant for the average person, and quite often some people, depending on the issue, can go through it themselves,” Remedios & Co. associate Sasha Ramnarine said of B.C.’s small-claims court, which accepts disputes under $35,000. 

Disputes can range from breaches of contract and wrongful terminations to unpaid invoices and broken commercial leases. In some cases, he said, it’s clear that one party is in the right, and the other in the wrong. Other cases, however, are less cut and dried.

“What we’re finding is sometimes it’s complexity,” Ramnarine said. “It’s a little complex and they don’t even understand how the system works and how they can go through the evidentiary burden [and] ask questions in court, and they need someone who’s trained in that area.”

When faced with complexity or sheer lack of time, clients can hire a lawyer to see the dispute through from start to finish, seek legal counsel for part of the process or drop the claim entirely.

“Depending on how much money is owed to them, and how much time is required of them, and potential costs to hire a professional, they usually do an analysis and walk away,” he said.

Boughton Law associate Roshni Veerapen said roughly four out of five of Boughton’s small-business clients leave money on the table and walk away from small-claims cases. Once legal costs are calculated – she estimates $230 an hour on average – and delays are factored in – the Vancouver Robson Square court registry is booking four months in advance – the cost-benefit analysis simply doesn’t favour legal action.

“It’s not necessarily true that small-claims actions are always simpler than Supreme Court actions just because they’re lesser in value,” she said. “Very often people will start a claim just to make a point. And in those situations, they tend to be just as complex and just as expensive. You can rack up legal bills well above $30,000 in a small-claims action if you really care to.

“I always tell my clients: you’re going to end up spending the same amount in legal fees as you are the amount of the claim. Is it even worth it?”

As of June 1, another course of action became available to businesses and individuals seeking resolutions for their smallest claims.

Small claims under $5,000 can be submitted to B.C.’s online Civil Resolution Tribunal (CRT). With an emphasis on mediation and negotiation, the CRT allows British Columbians to submit claims from their laptop or smartphone, at any time of day, and work with a trained facilitator to arrive at a resolution. Start to finish, the process costs a few hundred dollars at most and aims to clock in at 60 to 90 days.

“The CRT is designed to bring the justice system to people, and build it around their lives,” said Shannon Salter, chair of the CRT, which had its first-phase launch last July, and has been accepting strata disputes since.

“What we’ve heard from the small and medium-sized businesses we’ve consulted is that being able to work at a problem by agreement with a customer helps them to preserve their business’ reputation, maybe helps them to preserve that customer relationship as well, and certainly can help also avoid bad publicity,” she told Business in Vancouver.

The claim amount aside, reputation can play a big role in whether a client chooses to pursue a claim or not, Veerapen said. For example, if a former employee has yet to pay personal charges on a company credit card, the employer may pursue an action not only to recoup costs, but to set a precedent that such behaviour will not be tolerated.

“I think a lot of claims that previously wouldn’t have been pursued will now be pursued in this forum,” Veerapen said. “Time will tell how effective it really is, but I think that because they’re involving facilitators at such an early stage, the chances [are good for] it getting resolved and for parties reaching a settlement – especially when it’s a small amount of money.”

According to Salter, accepting small claims is just Phase 2 of a number of possibilities for expanding the CRT, including raising the limit on small-claims cases to $25,000. She also emphasized that the CRT plans to adopt an almost startup-like approach to its growth – to beta-test new applications, bring them to market, follow through on feedback and continually enhance its offerings.

“The new CRT is an innovative approach,” Andrew Dilts, associate at MLT Aikins, said in an email to Business in Vancouver. “As with any innovation, lessons will need to be learned from the initial implementation, and the CRT will likely need to be continually improved.

“While the small-claims system is set up to be as user-friendly as possible, further innovations that allow businesses and people to resolve issues between them in an efficient, low-cost solution could prove to be a real benefit.” •