Neila MacQueen is one of four people from Sydney who launched a class action suit against the governments of Nova Scotia and Canada about the Tar Ponds. (CBC)

Nova Scotia's top court delivered a decision this week that may "chill" class action lawsuits in the province by ordering losing plaintiffs in a class action to pay the governments they were suing $733,000.

"I never thought something like this would happen," said Neila MacQueen, who lives in Sydney.

MacQueen is one of four people from Sydney who launched a class action suit against the governments of Nova Scotia and Canada. They were seeking damages for alleged environmental contamination caused during the decades the governments ran the Sydney Steel plant.

The action was thrown out in December after judges ruled the plaintiffs should proceed as individuals. This week, the Nova Scotia Court of Appeal ordered the four to pay $733,000 in costs.

"I thought it was intolerable for us to be charged $700,000. We can't afford it. We would go bankrupt. We would lose our homes," MacQueen said Thursday.

Ray Wagner, MacQueen's lawyer in Halifax, said his law firm and another Ontario firm involved in the case will pay the award. The lawyers had taken out the equivalent of an insurance policy in case of a defeat, which covers two thirds of the cost.

"When lawyers are now called upon to pay large cost awards you are going to be hard pressed to find somebody who is going to be interested in bringing class proceedings in this province in the future," Wagner said.

"If you have a high cost award — $733,000 would chill any plaintiff or any lawyer from participating in a class proceeding in this province."

'I would definitely do it again'

Lawyer Ray Wagner had hoped to make Halifax a "hotbed" of class action litigation in Canada. (CBC)

Class actions are relatively new in Nova Scotia and Wagner had hoped to make Halifax a "hotbed" of class action litigation in Canada. However, Nova Scotia is one of the few provinces where courts can award costs to the defendant or plaintiff in a class action.

"Now, given the circumstances here, where we can, we will be filing our pleadings in other provinces," Wagner said.

It's the second recent setback for Wagner, who had his legal fees reduced by the courts after a successful class action representing former residents of the home for Colored Children in Dartmouth.

Wagner said the costs awarded against his clients in the Sydney Tar Ponds class action are "punitive" and designed to send a message by the judiciary.

"This was their first opportunity to put their stamp on it," said Wagner.

The justices had sent a clear signal last year when they rejected the Tar Ponds case. In that December 2013 decision, the Appeal Court said of class action cases: "They permit potentially massive reallocations of resources by courts, invite confusion between public (punitive) and private (compensatory) remedial regimes, affect matters as diverse as the adequacy of insurance coverage, the nature, extent and timing of settlements, counsels' compensation, ethical challenges created by the potential conflict between counsel and claimants, and inter-jurisdictional disputes about which courts should hear which case or cases."

As MacQueen, who first started the case back in 2004, she has no regrets.

"I would definitely do it again. I feel the people of Sydney deserve somebody to fight for them," she said.