The cost of pursuing litigation is almost always an important factor in the decisions whether to commence, continue or settle litigation.  As Ontario is a “loser pays” jurisdiction, the fact that an “unsuccessful” litigant can be responsible for a portion of the costs of the “successful” party is a further consideration.

Ontario’s laws, however, provide a mechanism which if properly utilized can shift some of the burden of the costs of litigation onto the other party.

Given the importance of costs in litigation, every litigant and counsel should have a complete understanding of this mechanism and the strategies for its most effective utilization.

In summary, judges have discretion whether to award costs and if so whether they be paid on a lower/ordinary (“partial indemnity”) or higher/exceptional (“substantial indemnity”) scale.  There are presumptions, however, affecting the exercise of that discretion.  In addition, laws exist which are intended to promote settlement.  If one party offers to settle litigation which the other party does not accept, and if the matter proceeds and the offering party does “better” in the result than it offered to settle for, costs consequences to the non-accepting party can result.

A recent decision of the Ontario Court of Appeal[1] re-affirms many of the important aspects of Ontario’s costs regime including the rules relating to the proper use of Offer to Settle.

Background

The plaintiff brought an action against the defendants for oppression. Nine calendar days prior to trial (but only four days as calculated under Ontario’s Rules) the defendants offered the plaintiff $300,000.00, inclusive of interest, plus partial indemnity costs and disbursements to be agreed upon or assessed (the “Offer”). The Offer was not accepted by the plaintiff.

The Trial Decision

At trial, the plaintiff won the action and was awarded damages in the amount of $250,000.00 plus pre-judgment interest in the amount of $49,793.83.  In addition, the trial judge awarded substantial indemnity costs in the amount of $413,000.00 inclusive of disbursements and taxes to the plaintiff, primarily due to the manner in which the defendants conducted themselves during the course of the litigation. The parties disputed whether or not the Offer to Settle was a valid offer triggering the costs consequences contemplated by the Offer to Settle Rule because it was not made within the required times.  Despite this issue, because the recovery by the plaintiff was higher than the Offer made by the defendants, the cost consequences referred to in the Rule were not engaged. Notwithstanding this, the trial judge found that the Offer was a valid Offer because he decided the plaintiff had sufficient time to consider it prior to trial.

The Second Costs Decision

The decision was appealed by the defendants.  The Court of Appeal reduced the damages.  As a result, the Offer made by the defendants was better than the recovery of the plaintiff. The trial judge was then asked to reconsider his costs award.  He did so and revised his decision on costs and awarded substantial indemnity costs to the plaintiff to the date of the Offer in the amount of $270,925.15 inclusive of disbursements and taxes because of the defendants’ conduct in conducting the litigation.  However, the trial judge also awarded costs to the defendants in the amount of $127,616.56 inclusive of disbursements and taxes, from the date of the Offer to reflect the fact the defendants made an offer to settle the litigation which the plaintiff ought to have accepted at that time. As such, rather than being awarded costs in the amount of $413,000.00, the plaintiff ended up being awarded costs in the amount of $143,308.00.

Second Appeal on Costs

On appeal for the second time, the plaintiff argued that the Offer was not a valid Offer to Settle in light of the timing requirements set out in the Rule which required that the Offer be made at least 7 days prior to trial and remain open when the trial began.  The Offer was only made 4 days prior to trial as calculated by the Rules.   The defendants’ position was that the trial judge was within his discretion to decide that the Offer was a valid Offer to Settle triggering the costs consequences which he ordered.

The Court of Appeal found that in order to attract the mandatory cost consequences of the Offer to Settle Rule, an Offer to Settle must be served within the prescribed timelines contained in the Rule as they are mandatory. As such, the Court found that the trial judge erred in treating the Offer as a valid Offer to Settle under the Rule.  Nevertheless, the Court still found that it was up to the trial judge, given the discretion afforded to him, to award costs in a manner he deemed appropriate. The Rules allow a judge to take any settlement offer into consideration when making a determination with respect to costs.

Conclusion

In this case, the Court of Appeal confirmed two important points with respect to offers to settle made in the course of litigation. First, in order to be a valid Offer to Settle under the Rule and trigger the costs consequences, the offer must be served within the prescribed timelines contained in the Rule as they are mandatory. Second, notwithstanding this strict requirement of the Rule, a trial judge has a discretion to award costs in a manner he or she deems to be appropriate. The Rule allows a judge to take any settlement offer into consideration when making a determination with respect to costs, in addition to a number of other factors.

This decision serves as a reminder that though the parties and their counsel must be very aware of the strict requirements of the Offer to Settle Rule and strategies for its effective use, they must also keep in mind that judges have discretion to consider all settlement efforts made by the parties and their conduct in the course of the litigation and other factors when exercising the discretion which they ultimately have to award costs.

[1] Konig v. Hobza et al, 2015 ONVA 885