Consider offers to settle very carefully to avoid significant cost consequences
Did you know that a large majority of civil cases in Ontario settle before trial? And in many cases, if you fail to accept a reasonable offer, you could be responsible for paying a larger portion of the other party’s costs?
When someone brings a lawsuit, the process starting from filing the statement of claim, to going through the discovery process and trial, are all referred to as litigation. A matter can be settled not only before litigation is commenced, but at various stages of litigation. There are incentives built into the Rules of Civil Procedure to encourage both parties to settle, because the system would be even more overloaded than it already is if more matters went all the way to trial.
Rule 49 of the rules is all about offers to settle made in writing at different stages of litigation. The purpose of rule 49 is to encourage parties to end litigation sooner than later while being cost-effective. How does it do that? Rule 49 incentivizes the parties to make reasonable offers to settle and imposes cost consequences on those who do not accept reasonable offers to settle.
At the end of the day, litigation can be timely and costly, and parties are encouraged to settle if reasonable offers are made, and discouraged from using the court’s resources and incurring unnecessary costs.
The terms
What does rule 49 say exactly? It says that where a plaintiff makes an offer to settle at least seven days before the commencement of a hearing, which is not accepted by the defendant, and is not withdrawn and does not expire before the hearing, and the plaintiff obtains a judgment that is at least as favourable as the terms of the offer to settle, then the plaintiff is entitled to partial indemnity costs up to the date the offer was served on the defendant, and substantial indemnity costs from that date, unless the court orders otherwise.
The defendant may also make a Rule 49 offer to settle, which if not accepted by the plaintiff, and if the plaintiff obtains a judgment that is as favourable as or less favourable than the terms of the offer to settle, then the plaintiff is entitled to partial indemnity costs to the date the offer was served, and the defendant is entitled to partial indemnity costs from that date, unless the court orders otherwise.
Put simply, if you make a rule 49 offer to settle and it is not accepted, withdrawn or expired before the hearing, and you “beat” the offer at trial, then you can get more costs than you otherwise would. Conversely, if the other side beats the offer that you did not accept, you can be on the hook for a greater portion of their costs or lose your entitlement to recover your costs.
Rule 49 offers must be in writing, be effectively delivered to the opposing party, and be a clear proposal that can be construed as an offer to settle that is open for acceptance and binding on the other party if accepted.
Notably, the purpose of rule 49 is compatible with the overarching principle outlined in the Rules of Civil Procedure “to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits”.
Strategic move
Providing a rule 49 offer to settle can be a strategic move. Whether you are a plaintiff or a defendant, if you make a reasonable rule 49 offer to settle and the other party fails to accept it, and you “beat” your offer at trial, there could be significant cost consequences for the other party. In particular, the court will, barring exceptional circumstances, award a higher rate of costs to penalize the other party for using up the court’s resources unnecessarily when it could have accepted the reasonable offer.
So if you are an employee or an employer, and you are involved in a lawsuit, remember to consider offers to settle very carefully in order to avoid potentially significant cost consequences as well as to ensure any offers to settle you provide are crystal clear and reasonable. Remember that with litigation, the costs can sometimes outweigh the benefits.
While you might get a judgment in your favour, the court may award cost consequences against you if you fail to accept a reasonable rule 49 offer to settle. Being strategic is key to ensuring that you truly “win” at the end of the day.
