Ontario is a jurisdiction where parties are encouraged to settle their legal disputes well before reaching the ultimate hearing of a matter, and as such it is not uncommon for opposing parties to exchange offers to settle throughout the duration of the dispute.
An additional incentive provided for under the Rules of Civil Procedure to settle the matter is what is called a “Rule 49” offer to settle. Generally, it operates by ensuring a costs award that is favourable to a party who:
(i) makes an offer to settle that complies with the specifications of Rule 49; and
(ii) achieves a more favourable result at the hearing than offered under the offer to settle.
An offer to settle under this rule can be served by a plaintiff, defendant, applicant or respondent in an action, application, counterclaim, third party claim, crossclaim or motion. This means that this rule is applicable to motions on discrete issues within a legal dispute and is not limited only to offers made to settle the entire dispute.
In order to be eligible for the benefits provided under Rule 49, the following requirements must be met:
(i) the offer to settle must be made at least 7 days prior to the commencement of the hearing;
(ii) the offer to settle must be fixed, certain and understandable; and
(iii) it cannot be withdrawn or expire before the commencement of the hearing.
In deciding whether or not to make an offer to settle under this rule, it is important to take into account the fact that the court, in exercising its discretion with respect to costs, may take into account any offer to settle made in writing, the date the offer was made and the terms of the offer.
Where a plaintiff or applicant makes an offer under this rule and the judgment is as or more favourable to that party than the offer to settle, the plaintiff or applicant is entitled to the following:
(i) costs on a partial indemnity basis to the date of the offer to settle; and
(ii) costs on a substantial indemnity basis from that date forward.
Where a defendant or respondent makes an offer under this rule and the judgment is as or less favourable to the plaintiff or applicant than the terms of the offer to settle, the following applies:
(i) the plaintiff or applicant is entitled to partial indemnity costs to the date that the offer to settle was served; and
(ii) the defendant or respondent is entitled to partial indemnity costs from that date forward.
In the event that a party that made an offer to settle under this rule wishes to withdraw it, such withdrawal must be clear and unequivocal.
For more information on the manner in which Rule 49 operates, the Ontario Bar Association summarized the general rules and case law related to it here: https://www.oba.org/getattachment/Sections/Civil-Litigation/Resources/Resources/Litigation-Fundamentals-Sunrise-Series/Offers-to-Settle/Rule49OffersToSettle.pdf
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As we have previously blogged, the possibility of an adverse costs award should always be top of mind for parties who intend to litigate an estate-related matter. In Ontario, the general rule in civil litigation is that costs – some or all of the successful party’s legal fees – are to be paid by the losing party.
Costs are ultimately at the discretion of the Court. In addition to considering the result of the proceedings, the Court may also take any written offers to settle into consideration when making a determination regarding costs awards.
It is generally advisable for parties to make a reasonable offer early in the litigation. If the offer does not result in a settlement, it may still be helpful to the offeror on the issue of costs if the litigation proceeds.
In particular, an offer made pursuant to Rule 49 of the Rules of Civil Procedure can be an effective mechanism to reduce a party’s exposure to costs. Pursuant to Rule 49.10, where an offer to settle is made at least seven days before the commencement of the hearing and remains open for acceptance until the commencement of the hearing, there may be cost consequences if the offeree fails to accept the offer.
Manufacturers Life Insurance Co. v Sorozan Estate, 2016 ONSC 3805, a recent costs decision rendered by the Honourable Justice Dunphy, reiterates the importance of making an early and reasonable offer to settle.
Professor David Freedman recently blogged about Justice Dunphy’s judgment on the motion regarding the proper designated beneficiary of the Deceased’s group life insurance policy. The Deceased’s son brought a motion to have the disputed portion of the insurance proceeds paid to him, and the Deceased’s spouse brought a cross-motion for the proceeds to be paid to her. Justice Dunphy concluded that the Deceased’s spouse was the sole designated beneficiary of the policy.
In his subsequent reasons on the issue of costs, Justice Dunphy noted that the Deceased’s spouse had made two offers to settle: one offer to divide the disputed insurance proceeds equally prior to the commencement of the litigation, and a further less favourable offer after argument before the Court.
Justice Dunphy did not give any weight to the later offer, but did attach some weight to the offer made prior to the motion. Justice Dunphy noted that even though the offer was not in technical conformity with Rule 49 and was not an official offer to settle, and it was unclear if the offer was open for acceptance until the commencement of the hearing, “such an offer is entitled to some weight if not necessarily the same weight as one that was formally made and legally open to acceptance up until the commencement of the hearing the motion.”
In the result, costs were awarded against the Deceased’s son. Importantly, Justice Dunphy noted that if the offer had not been made, the Court would have been inclined to leave the parties to bear their own costs due to the “unusual circumstances” of the case.
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Umair Abdul Qadir
In many cases, we see offers to settle that are open for acceptance until a few minutes after the commencement of the hearing of the matter. They are structured this way so as to trigger the costs consequences under Rule 49.10 of the Ontario Rules of Civil Procedure, if not accepted. Rule 49.10 provides for adverse costs consequences if a favourable offer is not accepted that “is not withdrawn and does not expire before the commencement of the hearing”.
In Re Galeveski, 2012 ONSC 3460, a decision released June 12, 2012, the issue was whether the offer, which was to expire 5 minutes after the commencement of the hearing of the Application to pass accounts, was still open for acceptance. There were several procedural orders made in the proceeding. The court held, however, that the matter was not actually “heard” on any of the preliminary dates as the application was never dealt with on its merits, and no judge was seized of the matter.
The court noted that in in the context of a trial, it is commonly understood that the trial commences when evidence begins to be heard. In some cases, it has been held that the trial commences when the judge is present and prepared to hear the matter on its merits.
In Re Galeveski, the offer was held to be open for acceptance. The court went on to consider whether the offer should be enforced. Although the court has discretion whether to enforce a settlement or not, the court concluded that the settlement should be enforced.
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Paul Trudelle – Click here for more information on Paul Trudelle.