This weekend marks the end of the 105th Tour de France. This year’s race has been full of controversies, first as a result of allegations of doping by pre-race favourite and four-time winner Chris Froome (and a related threatened cyclist strike) and subsequently ranging from disqualification of one cyclist for punching another to the inadvertent tear-gassing of cyclists by French police.
This spring, news surfaced regarding a settlement negotiated in respect of the claims against controversial cycling figure Lance Armstrong. Armstrong’s former teammate, Floyd Landis, had commenced proceedings against him in 2010 under the False Claims Act. The United States government became involved in the fraud proceedings in 2013 after Armstrong admitted to using performance-enhancing drugs after years of public denial.
The litigation commenced by Landis was settled earlier this year. Terms of settlement were reported to involve a payment by Armstrong of $5 million (of the $100 million claimed against him), as well as a payment to Landis of $1.65 million in legal fees. Accordingly, Landis’ one-quarter share in the settlement payment is less than what he will receive in legal fees.
It is not unusual in our work to see settlement terms involving the payment of one or more party’s legal fees as part of or in addition to a settlement payment. Especially where litigation spans the better part of a decade, the legal fees incurred can rival or exceed the quantum of the settlement payment itself and may form an important part of negotiations.
Have a great weekend,
Newlands Estate was a dispute between three siblings over a $30,000.00 painting. The three siblings were beneficiaries and estate trustees of their late father’s estate. Two of the siblings commenced an application in their capacity as Estate Trustee as against their brother and sought advice from the Court regarding the painting which they alleged was an asset of the Estate. They also alleged breach of fiduciary duty and sought costs of the application on a substantial indemnity basis.
The respondent argued that the painting was gifted to him by his late father on the condition that he pay the value of same to the Estate.
In an earlier decision, released in November of 2017, Justice Spies dismissed the application finding that the painting was not an asset of the Estate and that the applicants were obliged to convey ownership of the painting to the respondent personally upon receipt of the full and final payment of $30,000.00. The Court also found that the respondent had not breached his fiduciary duty as Estate Trustee.
In this follow up decision Justice Spies dealt with the Costs of the application. The respondent sought substantial indemnity costs against the applicants personally in the amount of $214,832.00 or alternatively, partial indemnity of $148,218.00.
The Court found that the application was unnecessary and having considered their conduct throughout, ordered them to personally pay substantial indemnity costs to the respondent.
This case is an example of not only the risk of liability that estate trustees must keep in mind when acting in the fiduciary role of estate trustee, but also the risks of not accepting reasonable settlement offers.
Background of Settlement Offers Exchanged
Before the application was commenced the respondent offered to pay the agreed upon value of the subject painting ($30,000.00) to the Estate. He also offered to resolve some other issues regarding the administration of the Estate. The applicants did not provide a formal response to this offer.
After the commencement of the proceeding, the respondent made five offers to settle on various dates. These offers addressed the painting and other administration issues.
In February of 2017, the applicants presented a counter-offer consenting to the release of the painting to the respondent and provided that the application be withdrawn without costs and that the parties bear their own costs. They declined to deal with any of the other terms.
During the course of the litigation, the action became the subject of three Orders setting out deadlines for mediation, cross-examination and scheduling a hearing. The applicants were non-compliant with the Orders for cross-examination and caused the rescheduling of the hearing, all of which led to additional costs incurred by the respondent.
The applicants argued that the respondent’s original offer was not an offer to settle within the meaning of Rule 49 of the Rules of Civil Procedure as it was made before the application began. They acknowledged, however, that the Court has broad discretion to consider pre-litigation offers with respect to costs.
The respondent submitted that his original offer was an offer to settle that the applicants rejected and that this Court has broad discretion to consider any offer in deciding to award substantial indemnity costs.
The Court cited, with agreement, the view expressed in Brough and Whicher Ltd. v. Lebeznick, 2017 ONSC 1392, at para. 20, that a pre-litigation offer is relevant to the consideration of costs, as it can demonstrate whether a party was prepared to be reasonable from the outset and noted that “clearly” the respondent’s original offer indicates that he was prepared to be reasonable.
In the circumstances, Rule 49.10 would only entitle the respondent to partial indemnity costs. The respondent, relying on the decision of the Ontario Court of Appeal in S & A Strasser Ltd. v. Richmond Hill (Town),  O.J. No. 2321 (Ont. C.A.), argued that the Court has broad discretion to consider any offer in deciding to award substantial indemnity costs.
After reviewing the competing authorities, Justice Spies noted:
I do not understand the law to limit my discretion to award solicitor-client costs to only cases where unsubstantiated allegations of fraud, deceit and dishonesty have been made. It has been repeated in a number of cases that the trial judge in Strasser said: “I think this case, in these circumstances, screams for solicitor-and-client costs.” Furthermore, Rule 57.01 (4) gives me authority to award all or part of the respondent’s costs on a solicitor-client basis and Rule 57.01 (1) permits me to consider any offer to settle and Rule 57.01(1) (f) (i) provides that I may consider whether any step in the proceeding was improper, vexatious or unnecessary.
The Court noted that the applicants misused their authority, brought an application that was improper, vexatious and unnecessary to punish the respondent, who was a sibling with whom they did not get along. They used their position as Estate Trustees to shield themselves from personal liability and ran up costs of a quarter million dollars ostensibly to recover a $30,000 painting:
In my view, not ordering them to fully reimburse John for his legal costs would bring the administration of justice into disrepute.
The applicants’ argument that the respondent should only be entitled to costs up to the date of their counter-offer was not accepted in light of their refusal to deal with other issues pertaining to the administration of the Estate and the fact that by the time that offer was served the respondent had incurred substantial legal fees.
Costs were fixed at $180,167 plus HST for a total of $203,589 payable by the applicants personally. Given the applicants’ conduct, this was not a case where costs ought to be paid from the Estate.
The applicants were also ordered to pay the respondent’s full disbursements minus what had been paid out of the Estate.
Substantial litigation costs to be paid personally by an estate trustee is not common, but well within the discretion of the presiding Judge. Parties to estate litigation should assess their personal exposure to costs before launching a lawsuit or motion, similar to those involved in civil litigation cases.
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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
Thanks for reading.
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