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(iii) it cannot be withdrawn or expire before the commencement of the hearing.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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Today on Hull on Estates, Natalia Angelini and Umair Abdul Qadir discuss Lewicki Estate v Nytschyk Estate, 2016 ONSC 7459, a recent Ontario Superior Court of Justice decision in which the Court considered the enforceability of a settlement between a dependant and an Estate where the dependant died before the settlement was finalized. For more about the decision, please read Suzana Popovic-Montag’s recent blog post.
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In the recent decision of Lewicki Estate v. Nytschyk Estate, 2016 ONSC 7459, the Ontario Superior Court of Justice enforced a settlement that was incomplete when one of the parties died. In this case, Ms. Lewicki (“Cherie”) commenced a claim for dependant’s relief against the estate of her late common law spouse (“Joseph”). Cherie and Joseph had a long-standing common-law relationship when he died intestate in 2013. The house in which the two lived for most of their relationship was held in Joseph’s name alone. Cherie had a potentially large dependant’s support claim as well as a claim to the house based on resulting or constructive trust. The parties agreed to a settlement providing that the Estate would transfer title to the disputed property to Cherie. However, Cherie died unexpectedly at age 52, prior to the transfer.
When is a settlement final and binding?
Even though Minutes of Settlement had not been signed, the court applied the decision of the Ontario Court of Appeal in Olivieri v Sherman to find that the parties had entered into a binding deal and granted the net proceeds of the sale of the disputed property to the common law spouse’s Estate.
A settlement agreement is a contract. Like other contracts, the settlement does not need to be in one signed document. Rather, the parties must have “(a) had a mutual intention to create a legally binding relationship, and (b) reached agreement on all of the essential terms of the settlement.”
In this case, a binding agreement was found in the correspondence between counsel.
Counsel for Joseph’s estate proposed a settlement that Cherie accepted in principle. Counsel for the estate subsequently prepared and sent draft minutes to Cherie’s counsel. When the estate did not hear back, counsel for the estate sent an email to Cherie’s counsel threatening to bring a motion to enforce their settlement agreement, yet after Cherie’s death, counsel for the estate claimed there had never been a final settlement agreement. Although counsel on both sides were making additional proposals for the minutes of settlement when Cherie died, the court found these were not essential terms.
Encouraging settlement as public policy
The court has discretion not to enforce a settlement. The court chose not to use its discretion to set aside the agreement in this case as a matter of public policy. The court held that settlement of litigation is encouraged and so settlement agreements should be enforced where there is a valid contract. The court supports settlements, which reduce costs and provide certainty to parties to litigation. In this case, the court found no reason that the settlement should not be enforced.
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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
If you know anything about baseball, you are likely to remember that iconic photo of a dying Babe Ruth standing near the home plate at Yankee Stadium 1948. If you do, you may be interested to know that the Estate of Nat Fein (the photographer who took the photo) and The New York Times recently settled a legal dispute over the ownership of the photo.
At the time the photograph entitled “The Babe Bows Out” was taken, Nat Fein was a photographer for the New York Herald Tribune. The picture ultimately won him a Pulitzer Prize for Photography.
Despite Fein’s recognized authorship of the famous snapshot of Babe Ruth, the New York Times, after several corporate acquisitions, believed that it owned the photograph and the copyright attached to it. The Estate asserted ownership on the basis that the copyright had been assigned to Fein when he was given the negative of the photo. However, the parties have now quietly agreed that while The New York Times will own the rights to The Babe Bows Out, the Estate will receive some financial benefit from its sales.
In Canada, copyrighted work authored during the course of employment is first owned by the employer and may only be validly assigned if the assignment is in writing signed by the first owner or an authorized agent. Section 13(3) and (4) of the Copyright Act state that:
13 (3) Where the author of a work was in the employment of some other person under a contract of service or apprenticeship and the work was made in the course of his employment by that person, the person by whom the author was employed shall, in the absence of any agreement to the contrary, be the first owner of the copyright, but where the work is an article or other contribution to a newspaper, magazine or similar periodical, there shall, in the absence of any agreement to the contrary, be deemed to be reserved to the author a right to restrain the publication of the work, otherwise than as part of a newspaper, magazine or similar periodical.
13 (4) The owner of the copyright in any work may assign the right, either wholly or partially, and either generally or subject to limitations relating to territory, medium or sector of the market or other limitations relating to the scope of the assignment, and either for the whole term of the copyright or for any other part thereof, and may grant any interest in the right by licence, but no assignment or grant is valid unless it is in writing signed by the owner of the right in respect of which the assignment or grant is made, or by the owner’s duly authorized agent.
So, if this dispute were to have taken place in Canada, the Estate’s assignment argument would have failed and the Estate would have lost any entitlement to financially benefit from one of Nat Fein’s most famous works.
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You are the Estate Trustee of an estate currently involved in a dispute with the deceased’s former business partner. In the context of such a dispute, the former business partner puts forward what you believe to be a reasonable settlement proposal which you are inclined to accept. Before accepting such a proposal however you ask yourself whether you, as Estate Trustee, unilaterally have the authority to settle such a dispute on behalf of the estate, or if you are required to involve the beneficiaries of the estate as part of any settlement?
An Estate Trustee’s authority to settle claims on behalf of the estate is established by section 48(2) of the Trustee Act, which provides:
“A personal representative, or two or more trustees acting together, or a sole acting trustee, where, by the instrument, if any, creating the trust, a sole trustee is authorized to execute the trusts and powers thereof may, if and as they may think fit, accept any composition or any security, real or personal, for any debt or for any property, real or personal, claimed, and may allow any time for payment for any debt, and may compromise, compound, abandon, submit to arbitration or otherwise settle any debt, account, claim or thing whatever relating to the testator’s or intestate’s estate or to the trust, and for any of these purposes may enter into, give, execute, and do such agreements, instruments of composition or arrangement, releases, and other things as seem expedient without being responsible for any loss occasioned by any act or thing done in good faith.” [emphasis added]
While an Estate Trustee has the authority to settle any claim on behalf of the estate without the involvement of the beneficiaries, this does not necessarily mean that the Estate Trustee will be insulated from liability for their decision to have done so. The Trustee Act provides that the Estate Trustee shall not be liable for any loss associated with the settlement so long as the settlement was entered into in “good faith”. To this effect, whether or not the Estate Trustee will later be liable to the beneficiaries for any settlement will turn on whether any such settlement was entered into in “good faith”, with such a determination often being made within the context of a later Application to Pass Accounts. If the court concludes that the settlement was entered into in “good faith”, the Estate Trustee will not be liable to the beneficiaries. If the court concludes that it was not entered into in “good faith”, the Estate Trustee may be liable to the beneficiaries for the settlement.
In order to reduce any concern that the beneficiaries may later take issue with any settlement, many Estate Trustees will reach out to the beneficiaries to seek their prior approval. While such a route is often the safest option for the Estate Trustee to take, it is not necessarily mandatory, and the Estate Trustee may unilaterally enter into any settlement on behalf of the estate so long as they are prepared to justify any such settlement to the beneficiaries on a subsequent passing of accounts.
In Biancaniello, Romano, Prinova Technologies Inc. v. DMCT LLP, Collins Barrow, a recent decision by the Divisional Court, the dismissal of a motion for summary judgment was upheld despite the presence of a Release that appeared to bar the action in question. The Defendants sought summary judgment on the basis that the action was barred by execution of a broadly-worded Release as part of the settlement of a prior action between the same parties.
Under the Release previously signed by the Plaintiffs in 2008, they agreed to release and discharge the Defendants:
“of and from all manner of actions, causes of actions, suits, debts, duties, accounts, bonds, covenants, contracts, claims and demands which against each other they had, now have or hereafter may, can or shall have for or by reason of any cause, manner or thing whatsoever existing to the present time with respect to any and all claims arising from any and all services provided by [the Defendants] to [the Plaintiffs] through to and including December 31, 2007 and, without limiting the generality of the foregoing, with respect to any and all claims, counterclaims or defences that were pleaded or could have been pleaded in the action commenced in the Ontario Superior Court of Justice, as court file No. 08-CV-349246 PD3” (para 7).
The motions judge determined that the Release did not bar a negligence claim that had arisen in 2011, three years after the Release had been executed, notwithstanding its broad language and seemingly all-encompassing nature. The Ontario Superior Court of Justice had noted that the alleged negligence of the Defendants had not yet been adjudicated and should not have been subject to the Release that referred to claims “existing to the present time“, being 2008.
The Divisional Court recognized that a negligence claim may have been contemplated by the parties at the time that the Release was executed. However, the nature of the negligence claim (and the significant tax liabilities resulting from same, in the approximate amount of $1,200,000.00) was unknown by the parties at the time of the 2008 settlement. Justices Wilton-Siegel, Corbett, and Baltman found that the negligence claim was not barred by the Release, as it lacked any reference to the relevant transaction, language specifically releasing against claims resulting from “potential or undiscovered negligence”, and was limited in its scope through the reference to causes existing only at present, when the damages, in fact, resulted at a later time.
Although the motion for summary judgment and subsequent appeal did not involve an estate or trust, this decision is nevertheless relevant within the context of estate litigation, in which so many disputes are settled outside of court and settlements formalized by execution of Minutes of Settlement and Full and Final Mutual Releases. When assisting clients in settling disputes, it is important to adequately consider claims that could potentially arise in the future and whether the terms of the release should explicitly refer to and waive such causes of action.
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Throughout the course of litigation, it is often the case that counsel exchange offers to settle in accordance with Rule 49 of the Rules of Civil Procedure. Should counsel decide to withdraw such an offer, proper steps must be taken to ensure that the offer is in fact withdrawn, and does not improperly linger.
The general rule with respect to revoking an offer can be found under the statute. The Rules at Rule 49.04(1) – (4), provide three ways to revoke an offer: (i) by serving written notice of withdrawal of the offer on the party to whom the offer was made; (ii) by specifying a time within which it may be accepted whereafter, if not accepted, it is deemed to be revoked; or (iii) by disposition of the claim by the Court prior to acceptance of the offer.
Importantly, an offer to settle is not terminated by a counter-offer or rejection as indicated in Rule 49.07(2). As such, even if the offeree rejects the offer to settle, it may thereafter be accepted, unless it has been properly withdrawn or the court has disposed of the claim.
According to the common law, a written offer can only be withdrawn in writing, and cannot implicitly be withdrawn by a subsequent oral offer. However, a subsequent offer may constitute the withdrawal of the prior offer. According to Justice Gray in Desforge v. E.D. Roofing Ltd., “…a decreasing offer by a plaintiff, without reference to the earlier offer, is by implication a withdrawal of the earlier offer”. Therefore, the common law appears to impose an additional means to withdraw an offer to settle. A further offer to settle, which is less generous than the previous offer, acts to withdraw the prior offer even if it is not specifically referenced.
As anyone who has ever been a party to litigation (and every litigation lawyer) knows, the costs of any court proceeding is a looming threat that surrounds the entire process. The sanction of costs is meant to discourage frivolous and vexatious litigation that has no chance of success. It is also meant to temper the zeal of the litigating parties (even where there are very real issues to be tried) by making them think hard about the necessary steps and how they conduct themselves in the litigation.
The court has broad discretion to award costs under section 131 of the Courts of Justice Act. The factors the court considers in exercising that discretion are found in Rule 57.01 of the Rules of Civil Procedure and include the result in the proceeding, any offer to settle made in writing, the principle of indemnity, the amount of costs that an unsuccessful party could reasonably expect to pay, the amount claimed and the amount recovered in the proceeding, the apportionment of liability, the complexity of the proceeding and the importance of the issues.
Notably, the court will also consider, the conduct of any party that tended to shorten or to unnecessarily lengthen the proceeding, whether any step was improper, vexatious, unnecessary, taken through negligence, mistake or excessive caution, and a party’s denial of or refusal to admit anything that should have been admitted.
Costs sanctions are just one of the many mechanisms built into the litigation process designed to encourage settlement. For example, matters commenced in the Toronto Estates Court are subject to mandatory mediation, which means that the parties must attend with counsel to enter into in good faith settlement negotiations assisted by a professional and neutral third party.
If mediation fails, a pre-trial provides the opportunity for court-assisted settlement whereby a judge will assist and encourage the parties to settle.
Certainly, it is always better to be a part of the resolution, which provides a measure of control over costs and other factors. A much more attractive option than the risk involved with having no control over the outcome.
Food for thought for all the litigants out there.
Sharon Davis – Click here for more information on Sharon Davis.
Listen to Settlement Issues
This week on Hull on Estates, Paul Trudelle and Christopher Graham talk about settlement issues – considerations that you have to take into account and the potential implications of not settling.