Crafting The Perfect Rule 49 Offer

Offers to settle can take a wide range of forms and can involve a variety of terms. However, an offer to settle which is intended to be Rule 49 compliant generally includes certain key terms that are intended to engage the costs consequences in rule 49.10 of Ontario's Rules of Civil Procedure.

The outcome of a Rule 49 compliant offer depends on the circumstances of the case and the party that made the offer. In short, rule 49.10 operates by mandating a costs award that is favourable to any party who (i) makes a Rule 49 compliant offer; and (ii) achieves a more favourable result at Trial.

Basics of Rule 49 compliant offers

Certain requirements apply to any party seeking to make a Rule 49 compliant offer, including: 1) the offer must be made at least 7 days before the commencement of the hearing; and 2) the offer cannot be withdrawn or expire before the commencement of the hearing.1 There are additional requirements if the action involves multiple defendants, which are set out in rule 49.11.

Litigants may be incentivized to make an offer because they hope that it will be accepted and the Trial will be avoided entirely. However, most parties are motivated to serve a Rule 49 compliant offer in an effort to engage the following cost consequences.

If a plaintiff "beats" their Rule 49 compliant offer at Trial, they are entitled to partial indemnity costs up to the date of the offer, and substantial indemnity costs thereafter. Conversely, if a defendant "beats" their Rule 49 compliant offer at Trial, the plaintiff is still entitled to their partial indemnity costs up to the date of the defendant's offer, but the defendant is entitled to their own partial indemnity costs thereafter.

Determining whether a party "beat" their offer at Trial

In some cases, it will be patently obvious that a party's Rule 49 offer "beat" the result obtained at Trial, but in many cases, parties will dispute whether an offer was in fact more or less favourable than the result.

Ontario Courts apply a high standard when assessing whether a Rule 49 offer is better or worse than the result a Trial. For a settlement offer to engage the cost consequences of rule 49.10, some Courts have stated that the offer must be "crystal clear", and "[u]ncertainty or lack of clarity in any aspect of an offer may prevent a party from showing that the judgment obtained was "as favourable as the terms of the offer to settle, or more or less favourable", as the case may be".2 The party looking to rely on rule 49.10 has the burden of proving that the result obtained at Trial was more or less favourable than their Rule 49 offer(s).3

That being said, uncertainty alone will not make a settlement offer non-compliant with Rule 49. Rather, uncertainty or lack of clarity impacts whether a party can meet their burden of proving that the judgment at Trial is more or less favourable than their offer.4 In other words, if a party beats their Rule 49 offer by a very high margin, it should not matter if the offer gave rise to some minor uncertainty when it was made.

For example, in the leading case of Elbakhiet v. Palmer, the defendant's offer ($145,000 plus interest and costs), barely exceeded the damages awarded ($144,013.07). The offer did not specify what rate of pre-judgment interest would apply, and how much interest was awarded would determine if the offer was better than the result. Due to the small margin, the Court of Appeal held that "only by making some arbitrary distribution of interest could the [defendant] establish that their offer exceeded the Judgment".5

Consequently, the offer in Elbakhiet did not engage Rule 49. This was not because of the...