The Perils Of Ignoring Faulty Offers To Settle: Expanded Discretion Under Rule 49

A variety of considerations go into deciding whether to accept an offer to settle a business dispute. One of the less obvious of these considerations relates to cost consequences. Under Rule 49 of the Rules of Civil Procedure rejecting an offer to settle in a civil proceeding may lead to significant consequences when it comes time for the court to award costs: if it turns out that the party that rejected the offer to settle would have been in the same position or better if it had accepted the offer, a higher rate of costs may be awarded to penalize that party for unnecessarily lengthening the proceeding. The purpose of Rule 49 is to encourage settlement and, whenever possible, avoid a trial.

To trigger the cost consequences under Rule 49.10, an offer to settle must meet strict requirements: (1) the plaintiff or defendant must make its offer at least seven days before the commencement of the hearing; (2) the offer must not be withdrawn or expire before the commencement of trial; (3) the offer must not have been accepted by the other side; and (4) the judgment must be as favourable or more favourable than the terms of the settlement offer. The offer must also be fixed, certain and capable of clear calculation in order to attract Rule 49 cost consequences.

Under Rule 49.10, if the plaintiff makes an offer to settle and then obtains a judgment that is as favourable as or more favourable than its own offer, the plaintiff is entitled to partial indemnity costs to the date of its offer, and then its substantial indemnity costs from that date forward, unless the court orders otherwise. If the defendant makes an offer to settle and the plaintiff obtains a judgment that is as favourable as or less favourable than the defendant's offer, the plaintiff is entitled to partial indemnity costs to the date the offer was served. The defendant is then entitled to partial indemnity costs from that date forward, unless the court orders otherwise.

Despite the strict requirements under Rule 49.10, the court does have discretion when it comes to applying cost consequences under the Rule. Courts also have discretion when it comes to applying cost consequences to settlement offers that do not conform to the strict Rule 49 requirements.

A recent Ontario Court of Appeal decision, Elbakhiet v. Palmer,1 provides helpful new guidance on the extent to which the court will apply its discretion to non-compliant offers to settle under Rule 49.

Residual Discretion Under Rule...