The Impact of an Effective Offer to Settle on Legal Costs

Ontario operates on a “loser pays” civil legal system. At the conclusion of trial (or a motion or application) the successful party can expect the presiding judge to order the unsuccessful party to pay a portion of the successful party’s legal costs. While awarding costs is always in the discretion of the presiding judge, as a rule of thumb litigants can expect to receive a cost award that reflects 40% – 70% of the fees they actually incurred.

Our Rules of Civil Procedure also provide a mechanism to encourage the acceptance of reasonable offers to settle. A party can make an offer to settle and leave the offer open until the commencement of the hearing. If the other party does not accept the offer, and obtains a result at the hearing that is less favorable than was contained in the offer, the impact on costs can be dramatic.

The power of these types of offers was illustrated in a Superior Court of Justice decision released last week where the plaintiffs were successful both in obtaining judgment and in defending the counterclaim, but nevertheless ended up writing a cheque to the defendant.

The case dealt with a motor vehicle accident and a derivative claim under the Family Law Act (both are areas of law which I profess to know nothing about). The plaintiff who was injured in the accident was awarded $10,000 in general damages from the jury. His co-plaintiff family member was awarded $1,000 for Family Law Act damages by the jury. Neither of these sums were recoverable as they did not exceed the Insurance Act threshold.

The plaintiff injured in the accident was also awarded $10,400 for loss of income and $2,475 in prejudgment interest. The total (recoverable) amount awarded was thus $12,875 before costs. The defendant had counterclaimed for contribution and indemnity, claiming that he was not the sole cause of the injuries. The defendant lost his counterclaim outright. As such, the defendant lost both the main action and the counterclaim and was ordered to pay $12,875 to the plaintiff.

However, back in 2011 the defendant offered to settle the lawsuit by paying $13,500 plus legal costs to the date of the offer. This offer was left open until the start of trial and was not accepted by the plaintiffs.

In the normal course, the plaintiffs would have received $12,875, plus their costs of the lawsuit, and the costs of successfully defending the counterclaim. However, as a result of the defendant’s offer to settle, which was a mere $625 more favorable than the result obtained by the plaintiffs at trial, the following orders were made:

(a) the defendant was ordered to pay $20,000 towards the plaintiffs’ legal costs from the start of the lawsuit in 2004 up to the date of the defendant’s offer in 2011;

(b) the defendant was ordered to pay $30,000 towards the plaintiffs’ legal costs in defending the counterclaim; and

(c) the plaintiffs were ordered to pay $75,000 towards the defendant’s legal costs from the date the offer was made in 2011 though to the conclusion of trial.

The result is that even though the plaintiffs were completely successful on liability in both their claim and in defending the counterclaim, they had to write a cheque for over $12,000 to the defendant.

While the result may seem unfair to some, had the plaintiffs accepted the defendant’s offer to settle, both sides would have been spared a year of time and expense and our legal system, which is greatly overburdened, would have been spared 10 trial days, plus the judicial time put into the file leading up to the trial. 

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Comments

  1. As much as I want to cut in half the majority of my sanctimonious clients who are resistant to a negotiated settlement. This holding is a mess that is going to have me having to amplify my efforts to coax settlement from clients. I have lost clients who did not agree that sacrificing approx $1k in order to obtain settlement was a worthy concession. Am I wrong? Basically now I’ll be negligent if I don’t prostrate myself and offer to rebate fees to cajole a client to settle when the negotiations bring the figures into range of each other.