Whenever parties enter into litigation, the possibility always exists for the parties to reach a settlement before or during the trial. In fact, most litigation in Ontario is settled before trial. The reason for this is that litigation can become expensive and time-consuming; therefore, once litigation has been commenced, parties may become more amenable to reaching a quick settlement rather than proceeding to court. In order to encourage parties to reach a settlement and free up much-needed space in the crowded provincial court system, Rule 49 was developed under the Ontario Rules of Civil Procedure. Under this rule, any party who refuses to accept a reasonable offer may face penalties down the road, depending on the final outcome of the matter in court.
What Constitutes a Valid Offer?
In order to be considered a valid offer under Rule 49, an offer must:
- Be in writing;
- Be delivered to the opposing party in an effective manner;
- Be open for acceptance; and
- Become binding upon acceptance.
If the offer is reasonable and is rejected, this can have significant consequences down the road for the rejecting party. If, for example, a plaintiff makes an offer and the defendant rejects it, and then the plaintiff receives a judgment more favourable than their original offer, the plaintiff will be entitled to significant costs from the defendant.
It is important to note that if an offer is made less than seven days before the start of a trial, the cost consequences for failure to accept a reasonable offer will not apply.
Partial Indemnity vs. Substantial Indemnity Costs
Costs are made up not just of lawyer’s fees. While fees will no doubt play a significant role in the ultimate cost of litigation for both parties, there are other disbursements that can add up quite quickly in addition to fees. Hiring expert witnesses, travel, and documentation can all add to the overall cost of litigation as well. In Ontario, costs are generally awarded in favour of the party deemed successful in the outcome of a trial. However, costs are not generally covered entirely by a costs award. In reality, costs are awarded most commonly in one of two ways: on a partial or substantial indemnity basis.
Partial indemnity costs are more modest than substantial indemnity. Generally, they may cover around 50% of a party’s total expenses of litigation.
Substantial indemnity costs are more significant and may cover up to 75% of a party’s litigation expenses.
Offers to Settle and The Impact on a Costs Award
A Rule 49 offer to settle, if rejected, will have a significant impact on the ultimate costs award following the conclusion of a trial. If, for example, a plaintiff was to make an offer to the defendant that the defendant rejected, the defendant may be held liable for a large portion of the plaintiff’s ultimate costs. The costs penalties associated with rejecting a reasonable offer are set out under Rule 49.10. If the plaintiff ultimately secures a judgment that is as or more favourable than their original offer, the plaintiff will be entitled to partial indemnity costs to the date of the offer, and substantial indemnity costs from that date, unless the court orders otherwise.
On the other hand, if the defendant is the party making an offer that the plaintiff rejects, and the plaintiff ultimately is awarded a judgment that is as or less favourable than the defendant’s offer, the outcome will be different. In this case, the plaintiff will be entitled to partial indemnity costs up to the date of the offer and will be liable for the defendant’s partial indemnity costs from the date of the offer onward.
Litigants Should Seek the Advice of Legal Counsel with Respect to All Offers
As outlined above, the rejection of a reasonable offer can have major cost consequences to a party who is ultimately deemed unsuccessful in a litigation matter. As a result, parties should strongly consider a reasonable offer, if presented, with their trusted legal counsel, before providing a response. Timing can be a major factor in the offer and acceptance of a Rule 49 offer, and so decisions need to be made carefully but quickly.
If you have questions about the litigation process with respect to a corporate or civil matter, contact GLG LLP in downtown Toronto. The firm’s litigation lawyers provide efficient and skilled trial advocacy for a range of legal issues. Call the firm at 416-272-7557 or contact them online to schedule a confidential consultation.