Canada: When Close Enough Is Good Enough: Recent Case Law On The Application Of Rule 49

Elbakhietv.Palmer, 2014 ONCA 544 and
Mayer et al.v. 1474479 Ontario Inc.et al., 2014 ONSC 2622

Overview

Under Rule 49, offers to settle can result in cost consequences if certain requirements are satisfied and if one of the parties "beats its offer". Two recent Ontario decisions have helped to clarify what offers will satisfy this rule. Both cases stemmed from motor vehicle accidents where the defendants had made offers to settle that were similar to the judgments ultimately obtained by the plaintiffs.

Elbakhiet v. Palmer

In Elbakhiet v. Palmer, the plaintiffs were awarded damages totalling $144,013.07 at trial. The trial judge determined that an offer of $145,000, plus costs and prejudgment interest, made by the defendants six days prior to opening arguments, was compliant with Rule 49.

On appeal, the Ontario Court of Appeal held that the offer was made at least seven days before the trial as required by Rule 49.10. For the purposes of Rule 49, the Court of Appeal determined that time should be counted backwards from the calling of evidence, which had occurred the day after openings.

The Court of Appeal agreed with the trial judge that merely stating "plus prejudgment interest" created uncertainty in the offer. Since the offer did not specify what portion of the damages would be subject to what interest rate, the defendants were unable to establish that the offer was, in fact, at least as favourable as the judgment.

However, the Court of Appeal concluded that the trial judge should have considered Rule 49.13 in determining the applicable cost consequences. Rule 49.13 provides that the court may take into account any offer made in writing when exercising its discretion to award costs. Given that the offer to settle was virtually the same as the judgment, the Court of Appeal determined that the offer should have been given considerable weight in awarding costs. As a result, the costs award against the defendants was reduced from $580,000 to $100,000.

On January 22, 2015, the Supreme Court of Canada dismissed the plaintiff's application for leave to appeal with costs.

Mayer et al. v. 1474479 Ontario Inc. et al.

In Mayer et al. v. 1474479 Ontario Inc. et al., the plaintiffs were awarded $119,300 following a trial which commenced on September 16, 2013. The defendants had made four offers to settle prior to the start of the trial:

  1. May 1, 2012: $100,000 all-inclusive;
  2. September 10, 2012: $200,000 all-inclusive;
  3. September 20 2012: The following damages, inclusive of prejudgment interest, plus costs of the action on a partial indemnity basis:

    Plaintiff Pamela Mayer: $115,000
    Plaintiff Ralph Welch: $15,000
    Plaintiff Alicia Lauzon: $20,000
  4. September 12, 2013: Identical to the September 20 offer, except:

    Plaintiff Pamela Mayer: $200,000
    Plaintiff Alicia Lauzon: $35,000

The Superior Court of Justice determined that none of the settlement offers attracted cost consequences pursuant to Rule 49.10. The first offer was less than what the plaintiffs had received at trial. The fourth offer was not made at least seven days before the start of the trial.

Offers two and three did not satisfy all of the requirements of Rule 49.10 because they lacked clarity. The second offer was unclear because the all-inclusive nature of the offer did not specify what amounts were payable for damages versus prejudgment interest. As a result, the prejudgment interest could increase over time with a corresponding decrease in the damages.

The third offer also lacked clarity because:

  • the offer failed to specify whether the defendants were extending one non-severable offer or a collection of severable offers being made to each plaintiff. Non-severable offers made to multiple plaintiffs are unacceptable under Rule 49.10 because they raise the danger of plaintiffs playing their claims off against each other. Additionally, non-severable offers make it difficult to determine whether a plaintiff has obtained judgment more or less favourable than the amount offered; and
  • the offer failed to specify whether the plaintiffs were permitted to retain future collateral benefits, which had to be made clear in the offer so that it could be determined whether the offer was more or less favourable than the eventual judgment.

Despite finding that none of the offers met all of the requirements of Rule 49.10, the Court determined that the offers were still relevant in making a costs award as the defendants had clearly embarked on bona fide efforts to consider the risks involved in litigation. The Court noted that it was unjust to ignore the reality that the Rule 49.10 deficiencies were more technical than substantive. Accordingly, the judge denied both sides any formal award of costs.

These two decisions underscore the need for Rule 49 offers to settle to be clear enough to allow for meaningful comparisons between the offer and the judgment. Furthermore, defendants should be conscious of the requirement that offers under Rule 49.10 must be made at least seven days prior to the commencement of the evidence being called at trial. Finally, even in situations where defendants are unable to take advantage of Rule 49.10, it may be advantageous to make offers to settle in any event, as these cases signal that written offers which are similar to the ultimate judgment may be an important factor in determining cost awards.

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