The recent decision of the British Columbia Supreme Court in Cascadia Pacific Realty Ltd v Hon Towers Kerrisdale Ltd., 2023 BCSC 1703 ("Cascadia") reinforces the importance of a plaintiff seriously considering all formal settlement offers received, particularly those after the discovery process is complete in an action.

Background

Cascadia Pacific Realty Ltd. ("Cascadia Pacific") brought an action against Hon Towers Kerrisdale Ltd. ("Hon Towers") for payment of commission owed as part of a land assembly transaction in Vancouver. The issues at trial included the interpretation of a commission agreement for one of the three parcels of land assembled and whether there was a commission agreement in place for another of the three parcels. The Court found that the proper interpretation of the agreement was that commission was to be calculated on the estimated $2.5 million cost of construction. The Court also held that there was a commission agreement in place for another parcel and, as such, commission was owed to Cascadia Pacific. The total award by the Court was $241,110 plus GST.

Before trial, Hon Towers made three formal settlement offers. In the First Offer, made on March 12, 2020, Hon Towers' offer was based on a calculation of the amount owing for commission in the same way that the Court ultimately found to be correct, plus an additional $1,110 for a total of $260,000, plus GST. This offer was rejected by Cascadia Place. On March 14, 2022, Hon Towers made a Second Offer to settle containing the same terms as the First. Since the First Offer in 2020, documents were exchanged between parties, examinations for discovery were completed, and an application for summary judgment by Cascadia Place seeking an order that Hon Towers is liable for damages had been heard and dismissed. Cascadia Place made a Counteroffer for $699,000. Neither the Second Offer nor the Counteroffer were accepted. On April 12, 2023, Hon Towers made its Third Offer to settle which included the same commission amounts as the previous two offers and added $20,000 for pre-judgment interest as well as an additional $20,000 (above the $1,110 in previous offers). Hon Tower's Third Offer totalled $311,845, inclusive of GST. Cascadia Place Counteroffered at $619,624. The parties did not reach a settlement.

BC Law on Offers to Settle

Offers to Settle are governed by Rule 9-1(5) and (6) of the Supreme Court Civil Rules. Under Rule 9-1(5)(d), where an offer to settle has been made by a defendant and the judgment awarded to the plaintiff was no greater than the amount of the offer to settle, the Court may award to the defendant the defendant's costs in respect of all or some of the steps taken in the proceeding after the date of delivery or service of the offer to settle. In making such an order, the Court may consider the following factors outlined in Rule 9-1(6):

  1. whether the offer to settle was one that ought reasonably to have been accepted, either on the date that the offer to settle was delivered or served or on any later date;
  2. the relationship between the terms of settlement offered and the final judgment of the court;
  3. the relative financial circumstances of the parties;
  4. any other factor the court considers appropriate.

The purpose of these rules on cost awards has been described by the British Columbia Court of Appeal ("BCCA") in Hartshorne v Hartshorne, 2011 BCCA 29("Hartshorne") as "encouraging early settlement of disputes by rewarding the party who makes a reasonable settlement offer and penalizing the party who declines to accept such an offer; deterring frivolous actions or defences; encouraging conduct that reduces the length and expense of ligation and discouraging conduct that has the opposite effect; encouraging settlements whenever possible, to free up judicial resources for other cases; and to have a winnowing function in the litigation process by requiring litigants to make a careful assessment of the strength or lack thereof of their cases at the commencement and throughout the course of the litigation and by discouraging the continuance of doubtful cases or defences." In Hartshorne, the BCCA also set out that Rule 9-1(6)(a) is to be assessed based on the circumstances at the time the offer was made, not on the court's ultimate decision. "[R]easonableness is to be assessed by considering such factors as the timing of the offer, whether it has some relationship to the claim (as opposed to simply being a "nuisance offer"), whether it could be easily evaluated, and whether some rationale for the offer was provided." Further, whether an offer is reasonable is to be assessed objectively.

In Kobetitch v Belski, 2018 BCSC 2247, Justice Gomery clarified that the question the court is asking when assessing Rule 9-1(6)(a) is whether it was unreasonable for the plaintiff to refuse the offer – "to say that an offer ought reasonably to have been accepted is to say that a reasonable person should have accepted it. [Or rather that it] was unreasonable to refuse it."

Cascadia Ruling

With regard to Rule 9-1(6)(a) and whether the First Offer ought reasonably to have been accepted, Hon Towers argued that the main issue was a matter of contractual interpretation and, as such, no discovery was required to resolve it. Thus, had Cascadia Place accepted the First Offer, all of the costs associated with the pre-trial steps and the trial would have been avoided. In rejecting this argument, the Court held that "[i]t was not unreasonable for Cascadia to seek discovery before assessing the First Offer" because Cascadia was no longer involved with the project at the time the deal was completed. The Court did find that Cascadia Place should have accepted the Second Offer. Once discovery occurred, the Court felt that Cascadia Place had access to the appropriate information needed to properly assess the Second Offer and its reliance on other information "was not a strong basis for Cascadia to advance its claim." In considering Rule 9-1(6)(b), the Court held that Second Offer was calculated using the same method the Court ultimately decided and as such, should have been accepted. No submissions on Rule 9-1(6)(c) (financial circumstances of the parties) were referenced.

The Court ordered that Cascadia Place pay Hon Towers its costs in respect of all steps taken in the proceeding after the Second Offer.

Final Thoughts

The decision in Cascadia serves as a reminder that in the right circumstances, an unsuccessful party can recover costs. Plaintiff counsel, in particular, should ensure that their clients are informed of offers and be warned of the consequences if an offer, particularly those made after discovery is complete, is not accepted. Parties should not dismiss offers without giving them proper consideration – even if a better offer may be forthcoming; any offer considered reasonable by the courts may come with cost consequences for failing to accept it. It is important that the client fully understands that not accepting a reasonable offer may not only disentitle them to a costs award, but may also create a risk of costs being awarded against them – paying the other party's costs – even if they are successful on the substantive issue(s).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.