ARTICLE
3 October 2025

The Ontario Court Of Appeal Upholds Large Costs Award To Plaintiff Where Defendant Made A "Dismissal Without Costs" Offer To Settle

ML
McMillan LLP

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In Barry v Anantharajah, 2025 ONCA 603 ("Barry"), the Ontario Court of Appeal gave a warning to all defendants on the consequences of refusing...
Canada Ontario Litigation, Mediation & Arbitration

In Barry v Anantharajah, 2025 ONCA 603 ("Barry"), the Ontario Court of Appeal gave a warning to all defendants on the consequences of refusing to offer a monetary settlement to a plaintiff allegedly injured in a motor vehicle accident, and adopting what could be interpreted as a "hardball approach" to settlement with an allegedly injured plaintiff.

The Court of Appeal held in Barry that plaintiffs who receive even modest damages for personal injuries in a motor vehicle accident can still obtain substantial cost awards where defendants, including those represented by their insurers, adopt a "zero-offer" strategy and fail. The most surprising part of this decision is that the plaintiff in this case did not meet threshold and the defendant's failure to make an offer to settle was still seen as unreasonable by the Court.

Background

On December 9, 2014, the defendant driver, Punithavathi Anantharajah, hit the plaintiff, Jacqueline Barry, while she was walking across a pedestrian street crossing.1

The plaintiff commenced an action in 2016 claiming over $1,000,000 in damages. Specifically, Ms. Barry sought $300,000 for general damages and $700,000 for special damages, and payment for healthcare expenses, future housekeeping, and home maintenance expenses.2

On October 31, 2018, Ms. Anantharajah, through her insurer Aviva, offered to settle Ms. Barry's action for a dismissal without costs basis.3 This (relatively common) offer was open for acceptance until two days before the action was called for trial.4 On December 18, 2023, Ms. Barry made a counter-offer to settle for $500,000 in damages plus costs and disbursements.5 In response, Aviva reiterated its original offer.6 Alternatively, Aviva offered to admit liability in exchange for Ms. Barry limiting her claim to the defendant's insurance policy limits of $1 million.7 Aviva did not make a monetary offer to settle before or during the trial.8

The Trial Decision

A three-week jury trial was held in 2024. Ms. Anantharajah eventually conceded liability for hitting Ms. Barry after she took the stand, but continued to take the position that Ms. Barry's impairments were either pre-existing, minor, or resolved.9 The jury ultimately found Ms. Barry 15% contributorily negligent.10

The jury awarded Ms. Barry modest damages of $24,166 in general damages and $26,000 in special damages for past income loss, which was in turn reduced by Ms. Barry's contributory negligence and the statutory deductible for general damages. Ms. Barry ultimately only recovered $16,160.50.11

Following the jury's verdict, the trial judge granted Aviva's threshold motion under section 267.5 of the Insurance Act, R.S.O. 1990, C. I.8 ("Insurance Act")12 which requires a legal threshold test to be met to recover monies for general damages (i.e., the plaintiff must have suffered a permanent serious disfigurement or a permanent serious impairment of an important physical, mental, or psychological function).13 The purpose of this threshold test is to balance the need to compensate an injured party with the need to prevent abuse of the legal system by those who may not have suffered the most serious injuries.

In Barry, the trial judge concluded that Ms. Barry's injuriesdid not meet the threshold in the Insurance Act as her injuries had resolved and were not sufficiently permanent.14

In stark contrast to Ms. Barry's modest damages recovery, the trial judge still awarded her $300,000 in costs, HST and disbursements.15 In arriving at the costs award, the trial judge considered "the result in the proceeding and any offer to settle or to contribute made in writing,"16 and other factors set out in Rule 57.01(1) of the Rules of Civil Procedure:17

  • Ms. Barry was more successful at trial than Ms. Anantharajah;
  • Ms. Barry's assignments to the Ontario Disability Support Program and Ontario Works;
  • Aviva's "hardball" approach in refusing to make a monetary settlement offer and forcing the matter to a jury trial (i.e., the waste of court and public resources);
  • Ms. Barry's bill of costs and disbursements were generally reasonable;
  • Not wanting to reward defendants who engage in "bully tactics"; and
  • Aviva's aggressive litigation strategy premised in part on underlying stereotypes about the credibility and reliability of plaintiffs with mental health disabilities.18

The Court of Appeal's Decision

On appeal, Aviva argued that the trial judge erred in finding that Ms. Barry was more successful than the defendant at trial, and that the costs award, when measured against the net damages awarded to Ms. Barry, was wholly disproportionate and should be set aside.19

On the first issue, Aviva submitted that the trial judge applied the wrong test to determine success, and that assessing success requires a judge to consider the result on the issues, not whether the judgment exceeded the appellant's offer.20 Furthermore, Aviva argued that the trial judge erred in only considering Aviva's settlement position, and not the respondent's.21 On the second issue, Aviva argued the costs award, in light of the damages recovered, impedes access to justice and rewards the wrong behaviour.22 Accordingly, costs should either be set aside or each party should bear their own costs.23

On the first issue, the Court of Appeal reiterated that an appellate court takes a deferential approach when reviewing a discretionary award of costs by a trial judge. A court should set aside a costs award on appeal only if the trial judge has made an error in principle or if the costs award is plainly wrong.24 If a trial judge makes an error in principle when exercising their discretion in awarding costs, such an error is not fatal so long as there is an independent basis on which to uphold the costs order.25

The Court of Appeal further held that it is an error in principle for the court to deny a successful defendant costs due to its refusal to make a pre-trial settlement offer, if that refusal proves to be reasonable. A reasonable refusal to make a pre-trial settlement offer includes where a claim is dismissed in its entirety, vindicating the defendant's position.26

In this case, the trial judge had not made an error in principle.27 Instead, the Court clarified that:28

...if a party opts for a "hardball" approach to settlement, that party takes the risks associated with such a posture. Put differently, a defendant is not required to make any settlement offers, but if that is the posture adopted, it must live with the consequences of that posture if its decision does not prove to have been a reasonable one. emphasis added

In response to the second issue of the proportionality of Ms. Barry's costs award, the Court of Appeal found that the trial judge expressly considered the principle of proportionality by reducing the quantum of costs by $100,000.29 The Court of Appeal also emphasized the importance of not having the principle of proportionality be the overriding consideration in the costs analysis.30 As stated, the defendant "must be prepared to accept the risk that the principle of proportionality will not invariably serve to reduce a discretionary cost award."31

Interestingly, the respondent raised the issue of section 258.5 of the Insurance Act in support of upholding the costs award.32 Where the Rules of Civil Procedure address costs generally, section 258.5 of the Insurance Act addresses costs in the context of a motor vehicle action defended by an insurer. In adherence with the principles of statutory interpretation, the Court of Appeal drew attention to the fact that legislation addressing similar subject matter should be read harmoniously and give effect to the overall legislative intent.33 Accordingly, when the Rules of Civil Procedure and section 258.5 of the Insurance Act are read together, an insurer should not be permitted "to reap the benefits of the principle of proportionality to escape liability for costs in the face of a modest award."34 As stated by the Court of Appeal, "the principle of proportionality is not a perpetual umbrella that protects against a shower of costs legitimately incurred by a plaintiff and reasonably expected by a defending insurer."35

Accordingly, the Court of Appeal dismissed Aviva's appeal, upheld the trial judge's award of costs, and awarded Ms. Barry a further $15,000 in costs inclusive of disbursements and applicable tax on appeal.

Key Takeaways

  • Even if a plaintiff does not meet the threshold for their injuries under section 267.5 of the Insurance Act, defendants and their insurers will not be immune from significant adverse cost awards.
  • The principle of proportionality will not invariably triumph when a defendant has opted to take the risk of making no monetary offer of settlement.
  • The court considers it a "hardball strategy" to not make a monetary offer to settle.
  • Defendants should consider early motions to limit costs where it becomes clear that damages will be in a low value range.

Footnotes

1. Barry at paras 1 and 4.

2. Barry at paras 1 and 4.

3. Barry at para 5.

4. Barry at para 5.

5. Barry at para 6.

6. Barry at para 6.

7. Barry at para 6.

8. Barry at para 6; Note: Rule 49 of the Rules of Civil Procedure encourages parties to make reasonable offers to settle their dispute before trial and avoid unnecessary costs. If a party rejects a reasonable Rule 49 offer and subsequently receives a judgment that is just as favourable (or less favourable) than the original Rule 49 offer, they may face significant cost consequences. Traditionally where a plaintiff does not accept a defendant's offer to settle, the plaintiff is entitled to partial indemnity costs to the date the offer was served and the defendant is entitled to partial indemnity costs from that date onwards.

9. Barry at para 7.

10. Barry at para 1.

11. Barry at para 1.

12. Barry at para 9.

13. Insurance Act, ss 267.5(5)(a)-267.5(5)(b).

14. Barry at para 9.

15. Barry at para 2.

16. Barry at para 11.

17. See Rule 57.01(1).

18. Barry v Anantharajah, 2024 ONSC 1267 at paras 17, 21, 27, 28, and 31.

19. Barry at paras 20 and 22.

20. Barry at para 21.

21. Barry at para 21.

22. Barry at para 22.

23. Barry at para 22.

24. Barry at paras 25-26.

25. Barry at para 31.

26. Barry at para 36.

27. Barry at paras 41-42.

28. Barry at para 41.

29. Barry at para 52.

30. Barry at para 47.

31. Barry at para 53.

32. See section 258.5(1): An insurer that is defending an action for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile on behalf of an insured or that receives a notice under clause 258.3 (1) (b) from an insured shall attempt to settle the claim as expeditiously as possible.

33. Barry at para 58.

34. Barry at para 58.

35. Barry at para 58.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2025

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