In Ontario, a successful litigant is usually entitled to have a portion of his legal costs paid by the losing party - a concept known as partial indemnification of legal costs. Rule 49 of Ontario's Rules of Civil Procedure governs written offers to settle and provides for certain cost consequences that follow when a litigant refuses to accept a reasonable offer to
settle litigation. The general principle is
that if a successful party serves a written offer to settle at least seven days before the
commencement of a hearing, the losing party might be required to pay a higher scale of legal costs than it might otherwise have paid - substantial indemnification of legal costs.
The Ontario Court of
Appeal has held that courts should depart from these prima facie cost
consequences only if, after giving proper weight to the policy of
the rule and the importance of reasonable predictability and the even application of
the rule, "the interests of justice require
departure". As can be seen from the following case, the "interests
of justice" is a vague standard. Ontario courts appear willing to depart from the general principle of Rule, while giving it lip service.
In the recent case
of Stetson Oil & Gas Ltd. v. Stifel Nicolaus Canada Inc. 2013
ONSC 5213, Mr. Justice Newbould of the Ontario Superior Court of
Justice, awarded a plaintiff substantial indemnity costs (substantially all of its reasonably incurred legal costs) of its successful
action even though its offer to settle was served too late to be treated as a
"Rule 49" offer - i.e. less than seven days before the hearing.
In the case, Justice
Newbould had awarded the plaintiff more than $16 million in damages, plus interest
and costs. The plaintiff sought costs in excess of $2 million. The defendants
argued that the plaintiff's costs should be limited to $650,000.
The plaintiff had served
an offer to settle which was purported to be under rule 49 for $8 million. The
defendant had served its own offer to settle for $1 million. Upon receipt of
the plaintiff's offer, the defendant's counsel wrote to counsel for the
plaintiff and said that while he had forwarded the offer to his client "he
very much doubted that the offer would provide the basis for a meaningful
discussion".
In awarding the
plaintiff substantial indemnity costs, Justice Newbould held that it was clear
to him that the defendant had plenty of time to consider the plaintiff's offer.
He further held that the defendant's objection was really quite technical given
that its lawyer made it clear on the day after the offer was served that it was
not going to be met with favour.
Justice Newbould reasoned that the offer had been made by
one sophisticated commercial party to another, who clearly had time to deal with
it and choose not to act on it. It was a serious offer to settle made in a
reasonable attempt to settle the case.
He further
held that,
in awarding substantial indemnity costs, he was entitled to exercise his
discretion with respect to costs and accordingly could take into account
any
offer to settle made in writing, the date the offer was made and the
terms of
the offer. Whether his discretion was exercised under rule 57.01
(dealing with
costs of a proceeding in general) or rule 49.13 (dealing with offers to
settle) didn't matter. In his view, the plaintiff was entitled to costs
on
a substantial indemnity basis from the date of its offer.
Regards,
Blair
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