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.