Offers to Settle – Ontario Rule 49

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The offers to settle under Rule 49 of the Rules of Civil Procedure have specific consequences. A party can use this Rule to make strategic offers and gain significant advantage in the outcome of their case.

This lecture is taught by Amer Mushtaq, LL.B., M. Engineering , B.Sc. (Hons.), who is the Principal and Founder of Formative LLP.   Through his YouTube channel, YouCounsel, Amer shares practical advice from his years of legal experience to help anyone access justice and achieve their goals.  Subscribe today to learn more.


Show Notes:


Lecture Slides:

Welcome everyone this is Amer Mushtaq from YouCounsel.

Today we’ll cover Rule 49 of the Rules of Civil Procedure in Ontario in our lecture.  This particular Rule deals with the Offer to Settle in a proceeding.  It has very specific implications with respect to the cost award in the outcome of your case.  It is a very important Rule to consider and use strategically in your proceedings. 

We begin with our disclaimer that this lecture is not legal advice.   If you have any specific questions regarding your case you should contact a lawyer or a paralegal or contact the Law Society of Ontario for a referral—if you do not know a lawyer or a paralegal.

Settlement of a proceeding can take place at any time from the commencement of your court action to its judgment.  Parties can agree to settle the case at any point.  They can make offers to settle and resolve their dispute bilaterally at any stage in the court action. I have been involved in cases where we have actually resolved and settled cases once the trial had begun. In fact, we were three days into the trial when the parties agreed to settle their case.  

You can also settle your case once the trial is concluded—as long as a judgment is not issued (oyou can come to a resolution and then settle your case.  Our judicial system (our courts) encourage settlements.  Just statistically it’s worth noting that over 90%; I believe over 95% of civil cases in Ontario do settle prior to going to trial.  It’s a large proportion of cases (majority of cases) that do settle without actually going to trial.

When parties make reasonable offers to settle and the other party does not accept it, there are consequences to not accepting the offers to settle.  The purpose of all these efforts is to encourage parties to settle the cases because once parties settle the case, they have the power to craft the settlement—they have the control over the outcome of their dispute

Once that dispute is handed over to a judge then the judge is going to decide in one party’s favor and so it’s kind of ‘win or lose’ situation.  Once the case is to be decided by a judge the parties lose complete control over the outcome because it is the judge who will decide which party’s case is meritorious and then rule in that party’s favor.  Parties are always encouraged to consider settlement options and the Rules of Civil Procedure are designed to encourage the parties to make settlements and also there are consequences if parties do not accept reasonable offers to settle.

There are 3 types of cost awards which I’ve mentioned in our previous lecture but I will briefly go over here again.

[A] One is full indemnity, which is extremely rare. Full indemnity means that you are successful in your case and you’re asking the court to award full costs that you have incurred—100% and make the other party pay your costs—which is extremely rare.

[B]  Most commonly the court awards partial indemnity—which is about 30 to 50 percent of the actual cost that you have incurred. 

[C] If you’re proceeding strategically, you can actually get substantial indemnity costs, which is 75 to 80 percent of the actual costs that you may have incurred. 

This substantial indemnity part is the one we’re trying to focus on in today’s lecture and explain to you how you use Rule 49 to get highest costs that are generally possible in your case.  We have talked about the importance of costs award in previous lectures.  Oftentimes the costs are neglected by parties.  The parties are so focused on the merits of their case that they don’t recognize the consequences of costs.  

It is important to understand that aside from the merits of your case what kind of cost awards you can get or what kind of cost awards can be awarded against you. I had explained this by way of an example in my previous lecture.  I’ll repeat it quickly. 

Imagine that you have a case where you’re claiming $30,000 in damages. You incur about $60,000 in legal fees and disbursements by the time you conclude your trial (which is not uncommon in Toronto).  You get a judgment which awards you the entire $30,000 but it does not give you any costs.  The outcome for you financially is that you’re out of pocket by $30,000 even though you are successful at trial.  That is why it is important to consider costs especially when the amount of money in your claim is not significantly high.  I would say anything less than $250,000 would not be considered significantly high—as long as you’re dealing with a matter in the Superior Court of Justice in Ontario. 

To deal with this scenario and how to make sure that you benefit from the cost structure and the award of costs in the judicial system, we will talk about Rule 49 which deals with “offer to settle”

Rule 49 essentially tells you that you can make all kinds of offers to settle during your proceeding; you can put an expiry date on that offer; the other side can counter that offer or accept that offer. 

The most important Rule that I want to focus for today’s lecture is Rule 49.10 which will give you the most benefit when you’re dealing with the cost award in your court action.  One of the conditions of Rule 49.10 is that it has to be made (this offer under Rule 49.10) has to be made at least 7 days before the hearing.  Before your trial begins you must put this offer at least seven days before that. 

Secondly, whatever offer you’re making – that offer must remain open until the commencement of the hearing. There’s specific language that we usually put in these kind of offers.  I’ll show you at the end by way of an example but there are two conditions: 7 days prior to the hearing and must remain open until the commencement of the hearing—it must not expire before then. 

Now if you have made an offer to settle under Rule 49, what are the consequences of that offer?  If you are the plaintiff and you are successful… let me show you the Rule first and then we’ll talk about it.  Here is Rule 49.10:where an offer to settle is made by the plaintiff at least seven days before the commencement of the hearing; is not withdrawn or does not expire before the commencement of the hearing; and is not accepted by the defendant”.  (Defendant did not accept your offer and it was open until the commencement of the hearing) “… and the plaintiff obtains a judgment as favorable as or more than the terms of the offer to settle…” very important wording.  It’s not that you are successful—you have to be successful, the judgment that you get is the same as your offer or better than that that’s the only situation in which you will get a benefit for the offer that you have made. 

To give you an example you claimed $100,000 in your case and you made an offer to settle for $30,000.  It was a Rule 49 offer—it was made seven days prior to the commencement of your trial or the hearing and it was open until the commencement of the hearing. The defendant did not accept it.  When you’re successful if the court awards you $30,000 or more, then you get the benefit of Rule 49.10

If the court awards you $29,500 or $ 29,900, you do not get the benefit of this offer. Let me explain to you what the benefit is and then I’ll come back to this point about what should be that offer. 

The benefit is that you will get partial indemnity cost until the date of the offer.  Let’s say if you made the offer ten days before the trial all the costs that you have incurred from day one from the time you commence your court action up to the ten days prior to the trial you will get your costs on a partial indemnity basis which is 30% to 50% above your actual cost.

But from the date of the offer until the conclusion of trial or until the judgment is given you will get substantial indemnity costs—so the cost that you have incurred from the date of from the date of the offer until the end of trial. Let’s say those costs are worth $30,000 for the trial and its preparation.  Then you will get 75 or 80 percent cost of that value—not the total cost. 

What is important to keep in mind in the difference between the timelines is that you get the most advantage out of a Rule 49.10 offer when you make it earlier in the proceeding.  You want to make this offer right at the beginning when you commence your court action because then whatever costs you have incurred from that time when you made the offer till the end of trial you get substantial indemnity cost—which is more than 75 percent or 80 percent of your actual cost.

Now I want to go back to our point: “where the plaintiff obtains a judgment as favorable or more favorable than the terms of the offer to settle…”.  This is the way the court makes a party to act reasonably.   When you issue a claim the most important thing you are considering is what is it that I’m going to realistically get out of this court and you have to make that assessment accurately or as accurately as possible.  If you claim $100,000 and you make a Rule 49.10 offer to settle for $70,000 just because you wanted more money but realistically you’re not going to get $70,000 and you do not get $70,000, the value of this offer is lost. 

You have to be very, very honest very, very careful and very, very accurate about what is the number that you believe that the court will get you. You want to get a little bit lower than that because you want to succeed. You want to hope that if you’re successful, 100 percent of the time you are going to get at least the same or more than what you have offered to settle. 

The same applies to the defendant.  If you are defending a court action, when you’re making an offer to settle you want to make sure that you want to present an offer that the plaintiff cannot beat at trial.  The judge will give you a better or the same result that you are offering the other side to settle.  This particular sentence compels the parties to act extremely reasonably otherwise they will not get the benefit of Rule 49.10 offer.

It’s very well-thought-out.  It is used as a mechanism to ensure that parties act reasonably and when they act reasonably they get a significant advantage in terms of cost and when they act unreasonably they do not get that advantage.

Now on the defendant’s side, if the plaintiff is successful—take the same example that you made an offer of $30,000 Rule 49.10 offer and then you’re not successful.  You get results which are less than your offer to settle.  Then what happens to the defendant?

Let’s go to the defendants offer: “where an offer to settle is made by the defendant (now the defendant in this scenario is making you an offer or if you are the defendant you’re making the other side an offer to settle) that offer is again …seven days before the commencement of the hearing; it is not withdrawn or does not expire before the commencement of the hearing; and is not accepted by the plaintiff”.  The defendant has made an offer “…and the plaintiff obtains a judgment as favorable or less favorable than the terms of the offer to settle, the plaintiff is entitled to partial indemnity cost to the date the offer was served; and then the defendant is entitled to partial indemnity cost from the date unless the court orders otherwise”.

In this scenario what’s happening is that the defendant made you an offer to settle (you are the plaintiff) and the defendant makes you an offer and you get a judgment again in your favor as a plaintiff you win the case but the judgment is same or less than what the offer was that the defendant had made.

The defendant was willing to give you the same money or more than what you got on the judgment, then what the court is going to do is that you as the plaintiff will get your partial indemnity cost up to the date when the defendant made the offer.  But thereon, the defendant is going to get partial indemnity cost.  You are not going to get the benefit of the cost award in that situation.  Now, the converse is applying.  Now the defendant is benefiting in this case because of their Rule49.10 offer to settle and again this offer is most advantageous when it is made earlier in the proceedings—the sooner you make, the better.

What is the lesson to take? It is that when you make Rule49.10 offers you need to be very realistic about your case, about the outcome of the case and you want to make it as soon as or as early as possible so that you can get most advantages out of your court action. In the last one year there was a case that came out where the plaintiff made a Rule 49 offer—it was an employment law case—right at the outset/the commencement off the court action.  The offer was very reasonable and the plaintiff’s counsel understood at some point that the defendant is going to fight this case aggressively, cause all kinds of challenges for the plaintiff to continue the fight, maybe act unreasonably and, create all kinds of hurdles so the plaintiff had very strategically made this offer to settle Rule49.10 and kept it open until the commencement of trial which is one of the conditions and they were successful. 

The plaintiff was successful in getting a judgment which was same or better than their offer and they got huge cost awards. I believe the value of judgment that they got was about $250,000 but the cost award was about $500,000.  That was a case where a party strategically used Rule49.10 in its favor and got significant—twice the amount of money in cost than the claim that they had made in that court action.

Before we go let me show you an example of a Rule 49 offer that I had made recently in this case.   You don’t have to use the same example.  This is just to give you a sense—in this case the plaintiff offers to settle as follows and (1) there is a date on which the offer is being made (2) that if the defendant pays $17,600 as reasonable notice, $15,000 as general damages and $20,000 in cost award, inclusive of disbursement and HST; (3) that’s if they accept it on a specific date; (4) but then if accepted after January 22nd, the offer in these two amounts are the same but the cost award is now changed to $20,000 cost plus substantial indemnity cost thereafter. 

It specifically says that that if you accept after this date you will incur substantial indemnity cost.  Then it specifically says here that (a) this offer is made pursuant to Rule 49 and (b) then shall remain open until one minute after the commencement of trial.  We’re making sure that the offer remains open until the trial.  It’s a typical thing the lawyers say “it is open until one minute after the commencement of trial” and if accepted the plaintiff will consent to the dismissal of the court action in the counterclaim and execute a release.  You can use a similar format but the key thing is it you should say it’s pursuant to Rule 49 and it is open until the commencement of trial.

Those are the important things.  Again the key message that you want to keep in mind is that you want to carefully consider the cost consequences of your court action and you use Rule 49 offer (Rule 49.10) specifically, strategically so that you can benefit from the cost award in your favor.

Thanks for watching

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