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John W. Bilawich, Holmes & Bilawich

The offer to settle process in the Rules should be straight-forward, but in practice is unpredictable.  The amount of court time and legal resources spent arguing about costs consequences of an offer can become substantial and disproportionate.  To maximize the chance that an offer will be effective, it is important that when formulating the offer counsel consider the requirements of the rule and the process the court will follow.

There is extensive case authority and commentary dealing with offers to settle.  This article is not intended as an exhaustive review of offers generally.  My intention is to focus on one of the court’s considerations, whether the offer was one which reasonably ought to have been accepted, and offer suggestions on how to make an offer more effective.

Overview

Formal offers to settle are governed by Rule 9-1.

Rule 9-1(1) sets out the required form for an offer to settle.  Offers must be made in writing, served on all parties of record and include “The …, [parties, names of parties] reserve(s) the right to bring this offer to the attention of the court for consideration in relation to costs after the court has pronounced judgment on all other issues in this proceeding.”

Rule 9-1(5) sets out the costs options available to the court.  Rule 9-1(6) sets out considerations of the court when making an order under sub-rule (5).  These factors include (a) whether the offer to settle was one that ought reasonably to have been accepted on the date served or on any later date, (b) the relationship between the terms offered and the final judgment of the court, (c) the relative financial circumstances of the parties and (d) any other factor the court considers appropriate.  I will focus on factor (a) only.

Purposes of Offers to Settle

It is useful to keep in mind the general purposes for an offer settle. A recent summary in Hartshorne v. Hartshorne, 2011 BCCA 29 is as follows:

[25] An award of double costs is a punitive measure against a litigant for that party’s failure … to have accepted an offer to settle that should have been accepted. Litigants are to be reminded that costs rules are in place “to encourage the 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” … Mr. Justice Frankel’s comments in Giles are apposite:

[74]      The purposes for which costs rules exist must be kept in mind in determining whether appellate intervention is warranted.  In addition to indemnifying a successful litigant, those purposes have been described as follows by this Court:

  • “[D]eterring frivolous actions or defences”
  • “[T]o encourage conduct that reduces the duration and expense of litigation and to discourage conduct that has the opposite effect”:
  •  “[E]ncouraging litigants to settle whenever possible, thus freeing up judicial resources for other cases:
  •  “[T]o have a winnowing function in the litigation process” by “requir[ing] 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 “discourag[ing] the continuance of doubtful cases or defences”:

[citations omitted]

Rule 9-1(6)(a) – Considerations – whether the offer ought to have been accepted

Counsel should be aware of what the court considers under this factor when drafting the offer.  The considerations are described in Hartshorne at para 27.

  • It is not determined by reference to the award ultimately made. Rather, the court must determine whether, when the offer was open for acceptance, it would have been reasonable to accept it.
  • “The reasonableness of the plaintiff’s decision not to accept the offer to settle must be assessed without reference to the court’s decision.”
  • Reasonableness is assessed by considering such factors as the timing of the offer, whether it had 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.
  • This is not a comprehensive list.

Another consideration is whether the offer provided a genuine incentive to settle – Giles v. Westminster Savings & Credit Union, 2010 BCCA 282, para 88.

Timing and Duration

The offer should remain open for acceptance until the offeree has had an opportunity to assess the strength of both sides’ cases.  In Houston v. O’Connor, 2011 BCSC 509 the judge found the plaintiff had a detailed understanding of the defendant’s case when the offer was made due to completion of exchange of documents and examinations for discovery.

Offers can have an expiry date, but should remain open for a reasonable time.  Making it expire quickly or making it too close to trial can render it ineffective.  In Bailey v. Jang, 2008 BCSC 1372 the court found that an offeree should have at least 7 days to consider an offer.  In Coquitlam (City) v. Crawford, 2008 BCSC 1507 the judge found the offeree should have a “reasonable time” to consider it.  How long is “reasonable” depends on the circumstances.

Content – Narrative

I recommend counsel include in the offer an analysis which sets out factual and legal reasons why the offer is reasonable.  This gives the offering party the opportunity to create a self-serving advocacy piece which will become a key exhibit when costs are argued and allows the offeror to ensure that facts and law supporting their offer are brought to the offeree’s attention.

When costs are argued, the offeree will be able to tender affidavit evidence setting out what they knew and understood about the merits of the case when the offer was open.  This allows them to craft a self-serving explanation of why they they thought the offer was unreasonable.  It can be difficult to test and respond to this.  It may include subjective evidence and require production of documents, cross-examination on affidavits and responding material.  Framing the issues with a detailed narrative in the offer can help the offeror address the merits of the offer in an efficient manner.

Where an action includes claims and counterclaims, consider addressing the merits of each separately in the narrative.  This may help the court assess reasonableness in relation to each component of the action.

Nominal Offers

Failure to accept a nominal offer will normally not trigger costs consequences because it confers no benefit on the plaintiff. Coquitlam (City) v. Crawford 2008 BCSC 1507, BCSPCA v. Baker 2008 BCSC 947.  An offer that confers significant benefits is more likely to have costs consequences. Where a claim is obviously lacking in merit the court may find that a nominal offer should have been accepted. MacKinlay v. MacKinlay Estate 2008 BCSC 1570.

In Exclusive Flor Sales v. Fipke 2010 BCSC 1551 a plaintiff’s offer to settle for mutual abandonment of its claim and the counterclaim resulted in double costs.  The judge said the offer was not nominal because the plaintiff offered to waive monetary damages.

Conclusion

By investing time and thought when formulating an offer, counsel can improve its chances of success.

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