Offer to Contribute Should Attract Substantial Indemnity Costs

In Caci v. MacArthur, Mr. Justice David Brown held that a defendant who achieved a better result at trial than an offer to contribute that it had made to a co-defendant, was entitled to costs on a substantial indemnity basis from the co-defendant, despite any express authorization in Rule 49. In doing so, he appears to have “read into” Rule 49.12 (which deals with offers to contribute) a “costs consequences” provision similar to that found in Rule 49.10, which applies to offers to settle.

This action arose out of a motor vehicle accident. The plaintiff was a passenger in a car driven by a defendant named MacArthur. That car had collided with another, operated by the defendant Dorkin. Initially, Dorkin’s insurer, Lloyd’s of London, had denied coverage to Mrs. Dorkin and had itself added as a statutory third party under s. 258(14) of the Insurance Act. Later, it changed its position and undertook Dorkin’s defence. Meanwhile, the plaintiff had sued his own insurer, Economical Mutual, under the latter’s uninsured and underinsured coverage.

MacArthur was uninsured and was not represented by counsel.

Prior to the trial, the plaintiff’s claim was settled, with Lloyd’s funding the settlement. The liability of the defendants was left to be tried. After a five-day trial, the jury found¬†MacArthur¬†100% responsible for the accident.

(Had Dorkin been found even one percent at fault, Lloyd’s would have had to pay the entire amount of the settlement and Economical would not have had to pay anything.)

Before the trial began, Lloyd’s had offered to settle with Economical Mutual on a basis which would have seen Economical reimbursing Lloyd’s for 75% of the settlement. of course, the jury’s decision was more favourable to Lloyd’s than the terms of its offer had been.

Lloyd’s sought partial indemnity costs from Economical to the date of its offer and substantial indemnity costs thereafter. Justice Brown reviewed the caselaw. He concluded that Rule 57.01(4) would give him discretion to make such an order. But rather than rely on the broad and general discretion conferred by that Rule, he preferred to “read into” Rule 49.12(2) (offers to contritue) a provision similar to the “costs consequences” which are expressly set out, in relation to offers to settle, in Rule 49.10. He cited with approval the following passage from a 1994 Ontario trial level decision, Denzler v. Aull:

It does not make sense to equate an offer to contribute to an offer to settle without allowing the court to impose the same cost sanctions. The purpose of R. 49 as confirmed by Robins J.A. in Mortimer is to encourage settlement. Inability of the court to increase the level of costs from the party-and-party scale that would be awarded without any offer to contribute to the solicitor-and-client levels defeats this purpose.

I am satisfied that the omission of r. 49.10 in subrule 49.12(3) was not intended to deprive the court of the discretion under subrule 49.12(2) to impose the same cost consequences for a successful offer to contribute as is available when there has been a successful offer to settle.

It will be interesting to see whether other courts follow this reasoning.

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