Defendant’s Offer to Consent to Dismissal Without Costs Entitles It to Substantial Indemnity Costs

At the trial of Dunstan v. Flying J. Travel Plaza, a slip and fall case, the jury found that the defendant was not liable to the plaintiff. Accordingly, the action was dismissed. The trial judge’s disposition of the costs issue is of interest.

Prior to the trial, the defendant had offered to settle by dismissal of the action without costs. Following the trial, counsel for the defendant submitted that his client should receive costs on a partial indemnity basis to the date of its offer and on a substantial indemnity basis thereafter. Mr. Justice Robert J. Smith agreed.

Citing the Court of Appeal’s decision in S & A Strasser Ltd. v. Town of Richmond Hill et al., he reasoned that the costs consequences of Rule 49.10(2) only apply “when a defendant exceeds its offer to settle and where the plaintiff has recovered a judgment of some value”. Since the plaintiff in this case did not recover a judgment of any value, the Rule did not apply.

However, because Rule 57.01(1) provides that “the court may consider, in addition to the result in the proceeding and any offer to settle or to contribute made in writing…”, His Honour concluded that “the court in exercising its discretion under Rule 57.01(1) may find it appropriate to award costs on a substantial indemnity basis from the date of the defendant’s offer to settle and the plaintiff did not recover a judgment of any value after trial”.

However, counsel for the defendant sought substantial indemnity costs based on an hourly rate of $525, even though the actual rate charged to the defendant was $400 or $450. (Both figures appear in the reasons, although it appears that $450 is the correct one, as Justice Smith fixed costs based on a substantial indemnity rate of $425, which is about 94.5 percent of $450 but would exceed $400.)

Counsel for the plaintiff argued that the defendant should receive only $14,667 for fees; the defendant sought fees of $123,433. Using what Smith J. described as “colourful language”, the plaintiff’s submissions said that “the court should not be ‘rubber stamping a bill of costs that itself, resembles a cash register slip, by a shopper who has gone on a spree and the losing party should not be treated as ‘a money tree to be plucked willy nilly by the winner of contest.'”

Although Justice Smith said that he agreed with both of those statements, he pointed out that the defendant had been forced to defend itself against a claim for approximately $1,000,000 that had been reduced to about $100,000 shortly before trial. The defence had had to retain engineering and medical experts. His Honour said the following:

[29]    I find that the amount of costs awarded must bear some relationship to the amount of the claim made by a plaintiff in action as has been held by several other cases, however it is more difficult to take this approach when the defendant is required to defend a complex claim for a substantial amount of money. A defendant is required to expend reasonable amounts of time to properly defend the claim which is made against it. I find that where a plaintiff proceeds with a lengthy, complex proceeding in an attempt to recover a modest amount and the defendant is required to take reasonable steps to adequately and properly defend the case, then I find that it is reasonably foreseeable to the losing plaintiff to expect to pay a substantial amount of costs, commensurate with the time and disbursements that the defendant has been reasonably required to expend.

[30]     The plaintiff cannot argue that nominal costs should be awarded because of the total absence of any recovery, by the plaintiff and where the defendant was completely successful, or argue that the amount involved was such that should the defendant should not have properly prepared the defence of the case. I find that the defendant was entitled to take reasonable steps to defend a claim and to introduce appropriate expert evidence and costs awarded must be reasonable and based on all of the circumstances, one of which is the amount of the claim.

In the result, Justice Smith awarded fees of $70,000 to the successful defendant.

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