Rule 49 Puzzle

Chaston v. Rathour shows that it can be tricky to figure out the costs consequences of offers to settle under Rule 49 of the Rules of Civil Procedure in cases involving multiple defendants.

(Actually, the reasons of Mr. Justice David S. Crane do not mention Rule 49 at all, but it appears that his decision was based, in large part, on his interpretation of that rule, which deals with “Offers to Settle”. See the comment from David Cheifetz below: David discusses the possible theoretical underpinnings of the ruling.)

In the action, there was one plaintiff (“P”) and, effectively, two defendants (“D1” and “D2”). The action had proceeded to trial before a jury and Mr. Justice Crane. The reasons for judgment indicate that it was a negligence case of some sort. The defendants had crossclaimed against each other for contribution or indemnity.

All three parties had made offers to settle. The two defendants had made their offers to the plaintiff, each for what he thought was his own proportionate share of the plaintiff’s damages. The plaintiff made her offer to the two defendants, for the total amount of her claim. Justice Crane then had to decide how costs should be awarded, in light of the various offers.

At trial, the jury apportioned liability between D1 (25%) and D2 (75%) and also assessed P’s damages. When the dust settled, the combined amount of the offers that had been made by D1 and D2 was more than P’s damages, as found by the jury. The jury’s award was less than P’s offer to D1 and D2.

D1’s offer was for an amount greater than his share (25%) of P’s damages. D2’s offer was for a sum less than his 75% share.

D1 and D2 apparently did not make any offers to each other.

Against this background, Justice Crane made the following disposition of costs. Our comments about each part of the ruling appear in red.

  1. D1 and D2 were ordered to pay P her partial indemnity costs to the date of the earlier of the two defence offers (D1’s), apportioned 25%-75% between D1 and D2.

    Rule 49.11(b)(i) makes it clear that the costs consequences of Rule 49 do not apply to offers made to the plaintiff by one of two or more defendants, unless “the offer is an offer to settle the plaintiff’s claim against all the defendants and to pay the costs of any defendant who does not join in making the offer”. There is no indication in Justice Crane’s reasons that this condition was met by the offers of either D1 or D2, so the offers, considered separately or together, should not trigger costs consequences under Rule 49.

    Even if it could be said that the two defence offers, taken together, should be treated as one “defence” offer to settle that the plaintiff should have accepted, it is not clear why P should be penalized in costs from the date of the earlier of the two defence offers. According to the judgment, each of D1 and D2 had made offers to P but neither offer, on its own, exceeded P’s award from the jury. Thus, it could not be said, with hindsight, that P should have accepted D1’s offer (the first of the two defence offers): P’s eventual recovery exceeded that offer. Even if it could be argued that P should have accepted the two defence offers because their total was greater than the amount of the judgment (which we don’t think it can), that would only be true as of the date that the second of the two defence offers had been made. Thus, we don’t see why P would be denied costs after the date of the second of the two defence offers, let alone the date of the first.

  2. It was ordered that D1 would pay no further costs to P after the date of his offer. Again, it does not appear that D1’s offer complied with Rule 49.11(b)(i) and therefore, it should not have engaged any costs consequences. 
  3. D1 was to receive partial indemnity costs from the date of his offer. (See below.) 
  4. D2 was ordered to pay to P 75% of P’s partial indemnity costs from the date of D1’s offer to settle. The net result was that D2 had to pay 75% of P’s partial indemnity costs throughout. We think that this was the correct disposition. What was not correct, in our view, was P being denied the other 25% of her partial indemnity costs from the date of D1’s offer and D1 not being jointly and severally liable with D2 for the plaintiff’s partial indemnity costs. 

Justice Crane said that on receipt of D1’s offer, P “had to consider acceptance, as this defendant’s contribution to the claim”. But that is not what Rule 49 says. Where defendants are alleged to be jointly and severally liable for a wrong done to the plaintiff, Rule 49 does not force the plaintiff to assess each defendant’s offer in relation to that defendant’s potential share of the overall liability. Section 1 of the Negligence Act provides that “where two or more persons are found at fault or negligent, they are jointly and severally liable to the person suffering loss or damage for such fault or negligence” and Rule 49.11 reflects this wording (often referred to as “the 1% rule”), by only creating costs consequences for plaintiffs where a defence offer is to pay the entire claim and to pay the costs of any defendant who does not join in the offer. That was not the case here.

Justice Crane then went on to consider liability for the costs of D1 (whose offer had been for an amount greater than his eventual 25% share of P’s damages). In our view, this disposition also reflects a misapprehension of Rule 49.11. Again, our comments appear in red:

In my view, each of [D2] and [P] have failed to successfully respond to the [D1] offer. D1’s offer was not made to D2; how could D2 have accepted an offer made by D1, to pay to P an amount in satisfaction of P’s claim against D1? There was no offer to which D2 could “successfully respond”. As for P, as we have already said, Rule 49.11(b)(i) makes it clear that plaintiffs face no costs consequences from an offer by one of several defendants to pay only that defendant’s share of the claim. In the exercise of my discretion of what is reasonable and fair, [D2] will pay 75 percent of those costs of [D1] and [P] 25 percent, as determined on the partial indemnity scale. It is to be remembered that had [P] accepted both defendants’ offers, she would have had a better result than her judgment. That may be so. But Rule 49.11 provides defendants with a mechanism by which to create these costs consequences and that procedure was not followed here. If D1 and D2 had co-operated to make a joint offer to the plaintiff for the entire amount of her claim and if the offer had been made jointly and severally to the plaintiff, then Rule 49.11(b)(ii) would have produced costs consequences for the plaintiff. Since the plaintiff’s overall recovery was less than the combined amount of the offers of D1 and D2, if those offers had instead been made as one offer to P, for which D1 and D2 would be jointly and severally liable, then both defendants would have been entitled to partial indemnity costs from the date of the joint offer. But no such joint offer was made in this case and so, the requirements of Rule 49.11(b)(ii) were not met. In the circumstances here, [P’s] counsel cannot go to trial assuming a Sanderson or Bullock order.

It is to be noted that the Rules of Practice, prior to amendment, specifically provided for a process of Offers to Contribute to Settlement. Those provisions are no longer in the Rules of Practice. Actually, the Rules still provide for offers to contribute. They are dealt with in Rule 49.12. Unlike offers to settle, which are made between plaintiffs and defendants, offers to contribute are made between defendants. There are no automatic costs consequences of offers to contribute under Rule 49.12, but subrule 49.12(2) says that the court may take such an offer into account in disposing of the costs between defendants. However, there is no doubt that each of the defendants here, in making what they have styled as an Offer to Settle, intended it to be understood by all parties, that they were Offers to Contribute to Settlement. Justice Crane had already treated the defendants’ offers as offers to settle the plaintiffs’ claim and had applied costs consequences as a result. The same offers can’t be treated as both offers to settle and offers to contribute. While the offers of D1 and D2 did not meet the requirements of Rule 49.11(b)(i) to qualify as offers to settle, they might appropriately have been treated as offers to contribute, even though they were made to the plaintiff instead of to the other defendant.

(A “Bullock” order allows a plaintiff who is unsuccessful against one defendant to add that defendant’s costs to the plaintiff’s own costs, payable by the defendant against whom the plaintiff obtained judgment. However, the plaintiff also remains liable to the successful defendant for the latter’s costs. A “Sanderson” order results in the unsuccessful defendant being directly liable to the successful defendant for the latter’s costs; the plaintiff is not involved. Such orders deal though, with an issue separate from the provisions of Rule 49.)

In the end result, we agree that a strong argument can be made here, for D2 having to pay the costs (or a portion of them) of D1 from the date of D1’s offer. D1 correctly assessed his risk in the case and D2 underestimated his. However, we can’t see any basis in Rule 49 for the plaintiff to have to pay of the defence costs, nor for the plaintiff to be denied her partial indemnity costs throughout, jointly and severally, against both defendants.

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