Judge Says Offer Made “Without Prejudice” Not An Offer Under Rule 49

Roma Construction (Niagara) Ltd. v. Dykstra Bros. Roofing (1992) Limited was a dispute about roofing deficiencies. The plaintiff had served an offer to settle in a letter that was marked, “Without Prejudice”. The defendant had orally rejected the offer but, as the trial approached, more problems with roofs built by the defendant were discovered, potentially increasing the amount of damages recoverable by the plaintiff. Accordingly, the defendant then accepted the “Without Prejudice” offer that it had previously rejected.

The plaintiff took the position that its offer was no longer open for acceptance by the defendant. The defendant moved for an order compelling the plaintiff to settle according to the terms of its offer. The motion was heard by Madam Justice Linda M. Walters. She ruled in favour of the plaintiff, that the offer had lapsed before the purported acceptance by the defendant. It seems to us that the decision is wrong.

Her Honour began by distinguishing between offers to settle at common law and offers under Rule 49 of the Rules of Civil Procedure. She noted that, at common law, once an offer to settle had been rejected, “it was at an end” and was no longer open for acceptance. The plaintiff in the present case claimed that it had intended to make such an offer.

Under Rule 49 however, offers to settle are not affected by rejection. They remain outstanding unless and until they are withdrawn in writing.

Her Honour referred to Clark Agri Services Inc. v. 705680 Ontario Ltd. for the characteristics of a Rule 49 offer:

4.  An offer to settle made pursuant to Rule 49 (“Rule 49 offer”) has the following features:

(a)   It must be in writing.

(b)   It must be effectively delivered to the opposing party.

(c)   it must be a proposal that can be construed as an offer to settle, open for acceptance and binding if accepted.

(d)   It must be in Form 49A, but the use of that form is permissive.

(e)     It may be communicated in correspondence between counsel.

5.   If these features are present, an offer will be presumed to be a Rule 49 offer unless expressly stated otherwise or unless the offeror can demonstrate that he or she did not intend the offer to be a Rule 49 offer.

This offer met all of these requirements (although it had been made in a letter). Justice Walters said that “unless the plaintiff can demonstrate that it did not intend the offer to be a Rule 49 offer, it will be presumed to be one”.

In our view, the application of a subjective test to this issue is very problematical. Admittedly, the Clark Agri decision, referred to by Justice Walters, supports such an interpretation. But in the passage from that decision quoted above, it is difficult to reconcile para. 4 (which details five objective criteria) with para. 5 (which appears to suggest that even if all of those indicia are present, evidence of a contrary subjective intent will override).

Justice Walters’ finding that the plaintiff’s offer was not one made under Rule 49 was based primarily on the fact that the letter in which the offer was made had been marked, “Without Prejudice”. She said, “in such a case an offer to settle is not admissible on the issue of costs”.

However that appears to us to be a mischaracterization of the meaning of the phrase, “Without Prejudice”. Subrule 49.05 (not referred to in the decision) provides that “an offer to settle shall be deemed to be an offer of compromise made without prejudice.” So, in other words, all Rule 49 offers are deemed to be “without prejudice”, whether that phrase is used or not. The underlying idea, it seems to us, is that a party’s offer to compromise its position cannot be used against it as some sort of admission.

Thus, we have some difficulty with the analysis of Justice Walters. The use of the phrase, “without prejudice” does not alter the character of an offer that otherwise meets the criteria outlined in Clark Agri, as this one did. In our view, the offer should have been held to be a Rule 49 offer, capable of acceptance by the defendant.

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