Costs Decision Might Dictate New Approach to Rule 49 Offers

In what could turn out to be a very significant decision, Madam Justice Giovanna Toscano Roccamo has awarded the costs of a nine-week trial to the plaintiffs in a personal injury action, even though the jury’s award was less than the defendant’s offer to settle. Her Honour’s decision was based on the form of the offer to settle. The offer was for a lump sum, plus interest and costs and she ruled that that offer did not satisfy the requirements of Rule 49. On that basis, she held that the plaintiffs were entitled to costs throughout, in the amount of $578,742.28.

The reasons have not yet been released on CanLII, but a PDF is attached below.

In Elbakhiet v. Palmer, the main plaintiff had been injured in a car accident on July 7, 2007. Her complaints were of soft tissue injuries, depression etc.

On February 10, 2012, the defendant served an offer to settle for $145,000 plus prejudgment interest in accordance with the Courts of Justice Act and costs in an amount to be agreed upon or assessed.

On April 27, 2012, after nine weeks of trial, the jury awarded damages totalling $144,013.07 (not including Insurance Act deductibles). The damages were for non-pecuniary loss, future income loss, future care costs and three FLA claims. When prejudgment interest was added, the total (again, excluding deductibles) was $153,999.37.

There was an issue as to whether the defence offer had been made within the time provided by Rule 49.03 but Her Honour ruled that it had been.

However, Justice Toscano Roccamo accepted the argument of counsel for the plaintiffs, that “because the Defendants offered payment of all of the Plaintiffs’ damages in one lump sum, it [the defence offer] lacks certainty on its face in presenting no clear formula for the calculation of prejudgment interest under s. 128 of the Courts of Justice Act, which provides for different rates of interest for different types of claims.”

The defendant argued that its intention had been to pay interest at the rate of 5.0% on the entire offer of $145,000 but the plaintiffs submitted that this could not be divined from the wording of the offer itself.

Citing the minority decision of Justice Carthy in the Court of Appeal’s decision in Rooney (Litigation Guardian of) v. Graham (2001), 53 O.R. (3d) 685 (C.A.), the trial judge said:

In evaluating a Rule 49 offer, I must be satisfied that the terms of the offer are fixed, certain and capable of clear calculation in order to attract potentially severe costs consequences under Rule 49. Uncertainty or lack of clarity in any aspect of an offer may prevent a party from showing that the judgment obtained was “as favourable as the terms of the offer to settle, or more or less favourable” as the case may be, under Rule 49.10 (3).

In the following passage, Her Honour appeared to require that a Rule 49 offer be broken down among various heads of damages (and presumably, among various plaintiffs):

Where a plaintiff’s claim is a mixed one, as is the case before me, or involves different heads of damages and an offer is presented as a lump sum, a court is unable to calculate a fixed dollar amount in prejudgment interest without a breakdown of the differing heads of damages that attract different rates of interest.

Accordingly, she awarded to the plaintiffs their costs of the entire action, fixed at $578,742.28.

This decision is troubling. Rarely have I seen an offer to settle (on the plaintiffs’ or the defendants’ side) that would satisfy the criteria outlined in this decision. (In fact, according to the reasons, the plaintiffs’ own offer, in this very case, would not have qualified. It would have required “payment by the defendants of all claims for damages and prejudgment interest in the total amount of $600,000 plus costs on a partial indemnity basis to the date of the offer and on a substantial indemnity basis thereafter as agreed or fixed by the court”.)

If it is in fact the law, that to be effective, offers to settle must be broken down, not just among plaintiffs but among heads of damages too, that would seem to require that a number of “mini-offers” be made, one for each head of damages, for each plaintiff. How would such offers be compared with the outcome at trial?  Will awards for each head of damages be compared with the relevant provision of the offer? What if the award for one head is much more favourable than the offer but for another head, is less favourable? Can the various parts of the award be netted against each other to compare the overall outcome?

It seems to me that to adopt the approach endorsed by Justice Toscano Roccamo would be to invite the sorts of distributive costs awards that the Court of Appeal has repeatedly discouraged (see, for example, Pearson v. Inco Ltd., 2006 CanLII 7666 (ON CA)).

There might be a further issue in this case. The award of partial indemnity costs was, as mentioned, $578,742.28. The award to the plaintiffs was only $144,013.07 (before the application of $50,000 in deductibles). According to s. 3(1) of the Contingency Fee regulation to the Solicitors’ Act:

 In addition to the requirements set out in section 2, a solicitor who is a party to a contingency fee agreement made in respect of a litigious matter shall ensure that the agreement includes the following:

1. If the client is a plaintiff, a statement that the solicitor shall not recover more in fees than the client recovers as damages or receives by way of settlement.

And, to similar effect, s. 7 of the same regulation:

Despite any terms in a contingency fee agreement, a solicitor for a plaintiff shall not recover more in fees under the agreement than the plaintiff recovers as damages or receives by way of settlement.

Numerous decisions have held that an award of costs cannot exceed what the party receiving the costs has actually had to pay his or her lawyer (see, for example, Baird v. Botham, 2010 ONSC 3057 (CanLII), at para. 11). If the plaintiffs had entered into a contingency fee agreement, they presumably could not have had to pay their lawyers more than $144,013.07. If that is so, it is difficult to understand how partial indemnity costs in this case could reach $578,742.28.

This decision raises some important issues and its impact potentially extends well beyond the realm of personal injury law. It is my understanding that the defendant will probably seek appellate review of the costs decision, so further guidance might be forthcoming. In the meantime though, litigants and their lawyers would do well to give careful consideration to Justice Toscano Roccamo’s ruling in preparing offers to settle.


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