April 25, 2014

Kevin Gourlay

Rule 9-1 is intended to encourage parties to settle cases.  It does so by giving trial judges the discretion to order penalties in costs against parties that failed to accept reasonable settlement offers.  This generally means that if the plaintiff recovers more than he offered to settle for, he gets a costs bonus.  If a plaintiff recovers less than the defendant had offered to settle for, the plaintiff is penalized in costs.  There is good reason for this system.  However, it is being applied as an unfairly punitive measure against plaintiffs.

Assume costs for a trial are $10,000.  The Plaintiff receives judgment for $100,000.  If no offers to settle were made, the plaintiff will recover judgment + costs for $110,000.  If the plaintiff offered to settle for $90,000 and the trial judge determines the offer was one the defendant ought to have accepted, the plaintiff can be awarded double costs.  In this example, he will recover a $10,000 bonus — $120,000 in total.

On the same example, assume the defendant had offered to settle for $110,000 and the trial judge determines the offer was on the plaintiff ought reasonably to accepted.  One would assume that the corresponding penalty would be depriving the plaintiff of costs, resulting in the plaintiff recovering $100,000.  This makes sense.  The plaintiff gets a $10,000 bonus for beating his offer or a $10,000 penalty for falling below the defendant’s offer.

Unfortunately this is not how the rules are consistently being applied.  In corrected reasons for judgment today from Mr. Justice Funt in Wettlaufer v. Air Transat A.T. Inc., 2014 BCSC 607, the Court dealt with costs after a plaintiff was awarded $110,000 in damages.  She had sought over a $1M and the plaintiff had offered to settle for $250,000.  The trial judge understandably concluded that the offer was one that the plaintiff ought to have accepted, triggering the costs penalty.

However, rather than depriving the plaintiff of her costs, the Court awarded double costs to the defendant. If we assume trial costs were $10,000, instead of the plaintiff recovering the $10,000 in costs she would normally be entitled to but for any offers to settle, the plaintiff will have to pay $20,000 in costs to the defendant.  That is a 300% or $30,000 swing from the usual rule.

The reason this is unfair should be obvious.  There is no corresponding benefit to a plaintiff who beats his offer.  The corresponding benefit for a plaintiff who beats his offer would be quadruple costs, $40,000, as that would be a $30,000 bonus over the $10,000 in costs the plaintiff would be entitled to but for any offers to settle.  However, there is no provision for such a costs order and none is ever made.

The Court of Appeal recently clarified in Loft v. Natt, 2014 BCCA 108, that a plaintiff that recovers less than the amount sought is still the successful party: “Pursuant to Rule 14-1(9), costs in a proceeding must be awarded to the successful party unless the court otherwise orders. At its most basic level the successful party is the plaintiff who establishes liability under a cause of action and obtains a remedy, or a defendant who obtains a dismissal of the plaintiff’s case.” 

A defendant who obtains a dismissal of the plaintiff’s case is entitled to costs.  In that situation, where an offer was made that the plaintiff ought reasonably to have accepted, the proper costs award is double costs against the plaintiff because that is one measure above the costs that the defendant would otherwise be entitled to.  

However, to award double costs against a “successful” plaintiff for falling below a defendant’s offer is an unfair and unnecessarily punitive measure with no corresponding penalty for defendants who fail to accept reasonable settlement offers. 



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