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No such thing as an irrevocable offer to settle

|Written By Julius Melnitzer

Yikes! It turns out there’s no such thing as an irrevocable offer to settle under Ontario’s Rules of Civil Procedure. So don’t make one. Because according to the Ontario Court of Appeal’s November decision in 363066 Ontario Ltd. v. Gullo, it’s a waste of time.

Irrevocability of offers to settle can no longer be used as a tactical tool, says Alexandra Mayeski.

“Gullo means that lawyers can’t use the irrevocability of their offer as a tactical tool anymore,” says Alexandra Mayeski of Hamilton’s Evans Sweeny Bordin LLP.

The issue arose in the context of lengthy litigation between family members over a York Region property development venture. The defendants in the action, Anna Gullo, Tony Gullo, Peter May, and two companies, made a number of settlement offers, which the plaintiffs rejected.

In September 2004, the defendants made a further offer to settle the action by offering the plaintiff, 363066 Ontario Ltd., a 20-per-cent interest in the property in return for a consent to dismissal.

The offer stated that it would “remain irrevocable until one minute after the commencement of the trial of this action.”

In January 2006, the plaintiff made inquiries about the offer. Soon afterward, the defendants made a less favourable offer which expressly revoked the 2004 offer.

After taking the position the 2004 offer could not be revoked,  the plaintiff  accepted it. Plaintiff’s counsel followed with a motion under rule 40.09 to enforce the 2004 offer.

At first instance, Superior Court Justice James Spence ruled the settlement should be enforced.

Spence considered rule 49.04(1). It provides that “an offer to settle may be withdrawn at any time before it is accepted by serving written notice of withdrawal of the offer.” A restrictive reading of the rule would have permitted withdrawal of the 2004 offer at any time before acceptance.

Spence, however, invoked rule 1.04. It states the Rules of Civil Procedure should be “liberally construed to secure the just, most expeditious, and least expensive determination of every civil proceeding on its merits.”

In Spence’s view, rule 1.04, coupled with the court’s policy of encouraging settlements, mandated that rule 49.04(1) be interpreted as being subject to an irrevocability provision in an offer.

But Justice Eileen Gillese, writing for a unanimous Court of Appeal bench composed also of justices Eleanore Cronk and Robert Armstrong, disagreed.

As Gillese saw it, rule 49 constituted a self-contained scheme dealing with the making, acceptance, and withdrawal of offers. Its clear language precluded resort to rule 1.04 when interpreting it.

“Rule 49.04(1) expressly provides that an offer to settle may be withdrawn at any time before it is accepted by serving written notice of withdrawal of the offer on the party to whom the offer was made,” Gillese noted.

“The 2004 offer was an offer to settle. As the 2004 offer had not been accepted at the time that the 2006 offer was made and the 2006 offer complied with the requirements of rule 49.04(1), the [defendants] were entitled to withdraw the 2004 offer despite the fact that it was stated to be irrevocable.”

Failing to afford rule 49.04(1) its plain meaning, Gillese added, had significant practical implications.

For example, had the 2004 offer not been irrevocable, the defendants would have been entitled to withdraw it until one minute after the commencement of trial.

“There is little difference between an offer that is to remain open until one minute after trial commences versus one that is to be irrevocable until one minute after trial commences,” she wrote. “In both cases, the intention is that the offer is to remain open until one minute after the trial commences.

“I do not favour an interpretation of rule 49.04(1) which permits the withdrawal of the offer in the former situation but precludes withdrawal of the offer in the latter. Giving rule 49.04(1) its plain meaning, namely, that an offer to settle may be withdrawn at any time before acceptance provided that written notice of the withdrawal is served, precludes such inconsistency.”

Mayeski says the decision is instructive beyond the immediate issue at stake.

“What the Court of Appeal is telling counsel is that they can’t opt out of the rules, and that one rule can’t be used to override the clear intent of another rule,” she tells Law Times.

Michael Kestenberg of Toronto’s Kestenberg Siegal Lipkus LLP, who represented the defendants on appeal, says there are other - perhaps more significant - traps for unwary counsel in the rules governing offers to settle.

He points to rule 49.07(5). It says where an accepted offer to settle does not provide for the disposition of costs, the plaintiff is entitled to costs to the date of the notice of acceptance.

So Kestenberg posits this scenario: a plaintiff’s lawyer makes an offer to settle for $50,000. The offer says nothing about costs, which apparently is not uncommon. The defendant accepts the offer, believing quite naturally that the offer is for $50,000 all in. However, under rule 49.07(5) - with which not all counsel are too familiar, to say the least - the plaintiff can then assess costs.

Kestenberg says this result is “unbelievable” and taking advantage of the rule is “sneaky.” But not everyone shares his view. Other lawyers have told Kestenberg there’s nothing wrong with taking advantage of the clear wording of a rule - not to mention the ignorance of opposing counsel.

LawPro, are you listening?

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