Judges don’t have ‘unfettered’ leeway on costs when settlement offers aren’t accepted

Discretion to depart from r. 49.10(1) ‘must be exercised in accordance with the purpose of the rule’

Judges don’t have ‘unfettered’ leeway on costs when settlement offers aren’t accepted

A recent decision from the Ontario Court of Appeal weighs in on the discretion of a judge as to costs when a plaintiff’s offer to settle is not accepted by the defendant.

The Nov. 8 appeal decision, Barresi v. Jones Lang Lasalle Real Estate Services Inc., 2019 ONCA 884,  focuses on whether a real estate investment management company repudiated its contract with real estate broker Ryan Barresi. 

The company recruited Barresi from a competitor to lead its Ottawa office for investment property transactions, but then told Barresi that his office’s transactions would be limited to $10 million or risk being handed off to the national group. The trial judge, Justice Catherine Aitken of the Ontario Superior Court of Justice, found that the limitations undermined Barresi’s reason for joining the company. 

An offer to settle — to pay $50,000, then $100,000, then $200,000 — was made two months before the trial and remained open, but the case went to a five-day trial. Aitken agreed that the situation triggered r. 49.10(1) of the Rules of Civil Procedure. 

The rule dictates that — “unless the court orders otherwise” — the plaintiff is entitled to costs if they get a judgment “as favourable as or more favourable than the terms of the offer to settle,” where their offer to settle was not accepted by the defendant. The rule provides that the plaintiff is entitled to partial indemnity costs to the date the offer to settle was served with substantial indemnity costs from that date.

But instead of aligning with r. 49.10(1) — which would have yielded a costs award of $105,288 for fees and $6,000 for disbursements — the trial judge awarded $40,000 in costs. Aitken opted to award $34,000 for fees and $6,000 for disbursements because success was divided, as the respondents’ negligent misrepresentation claim had been dismissed; and Barresi had acted unreasonably during the litigation process.

But a panel of appeal court judges — Justices Kathryn Feldman, Michal Fairburn and Mahmud Jamal — said there was “no basis for the trial judge to depart” from the presumption in r. 49.10(1), and increased the lower court’s costs order to $111,288. 

“The discretion to depart from the presumption as to costs in r. 49.10(1) is not unfettered and must be exercised in accordance with the purpose of the rule,” wrote Feldman, with Fairburn and Jamal concurring.

Lawyer Sean Bawden, who represented the successful party, says he was pleased with the decision, which he says falls in line with his expectations of the law.

“The purpose and the intention of Rule 49 is to make those who receive offers to settle consider them seriously,” says Bawden. “We didn't want this trial. We tried to avoid it very earnestly and did basically all we could. In fact, we did what we were expressly instructed to do — we made offers to settle. Those offers were rejected. The consequences should follow.”

Bawden says the decision could be of practical use to practitioners looking for a short, clear authority to plop into future arguments.

“Yes, trial judges and motion judges have the right to not strictly apply the rule, but that’s not an unfettered discretion,” says Bawden. “The presumption is that Rule 49 will apply, unless ‘the interest of justice requires otherwise.”

But one of the lawyers from the other side, Jock Climie, disagreed that the decision will be useful in providing clarity for practitioners.

“It simply creates more confusion around what a judge’s discretion actually is when it comes to costs,” says Climie, a partner at Emond Harnden in Ottawa.

“As practicing lawyers, all we and our clients want is certainty. I don’t have clients who want to spend a lot of money litigating. They’d rather the law was clear and they knew exactly what their obligations were. Every time a decision comes out that doesn’t add more clarity, it makes it more difficult for lawyers and their clients to decide what they should and should not be doing.”

Climie says the appeal decision doesn’t reflect that the trial judge was in the best position to determine whether the events of the case were enough to give pause in terms of costs.

“We think [the decision] has pretty significantly watered down the test for repudiation, such that it will be difficult for lawyers to properly advise their clients about when a party can walk away from a contract. It also brings into question when discussions outside the four corners of the contract will be given the weight of contract, so we certainly found that quite discouraging,” he says.

Editor’s note: This story has been updated to expand on the plaintiff’s entitlements under r. 49.

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