Introduction
Over 95% of lawsuits never reach trial. Eventual settlement is usual. But most settlements are hard to make, because the parties discuss settlement only after spending large unnecessary sums on pre-trial procedures. Applications and trials in Queen’s Bench are badly backlogged. Courts and everyone else need to foster early settlement. Courts constantly tell litigants to settle.
History
However, history reveals occasional mixed motives.
The Rules of Court expressly mandate costs consequences after bettering a formal offer of settlement. Over the years, a few decisions displayed no enthusiasm about that legislation. Some yielded to excuses not to follow it. To combat that, years ago the Rule was amended so it is expressly mandatory. And the Court of Appeal ruled that the “special circumstances” exception to the Rule must be truly exceptional.
If each judge were free to do anything desired about costs, then only one Rule would be needed: the one giving a discretion. But every province has lengthy Rules about costs, some modifying a judge’s discretion.
Then a Saskatchewan judge suggested a new exception to the Rule: an offer which is not a true offer of compromise. For example, an offer which gives up nothing, calling for complete surrender. An offer to knock off less than 20 dollars is similar. Some Court of Appeal decisions accept that exception for hollow offers. (Others refuse to.)
Since then, a few Queen’s Bench decisions selectively cite precedents, making it harder for later judges to find the correct law. Some decisions rely heavily on a few mere dicta. A few Queen’s Bench decisions thereby try to justify novel reasons to declare some formal offer not a “genuine offer of compromise”. Yet many of the new suggestions have nothing to do with whether any concession was offered.
A few Queen’s Bench decisions almost entirely repeal recently re-enacted Rule 4.29. And they contradict a host of Court of Appeal decisions. Some of the new suggestions rest on flaws in reasoning. All such decisions overlook or jettison the aims of the Rules. The “exception” would devour the Rule.
No Bonus
Inconsistent terminology may inspire some of this. Double costs to a plaintiff who betters an offer are not a gift or bonus, still less punishment. A defendant who betters his or her offer at trial also gets double costs; we just do not use that phrase. A defendant who betters his or her offer gets two benefits: thereafter, no costs are paid to the plaintiff, and the plaintiff pays costs to the defendant. That is really double costs. See Stevenson and Côté, Civil Procedure Handbook, R. 4.29 n. C. Veit J. pointed this out, and then the Rules were amended to confirm that.
And given inflation, now double costs are probably less than full indemnity.
Uncertainty
We must recall basic principles.
The result of a lawsuit is rarely certain. If uncertainty barred effective offers, then offers would be rare or useless. Usually the result at trial surprises at least one party. People go to trial because they feel confident. The judgment often surprises experienced lawyers. Usually neither party had more than an 80% chance of winning the trial, nor less than a 20% chance of losing. That is why courts properly urge parties to settle early. Litigants cannot settle without offers.
Workability
Many of the recent preconditions for extra costs are impossible to prove, disprove, or try. Yet it would be impossible to find those facts without evidence from the parties.
So the proposed tests would require every trial judge who is told of a previous formal offer, to conduct a second trial about what the case had been worth several years before the trial just held, when the offer expired. Even that would not suffice: the question to try would be what the offeree thought that the case was worth at that time. A party’s memory of subjective feelings years before is rarely accurate. Any actual information about that would be privileged, and so could not be decided on evidence.
The result would turn on fine distinctions, as explained below.
To hold a trial to decide what the opposing party subjectively thought or felt years ago is to sail into a fog-bank. To try what one party thought about the opposing party’s thoughts years ago, is ordinarily impossible. To ask whether such thoughts had been “reasonable”, is to guess. The trial judge cannot know or discover that.
Asking whether the offeror expected the offeree to accept, stems from misreading a phrase in a 2000 Court of Appeal decision. Stinginess was not the issue there: it was who was the offeree. A formal offer was made to two insurance companies. The Court merely held that one company alone could not accept the offer, and no one intended that it do so. So the offer there was not to the party later asked to pay extra costs. In fact, the Court of Appeal has ruled that the offeror’s thoughts or calculations when offering, are irrelevant. See the Handbook (supra) R. 4.29 n. E.
Besides, to suggest that no offer affects costs unless the offeree knows all important facts about the lawsuit, requires full discovery before any formal offer. But that contradicts the express wording of R. 4.24(a).
A few cases now suggest that the court must evaluate all the “context” in deciding if the offer allowed some compromise. That could mean anything, and would likely bar any mandatory Rule at all. Occasionally, “context” seems to have included sympathy or dislike of someone or something.
Holding vague wide-open trials-after-the-trial, years later, would bloat court backlogs.
Rule 4.29 is simple and avoids all that. Its test is objective. Did the offeror beat the offer or not? Even “close” does not count, as many cases hold. The proof of the pudding is in the eating.
Unfairness
Introducing the offeree’s “interests” as a factor is one-sided. Never do courts hearing procedural matters, look only to one party’s interests, ignoring the opponent’s interests.
Letting one party’s subjective feelings govern costs is simply unfair. Parties are usually fond of their own side of any dispute. Courts cannot both follow one party’s past subjective feelings, and also encourage settlement. The two aims clash.
A recent case or two suggest that the offeror who bettered the offer, bears the onus of disproving all the novel exceptions to post-offer costs. But he or she who asserts must prove. And disproving those things is usually impossible, especially proving the opponent’s thinking and knowledge. The offeror cannot know that. There can be no discovery about that: it is after trial, and the information is usually privileged.
Worse still, one can rarely prove a negative. This suggestion is nominally an onus of proof, but in practice it is a total bar to any extra costs. And so it strongly deters settling.
Misconduct is Irrelevant
Costs exist for many purposes. Punishing a party for misconduct is the least of these. Misconduct is never necessary for a costs award. The Rules say so. (See Rr. 10.29(1), 10.33.) In the great majority of lawsuits, who gets costs depends on who wins. The Rules about costs after a formal offer are important, reflect that principle, and should be followed: see the Handbook (supra) R. 4.29 n. A.
Those decisions refusing costs after offers, adopt a very narrow test for costs, like the test for vexatious or improper litigation. No Rule supports that. Different Rules give costs for misbehavior. Making misconduct or unreasonableness preconditions to R. 4.29 leaves that Rule with no separate consequences. An unaccepted formal offer then would have no effect. All this purports to repeal a clear Rule of Court.
Costs are always intended to modify behavior (as well as to indemnify). They are a carrot and a stick. Yet some decisions actually suggest that an offer cannot influence later costs, if hoping to get costs was one of the motives for the offer. The offer has to be disinterested or charitable, they imply. That notion is backwards. Costs, or their threat or hope, are always intended to motivate. All costs make people pay or get money. Damages are money motivating and encouraging suits. So are costs. What if a party sues knowing that the defendant has money and at least part of the suit is unquestionably valid? He or she sues knowing that collecting costs is likely. Is that an improper motive? Not at all. Courts and Rules deliberately award party-party costs so that cautious or unfunded parties with valid claims, will not be deterred from suing or defending.
All these attempts to erect barriers to costs after offers are doubly odd: such considerations are never mentioned for ordinary party-party costs. A win is a win, even if partial, close, or unexpected. See the Handbook (supra) R. 4.29 n. A.
Faulty Reasoning
Some recent Alberta decisions on R. 4.29 rely on more specific gaps in reasoning.
The first flaw is suggesting that a formal offer does not really allow any compromise unless the offer is “realistic”, which is deemed in advance to include the “positions” of the offeree. That subjectively stands the word “reasonable” on its head, especially when coupled with weighing subjective elements.
A common scenario illustrates that. One party wishes to settle, seeing all the doubts and risks in this suit, so she formally offers to settle on an 80:20 split. But the opposing party side has an entrenched or exaggerated view of his chances, and will not accept less than 98% of his claim (or pay more than 2% of the counterclaim). Why should that adamant party be immune from costs, yet the more flexible, cautious party trying to settle, be liable for higher costs?
That leads to the second flaw in reasoning. It complains that “You knew when offering that your opponent would not accept your offer.” But that offer is not misconduct; it is the opposite. This is a common situation for which the offer Rules were enacted and re-enacted. They encourage settling suits where one cannot be certain. Even suits which are all or nothing, can be uncertain. So an offer to pay only half the claim may be perfectly fair, even be a big compromise.
Worse still, how can a judge ever know what would have been accepted years before? If 52% would have been accepted, how to tell whether 49% would have been? Still less, whether that would have been expected to be accepted. So the question is what the offeror would have thought about the offeree’s thoughts! That goes two dimensions beyond established rationales and principles (as shown above). Not to mention how fine are the differences to weigh years later.
Requiring an offeror to predict what an offeree will do, is also factually very unfair. Rule 4.29 (on costs after offers) expressly does not apply when the offer was accepted. (Different Rules cover that). So the offer in question when costs are debated, is always one which the offeree in fact did reject or ignore. Often it was not even seriously considered. This novel “exception” to this costs legislation (about how the offeree felt) will almost always bar any costs effects. The offer never was one which was accepted! In effect, the new test is a trick question.
The third flaw in reasoning is new. It claims that a defendant cannot serve an effective offer to settle at the time that he or she files the Statement of Defence. That too flies in the face of R. 4.24(a), which expressly allows offers any time after the Statement of Claim is filed.
Again, the facts needed here do not exist either. An offer to waive the offeror’s costs is said to be hollow because the defendant has done no work yet. But that is clearly wrong. The defendant has done the necessary work to investigate, research, draft, file, and serve the Statement of Defence. In a lawsuit over a large sum, if the defendant wins, costs of that step that would be at least $3500, maybe multiples of that. If there were any other steps or applications before the statement of defence was served (as is common), it could be a good deal more. Thousands of dollars are genuine, not nominal; the Court of Appeal has so ruled.
Offering to waive one’s costs for work already done, is a genuine offer of compromise: see the Handbook (supra) R. 4.29 n. B.
Many defendants just sued feel certain of winning, and are right. Often the defendant was an eyewitness. If not an eyewitness, then the defendant may know that he or she never met with or dealt with the plaintiff, or has never been to the place in question. Sometimes the defendant has carefully investigated the facts and the law before being sued. Sometimes a suit or counterclaim is patently a stall. So often a quick offer is very apt and proper.
Here is the 4th and last flaw in reasoning. These suggestions that an offer was worthless or “not genuine”, overlook costs after the offer is made. A formal offer to settle must be open for acceptance at least 2 months, and it can be open longer. No case suggests that the court look at the situation any earlier than the offer’s expiry. The offer may well give costs up to the date of acceptance. If it does not, R. 4.26 lets the court award such costs; they are customary. By then, an affidavit of records may have been served or at least prepared by one side or the other. And another application may have been made. A request for particulars may have been served. So the offer tenders (or waives) real money. Any additional waiver of costs in the offer holds out double costs to the offeree!
Conclusion
The novel arguments to bar extra costs for an offer bettered do not hold water: neither in law, logic, nor facts. They produce unfairness and impede settled policy.
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– Hon. J.E. Côté
The Commentaries are intended to call the attention of lawyers to promising or threatening developments in the law, in civil procedure, in developing their skills, or simply to describe something curious, funny or intriguing.
Justice Côté recently retired from the Court of Appeal of Alberta and currently acts as an arbitrator, mediator, or referee under Rules 6.44 and 6.45 of the Alberta Rules of Court.
He may be contacted through Juriliber at email: info@juriliber.com or phone 780-424-5345.
