The Alberta Court of Appeal has just clarified which formal offers to settle have an effect on costs. In particular, two questions:
1. Must an offer give more than a de minimis concession to be effective? Yes
2. Must an offer be reasonable, and depend on what the offeror knows or thinks? No
As the Court points out, the previous case law ranged all over the map. Even some Court of Appeal decisions seemed to conflict. The apparent policy, aims, viewpoint, and principles were not consistent. Worse, many Queen's Bench decisions seemed to ignore a number of Court of Appeal decisions. So the Court of Appeal settled the law on these points.
First, the Court states that the policy is clear. The law encourages settling litigation by consent, and discourages persisting in litigation beyond a useful point. That is a very important policy, not to be compromised by other aims or considerations (¶ʼs 18, 19 27).
A formal offer does not advance that policy, if it does not give any real concession or benefit if it is accepted. The same is true if it suggests only a concession which is de minimis. Such a supposed offer is just refusal to do anything concrete toward a settlement. It merely calls for surrender. So a formal offer must offer some benefit to the offeree (¶ʼs 13, 14). What that is, is up to counsel for the offeror (¶ 33). That idea has been well known for some time. So thus clarifying it is no great surprise.
What is such a sufficient concession, the Court of Appeal now makes much clearer. It says that dropping something, such as a counterclaim, cross-claim, or cross-appeal, suffices to make a formal offer effective (so long as the result at trial is better for the offeror). Dropping costs payable to the offeror also suffices, even if that is not expressly stated, but plainly would be the result of accepting the offer (¶ʼs 30-31, 34).
However, the costs to be waived must be real or likely, not merely theoretical. If there are already costs incurred by the offeror, then offering to give them up suffices to make the offer genuine. The same is true if new costs would become payable in future by the offeree because of steps the offeror is likely to take in the normal course, before the offer expires or it becomes too late to accept it (¶ 30). By costs payable, of course that means payable if the offeree loses the suit or appeal.
Then comes Question 2 above. It used to pose bigger mysteries. Sometimes judges gave the phrase “genuine offer of compromise” mysterious wider meanings, such as “fair” or “reasonable”, or why the offeree might not accept the offer. Sometimes such ideas were suggested as a second independent test for validity of an offer. Worse still, in practice those additional tests often turned solely on what only the offeree knew and could plainly see. If the offeree's position was arguable, then supposedly it was reasonable for the offeree not to accept, and so the offer should have no effect on costs, no matter who won. Still more amazing, some previous cases suggested that a valid offer could not be “tactical” or designed to get more costs. The whole purpose of the Rule is to put an additional costs burden on an offeree who does more poorly at trial (or on appeal) than the offer which he or she turned down. So trying later to assess the offeree’s reasoning was mysterious (as the Court of Appeal says in ¶ 36). Indeed, weighing motives seems simply backwards.
All those suggested “reasonableness” tests tried to narrow the offer Rules into vexatious litigation Rules, which they are not.
The Court of Appeal now sweeps away any additional reasonableness or fairness test for an offer. The whole reason for most litigation, certainly honest litigation, is that the result is unclear and the facts (or law) uncertain. Summary judgment and analogous proceedings are designed to weed out the cases with no real objective uncertainty. Trial is supposed to be for only doubtful, difficult, or complex cases. So most trial or appellate judgments are given in doubtful or difficult disputes.
Yet sometimes after the judge pronounces judgment in a civil trial, counsel then tell the judge that an offer of settlement close to the final award had been made but not accepted. So the parties, their counsel, the judge, and the taxpayers of the province and country had all been running up huge expenses, to answer a mystery over a very small sum of money (the difference). That is very uneconomical for everyone concerned, including the party winning and the party losing.
The party losing a civil suit or appeal usually has to pay costs, even if he or she had an arguable position. The objective result governs. Why should the test for costs after an offer become more subjective? Any settlement gives certainty. Why should the offeree who ignored that certainty and perpetuated the gamble, escape the expenses of his or her gambling? Maybe some degree of “surprise” is the usual result of gambling. But rarely is the result of a trial or appeal absolutely unforeseeable.
The Court of Appeal rejects all such excuses by offerees. It states expressly that nothing is needed beyond an offer suggesting some element of compromise. The costs results stated in the Rule follow. The courts will not use hindsight later, and labor to assess what had been the relative merits of the live issues. That would just waste even more resources, by holding a second trial of subjective elements, after the judgment in the first trial on objective merits (¶ʼs 35-37).
The decision here was about doubling costs of an appeal, but its words are broad and about all the offer Rules, not limited to appeals or double costs.
All the citations above are to H2S Solutions v. Tourmaline Oil Corp. 2020 ABCA 201, Edm 1803 0201 AC (May 14).
– 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.
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