April 18, 2023

As lawyers, we try to encourage our clients to take a reasoned and reasonable approach when it comes to pursuing (or not pursuing) ongoing litigation. There are times when there is no choice but to resolve a dispute in court, and there are times when settlement is the best avenue. However, when and on what terms to make a settlement offer or more specifically, a settlement offer pursuant to Rule 49 of the Ontario Rules of Civil Procedure, depends upon the unique circumstances of each case.

Generally, “…the purpose of Rule 49 is to encourage parties to resolve litigation more quickly and cost-effectively than by judgment of the court by motivating them with a cost incentive to make reasonable offers to settle and imposing costs consequences on those who do not reasonably assess the value of their case and fail to accept reasonable offers to settle.”

Rule 49 settlement offers may be made at any time during the course of a proceeding, but Rule 49.03 provides that where the offer to settle is made less than seven days before the hearing commences, the costs consequences referred to in rule 49.10, do not apply. Rule 49 settlement offers, by definition, result in cost consequences. In particular, Rule 49.10 provides that where an offer to settle (a) is made by a plaintiff at least seven days before the commencement of the hearing; (b) is not withdrawn and does not expire before the commencement of the hearing; and (c) is not accepted by the defendant, and the plaintiff obtains a judgment as favourable as or more favourable than the terms of the offer to settle, the plaintiff is entitled to partial indemnity costs to the date the offer to settle was served and substantial indemnity costs from that date, unless the court orders otherwise.

With respect to the costs scale referred to above, partial indemnity costs are usually between 30%-50% and in certain circumstances (i.e. where there has been reprehensible conduct), substantial indemnity costs may rise to as high as 75%.

Notably, Rule 49.06 makes clear that no communication respecting an offer shall be made to the court until all questions of liability and the relief to be granted, other than costs, have been determined.

It should also be kept in mind that an informal offer to settle (i.e. an offer that is not made pursuant to Rule 49) does not necessarily require the court to do anything per se when it comes to costs. However, the court usually takes informal settlement offers into account in its costs decisions.

It is important to recognize that a settlement offer, pursuant to Rule 49 or otherwise, may be used to resolve litigation on a sensible, cost-efficient basis. The Rule 49 settlement offer can be effective in encouraging parties to act reasonably and avoid the unpredictability of court and the accompanying costs.