Here, we focus on offers to settle in litigation. Rule 49.10 of the Rules of Civil Procedure deals with cost consequences for a party’s failure to accept an offer to settle.
Generally speaking, in litigation, a successful party is entitled to costs on a partial indemnity basis (around 60% of legal costs incurred). However, the Court can exercise its discretion to award a different scale of costs, depending on a wide variety of factors. One of these factors is a party’s failure to accept an offer to settle that would have resulted in a better outcome for that party.
Where an offer to settle, if accepted, would have resulted in a more favourable outcome for a party, the Court generally awards a higher scale of costs against it for failing to accept the offer. The higher scale applies to legal fees incurred after the offer to settle is made.
In the case, the unit owner who commenced the application made an offer to settle with the Corporation for, principally: (i) payment by the Corporation to the unit owner of $14,000; and (ii) a requirement that the Corporation would demand the manager reimburse the Corporation $14,000, failing which, the Corporation would sue the manager.
The court order required the Corporation to pay the unit owner just under $15,000 – $1,000 more than the amount of the offer. From a strictly financial perspective, the Corporation would have been better off accepting the owner’s $14,000 offer.
However, if there are conditions in the offer to settle that are not awarded by the Court (i.e. the requirement to sue the manager), the cost consequences of an offer to settle will not apply. Since the unit owner did not achieve this condition in the court order, it therefore wasn’t entitled to the higher costs award.
Some important things to keep mind relating to offers to settle include:
- the cost consequences apply only to costs incurred after the offer to settle is made – the earlier the offer is made, the more of an impact the offer to settle will have on costs (and it can also help increase the chances of settling early in a proceeding, reducing both parties’ legal costs);
- the offer to settle must be made at least 7 days before the hearing for the cost consequences to apply;
- the offer to settle can be made by either party (applicant or respondent); and
- ambiguous or unnecessary conditions should not be included in the offer to settle, as it can prevent the higher scale of costs being awarded (as it did in this case).