06 Aug The Ontario Court of Appeal Discusses Costs in Personal Injury Cases
The Ontario Court of Appeal recently released the important Costs decision of Elbakhiet v. Palmer (“Palmer”). In Palmer the plaintiff claimed $1,900,000.00 in damages following a motor vehicle accident.
The defendant made a Rule 49 offer to settle before trial for “$145,000.00, plus pre-judgment interest and costs to be agreed or assessed.”
After a nine week trial, the jury awarded the plaintiff $144,013.07, including $25,000.00 for general damages, $87,000.00 for future loss of income, $6,000.00 for future care costs and $25,000.00 shared between the three Family Law Act plaintiffs. The total award, inclusive of pre-judgment interest was $153,999.37. Despite the verdict appearing to be less than the Defendant’s offer to settle, the plaintiff was awarded costs at trial that exceeded $500,000. The issue on appeal was whether the trial judge erred in awarding costs to the plaintiff in light of the defendant’s offer to settle.
The Trial Judge’s Ruling
Plaintiff and defence counsel each sought their costs of the lengthy trial. Defence counsel sought costs pursuant to Rule 49. Defence counsel argued that the plaintiff was awarded less than their offer to settle and, therefore, the defendant was entitled to their costs on a partial indemnity basis from the date of the offer through to the end of the trial.
Plaintiff’s counsel contested this position on two grounds. First, that the offer was not properly served seven days before trial and, second, that the offer did not satisfy the requirements of Rule 49.10(2).
The defence conceded that their offer only complied with Rule 49 if the hearing “commenced” the day after opening statements were made – the first day evidence was heard. Plaintiff’s counsel argued that the hearing “commenced” with the plaintiff’s opening and that the defendant’s offer was served six days before the commencement of trial. The trial judge sided with the defendant on this issue. Her Honour relied on a decision of the Court of Appeal that held: “When a trial may be said actually to have commenced is often a difficult question but, generally speaking, this stage is reached when all preliminary questions have been determined and the jury, or a judge in a non-jury trial, enter upon the hearing and examination of the facts for the purposes of determining the questions in controversy in the litigation.”[1] The offer accordingly complied with the timing requirements of Rule 49.
The trial judge then considered whether the damages awarded to the plaintiff were “as or less favourable” than the defence offer. Under Rule 49.10(2), the onus is on the defendant to prove that their offer to settle is as or more favourable than the damages awarded to the plaintiff. Typically, this is a straightforward exercise.
Plaintiffs’ counsel successfully argued that because the defence offer was not specific regarding the rate of interest, the offer lacked sufficient clarity. Section 128 of the Courts of Justice Act which provides for different interest rates for pecuniary and non-pecuniary general damages. The defence argued that the offer was meant to include interest at 5% per annum, the rate for non-pecuniary general damages, on the entire $145,000 in accordance with what the defence described as “industry standard”.
The trial judge ruled that because the offer to settle did not specify the interest rate that would apply to the offer (the offer conceivably contained amounts for both pecuniary and non-pecuniary damages), it was conceivable that the interest contemplated by the offer would be less than the interest awarded at trial. Her Honour found that it was not possible to determine whether the defence offer actually “beat” the amount awarded of $153,999.37 inclusive of pre-judgment interest.[2]
The trial judge wrote: “In evaluating a Rule 49 offer, I must be satisfied that the terms of the offer are fixed, certain and capable of clear calculation in order to attract potentially severe costs consequences under Rule 49. Uncertainty or lack of clarity in any aspect of an offer may prevent a party from showing that the judgment was “as favourable as the terms of the offer to settle, or more or less favourable” as the case may be, under Rule 49.10(3).”[3] Her Honour ruled that the plaintiff should not be deprived of their partial indemnity costs throughout the proceedings ordered the defendant to pay the plaintiffs’ costs in the amount of $578,742.28 – the full amount claimed by the plaintiffs.[4] This ruling turned what seemed to be a successful trial for the defence into significant loss.
The Court of Appeal’s Reasons
The Court of Appeal upheld the trial judge’s decision that the offer was made within seven days before the commencement of the hearing.[5] The court determined that the hearing commenced on the day when evidence was first called, which was February 22.
However, on the second issue to determine whether the judgment was as favourable as or less favourable than the terms of the second offer, the trial judge noted that “the terms of a Rule 49 offer must be fixed, certain and capable of clear calculation in order to attract the cost consequences.”[6]
The Court of Appeal upheld the trial judge’s decision that the offer was not fixed, certain and capable of clear calculation explaining that the pre-judgment interest in the offer did not provide a specified amount or a specified rate of interest for the various elements of the claim.
The Court of Appeal, however, did grant some relief to the defence. The Court relied on rule 49.13, which states that “the Court, in exercising its discretion with respect to costs, may take into account any offer to settle made in writing, the date the offer was made and the terms of the offer.” The Court held that the trial judge had erred in principle by failing to give any consideration to the offers to settle and to the principle of proportionality.[7] The Court accordingly reduced the plaintiff’s costs award to only $100,000.
Lessons for Adjusters and Defence Counsel
The Palmer decision contains several lessons for defence counsel and adjusters:
(a) Make Rule 49 Offers Early
Rule 49 offers must be made at least 7 days before the commencement of the hearing. This requirement is strictly interpreted. In this case, the offer to settle had been drafted by counsel 7 days before the jury was to be selected but a staff member had not faxed the offer until the next business day. This led to confusion regarding whether the offer had been served in time or was one day late.
(b) Rule 49 Offers must be Clear
In this case, the defendant’s insurer missed out on receiving its costs at trial because the rule 49 offer was not specific about interest. In claims where pecuniary and non-pecuniary damages are claimed, counsel must expressly state the interest rate that will apply to the offer.
(c) Costs awarded must be proportionate to the result in the proceeding
The Court of Appeal’s comments that the principle of proportionality are important and beneficial to defendants. In cases where a plaintiff claims a substantial amount of damages, and is awarded a small sum, defence counsel will now be able to argue that the legal fees incurred by the plaintiff in the case were disproportionate to the result reached and should be reduced.
(d) A “Holistic Approach” to Offers to Settle
The Court of Appeal reiterated its ruling in Lawson v. Viersen that Rule 49.13 “calls on the judge to take a more holistic approach” to offers to settle. Where the defence makes an offer that does not technically comply with Rule 49, or is only marginally less than the damages awarded to the plaintiff, this offer should still be given “considerable weight in arriving at a costs award.”
This interpretation gives counsel more room to argue that a successful party in litigation should not receive their full partial indemnity costs if a reasonable offer to settle had been made before trial – even if the offer did not exceed the amount awarded at trial.
[1] Citing Kirkpatrick v. Crawford (1987), 22 CPC (2d) 86; Jonas v. Barma (1987), 22 CPC (2d) 274; Villeneuve v. Scott, (1998), 32 OR (3d) 414 (Gen Div); Capela v. Rush (2002), 59 OR (3d) 299 (SC) and Scarcello v. Whalley (1992), 10 CPC (3d) 19 (Gen Div).
[2] Elbakhiet v. Palmer, 2012 ONSC 3666 at para. 27.
[3] Ibid. at para. 31 citing Rooney (Litigation Guardian of) v. Graham (2001),53 O.R. 685 (C.A.).
[4] Ibid. at para. 45.
[5] Elbakhiet v Palmer, 2014 ONCA 544 (CanLII) at para 35 [Palmer], at para 16-21.
[6] ibid, at para 11.
[7] ibid, at para 36.