In this interesting recent decision, the appellate court held that rule 49 offers must be evaluated without references to extraneous factors such as income tax payable on a trial award or on an accepted offer to settle.
Rule 49 of the Ontario Rules of Civil Procedure grants the court power to award higher legal cost recovery to a party whose offer to settle was rejected and the party rejecting that offer obtained a result that was the same or worse than the offer they rejected. In brief, the logic behind the rule is that the party who refused to accept the offer should be penalized for forcing the matter to trial because in doing so, they ended up with the same or worse result, but needlessly forced everyone to incur high legal cost to take the matter through to trial.
But when it comes time to consider whether the result at trial was the same or better (or worse) than the pre-trial offer to settle made by a party, some interesting arguments can arise, such as the one raised in this recent employment law case.
The employer defendant argued that the plaintiff employee’s offer to settle for $32,000.00 in general damages for human rights violations did not beat or exceed the trial judge’s award of $41,000.00, and that it was an error in law for the trial judge to award a higher legal cost recovery for the plaintiff employee.
How can this be? $41,000.00 clearly exceeds $32,000.00, doesn’t it? The defendant employer could have got out of the claim by cutting a cheque for $32,000.00 but instead forced a trial where they now have to pay $41,000.00, making it sensible to penalize the defendant employee in costs for forcing the parties to go through a trial.
The defendant employer argued that the trial judge erred because the amount the plaintiff employee received net of income tax was less with the trial award than with the plaintiff’s offer had it been accepted by the defendant employer: namely, the employer argued that the plaintiff’s offer attracted no tax liability (ie: the Plaintiff would have pocketed $32,000), but that the trial award attracted tax liability (of at least 25%) leading to the plaintiff employee only pocketing $30,750 (ie: less than $32,000).
The court rejected this argument. The court held, starting at para 63:
“A determination of whether an award of damages at trial exceeds a r. 49 offer can only be made based on the actual quantum of damages awarded by the court. To conclude otherwise would lead to litigation uncertainty and chaos. Parties would be required to factor in a myriad of external considerations in order to assess the merits of making or accepting a r. 49 offer, rather than assess same using a dollar-to-dollar comparison. This would introduce an element of subjectivity and variables into the calculation of offers that is not delineated in the wording of the rule directly, or by inference. Such an outcome could also result in different costs considerations for identical judgments awarded to separate plaintiffs based on their different individual circumstances such as applicable tax rates.”
Lemyre v. Residential Energy Saving Products Inc. et al, 2022 ONSC 4231
https://www.canlii.org/en/on/onscdc/doc/2022/2022onsc4231/2022onsc4231.html