König v Hobza (2015 ONCA 885)
There is no "near miss" allowed on the timing of offers to settle under Rule 49.10 of the Rules of Civil Procedure, but residual discretion always rests with the trial judge in awarding costs, as the Court of Appeal confirmed in its recent judgment in König v Hobza.
Under Rule 49.10(2) of the Rules of Civil Procedure, if a defendant makes an offer to settle at least seven days before trial and the plaintiff obtains a judgment as favourable as or less favourable than the defendant's offer, the defendant may be entitled to partial indemnity costs from the date the offer was served.
In this case, the plaintiff, Mr. Klaus-Peter König, was a silent investor in the defendant company. He alleged that the company's officers and directors over-compensated themselves over a number of years. Four days prior to trial, the defendants served the plaintiff with a "Rule 49" offer to settle (the "Offer"). The plaintiff rejected the Offer. At trial, the plaintiff was successful in respect of his claim for oppression. The trial judge also determined that the defendants' conduct merited an award of substantial indemnity costs. As a result, after factoring in the substantial indemnity costs, the judgment was more favourable than the Offer. Therefore, the cost consequences under Rule 49.10 were not engaged.
The defendants appealed the trial result to the Ontario Court of Appeal. The Court determined that the defendants had been under-compensated during the company's early years and, as a result, damages and prejudgment interest were reduced. Although the Court upheld the decision to award costs on a substantial indemnity scale, the case was sent back to the trial judge for reconsideration of costs.
In reconsidering costs, the trial judge determined that the revised judgment was less favourable than the Offer. Consequently, the trial judge held that the cost consequences under Rule 49.10 applied and the defendants were therefore entitled to costs on a partial indemnity scale from the date of the Offer. However, the trial judge was still of the view that, due to the defendants' conduct, the plaintiff should be awarded substantial indemnity costs to the date of the Offer.
The plaintiff appealed this result to the Ontario Court of Appeal. He claimed that the Offer did not satisfy the seven-day timing requirement under Rule 49.10 and therefore, the Offer should have no cost consequences at all. The Court agreed that the Offer did not meet the timing requirements under Rule 49.10. Notably, the Court confirmed that there is no "near miss" policy with respect to the timing requirement of Rule 49.10 offers.
Nevertheless, the Court held that Rule 49.13 grants a judge discretionary authority in awarding costs. This discretion requires a "holistic" consideration of relevant factors, including any offers to settle even if they do not meet the requirements of Rule 49.10. The Court determined that the trial judge applied a holistic approach in awarding costs and appropriately accounted for various factors, including the Offer. The appeal was therefore dismissed.
This case shows that parties should be cognizant of the timing requirements under Rule 49.10. Nonetheless, even when offers to settle do not meet these timing requirements, they may still have a significant impact pursuant to Rule 49.13 as a judge has wide discretion to consider any offers when determining an appropriate costs award.