The Alberta Court of Queen’s Bench recently provided
important direction regarding the cost implications of informal settlement
offers. In ILI’s Painting Services Ltd. v. Homes by Bellia Inc., the
plaintiff provided paintwork for two large homes which the defendant was
building. The defendant never paid for the work, and the plaintiff filed a lien
on each property. In turn, the defendant argued it incurred remedial costs to
repair deficiencies in the plaintiff’s work. The plaintiff made settlement
offers of $50,000, which the defendant refused. The parties engaged in lengthy
litigation culminating in extensive written submissions and a trial lasting
three and a half days. At trial, the court found the defendant’s testimony
regarding deficiencies was “wholly unreliable.” The court therefore found in
the plaintiff’s favour and awarded it $58,652, exclusive of costs and interest.
After these proceedings had concluded, the parties brought
costs submissions before the court. The plaintiff sought double costs from the
date on which it made its offer, whereas the defendant argued enhanced costs
were inappropriate.
The court emphasized that costs are highly discretionary,
and that as a guiding rule, the successful party is entitled to its costs. Rule
4.29 of the Rules of Court states a party who makes a formal offer and then
receives more than that offer at trial is entitled to double costs. However, in
this particular case, the offers were informal.
With that in mind, the court turned to analyzing when an
informal or “Calderbank” offer merits enhanced costs. The defendant argued the
plaintiff’s offers did not contain the “old formal offer type language” which
would trigger enhanced costs. The court noted the offers were marked “without
prejudice” and contained no reference to using the offers for obtaining costs
after trial.
However, the court found Alberta no longer requires such
formality around informal offers. While doubled costs are not presumed, the
court retains its wide discretion over costs. The court emphasized that costs
rules are necessary to encourage reasonable settlement. Citing earlier
authority, the court found informal offers should enhance costs awards where:
a)
The offer was a reasonable, genuine compromise;
b)
It gave a cost advantage if accepted;
c)
Adequate time for consideration was provided;
d)
The offer was unreasonably rejected; and
e)
The party making the offer fared better than if the
offer was accepted.
In this case, the settlement offer met all these criteria.
The offer, though not significantly higher than the “bare quantum of the
plaintiff’s claim, [was made] in the context of a strong case.” The plaintiff
had also significantly bested this offer at trial when costs and interest were
added to its award.
Having deemed enhanced costs appropriate in the
circumstances, the court ultimately awarded double costs—though it noted there
is no presumption of double costs in cases involving informal offers. In this
case, the size and scope of the trial, as well as the amount of litigation
involved, were out of proportion to the money at issue. The court emphasized
that this created a risk of failure of access to justice, as the plaintiff may
have decided to abandon its strong claim due to the costs involved.
Furthermore, the defendant’s behaviour “increase[d] the duration and expense of
litigation.” The defendant also gave contradictory evidence amounting to
litigation misconduct—this in and of itself would have allowed an independent
costs sanction.
Takeaways:
This case highlights the danger of disregarding informal
settlement offers. In this case, aside from costs and interest, the amount the
plaintiff received was only $8,000 more than their settlement offer. However,
factoring in the defendant’s conduct and the reasonableness of the offer, the
court still exercised its discretion and awarded double costs. Lawyers should
therefore be mindful that refusing an informal settlement offer could mean
suffering significant costs consequences.
McLennan Ross has a strong reputation in commercial
litigation and is well-positioned to provide you with exceptional advice and
representation. If you have any questions or concerns with respect to a
contractual dispute or any other litigation matter, please do not hesitate to
contact any member of our Commercial Litigation Team.
