Informal Settlement Offers can have Significant Costs Implications

By Anna Fitz, Student-at-Law

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.