Sep 29, 2023  By John Hyde

The Importance of Offers to Settle: Cost Award Nearly Doubles the Amount the Defendant Owes

In a recent decision, the Ontario Superior Court of Justice awarded the plaintiff, Hans Tan ("Tan"), with $35,000 in costs following Tan's successful wrongful dismissal action against his former employer, Storstac Inc., in which he received a judgment for seven months' termination pay. This cost award nearly doubled the amount the Defendant had to pay to the Plaintiff.


Tan worked as a depot manager for Storstac Inc. with a base salary of $67,500. At the start of the COVID-19 pandemic, he was let go shortly before his fifth anniversary with the Company.

Tan commenced a wrongful dismissal claim, for which a decision was released on April 4, 2023. The Court awarded Tan with seven (7) months of base salary and benefits. The Court stated that, if the parties could not agree on an amount owing for costs, the parties would provide cost submissions and the Court would make a determination on that matter. The parties did not agree on costs, cost submissions were filed, and the Court released a Costs Endorsement on August 23, 2023.

"Costs" usually refer to lawyer's fees and the disbursements associated with litigation (such as the cost of filing and serving the statement of claim, etc.). In Ontario, courts have the ability to award an amount of money to compensate a party (most often the successful party) for the costs they have incurred.  Typically, the court will award "partial indemnity costs" which are usually the value of approximately half to two-thirds of the reasonably incurred costs of the successful party. In specific circumstances, the court may award "substantial indemnity costs" which equates to 1.5 times partial indemnity costs.

Tan sought costs in the amount of $50,000 plus HST and an additional $3,837.12 for disbursements. As the plaintiff had made an offer to settle back in March 24, 2021 (for the amount of $22,932.70, which was lower than the amount of the Judgment) the plaintiff sought substantial indemnity costs from the date of that offer. The Defendant argued that the costs claimed by the Plaintiff were excessive.

As a general rule, higher costs are awarded to plaintiffs who serve an offer to settle prior to trial, if the offer to settle is not accepted by the defendant and the award at trial is the same or higher than the plaintiff's settlement offer. This practice has been implemented by courts in order to encourage parties to settle prior to trial and to avoid the unnecessary use of court resources if a reasonable settlement attempt is made. Such settlement offers served prior to trial are often referred to as "Rule 49 Offers" because they are served in accordance with Rule 49 of the Rules of Civil Procedure.

The Court's Decision

The plaintiff was successful in court, receiving a judgement of seven (7) months' termination pay, amounting to $35,886.40. Given that the plaintiff's Rule 49 offer to settle was for $22,932.70 the Court agreed that the plaintiff was entitled to substantial indemnity costs from the date that settlement offer was made. However, the Court also agreed with the defendant that the amount of costs claimed by the plaintiff were excessive given the size and complexity of the case, as well as the amount at stake.

As such, the Court fixed the costs amount awarded to the plaintiff at $35,000, inclusive of HST and disbursements.


The Bottom Line

This case highlights the importance of Rule 49 offers to settle and the need to consider costs when assessing the value of making/accepting a settlement offer.

In this case, the amount the defendant was required to pay to the plaintiff practically doubled due to the cost award. Further, the defendant is also responsible for its own legal costs. In total, Storstac Inc. will need to pay $35,886 for the wrongful dismissal claim, $35,000 for the cost award, as well as their own legal costs (since only the successful party is awarded costs at trial).

If Storstac Inc. had accepted the plaintiff's Rule 49 settlement offer, it would have only paid $22,932.70 plus its own legal fees at that point in time (which, at approximately two years prior to the hearing, would have been much less).

Defendants can also make Rule 49 offers to settle which, if not accepted by the plaintiff, could result in a much lower cost award to the plaintiff (if they are still successful at trial) or a much higher cost award to the defendant (if the plaintiff does not succeed at trial).

If you require any advice with respect to wrongful dismissals, including settlement offers, or need assistance with litigation, please do not hesitate to contact us for expert legal advice and guidance.

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