Case reference: Puri Consulting Ltd. v. Kim Orr Barristers PC, 2015 ONCA 727
This historical case summary discusses the decision identified above. Later decisions and legislative changes may affect how it applies today. Obtain legal advice about your circumstances.
P was retained by the defendant law firm through P’s company, the plaintiff, to provide an expert opinion in a class proceeding. When the defendant failed to pay the account, the plaintiff brought an action for damages in the amount of the account (plus accrued interest under the contract), plus HST, and for prejudgment interest and costs. Relatively early in the proceedings, the plaintiff served a written offer to settle for “$50,000, plus HST, in full and complete satisfaction of the plaintiff’s claim”. The defendant accepted the offer a few days before the trial. The defendant subsequently took the position that the offer included the plaintiff’s costs. The plaintiff asserted that it did not and moved under rule 49.09 of the Rules of Civil Procedure to enforce the settlement. The motion judge found that the offer was unambiguous and that the words “in full and complete satisfaction of the plaintiff’s claim” meant that the claim for costs was included. The plaintiff appealed.
Held, the appeal should be allowed.
The motion judge made a reversible error by adopting a literal interpretation of the offer that focused only on the words “in full and complete satisfaction” and ignored other words used in the offer. She also erred in failing to consider the factual matrix of the offer and its acceptance. She ought to have considered the Rule 49 context, including the purpose of that rule, the timing of the offer and its acceptance, and the fact that the parties were lawyers and were repre- sented by counsel, so that they knew and appreciated the context in which they concluded their agreement. Rule 49 provides that a party may offer to settle “any one or more claims in a proceeding” by making a Rule 49 offer. The word “claim” under the rule is therefore not synonymous with “action” or “proceeding”. On its face, the plaintiff’s pleading included various “claims”, while the offer to settle referred to the settlement of the “claim”, calling into question which “claim” the plaintiff meant to settle. Moreover, the purpose of Rule 49 is to encourage parties to make reasonable offers to settle and to facilitate the early settlement of litigation. The defendant’s interpretation of the offer would mean that, rather than acting as an incentive to encourage early settlement, the value of the offer would decline over time as the parties approached their trial date and the plaintiff’s legal costs increased. The timing of the offer and its acceptance did not favour the defendant’s interpretation of the offer. Interpreted in the relevant context, the offer did not provide for the disposition of the plaintiff’s costs. Accordingly, rule 49.07(5)(b) applied, and the plaintiff was entitled to its costs.
In Sattva Capital Corp. v. Creston Moly Corp., [2014] 2 S.C.R. 633, [2014] S.C.J. No. 53, 2014 SCC 53, Rothstein J. discussed the role of surrounding circumstances or the factual matrix when interpreting a written contract. He noted, at para. 47, that to determine the intent of the parties and the scope of their understanding,
. . . a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning[.]
The relevant factual matrix in this case includes Rule 49, under which the parties were operating, and the timing of the offer and its acceptance in the litigation.
The purpose of the costs provisions in Rule 49 informs the interpretation of the appellant’s offer in this case.
“The purpose of Rule 49 is to encourage parties to make reasonable offers to settle and to facilitate the early settlement of litigation”: Rooney (Litigation guardian of) v. Graham (2001), 53 O.R. (3d) 685, [2001] O.J. No. 1055 (C.A.), per Laskin J.A., at para. 45. When a party makes an offer to settle, the other party must give serious consideration to whether to settle by accepting the offer or to continue the litigation. Continuing litigation in the face of a reasonable offer can be risky. This is reflected in rule 49.10, which sets out the costs consequences of a failure to accept an offer that the offeror betters at trial. Rule 49 “is a simple recognition that if an offer is accepted it should carry with it party and party costs to that date”: Rooney, per Carthy J.A., at para. 31.
While a party may specifically address costs in her offer to settle, rule 49.07(5) contemplates that offers to settle will be made (and accepted) that do not provide for the disposition of costs. As noted in Holmested and Watson: Ontario Civil Procedure, looseleaf, vol. 4 (Toronto: Carswell, 1984-) (2010-Rel. 5), at p. 49-33, rule 49.07(5) “gives the defendant an incentive to accept promptly and stop the growth of costs”. The later the acceptance of an offer to settle that does not provide for costs, the greater the costs that will have to be paid.
The respondent’s interpretation of the offer, which interpretation was accepted by the motion judge, would mean that, rather than acting as an incentive to encourage early settlement, the value of the offer would decline over time as the par- ties approached their trial date and the appellant’s legal costs increased.
The timing of the making of the offer and its acceptance are also part of the factual matrix.
The offer was made relatively early in the proceeding, after the appellant conducted an examination for discovery of the respondent. The respondent chose not to conduct any exami- nation. The offer was outstanding at the pre-trial conference, and the parties knew that a trial date had been scheduled for nine months hence. In the intervening period, the respondent took no steps in the action. The respondent would have known that, unless the action settled, the trial would proceed as scheduled in September 2014, and the appellant would have incurred additional legal costs to prepare for the trial. These circumstances do not favour the respondent’s interpretation of the offer that the appellant would make an offer, that by its terms would remain open until one minute after the commencement of trial, and that would decline in value as the trial date approached. The parties were sophisticated and knowledgeable. As lawyers, they would have understood full well the implications of an offer to settle under Rule 49, and in particular the default provision in rule 49.07(5) providing for costs.
*source: Ontario Reports
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