Paying the price for ambiguous settlement offers, The Lawyers Weekly (January 29, 2016, p. 16)

Paying the price for ambiguous settlement offers, The Lawyers Weekly (January 29, 2016, p. 16)

By Nikolay Y. Chsherbinin

An offer to settle is an indispensable component of virtually every civil lawsuit in Ontario. However, to skillfully craft an offer that meets an offeror’s objectives can be challenging. A recent case in point is Puri Consulting Limited v. Kim Orr Barristers PC, [2015] ONCA 727, where the Ontario Court of Appeal was required to decide whether the words “in full and complete satisfaction of the plaintiff’s claim” contained within the offer to settle meant to include the disposition of costs. Having emphasized that the words of the offer to settle cannot be viewed in isolation from the factual context in which the offer was made, the appeal court resolved that the impugned words did not cover costs.

In Puri, the parties were engaged in litigation over an account for services. In 2012, Kim Orr Barristers retained Professor Poonam Puri to provide an expert opinion in a class proceeding. Puri delivered her opinion and rendered an account in the amount of $48,502.50, which was supported by time dockets.
After repeated demands for payments, Puri brought an action for damages in the amount of the account and ancillary claims. In its defence, the law firm admitted the retainer, but claimed that Puri’s account was unreasonable and excessive.

In December 2013, Puri served a written offer to settle under rule 49 in the amount of “$50,000, plus HST, in full and complete satisfaction of the plaintiff’s claim.” At the pre-trial proceeding, Puri asserted the offer was exclusive of costs, while the legal firm maintained that it was all-inclusive. Just days before trial, the firm accepted the offer and ultimately paid it. Subsequently, Puri asserted that she was entitled to costs and moved under rule 49.09 to enforce the settlement.

The main issue before the motion judge was whether Puri was entitled to an additional amount for her costs. In Justice C.J. Brown’s view, the words “in full and complete satisfaction of the plaintiff ’s claim” were clear and unambiguous. They meant to settle Puri’s entire claim, costs included, on the basis of the amount stipulated in the offer. Consequently, she dismissed the motion with costs.

On appeal, the court was concerned with the interpretation of an accepted offer. The key issue was which “claim” the offer meant to settle.

Writing for the appeal court, Justice van Rensburg reaffirmed the importance of the role of surrounding circumstances when interpreting the offer. Relying on the Supreme Court of Canada decision in Sattva Capital Corp. v. Creston Moly Corp., [2014] SCC 53, she found the motion judge erred when she took a literal interpretation of the offer, which focused on the words and ignored the surrounding circumstances in which they were used.

Turning to the interpretation of the offer, Justice van Rensburg reminded that rule 49 provides that a party may offer to settle “any one or more claims in a proceeding,” which means the word “claim” is not synonymous with either “action” or “proceeding.” She observed that a typical statement of claim contains a “claim for relief” in which various claims are set out. On its face, Puri’s pleadings contained various “claims,” which included a claim for damages. The offer referred to the settlement of a “claim” thereby calling into question which specific “claim” Puri wished to settle. She found that it was erroneous for the motion judge to treat the term “claim” as synonymous with “action” without considering and resolving which particular “claim” the offer meant to settle. On this basis, Justice van Rensburg resolved that the meaning of the words “in full and complete satisfaction” in the offer was not unambiguous and that they did not provide for the disposition of costs.

The purpose of an offer to settle under rule 49 is to encourage early settlement of litigation. While a party may specifically address costs in an offer to settle, subrule 49.07(5) contemplates that it needs not include a costs term. This subrule gives a party an incentive to accept an offer to settle promptly and stop the augmentation of costs.

Justice van Rensburg ably explained that to interpret the offer as inclusive of costs would mean that, rather than acting as an incentive to encourage early settlement, the value of the offer would decline as the trial date approached and Puri’s legal costs increased.

Puri reaffirms the significant role that context plays when a court interprets the written words of an offer to settle. Certainty is important with respect to all aspects of the rule 49 offers. Where ambiguity arises, it is necessary to consider surrounding circumstances to resolve it.

In this regard, Puri explains that a decision-maker should consider: the offer’s context; the purpose of rule 49; the timing of the offer and its acceptance in the litigation; the parties’ specialized knowledge and, inter alia, their level of sophistication. These non-exhaustive factors form an integral part of the factual matrix within which the offer to settle should be interpreted.

Given that lawyers typically draft the rule 49 offers, a court would presume their competency in the sense that they would have understood the implications of the offer and the default provision in rule 49.07(5) providing for costs.

Consequently, one must take great care in crafting offers to settle, using both clear and precise language.

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