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    Papers on The Settlement Conference and Written Offers to Settle (12/12)
    Posted: 2010-11-25 08:05:59


    By Marcel D. Mongeon



    The following is a passage from an essay by Marcel D. Mongeon, Deputy Judge, Small Claims Court of Ontario. We’ve divided this paper into a series of 12 posts.

    Costs Calculation

    Even if full indemnity costs are not available, it is important to understand what the “costs of the action” referred to in r. 14.07 may encompass. Because there is no formal definition of the term in the Rules of the Small Claims Court, we need to review Rule 19 entitled Costs. I suggest that all components of rule 19 are “costs of the action”. Therefore, first all of the amounts in rule 19 should be calculated and then the total can be doubled.

    This includes:

    r. 19.01 as to disbursements which can include “experts' reports” which can be quite costly;

    r. 19.03 – up to $50 for preparation and filing of pleadings

    r. 19.04 – a representation fee in a 'reasonable amount' or, in the case of using a student-at-law  or agent, no more than 7.5% of the claim as representation fee;

    r. 19.05 – no more than $500 for inconvenience for a self-represented party if the claim is for more than $500; and

    r. 19.06 – compensation as previously discussed.

    Rule 19.02 makes it clear that the 15% limit from s., 29 of the Courts of Justice Act is an overriding limit. However, if the costs of the action are doubled through operation of r. 14, it is arguable that there is an implied provision that the section 29 limit could be exceeded. However, it would be preferable even in this case if the amount to be awarded from the doubling exceeds the s. 29 limit to have the judge endorse the record with a specific finding that it was unreasonable not to have accepted the settlement offer and therefore the s. 29 condition would be satisfied.

    Considering what to offer

    What a party will want to offer to settle a case will depend on a number of factors. Following on the previous section, if the offer to settle is intended to invoke the 'unreasonableness' of the other party, the amount of the offer should represent some significant percentage difference from the original amount. What that percentage is is difficult to say. There have been decisions holding parties to be unreasonable which were only small differences, there are other decisions with large percentage differences where the parties were not held to be unreasonable.

    Clearly, the earlier an offer is made, the less it has to be seen as a reduction of a party's position.

    After all, if the offer is made early, the other party has incurred fewer costs. Later on, to be both of interest and to reach the 'unreasonableness' threshold, the offer needs to be a significant reduction of the party's initial position.

    Each party's costs will be different. If a party is represented by a member of the law society, they will be engaging costs of between $50 and $300 per hour for that representation before trial and at about $750 to $3,000 per day for representation at trial. Normally, the 15% limit of s. 29 applies: no party – even if successful – is likely to receive more than this amount for reasons already stated. With these numbers in mind, a calculation has to be made as to both your own and the other party's financial position. There will be unreimbursed costs that both parties are likely to have; these amounts must be factored into a settlement offer amount.

    In many cases, the settlement conference judge will have given the parties some indication as to the likely outcome. This will invariably be: plaintiff wins; defendant wins or some intermediate amount between the two positions. The following suggestions are made for each of these:

    If the judge suggested that the plaintiff is likely to prevail: in this case, it would make sense for the plaintiff to offer to settle at, say, 80% of the original amount claimed. By taking the 20% discount (and it should be remembered that here is no magic in this number; it could be anything from 1% to 99% in practice), the plaintiff shows its interest in settling. Even the defendant could offer to settle at this amount as well. Again, the intention is to try and argue – if the offer is not accepted – that the other party was not reasonable not to accept the offer.

    If the settlement conference judge suggested that the defendant should prevail: in this case, the defendant should consider an offer to settle for a 'nominal' amount: something between, say, $100 and $1,000 depending on the size of the original claim. Although defendants usually begrudge having to make a money offer in these cases, the nominal amount makes it clear for the trial judge if the claim is ultimately dismissed that the offer was better than a dismissal.

    Finally, if the judge suggests some settlement amount: the parties have to give serious consideration to this number. After all, the judge is bringing their experience to bear on the problem which is likely to be far more extensive than that of the parties. Many settlement conferences do not result in settlements because the parties are only a few hundred dollars apart.

    In this case, the parties have to reconsider the costs that they will have to incur that will – even if they win costs – not be unreimbursed. A portion of such costs should certainly be factored in to what they should be prepared to settle for.

    A final comment on the settlement amount: if one or the other party is truly happy with the amount being offered, then it is too high/low! Settlements are usually effected at amounts that both parties are unhappy with; only when that 'unhappiness' is in balance will it be the 'right' amount.

    Conclusion

    Written offers to settle are one of the most powerful tools that parties have at their disposition. Unfortunately, they are not used as widely as they probably should be. Hopefully by providing these guidelines, parties might be inclined to use them more often in order to benefit from the costs sanctions. This would be even more interesting if the full indemnity arguments outlined above can be used in a case.



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