Rooney (Litigation Guardian of) v. Graham

53 O.R. (3d) 685

[2001] O.J. No. 1055

Docket Nos. M22823, C33433, M24855 and C33399

Court of Appeal for Ontario

Carthy, Laskin and Rosenberg JJ.A.

March 27, 2001*

* Note: This judgment recently came to the attention of the editors.

Civil procedure--Costs--Bullock or Sanderson order--Bullock or Sanderson order may be appropriate even though an independent cause of action is alleged against each defendant.

Civil procedure--Costs--Offer to settle--Offer under Rule 49 may provide for ongoing costs on a solicitor-and-client basis --Rule 49 offer may include provisions for ongoing prejudgment interest--In determining whether a judgment is more favourable that an offer to settle, all the terms must be considered, including the disposition of costs--When offer contains a provision for ongoing costs and ongoing prejudgment interest, the proper date for comparison is the date of judgment--For the purpose of comparing the offer with the judgment, the court must compare the costs provisions in the offer with the trial judge's usual award of party-and-party costs to the successful litigant.

In 1989 and approximately a year later, Jodi Rooney was involved in motor vehicle accidents. Five separate actions, which were eventually directed to be tried together, were commenced. With respect to the first accident, Rooney sued, amongst others, Dennis Graham, the driver of the striking vehicle. She also sued Janet Hnatiuk, whom the defendant Graham alleged was the actual cause of the accident because she had run him off the road causing his vehicle to strike Rooney's vehicle. Because Graham was an uninsured driver, Rooney also sued her own insurer State Farm on the uninsured endorsement in her policy. State Farm denied Graham's liability and alleged that the accident was caused by Hnatiuk, against whom it brought third party proceedings. With respect to the second accident, Rooney sued Jeffrey Hill, the driver of the striking vehicle.

At the conclusion of the trials, the jury found Hnatiuk 100 per cent responsible for the first accident, and it found Hill 50 per cent responsible for the second accident. The jury awarded Rooney $1,035,182.60 for damages for the first accident and, after a reduction for contributory negligence, $61,452.25 for the second accident. The action against State Farm was dismissed and, despite Rooney's request that there be a Bullock or Sanderson order that Hnatiuk pay State Farm's costs, the trial judge ordered that Rooney pay State Farm's costs on a party-and-party basis. In finding that Hnatiuk was not responsible for any of State Farm's costs, the trial judge relied on the plaintiff's refusal to accept State Farm's offer of a dismissal of the claim with costs to be assessed.

Pursuant to Rule 49, the trial judge ordered that Rooney was entitled to party-and-party costs up to the date of her offer to settle and solicitor-and-client costs thereafter. The unaccepted offer to settle had required payment of $800,000 plus prejudgment interest at the rate of ten per cent on the sum of $225,000 from the date of the offer to the date of acceptance. In addition, the offer sought party-and-party costs to the date of the offer and solicitor-and-client costs as assessed or agreed upon thereafter.

Rooney appealed the trial judge's refusal to make a Bullock or Sanderson order. Hnatiuk appealed to set aside the Rule 49 order for solicitor-and-client costs.

Held, Rooney's appeal should be allowed with costs, and Hnatiuk's appeal should be dismissed with costs.

Carthy J.A. (Laskin and Rosenberg JJ.A. concurring): A Bullock order directs an unsuccessful defendant to reimburse the plaintiff for the costs of a successful defendant. A Sanderson order directs that the payment go directly from the unsuccessful defendant to the successful defendant. The rationale for both orders is that where the allocation of responsibility is uncertain, it is often reasonable for the plaintiff to proceed against more than one defendant. Despite statements in some authorities to the contrary, it is not the case that a Bullock or Sanderson order is inappropriate when an independent cause of action is alleged against each defendant, and the proper approach is to consider each case in its context. In the immediate case, although State Farm was sued in contract, in reality, it was defending the negligence claim against the uninsured Graham. A Bullock or Sanderson order was inappropriate. The trial judge erred in relying on Rooney's refusal to accept State Farm's offer for a dismissal. In refusing this offer, Rooney was doing no more than re-affirming her original decision to sue State Farm. There was nothing on the record to show that it was unreasonable to continue the action against State Farm. Accordingly, Rooney's appeal should be allowed.

Carthy J.A. (Laskin and Rosenberg JJ.A. concurring in the result but not the analysis): At the date of the trial, had Hnatiuk accepted Rooney's offer to settle, it would have resulted in a payment of $822,000 plus costs to Rooney and, ignoring the component of the offer about solicitor-and-client costs, this sum was $200,000 less than the judgment awarded against Hnatiuk. The trial judge apparently concluded that the solicitor-and-client costs component would not bridge the gap between the amount of the judgment and the offer to settle, and she concluded that Rooney was entitled to solicitor-and-client costs pursuant to rule 49.10. However, while there were arguments to the contrary, as the rules now stand, there should be no costs consequences under rule 49.10 for the failure to accept an offer that escalates until trial.

An escalating offer is inconsistent with Rule 49. For example, if an offer can include an escalating amount for solicitor-and-client costs, the simplicity of the offer to settle scheme is lost. Not only would the opposite party have to consider an offer with an unquantified feature, but the trial judge, in comparing the value of the offer to settle to the judgment, would have to conduct a double assessment of costs to determine the incremental value of the solicitor-and- client costs over the party-and-party costs. The rule could not have been drafted with the intention to impose this burden on the trial judge. The inclusion of ongoing solicitor-and- client costs in an offer creates an artificial effect after judgment and has the potential that counsel for the offeror might have to compromise the claim for costs to assure that the judgment is greater than the offer or face a conflict with the client over whose interest should prevail. Further, a claim for prejudgment interest becomes problematic when different rates of interest apply to different types of claims in a mixed claim. Thus, it was not appropriate in this case to make an order under rule 49.10. However, the plaintiff's recovery was well above the offer, and the offer was made in good faith at a time when there was uncertainty as to the appropriate interpretation of the rule. The trial judge's ruling was supportable through the discretionary power made available by rule 49.13 and, accordingly, Hnatiuk's appeal should be dismissed.

Laskin J.A. (Rosenberg JJ.A. concurring): Rooney's offer to settle was a Rule 49 offer, and the trial judge was correct in applying Rule 49.10 to award costs on a solicitor-and-client basis. A Rule 49 offer can provide for ongoing costs on a party and party basis. That an offer can provide for ongoing costs was implicitly affirmed by rule 49.07(5), which states what happens when an offer contains no provision for costs. If a Rule 49 offer can provide for party-and-party costs, then it can also provide for ongoing solicitor-and-client costs. Holding to the contrary would not promote the purpose of the rule, which is to encourage parties to make reasonable offers to settle and to facilitate the early settlement of litigation. Holding that a Rule 49 offer cannot include a provision for ongoing solicitor-and-client costs would discourage offers to settle because the opposite party can depreciate the real value of an offer without such a provision. The uncertainty of such offers did not invalidate them. In evaluating a Rule 49 offer, any uncertainty is only relevant to whether the party relying on the offer has met its burden of proof under rule 49.10(3). Rule 49 should not be interpreted in a way that limits the creativity of the bar in fashioning offers to settle. Further, there was no justification for interpreting Rule 49 to preclude provisions for ongoing prejudgment interest in offers to settle. Rooney's offer was a Rule 49 offer and it attracted the costs consequences of rule 49.10.

Further, although the analysis was incorrect, the trial judge's conclusion was correct that Rooney had obtained a judgment against Hnatiuk that was more favourable than her offer to settle. Under rule 49.10, all the terms of an offer to settle, including any provisions for costs, must be compared with all the terms of the judgment, ordinarily including the disposition of costs. When the offer contains a provision for ongoing costs and ongoing prejudgment interest, the proper date for comparison is the date of judgment. For the purpose of comparing the offer with the judgment, the court must compare the costs provisions in the offer with the trial judge's usual award of party-and-party costs to the successful litigant.

APPEALS in three actions involving claims for damages arising from two motor vehicle accidents.

Cases referred to

Carleton Condominium Corp. No. 97 v. Costcan Development Corp., [1996] O.J. No. 4091 (Gen. Div.); Cass v. Muir (1995), 27 O.R. (3d) 208 (Div. Ct.), supp. reasons (1996), 29 O.R. (3d) 476 (Div. Ct.); Daniels v. Crosfield (Canada) Inc. (1994), 19 O.R. (3d) 430, 28 C.P.C. (3d) 1 (Gen. Div.); Dellelce Construction & Equipment v. Portec Inc. (1990), 73 O.R. (2d) 396, 44 C.P.C. (2d) 165 (H.C.J.); Innovative Automation Inc. v. Candea Inc., [1998] O.J. No. 1499 (Gen. Div.); Job v. Re/Max Metro City-Realty Ltd., [2000] O.J. No. 1449 (Gen. Div.); Katsiroumbas v. Dasilva (1982), 132 D.L.R. (3d) 696 (Ont. C.A.); MacDonald (c.o.b. P & L Services) v. Klein, [1999] O.J. No. 812 (Gen. Div.); McGregor v. Crossland, [1997] O.J. No. 2513 (Gen. Div.); Mortimer v. Cameron (1994), 17 O.R. (3d) 1, 111 D.L.R. (4th) 428, 1 L.W.R. 57, 19 M.P.L.R. (2d) 286 (C.A.), revg in part (1992), 9 M.P.L.R. (2d) 185 (Ont. Gen. Div.) [Leave to appeal to S.C.C. refused (1994), 19 O.R. (3d) xvi, 23 M.P.L.R. (2d) 314, 178 N.R. 146n]; Rockwell Developments Ltd. v. Newtonbrook Plaza Ltd., [1972] 3 O.R. 199, 27 D.L.R. (3d) 651 (C.A.) revg, [1972] 1 O.R. 735 (H.C.J.); S & A Strasser Ltd. v. Richmond Hill (Town) (1991), 1 O.R. (3d) 243, 45 O.A.C. 394, 49 C.P.C. (2d) 234 (C.A.); Scarboro (Scarborough) Golf & Country Club Ltd. v. Scarborough (City) (1988), 66 O.R. (2d) 257, 31 O.A.C. 260, 54 D.L.R. (4th) 1, 41 M.P.L.R. 1, 1 R.P.R. (2d) 225 (C.A.), varg (1986), 55 O.R. (2d) 193, 28 D.L.R. (4th) 321, 32 M.P.L.R. 197 (H.C.J.) supp reasons at (1986) 57 O.R. (2d) 202, 32 D.L.R. (4th) 732 (H.C.J.) [Leave to appeal to S.C.C. refused (1989), 103 N.R. 399n, 37 O.A.C. 91n] (sub nom. Scarboro Golf & Country Club Ltd. v. Scarborough (City) (No. 2)); Schumacher v. Toronto- Dominion Bank (1999), 173 D.L.R. (4th) 577, 44 C.C.E.L. (2d) 48, 99 C.L.L.C. 210-041 (Ont. C.A.), affg (1997), 147 D.L.R. (4th al) 128, 29 C.C.E.L. (2d) 96 (Ont. Gen. Div.), supp. reasons (1997), 153 D.L.R. (4th) 187 (Ont. Gen. Div.) [Leave to appeal to S.C.C. refused (2000), 252 N.R. 394n]; Television Real Estate Ltd. v. Rogers Cable T.V. Ltd. (1997), 34 O.R. (3d) 291, 12 C.P.C. (4th) 381 (C.A.); Yepremian v. Weisz (1993), 16 O.R. (3d) 121, 20 C.P.C. (3d) 357 (Gen. Div.)

Statutes referred to

Courts of Justice Act, R.S.O. 1990, c. C.43, ss. 128, 130, 131

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rules 49, 49.07, 49.10 [as am. O. Reg. 219/91, s. 6], 49.13

Barry A. Percival, for appellant Hnatiuk. John McLeish and Dale Orlando, for respondents Rooney. Donald G. Martin, for respondents Hill. Amanda Bafaro, for State Farm Mutual Automobile Insurance Co.

[1] CARTHY J.A.:-- These reasons deal with two appeals from the trial judge's dispositions of costs. In the first appeal, the plaintiff Rooney seeks a Bullock or Sanderson order that would direct the unsuccessful defendant Hnatiuk to pay for the costs of the successful defendant, Graham. In the second appeal, Hnatiuk seeks to set aside the Rule 49 Rules of Civil Procedure, R.R.O. 1990, Reg. 194 order for solicitor and client costs for Rooney, and seeks to alter the distribution of responsibility for those costs as between the defendants.

[2] In March of 1989, Jodi Rooney was struck by a vehicle driven by Dennis Graham while she was driving her parent's car. She sustained multiple and serious injuries, including a brain injury that was accompanied by 12 days in a coma. Graham claimed that he was run off the road by Janet Hnatiuk, causing him to lose control and cross the road into Rooney's path. Rooney launched an action for negligence against the owners and drivers of both vehicles. Because Graham was uninsured, Rooney also filed an action in contract against her own insurer, State Farm, on the uninsured endorsement in her policy. State Farm denied liability. It alleged that the accident was caused by Hnatiuk, and it brought third party proceedings against Hnatiuk and others. Graham did not defend at trial, his position being asserted by counsel for State Farm.

[3] Approximately one year later, Jodi Rooney was involved in a second motor vehicle accident. This time, she was struck by a car driven by Jeffrey Hill. The injuries sustained during the second collision overlapped, in part, those sustained during the first. She sued Hill, which led to concerns as to the allocation of damages between the various defendants. What were now five separate actions were directed to be tried together. Only three of the actions are part of this appeal.

[4] At the conclusion of the trial, the jury found Hnatiuk 100 per cent responsible for the first accident, with the result that the uninsured defendant, Graham, was not at fault. They found Hill 50 per cent responsible for the second accident. They awarded Rooney $1,035,182.60 for damages in the first accident and, after a reduction for contributory negligence, $61,452.25 for the second accident. Because no fault was found on the part of Graham, the action against State Farm was dismissed.

[5] In these reasons I will refer to each group of plaintiffs or defendants as a single party. Pursuant to Rule 49, the trial judge ordered that Rooney was entitled to party and party costs up to the date of her offer to settle, and solicitor and client costs thereafter. She ordered that the costs were to be divided between the unsuccessful defendants, Hnatiuk and Hill, in proportion to their liability. Finally, she ordered that the costs of the successful defendant, State Farm, were to be paid on a party and party basis by the plaintiff, Rooney. Rooney sought that those costs be paid by Hnatiuk pursuant to a Sanderson or Bullock order, but the trial judge refused. The trial judge's reasons are reported at Rooney (Litigation Guardian of) v. Graham, [1998] O.J. No. 2722.

The First Appeal: The Sanderson and Bullock Order

[6] A Bullock order directs an unsuccessful defendant to reimburse the plaintiff for the recovered costs of a successful defendant. A Sanderson order directs that the payment go directly to the successful defendant. The [rationale] behind both orders is the same. Where the allocation of responsibility is uncertain, usually because of interwoven facts, it is often reasonable to proceed through trial against more than one defendant. In these cases, a Bullock or Sanderson order provides a plaintiff with an appropriate form of relief.

[7] A Bullock or Sanderson order has been said to be inappropriate when an independent cause of action is alleged against each defendant, for example when one is based in contract and the other in tort, or when separate actions have been instituted against each defendant. See Scarboro Golf & Country Club Ltd. v. Scarborough (City) (No. 2) (1986), 57 O.R. (2d) 202, 32 D.L.R. (4th) 732 (H.C.J.) and Dellelce Construction & Equipment v. Portec Inc. (1990), 73 O.R. (2d) 396 at p. 442, 44 C.P.C. (2d) 165 (H.C.J.).

[8] In my view, these authorities do not provide a blanket rule that a Bullock or Sanderson order can never be made when the causes of action are independent, or when separate actions are instituted. Although such circumstances may indicate the appropriateness of these orders, and will at times be determinative, each case must be assessed on its own facts. The proper approach to issuing a Bullock or Sanderson order will consider each case in its context. Thus, there may be times where the causes of action are independent or the actions separate, but it is nevertheless fair that the responsible defendant be called upon to pay for the inclusion of others in the trial proceedings.

[9] In this case, a separate action was brought on the contract with State Farm and was tried together with the negligence claims. Recall that Graham, the uninsured motorist, did not defend. It was therefore necessary for State Farm to present his defence. Further, if State Farm had not been sued directly, it most certainly would have made itself a party in some guise in order to protect its $1 million coverage of Rooney. Therefore, even though State Farm was sued in contract, in reality it was defending against Graham's alleged negligence. To put it another way, if Graham had defended the action and won, a Sanderson or Bullock order against Hnatiuk would have been awarded in the normal course. Why should the outcome be any different simply because Graham's defence was provided by State Farm? I see the form as one of separate actions and distinct causes of action but the substance being one of a plaintiff suing two persons in negligence, one or both of whom may have caused her injuries in the first accident .

[10] In finding that Hnatiuk was not responsible for any of State Farm's costs, the trial judge relied on the plaintiff's refusal to accept State Farm's offer to settle. She concluded at para. 33:

In the circumstances of this case, I am satisfied that the defendants Hnatiuk should not be responsible for any costs of the defendant State Farm. The decision to include State Farm in the trial and the decision not to accept State Farm's offer to settle was made by the plaintiffs alone and they must abide by the consequences of that decision. The costs in the contract action cannot be settled on the unsuccessful defendant in the negligence action.

[11] State Farm's offer asked Rooney to accept a dismissal of the claim with costs to be assessed. This was not an offer which could engage Rule 49 because that rule, by its wording, only applies when a plaintiff recovers a judgment. A dismissal of a plaintiff's claim is not a recovery. Therefore, a defendant who offers a dismissal is not making a Rule 49 offer. See S & A Strasser Ltd. v. Richmond Hill (Town) (1990), 1 O.R. (3d) 243, 49 C.P.C. (2d) 234 (C.A.). In refusing this offer, Rooney was doing no more than re-affirming her original decision to sue State Farm. It was certainly reasonable to sue the owner and driver of the vehicle that struck her and, when they didn't defend, to pursue the responsible insurer. There is nothing on the record to show that at the time the offer was made, it would have been unreasonable to continue the action.

[12] Therefore, it is my conclusion that the trial judge erred in relying on the refusal of the offer to settle as a factor in her decision not to make a Bullock or Sanderson order.

[13] The trial judge also relied upon the reasons of this court in Katsiroumbas v. Dasilva (1982), 132 D.L.R. (3d) 696 (Ont. C.A.) per McKinnon A.C.J.O. at p. 700:

The trial Judge made a form of Bullock order based on the following facts. He assessed the damages in the second action, which was being tried by him alone, at a lesser amount than the defendant Schack had paid into Court. As a result, the respondent (plaintiff) was called on to pay to that defendant her costs of the second action from the time of payment on the Supreme Court scale. The trial Judge ordered the appellant to pay to the respondent all costs the respondent might have to pay Schack. The trial Judge did this because he was of the view that the Schack action would have been settled were it not for the fact of the Dasilva action and that the appellants were seeking in that action to shift as much of the damages as possible to the Schack action. This, it seems to us, was quite a legitimate position for the appellants to take.

There were, as stated, two separate actions which were not consolidated and indeed the appellants could not have served a jury notice in the second action as they had in the first. We have grave doubts as to the trial Judge's jurisdiction to award costs against one who was, in effect, a stranger to that action. In any event, we do not think the circumstances warranted any such unusual order. The respondent was dominus litus in both actions and he could not shift the burden of settling one or other of the actions onto the shoulders of the defendant or defendants in the other. The respondent conducted his cases as he saw fit, assessing the risks and other considerations and he cannot place the risk of costs on another party for his (the respondent's) failure to take an advantageous settlement.

(Emphasis added)

[14] Justice McKinnon's reference to jurisdiction is clearly obiter. The operative sentence is: "we do not think the circumstances warranted any such unusual order." In that case, a plaintiff was being penalized for failing to accept an offer greater than the amount eventually recovered at trial. The plaintiff was being prevented from obtaining reimbursement for the penalty from a defendant who had nothing to do with either the offer, or the failure to accept. I therefore take the decision in Katsiroumbas as confirmation of my view that in considering whether it was reasonable for the plaintiff to continue to trial against a defendant, and whether it is fair to visit the costs of that decision upon an unsuccessful defendant, all the circumstances of the case must be considered. The plaintiff in Katsiroumbas clearly failed the fairness test. However, I do not take from this that the mere fact of two actions is in itself a bar to a Bullock or Sanderson order.

[15] The question as to the jurisdiction to award costs against strangers to the action arose in the context of attempts to visit costs upon the principals of corporate plaintiffs. In Rockwell Developments Ltd. v. Newtonbrook Plaza Ltd., [1972] 3 O.R. 199, 27 D.L.R. (3d) 651 (C.A.), this court set aside an order for costs against such a principal. Arnup J. held at p. 659 D.L.R. that what is now s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43, should be interpreted as restricted to awarding costs against "parties to the proceeding before the court or judge". Exceptions were noted in such cases as where a "straw person" was put forward by the "real plaintiff". The same principle was applied to a similar fact situation in Television Real Estate Ltd. v. Rogers Cable T.V. Ltd. (1997), 34 O.R. (3d) 291, 12 C.P.C. (4th) 381 (C.A.).

[16] That is the context in which the courts have used the term "stranger to the action". Hnatiuk is not a stranger to the action against State Farm in any real sense, and certainly not to the proceedings as a whole. Hnatiuk and State Farm were active opponents in the struggle to deny liability or foist it on the other, albeit from the vantage point of separate actions. I see no reason to limit the jurisdiction of the court under s. 131 in these circumstances.

[17] I conclude that the trial judge erred in failing to recognize that, despite multiple causes of action and separate actions, the plaintiffs were in substance pursuing two potential perpetrators of negligent conduct. Furthermore, the plaintiffs acted reasonably throughout. Under the circumstances, therefore, fairness dictates that the party found to be responsible pay for the consequences of her negligent conduct; those consequences being in part the trial that was held in order to determine who, in fact, was responsible for the collision.

[18] I would therefore allow this appeal and award a Sanderson order for payment by Hnatiuk of State Farm's party and party costs.

The Second Appeal: Distribution of Costs and the Rule 49 Order

[19] The first element of Hnatiuk's appeal has to do with the distribution of Rooney's costs as between her and Hill. The trial judge divided these costs 95 per cent to Hnatiuk and five per cent to Hill. She based her assessment on the apportionment of recovered damages by the plaintiffs in each action. Hnatiuk's counsel submitted that there were other possible approaches. This is true, but I cannot say that the trial judge erred in principle in choosing the approach that she did, and I would therefore not interfere with her decision in this regard.

[20] The second element of Hnatiuk's appeal is her submission that Rooney should not have been awarded her solicitor and client costs.

[21] In four of the five actions filed, the plaintiff served an offer to settle on the defendants well before trial. The terms of the offer required payment of $800,000, plus prejudgment interest at the rate of ten per cent on the sum of $225,000 from the date of the offer to the date of acceptance. In addition, the offer sought party and party costs to the date of the offer and solicitor and client costs as assessed or agreed upon thereafter. The offer was to be held open until five minutes after the opening of trial. An issue was raised as to the offer not being served on all parties. I see this as a technicality that should not govern the outcome. It is clear Hnatiuk had the opportunity to accept the offer.

[22] As of the date of trial, Rooney's offer would have resulted in a payment to her of approximately $822,000 plus costs, $200,000 short of the judgment against Hnatiuk. The value of the offer at the opening of trial, including the solicitor and client cost differential, was not calculated, presumably because it was felt the amount would not fill the gap. Accordingly, the trial judge awarded solicitor and client costs following the date of the offer.

[23] Several authorities have discussed the appropriateness of including solicitor and client costs in an offer to settle. Most of these authorities have found that such offers lack the certainty or precision that is required by Rule 49. See Schumacher v. Toronto-Dominion Bank (1999), 173 D.L.R. (4th) 577, 44 C.C.E.L. (2d) 48 (Ont. C.A.); MacDonald (c.o.b. P & L Services) v. Klein, [1999] O.J. No. 812 (Gen. Div.); Cass v. Muir (1996), 29 O.R. (3d) 476 (Div. Ct.); Daniels v. Crosfield (Canada) Inc. (1994), 19 O.R. (3d) 430, 28 C.P.C. (3d) 1 (Gen. Div.); Job v. Re/Max Metro City-Realty Ltd., [2000] O.J. No. 1449 (Gen. Div.).

[24] There are distinctions among these authorities and with the instant appeal, but the problem I see is even more fundamental than uncertainty. The basic defect in the plaintiff's offer is that it was not fixed in place until trial. Rather, according to the terms of the offer both the solicitor and client costs and the interest on the $225,000 escalate each day leading to trial. In substance, therefore, it is a different offer on each successive day.

[25] This issue was identified by J. MacDonald J. in Yepremian v. Weisz (1993), 16 O.R. (3d) 121, 20 C.P.C. (3d) 357 (Gen. Div.). In that case, the offer by the defendant was fixed for a month and then reduced from time to time by the defendant's party and party costs. J. MacDonald J. states at pp. 123-24 O.R.:

The format of para. 1 of this offer to settle is continuously varied for purposes of any settlement by means of acceptance after April 6. I conclude it is thus withdrawn and has something fresh substituted for it on each occasion that the defendant's party-and-party costs including assessable disbursements vary. Consequently, if the plaintiff were to wish to settle this action, he would have no knowledge of what it offered. That injects a note of substantial instability into the settlement scenario, contrary to the meaning of the rule in my opinion.

It is not only the parties, it is also the administration of justice which has an interest in stimulating settlement. Settlement can only be contemplated and accomplished if there is something fixed and determinable to contemplate and accept. There was no such fixed and determinable offer. Right through the period of seven days prior to trial this offer was continuously variable. In fact, the closer trial came, the more the defendant's trial preparation likely was and the less the offer, at the very time the plaintiff was most likely to focus on the benefits, costs and risks of proceeding to trial.

[26] After considerable thought and debate with the members of this panel, it is my conclusion that as the rules now stand, there should be no cost consequences under rule 49.10 for failure to accept an escalating offer. In arriving at that conclusion, I concede that there are logical arguments to the contrary, particularly when considering settlement of an action. The focus of my attention is upon the trial judge who has awarded judgment and must assess whether it is more favourable than an earlier offer. As a simple example, assume a plaintiff's offer made on October 1, 1999 of $100,000 and a judgment awarded on October 1, 2000 of $120,000 including prejudgment interest. The judgment is clearly more than the offer and solicitor and client costs from October 1, 1999 would be awarded. That is the simple, clear way the rule was intended to operate.

[27] If an offer can include an escalating amount for solicitor and client costs, the simplicity is lost. Not only must the opposite party consider accepting an offer with an unquantified feature, but the trial judge would have to conduct a double assessment of costs from October 1999 to October 2000 in order to determine how much the excess is over party and party costs. That is because party and party costs are not part of the equation under rule 49.10 and only the increment would be added to the offer to obtain its overall value. I cannot believe that the rule was drafted with the intention of throwing this burden on the trial judge. And, if condoned, it will predictably be the rule rather than the exception to include solicitor and client's costs in all offers.

[28] Assume the trial judge follows the above procedure and concludes that the increment for costs to the offer in my example should be $13,000. That makes the recovery greater than the offer and the plaintiff will recover that $13,000 as part of the solicitor-client entitlement. Note that the result is the same if the offer did not contain the incremental feature. The plaintiff still gets that $13,000 on top of the party and party costs. Now suppose the increment was assessed at $22,000. This would make the judgment less than the offer and, in the result, the plaintiff would lose solicitor and client costs because she asked for them. Neither scenario is the intended operation of rule 49.10. The inclusion of ongoing solicitor and client costs in an offer can have a salutary effect in encouraging settlement, but creates an artificial effect after judgment. That artificiality extends to the potential that counsel for the offeror might have to compromise the claim for costs to assure that the judgment is greater than the offer, or face a conflict with the client over whose interest should prevail.

[29] The rule is geared to a single offer or sequential offers, each rescinding the last. When that structural feature is altered by the introduction of a single escalating (or declining) offer, the cracks begin to appear. For instance, rule 49.10(1)(a) provides that an offer must be open for seven days prior to trial. This is obviously intended to provide an opportunity for a contemplative decision. Yet, the escalation feature is at a boil as counsel prepare for trial and add significant amounts to the solicitor and client increment. The concept of contemplation is defeated by the pressure of watching the offer rise or fall by unquantifiable amounts justified by the opponent's preparation for trial.

[30] To this point I have restricted my comments to escalating solicitor and client costs. The inclusion of a general claim for prejudgment interest in an offer presents no problems to the trial judge because it appears as the same amount in both the offer and the judgment. However, if presented as a general claim (in the present case it was fixed at 10 per cent of $225,000) it does provide problems to the offeree. Section 128 of the Courts of Justice Act provides for different rates for different types of claims and, thus, whenever the claim is a mixed one there would be no means whereby the offeree would know the current amount being offered. Further, s. 128 refers to "persons entitled to an order for the payment of money" and must be read in the context of s. 130 providing for compromise awards where appropriate. The sections are designed for application by a judge exercising a discretion in all the circumstances and not for parties who are not entitled to an order, do not know the mix of the award or the entitlement to compromise. This is not to say that prejudgment interest should not form part of a settlement. It is rather that if a fixed dollar amount is not in the offer, there is no mathematical formula to produce what a court would award. While a stipulation for prejudgment interest at a fixed rate might raise no practical problems, the next step would be offers of, say, $100,000 to increase or decrease by $5,000 a month until trial. That is the ultimate extension of any escalation feature in an offer and would introduce an element of tactical use of offers, which is quite appropriate generally in litigation, but distorts the function of rule 49.10 under which the trial judge should be considering solely a penalty to a party who has a single offer presented and refuses to accept in knowledge of the consequences. Anything more complicated than that can be left to the discretionary power of the trial judge under rule 49.13 permitting consideration of any offer in awarding costs.

[31] Rule 49.07(5)(b) provides that if an offer does not deal with costs then party and party costs are recoverable to the date of acceptance. If this be viewed as an escalation clause, it is one that is specifically permitted by the wording of the rule and works in conjunction with the other mechanisms of the rule. In reality it is a simple recognition that if an offer is accepted it should carry with it party and party costs to that date, and should be distinguished from the penalty provisions for refusing an offer. If the Rules Committee wishes to include prejudgment interest it could be added to this rule.

[32] Rule 49 has been, perhaps, the most successful innovation of the 1984 amendments. It is the one rule that clients are attuned to. Lawyers deal with the other rules regulating the progress of litigation largely on their own judgment. The offer to settle and its implications come straight home to the client for a decision. It should remain easy to understand and respond to without doubt as to its effect.

[33] I am not unmindful of the fact that the underlying purpose of Rule 49 is to encourage imaginative approaches to offers to settle and induce settlement. An escalating or declining offer is an effective means of attracting the serious attention of the opposite party. Arguably, these offers should be encouraged. However, the tactical purpose of such an offer can be accomplished without undermining the Rules, simply by withdrawing an offer and serving it afresh from time to time. A demand for additional amounts in each successive offer will compensate for any decrease in the ultimate recovery of solicitor and client costs, while maintaining the integrity of the offer to settle machinery.

[34] In reaching the conclusion that an escalating offer is inconsistent with Rule 49, I recognize that two general division judges have made findings to the contrary. See McGregor v. Crossland, [1997] O.J. No. 2513 (Gen. Div.) at para. 28 and Innovative Automation Inc. v. Candea Inc., [1998] O.J. No. 1499 (Gen. Div.) at para. 3. However, neither of these decisions analyzes this issue in any depth, and both should, in my opinion, be considered overruled.

[35] Having expressed my views on the appropriate operation of rule 49.10 I return to the merits of this appeal. While I do not accept the trial judge's approach to rule 49.10 I must recognize that the recovery was well above the offer and that the offer was made in good faith at a time when there was uncertainty as to the appropriate interpretation of the rule. I would exercise the discretion under rule 49.13 to support the trial judge's ruling.

[36] I see nothing justifying intervention in the other grounds of appeal and would dismiss this appeal.

[37] The first appeal should be allowed with costs and the second appeal dismissed with no costs.

[38] LASKIN J.A. (concurring in the result; ROSENBERG J.A. concurring):-- I have had the benefit of reading the reasons of Carthy J.A. On the first appeal (Rooney's appeal), I agree with his analysis and I agree that the plaintiff Rooney is entitled to a Sanderson order directing Hnatiuk to pay the costs of Rooney's insurer State Farm. On the second appeal (Hnatiuk's appeal), I too would not interfere with the trial judge's distribution of Rooney's costs between Hnatiuk and Hill. I also would not interfere with the trial judge's order that Rooney is entitled to party-and-party costs up to October 7, 1996, the date of her offer to settle, and solicitor-and-client costs afterwards. However, I disagree with my colleague's analysis. Carthy J.A. concludes that Rooney's offer to settle was not a rule 49 offer but he affirms the trial judge's costs order by applying rule 49.13. I conclude that Rooney's offer to settle was a rule 49 offer and I would affirm the trial judge's order by applying rule 49.10 and holding that Rooney obtained a judgment more favourable than her offer.

Background

[39] On October 7, 1996, Rooney served a written offer to settle on all defendants in four separate actions. She agreed to settle the actions for the following:

1. $800,000 (after deduction of advance payments);

2. prejudgment interest at ten per cent per year on the sum of $225,000 from the date of the offer to the date of settlement or judgment; and

3. reasonable party-and-party costs, as assessed by an assessment officer or agreed upon, up to the date of the offer, and afterwards reasonable solicitor-and-client costs as assessed or agreed upon.

[40] The offer to settle remained open to all defendants until five minutes after the trial began when it was automatically withdrawn. Hnatiuk did not accept Rooney's offer and did not make any offer herself. The jury awarded Rooney damages of $1,035,182.60 against Hnatiuk and $61,452.25 against Hill. The trial judge found that at the date of trial, Rooney's offer to settle "would have resulted in a payment of $821,945.21 plus costs as agreed or as assessed". In awarding Rooney her solicitor-and-client costs after the date of the offer to settle, the trial judge concluded:

Here, the plaintiff has clearly obtained a judgment generally more favourable than any offer to settle. The jury awarded $200,000.00 more than the amount the plaintiffs were willing to settle for. As I noted earlier, the defendants Hills' offer was less than that recovered by the jury and the defendants Hnatiuk served no offer at all.

Discussion

(a) Rooney's offer to settle was a rule 49 offer

[41] Hnatiuk's main ground of appeal -- accepted by Carthy J.A. -- is that by including a provision for ongoing solicitor- and-client costs, Rooney's offer was not an offer to settle under Rule 49 and therefore could not attract the cost consequences of rule 49.10. I disagree. In part, our disagreement turns on how Rooney's offer should be characterized. Because both solicitor-and-client costs and prejudgment interest increase each day, Carthy J.A. concludes that "in substance . . . it is a different offer on each successive day." I prefer to characterize Rooney's offer as a single offer that varies in amount over time.

[42] I think, however, that two more important considerations justify treating Rooney's offer to settle as a rule 49 offer. The first is the wording of rule 49.07(5); the second is the purpose of Rule 49.

[43] Rule 49.07(5) deals with what happens when an accepted offer to settle does not provide for costs. It states:

49.07 (5) Costs -- Where an accepted offer to settle does not provide for the disposition of costs, the plaintiff is entitled,

(a) where the offer was made by the defendant, to the plaintiff's costs assessed to the date the plaintiff was served with the offer; or

(b) where the offer was made by the plaintiff, to the plaintiff's costs assessed to the date that the notice of acceptance was served.

By stating what happens when an offer contains no provision for costs, rule 49.07(5) implicitly affirms that a Rule 49 offer can contain a provision for costs. Indeed, a plaintiff must be able to include a provision for ongoing party-and-party costs in a Rule 49 offer because even absent such a provision, the plaintiff is entitled to its party-and-party costs once the offer is accepted. If, therefore, a Rule 49 offer can provide for ongoing party-and-party costs, I see no valid reason why a Rule 49 offer cannot also provide for ongoing solicitor-and- client costs.

[44] A provision for ongoing solicitor-and-client costs is, in some measure, uncertain. But so too is a provision for ongoing party-and-party costs. This "uncertainty" should not invalidate Rule 49 offers. I recognize that some courts have taken the opposite view. It seems to me, however, that in evaluating a Rule 49 offer any "uncertainty" that arises from a provision for costs should only be relevant in deciding whether the party relying on the offer has met its burden of proof under rule 49.10(3). In other words, uncertainty or lack of clarity in an offer may prevent a party from showing that the judgment it obtained was "as favourable as the terms of the offer to settle, or more or less favourable, as the case may be". See Schumacher v. Toronto-Dominion Bank (1997), 153 D.L.R. (4th) 187 (Ont. Gen. Div.); affd (1999), 173 D.L.R. (4th) 577, 44 C.C.E.L. (2d) 48 (Ont. C.A.). I do not think the court should interpret Rule 49 in a way that limits the creativity of the bar in fashioning offers to settle. A party wishing to make its offer more, or less, attractive by including a provision for ongoing solicitor-and-client costs should be free to do so. If the drafters of the rule had intended that Rule 49 offers could not contain a provision for ongoing costs or a provision for ongoing solicitor-and-client costs, presumably they would have said so, and rule 49.07(5) would have been worded differently.

[45] The purpose of Rule 49 is to encourage parties to make reasonable offers to settle and to facilitate the early settlement of litigation. Holding that a Rule 49 offer cannot include a provision for ongoing solicitor-and-client costs does not promote the purpose of the rule in two ways.

[46] First, parties may have less incentive to make reasonable offers to settle because the opposite party can depreciate the real value of the offer. Correspondingly, the opposite party may have less incentive to accept an offer when it is made. Suppose a year before trial a plaintiff makes an offer to settle a case for $100,000. The offer is left open until five minutes after the trial begins but contains no provision for ongoing costs after the date it was made. If the defendant waits until the day before trial to accept the offer, under rule 49.07(5)(b) it will be responsible for the plaintiff's party-and-party costs for that year. The plaintiff, however, will have to absorb a year's worth of the difference between solicitor-and-client and party-and-party costs. The real value of the plaintiff's offer will therefore be substantially diluted. This result should not be forced on the plaintiff.

[47] In making Rule 49 offers, a party should be entitled to try to protect itself fully against ongoing costs should it choose to do so. If the action is not settled, including a provision for ongoing solicitor-and-client costs in an offer carries the risk -- as I will discuss -- that the party making the offer will lose the benefit of rule 49.10. But parties should be free to accept that risk if they wish to do so.

[48] Holding that a Rule 49 offer cannot contain a provision for ongoing solicitor-and-client costs does not promote the purpose of the rule in a second and related way. To protect itself from having ongoing costs depreciate the value of its offer, a party may feel obliged to make successive and increasing offers to settle. Indeed, Carthy J.A. suggests this as a practical solution. He acknowledges that "an escalating or declining offer is an effective means of attracting the serious attention of the opposite party" and he recognizes that these offers should be encouraged. Therefore, he proposes that a party simply withdraw its offer and serve it afresh from time to time, asking for additional amounts in its successive offers. I find this proposal an unsatisfactory solution in part because a party may not be able to rely on its earlier offer and, therefore, may lose some of the benefit of Rule 49. See Mortimer v. Cameron (1994), 17 O.R. (3d) 1 at p. 22, 111 D.L.R. (4th) 428 (C.A.).

[49] What I have said about ongoing costs provisions in an offer applies to provisions for prejudgment interest. Carthy J.A. suggests that even some provisions for prejudgment interest may deprive a party of the cost consequences of rule 49.10. Rule 49 offers routinely contain provisions for prejudgment interest, either a specified amount or, as in this case, a specified rate. The calculation of prejudgment interest ordinarily is not difficult. I see no justification for interpreting Rule 49 to preclude provisions for ongoing prejudgment interest in offers to settle.

[50] What underlies Justice Carthy's reasoning is the concern that including a provision for ongoing solicitor-and-client costs (or even some provisions for prejudgment interest) in an offer to settle may prevent Rule 49 from being simply and easily applied, and may impose an additional burden on the trial judge. I acknowledge this to be a valid concern. The concern would not arise in offers containing a provision for ongoing party-and-party costs, because that provision would ordinarily be offset exactly by the usual award of party-and- party costs to the successful litigant. However, a provision for ongoing solicitor-and-client costs in an offer may require the trial judge to conduct what amounts to a mini-assessment in order to apply rule 49.10. I see no way of avoiding this result without undermining the wording or the purpose of Rule 49. At least the party making the offer will have the burden of satisfying the court that its offer meets the test in rule 49.10.

[51] Further, a provision for ongoing solicitor-and-client costs in an offer may also require cooperation from the bar. A party to whom an offer is made must be able to evaluate the offer at any time after it is made in order to decide whether to accept it. Thus, the party making the offer must be forthright and candid in disclosing the amount of solicitor- and-client costs incurred. A failure to cooperate may be dealt with by the trial judge's overall discretion on costs.

[52] I therefore conclude that provisions in an offer to settle for ongoing costs or ongoing solicitor-and-client costs and for ongoing prejudgment interest do not deprive the party making the offer -- in this case, the plaintiff Rooney -- from the benefits of Rule 49.

[53] Hnatiuk makes one further submission why Rooney's offer to settle is not a Rule 49 offer. Hnatiuk contends that because Rooney's offer was one overall offer, it could not be partially accepted by any one defendant and, therefore, was not entitled to the benefit of Rule 49. This contention is effectively answered by Justice Rutherford's comments in Carleton Condominium Corp. No. 97 v. Costcan Development Corp., [1996] O.J. No. 4091 (Gen. Div.):

I think Rule 49 permits a plaintiff to make a global offer to multiple defendants putting the onus on them to come up with a method of sharing the burden of accepting the offer or risking the burden of solicitor-client costs if the offer is not accepted and, overall, the trial result is more favourable to the plaintiff.

This approach creates a considerable incentive for multiple defendants to try to find a formula for acceptance of an offer to settle. Such global offer does not prejudice individual defendants, all of whom can deal with such a global offer in concert with the other defendants or as individuals by offering an amount to settle just as against it. In this case, while the global offer by the plaintiff was not accepted by the defendants, each of them submitted a subsequent offer to the plaintiff, in an amount significantly less than each was adjudged liable to pay in the trial judgment.

[54] I therefore conclude that Rooney's offer to settle, which includes provisions for ongoing solicitor-and-client costs and prejudgment interest after the date of the offer is a Rule 49 offer, and attracts the cost consequences of rule 49.10.

(b) Rooney obtained a judgment against Hnatiuk more favourable than her offer to settle

[55] Rule 49.10 provides, in part:

49.10(1) Plaintiff's offer -- Where an offer to settle,

(a) is made by a plaintiff at least seven days before the commencement of the hearing;

(b) is not withdrawn and does not expire before the commencement of the hearing; and

(c) is not accepted by the defendant,

and the plaintiff obtains a judgment as favourable as or more favourable than the terms of the offer to settle, the plaintiff is entitled to party and party costs to the date the offer to settle was served and solicitor and client costs from that date, unless the court orders otherwise.

(3) Burden of proof -- The burden of proving that the judgment is as favourable as the terms of the offer to settle, or more or less favourable, as the case may be, is on the party who claims the benefit of subrule (1) or (2).

(As am. O. Reg. 219/91, s. 6)

[56] The question the trial judge had to answer was whether Rooney's judgment against Hnatiuk was as favourable as or more favourable than her offer to settle. The trial judge concluded that the judgment was more favourable by comparing, at the date of trial, the amount of damages Rooney received from Hnatiuk ($1,035,182.60) with the amount of damages, including prejudgment interest, demanded in the offer ($821,945.21). As the former amount exceeded the latter, the trial judge concluded that Rooney was entitled to solicitor-and-client costs from the date of the offer. Although I agree with the trial judge's conclusion, I do not agree with her analysis. In comparing the plaintiff's offer with her judgment, the trial judge failed to take into account the cost provisions of each.

[57] In my view, under rule 49.10, all the terms of an offer to settle, including any provision for costs, must be compared with all the terms of the judgment, ordinarily including the disposition of costs. When the offer contains a provision for ongoing costs and ongoing prejudgment interest, the proper date for comparison is the date of judgment.

[58] The difficult question is what cost comparison to make when the offer includes, as it does here, a provision for solicitor-and-client costs from the date it was made. In my view, for the period following the date of the offer, the proper comparison is between solicitor-and-client costs in the offer and party-and-party costs in the judgment (other than the rare case in which the losing party's conduct would justify an award of solicitor-and-client costs). In other words, for the purpose of comparing the offer with the judgment under rule 49.10, the court must compare the cost provisions in the offer with the trial judge's usual award of party-and-party costs to the successful litigant. In practice, some trial judges do not make an order for costs until they have seen the Rule 49 offers. In those cases, for the purpose of comparison under rule 49.10, the court has to assume party-and-party costs of the action. This approach is consistent with the reasoning of Borins J. in Daniels v. Crosfield (Canada) Inc., supra. To assume solicitor-and-client costs from the date of the offer is to assume a result that is only obtained by applying Rule 49.

[59] I can understand why Rooney included a provision for ongoing solicitor-and-client costs in her offer to settle. As I said earlier, she did so to ensure that the value of her offer was not diluted over time and to encourage the defendants to settle early. However, by including this provision, she ran the risk that she would lose the benefit of rule 49.10 if the other terms of the offer were close to, though higher than, the corresponding terms of the judgment. Apart from Rule 49, the defendants' conduct in this case did not justify a solicitor- and-client cost award. Therefore, to obtain the benefit of rule 49.10, Rooney had to show that her offer to settle, including its provision for costs, was as favourable as or more favourable than the judgment she obtained against Hnatiuk. For the purpose of that comparison, apart from Rule 49, the judgment must be assumed to provide only for party-and-party costs.

[60] Unfortunately, Rooney led no evidence of her solicitor- and-client costs from the date of the offer, and the trial judge did not analyze Rooney's offer in the way that I have suggested. Still, apart from costs, Rooney's judgment against Hnatiuk exceeded her offer by nearly $200,000. Rooney made her offer in October 1996 and the jury rendered its verdict in December 1997. I find it inconceivable that the difference between solicitor-and-client and party-and-party costs for that 14-month period would come close to, let alone exceed, $200,000. The judgment was therefore more favourable than the offer to settle. Accordingly, I would uphold the trial judge's award of costs to Rooney by applying rule 49.10.

Conclusion

[61] I would allow Rooney's appeal with costs and dismiss Hnatiuk's appeal with costs.

Order accordingly.