Scanlon v. Standish et al. [Indexed as: Scanlon v. Standish]

57 O.R. (3d) 767

[2002] O.J. No. 194

Docket No. C35989

Court of Appeal for Ontario,

Rosenberg, Feldman and Sharpe JJ.A.

January 24, 2002

Civil procedure -- Offer to settle -- Rule 49 does not apply to pre-litigation offers even if offers purport to be made pursuant to rule -- Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 49.

Contracts -- Formation -- Offer and acceptance -- Counter- offer making original offer incapable of acceptance unless it was renewed by offeror.

Family law -- Settlement -- Offer to settle -- Rule 49 does not apply to pre-litigation offers even if offers purport to be made pursuant to rule -- Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 49.

In 1999, E and R separated after 12 years of cohabitation. On December 10, 1999, R's solicitor sent E's solicitor a settlement proposal by letter. The letter stated: "You may take this correspondence as a formal offer of settlement pursuant to Rule 49 of the Rules of Civil Procedure in the matter of contemplated litigation as between the parties." On December 15, E's solicitor replied with a letter setting out two settlement alternatives. The letter stated: "You may treat this as an offer to settle pursuant to the provisions of Rule 49 of the Rules of Civil Procedure even though no litigation has been commenced." On December 16, R spoke to E directly and then faxed to her another offer to settle, but on December 17, R's solicitor wrote to E's solicitor and accepted the first alternative set out in the letter of December 15. On December 21, E's solicitor responded that R could not accept the first alternative because the faxed counter-offer on December 16 was a rejection and an offer cannot be accepted after having been rejected. Six months later, E commenced an action. In that action, R moved for a judgment pursuant to rule 49.09 on the basis that the litigation had been settled. Langdon J. dismissed the motion. R appealed.

Held, the appeal should be dismissed.

The first issue was whether E's letter of December 15 was an offer to settle within the meaning of Rule 49. This issue was significant because rule 49.07(2) reverses the common law rule that a counter-offer destroys the power to accept the initial offer unless the original offer is renewed. On this issue, Langdon J. was correct in concluding that E and R could not be parties to a proceeding when there was no proceeding and, accordingly, Rule 49 did not apply and the common law rule prevailed.

Nor were the provisions of Rule 49 incorporated, by reference or by implication, into the offer made by the letter of December 15. Interpreted in the context of the earlier correspondence, there was no ambiguity and the meaning of the reference to Rule 49 was that each party was putting the other on notice that if the dispute was not settled and a court was ultimately called upon to resolve it, then the correspondence would be drawn to the court's attention when submissions were made about costs.

The letter of December 15 did not incorporate a promise to keep the offer open for acceptance notwithstanding delivery of a counter-offer, and thus it was not necessary to decide whether Langdon J. was correct in characterizing the letter as an option that would require separate consideration to remain open for acceptance after a counter-offer.

Bodenhamer v. Bodenhamer (1991), 1991 7264 (ON SC), 2 O.R. (3d) 767 (Gen. Div.); Cowan v. Boyd (1921), 1921 500 (ON CA), 49 O.L.R. 335, 61 D.L.R. 497 (C.A.)

APPEAL by husband from an order of Langdon J. (2001), 2001 28200 (ON SC), 17 R.F.L. (5th) 136 dismissing a motion for judgment on the basis that the litigation had been settled.

Cases referred to Rules and regulations referred to Family Law Rules, O. Reg. 114/99, Rule 18 Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 1.03, 49, 49.04, 49.07, 49.09 Authorities referred to Fridman, G.H.L., The Law of Contract in Canada, 4th ed. (Toronto: Carswell, 1999) Furmston, M.P., Cheshire, Fifoot and Furmston's Law of Contract, 13th ed. (London: Butterworths, 1996) Swan, J., B.J. Reiter and N. Bala, Contracts: Cases, Notes and Materials, 5th ed. (Toronto: Butterworths, 1997) Waddams, S.M., The Law of Contracts, 4th ed. (Toronto: Canada Law Book, 1999)

Roger M. Hunt, for appellant. Melanie Manchee, for respondent.

The judgment of the court was delivered by

[1] ROSENBERG J.A.: -- This case concerns the interpretation of an offer to settle made prior to institution of litigation. The respondent Elaine Scanlon and the appellant Richard Standish separated after twelve years of cohabitation. They retained counsel to resolve issues arising out of their cohabitation and separation. Through her lawyer, Ms. Scanlon made an offer to settle these issues. The offer contained this phrase:

You may treat this as an offer to settle pursuant to the provisions of Rule 49 of the Rules of Civil Procedure even though no litigation has been commenced.

[2] Mr. Standish did not accept that offer. Rather, without consulting his counsel, the following day he made a new offer to Ms. Scanlon. She did not accept this counter-offer. The next day, Mr. Standish purported to accept Ms. Scanlon's original offer. She did not agree that the matter had been settled. About six months later she commenced an action seeking, among other things, declarations that she is the owner of various properties and of shares in Polymer Distribution Inc. or compensation in the amount of $3 million. Mr. Standish brought a motion for judgment pursuant to rule 49.09 on the basis that the litigation had been settled. Langdon J. dismissed this motion. He held that the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 did not apply since the offer had been made before litigation had been started. Thus, the common-law rule of contract that delivery of a counter-offer destroys the power to accept the initial offer applied. I agree with Langdon J.'s conclusion and most of his reasons and would dismiss the appeal.

The Facts

[3] Ms. Scanlon and Mr. Standish began to cohabit in 1988. In the following 12 years, they built Polymer Distribution Inc. into a very successful company. Their personal relationship broke down and in August 1999 they separated, although they continued to occupy the same residence. In the fall of 1999, they began to try and resolve their differences. By October, the parties had retained lawyers and Standish's lawyer provided a draft separation agreement. Ms. Scanlon's lawyer replied by asking for financial disclosure from Mr. Standish. He did not provide the disclosure and she refused to sign the agreement. In December there followed an exchange of correspondence that has produced the issue raised by this appeal. The chronology is as follows:

December 10, 1999: Standish's solicitor sends to Scanlon's solicitor a settlement proposal. The letter contains the following clauses:

You may take this correspondence as a formal offer of settlement pursuant to Rule 49 of the Rules of Civil Procedure in the matter of contemplated litigation as between the parties.

In the event your client ought to see fit not to accept the foregoing offer, then we will be relying upon the same upon the issue of costs and shall be seeking the entirety of our client's legal fees to be paid by your client on a solicitor and client basis from the date of this offer forward to the conclusion of the litigation.

December 15, 1999: Scanlon's solicitor replies to this letter with a letter setting out two alternatives. The first alternative may be characterized as an offer to settle and concludes with the following clause:

You may treat this as an offer to settle pursuant to the provisions of Rule 49 of the Rules of Civil Procedure even though no litigation has been commenced.

December 16, 1999: After receiving the letter from Scanlon's lawyer, Standish speaks to her directly and then sends her a document by fax headed "Final Offer". This offer, although handwritten and brief, sets out with reasonable certainty an offer to settle the dispute.

December 17, 1999: Standish's solicitor writes to Scanlon's solicitor purporting to accept the first alternative in the letter of December 15, 1999.

December 21, 1999: Scanlon's solicitor writes to Standish's solicitor confirming a conversation of the previous day that she did not agree that the matter had been settled and that she would be making no further "commitments" until Standish provided his financial statement. Scanlon's solicitor also writes the following:

Mr. Standish's counter offer of December 16 was a rejection of the offer Ms. Scanlon made on December 15. Mr. Standish could no longer accept the offer after having rejected it. The authorities, I submit, are clear on this point.

June 21, 2000: Ms. Scanlon issues her statement of claim.

The Issues

[4] This appeal raises the following issues:

1. Was Scanlon's letter of December 15, 1999 an offer to settle within the meaning of Rule 49?

2. If not, did the letter nevertheless incorporate by reference the provisions of Rule 49 including rule 49.07(2)? Rule 49.07(2) provides as follows:

Where a party to whom an offer to settle is made rejects the offer or responds with a counter-offer that is not accepted, the party may thereafter accept the original offer to settle, unless it has been withdrawn or the court has disposed of the claim in respect of which it was made.

3. If the December 15, 1999 letter incorporated rule 49.07(2) by reference, did this, in effect, create an option, thus requiring separate consideration for the offer to remain open for acceptance after the counter-offer?

Analysis

[5] Since I agree with Langdon J.'s disposition of the case I will largely rely on his reasons, which are now reported at (2001), 2001 28200 (ON SC), 17 R.F.L. (5th) 136. While he did not expressly deal with the second issue, he made findings that resolve that issue against the appellant. Because of my resolution of the first two issues, I find it unnecessary to decide the third issue.

1. Was Scanlon's letter of December 15, 1999 an offer to settle within the meaning of Rule 49?

[6] As set out in Scanlon's solicitor's letter of December 21, 1999, the common-law position is that a counter-offer generally destroys the power to accept the initial offer, unless the original offer is renewed by reply to the counter- offer. See Cowan v. Boyd (1921), 1921 500 (ON CA), 49 O.L.R. 335, 61 D.L.R. 497 (C.A.); S.M. Waddams, The Law of Contracts, 4th ed. (Toronto: Canada Law Book, 1999), at p. 83. Scanlon did nothing to lead Standish to believe that she was renewing the original offer after his counter-offer.

[7] Rule 49.07(2) reverses the common-law position by providing that the party may accept an offer to settle although he or she has made a counter-offer, unless the original offer has been withdrawn or the court has disposed of the claim. Standish submits that the December 15, 1999 letter was a Rule 49 offer and therefore it remained open for acceptance notwithstanding his counter-offer of December 16, 1999.

[8] After reviewing the few cases that have dealt with application of Rule 49 to pre-litigation offers, Langdon J. concluded that the Rules, including Rule 49, could not apply to pre-litigation offers. He particularly relied upon Bodenhamer v. Bodenhamer (1991), 1991 7264 (ON SC), 2 O.R. (3d) 767 (Gen. Div.), where Herold J. pointed out that Rule 49 is triggered by a "party to a proceeding" serving an offer to settle "any one or more of the claims in the proceeding". As Herold J. said at p. 770 O.R. these words contemplate the existence of pending litigation. And, as Langdon J. pointed out, "proceeding" is defined in rule 1.03 as "an action or application". As he explained, Scanlon and Standish could not be parties to a proceeding when there is no proceeding. I agree with his conclusion that, "Absent an application or action, the Rules of Civil Procedure, by their own definition, have no application to disputes between citizens". As Rule 49 does not apply, the common law rule prevails and Standish's counter-offer of December 16, 1999 destroyed the power to accept Scanlon's original offer.

[9] Before leaving this first issue, I would point out that Rule 18 of the Family Law Rules, O. Reg. 114/99, which deals with offers to settle under those rules, does apply to pre- litigation offers. Rule 18(2) provides that the rule applies to an offer "made at any time, even before the case is started". The fact that the Family Rules Committee thought it necessary to expressly provide for this extended application tends to support the view that Rule 49, which governs this litigation and contains no comparable provision, cannot by its terms apply to pre-litigation offers.

2. Did the December 15, 1999 letter incorporate by reference the provisions of rule 49 including rule 49.07(2)?

[10] Mr. Standish submits that even if Rule 49 does not apply by its terms to pre-litigation offers to settle, the December 15, 1999 letter incorporated by reference the provisions of Rule 49, including rule 49.07(2). In aid of this submission he calls upon the contra proferentem rule and says that if there is any ambiguity as to whether the terms of Rule 49 were incorporated, the offer should be interpreted against its author, Ms. Scanlon.

[11] In effect, Mr. Standish argues that by expressly referring to Rule 49 in his letter, Ms. Scanlon's counsel must have intended to incorporate the provisions of that rule. He submits that the court should at least imply that the offer was to remain outstanding notwithstanding intervening counter- offers (rule 49.07(2)); that the offer could only be withdrawn in writing (rule 49.04); and that the offer once accepted could be enforced by judgment under rule 49.09. Counsel for Mr. Standish attempts to distinguish Bodenhamer on the ground that there is no indication that the pre-litigation offer referred to Rule 49, as did Scanlon's December 15 offer.

[12] Taken in isolation, Scanlon's counsel's reference to Rule 49 may appear ambiguous and thus potentially inviting application of the contra proferentem rule. However, when read in light of Standish's December 10 letter, to which the December 15th offer was a response, it seems to me that the ambiguity evaporates. For ease of reference I repeat the two pertinent clauses from the December 10 letter:

You may take this correspondence as a formal offer of settlement pursuant to Rule 49 of the Rules of Civil Procedure in the matter of contemplated litigation as between the parties.

In the event your client ought to see fit not to accept the foregoing offer, then we will be relying upon the same upon the issue of costs and shall be seeking the entirety of our client's legal fees to be paid by your client on a solicitor and client basis from the date of this offer forward to the conclusion of the litigation.

(Emphasis added)

[13] In my view, counsel for Scanlon, like counsel for Standish, was putting the other side on notice that if the dispute were not settled and a court was ultimately called upon the resolve the issues in litigation he would draw the correspondence to the court's attention and ask the court to exercise its discretion to award solicitor/client costs. In my view, counsel did not intend to incorporate the whole of Rule 49, parts of which could have no possible application.

[14] Nor is this a proper case for the court to imply a term such as rule 49.07(2) into the offer. I would adopt the discussion in G.H.L. Fridman, The Law of Contract in Canada, 4th ed. (Toronto: Carswell, 1999), at pp. 501-02 where he says the following:

Naturally, this [importing or implying additional terms] is not something which the courts will do easily or cavalierly. There has to be strong evidence to support the conclusion that the implication of a term is permissible in the circumstances. It would seem that there are three main instances when this may be done: (i) when it is reasonably necessary having regard to the surrounding circumstances, and in particular the previous course of dealing between the parties, if any; (ii) when there is an operative trade or business usage or custom that may be said to govern the relationship of the parties; and (iii) when some statute of its own motion implies a term into the kind of contract that is in question.

(Footnotes omitted; emphasis added)

[15] There is hardly strong evidence to support importing the terms of rule 49.07(2) into the December 15th offer. As I have pointed out, the previous course of dealings between the parties indicates that this was nothing more than an attempt to import the costs consequences of Rule 49. This was the view of Langdon J. He held that the reference to Rule 49 was nothing more than a "clear warning that, at the end of the day, the successful litigant-offeror will disclose the offer to the court and seek costs sanctions if his offer turns out to have been unreasonably rejected".

3. If the December 15, 1999 letter incorporated rule 49.07(2) by reference, did this, in effect, create an option, thus requiring separate consideration for the offer to remain open for acceptance after the counter- offer?

[16] Having decided that Rule 49 by its terms did not apply to a pre-litigation offer, the motions judge turned to the question of whether inclusion of the reference to Rule 49 in the solicitors' letters could abrogate the common law rule, referred to above, that delivery of a counter-offer destroys the power to accept the initial offer. His approach to that question was different from the approach I have taken above. He held that a reference to Rule 49 alone could not abrogate the common law rule because this would, in effect, create an option and require separate consideration to be valid. He reasoned as follows [at pp. 147-48 R.F.L.]:

[No] individual, merely because he is a party to a dispute, has the capacity unilaterally to alter the law of contract. In order to do that, there must be legislation, such as the Courts of Justice Act and the Rules of Civil Procedure. Failing that, he must make an offer under seal or he must receive consideration for what is essentially a bargain to grant an option. . . . These particular portions of judge- made law are too important, too universally understood, accepted and acted upon, for them to be inflicted randomly upon anyone who happens to be a party to a dispute.

. . . [Ms. Scanlon's] offer was not under seal. It was not given pursuant to a bargain where she had received consideration, a dollar or a peppercorn, in exchange for her promise to hold the "option" open past the time when, under ordinary principles of contract law, it would expire. It was no longer open for acceptance. [Mr. Standish] did not rely on it. His material does not say that "but for" the Rule 49 clause, he would not have made a counter-offer. It does not appear that he consulted his solicitor before he made the counter-offer. He tried to get a better deal by making a counter-offer. It cannot be said that he suffered a detriment.

(Emphasis added)

[17] The principle relied upon by the motions judge is explained in Waddams, supra, at pp. 82-83:

The approach of the common law has been that the promise to hold the offer open is not binding unless it is itself bargained for or under seal. The problem is a difficult one. On the one hand it is argued that a promise, to be enforceable, should meet the ordinary tests of enforceability -- that is bargain or the formality of the seal. An enforceable option is a valuable right and is not to be treated more lightly than any other contract. On the other hand, the offeree may well rely on the promise to hold the offer open and if the reliance is reasonable (and it is very common in business circles) justice seems to require its protection.

(Footnotes omitted; emphasis added)

[18] To a similar effect see J. Swan, B.J. Reiter, N. Bala in Contracts: Cases, Notes and Materials, 5th ed. (Toronto: Butterworths, 1997), at p. 396; M.P. Furmston, Cheshire, Fifoot and Furmston's Law of Contract, 13th ed. (London: Butterworths, 1996), at p. 58 and Fridman, supra, at p. 49.

[19] A promise to keep the offer open notwithstanding delivery of a counter-offer may not strictly speaking be an option. It was open to Ms. Scanlon to withdraw her offer up to the time that it was validly accepted. An option is usually thought of as a promise by the offeror not to withdraw the offer for a certain period of time. Depending on changes in the market, an option can turn out to be very expensive to the grantor. Hence the reluctance of the common law to enforce gratuitous promises to hold offers open, especially in the absence of reasonable reliance. Further, if such promises were to be enforceable "just as bargained-for-promises, an oral promise to hold an offer open made by a private individual would expose the individual to the full panoply of remedies including specific performance and expectation damages". See Waddams, supra, at p. 92.

[20] Thus, some of the policy reasons supporting the common law rule with respect to options would not necessarily apply to a promise merely to keep the offer open notwithstanding delivery of a counter-offer. Further, Waddams suggests at p. 93 that an all or nothing approach to enforceability of promises to keep an offer open may not be the preferred approach. He suggests that a "sounder approach" would be for the court to recognize that "a promise to hold an offer open is not a bargain but that it may be enforceable to a limited extent if justice so requires in view of the subsequent reliance of the promisee".

[21] For the following reasons, I find it unnecessary to decide whether the motions judge's characterization of the reference to Rule 49 as, "essentially" an option was correct and, if so, whether, nevertheless, the court should enforce such a promise. I have already found that on its proper construction, the December 15, 1999 letter did not incorporate by reference rule 49.07(2). Therefore, it did not incorporate a promise to keep the offer open for acceptance notwithstanding delivery of a counter-offer. The motions judge also found as a fact, in the passage set out above, that there was no reliance upon any such promise. Finally, counsel for the respondent did not seek to support the motion judge's conclusion on this basis.

[22] To summarize my holdings. A pre-litigation offer, such as the December 15, 1999 offer by Scanlon, is not a Rule 49 offer. The Scanlon offer did not incorporate by reference the terms of rule 49.07(2). Accordingly, the delivery of the counter-offer destroyed the power to accept Scanlon's original offer.

Disposition

[23] Accordingly, I would dismiss the appeal with costs.

Appeal dismissed.