König v. Hobza et al.

[Indexed as: König v. Hobza]

Ontario Reports

Court of Appeal for Ontario,

Cronk, G.J. Epstein and Huscroft JJ.A.

December 15, 2015

129 O.R. (3d) 57 | 2015 ONCA 885

Case Summary

Civil procedure — Costs — Offer to settle — "No near miss" policy applying to mandatory timing requirement under rule 49.03 of Rules of Civil Procedure — Trial judge erring in treating offer to settle which was served within seven days of commencement of trial as valid Rule 49 offer — Trial judge nevertheless entitled to take offer into account pursuant to rule 49.13 — Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 49.03, 49.13.

The ultimately unsuccessful defendants in an oppression action served an offer to settle nine calendar days before the trial. Having regard to the way in which rule 3.01 of the Rules of Civil Procedure mandates the calculation of time, the offer was technically served fewer than seven days before trial. Despite that fact, the trial judge treated the offer as a valid Rule 49 offer which attracted the costs consequences of rule 49.10. He awarded the plaintiff his costs on a substantial indemnity scale up to the date of the offer and the defendants their costs on a partial indemnity scale afterwards. The plaintiff appealed.

Held, the appeal should be dismissed.

The "no near miss" policy applies to the timing requirement under s. 49.03 of the Rules as well as to the amount of the judgment. The trial judge erred in treating the offer as a valid Rule 49 offer. However, the trial judge was entitled to take the offer into account pursuant to rule 49.13 despite the fact that it did not attract rule 49.10 consequences. While the trial judge did not specifically refer to rule 49.13, he employed a holistic approach and took all the applicable relevant factors, including the offer, into account. The award fell squarely within the trial judge's discretionary authority to fashion a costs award that was appropriate and proportionate in all the circumstances. [page58 ]

Elbakhiet v. Palmer (2014), 121 O.R. (3d) 616, [2014] O.J. No. 3302, 2014 ONCA 544, 323 O.A.C. 300, 242 A.C.W.S. (3d) 39 [Leave to appeal to S.C.C. refused [2014] S.C.C.A. No. 427], apld

Other cases referred to

Hamilton v. Open Window Bakery Ltd., [2004] 1 S.C.R. 303, [2003] S.C.J. No. 72, 2004 SCC 9, 235 D.L.R. (4th) 193, 316 N.R. 265, J.E. 2004-470, 184 O.A.C. 209, 40 B.L.R. (3d) 1, [2004] CLLC Â210-025, 128 A.C.W.S. (3d) 1111; Igbokwe v. HB Group Insurance Management Ltd. (2001), 2001 3804 (ON CA), 55 O.R. (3d) 313, [2001] O.J. No. 3018, 204 D.L.R. (4th) 434, 148 O.A.C. 222, 33 C.C.L.I. (3d) 183, [2002] I.L.R. I-4045, 20 M.V.R. (4th) 50, 107 A.C.W.S. (3d) 217 (C.A.) [Leave to appeal to S.C.C. refused [2001] S.C.C.A. No. 470, 166 O.A.C. 200]; König v. Hobza, [2013] O.J. No. 2121, 2013 ONSC 1060, 31 B.L.R. (5th) 248, 228 A.C.W.S. (3d) 701 (S.C.J.); König v. Hobza, [2014] O.J. No. 4791, 2014 ONCA 691, 326 O.A.C. 213, 245 A.C.W.S. (3d) 838, varg [2013] O.J. No. 5279, 2013 ONSC 5531, 31 B.L.R. (5th) 301, 235 A.C.W.S. (3d) 53 (S.C.J.); Matthew Brady Self Storage Corp. v. InStorage Limited Partnership (2014), 125 O.R. (3d) 121, [2014] O.J. No. 5783, 2014 ONCA 858, 379 D.L.R. (4th) 368, 49 R.P.R. (5th) 1, 36 B.L.R. (5th) 41, 247 A.C.W.S. (3d) 715; Wilson v. Cranley, [2014] O.J. No. 5680, 2014 ONCA 844, 325 O.A.C. 396, 42 C.C.L.I. (5th) 173, 70 C.P.C. (7th) 21, 247 A.C.W.S. (3d) 283

Statutes referred to

Courts of Justice Act, R.S.O. 1990, c. C.43, s. 133(b)

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 3.01, 49, 49.03, 49.10, 49.13, 57.01(1)

APPEAL from the costs order of Pattillo J., [2015] O.J. No. 250, 2015 ONSC 411 (S.C.J.).

Ronald Flom and Robert W. Trifts, for appellant.

Sarit E. Batner and Vladimira Ivanov, for respondents.

The judgment of the court was delivered by

G.J. EPSTEIN J.A.: —

A. Overview

[1] At the core of this appeal is a judge's discretion to award costs under rule 49.13 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. However, this decision also clarifies that an offer to settle must strictly comply with the seven-day timing requirement set out in rule. 49.03 before the mandatory cost consequences of rule 49.10 apply.

[2] The appellant was successful in an oppression action against the respondents: König v. Hobza, [2013] O.J. No. 2121, 2013 ONSC 1060, 31 B.L.R. (5th) 248 (S.C.J.).

[3] The trial judge awarded the appellant his costs on a substantial indemnity basis. He considered an offer by the [page59 ]respondents served four days before the commencement of trial to be a valid Rule 49 offer (the "offer"), but held that rule 49.10 was not engaged because the trial judgment was more favourable than the offer: König v. Hobza, [2013] O.J. No. 5279, 2013 ONSC 5531, 31 B.L.R. (5th) 301 (S.C.J.), at paras. 21-23.

[4] The respondents appealed. This court upheld the finding of oppression but reduced the damages award and remitted the matter back to the trial judge to consider the costs award in the light of the reduction in damages: König v. Hobza, [2014] O.J. No. 4791, 2014 ONCA 691, 326 O.A.C. 213.

[5] In reconsidering costs, the trial judge found that the offer was more favourable than the revised judgment. Against that background, he awarded the appellant his costs up to the date of the offer on a substantial indemnity scale, and the respondents their costs thereafter, on a partial indemnity scale.

[6] The appellant sought leave to appeal this second discretionary costs award pursuant to s. 133(b) of the Courts of Justice Act, R.S.O. 1990, c. C.43. This court granted leave by order dated April 21, 2015.

[7] The appellant's main submission on appeal is that the trial judge erred in treating the offer as a valid Rule 49 offer given that it did not meet the rule 49.03 seven-day timing requirement. He requests that the previous costs decision be reinstated.

[8] For the following reasons, I would dismiss the appeal.

B. Applicable Rules

[9] The relevant portions of Rule 49 of the Rules are as follows:

49.03 An offer to settle may be made at any time, but where the offer to settle is made less than seven days before the hearing commences, the costs consequences referred to in rule 49.10 do not apply.

49.10(2) Where an offer to settle,

(a) is made by a defendant 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 plaintiff,

and the plaintiff obtains a judgment as favourable as or less favourable than the terms of the offer to settle, the plaintiff is entitled to partial indemnity costs to the date the offer was served and the defendant is entitled to partial indemnity costs from that date, unless the court orders otherwise.

49.10(3) 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). [page60 ]

49.13 Despite rules 49.03, 49.10 and 49.11, the court, in exercising its discretion with respect to costs, may take into account any offer to settle made in writing, the date the offer was made and the terms of the offer.

C. Background Facts

[10] The appellant was a silent investor in the respondent company 1669051 Nova Scotia Limited, formerly East West Plastics & Electric Products Limited. He was the only shareholder not involved in its management.

[11] He brought an action against the respondents, as officers and directors of East West, alleging that they had awarded themselves excessive compensation over a period of 22 years -- conduct that the appellant maintained called for a damages award under the oppression remedy.

D. Procedural History

(a) The trial judge's decision

[12] The trial judge found that the respondents' oppressive conduct justified a damages award in the amount of $250,000, plus prejudgment interest of $49,793.83.

(b) The first costs decision

[13] The trial judge concluded, at para. 38, that the respondents' actions justified awarding substantial indemnity costs in the amount of $413,000, inclusive of disbursements and taxes.

[14] Before trial, the parties had exchanged several offers and counter-offers. Nine calendar days before trial, the respondents served the offer. It provided for a payment to the appellant of $300,000, inclusive of interest, plus partial indemnity costs and disbursements to be agreed upon or assessed. The appellant rejected the offer.

[15] The parties disputed whether the offer was a valid Rule 49 offer given that it was not served within seven days prior to the commencement of trial having regard to the way in which rule 3.01 mandates how time is calculated.

[16] In addressing this issue, the trial judge reasoned that the purpose of the seven-day requirement under rule 49.03 was to ensure that the party receiving the offer had sufficient time to properly consider it. The trial judge held that the appellant had enough time to do this in the light of the earlier offers and the nine calendar days between service of the offer and the commencement of trial. The trial judge therefore held that the offer was a valid Rule 49 offer. [page61 ]

[17] However, the mandatory cost consequences of rule 49.10 were not engaged because, after factoring in the substantial indemnity costs, to which the appellant was entitled, the judgment was more favourable than the offer.

(c) The Court of Appeal's decision

[18] On appeal, this court upheld the trial judge's finding of oppression but held that the trial judge erred in not considering the respondents' under-compensation during East West's early years. This court therefore reduced the damages to $187,453.51, plus prejudgment interest of $37,336.12.

[19] This court found no reason to interfere with the trial judge's finding that the respondents' conduct called for a costs award on a substantial indemnity basis but sent the matter back to the trial judge to reconsider the quantum of costs and the consequences of rule 49.10, in the light of the reduced damages award.

(d) The second costs decision

[20] In revisiting the issue of costs, the appellant argued that the trial judge erred in treating the offer as a valid Rule 49 offer as it did not comply with the rule 49.03 seven-day service requirement. He relied on Elbakhiet v. Palmer (2014), 121 O.R. (3d) 616, [2014] O.J. No. 3302, 2014 ONCA 544, leave to appeal to S.C.C. refused [2014] S.C.C.A. No. 427, a decision of this court released after the first costs decision.

[21] In Elbakhiet, Rosenberg J.A. considered whether the offer at issue in that case was more favourable than the judgment. At para. 31, he articulated what is known as the no "near miss" policy: "A party that comes close to meeting the judgment is not thereby entitled to an award of costs as if they did provide a successful offer."

[22] The trial judge rejected the appellant's argument that the no "near miss" policy established in Elbakhiet should be found to apply not only to quantum but also to timing. At para. 8, he concluded that the policy concerned only the former.

[23] He went on to find that because, under the revised judgment, the appellant was entitled to an award of damages and interest that was $9,235.32 less than the offer, the cost consequences of rule 49.10 applied.

[24] Having regard to his finding that the respondents' conduct justified substantial indemnity costs, the trial judge relied on the overriding discretion afforded in rule 49.10 to award substantial indemnity costs to the appellant to the date of the offer in the amount of $270,925.15. He concluded that the [page62 ]respondents were entitled to partial indemnity costs thereafter, in the amount of $127,616.56, both amounts inclusive of disbursements and taxes.

[25] The appellant appeals this order.

Issues

[26] The issues raised are the following:

(1) whether the trial judge was permitted to give effect to an offer to settle under rule 49.10 even if it was served fewer than seven days before trial; and

(2) if not, whether the trial judge was nonetheless entitled to exercise his discretion to fix costs the way he did in this case.

Analysis

1. Was the trial judge permitted to give effect to an offer to settle under rule 49.10 even if it was served fewer than seven days before trial?

[27] The respondents' position is that the trial judge was within his discretion to decide that the offer was a valid rule 49.10 settlement offer. Effectively, interpreting the rule in a purposive fashion was in keeping with this court's decisions in Igbokwe v. HB Group Insurance Management Ltd. (2001), 2001 3804 (ON CA), 55 O.R. (3d) 313, [2001] O.J. No. 3018 (C.A.), leave to appeal to S.C.C. refused [2001] S.C.C.A. No. 470, 166 O.A.C. 200 and Matthew Brady Self Storage Corp. v. InStorage Limited Partnership (2014), 125 O.R. (3d) 121, [2014] O.J. No. 5783, 2014 ONCA 858, cases in which this court held that technical deficiencies should not invalidate settlement offers.

[28] For the following reasons, I do not agree.

[29] First, the requirement that, in order to attract the mandatory cost consequences of rule 49.10, an offer to settle must be served at least seven days before the commencement of the hearing, is contained within Rule 49 itself. The wording of the provision makes clear that the timing requirement is just that -- a requirement. It is mandatory.

[30] Second, although Rosenberg J.A.'s comment about there being no "near misses" in Elbakhiet referred to quantum, in my view, the decision supports the conclusion that the no "near miss" policy should also apply to timing. His detailed examination of the timing requirement under rule 49.03, including a review of a number of appellate decisions, indicates that he viewed the two requirements for a valid Rule 49 offer as being equally important. [page63 ]

[31] Rosenberg J.A. noted, at para. 20, that the "consensus [that a trial commences on the first day of evidence] has provided certainty to parties making Rule 49 offers, and such certainty furthers the purposes of Rule 49". It goes without saying that certainty as to whether an offer meets the seven-day timing requirement also furthers the purposes of Rule 49 by affording parties two important pieces of information.

[32] The first is whether the time has passed during which to expect an offer to settle that will attract the mandatory cost consequences under rule 49.10. The second is whether an offer will be treated as a valid Rule 49 offer. Both are necessary for a party to be fully equipped to assess the risk of proceeding to trial.

[33] I conclude that the no "near miss" policy applies to meeting the timing requirement under rule 49.03 as well as to the amount of the judgment. It follows that, in my view, the trial judge erred in treating the offer as a valid Rule 49 offer.

2. If the offer was not a valid Rule 49 offer, was the trial judge nonetheless entitled to exercise his discretion to fix costs the way he did in this case?

[34] Given my conclusion that the offer was not a valid Rule 49 offer, on a plain reading of Rule 49, the mandatory cost implications found in rule 49.10 are not applicable. This takes me to the trial judge's residual discretion to make an appropriate costs determination under rule 49.13.

[35] Rule 49.13 calls for a holistic approach to the determination of costs having regard to factors including any offers to settle -- regardless of whether they meet the requirements of Rule 49 -- where appropriate to do justice between the parties. Rosenberg J.A. addressed the role of rule 49.13 in Elbakhiet, at para. 33:

As this court pointed out in Lawson v. Viersen (2012), 108 O.R. (3d) 771, [2012] O.J. No. 109, 2012 ONCA 25, at para. 46, rule 49.13 is not concerned with technical compliance with the requirements of rule 49.10. Rather, it "calls on the judge to take a more holistic approach." The appellants complied with the spirit of Rule 49 even if they failed for technical reasons to provide an offer that exceeded the Judgment. As held in Lawson, at para. 49, this was the type of offer that ought to have been given "considerable weight in arriving at a costs award."

[36] This approach was endorsed by Gillese J.A. in Wilson v. Cranley, [2014] O.J. No. 5680, 2014 ONCA 844, 325 O.A.C. 396, at para. 26, where she said "even where an offer does not attract rule 49.10 consequences, pursuant to rule 49.13 the court should consider such offers when exercising its discretion with respect to costs". [page64 ]

[37] Here, although I have concluded that the trial judge should not have treated the offer as a valid rule 49.10 offer, he was entitled to take it into account pursuant to rule 49.13, and pursuant to rule 57.01(1), which sets out the general principles a court considers when exercising its discretion to award costs.

[38] I appreciate that the trial judge did not specifically refer to rule 49.13 in his reasons but I do not see this as a basis to interfere with his exercise of discretion in awarding costs. In Cranley, at para. 28, this court held that a trial judge can employ his or her discretion under rule 49.13 without explicitly referring to it.

[39] The question is whether the trial judge took the required holistic approach in awarding costs as he did in the second costs endorsement. In my view, he did.

[40] The only difference between the trial judge's first and second costs endorsements is this court's intervening judgment. The judgment reduced the damages award but did not alter the circumstances surrounding the offer. Significantly, as previously noted, this court expressly supported the trial judge's conclusion that the respondents' conduct called for costs on a substantial indemnity scale.

[41] In determining whether the trial judge employed a holistic approach to rule 49.13, it is therefore appropriate to consider the second costs endorsement in the light of its precursor.

[42] As previously mentioned, this court upheld the key factor considered by the trial judge, namely, the appropriateness of substantial indemnity costs. In his second costs endorsement, the trial judge considered this fact in addition to the fact that the offer was more favourable than the judgment received by the appellant. In his first costs endorsement, at para. 21, the trial judge found that the offer complied with the spirit of Rule 49 since "[the appellant] had more than enough time to properly consider the offer before the trial started".

[43] After considering the trial judge's approach to costs in both of his costs endorsements, I am satisfied that in arriving at the award he did, the trial judge took into account the applicable relevant factors, including the offer. He employed a holistic approach.

[44] Finally, I note that the Supreme Court of Canada has made it clear that a costs award should be set aside on appeal only if the trial judge erred in principle or if the award was plainly wrong: Hamilton v. Open Window Bakery Ltd., [2004] 1 S.C.R. 303, [2003] S.C.J. No. 72, 2004 SCC 9, at para. 27.

[45] Although, in the context of the history of this matter and the ultimate outcome, the trial judge's revised costs decision may appear unfair to the appellant, I find no error in principle. [page65 ]And I do not view the award as plainly wrong. The award fell squarely within the trial judge's discretionary authority to fashion a costs award that was appropriate and proportionate in all the circumstances. This was his call to make.

E. Disposition

[46] For these reasons, I would dismiss the appeal. The respondents are entitled to their costs of the appeal, fixed at $6,500, inclusive of disbursements and applicable taxes.

Appeal dismissed.