Introduction
Litigation is inherently uncertain. Even the most carefully prepared case can be undermined by evidentiary rulings, witness performance, or the interpretation of legal principles. Trials are also expensive, consuming significant financial and emotional resources. For this reason, the Rules of Civil Procedure in Ontario provide a framework that strongly encourages parties to resolve disputes before judgment.
Central to this framework is Rule 49, which governs offers to settle. The rule is designed to create meaningful incentives for parties to make reasonable offers and, just as importantly, to accept them. The underlying policy is clear: litigation should not proceed to trial if the parties could resolve their dispute on terms that are as favourable as, or more favourable than, the eventual judgment.
The Nature and Purpose of Rule 49
Rule 49 allows a party to serve a written offer to settle one or more claims in a proceeding. The rule applies broadly, covering not only actions but also applications, counterclaims, crossclaims, third-party claims, and even motions with necessary modifications. Once served, an offer can create significant procedural and financial consequences if it is not accepted and the case proceeds to judgment.
The rule was first introduced in 1985 as part of a shift away from the older “payment into court” procedure that applied only to defendants. Unlike that earlier regime, Rule 49 is available to both plaintiffs and defendants. Its design, however, has been described as asymmetrical, because the costs consequences it imposes tend to create a stronger protective mechanism for defendants.
Form and Content of an Offer
The Rules provide a template for an offer to settle (Form 49A), but the use of this form is optional. A written offer may be made in a letter or any other clear document capable of acceptance. What matters is that the offer is unambiguous, in writing, and properly served on the other party or their lawyer of record.
Offers may include terms that go beyond simple payment, such as the handling of costs, the accrual of interest, or even creative settlement structures. An offer that includes an element of compromise is more likely to be accepted, but compromise is not strictly required for an offer to trigger costs consequences.
Importantly, an offer marked “without prejudice” is still presumed to be a Rule 49 offer unless it expressly states otherwise. Courts will not lightly treat an offer as falling outside the rule, given the rule’s policy of encouraging settlement.
Contractual Principles and Rule 49
Although offers to settle resemble contracts, Rule 49 modifies some of the common law rules of offer and acceptance. At common law, a counteroffer extinguishes the original offer. Under Rule 49, however, the original offer remains capable of acceptance unless it has been formally withdrawn or the claim has been disposed of. This means a party that initially rejects or counters an offer may later change course and accept it, provided the offer remains outstanding.
Rule 49 also changes the rules on irrevocability. A party may withdraw an offer at any time by serving written notice, even if the offer states that it is irrevocable. An offer may also be withdrawn by necessary implication, for example, if a subsequent offer is made on less favourable terms.
Once accepted, an offer becomes binding and enforceable. If a party fails to comply, the other party may move for judgment in accordance with the accepted terms or proceed with the litigation as though no settlement occurred. The rule also sets out how costs are handled where an accepted offer is silent on costs, ensuring clarity and predictability.
Offers to Contribute
Rule 49 also provides for offers to contribute between defendants. Where two or more defendants face potential joint or several liability, one defendant may serve an offer to contribute toward a settlement of the plaintiff’s claim. The court may then take the offer into account when determining costs or indemnification between defendants. This mechanism encourages defendants to make realistic assessments of their relative exposure and to negotiate contributions among themselves rather than leaving the matter entirely for the trial judge.
Costs Consequences of Offers to Settle
The most powerful feature of Rule 49 lies in its costs consequences. These provisions create strong incentives for litigants to make, and to carefully consider, settlement proposals.
Plaintiff’s Offer
If a plaintiff serves an offer at least seven days before the hearing, does not withdraw it, and then obtains a judgment as favourable as or more favourable than the offer, the plaintiff is entitled to partial indemnity costs up to the date of the offer and substantial indemnity costs from that date forward. This enhanced cost recovery can be very significant and rewards plaintiffs for making early, reasonable proposals.
Defendant’s Offer
If a defendant serves an offer at least seven days before the hearing, does not withdraw it, and the plaintiff fails to obtain a judgment more favourable than the offer, the defendant is entitled to partial indemnity costs from the date of the offer. This can lead to a dramatic shift in financial liability if a plaintiff presses forward to trial despite having received a reasonable offer.
Judicial Discretion
Although the costs consequences of Rule 49 are automatic in theory, courts retain discretion to decline to apply them in rare cases where the interests of justice demand a different outcome. For example, a judge may consider the reasonableness of the offer, the conduct of the parties, or other exceptional circumstances. However, the general principle is that the costs consequences should apply unless fairness clearly requires otherwise.
Timing and Technical Requirements
Rule 49 requires that an offer be served at least seven days before the commencement of the hearing for the automatic costs consequences to apply. Offers made closer to trial may still be considered by the court under its general discretion with respect to costs, but they will not attract the full benefits of the rule.
The rule does not apply to offers made before a proceeding has been commenced. Once a proceeding is underway, however, the framework applies broadly, including to parties under disability, provided that court approval is obtained where required.
Strategic Considerations
Offers to settle are more than procedural steps; they are strategic tools that can shape the course of litigation. For plaintiffs, a well-timed offer can create the potential for enhanced costs and put significant pressure on defendants to evaluate the risks of trial. For defendants, an early and reasonable offer can shield them from excessive cost liability and discourage plaintiffs from pursuing marginal claims.
Lawyers must balance the timing, clarity, and content of offers against the dynamics of the case. An offer that appears premature or unrealistic may be disregarded. Conversely, an offer that is carefully calibrated to reflect likely trial outcomes may create real pressure to settle.
Conclusion
Rule 49 offers to settle are a cornerstone of civil litigation in Ontario. They reflect a deliberate policy choice to encourage settlement and reduce the burden of trials. By attaching significant costs consequences to the rejection of reasonable offers, the rule compels litigants to weigh the risks of trial carefully.
For plaintiffs, Rule 49 offers a pathway to enhanced cost recovery. For defendants, it offers protection against inflated cost awards where a plaintiff insists on proceeding despite a fair settlement proposal. For both, it provides a mechanism to resolve disputes more efficiently, saving time, money, and uncertainty.
Used wisely, offers to settle can be decisive. They require strategic foresight, careful drafting, and a clear understanding of both the legal framework and the realities of litigation risk. In many cases, the decision to make or accept an offer to settle will be one of the most important steps in the entire proceeding.
