Defendant Not Awarded Costs Despite Beating Formal Offer to Settle

Defendant Not Awarded Costs Despite Beating Formal Offer to Settle

In the case of GATZKE V. SIDHU, 2011 BCSC 1214 (“GATZKE”), released on September 9, 2011, Saunders J. provided reasons on costs. In an earlier judgment on liability and quantum of damages (reported at 2011 BCSC 988), the Plaintiff was found to be 70% at fault and consequently received only 30% of the $31,500 awarded at trial.

However, before any award of damages was made the Defendants had made a settlement offer of $50,000 pursuant to Rule 9-1 of the SUPREME COURT CIVIL RULES, an amount much higher than the approximately $10,000 the Plaintiff ultimately received. Because the settlement offer was higher than the amount awarded, the Defendants sought an order stating that they were entitled to all of their costs incurred after the offer was made. This kind of order is permitted by Rule 9-1(5).

Rule 9-1(6) provides that the following factors are to be considered by the courts when making a ruling under Rule 9-1(5):

(a) whether the offer to settle was one that ought reasonably to have been accepted, either on the date that the offer to settle was delivered or served or on any later date;

(b) the relationship between the terms of settlement offered and the final judgment of the court;

(c) the relative financial circumstances of the parties;

(d) any other factor the court considers appropriate.

Although in GATZKE the settlement offer clearly should have been accepted, when considering “the relationship between the terms of settlement offered and the final judgment of the court”, Saunders J. held that the settlement offer was so much higher than the amount awarded that the benefit the Defendants received from proceeding with the trial had to be taken into consideration (at paras. 14-15):

This factor is a two-edged sword.  Ordinarily, where a plaintiff obtains judgment for less than the amount offered in settlement, the legislative purpose of the Rule would be fulfilled by awarding the defendant its costs from the date the offer was made.  However, where there is a very significant gap between the judgment amount and the offer, it may be the case that a defendant is in a better position for having gone to trial, even taking its counsel’s fees into account.  This appears to have quite possibly been the case in the present circumstances.  The damages assessed, net of the plaintiff’s contributory negligence, are a small fraction of the offer.

Defendants should not be discouraged from making generous settlement offers.  But where the end result is dramatically different than the offer resulting in a net savings to the defendant, a defendant found to be partially at fault can reasonably expect to bear some of the cost of obtaining that result.

Saunders J. held that the appropriate solution to the issue of costs was to award the Plaintiff 30% of her costs up to the date of the offer while granting the Defendants their post-offer disbursements for a medical expert whose presence at trial was required by the Plaintiff.  Other than the disbursements for the expert, the Defendants were not entitled to post-offer costs.

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