In a rather unusual ruling, Mr. Justice Herman Siegel has awarded costs on a substantial indemnity basis to a defendant, on the basis that both litigants were commercial parties with substantial resources and access to specialized legal advice. The award was made in Canadian Universities Reciprocal Insurance Exchange v. CGU Insurance Company of Canada and State Farm Fire and Casualty Company.
The case involved Rule 49 of the Rules of Civil Procedure, which deals with offers to settle. The Rule provides that where a plaintiff makes an offer and, at trial, obtains a judgment at least as favourable as the offer, the plaintiff is entitled to partial indemnity costs to the date of the offer and substantial indemnity costs thereafter.
However, if it is a defendant who makes the offer (and the plaintiff obtains a judgment that is less favourable than the offer), the plaintiff is entitled to partial indemnity costs to the date of the offer and the defendant is entitled to partial indemnity costs after that date. In other words, Rule 49 does not make provision for substantial indemnity costs to be payable to defendants as a result of beating an offer to settle.
But of course, the court retains discretion to depart from the costs consequences prescribed by the Rule. Nevertheless, despite numerous attempts by defendants to obtain costs on the higher scale, the courts have usually refused to do so.
In this case, the defendant CGU Insurance (now Aviva) had been sued by the Canadian Universities Reciprocal Insurance Exchange (“CURIE”). CGU had offered to pay $300,000, to settle the claim. CURIE did not accept the offer and the case went to trial, where the action was dismissed.
The usual result in such a situation would have seen CGU recovering its costs on a partial indemnity basis throughout. However, its counsel argued that the court should exercise its discretion and award CGU its costs on a partial indemnity basis to the date of the offer and substantial indemnity costs thereafter. Justice Siegel agreed.
The reasons given by Justice Siegel for awarding costs on the higher scale were quite brief. He noted that if the plaintiff had accepted the defence offer, the litigation would have ended (perhaps something of a truism). But it is what he said next that is noteworthy: “given that the parties to the action are both commercial parties with substantial resources and access to specialized legal advice, I think that costs on a substantial indemnity basis after the date of the offer are warranted”.
Justice Siegel did not cite any authority for this proposition. He did refer to the Court of Appeal’s well-known decision in Alie v. Bertrand & Frere Construction. But all that decision said on the subject was that “in applying rule 57.01, the rule which addresses the principles generally applicable to costs awards, a trial judge should consider a defendant’s offer to settle, and may where the action is dismissed, order solicitor and client costs [now referred to as “substantial indemnity costs”] from the date of the defence offer”. The Court of Appeal in Alie had cited its own 1990 decision in S & A Strasser Limited v. Richmond Hill, where it had held that Rule 49 does not apply where the plaintiff recovers no judgment at all.
It will be interesting to see whether other courts apply Justice Siegel’s reasoning and start to award substantial indemnity costs to defendants where both litigants are “commercial parties with substantial resources and access to specialized legal advice”.