Gravel and Lake Services Ltd. v. Bay Ocean Management Inc., 2002 FCT 265

Date: 20020308

Docket: T-1063-96

Neutral citation: 2002 FCT 265

BETWEEN:

                                           GRAVEL AND LAKE SERVICES LIMITED

                                                                                                                                                         Plaintiff

AND:

                                                  BAY OCEAN MANAGEMENT INC.

                                                                              -and-

                                   THE OWNERS AND ALL OTHERS INTERESTED

                                                   IN THE SHIP "LAKE CHARLES"

                                                                                                                                               Defendants

                                                    REASONS FOR COST ORDER

LEMIEUX J.:

[1]                 Gravel and Lake Services Limited (the "plaintiff") makes a motion, in writing, under rule 369 of the Federal Court Rules, 1998, (the "rules"), for a reconsideration, pursuant to rule 297, of the cost portion of this Court's judgment delivered on May 11, 2001, in this action, on the grounds the Court did not consider its cost award in the light of an offer of settlement which had been made and which the Court was unaware of as stipulated by rule 422.

[2]                 By the operation of rule 420(1), if the judgment rendered is more favourable than the terms of the offer to settle, the plaintiff shall be entitled to double party-party costs, excluding disbursements, after the date of the service of the offer.

[3]                 Rule 420(1), applicable to a plaintiff's offer, reads:

[4]                 In this Court's May 11, 2001 judgment, neither party was awarded costs because success at trial was equally divided. In the circumstances, I am prepared to reconsider the issue of costs in that judgment because if the plaintiff's position is correct, there would be an inconsistency with the award of no costs on either side in the judgment as it now stands and the operation of rule 420(1).

[5]                 The main question to be decided in the plaintiff's application is the appropriate reference date to compare the value of the plaintiff's offer to settle to the value of the judgment rendered by the Court.

[6]                 The plaintiff's offer to settle was made on September 21, 2000, on the eve of the commencement of the trial of this action. The settlement offer reads:

My clients are prepared to settle this matter for the sum of $110,000 plus pre-judgment interest, its party-and-party costs to September 21, 2000 and double such costs, excluding disbursements from September 22, 2000 to the date of acceptance of this offer.

This offer will not be revoked, except in writing.

[7]    The plaintiff's offer to settle is characterized in the case law as an escalating offer to settle because the offer grows in monetary terms as the plaintiff incurs more legal expenses particularly in trial preparation and at trial until acceptance of the offer.

[8]    The defendants never accepted the plaintiff's offer to settle which the plaintiff kept alive throughout the trial and revoked it only on May 14, 2001, after judgment was delivered.

[9]    The judgment awarded the plaintiff the amount of $133,384.00 plus pre-judgment interest. In support of his application, plaintiff's counsel submitted a draft bill of costs covering fees and disbursements with fees being based on the maximum units allowable under Column III. The plaintiff's bill of costs calculations were:

(a)        Total fees and disbursements to September 21, 2000 - $17,354.40 based on party-and-party costs;

(b)        Fees, after September 22, 2000 of $40,910.38 based on double costs in accordance with rule 420(1) excluding disbursements of $30,203.66.

[10]            Counsel for the plaintiff values the judgment at $167,000 if pre-judgment interest from May 1996 to May 2001 at a simple rate of interest of five percent (5%) is accounted for.

[11]            Counsel for the plaintiff argues there are three possibilities as a reference date for the valuation of its offer to settle:

(1)        the date the offer was made, that is, September 21, 2000;

(2)        the date when trial commenced, that is, October 2, 2000; or

(3)        the date of the judgment, that is, May 11, 2001.

[12]            The plaintiff argues the proper reference date to value its offer to settle is the date it was made because, in his view, it is only that date that makes sense from a practical perspective. He expressed himself as follows in his memorandum:

9.         When a party makes an offer to settle a case it ought to reasonably assess the merits of the case and to anticipate what a court will determine if the case proceeds to judgment. The party making the offer should try to make an offer that is in keeping with its reasoned assessment of the case. If the offer is a fair assessment of the case then the responding party should be put in the position of having to carefully weigh the risks of refusing the offer and proceeding to cause all parties to incur the costs of a trial.

10.        The only date that allows the party making the offer to assess its value and that allows the responding party to assess the risks of not accepting the offer is the date of the offer. If one uses the date of the offer, then a responding party can properly assess the amount of pre-judgment interest that would have to be paid and the costs that would have been incurred to the date of the offer. If one uses either of the other dates, there is no way that either party can even hazard a guess as to what the costs will be as there can be many side steps from the road to a trial and, as all counsel recognize, there can also be many twists and turns in a trial that can increase or decrease the costs that a party will have to bear.

[13]            Counsel for the plaintiff argues, if the party making the offer wishes to obtain the rules' benefits, it cannot revoke its offer. In practical terms, this means, the plaintiff submits, a party may not revoke its offer until judgment is rendered. It states this is noteworthy as it is different from the rules found in most provinces which provide an offer must be kept open until the commencement of the hearing in order to attract the cost sanctions in the various provincial offer to settle rules.

[14]            He argues this fact makes it almost imperative for a party to put a clause in respect of the escalating costs of the proceedings into an offer to settle. If the party does not insert such a clause, then, plaintiff argues, it is at risk of having the opposing party accept an offer during or at the end of a long and expensive trial. This can work a serious injustice because the plaintiff who has put a reasonable offer may end up not even recouping its costs and a defendant that has put a reasonable offer may be saddled with the prohibitive costs of a trial in addition to having to pay the plaintiff the sum it had not accepted prior to trial.

[15]            He argues in his memorandum that point by providing an example:

5.         . . . in this case the plaintiff decided, on the evidence available prior to trial, that the case was worth $110,000.00 plus pre-judgment interest and the party and party costs to that date. As it turned out, this was a reasonable assessment of the case as at trial the plaintiff was awarded damages in the amount of $133,384.50 plus pre-judgment interest. If the plaintiff had made an offer for $110,000.00 plus pre-judgment interest with no provision for costs then it would have been open to the defendant to accept that offer on November 17, 2000. By that time, the plaintiff had incurred over $70,000.00 in additional costs. Therefore, the net result would be that the plaintiff would receive about $40,000.00 on a case the Court decided was worth more than $130,000.00.

6.         Therefore, in the Federal Court, a party that wants to protect is position has to include a term to protect its costs in its offer.

[16]            Counsel for the defendants argues there is no pre-determined cut-off date in rule 420, an indication the Rules Committee did not want to impose a set rule on the subject and that the determination is to be made by the Court on a case-to-case basis in the exercise of the Court's discretion on costs.

[17]            Counsel for the defendants points to rule 400 and, in particular, to rule 400(3)(e) and to the statement contained in Sgayias et al., Federal Court Practice, 2002 to the following effect at page 763:

Paragraph (e) of rule 400(3) indicates that the Court may consider any written offer to settle. It is open to the Court to take a written offer to settle into account whether or not that offer has triggered "double costs" under rules 419 and 420.

[18]            Counsel for the defendants relies upon this statement in Sgayias et al. and reiterates the Court's discretion over costs and the fact an offer to settle, whether revoked prior to trial or not, remains only one of the factors to be considered in making a cost award. She argues the Court is not bound to award costs simply because an offer may have triggered double costs. She argues since rule 420 makes it a condition the offer not be revoked, it is open to ther Court, in the exercise of its overall discretion concerning costs, to compare the judgment with the offer as it stood when judgment was rendered.

[19]            Counsel for the defendants argues no costs should be awarded the plaintiff arising out of its offer to settle because the offer to settle was communicated to her at 14h39 on September 21, 2000. The value of the offer to settle could not be reasonably calculated in the circumstances. Plaintiff's disbursements were impossible to calculate.

[20]            She submits that had the defendants accepted the plaintiff's offer within a reasonable time allowing for appropriate calculations, the defendants would have been required to pay the plaintiff more than the amount of the judgment.

[21]            She states the purpose of rule 420 is to encourage settlement and an offer to settle can only lead to settlement if it is made within a reasonable period of time to allow counsel to assess its value and obtain instructions.

ANALYSIS

[22]                In my view, there are two bases for refusing, on the merits, any variation to this Court's award on costs which is that no costs are awarded to either side because success is equally divided.

[23]            First, in my view, the proper date of reference to value the plaintiff's offer is this Court's judgment and, on this basis, the plaintiff's offer to settle was not more favourable than the judgment awarded. With a reference date for valuation at the date of judgment, the plaintiff's offer to settle was composed of:

(1) $110,000 - lump sum;

(2) $34,000 pre-judgment interest;

(3) $17,354.40 - for fees and disbursements to September 21, 2000; and

(4) $40,910.38 - as double fees after September 21, 2000.

[24]            Second, there is an additional reason for not varying this Court's award in the cost judgment. Rule 420(1) provides the Court with a discretion to override the provision in that rule of entitlement to double costs after the date of service of an offer to settle which is more favourable than the judgment. Counsel for the defendants is correct in stating the Court should discard the offer to settle as it was made late, was difficult to value and came at the eve of trial.

[25]            In my opinion, the date of this Court's judgment is the appropriate date to measure the value of the plaintiff's offer to settle because it reflects what the plaintiff intended and takes into account all of the terms of offer. To choose, as the plaintiff suggests, the valuation date when the offer to settle was made, would be to re-write the terms of the offer to settle by removing an essential component, namely, double costs after September 21, 2000, increasing every day thereafter as additional trial preparation and trial costs were incurred. The plaintiff candidly admitted he put that term in the offer to settle to protect such costs. The plaintiff cannot now remove it as a term in order to ensure the terms of the offer to settle are less favourable than the judgment.

[26]            Furthermore, I do not agree with counsel for the plaintiff the impact of rule 420(1) requires such escalation clause be inserted, as a matter of necessity, in an offer to settle. The plaintiff ignores recognized techniques to take into account costs which might be incurred in trial preparation and at trial. These include successive and multiple offers.

[27]            The Ontario Court of Appeal in Rooney (Litigation Guardian of) v. Graham (2001), 53 O.R. (3d) 685, considered an offer to settle which included pre-judgment interest from the date of the offer to the date of settlement or judgment and party-party costs to the date of the offer and afterwards reasonable solicitor and client costs as assessed or agreed upon.

[28]            The offer to settle remained open to all defendants until five minutes after the trial began when it was automatically withdrawn. Withdrawal immediately after commencement of trial is a feature in litigation practice in Ontario and is compelled by rule 49.10(1) of the Ontario Rules of Civil Procedure which reads:

   49.10 (1) Where an offer to settle,

(a) is made by a plaintiff 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 defendant,

and the plaintiff obtains a judgment as favourable as or more favourable than the terms of the offer to settle, the plaintiff is entitled to party and party costs to the date the offer to settle was served and solicitor and client costs from that date, unless the Court orders otherwise.

[29]            There are three points I take from Justice Laskin's reasons for decision in Rooney, supra. First, he states the purpose of rule 49.10 (equivalent to rule 420(1)) is to encourage parties to make reasonable offers to settle and to facilitate early settlement of litigation.

[30]            Second, at paragraph 57, Justice Laskin was of the view, under rule 49.10, all of the terms of an offer to settle, including any provisions for costs, must be compared with all of the terms of the judgment, including the disposition of costs. Third, when the offer contains a provision for ongoing costs and ongoing pre-judgment interest, the proper date for comparison is the date of judgment.

[31]            As to the second ground for rejecting the plaintiff's reconsideration on the merits, this Court has expressed two principles which I rely upon. First, the Federal Court of Appeal in Apotex v. Syntex Pharmaceuticals Inc. Ltd., [2001] F.C.A. 137, stated that an offer to settle must be clear and unequivocal in order to attract the consequences of rule 420. Second, judges of the Federal Trial Division in three cases took into account the lateness of the offer to settle in reducing the impact of rule 420. (See, Canastrand Industries Ltd. v. Lara S. (The), [1993] F.C.J. No. 755, Sanmammas Compania Maritima S.A. v. Netuno (The), [1995] F.C.J. No. 1442 and Apotex Inc. v. Wellcome Foundation Ltd., [1998] F.C.J. No. 1736. I apply these two principles.

[32]            As noted, the offer to settle came at the eve of trial. The value of the offer was unclear and required inquiries and verifications in order to ascertain its value.

[33]            For all of these reasons, the plaintiff's application for reconsideration of the Court's costs award based on rule 420(1) is dismissed without costs.

                                                                                                                           "François Lemieux"     

                                                                                                                                          J U D G E             

OTTAWA, ONTARIO

MARCH 8, 2002