Legal Blog

Offer

It is likely generally known that the losing party in a court action will pay the winning party a portion of its legal fees and disbursements in either prosecuting or defending the action. The exact quantum of the award depends on a number of factors, including whether the winning party submitted a reasonable offer to settle.

To understand the concept better, we refer to Coldmatic Refrigeration of Canada Ltd. v. Kenaidan Contracting Ltd., a case that we discussed in our March 2006 newsletter.

Trial Decision 

The Coldmatic case arose out of a dispute between a general and two subs as to the responsibility to perform specified work on the prime contract for a design-build project. Each sub pointed to the other. The general decided how the work would be allocated; one sub agreed, but Coldmatic did not. The general had Coldmatic’s work done by others and backcharged Coldmatic $69,000. Coldmatic sued.

The trial judge interpreted Coldmatic’s contract and ultimately agreed that the disputed work was part of its contract. Accordingly, the judge dismissed Coldmatic’s action.

Award

Before trial, the general had made an offer to settle the action for a payment to Coldmatic of $40,000 plus interest plus a portion of its costs. Coldmatic did not accept that offer. In retrospect, that was a big mistake. Because of the offer, the trial judge awarded partial indemnity costs to the date of the offer and substantial indemnity costs after it. Subject to other factors, substantial indemnity costs are approximately 90% of the actual solicitor-client costs and partial indemnity costs are approximately two-thirds of substantial indemnity costs.

The trial took six days plus written argument. The judge went through the various factors in awarding costs and ultimately fixed the costs (using partial indemnity to the date of the offer and substantial indemnity after it) at $93,600 including GST. He reduced the actual account the general presented by discounting some students’ time and for some inefficiency in amending its statement of defence, but otherwise felt that everything claimed was reasonable.

Appeal 

Coldmatic appealed both the decision on the merits and the costs. In a short endorsement, the Court of Appeal upheld the decision on the merits; it held that the trial judge’s interpretation of the contract was reasonable and that he was entitled to interpret the documents as he had.

As to the costs awarded, Coldmatic argued that the award of costs was unreasonable, given the amount in issue ($69,000) in the action. The Court noted that both counsel had spent a similar amount of time on the action so that it did not lie in Coldmatic’s mouth to say that the general spent an inordinate amount of time. Further, the offer that the general made was a significant and appropriate factor in the trial judge’s award. The Court of Appeal dismissed the appeal as to costs and awarded the general $15,000 for the costs of the appeal.

Instead of receiving $40,000, interest, and partial indemnity costs, Coldmatic had to pay $108,600 in costs to the general plus whatever it paid to its own counsel for the trial and the unsuccessful appeal. Sometimes, it is better to accept a reasonable settlement offer than to take your chances at trial. This was one of those times.