Legal Blog

Offer

When is an offer no longer an offer? See Scanlon v. Standish, an unreported 2002 decision of the Ontario Court of Appeal, for the answer.

No Action

Two individuals were engaged in settlement discussions after a dispute arose. Even though no action had been commenced, the solicitor of the ultimate plaintiff wrote to the solicitor of the ultimate defendant with a settlement proposal and stated: “You may take this correspondence as a formal offer of settlement pursuant to Rule 49 of the Rules … in the matter of contemplated litigation between the parties.”

The defendant did not accept the offer and submitted a counter-offer that the plaintiff did not accept. The defendant then purported to accept the plaintiff’s offer. The plaintiff commenced an action and the defendant brought a motion to enforce the alleged settlement.

Binding

Had the plaintiff already commenced the action, the defendant could have relied on Rule 49.07 that allows an offer to be accepted at any time before it is withdrawn, whether it was rejected previously or not. However, under common law, once an offer is rejected, either explicitly or by way of a counter-offer, the offer dies and cannot subsequently be accepted.

The motions judge (Langdon J.) held that an offer made before an action is commenced is not an offer under Rule 49. Rule 49 only affects parties to an action and no action had been commenced.

The judge then held that reference to Rule 49 did not create a separate option contract because there was no consideration for it.

Appeal

The Court of Appeal agreed that the Rules did not apply because an action had not yet been commenced. However, rather than use the option analysis regarding the reference to Rule 49, the Court noted that the remainder of the letter made it apparent that the reference to Rule 49 was not a reference to the entire Rule. Rather, it was a reference only to the costs consequences of it. Accordingly, the plaintiff never made a promise to hold the offer open and did not intend to reverse the effect of the common law.

Upshot

If you make an offer before the action is commenced, the offer is not a Rule 49 offer. However, it may still be considered when the judge exercises discretion in an award of costs. We were before Langdon J. in exactly this situation. He held that the offer was not a Rule 49 offer but awarded solicitor-client costs anyway in the exercise of his discretion because the award at trial beat the offer.

We suggest that if you make a pre-litigation offer, follow it up with an immediate post-litigation offer, with the proviso in the second offer that it does not withdraw the first.