Alberta judges can refer to informal settlement offers

This article originally appeared in the September 11, 2015 issue of The Lawyers Weekly.

Alberta Courts may continue to take into account informal settlement offers made “without prejudice” and not in compliance with the Alberta Rules of Court (“Rules”) when determining costs awards thanks to a recent Alberta Court of Appeal decision.

Chisholm v Lindsay, 2012 ABQB 81 (“Chisholm”) was a personal injury action, decided in February 2012. The plaintiff was eating lunch in a stationary vehicle without her seatbelt on when her vehicle was forcefully re-ended by the defendant’s vehicle. The plaintiff suffered multiple injuries including a mild traumatic brain injury, cognitive difficulties, fatigue, chronic pain and partial post-traumatic stress disorder. Liability was not in dispute.

Several “non-Rule” compliant offers were presented prior to the matter going to Court. On September 1, 2011, the plaintiff had offered to settle for $350,000 plus costs at mediation. The defendant rejected the offer but, on November 15, 2011, a week before trial, the defendant presented the plaintiff with the same offer which, in turn, the plaintiff rejected.

Then, on the Friday before the Monday start of the trial, the defendant advanced another informal offer of $360,000 which was also rejected by the plaintiff.

Ultimately, the trial judge awarded the plaintiff damages of $346,734 plus costs. As the amount awarded to the plaintiff was less than what the defendant had offered, the defendant sought to obtain costs.
The trial judge concluded that she had the discretion to consider the two “non-Rule” compliant offers made by the defendant in determining costs. She admitted the two offers into evidence and exercised her discretion to deny the defendant’s plea for trial costs. Instead, she awarded trial costs to the plaintiff.

In regards to the first offer of $350,000, she declined to make an award for costs to the Defendant because:

1. the offer was made only a week before trial,
2. it was only $3,260 more than the judgement,
3. it was exactly the same offer the plaintiff had put forward two and a half months earlier, and
4. the defendant could have taken advantage of the formal offer to settle process set forth in Rule 4.24(1) by simply serving the offer a few days earlier.

The trial judge rejected the defendant’s second offer of $360,000 as neither reasonable nor genuine.

In March 2014, more than two years after the judgment, the plaintiff in Chisholm brought an application to have the Court of Appeal reconsider an earlier 2010 Court of Appeal decision (Mahe v Boulianne, 2010 ABCA 74 ("Mahe")) on how informal settlement offers were to be treated by the Court on the issue of costs. It is rare for the Court of Appeal to agree to reconsider one of its earlier decisions and notwithstanding that Mahe was only four years old, leave was granted.

In Mahe, the plaintiff commenced an action against the defendant after the plaintiff was injured while working on the defendant's farm. The defendant made a settlement offer to pay $500,000 to the plaintiff. The offer was made "without prejudice" but was not a formal settlement offer under the Rules. It was rejected by the plaintiff. After trial, the plaintiff received a damage award of $365,000. The defendant sought, and was awarded, double costs from the time of the offer to the conclusion of the appeal.

The Court in Mahe held that offers of settlement are always privileged, which means they cannot be entered into evidence as admissions or otherwise. However, that privilege is subject to an exemption. The Court found that "'without prejudice' privilege is presumed to expire once the merits of the dispute have been decided." Thus, settlement offers, including informal ones that do not comply with the Rules, can be referred to when costs are addressed.

At the Court of Appeal, the plaintiff in Chisholm sought a declaration that Mahe was no longer good law and that “without prejudice” privilege settlement offers that did not include an explicit reservation of publication rights could not be taken into account on costs unless the parties consented to their admissibility. The defendant cross-appealed, challenging the costs award on the basis the trial judge erred in declining to consider her non-compliant settlement offers.

Notwithstanding that leave was granted by the Court to reconsider Mahe, when the Court of Appeal rendered its decision in Chisholm, it specifically declined to reconsider Mahe. The Court of Appeal found that the trial judge's reasons for denying the defendant's costs were proper and the appeal was dismissed.

The Court stated that a reconsideration of Mahe on the facts of Chisholm was inappropriate if not moot. As such, having had the opportunity to state that informal offers cannot be taken into consideration but refusing to do so, the result is that Mahe remains good law and a trial judge is permitted to take into account informal settlement offers when assessing costs in the litigation.