Informal Settlement Offers and Costs

The Alberta Court of Appeal decision of Chisholm v Lindsay ("Chisholm") released last month was expected to reconsider an earlier Court of Appeal decision (Mahe v Boulianne ("Mahe")) on how informal settlement offers were to be treated by the Court on the issue of costs.

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 Alberta Rules of Court ("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 based on the informal offer.

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.

In March 2014, the plaintiff in Chisholm brought an application to have the Court of Appeal reconsider the Mahe decision. 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 Chisholm the plaintiff had suffered from injuries as a result of a motor vehicle accident. Liability was not in dispute. The trial judge awarded damages of $346,734. However, the defendant had made two informal settlement offers of $350,000 and $360,000 and sought to obtain costs since the plaintiff recovered an amount less than what was offered. The trial judge concluded that she had the discretion to consider the offers made by the defendant in determining costs. She admitted the two offers into evidence but exercised her discretion and denied the defendant any costs, because the informal offers were made days before the trial started. Instead, she awarded trial costs to the plaintiff.

At the Court of Appeal the plaintiff sought a declaration that Mahe was no longer good law and that informal offers could not be taken into account on costs. The defendant wanted the Court to impose cost consequences against the plaintiff for not accepting the informal offer.

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.