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Offers to settle often include the following clause: “The defendant shall pay to the plaintiff disbursements and costs of this action in an amount to be assessed or agreed, pursuant to the Rules of Civil Procedure.

Perhaps not surprisingly, parties often cannot agree on the quantum of the costs figure post-settlement. So it’s off to the courthouse to have a judge rule on the quantum of costs to be paid out. But are the rules and considerations governing court discretion to award costs any different in the context of a settlement agreement? Absolutely.

In Campbell v Norbury, the Ontario Superior Court of Justice recently ruled on costs in relation to a clause identical to the one noted above – a clause that arose out of a settlement agreement. The court made some determinative statements about how costs in this context ought to be assessed.

First, and importantly, the judge evaluated the quantum of costs from the perspective of an assessment officer rather than exercising judicial discretion to award costs of a proceeding. In her explanation, Justice Mitchell stated there was already an agreement between the parties that costs would be paid; she was simply faced with determining what that dollar amount ought to be. To that end, she also refused to entertain the defendants argument that no costs should be awarded at all. In support of their position the defendants argued that the case settled for well under $100,000 and therefore ought to have been initiated under simplified procedure.

Justice Mitchell quite aptly pointed out that the defendant and offeror clearly agreed to pay some costs as evidenced in the terms of the offer -which are clear. They cannot now claim that no entitlement to costs exists. To further emphasize her point, Justice Mitchell acknowledged that there are objective and subjective incentives to accept an offer, and a promise of costs is a powerful incentive for a litigant. To conclude this point, Justice Mitchell noted that without the benefit of a trial on a proper evidentiary record, it was reasonable for the plaintiff to initiate the action under ordinary procedure.

Second, after establishing the plaintiff was entitled to costs, the Judge went through and analyzed the only bill of costs presented. The defendants did not submit a bill of costs for the purpose of comparison, which is something generally done when assessing the costs of a proceeding. Justice Mitchell reduced the bill of costs for certain steps taken during the life of the file that should not have been pursued (for example: drafting an amended statement of claim that was never issued) or items for which costs had already been reimbursed.

This well-reasoned decision ultimately awards the plaintiff majority of its submitted bill of costs, with reasonable reductions for improper steps or charges.

So what can we learn from this case?

Well, this is, in part, a lesson in drafting. When drafting an offer to settle, a party has just as much latitude to set a fixed dollar amount for costs rather than waiting to agree at a later date. In fact, this is prudent given the general reluctance to accede to another party’s full bill of costs. It also prevents parties from having to prepare for and attend court once a matter is effectively settled.

This is also an important lesson on ensuring you provide the court with all materials to effectively aid in the decision making process – particularly if such materials may help sway the judge in your favour. Had the defendant presented its own bill of costs for the purpose of comparison, the court may have awarded a lesser amount. It is always prudent to provide this kind of information, even if your own bill of costs is not being assessed.

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