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Double Trouble: Alberta Court of Appeal Clarifies the Rules Regarding Formal Offers to Settle and Double Costs Awards

Double Trouble: Alberta Court of Appeal Clarifies the Rules Regarding Formal Offers to Settle and Double Costs Awards
By  Keith Marlowe, Amanda Manasterski and Chris Kim (Summer Student)
June 3, 2020

In its recent decision in H2S Solutions Ltd. v Tourmaline Oil Corp. (H2S Solutions), the Alberta Court of Appeal (Court) clarified the application of Rules 4.29 and 14.59 of the Alberta Rules of Court (Rules). These rules, commonly known as the “double costs” rules, govern formal offers to settle as well as the cost consequences associated with rejected formal offers to settle. The Court affirmed that, notwithstanding the mandatory language used in Rule 14.59(4), courts nevertheless retain the ultimate discretion to grant or refuse to award enhanced costs in connection with rejected formal offers to settle. In addition, the Court provided a helpful, non-exhaustive list of factors to be considered by courts when determining whether double costs arise from a formal offer to settle or not.

BACKGROUND

H2S Solutions (H2S) commenced a claim against Tourmaline Oil (Tourmaline) for outstanding interest payments. Tourmaline successfully applied for summary dismissal of H2S’s claim. H2S appealed. In connection with the appeal, Tourmaline made a formal offer to H2S to discontinue its appeal. In exchange, Tourmaline offered to forego appeal costs. The formal offer was made and had expired according to its terms before either party had filed its factum. H2S refused the formal offer and the Court dismissed its appeal. As Tourmaline was successful on appeal, the issue before the Court was whether Tourmaline was entitled to double costs from H2S as a result of Tourmaline’s formal offer to settle.

“DOUBLE COSTS”

Pursuant to Rule 4.29, a party may make a formal offer to settle at any time during the litigation. Pursuant to Rule 14.59, Rule 4.29 also applies to appeals. In the context of an appeal, the offer must be made no later than 10 days before the hearing of the appeal.

Pursuant to Rule 4.29, if a formal offer to settle is served on and rejected by an opposing party and the offering party obtains judgment or an order equal to or more favourable than their offer, the offering party is entitled to double costs for all steps taken in the action or appeal after service of their offer. Given these cost consequences, Rules 4.29 and 14.59 are known as the “double costs” rules.

Rule 4.29(4) outlines exceptions to the application of the double costs rules. Most of the exceptions are procedural. For example, Rule 4.29(4)(d) states that double costs may not be awarded if an offer is withdrawn. In addition, Rule 4.29(4)(e) is notable in that it allows a court to order that the double costs rules should not apply due to “special circumstances.”

In H2S Solutions, the Court affirmed that the purpose of the double costs rules is to encourage settlements and prevent unnecessary appeals. Parties that reject reasonable offers to settle and choose to risk a trial or appeal may be subject to double costs awards. On the other hand, the Court noted that formal offers that are not genuine will not attract double costs awards.

DECISION

In H2S Solutions, the Court ruled that Tourmaline was not entitled to double costs. The Court declined to award double costs because the Court concluded that Tourmaline’s offer was not a genuine offer of compromise, given, among other things, that Tourmaline had not incurred claimable costs at the time its offer was made and open for acceptance.

The Court further clarified the factors that should be considered when analyzing whether a formal offer to settle attracts double costs consequences:

Timing of the Offer

The Court noted that the timing and expiry date of a formal offer is an important factor when considering whether to award double costs. In H2S Solutions, the fact that Tourmaline had not incurred any costs within the time period in which its offer remained open was fatal to Tourmaline’s request for double costs. The Court stated that if an offer is made before the offering party incurs costs, but does not expire until after costs have been incurred, there is no principled basis for refusing to award double costs to the offering party. As the Court stated, “[t]he reason for this is that the offeree had the option of accepting the offer before any costs were incurred by the offeror, but did not. What began as an offer revealing no identifiable and sufficient compromise becomes, over the course of its currency, a genuine offer of compromise to forego costs accumulated.” In contrast, and as with Tourmaline’s offer, it is less likely that double costs will be awarded if the timing and circumstances of an offer suggest that the offer was made solely for the strategic attempt to trigger double costs, rather than as a genuine effort to compromise.

Content of the Offer

The Court reiterated that a formal offer must provide an identifiable and a sufficient compromise to attract double costs. Only these offers will be considered “genuine,” thereby triggering double costs. Frivolous offers that have no real prospect of being accepted are less likely to attract double costs. For example, a formulistic “think again” offer that includes only an option to either abandon or continue the appeal is unlikely to be considered a genuine offer. Conversely, a formal offer that includes a waiver of costs already awarded in the offering party’s favour or an agreement to forego a cross-appeal are likely to be considered genuine in nature.

Beyond de minimis

The Court stated that, for an offer to be identifiable, it must be outside the de minimis range. In other words, a court must be able to identify the compromise being made by the offering party. For example, an offer to settle part of a litigation or forego a previous award of costs would be identifiable. However, an offer to pay C$1, without more, is likely to be considered de minimis, and therefore not a genuine offer of compromise.

Special Circumstances

Finally, the Court maintained that these factors are subject to the “special circumstances” outlined in Rule 4.29(4)(e). A court may refuse to award double costs at its discretion, even if a formal offer satisfies some or all of the above factors. This may occur where the imposition of double costs would be unjust or would undermine the purpose of the Rules.

CONCLUSION

H2S Solutions clarifies the application of the double costs rules on appeal and provides further guidance about what factors courts will consider when determining if double costs should be awarded. The Court acknowledged that finding a unifying theme amongst the existing, competing jurisprudence is difficult. Therefore, no “hardline” rules apply. Instead, cases will be evaluated on a case-by-case basis. In light of the relevant factors provided by the Court, the decision to award double costs is ultimately predicated on whether the offer is genuine and in keeping with the spirit of the Rules.

For further information, please contact:

Keith Marlowe                           403-260-9632
Amanda Manasterski              403-260-9756

or any other member of our Litigation & Dispute Resolution group.