Costs — Do Offers to Settle Need "an Element of Compromise"?
Generally speaking a successful party is entitled to his or her costs. Usually, those costs will be awarded on a partial indemnity basis. A party can obtain higher costs on a “substantial indemnity” basis by making an offer to settle and doing as well or better than the offer. A successful party can be awarded even higher costs, on a full indemnity basis, if it can be shown that the other party has acted in bad faith. Bad faith has been defined to mean acting with an ulterior motive intended to harm the other party.
Regrettably, it is not uncommon in family law cases to see people acting with ulterior motives to harm the other party — usually a spouse!
An award of costs on a “substantial indemnity” is usually made when a party makes an offer to settle and the outcome of the hearing is as good or better than the party’s offer. However, in the recent case of Murphy v. Murphy, Justice Spies of the Ontario Superior Court found that an offer to settle must also contain an “element of compromise” before the court will award a higher level of costs.
In the Murphy case, one party offered to settle on the basis that the moving party would withdraw his motion and there would be no costs. However, in order to do so, the offer required the moving party to accept the offer within 27 hours. The offer provided that even if the motion was withdrawn after that time, the responding party would be entitled to her costs as “fixed by the court” (whatever that meant).
Ultimately the husband withdrew his motion, but only after the start of argument.
Justice Spies denied the successful party a higher costs award because there was no element of compromise in that party’s offer. By giving the moving party only 27 hours to consider the offer, and then taking the position that costs would be payable thereafter, the offer contained no real element of compromise according to Justice Spies.
What was the element of compromise worth? The wife claimed that her “full indemnity costs” were $79,000.00. Justice Spies awarded the wife $27,000.00.
This case is interesting because the Family Law Rules make no mention of the need for an element of compromise in offers to settle. The court relied on case law authority from a 2000 decision of Supreme Court of Canada in finding that such an element was required.