Two Key Points on Offers to Settle

Take an instance where defence counsel e-mails plaintiff’s counsel with a settlement offer of, say, $200,000 plus costs.  The plaintiff’s lawyer e-mails back to reject the offer and to make a counter-offer.

The defendant’s lawyer subsequently obtains surveillance which completely undermines the plaintiff’s case.  The surveillance is sent to the plaintiff’s lawyer.  The plaintiff’s lawyer then accepts the prior defence settlement offer.

Is there a binding settlement or was the defence settlement offer automatically off the table once it was rejected by the plaintiff’s lawyer?

Absent exceptional circumstances, there is a binding settlement.

The court’s decision in Magnotta et al v. Yu et al, 2020 ONSC 1049, provides two important points regarding offers to settle.

First, as long as an offer:  (1) is made in writing by a person with authority to make it, (2) is a proposal capable of acceptance, and (3) is served on the opposing party, it is generally an offer under rule 49 of the Rules of Civil Procedure.  A rule 49 offer does not need to be in a particular form and can be communicated in correspondence.

Moreover, an offer that is marked “without prejudice” has no impact on whether or not the offer is a rule 49 offer.  Pursuant to rule 49.05, a rule 49 offer is deemed to be made “without prejudice”.

Secondly, under rule 49.07, when a party rejects an offer or responds with a counter-offer, that party may nevertheless subsequently accept the offer, unless it has been withdrawn or unless the court has disposed of the claim.  This is a departure from the common law.

In the case at issue, the defendant’s lawyer made an offer by e-mail that was marked “without prejudice”.  The plaintiffs’ lawyer rejected the offer and provided a counter-offer.

Subsequently, the defendants retained new counsel and obtained an expert opinion which undermined the plaintiffs’ case.  The plaintiffs then accepted the defendants’ settlement offer.  The defendants’ new lawyer was not aware of the offer.

Justice Schabas held that the defendants’ offer was a valid rule 49 offer and was capable of acceptance.  The settlement was enforced.

Counsel must be mindful of all outstanding offers to settle and cannot assume that an offer is off the table because it was rejected or because a counter-offer was made.  In fact, an offer that meets the requirements of rule 49 remains open for acceptance unless it is withdrawn, either by putting a time limit on the offer or by explicitly withdrawing it.