peering over the plaintiffs' and defendants' parapets

The Xdvocdtes' QudrterlyVolume 30, Number 3 October 2005

PEERING OVER THE PLAINTIFFS' ANDDEFENDANTS' PARAPETS: REDESIGNINGONTARIO RULE 49 TO ENCOURAGEMEANINGFUL OFFERS OF SETTLEMENT

R. Lee Akazaki*

1. SynopsisIn 2005, a proposal for amendment of the rule that governs offers to

settle in the Ontario Rules of Civil Procedure' has brought to a head asimmering controversy over a perceived disparity of outcome in thedesign of rule 49.10. Under rule 49.10(1), a plaintiff who achieves amonetary judgment equal to or better than a pre-trial plaintiff's offer ofsettlement is entitled to costs on a partial indemnity scale to the date ofthe offer, and to substantial indemnity costs thereafter. Rule 49.10(2),however, provides that if the recovery at trial is equal to or less than adefendant's pre-trial offer, the plaintiff recovers partial indemnity coststo the date of the offer, and the defendant is entitled to partialindemnity costs thereafter. The introduction to the Ontario RulesSecretariat's' Consultation Paper stated:2

In 2002 and 2003, the Civil Rules Committee directed its Secretariat toconsult with the bench, bar, and the public about the desirability ofamending the offer to settle rule to address the use of "escalating costsprovisions" in offers to settle. As a result of the responses received, theCivil Rules Committee decided that no amendments should be made on

* Of the Ontario Bar. The origin of this paper was a July 28, 2005, response by theauthor to the Consultation Paper of the Rules Secretariat for the Ontario Courts'Civil Rules Committee. This earlier draft was mentioned in the submission datedAugust 12, 2005, by the Civil Litigation Section of the Ontario Bar Associationto the same Consultation Paper.

1. R.R.O. 1990, Reg. 194.2. Consultation Paper of the Rules Secretariat for the Ontario Courts' Civil Rules

Committee, "Consultation on Rule 49 (Offer to Settle)" (the Consultation Paper),atp. 1.

28511 - 30 A.Q.

286 The Advocates' Quarterly

account of escalating costs provisions. However, the responses revealedthat there may be a problem in the operation of the offer to settle rule. Theproblem is the asymmetrical operation of the rule.

The authors of the Consultation Paper argued forcefully that thisregime favours defendants, in that defendants under rule 49.10(2)obtain both a "costs holiday" in not having to pay costs, and a bonusin recovering costs from a plaintiff who, nevertheless, won at trial. Inother words, plaintiffs are afforded one cost-shifting, and defendantstwo.

The position that the current design of Rule 49 favours defendantsderives its logic from an incomplete view of the range of post-trial out-comes. Rule 49 altogether excludes any cost-shifting3 consequence inthe event the defendant is successful in the action.4 The logical sourceof the asymmetry is that rule 49.10(2) is not a proper analogue torule 49.10(1), in that no costs-shifting benefit is provided to a defen-dant who submitted a bona fide pre-trial offer and goes on to succeedat trial. When all potential litigation outcomes are lined up in a contin-uum, it is evident that the current design favours plaintiffs. This is theasymmetry in the rule.' Indeed, in the response of the Ontario BarAssociation's Civil Litigation Section to the Consultation Paper, it waspointed out that there is some evidence of judicial exercise of discre-tion to "redress" this very "anomaly" (although it was later held toapply only to extreme cases).6

As with many anomalous provisions in rules governing parties' eco-nomic behaviour, there can be undesired consequences. Here, the prob-lem with the current design of rule 49.10 lies in the absence of anincentive to the defendant where liability is strongly in doubt.7 The

3. In this article, "cost-shifting" is an inclusive phrase that incorporates the variousmethods by which an offer-to-settle rule can be designed to alter the ordinary out-come that costs partially indemnify the victor, for example, "costs uplift" and"costs holiday". While such distinctions may allow creative manipulation of costsincentives, they would unduly complicate the policy analysis here.

4. As acknowledged by the Court of Appeal for Ontario, in S & A Strasser Ltd. v.Richmond Hill (Town) (1990), 1 O.R. (3d) 243 at p. 245,45 O.A.C. 394,49 C.P.C.(2d) 234 (C.A.), when it said that "the rule has no application where the plaintifffails to recover any judgment".

5. A view shared by the Civil Litigation Section of the Ontario Bar Association, asstated in its response to the Consultation Paper, dated August 12, 2005, whichderived some elements from the original draft of this article. The contrary viewwas expressed in the Ontario Trial Lawyers Association submission, datedSeptember 25, 2003, available at <www.otla.com>.

6. Ibid., at p. 2 of the Ontario Bar Association Civil Litigation Section's response,referring to S. & A. Strasser Ltd. v. Richmond Hill, supra, footnote 4.

7. I use the word "doubt", as opposed to "dispute", because it better captures theprospective thinking of the defendant, whose behaviour we seek to alter in

[Vol. 30

Redesigning Ontario Rule 49 287

lack of a true analogue to rule 49.10(1) can discourage some defen-dants from submitting a bona fide offer of settlement. This "market"distortion ultimately is to the detriment of plaintiffs because fewercases weak on liability will settle.

The debate over the fairness of post-trial outcomes in the currentdesign of Rule 49 has largely focused on manipulating the range ofoutcomes. The Civil Rules Committee has been urged either to makerule 49.10(1) more rewarding for plaintiffs or to reduce costs-shiftingfor defendants under rule 49.10(2) to only a "costs holiday" (viz.simply that plaintiffs recover no costs from the date of the defendant'ssuccessful offer). The approach is pathological in that it only views theeffect of "dead" offers, i.e. those that failed to lead to a negotiatedsettlement. The intent of rule 49.10 was not to distribute an add-onrecovery at trial. That is the purpose of Rule 57, which governs thecosts of proceedings. Rule 49 is not a rule about costs but is insteadabout offers to settle, and costs remedies are enlisted as a means ofencouraging offers and acceptance of offers. As living instrumentsaffecting litigants' behaviour, the costs remedies under Rule 49 mustbe evaluated in relation to goals such as encouragement of settlement,access to justice and righting economic imbalances while the resultstill has not been decided. The economic incentive or disincentive tomake offers of settlement depends not so much on membership in aclass of litigants (plaintiff or defendant, individual or institutional), butmore on factors that could affect either side, such as disparity inanticipated first-party litigation expenses.

2. Assumptions Made by the Consultation PaperThe Consultation Paper made crucial assumptions about the civil

litigation process in Ontario. In order to understand the broader per-spective informing the discussion in that document, it is worth settingout these assumptions here:1. Current incentives under Rule 49 are asymmetrical in that the cur-

rent design favours defendants.2. The analysis is based on a general fact scenario in which the plain-

tiff wins the case.3. As a class, plaintiffs are more risk-adverse than defendants, many of

whom are institutions positioned to take risks.4. Each party has spent the same amount of time on the matter and

therefore faces the same legal expenses.

encouraging genuine offers to settle even where the plaintiff's case is consideredweaker than that of the defence.

2005]


3. AsymmetryThe Consultation Paper assumed that there is asymmetry in the cost

consequences of Rule 49. In fact, the analysis leading to this conclu-sion can be logically considered only if one restricts the inquiry tocases in which the plaintiff succeeds in recovering at least one dollarin the judgment: "the plaintiff ... who, keep in mind, won the case".This is a skewed vision of the judicial process as being one that isdevoted solely to compensation of aggrieved plaintiffs. Courts mustfirst decide whether plaintiffs have suffered any damages, and thenwhether the defendant is liable. The element of disputed liability addsa level of complexity to the economic analysis that has not beenadequately undertaken by legal scholars.'

At present, Rule 49 provides neither a cost sanction for a plaintiffnor an incentive for a defendant in the event that the defendant suc-ceeds to have the action dismissed. If the trial judge or jury dismissesthe action altogether, whether because no wrong or breach has beencommitted, or because no damages were suffered by the plaintiff, aRule 49 offer made by a defendant has no effect. This may deservedlybe inconsequential if the defendant's Rule 49 offer were for "nuisancevalue" or an offer simply to waive costs. But equally inconsequentialis a serious offer made by a defendant. In both such instances, no costconsequences follow, as the plaintiff will be ordered to pay costs on apartial indemnity scale, as if no offer were made.

Thus, the view that the current rule favours plaintiffs fails to addressthe absence of reward (or penalty to the plaintiff for failure to acceptan offer) for a bona fide offer made by a defendant to compromise thecase where the outcome is dismissal of the action. For example, if theplaintiff's damages are assessed at trial in the amount of $100,000,there are cost advantages to a plaintiff who made a Rule 49 offer in theamount of $90,000, in that partial indemnity costs are awarded to thedate of the offer, and substantial indemnity costs are awarded from thedate of the offer to the conclusion of trial. If the defendant wins onliability, he or she is awarded partial indemnity costs. If the defendantmade an offer of $50,000 and the plaintiff lost at trial, the sameresult of partial indemnity costs arises, as if no offer were made by the

8. Consultation Paper, supra, footnote 2, at p. 3.9. Bebchuk and Chang (Stanford Law School), "The Effect of Offer-of-Settlement

Rules on the Terms of Settlement" (1999), 28 J. Leg. Stud. 489, from the workingpaper published at <http://papers.ssm.com/paper.tafabstractid=86752>, which canbe downloaded from <http://papers.ssrn.com/paper.tafabstractid=86752>. Thecitation is from p. 21 of the working paper: "To produce settlements equal toexpected trial outcomes in cases of disputed liability, offer-of-settlement ruleswould have to be more complex; we leave this subject to future research."

[Vol. 30


defendant. Clearly the costs of trial amount to unnecessary costs if theplaintiff gave up a bona fide opportunity to settle the case and lost attrial. The action, in hindsight, should have been settled for $50,000,and the trial should not have taken place.

Our Court of Appeal has held that an element of compromise is notan essential feature of an offer to settle, but fairness is a relevant con-sideration to override the mechanical operation of Rule 49: CelaneseCanada Inc. v. Canadian National Railway Co.'0 This decision arosefrom a line of cases in which plaintiffs made strategic offers of settle-ment for almost the whole value of the claim." While the same type ofdiscretionary saving may be made in the case where a defendant makesa "nuisance value" offer, there remains an injustice where the plaintiffin a failed action incurs no additional cost consequence for havingrejected an offer of settlement made by the defendant in the range of50% or better, or where the case is dismissed but the offer exceeds theamount of assessed damages reduced by the trial judge's assessment ofrisk. If compromise is not essential to a tactical offer to settle, this doesnot mean that the courts should ignore a genuine use by a defendant touse a Rule 49 offer in aid of settlement.

It may be helpful to illustrate this point by revisiting the fact sce-nario in the Consultation Paper, where the successful plaintiff made aRule 49 offer and recovers $45,500 in costs: 2

Let us assume that at the time of the offer each side has spent the sameamount of time on the matter and that it would be appropriate to calcu-late partial indemnity costs up to the time of the offer at $14,000. Let usalso assume that, by the end of the trial, each party spent a further equiv-alent amount of time on the case and the post-offer costs would be$21,000 on a partial indemnity scale and $31,500 on a substantial indem-nity scale.If the plaintiff's offer is successful (i.e. she beats the offer at trial) theplaintiff's costs recovery will be $14,000 (partial indemnity costs to thedate of the offer) plus $31,500 (substantial indemnity costs from the timeof the offer until the close of the trial), for a total of $45,500. In contrast,if the defendant's offer is successful (i.e. the plaintiff failed to do betterthan the defendant's offer) the plaintiff (who, keep in mind, won the case)

10. [2005] O.J. No. 1122 (QL) at para. 33, 196 O.A.C. 60 (C.A.).11. See Data General (Canada) Ltd. v. Molnar Systems Group Inc. (1991), 6 O.R.

(3d) 409, 85 D.L.R. (4th) 392, 52 O.A.C. 212 (C.A.) (a compromise of 13%);Walker Estate v. York-Finch General Hospital (1999), 169 D.L.R. (4th) 689, 43O.R. (3d) 461, 118 O.A.C. 217 (C.A.), affd on other grounds [2001] 1 S.C.R. 647,198 D.L.R. (4th) 193, 145 O.A.C. 302 (a compromise of 1/8000 of a liquidatedclaim).

12. Consultation Paper, supra, footnote 2, at p. 3.

2005]


will recover $14,000 (partial indemnity costs to the time of the offer) andmust pay the defendant $21,000 (the partial indemnity costs from thetime of the offer till the completion of the trial). The net result in this caseis that the plaintiff is out of pocket $7,000 with regard to costs.

If the defendant made a successful Rule 49 offer, the defendantrecovers a net amount of $7,000 in costs. If the rule were truly sym-metrical, a defendant who has served a good offer and wins the casealtogether should recover $45,000 in costs. Accordingly, Rule 49 ascurrently framed is asymmetrical in the plaintiff's favour. This imbal-ance is demonstrated in Table I below. Under the current rule, theresult of a significant bonafide defendant's offer in a plaintiff's victoryis not analogous to a hypothetical result in a defendant's victory. Thedifference is a $54,000 current difference favouring the plaintiff whenone takes into account hypothetical comparative swing results. If thecosts consequences in all four columns are implemented, there wouldbe a net $42,000 advantage to defendants, because Column #2 isanomalous. For there to be true parity between outcomes, the currentcosts rule in Column #2 must be eliminated in favour of the postulat-ed costs rule in Column #4. If the current costs rule in Column #2 is tobe preserved at the same time as legislating the costs rule in Column#4, it is possible to design a formula that overcomes the disparityfavouring the defendant. However, such a formula is likely to be muchmore complex than any of the present underlying designs of the rule.It may also be possible to amend the costs rule in Column #2 to restoreparity without Column #4, but the formula would further erode theprinciple that costs are to be awarded to a successful plaintiff. Unlessone chooses to eliminate the rule in Column #2, there is present dis-parity favouring plaintiffs without the rule in Column #4, and therewould be a disparity favouring defendants if the postulated ruleColumn #4 were adopted.

Table 1

Column #1 Column#2 Column #3 Column #4Plaintiff Wins Plaintiff Wins Defendant Wins Defendant Wins

Plaintiff's offer Defendant's offer Defendant's offer Defendant's offermeets or exceeds meets or exceeds does not meet or meets or exceedsjudgment at trial, judgment at trial, exceed assessed assessed damages,

damages, or no or is a significantoffer by defendant, offer of compromise.

Plaintiff recovers Plaintiff recovers Defendant recovers Defendant recoverssubstantial partial indemnity partial indemnity partial indemnityindemnity costs costs to date of costs. Defendant costs. Defendant

[Vol. 30


from date of offer, offer, and recovers $35,000 recovers $35,000or $45,500 under defendant recovers under scenario in under scenario inscenario in partial indemnity Consultation Paper. Consultation Paper.Consultation Paper costs thereafter. Defendant's offer

Net recovery to has no consequence.defendant of $7,000under scenario inConsultation Paper.

$10,500 advantage $42,000 advantage Ordinary result. Ordinary result.over ordinary result. over ordinary result. Absence of $96,000

swing compared to$96,000 swing analogous result forcompared to plaintiff's win withanalogous result comparable offer byfor defendant's win plaintiff.with comparableoffer by defendant, $54,000 netif equivalent rule imbalance favourswere to apply to plaintiff.defendant's offer.

If we restrict our focus to the incomplete range of outcomes ofRule 49, the Consultation Paper is correct that there is a flaw in thesymmetry favouring defendants. If the rule were amended to includean incentive to a successful defendant, rule 49.10(2) would becomeanomalous because there can be no similar rule benefiting a plaintiff.This, ultimately, is the logical source of the issue addressed in theConsultation Paper. The rule in Column #2, rule 49.10(2), is a conces-sion to defendants designed to encourage offers from defendants inlimited circumstances. Without defendants making offers, disputestend not to settle. However, it is obviously desirable to encourageoffers from defendants in cases where the plaintiff recovers damages attrial. For this reason, it is difficult to consider eliminating rule 49.10(2)even though it is incapable of having an analogue where the action isdismissed. If we accept that the consensual resolution of disputes isgood public policy, there is no reason why we should not encourageoffers from a defendant who goes on to win the case outright. Althoughthis policy choice would likely favour defendants, from a retrospectiveor post-trial perspective, it is also vital to understand that we use cost-shifting incentives to influence parties' behaviour prospectively, inmid-process, where the outcome remains uncertain. Rule 49 is aninstrument not only of justice (distributive or corrective) but also,perhaps more importantly, of stimulus of human behaviour within thelitigation process toward alternative dispute resolution. An offer-to-settle

20051


rule is not intended to spur rights-based arguments over the spoils oflitigation, but to draw the parties back from the brink.

To counter the cry that a costs rule that disproportionately favoursdefendants is unfair to plaintiffs, it may also be argued that innocentdefendants should not pay anything. From a practical and juridicalstandpoint, the guilt or innocence of a defendant will never be estab-lished if the dispute is settled. That is a contingent innocence, and incivil disputes (as opposed to criminal litigation) a contingency musttake a back seat to more pressing issues such as social harmony, com-mercial certainty and judicial backlog clearance. Since the role of thetribunal places an institutional burden on plaintiffs to justify makingdefendants pay, a rule that modifies defendants' behaviour to encour-age them to pay instead of standing on their rights is marginally betterfor the legal system and for plaintiffs as an overall class of litigants.

4. Policy ConsiderationsIt is a truism that the Anglo-Canadian legal tradition does not favour

penalties or bonuses in the resolution of civil disputes, although it isnot uncommon in other jurisdictions. (Treble damages in U.S. anti-trust legislation, for example. Penalties or bonuses distort marketfactors for an overriding social or economic goal.) The RulesCommittee has a status quo with which it can "tinker", in that becauseof Rule 49 we already live with an element of penalty and sanctionthrough the award of partial or substantial indemnity for litigationcosts. The rule should not be disturbed lightly, at least without a tran-sitional provision, as it would apply retroactively to all pending civilactions (costs are procedural law). The remedy of cost-shifting in civilcases is borrowed from distributive justice principles, and appended tocommon-law substantive rules founded on corrective justice. Cost-shifting rules are designed in compromise between justice (fairness tothe parties) and a procedural policy toward consensual dispute resolu-tion that promotes civil order, reduction of court dockets and access tojustice (encouragement of settlements). This balance must not beignored to express political favouritism toward one perceived class oflitigant over another. The paradigmatic example of the "political"choice is the assumption that defendants are, as a class, institutional ormore capable of managing risk. This is a Manichaean oversimplifica-tion unsuitable for a rule applying to a diverse range of proceedings.Personal injury cases may often feature this power imbalance, butcommercial contract cases rarely do. In commercial cases, the labels"plaintiff" and "defendant" are often determined by the race to issuethe writ first, and not the nature of the underlying dispute. In debt pro-ceedings, plaintiffs are usually institutions and defendants are individuals

[Vol. 30


in financial trouble. This problem can partly, but by no means alto-gether, be addressed by measures such as Rule 36.2A of the CivilProcedure Rules of the courts of England and Wales, which treats per-sonal injury cases separately. (Part 36 of those Rules is much morecomplex than the model for our Rule 49.) Many defendants in civil dis-putes, including personal injury actions, are not defended by insurersor professional defence associations. In those cases without liabilityinsurers or defence funds, defendants face the same risk of financialruin as do injured plaintiffs.

If we are to deal with this issue from a neutral perspective, we muststart with the premise that the basic cost rule in the Anglo-Canadiantradition, that costs follow the event, has no overt bonuses or penalties.In such a regime, ordinary partial indemnity costs sanctions do encour-age settlement in that intransigent parties, whether plaintiff or defen-dant, face equal additional consequences for litigating an unmeritori-ous claim or defence. Residual discretionary power allowing judges tooverride costs rules only help to address inequities in extreme cases.

In the absence of Rule 49 or another cost-shifting rule, "settlementamounts can be expected to deviate from the expected judgment infavour of the party with lower litigation costs". 3 This is a hidden dis-parity within an overtly non-discriminatory costs r6gime. The rationalefor this conclusion is that the party with the lower litigation costs willhave less at stake than the party with higher litigation costs. Thereasoning is taken to its extreme in forums where each side bears hisor her own costs no matter what the substantive result at trial or onappeal (the traditional model in the United States). The lower the trans-action cost of litigation procedures, the more parties are encouraged totake their chances at trial. After deducting the "cost of doing business",they may feel they have "nothing to lose" by playing a perceived judi-cial lottery. Parties who are at a traditional tactical advantage, such asdefendants in medical negligence cases, 4 might also be even lessaffected by litigation costs because the substantive law is stacked intheir favour. The same can also be said of plaintiffs in many non-iatrogenic personal injury cases, such as municipal trip-and-fall cases,where there is a low risk of dismissal and often the only serious liveissue is the quantum of damages.

True asymmetry, based on labeling one side David and the otherside Goliath, can only be measured on a case-by-case basis, and it is

13. Bebchuk and Chang, supra, footnote 9, at p. 4 of the working paper.14. Akazaki, "Medical Malpractice in Crisis" (1999), 21 Adv. Q. 163 at pp. 170-71

and Sappideen, "Look Before You Leap: Reform of Medical MalpracticeLiability" (1991), 13 Syd. L. Rev. 523 at pp. 527-28.

20051


impossible to use normative principles to forge a "one-size-fits-all"solution that perfectly balances symmetry (equality of range of out-comes) and encouragement of settlement. It is also difficult to do so ina way that is readily understood by unrepresented litigants, clients, andlawyers outside the litigation bar. 5

The Consultation Paper did not call for a major overhaul of Rule 49.However, sight must not be lost of the fact that any reform of Rule 49must be informed by a "back to basics" approach to the policy of therule as part of overall promotion of settlements. An important part ofsuch an approach is to encourage bona fide attempts at settlement byboth parties to a civil dispute. The Consultation Paper engages solelyin dealing with a perceived (incorrectly perceived) distributive asym-metry in the post-trial outcome. As we consider this point, we mustalso keep at the back of our minds the fact that symmetry is not neces-sarily the hallmark of fairness. The litigation process, in proceduraland substantive law, features numerous burdens and presumptions, thechief of which lies on the plaintiff to prove both liability and damages.Human nature also weighs heavily on judges to exercise caution beforecalling on one party to pay another.

The critical flaw in the Consultation Paper's methodology is thetreatment of costs consequences under rule 49.10 as an extension ofsubstantive law to be resolved after trial. In fact, the genus of the ruleis procedural and its true influence is intended to work before trial.Thus, our attention should be devoted more to designing costs rulesthat encourage settlements before battle-lines are drawn for trial. Ourperspective must be shifted to mid-process, rather than a post-trial allo-cation. It is then possible to see the contemporary litigation process asone that encourages a common quest by adversaries for a middleground before justice is imposed by a final arbiter. This means that therules of court should encourage more genuine offers from defendantseven where liability is strongly disputed. At present, a case in which adefendant, objectively speaking, has a strong case offers no incentiveto the defendant to put forward a significant offer. For example, adefendant well-advised by a good lawyer could imagine a 70% likeli-hood of success at trial. The balance of probabilities requires a dra-matic swing in the plaintiff's favour, but in practice few defendantswould offer 30% of the plaintiff's claim because chance in litigation isnot properly measured by odds but by the strength or weakness ofone's case. These are not the odds of a lottery, but rather the chancesof a 70 kg wrestler in a ring with a 30 kg child. In a $100,000 case inthe current r6gime, the defendant would consider an offer of nuisance

15. Cf. the England and Wales Rule 36, which runs 11 pages long.

[VOL. 30


value but not $30,000. If, however, to advance such an offer prior totrial could lead to an award of substantial indemnity costs, the defen-dant's thinking would begin to change and the equation might then beviewed in terms of odds. If 70/30 were the odds, a defendant could beencouraged to offer $30,000, because it represents a serious offer. Aplaintiff, with equally competent counsel, should consider a 30/70 caseto be one of questionable merit. If the amount offered equated theodds, as opposed to relative strengths, the plaintiff could not pass onthe offer without some serious soul-searching.

At present, defendants are rewarded for putting in a careful but gen-uine offer only if they are likely to lose the case, but their successfulRule 49 offer meets or exceeds the plaintiff's damage assessment attrial. No presumptive cost-shifting rule exists to reward a defendantwho wins the case but has previously made a reasonable offer in orderto settle the claim out of court. If such a rule existed for defendants asit currently does for plaintiffs, defendants who feel they have astronger case on liability than their plaintiff counterparts would beencouraged to put more money on the table. In fact, where the first-party cost of defence is a significant factor, as it is in most cases, defen-dants (especially insurers) would be encouraged to estimate the cost oftrial preparation and trial and offer it up in a formal offer prior to suchexpenses being incurred in earnest. While it may be true, as theConsultation Paper implies, that this is a type of risk analysis that acertain group of the defendant class is used to making, the rules ofcourt should use this "human factor" to the advantage of promotingsettlements. The risk to a defendant with a strong defence in putting ina substantial offer is that the plaintiff might very well serve an accept-ance of the offer. As the rule currently stands, there is a built-in disin-centive for such risks being taken that artificially dampens the interestof a defendant who is not very worried about losing at trial. From alaw-and-economics standpoint, the "market" for settlements is skewedby the absence of economic consequence to a significant offer placedby a successful defendant. Using this market analysis, reform of Rule49 to provide defendants with a mirror-image of the successful plain-tiff's offer should have the effects of discouraging unmeritorious liti-gation and, at the same time, encouraging defendants to make moresubstantial and more frequent offers to plaintiffs even where there is astrong defence. In short, a cost-shifting rule encouraging good offersfrom defendants will in fact benefit plaintiffs in the long run.

The foregoing policy analysis calls for a true analogue to rule 49.10(1)for defendants, i.e. one which rewards defendants for making offerswhen the case is dismissed at trial. We must, however, deal with thefact that the range of outcomes becomes skewed in the defendants'

2005]


favour if rule 49.10(2) is preserved. As stated earlier, an asymmetricalrule is not necessarily unfair. If symmetry were the only reason tointroduce an analogue to rule 49.10(1), the argument would not carrymuch weight. If such an analogue were to encourage defence offerseven though cases go on to be dismissed, there is a good argument tointroduce it, even though the preservation of rule 49.10(2) wouldswing the current asymmetry in defendants' favour. In terms ofrange of outcomes, it could not be argued that a defence analogue torule 49.10(1) would provide a remedy that was not available to plaintiffs.The only reason for the overall skew, in a catalogue of outcomes, is thatthere is no logical plaintiffs' analogue to rule 49.10(2).

5. Future StudyWhether or not the above proposition is adopted, we still need to

consider the underlying principle that, in the absence of a cost-shiftingoffer-to-settle rule, no matter whether one is a plaintiff or defendant,the side that requires less cost to litigate will generally be more likelyto fancy his or her chances at trial. In order to address this case-by-caseskew in the likelihood of a party to settle (as opposed to any perceivedlegislated bias), we must question the assumption that each partyspends the same amount of time to prosecute a civil action as the otherside spends to defend one. In practice, most cases involve an imbal-ance. Cases involving more than one lawyer in succession tend to costmore due to duplication and the repair of tactical errors made by thepredecessor lawyer(s). Weaker cases or defences will require moreshoring up by experts and additional investigation or legal research toreach parity with the opponent at trial. In theory, an ideal offer-to-set-tle costs-shifting rule should address the imbalance created by a lowertransaction cost and risk to prosecute or defend a case by one side asopposed to another. A complex medical negligence suit, for example,in relative terms carries enormous risk to the plaintiff in terms of first-party legal expenses when compared to an automobile accident case.

It is likely impossible to design a rule of general application that issensitive to the wide diversity of cases and parties. Rule 49.10 shouldnot come to resemble the Income Tax Act. Nevertheless, this is a topicthat calls out for further study, not just by jurists but also by economistsand psychologists. The hope is not necessarily that further study willlead to a latticework design of complex rules covering every contin-gency. Rather, the ultimate reward of this work would be to provideinsights into the effects of offers to settle on the behaviour of civillitigants. Enhanced sensitivity among jurists will likely correct someinstitutional asymmetries. More importantly, there will be offers tosettle in cases where previously there might not have been.

[Vol. 30

peering over the plaintiffs' and defendants' parapets

Documents