How Can You Win Your Trial But Still Lose? Cost Awards and Formal Offers to Settle.
I recently read an interesting post by my colleague Erik Magraken who writes about injury claims in British Columbia. The article Defence Medico-Legal “Vacuum” Defeats Post Trial Costs Application discussed a claim for costs by ICBC (British Columbia’s provincial auto insurance fund) against a plaintiff who had won at trial but failed to beat a pre-trial settlement offer.
Loser Pays Rule
Canada has what is commonly referred to as a “loser pays” rule. In other words, the party that loses a trial is usually ordered to pay a contribution to the winning party’s legal expenses and out of pocket costs.
Nova Scotia’s “Loser Pays” Rule
The Nova Scotia Barristers Society makes the following recommendations regarding the awarding of costs following an unsuccessful offer to settle:
If a party makes a (rejected) offer to settle and then continues on to win at trial a judge may award costs based on the tariffs but increased by the following percentages:
(a) 100% if the formal settlement offer is made less than 25 days after pleadings close;
(b) 75% if the formal settlement offer is made more than 25 days after pleadings close but before setting down;
(c) 50% if the offer is made after setting down but before the finish date, and;
(d) 25% if the offer is made after the finish date.
I have written about how this “loser pays” rule can be a real hurdle for plaintiffs seeking access to justice.
See for example: Canada’s “Loser Pays” Rule Not Fair to Medical Malpractice Victims or Costs in Medical Malpractice Claims Can be a Barrier to Justice.
In theory, the rule is hard to argue with. In practice, the rule can pose serious disadvantages to plaintiffs in complex personal injury claims like medical malpractice suits where cost awards can be in the hundreds of thousands of dollars.
Think of it this way: if you were seriously injured you would likely be out of work, you would have bills piling up. Your lawyer tells you that if you file a lawsuit and lose you may have to pay the defendant tens of thousands of dollars to cover their legal fees and out of pocket expenses. Would you want to proceed?
Winner May Still “Lose”
Even worse, there are circumstances where you can win your trial, but still lose when it comes to the issue of costs. The rule can be applied against you if you win at trial, but don’t beat the other party’s best pre-trial offer.
“Loser” May Still Get Costs Paid
In Nova Scotia, the rule is as follows:
If a party does not win at trial but obtains a favourable judgement, then the following percentages could be applied:
(a) 100% of the amount the tariffs would provide had the party been successful, if the offer is made less than 25 days after pleadings close;
(b) 75% of that amount if the offer is made more than 25 days after pleadings close but before setting down;
(c) 60% of that amount if the offer is made after setting down but before the finish date, and;
(d) Nothing if the offer is made after the finish date.
Judge is the Gatekeeper of Justice
Fortunately the role of the judge in every trial is to ensure fairness to all of the parties giving consideration to all of the circumstances.
This brings me back to Erik’s article. In the case Erik reviewed: Paskall v. Scheithauer, the plaintiff was injured in a motor vehicle accident. At trial she claimed damages of approximately $2,000,000.00.
Before the trial, the provincial insurance fund made a formal offer to settle the claim for $700,000.00. The plaintiff rejected the offer.
Wins But Loses
Fortunately the plaintiff won her trial.
Unfortunately, she was only awarded damages of about $65,000.00.
Although the plaintiff won her trial it must have felt like a hollow victory, since she was offered a much larger amount before the trial began.
In B.C. as in N.S. where a party “wins” the trial but does not beat a previous formal offer to settle, the court has the discretion to award costs against the “successful” party.
Cost Awards Discretionary
In Paskall, ICBC sought an order for costs against the plaintiff and argued it’s formal settlement offer “ought to have been accepted.”
The first issue to remember is that in Nova Scotia, and in other provinces like British Columbia, judges may award costs at their discretion.
In the Paskall case, the judge noted the variety of issues the plaintiff and her lawyer had to consider in order to determine if the offer to settle was reasonable:
 In order to determine whether an offer is reasonable and ought to be accepted, the plaintiff must be able to consider it in relation to the evidence expected at trial and the apparent range of possible outcomes. In a personal injury case, that exercise usually includes consideration of conflicting medical opinions, along with the possibility and likely consequences of the court preferring certain opinions over others. Plaintiff’s counsel who is relying on an opinion from Dr. X can advise his or her client of the reduction in damages that may result from the court rejecting the evidence of Dr. X and accepting the opinion of Dr. Y that is being relied on by the defendant.
 In this case, the evidence relied on by the plaintiff included opinions of a neuroradiologist, a neuropsychologist, a psychiatrist, an otolaryngologist and two physiatrists. The only experts put forward by the defendant on the question of damages were the occupational therapist dealing with cost of future care and the economist. The defendant served no medical expert opinions, although the plaintiff had attended two independent medical examinations at the request of defence counsel.
The Court ruled that the plaintiff could not make a determination as to whether the defendants offer was reasonable, because the defendant had failed to put forward all of the evidence it had available.
As a result, the judge dismissed ICBC’s application for costs stating:
 … I am not only unable to say the offers ought reasonably to have been accepted, but I find that they could not reasonably have been accepted in the context of the evidentiary vacuum in which they were presented. I conclude the plaintiff is entitled to her costs as if the offers had not been made.
It’s All About Justice
The purpose of awarding costs to the victor is to discourage plaintiffs from starting frivolous law suits and to encourage settlement. The problem is that it can result in people with valid cases being scared away from pursuing their claim.
But at the end of the day, trials are about access to justice.
The recent BC case is a great example of a judge exercising discretion to prevent what would have clearly been an unjust result.