The Ontario Court of Appeal’s October 29, 2015 decision in Puri Consulting Limited v. Kim Orr Barristers PC is a cautionary tale about the importance of familiarity with the specific provisions of Rule 49 of the Ontario Rules of Civil Procedure, particularly the consequences of Rule 49.07(5) if an offer to settle is silent on the issue of costs. It is also an interesting case-in-point about how the much-discussed Sattva Capital Corp. v. Creston Moly Corp. (e.g., here and here), though generally mandating a high degree of appellate deference, can nonetheless result in little or no deference being owed to a judge who “fail[s] to consider the factual matrix when interpreting [a] concluded agreement” (para. 3).

Background

This appeal arose from an action concerning an account for services. Relatively early in the proceeding, the plaintiff offered to settle on the terms of “payment by the defendant to the plaintiff in the amount of $50,000, plus HST, in full and complete satisfaction of the plaintiff’s claim.” The defendant accepted the offer to settle days before trial. The defendant paid the plaintiff $56,000 (representing the $50,000, plus HST). Shortly thereafter, the plaintiff took the position that the offer was exclusive of costs and, pursuant to Rule 49.07(5)(b), as the “accepted offer to settle [did] not provide for the disposition of costs, [it was] entitled […] to [its] costs assessed to the date that the notice of acceptance was served”. The plaintiff thus brought a motion, to compel the defendant to pay its costs. The motion judge found the offer to be unambiguous, being for the “complete satisfaction of the plaintiff’s action” and thus inclusive of costs. Had she found ambiguity, she would have found that the offer included costs pursuant to the contra proferentem rule (holding that the ambiguous agreement should be construed against the interests of the plaintiff, who proffered it).

Appeal Decision

On appeal, Justice van Rensburg, for a unanimous Court, held that the motion judge had erred by:

  • interpreting certain words in the offer to settle excessively literally; and
  • ignoring the context of the offer to settle, including Rule 49.07(5), which expressly provides for the disposition of costs when an offer to settle does not expressly address this issue.

In the circumstances, and in light of Rule 49.07(5), she ordered that the defendant pay the plaintiff its costs. This only made sense in light of Rule 49’s purpose to encourage early settlement:

[30]      The respondent’s interpretation of the Offer, which interpretation was accepted by the motion judge, would mean that, rather than acting as an incentive to encourage early settlement, the value of the Offer would decline over time as the parties approached their trial date and the appellant’s legal costs increased.

[…]

[33]      The motion judge erred in this case by failing to interpret the Offer and acceptance in the relevant context of the litigation and rule 49. As for her reference to applying the doctrine of contra proferentem to the Offer, there was no reason to resort to this principle without first attempting to determine the meaning of the agreement by reference to the factual matrix.

[34]      Interpreting the Offer in the relevant context, it did not provide for the disposition of the appellant’s costs. Accordingly, r. 49.07(5)(b) applies, and the appellant is entitled to costs, in addition to the amount paid by the respondent.

Implications of Sattva

Normally Sattva results in deference being given to a first-instance interpretation of a contract (including, presumably, a settlement agreement). However, that was not the case here. Rather, Justice van Rensburg held that the motion judge’s failure to consider the factual circumstances in which the offer to settle was made warranted appellate intervention.

In other words, this case is not just a helpful reminder to counsel of the need to be aware of the implications of Rule 49.07. Rather, it also illustrates that a judge’s failure to consider the factual circumstances surrounding a contract may itself amount to a reversible error, leading to a successful appeal.