02 Aug Explanation of Formal Offers
In most civil cases, the outcome is not entirely predictable. Generally speaking, there are three narratives to every case: (1) the plaintiff’s narrative; (2) the defendant’s narrative; and most importantly (3) the trial judge’s narrative, formed on review of all the admitted evidence. At some point before trial, most litigants would rather control their destiny and negotiate a settlement with the opposing side.
The Alberta Rules of Court includes a process to encourage settlement by placing the risk of liability for increased costs penalties on litigants who decline to accept a “formal offer.” The consequences of a refusal to accept a formal offer are as follows:
1. Where a defendant makes a formal offer of settlement that is not accepted, and the plaintiff is awarded that amount or less at trial, the plaintiff must pay the defendant’s legal costs for all steps taken in the litigation after the offer was served. If the plaintiff’s claim is dismissed outright, the defendant is entitled to “double costs” for all steps taken in the litigation after the offer was served.
2. Where a plaintiff makes a formal offer of settlement that is not accepted, and the plaintiff is awarded the amount of the offer or better at trial, then the plaintiff is entitled to double costs for those steps taken after the offer was served.
Formal offers are required to be written a certain way, and the Court has discretionary power not to award enhanced costs it judges the formal offer to be inappropriate. In addition, determining the timing and the amount of a formal offer requires a sober assessment of the merits of a case and an understanding of the litigation process. If served with a formal offer, is wise to seriously assess the strengths and weaknesses of your case in deciding whether to accept it. We recommend obtaining the advice of experienced counsel when making decisions within this process.
 “Costs” is a confusing term. It refers to a supplementary award of money the Court typically orders the unsuccessful party to pay to the successful party after a lawsuit is decided. This supplementary award is designed to partially offset legal fees. Legally, judges have the discretionary power to decide how much costs are awarded, but generally speaking they follow the “Tariff of Recoverable Fees” at Schedule C of the Alberta Rules of Court. In my experience, these amounts typically amount to 30% – 40% of the actual legal fees incurred.