While it was reasonable to reject the first offer, the second one should have been accepted: court
In a real estate contract dispute, the BC Supreme Court clarified the rule of costs for rejected settlement offers.
The dispute in Cascadia Pacific Realty Ltd. v. Hon Towers Kerrisdale Ltd., 2023 BCSC 1703 involved payment of a commission to Cascadia Pacific Realty for its role in a land assembly deal in Kerrisdale, Vancouver. After a four-day trial, the court ordered Hon Towers Kerrisdale Ltd. to pay Cascadia an award of damages.
Hon Towers sought an award of costs against Cascadia, arguing it had made three formal settlement offers before trial, all exceeding the amount the court awarded to Cascadia. As a result, Hon Towers asked the court to order Cascadia to pay Hon Towers its costs regarding all steps taken in the proceeding after Cascadia rejected its offer.
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The case stemmed from a land assembly deal under which Hon Towers pursued residential projects in Vancouver. The project required the purchase and assembly of three parcels of land—four single-family homes, a portion of land from Knox United Church, and a laneway owned by the City of Vancouver.
The issues at trial concerned the interpretation of the commission agreement for the purchase of land from Knox Church and whether there was a commission agreement for the purchase of the laneway. The court found, on the totality of the evidence, that the commission for the purchase of land from Knox Church was to be calculated based on a $2.5 million figure and that there was an agreement between the parties to pay a commission on the purchase of the laneway.
Hon Towers made three formal settlement offers before trial. The first offer was calculated the same way the court ultimately found correct. However, Cascadia rejected the first offer.
Hon Towers made a second offer to settle, while Cascadia made a counteroffer. Either party did not accept these offers. Hon Towers made a third offer, which Cascadia also rejected. Ultimately, the parties did not reach any settlement.
The BC Supreme Court explained that the rule of costs encourages early settlement of disputes by rewarding the party who makes a reasonable settlement offer and penalizing the party who declines to accept such an offer. The court, citing case law, stated, “Whether the offer ought reasonably to have been accepted is not to be assessed based on the court’s ultimate decision, but on the circumstances at the time the offer was made.”
The court also emphasized that the relevant question is not whether the offer was reasonable but unreasonable for the plaintiff to refuse it.
The court ultimately ruled that it was not unreasonable for Cascadia to decline the first offer. At the time of the first offer, no discovery had occurred. It was not unreasonable for Cascadia to seek discovery before assessing the first offer.
However, the court found that Cascadia ought to have accepted the second offer because, by that time, discovery had occurred. Cascadia argued that a certain report encouraged them to seek a higher settlement and to reject the second offer. However, the court said that the information was not a solid basis for Cascadia to advance its claim because the report was not prepared at the request of Hon Towers. The parties did not make a reference to it in the commission agreement. There was no evidence it was in in contemplation of either party when they signed the commission agreement. The court emphasized that Cascadia should have known it was advancing its claim on a doubtful basis.
Hon Towers calculated the second offer the same way the court ultimately decided the commission should have been estimated. Accordingly, the court ruled that Cascadia should have accepted the second offer. The court said, “To enhance the policy justification for rules of costs, a plaintiff who unreasonably did not accept a settlement offer ought to face cost consequences.”
As a result of its findings, the court ordered Cascadia to pay Hon Towers its costs in respect of all steps taken in the proceeding after the second offer.