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Effect of Subsequent Offers to Settle on Prior Offers

In some cases, a party will make an initial offer to settle and will then make subsequent offers. When a subsequent offer is made, previous offers are withdrawn by implication.

However, in many situations, it is beneficial to leave prior offers on the table in order to potentially obtain a more favourable costs award.

Take the case of a defendant who made an offer of $50,000 on December 1, 2019 and then made an increased offer of $100,000 two years later on December 1, 2021. Suppose the plaintiff is awarded $25,000 at trial. Subject to the court’s discretion, in order to obtain costs from the date of the December 2019 offer, the defendant would need to specifically state in the December 2021 offer that the December 2019 offer remains outstanding. There is no harm in doing so. It can only benefit the defendant to include such wording in a subsequent higher offer.

These issues were addressed in Diefenbacher v. Young, 1995 CanLII 2481 (ON CA). The Ontario Court of Appeal indicated:

…I lean to adopting the parlance and normal understanding of a litigant that a decreasing offer by a plaintiff and an increasing offer by a defendant, without reference to the earlier offer, is by implication a withdrawal of the earlier offer. Its reality has disappeared in the ongoing negotiations and dealings between the parties and, prior to the present judicial debate of the issue, it is not sensible to consider that the parties would give thought to the earlier offer, in the context of costs consequences, after the second offer.

In the future, parties making second offers may choose to stipulate that the earlier offer (higher, in the case of a plaintiff’s offer) remains outstanding. This would eliminate any implication to the contrary and would leave intact the incentive to make more reasonable offers as events develop. At the same time, it would alert the opposing party to the risk that the second offer may be withdrawn or that the first offer may be operative when compared to the trial judgment. Thus, the decision in this case can be considered as reflecting the fair perception of the parties to the offers exchanged, rather than dictating a principle upon which Rule 49 should be applied.

Therefore, when parties make subsequent offers, they should consider indicating that prior offers remain outstanding and open for acceptance, specifically in the instance of increasing offers by defendants and decreasing offers by plaintiffs.

Although not stated by the Court of Appeal, it may also be a good idea for defendants to indicate in subsequent offers that only one offer may be accepted. This will avoid a dispute that the plaintiff can accept multiple offers. Using the above example, possible wording to include in a subsequent offer is: “The defendant’s offer, dated December 1, 2019, remains outstanding and is open for acceptance by the plaintiff, but the plaintiff may only accept one offer”.