By: Michael Blinick, Partner & Paul Papaeliou, Articling Student
Overview
Can defendants avoid serious cost consequences by refusing to engage in settlement discussions? In Anantharajah v. Barry,[1] Ontario’s Court Appeal confirmed that a zero-offer strategy by defendants carries significant financial risk via substantial costs awards if a plaintiff is ultimately found to be entitled to compensation at trial.
Summary of Decision
The underlying dispute arises from a 2014 motor vehicle accident in which the plaintiff was struck by a vehicle operated by the defendant. During the three-week jury trial, the plaintiff advanced a claim for damages exceeding one million dollars. The defendant’s litigation strategy focused on undermining the plaintiff’s credibility and asserting that the plaintiff’s injuries were either resolved or unrelated to the accident. After accounting for the plaintiff’s contributory negligence and applying statutory deductions, the plaintiff was awarded $16,160.50 in damages.
What is notable about this decision is that the trial judge then awarded the plaintiff $300,000 in costs (inclusive of disbursements). In providing reasons for costs, the trial judge was critical of the defendant’s litigation strategy, noting that the defendant was unwavering in its refusal to engage in meaningful settlement discussions and offering only a dismissal without costs. This strategy was found to have unnecessarily compelled the matter to proceed to trial. Considering this strategy, the trial judge stated that “it is fair and reasonable that the [appellant] bear the costs of this aggressive litigation strategy.”
On appeal, the defendant raised two issues:
1) That the trial judge erred in finding the plaintiff was more successful at trial than the defendant. In this respect, it was suggested that the trial judge improperly focused solely on the defendant’s zero-offer position, rather than assessing the outcome as against the entirety of the damages sought by the plaintiff.
2) That the trial judge’s costs award ought to be overturned as it was disproportionate to the outcome of the trial.
In upholding the trial judge’s costs award, the Court of Appeal found the plaintiff was more successful than the defendant at trial. On the factor of settlement, the Court reasoned that “if a party opts for a “hardball” approach to settlement, that party takes the risks associated with such a posture.” In other words, while a defendant is under no obligation to make settlement offers, they must accept the consequences of that choice if such a position ultimately proves unsuccessful.
With respect to proportionality, the Court of Appeal accepted the trial judge’s findings and decision. Consistent with the trial judge’s findings, the Court accepted that the $300,000 costs award remained proportionate to the case as litigated, notwithstanding that it was far greater than the damages awarded. The Court stated that proportionality “should not necessarily trump all other considerations in a costs assessment” and further reasoned that intervening with costs awards of lower courts promotes “bully tactics” and “encourage those resisting legitimate but modest claims to take unreasonable positions.”
The Court of Appeal reaffirmed that costs awards are “quintessentially discretionary,” with limited interference by appellate courts, even if argued on the basis of proportionality.
Implications
The Court of Appeal sends a clear message to parties to be rational and realistic when assessing litigation risk. Implicit in this message is the recognition that significant costs may be found to be owing if a defendant is overly aggressive with their assessment of exposure. While defendants are certainly entitled to maintain an aggressive defence position (such as without costs dismissal offers), proportionality will offer little protection from the risk of a significant costs award if the defence is ultimately unable to justify its position at trial.
This decision also underscores the immense value that offers to settle can play in managing a party’s exposure to costs. When used strategically, offers to settle serve as a powerful risk management tool that can shift the litigation dynamic and incentivize resolution. In Ontario, Rule 49 Offers can protect parties from adverse costs and even entitle them to recover costs when the offer is not accepted and the outcome is more favourable than the offer itself!
Therefore, defendants who reject the prospect of settlement to aggressively advance to trial do so at their own risk. As managing a party’s exposure to costs is critical to overall risk management, defendants ought to be cognizant of the fact that a Court could impose significant costs where deemed justified.
[1] Barry v Anantharajah, 2025 ONCA 603.