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How our Legal System Encourages Settlement

How our Legal System Encourages Settlement

By August 24, 2020 October 26th, 2020 No Comments

If you are a party to a civil litigation matter like a wrongful dismissal suit, your case will most likely settle before it proceeds to trial. In Ontario, employment lawyers state that the majority of legal cases settle before trial. In fact, recent statistics show the proportion of cases that settle to be as high as 95%. Accordingly, as imperfect as our legal system is, one thing that it has going for it is that it is built to facilitate settlement of cases in various intelligent ways.

Rules of Civil Procedure

One of the biggest reasons so many civil cases settle is on account of Rule 49 of the Rules of Civil Procedure (the Rules), which encourages and facilitates settlement by imposing cost consequences (payment of a portion of another party’s legal fees) on a party who fails to accept a reasonable offer. For instance, if a party fails to accept a reasonable offer (i.e. they are awarded an amount at trial that is less than the amount of the offer), Rule 49 empowers a judge to apportion substantial indemnity legal costs on that party from the day the offer was made, to the day judgment was granted. Offers must be made at least 7 days before the commencement of trial.

Rule 49 contains several considerate sub-rules that further perpetuate a process that is conducive to settlement. For instance, Rule 49.06 is an often used sub-rule that prevents offers to settle from being pled by a Plaintiff or Defendant. Importantly, this rule only applies to offers to settle made during litigation. The purpose is to ensure that parties make good-faith attempts to resolve the dispute without the underlying fear that by doing so, they are admitting fault and/or weakness in their positions should the matter to proceed to trial.

Though pre-litigation offers are not caught by 49.06, other legal principles and devices are used to ensure that pre-litigation offers to settle cannot be invoked in a party’s pleading, namely, “without prejudice” and “settlement privilege.”

Without Prejudice

Parties wishing to protect pre-litigation offers to settle from disclosure during litigation can assert that an offer was made on a “without prejudice” basis. Without prejudice offers are protected from disclosure during litigation. Where the party suspects that litigation is on the horizon, and is attempting to “buy peace” without admitting liability or fault, the party will classify the offer as “without prejudice” on the settlement communication (i.e. letter or email). If the offer to settle was made by the opposing party, and it is the opposing party who wishes to disclose it in its pleading, the party can still contend that the offer was made on a without prejudice basis despite the fact that the party making the offer never classified it as “without prejudice.”

Courts have found settlement offers to be “without prejudice” despite the fact that these words were not explicitly written in the offer document. The key is to ascertain the offering party’s intentions. The contents of the offer and the context in which it was written are used to determine the central question: Was the offer made to buy peace between the parties? If yes, the offer is without prejudice. The fact that “without prejudice” was or was not written in the offer is not determinative.

Wrongful Dismissal Cases

In Ramos v Hewlett-Packard (Canada) Co.,[1] the Court held that the fact of a pre-litigation offer should not generally be pled

The three recognized exceptions are:

  • Where the defendant has pled that the plaintiff was dismissed for cause. Here, a plaintiff is permitted to plead in reply that the defendant had offered the plaintiff before litigation, an additional payment in lieu of notice, thereby waiving the cause upon which the defendant relied to justify the dismissal.
  • Where the plaintiff claims mental distress. This depends on the facts of the case.
  • Allegations of bad faith conduct or conduct justifying punitive damages on the employer’s part. Here, the employer is entitled to advance evidence that it made settlement offers to the plaintiff employee which contradict the bad-faith claims being pled.

Settlement Privilege

In the alternative, a party to a litigation proceeding could challenge the disclosure of a pre-litigation settlement offer by invoking the common law principle of settlement privilege and seeking to strike the relevant portion of the pleading as scandalous per Rule 25.11 of the Rules.

Settlement privilege is a common law principle that protects communications exchanged by parties as they try to settle a dispute. It enables parties to have honest and frank discussions without fear that information they disclose will be used against them. In its absence, parties would be reluctant to engage in settlement discussions if those discussions could be admitted at trial as evidence of concessions.

Pleadings that evidence privileged communications may be struck on the basis that they are scandalous, frivolous, or vexatious.  Courts have cited an overriding public interest in the settlement of lawsuits.

In Inter-Leasing Inc. v Ontario (Minister of Finance),[2]  the Divisional Court laid out a three-step test for settlement privilege to apply:

  1. Litigation must be in existence or within contemplation;
  2. The communication must be made with the express or implied intention that it would not be disclosed to the court in the event negotiations failed; and
  3. The purpose of the communication must be to attempt to effect a settlement.


[1] 2017 ONSC 4413

[2] 2009 CanLII 63595 (ON SCDC)

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