Strengthening the Pre-action Offer Obligation

The Rules of Court 2021 (“ROC2021”) has come into effect for nearly 2 years now. One of the new concepts it introduced was the obligation for a potential claimant to make an offer of amicable resolution (“OAR”), open for acceptance for at least 14 days before commencing legal proceedings. I previously discussedthe scope of this obligation and thought it might be a game changer.

However, this reform does not seem to have been consistently practiced since its introduction. Clients still regularly show up having received letters of demand giving them a week or so to capitulate, without a single hint of OAR anywhere. Although the ROC2021 alludes to negative cost consequences for parties who failed to consider the possibility of amicable resolution, we have yet to see a test case which could help disincentivise parties from ignoring this rule.

Perhaps, and ironically, in order to achieve amicable resolution before the proceedings start, the rules may have to force parties to consider it more seriously. There are 3 possible areas which parties could be made to do more in order to ensure that OARs are given before proceedings are commenced:

1. Require submission of sealed OAR or reasons together with pleadings

Under Order 5, rule 3(3) of the ROC2021, the court already has the power to require a party to submit a sealed document setting out its reasons for refusing to resolve the dispute by amicable resolution. This power could be intended to disincentivise a party from lightly refusing amicable resolution or to make up its reasons at the end of proceedings when the court decides on how to award legal costs.

It would be a simple extension of this idea by requiring the claimant to submit pleadings with the communicated OAR or reasons. Of course, it would require slightly more case management on the registry’s part, but eLitigation can easily be structured to prevent pleadings from being filed without the OAR or reasons accompanying them. While the court may find it difficult to compel a party to provide a OAR that represents a substantial compromise capable of leading parties towards settlement, it would present a further obstacle against rushing into litigation.

2. Allow applications to suspend proceedings in absence of served OAR or reasons

Alternatively, if the court does not intend to move towards a more inquistorial system in this aspect, it could allow a defendant to apply for a case management stay. Unless the claimant already presented an OAR or provided sealed reasons for refusing amicable dispute resolution, the court could then direct parties to exchange OARs before matters escalate further.

But why not go one step further and allow the defendant to strike out the claim for failure to comply with Order 5? This might be too draconian and does nothing except cause further delay and incur additional costs, as the claimant could later restart the proceedings after having served a cursory OAR and everyone would be back to square one.

3. Reintroduce the old O22A mechanism

Under the previous Rules of Court, Order 22A allowed a party to serve on another an offer to settle, which if not accepted and the recipient did not get a better outcome at trial, would lead to adverse cost consequences for the recipient. It was the equivalent of throwing down the gauntlet to the other party and make them seriously consider a settlement (as compared to failed negotiations or mediations where parties would resume litigation without seeing it as a worse alternative).

For some reason, this procedure is no longer available under the ROC2021. Perhaps reintroducing it would help to push parties to an amicable resolution as they could then see tactical value in communicating offers, and at the same time they would have to understand the other parties’ interests and alternatives to make the offer more compelling.

In conclusion: while the pre-action offer procedure held the promise of changing the way disputes played out, old habits die hard and it might take more drastic measures to get leopards to change their spots. Perhaps it might clash with the spirit of amicable dispute resolution by compelling parties to make such offers, but it would be the pragmatic thing to do.