Offers to Settle and Costs Consequences in Ontario Civil Litigation

One of the most powerful — and most misunderstood — tools in Ontario civil litigation is the formal offer to settle. An offer to settle is not just a negotiating gesture. Under the Rules of Civil Procedure, a properly structured offer can have dramatic consequences for costs at trial. A party who ignores a reasonable offer and proceeds to trial does so at serious financial risk.

This guide explains how formal offers to settle work in Ontario, what the costs consequences are, and how to use offers strategically.

What Is a Formal Offer to Settle?

A formal offer to settle (governed by what has traditionally been called the "Rule 49 regime," though rule numbers have shifted in updated versions of the Rules) is a written settlement offer made by one party to another. What makes it "formal" — and activates the costs regime — is that it:

• Is made in writing
• Is served on the opposing party (not just their lawyer, in some circumstances)
• Specifies that it is made under the costs provisions of the Rules of Civil Procedure
• Remains open for a minimum period before trial

An informal settlement discussion or letter marked "without prejudice" does not carry the same automatic costs consequences. The formality matters.

The Core Costs Rule

Here is the key principle:

If a plaintiff makes a formal offer to settle and the plaintiff obtains a judgment equal to or better than the offer, the plaintiff is entitled to costs on a partial indemnity basis up to the date the offer was served — and on a substantial indemnity basis from that date forward.

If a defendant makes a formal offer to settle and the plaintiff fails to obtain a judgment better than the offer, the plaintiff is entitled to partial indemnity costs up to the date the offer was served — and the defendant is entitled to partial indemnity costs from that date forward.

In plain language: if you make a reasonable offer and the other side ignores it and goes to trial, the party who "beat" their own offer gets a much larger costs award.

Partial Indemnity vs. Substantial Indemnity Costs

Understanding the difference matters:

• Partial indemnity costs (sometimes called "party and party" costs): roughly 40–60% of actual legal fees, depending on the case. The usual award when a party wins at trial but there is no formal offer in play.

• Substantial indemnity costs: roughly 80–90% of actual legal fees. This is the elevated award triggered when a party has beaten their formal offer. It is punitive in effect — designed to deter unreasonable rejection of good offers.

The gap between these two levels can represent tens of thousands of dollars in a significant case.

When Should You Make an Offer?

Offers can be made at any time. The costs consequences kick in when the offer is served at least seven days before the commencement of trial (check the current Rules for the precise timing requirement). An offer served the day before trial may not trigger the enhanced costs regime.

Strategic timing:

• Early offers: signal willingness to resolve and create costs exposure for the other side from the start of the dispute
• Pre-mediation offers: set the table for mediation discussions
• Post-discovery offers: made after both sides have seen each other's documents and evidence — often the most meaningful because both sides now know where the risks lie
• Pre-trial offers: a final opportunity before the enhanced costs regime is fully triggered

There is no rule limiting a party to one offer. You can make multiple offers at different stages, withdraw them, and replace them — subject to the rules on revocation.

How to Withdraw or Vary an Offer

A formal offer can be withdrawn or varied at any time before it is accepted — but only if the other side has not yet accepted it. An accepted offer is binding. If you withdraw an offer before it is accepted and the other side later obtains a judgment better than your offer, the costs consequences may be affected.

Offers That Include Costs

Offers can be structured to include costs — for example, "the defendant offers to pay $50,000 plus costs as agreed or assessed." Or they can exclude costs, leaving costs to be determined by the court. The structure matters and should be considered carefully with your lawyer.

An offer that is silent on costs does not necessarily determine costs; the court may need to assess them.

Defendants Making Offers: The "Nil" Offer

A defendant can make an offer of zero dollars — essentially offering to walk away from the litigation with each side paying its own costs. This sounds counterintuitive, but if the plaintiff's claim truly has no merit and they fail entirely at trial, a nil offer that was on the table since early in the litigation can mean the plaintiff owes the defendant significant costs from the date the offer was served.

Offers in Simplified Procedure Cases

The formal offer to settle regime applies in Simplified Procedure cases (claims at or below $200,000 as of writing — verify the current threshold). The same costs consequences follow: beat your offer and you get elevated costs; fail to beat the other side's offer and you face elevated costs against you.

Because Simplified Procedure cases have lower dollar amounts in dispute, the relative impact of costs is even larger — it is possible in principle for a party to "win" a Simplified Procedure case but net very little after costs.

Frequently asked questions