Puri Consulting Limited v. Kim Orr Barristers PC, 2015 ONCA 727
Puri Consulting Limited
Kim Orr Barristers PC
Allan Sternberg, for the appellant
Won J. Kim, for the respondent
Heard: October 9, 2015
On appeal from the order of Justice Carole J. Brown of the Superior Court of Justice, dated February 20, 2015, with reasons reported at 2015 ONSC 577.
van Rensburg J.A.:
 At issue in this appeal is the interpretation of an accepted offer to settle. In particular, did the offer to accept “$50,000 plus HST in full and complete satisfaction of the [appellant’s] claim” include the appellant’s claim for costs? Or did silence in the offer, on the matter of costs, mean that r. 49.07(5)(b) of the Rules of Civil Procedure applied?
 The motion judge found that the offer was unambiguous. She held that the words “full and complete satisfaction” meant that the offer was inclusive of costs, and that although the respondent waited several months before accepting the offer on the eve of trial, r. 49.07(5)(b) did not apply.
 For the reasons that follow, I disagree. Briefly, the motion judge made a reversible error by taking a literal approach to the offer and acceptance and failing to consider the factual matrix when interpreting the concluded agreement. The factual matrix in this case consisted of the rule 49 context in which the parties were operating, and the timing of the offer and its acceptance in their litigation.
 The parties were engaged in litigation over an account for services. In 2012, Professor Poonam Puri, through her company, the appellant, was retained at an agreed hourly rate by the respondent law firm to provide an expert opinion in a class proceeding. The appellant delivered her opinion, which was filed in court. In July 2012, the appellant rendered an account in the sum of $48,502.50 for fees plus HST of $6,305.33, for a total of $54,807.83. Her account was supported by time dockets. The respondent requested time to pay, citing problems with a U.S. firm that was supposed to pay the account. In March 2013, when the account remained outstanding after repeated demands for payment, the appellant brought an action for damages in the amount of the account (plus accrued interest under the contract) plus HST, and for pre-judgment interest and costs. In its defence, the respondent admitted the retainer but claimed that the invoiced amount was unreasonable and excessive.
 In December 2013, the appellant served a written offer to settle under rule 49 (the “Offer”). The Offer stated as follows:
The plaintiff, Puri Consulting Limited, offers to settle this proceeding on the following terms:
1. payment by the defendant to the plaintiff in the amount of $50,000, plus HST, in full and complete satisfaction of the plaintiff’s claim; and
2. this offer will remain open for acceptance until one minute after the beginning of the trial of this action.
 The Offer was outstanding at the pre-trial conference in May 2014. There was disagreement at the pre-trial as to the meaning of the Offer: the appellant’s counsel made clear the appellant’s position that acceptance of the Offer would require the respondent to pay costs. The respondent interpreted the Offer as inclusive of costs and told the appellant’s counsel that he had “better review” the Offer.
 In September 2014, just days before the scheduled two-day trial, the respondent served a written acceptance of the Offer. Ultimately, the respondent paid the amount of $56,500 ($50,000 plus the applicable HST of 13% on $50,000). The appellant asserted that she was entitled to costs in addition to the amount paid by the respondent, and she moved under r. 49.09 to enforce the settlement.
C. DECISION ON THE MOTION
 The issue before the motion judge was whether the amount paid by the respondent was sufficient to satisfy the Offer, or whether the appellant was entitled to an additional amount for her costs. This depended on whether the Offer that the respondent accepted without qualification provided for the disposition of costs. If it did not, then r. 49.07(5)(b) was engaged. That rule provides as follows:
Where an accepted offer to settle does not provide for the disposition of costs, the plaintiff is entitled…
(b) Where the offer was made by the plaintiff, to the plaintiff’s costs assessed to the date that the notice of acceptance was served.
 The motion judge concluded that the Offer was unambiguous. In her view, the words “in full and complete satisfaction of the plaintiff’s claim” meant that the appellant’s claim for costs was included in the sum of $50,000 plus HST, the amount she offered to accept. The appellant sought to rely on the discussions that took place at the pre-trial conference which showed the parties’ divergent positions on the matter of costs. In refusing to consider the pre-trial discussions, the motion judge commented that it was not in the interest of justice that the prohibition in r. 50.09 against disclosure of statements made in a pre-trial conference be dispensed with because there was no suggestion that the settlement was accepted based on non-disclosure, duress, fraud or illegality. She also indicated that had she considered such evidence, it would not have resolved the ambiguity. Therefore, she would have applied the doctrine of contra proferentem, resolving any ambiguity in favour of the respondent.
 The motion judge accordingly dismissed the appellant’s rule 49.09 motion. She awarded costs against the appellant in the sum of $6,000, all inclusive.
D. ARGUMENTS ON APPEAL
 The appellant contends that the motion judge erred in her interpretation of the Offer by focusing solely on the words “in full and complete satisfaction”, and ignoring other aspects of the Offer. According to the appellant, r. 49.07(5)(b) would apply because the Offer was to settle the appellant’s “claim”, which is the word modified by the words “in full and complete satisfaction of”, and the Offer did not “provide for a disposition” with respect to costs. The appellant also argues that the motion judge erred in failing to consider the factual matrix within which the Offer was accepted. The factual matrix, according to the appellant, would include the statements of the appellant’s intention at the pre-trial conference. In refusing to consider such evidence, the motion judge erred in her interpretation of r. 50.09.
 The respondent asserts that there was no error in the motion judge’s analysis or result, and that her decision is reasonable and entitled to deference.
 It is unnecessary, for the purpose of this appeal, to consider the scope of the prohibition in r. 50.09 and its possible application to this case, or for that matter, to determine whether what was said at the pre-trial conference is properly part of the factual matrix to be considered in interpreting the settlement agreement. The evidence of what occurred at the pre-trial conference was equivocal at best. The parties disagreed about the meaning of the Offer – essentially, they joined issue on the very matter that was argued before the motion judge and on appeal. The appellant said she intended the Offer to be exclusive of costs, while the respondent maintained that the Offer was all-inclusive, and included the appellant’s costs. On this issue, I agree with the motion judge that, had the evidence of the pre-trial communications been considered, it would have indicated only that the parties did not agree on whether costs were included in the Offer and would not have clarified the meaning of the agreement.
 I would however give effect to the appeal on other grounds. First, the motion judge made a reversible error in taking a literal interpretation of the Offer, one that focused only on the words “in full and complete satisfaction” and ignored other words used in the Offer. Second, the motion judge failed to consider the factual matrix of the Offer and its acceptance. By this, I mean that she ought to have considered the rule 49 context, including the purpose of that rule, the timing of the Offer and its acceptance in the litigation, and the fact that the parties were lawyers, and represented by counsel, so that they well knew and appreciated the context in which they concluded their agreement.
(1) The Wording of the Offer
 The motion judge acknowledged that the Offer did not include an express provision for the disposition of costs. She concluded however that the words “in full and complete satisfaction of the plaintiff’s claim” were clear and unambiguous, and meant that the appellant offered settlement of the entire claim, costs included, on the basis of the amount stipulated.
 As Doherty J.A. noted in Dumbrell v. The Regional Group of Companies Inc. (2007), 85 O.R. (3d) 616 (C.A.), at para. 51, “the meaning of [a] written agreement must be distinguished from the dictionary and syntactical meaning of the words used in the agreement.” The meaning is derived from both the words used and from the circumstances in which the words were used. At para. 54, Doherty J.A. further explained that this consideration of the context “is not something that is resorted to only where the words viewed in isolation suggest some ambiguity.”
 In other words, even where words in a written agreement are believed to be unambiguous, the meaning of those words can only be properly ascertained by considering the context in which the agreement was made.
 As such, the motion judge made a reversible error in her interpretation of the words “in full and complete satisfaction”. Even though she believed that the words were unambiguous, she ought to have considered the context in which the agreement was made (as discussed in the next section) and the other words in the Offer (such as the word “claim”).
 In arriving at her decision, the motion judge treated “claim” as synonymous with “action”, and she did not consider or resolve the question of what “claim” in particular the Offer was meant to settle. Rule 49 provides that a party may offer to settle “any one or more claims in a proceeding” by making a rule 49 offer. This means that the word “claim” under the rule is not synonymous with “action” or “proceeding”. The issue in this case is what “claim” the appellant was offering to settle.
 The appellant contends that “claim” refers to a claim for substantive relief and not for costs. The appellant relies on certain passages in Somers v. Fournier(2002), 60 O.R. (3d) 225 (C.A.), where Cronk J.A. stated that costs of litigation are incidental to the determination of the rights of the parties and are not part of thelis between the litigants (contrasting damages and pre-judgment interest, which are part of the compensatory package provided to the person wronged). The court also endorsed, at para. 19 of Somers, the statement of the motions judge whose decision was under appeal that costs are procedural and part of the “machinery” enabling the court to work effectively: “A particular example of the operation of that machinery is seen in the application of Rule 49 dealing with offers to settle.” The appellant contends that this case is authority that a “claim” is a claim for substantive relief, which would not include a claim for costs.
 Somers dealt with whether costs are procedural or substantive for the purpose of conflicts of laws. As such, the appellant’s argument based on this case and the quotations are taken out of context. They do not assist in interpreting the meaning of “claim” in the context of rule 49 or as used in the Offer in this case.
 A statement of claim contains a “claim for relief” (formerly “prayer for relief”) in which various claims are set out. Typically, a claim for costs is included in the claim for relief. Indeed, in this case the appellant claimed damages, interest and costs as separate items. Paragraph 1 of the amended statement of claim claimed: (a) damages for breach of contract in the amount of $55,714.10 plus $7,242.83 HST; (b) additional interest in accordance with the terms of the contract from March 16, 2013; (c) pre-judgment interest pursuant to the Courts of Justice Act, R.S.O. 1990, c. C.43; and (d) costs on a solicitor and client basis plus HST. According to para. 11 of the amended statement of claim, the amount claimed for damages consisted of the original invoice amount plus interest at the contractual rate of two percent interest compounded monthly.
 On its face, the appellant’s pleading included various “claims”, which included a claim for damages. The offer to settle referred to the settlement of the appellant’s “claim”, calling into question which “claim” the appellant meant to settle.
 For these reasons, I disagree with the motion judge that the meaning of the words “in full and complete satisfaction” in the Offer are unambiguous, and in particular that those words provided for the disposition of costs.
(2) The Factual Matrix
 In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53,  2 S.C.R. 633, Rothstein J. discussed the role of surrounding circumstances or the factual matrix when interpreting a written contract. He noted, at para. 47, that to determine the intent of the parties and the scope of their understanding,
…a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning.
 The relevant factual matrix in this case includes rule 49, under which the parties were operating, and the timing of the Offer and its acceptance in the litigation.
 The purpose of the costs provisions in rule 49 informs the interpretation of the appellant’s Offer in this case.
 “The purpose of Rule 49 is to encourage parties to make reasonable offers to settle and to facilitate the early settlement of litigation”: Rooney (Litigation Guardian of) v. Graham (2001), 53 O.R. (3d) 685, per Laskin J.A., at para. 45. When a party makes an offer to settle, the other party must give serious consideration to whether to settle by accepting the offer or to continue the litigation. Continuing litigation in the face of a reasonable offer can be risky. This is reflected in r. 49.10, which sets out the costs consequences of a failure to accept an offer that the offeror betters at trial. Rule 49 “is a simple recognition that if an offer is accepted it should carry with it party and party costs to that date”: Rooney, per Carthy J.A., at para. 31.
 While a party may specifically address costs in her offer to settle, r. 49.07(5) contemplates that offers to settle will be made (and accepted) that do not provide for the disposition of costs. As noted in Holmested & Watson, Ontario Civil Procedure, loose-leaf (2010-Rel. 5), Volume 4, (Toronto: Carswell, 1985) at p. 49-33, r. 49.07(5) “gives the defendant an incentive to accept promptly and stop the growth of costs”. The later the acceptance of an offer to settle that does not provide for costs, the greater the costs that will have to be paid.
 The respondent’s interpretation of the Offer, which interpretation was accepted by the motion judge, would mean that, rather than acting as an incentive to encourage early settlement, the value of the Offer would decline over time as the parties approached their trial date and the appellant’s legal costs increased.
 The timing of the making of the Offer and its acceptance are also part of the factual matrix.
 The Offer was made relatively early in the proceeding, after the appellant conducted an examination for discovery of the respondent. The respondent chose not to conduct any examination. The Offer was outstanding at the pre-trial conference, and the parties knew that a trial date had been scheduled for nine months hence. In the intervening period, the respondent took no steps in the action. The respondent would have known that, unless the action settled, the trial would proceed as scheduled in September 2014, and the appellant would have incurred additional legal costs to prepare for the trial. These circumstances do not favour the respondent’s interpretation of the Offer – that the appellant would make an offer, that by its terms would remain open until one minute after the commencement of trial, and that would decline in value as the trial date approached. The parties were sophisticated and knowledgeable. As lawyers, they would have understood full well the implications of an offer to settle under rule 49, and in particular the default provision in r. 49.07(5) providing for costs.
 The motion judge erred in this case by failing to interpret the Offer and acceptance in the relevant context of the litigation and rule 49. As for her reference to applying the doctrine of contra proferentem to the Offer, there was no reason to resort to this principle without first attempting to determine the meaning of the agreement by reference to the factual matrix.
 Interpreting the Offer in the relevant context, it did not provide for the disposition of the appellant’s costs. Accordingly, r. 49.07(5)(b) applies, and the appellant is entitled to costs, in addition to the amount paid by the respondent.
 For these reasons, I would allow the appeal and grant judgment to the appellant declaring that the Offer, as accepted by the respondent, did not provide for the disposition of costs, and that pursuant to r. 49.07(5), the appellant is entitled to costs assessed to September 4, 2014, the date on which the respondent’s acceptance of the Offer was served. I would reverse the costs award in the court below, and order the respondent to pay the appellant the sum of $6,000 all-inclusive for costs of the rule 49.09 motion.
 I would order costs of the appeal to the appellant in the amount of $7,500, inclusive of disbursements and HST.
Released: October 29, 2015
(EEG) “K. van Rensburg J.A.”
“I agree E.E. Gillese J.A.”
“I agree B.W. Miller J.A.”