Australia: Offers of Compromise no longer invalidated by reference to costs
Curwoods Case Note

Judgment date: 4 May 2012

Vieira v O'Shea (No 2) [2012] NSWCA 121

NSW Court of Appeal¹

In Brief

• When an offer is made to more than one party, the inquiry as to whether it was unreasonable for the unsuccessful offeree to have rejected it assumes that the offer was capable of acceptance by the offeree, on behalf of the other parties.
• Rule 20.26 of the UCPR merely requires an offer to be "exclusive of costs", it does not require that an explicit statement be present in the offer.

Background

Humberto Vieira sought, by notice of motion, payment of his costs (as plaintiff), from the first respondent, John O'Shea (first defendant), to be assessed on the ordinary basis up until the date of expiration of the first offer, or such other time as the Court determined and thereafter on an indemnity basis. He further sought costs on an indemnity basis, including the costs of the subject motion.

At trial, the plaintiff's claim was for $258,710, together with the ongoing costs associated with the keeping and maintaining of a horse and damages for the loss of opportunity to race it. His offer, dated 6 July 2009, sought to compromise the whole action for $215,600 with the defendants to pay his costs. It was made jointly to six defendants, including Mr O'Shea.

Was it in the form of a formal offer?

Their Honours stated at [6]:

Exclusive of costs

The plaintiff argued that the offer did not comply with the "exclusive of costs" requirement proposed in the UCPR.

Their Honours decided at [7] that:

Offer capable of acceptance?

Mr O'Shea contended that he could not accept the offer, because it elucidated to payment by other defendants as well. A further issue arose due to the fact that the third and seventh defendants were sued by the first respondent on a cross-claim.

Referring to multiple judgments of the NSW and Victorian Courts of Appeal², their Honours indicated that any inquiries to ascertain whether it was unreasonable for the unsuccessful offeree to have rejected an offer speculate that the offeree was adept to accepting it in the first place.

Their Honours noted that although the offer was sent under a covering letter addressed to the solicitors of the first, third and seventh defendants, it was an offer made to the defendants to agreeably pay the plaintiff, thereby compromising "the action in whole". They explained, at [11]:

Lacking any agreement and acceptance between the three defendants, the first respondent could merely furnish the appellant with a counter-offer, which may or may not have factored in the consequence on the third and seventh defendants. Furthermore, if Mr O'Shea had accepted the offer and the plaintiff had ceased its action against him, the matter would still not have resolved the action in whole, as it still left the door open for the plaintiff to commence proceedings against the third to seventh defendants, or it may potentially raise issues regarding the basis upon which the proceedings against them would be disposed of.

For these reasons, the appellant's application for assessment of his costs at trial on an indemnity basis was rejected.

A further Offer of Compromise

On 6 June 2011, 2 days after the appeal was listed for directions, the plaintiff served an Offer of Compromise in an amount of $180,000, the offer being open for acceptance for 28 days.The offer was stated to be made in accordance with UCPR r 20.26. It was silent as to costs.

Mr O'Shea argued that this offer failed to state that it was exclusive of costs, as required by the rule. However, the Court concluded, at [18]:

Implications

An Offer of Compromise must be exclusive of costs to be effective. However, it does not have to contain an express statement to that effect.

Although the observations of the Court at para 7 might be interpreted as a departure from the rule in Old's Case ³ (discussed in our Case Note dated 13 March 2011), they are obiter. It follows that Offers of Compromise which are expressed as "plus costs" or "exclusive of costs" still risk breaching the rule.

The case also highlights the importance of clearly delineating its terms when making an Offer of Compromise in litigation where multiple parties are involved. An offer to multiple parties to jointly resolve proceedings without more detail will not be "capable of acceptance" by one of them and therefore invalid.

Footnotes

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