Australia: Rules about Offers of Compromise

Curwoods Case Note
Last Updated: 3 June 2012
Article by Vid Dragomirovic

Judgment date: 18 May 2012

Barakat and others v Bazdarova [2012] NSWCA 140

New South Wales Court of Appeal1

In Brief

  • An offer of compromise that conforms to Rule 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) must be exclusive of costs.
  • A party must be able to demonstrate the circumstances upon which it relies, should it seek the Court's discretion to order otherwise than in compliance of Rule 42.12 of the UCPR.


In proceedings commenced in April 2011, the late Mr Bazdarov claimed that an amount of $290,344.01 in relation to costs and disbursements, deducted from a settlement by his former solicitors, was both excessive and unreasonable. He sought an order that he was not liable to pay the costs, until such time that they had been assessed under the Legal Profession Act 1997 (NSW) (the Act).

On 16 March 2011, Mr Bazdarov made an offer of compromise pursuant to r 20.26 of the UCPR by proposing judgment in his favour in the sum of $120,000 excluding legal costs.

On 24 June 2011, the District Court entered judgment in favour of Mr Bazdarov in the amount of $238,679.89.

As the amount awarded exceeded the amount sought in the offer of compromise, the Court ordered that the solicitors pay Mr Bazdarov's costs of the trial on the ordinary basis up to 17 March 2011, and on an indemnity basis thereafter.

On 26 July 2011, the solicitors filed a Notice of Appeal containing 8 grounds of appeal.

On 5 August 2011, the estate of the late Mr Bazdarov served an Offer of Compromise pursuant to r 20.26 of the UCPR in which it was offered to compromise the claim in the following manner:

"Judgment for the estate in the sum of $225,000 excluding legal costs of the appeal plus costs of the trial on the ordinary basis up to 17 March 2011 and on an indemnity basis thereafter."

On 27 March 2012, the Court of Appeal dismissed the appeal. Following the dismissal, an issue arose as to whether the unsuccessful solicitors should pay the estate's costs of the appeal on an indemnity basis.

Court of Appeal Proceedings – Costs Issue

The solicitors submitted (relevantly) that:

  1. the Offer of Compromise did not comply with UCPR 20.26(2) as it was not exclusive of costs because it included reference to the costs awarded at trial;
  2. even if the offer was exclusive of costs, exceptional circumstances were not required before the Court could order otherwise;
  3. the degree of compromise offered was modest.

The estate submitted the following:

  1. The Offer of Compromise of 5 August 2011 complied with the combined provisions of UCPR 20.26 and 51.47.
  2. The estate offered to compromise the appeal some 6 weeks after the original Notice of Appeal was filed, in circumstances where the judgment at first instance was more than that offered in the Offer of Compromise, therefore evidencing a genuine attempt at compromise.
  3. Acceptance of the offer which was made more than 8 months before the appeal would have avoided both sides incurring the bulk of their costs in respect of the preparation and hearing of the appeal.
  4. As the Court of Appeal ordered that the appeal be dismissed, the interest that had accrued from 24 June 2011 to 27 March 2012 increased the judgment amount payable by the solicitors to well above that awarded by the Court at first instance.
  5. As the estate obtained an order or judgment of the Court of Appeal which was no less favourable than the terms of the offer, it followed that subject to the Court ordering otherwise, the estate was entitled to indemnity costs of the appeal as and from 6 August 2011.
  6. The Court could only otherwise order if there were exceptional circumstances to justify doing so and no such circumstances arose in the present case.


His Honour Tobias AJA, with Bathurst CJ and Whealey JA concurring, held:

  1. The Offer of Compromise was exclusive of costs. By the combined operation of UCPR 20.26 and 51.47, the relevant proceedings in respect of which the estate offered to compromise the claim were the proceedings in the Court of Appeal. An offer is required to be exclusive of costs so as to preserve and not impinge upon the cost provisions provided, relevantly in r 42.14(2)(b).
  2. In Dean v Stockland Property Management Pty Ltd (No 2)2, Giles JA; Handley AJA and Whealy J observed that the governing reason why an offer of compromise cannot involve costs at all was to avoid inconsistency between an offer of compromise and the provisions of the rules with respect to costs when such an offer has been made but not accepted. In the present case, the relevant offer was expressly made exclusive of the costs of the appeal, that is, the costs of the proceedings in the Court of Appeal, and was sufficient for the offer to comply with the mandatory requirement that it be exclusive of costs.
  3. The recent authorities in the Court of Appeal confirm the requirement that exceptional circumstances must be demonstrated before the Court can otherwise order.3 His Honour noted that there appears to be a conflict of opinion in the Court as to whether the Court can otherwise order indemnity costs in the absence of exceptional circumstances. However, it was unnecessary to confuse the issue further by determining which line of authority was to be followed. His Honour took into account the following:
    1. No attempt was made by the solicitors to suggest that it was reasonable for them to reject the offer of compromise, nor was it suggested that the estate failed to demonstrate that it was unreasonable for the solicitors to have accepted the offer;
    2. Given the grounds of appeal as they stood at the date the offer was made, the question of acceptance or non-acceptance must be determined at that date and without the benefit of hindsight, it seems that it was unreasonable for the solicitors not to accept the offer which, after taking into account interest accumulating on the judgment to the date of the offer, involved a discount on the amount payable of $16,562, or nearly 7%;
    3. It could not be said that the offer was other than a genuine offer of compromise and involved "a real and genuine element of compromise" 4;

The solicitors were ordered to pay the estate's costs of the appeal on the ordinary basis up to 5 August 2011, and on an indemnity basis as and from 6 August 2011.


The decision confirms the recent line of authority for the principle that in order to comply with UCPR 20.26 an offer of compromise must be exclusive of costs. The fact that the relevant offer in this case made reference to costs in the proceedings below did not breach that principle because the rule is concerned with the subject proceedings only.

The decision also confirms that exceptional circumstances must exist before a Court can make a costs order otherwise than in accordance with the rule.


1 Bathurst CJ at 1; Whealy JA at 2; Tobias AJA at 3
2 [2010] NSWCA 141, at 26
3 South Eastern Sydney Area Health Service v King [2006] NSWCA 2; Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109; Nominal Defendant v Hawkins [2011] NSWCA 93
4 Dean v Stockland Property Management; Miwa Pty Ltd v Siantan Properties Pty Ltd (No 2) [2011] NSWCA 344

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