Australia: Valid offers of compromise and costs in NSW and Victoria

Last Updated: 6 August 2013
Article by Melissa Fenton, Nigel Watson and Stephanie Bird

In brief - Offers of compromise can now be expressed as "plus costs as agreed or taxed"

From 7 June 2013, the NSW Uniform Civil Procedure Rules provide certainty about the validity of offers of compromise.

Offers of compromise under NSW Uniform Civil Procedure Rules

In NSW there has long existed confusion as to the proper meaning of the requirement under r20.26 of the Uniform Civil Procedure Rules (the Rules) that an offer of compromise be "exclusive of costs".

The confusion is now over following two significant developments in this area.

On 7 June 2013, amendments to the NSW Rules relating to offers of compromise and the consequences as to costs in accepting and rejecting such offers came into force. The changes will apply to offers of compromise made after commencement and provide that offers will be valid if expressed to be "plus costs as agreed or taxed".

On 26 June 2013, in Whitney v Dream Developments Pty Ltd [2013] NSWCA 188, the Court of Appeal by a five Justice bench resolved the confusion under the "old" NSW Rules regarding two issues:

  • Whether an offer of compromise expressed as plus costs as agreed or assessed (or containing similar terms) is compliant with r20.26 of the Uniform Civil Procedure Rules; and
  • If such an offer is not compliant with r20.26, can it take effect as a Calderbank offer (in accordance with Calderbank v Calderbank [1975] 3 WLR 586) for the purpose of considering whether a special order as to costs should be made.

Amendments to the NSW Rules relating to offers of compromise

The Uniform Civil Procedure Rules (Amendment No 59) (NSW) 2013 now clarifies that an offer must not include an amount for costs and must not be expressed to be inclusive of costs.

However, despite this, an offer may propose:

  • a judgment in favour of the defendant with no order as to costs or an order that the defendant will pay the plaintiff a specified sum in respect of the plaintiff's costs;
  • that the costs as agreed or assessed up to the time the offer was made will be paid by the offeror;
  • that the costs as agreed or assessed on the ordinary basis or on the indemnity basis will be met out of a specified estate, notional estate or fund.

Accordingly on and from 7 June 2013, offers of compromise can use words to the effect of "plus costs as agreed or assessed". In addition, the Rules now enshrine the effect of remaining silent as to costs.

Court of Appeal holds offer to be valid in Whitney v Dream Developments

In Whitney, the offer of compromise relevantly stated that it was made in accordance with r20.26 of the Rules and "the Defendant to pay the Plaintiff's costs as agreed or assessed". Whilst the decision was delivered following the amendments to the Rules, it was relevant to the interpretation of the "old" Rules.

At first instance, the Local Court held that as the offer contained a term that the defendant pay the plaintiff's costs as agreed or assessed, it was not compliant with r20.26 of the Rules. Further, it was held that the offer could not operate as a Calderbank.

On appeal, the Primary Judge held that the offer was valid and made exclusive of costs because they did not compromise as to costs. Consequently, the Primary Judge was silent as to the offer's operation as a Calderbank.

In Whitney, the Court of Appeal answered the following:

Did Old v McInnes [2011] NSWCA 410 misconstrue r20.26?

No, Old v McInnes correctly construed r20.26. An offer of compromise is not to refer to costs at all.

In accordance with Old v McInnes, any reference to words to the effect of "costs as agreed or assessed" in an offer of compromise is invalid under the Rules.

Is Vieira v O'Shea (No. 2) [2012] NSWCA 121 inconsistent with Old?

No, Vieira v O'Shea (No.2) is not inconsistent with Old.

In Vieira v O'Shea (No. 2) it was held that as long as the proposed costs order in the offer of compromise accords with the order that would ordinarily have been made under Part 42 of the Rules (being any consequential costs order), then it is "exclusive of costs".

In Old, the offer of compromise expressed a provision as to costs. In Vieira v O'Shea (No.2), the offer of compromise was silent as to costs. As a matter of semantics, an offer which is silent as to costs is exclusive of costs.

Can an invalid offer of compromise take effect as a Calderbank?

Bathurst CJ stated that an offer made expressly pursuant to r20.26 will not of itself take effect as a Calderbank offer unless there is something in it or in the surrounding circumstances to indicate that it is proposed to be relied upon on the question of costs, irrespective of its effectiveness as an offer under r20.26.

Bathurst CJ commented that if the correspondence relating to the offer of compromise (so as to emulate the essence of a Calderbank) indicates that the offer is intended to have effect other than as an offer under r20.26 of the Rules, or indicates that the offer is intended to be relied on in relation to the question of costs should a verdict more favourable than the offer be achieved by the party, then an invalid offer may be construed as a Calderbank.

In Whitney, neither the correspondence nor the surrounding circumstances provided any such indication (as outlined above) that the invalid offer should operate as a Calderbank.

Victorian position on offers of compromise

Habersberger J in the Supreme Court of Victoria considered a similar issue in BHP Billiton Olympic Dam Corporation Pty Ltd v Steuler Industriewerke GmbH [2012] VSC 414. The offer did not comply with the Rules because it was an offer only to compromise the claim against one defendant, rather than both defendants as required by the relevant rule.

In his judgment delivered 13 September 2012, His Honour held that, at his discretion, he was entitled to treat the purported but defective Offer of Compromise as a Calderbank offer. His Honour did not impose the condition referred to by Justice Bathurst requiring something in the offer or surrounding circumstances to indicate that it is to be relied upon on the question of costs irrespective of its effectiveness as a formal offer.

In Victoria the current rules say the offer must be exclusive of costs.

The Supreme Court of Victoria recently announced amendments to the Vic Rules on Offers of Comp which are to apply from 1 September 2013. The amendments will now require the offer to state either:

  • that the offer is inclusive of costs, or
  • that costs are to be paid or received, as the case may be, in addition to the offer.

Offers of compromise valid whether or not expressed as "plus costs as agreed or taxed"

If your offer of compromise was served before 7 June 2013, the Court of Appeal's decision in Whitney will apply, such that if the offer was expressed to be "plus costs as agreed or taxed" it will be invalid. At best, you will need to point to some other evidence such as related correspondence to invoke the principles in Calderbank v Calderbank.

If your offer of compromise is made after 7 June 2013, you can safely rely on the NSW Rules to provide the certainty that the offer will be valid whether or not the words "plus costs as agreed or taxed" are included.

Melissa Fenton Nigel Watson Stephanie Bird
Insurance and reinsurance
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Melissa Fenton
Stephanie Bird
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