Australia: Offers of compromise: be careful what you promise

In brief - Take heed of rule 20.26 of Uniform Civil Procedure Rules

A recent NSW Supreme Court case shows that defendants seeking to refrain from paying the settlement sum following acceptance of an offer of compromise until after receipt of all necessary clearances, must stipulate this in the offer or risk having to pay interest.

Effect of interest when the settlement sum not paid within 28 days

In the case Holshandon Pty Ltd as Trustee of the Rankin Family Trust No. 1 v Eakin [2014] NSWSC 1529, the NSW Supreme Court recently determined that a plaintiff is entitled to claim interest if the settlement sum accepted in an offer of compromise is not paid within 28 days of acceptance of the offer irrespective of whether the defendant has received the necessary documents to ensure that appropriate reimbursements are made (i.e., to Medicare and Centrelink).

Onus on defendants

In this regard, if a reimbursement notice under section 1182 or section 1184 of the Social Security Act 1991 (Cth) is issued by Centrelink, a defendant or insurer is not permitted to pay compensation until one of the events in section 1184D (2A) occurs. These include:

  • Revocation of a section 1182 notice requiring a defendant or insurer to make payment
  • Payment is made to the Commonwealth of the specified sum
  • Written permission is provided to the insurer to pay the settlement amount

However, because the Centrelink notices are not normally provided to plaintiffs but are forwarded only to defendants and their insurers on notification of a settlement, the onus is on the defendants to ensure that Centrelink is reimbursed in accordance with the notice. This is so even if the settlement monies have already been paid to the plaintiff.

Offer accepted but consent judgment not agreed

The circumstances of this case were that an offer of compromise was made by the defendant and was accepted by the third plaintiff on 24 September 2014. On 16 October 2014, the third plaintiff's solicitor sent a proposed consent judgment with certain provisos which were not agreed to by the defendant. The defendant's solicitor sent the third plaintiff's solicitor a further consent judgment. Two terms in the defendant's proposed judgment remained in dispute, namely:

  • an order that no interest be payable until the defendant received a notice from Centrelink enabling them to pay the verdict
  • a provision that the terms not be disclosed except as required by law

Justice Davies referred to rule 20.26(8) of the Uniform Civil Procedure Rules 2005 which states that unless an offer of compromise provides otherwise, payment of the sum accepted by the offer of compromise is to occur within 28 days after acceptance of the offer.

Defendant fails to include term for interest and confidentiality in offer

As the defendant did not stipulate within the offer itself that interest was not payable until receipt of a Centrelink clearance, Justice Davies determined that the third plaintiff was entitled to interest from the date of acceptance of the offer.

Additionally, as the offer of compromise did not include a term regarding confidentiality, the defendant had no entitlement to require that the terms not be disclosed except as required by law.

Matters to consider when drafting offers of compromise

This is a matter to consider when drafting offers of compromise. Essentially, if a defendant seeks to refrain from paying the settlement sum following acceptance of an offer of compromise until after receipt of all necessary clearances, this must be stipulated in the offer of compromise. If not, there is no obligation on a plaintiff to agree to such a term in the consent judgment and interest will run from the date of acceptance of the offer.

Given that clearances are seldom given until a sealed consent judgment is provided to the relevant government agency, a failure to include such a term may unwittingly expose defendants to orders for interest unless the amount is paid within 28 days of acceptance of the offer.

However, what is left open is whether an additional term within the offer of compromise will have the effect of limiting the offer such that it is not in compliance with rule 20.26. This is (hopefully) doubtful based on the wording of rule 20.26 (8) commencing, "Unless the notice of offer otherwise provides..." which, on one interpretation, seeks to allow an offeror to propose a different timing for payment of the accepted sum.

Gavin Creighton Debbie Kaminskas Justine Autour
Insurance and reinsurance
CBP Lawyers

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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Debbie Kaminskas
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