Australia: Offer Of Compromise - Two Months Within Hearing - Beware The Pitfalls

Pittorino v Yates [2009] NSWCA 87
Judgment of Beazley JA, Tobias JA and Handley AJA

In Brief

• In determining whether the time allowed for acceptance of an Offer of Compromise made within two months of a hearing date is reasonable in all the circumstances, a Court will consider circumstances occurring after the date on which the offer was made.

Background

• The plaintiff's claim arose out of a motor vehicle accident which occurred in 2004. The plaintiff sustained orthopaedic injuries including a fractured dislocation of her C6/C7 vertebra.
• The plaintiff's solicitor qualified Dr Hopcroft, a general surgeon. The defendant relied on reports by Dr Matheson, a neurosurgeon, and Dr Blue, an orthopaedic surgeon.
• On 20 September 2007 the plaintiff's solicitors received advice from Counsel that an orthopaedic specialist should be qualified to meet the reports of Dr Matheson and Dr Blue.
• On 25 September 2007 the defendant made an Offer of Compromise pursuant to Rule 20.26(1) of the Uniform Civil Procedure Rules 2005 (the UCPR) in the sum of $400,000 exclusive of costs. This offer was made within two months of the hearing date.
• The offer was initially intended to expire on 23 October 2007 however the plaintiff sought an extension of the offer until 30 October 2007. The plaintiff wanted this time to qualify an orthopaedic specialist to reply to the defendant's report. The defendant's solicitors were instructed to leave the offer open until 26 October 2007.
• Arrangements were made for the plaintiff to be examined by Dr Ellis, Specialist Orthopaedic Surgeon, on 23 October 2007. Dr Ellis' report was not received by the plaintiff's solicitor until 9 November 2007.
• At trial the plaintiff received a verdict in her favour against the defendants in the sum of $378,501 plus costs.
• The defendant made an Application pursuant to Rule 42.15 that the plaintiff pay the defendant's costs on an indemnity basis from 26 September 2007.
• Rule 42.15A provides for the following:

• Rule 20.26(7) provides for the following:

District Court Decision

• The trial judge considered that it was not reasonable to expect the plaintiff to settle the case without having the opportunity to obtain an opinion from a qualified orthopaedic surgeon and that it would be unreasonable to expect that the plaintiff would be able to do so by the last day the defendant was prepared to leave the Offer of Compromise open.
• On this basis his Honour refused the defendant's application for costs under Rule 42.15 and ordered the defendant to pay the plaintiff's costs of the proceedings.
• The defendant sought leave to appeal the trial judge's decision.

Court of Appeal decision

• On appeal the defendant submitted that the question of whether an Offer of Compromise had been left open for a reasonable time in the circumstances within the meaning of Rule 20.26 was to be determined as at the date the offer was made. The defendant further submitted that as at the date that the offer had been made there had been no notification from the plaintiff's solicitors that the plaintiff proposed to qualify a specialist orthopaedic surgeon to respond to the views expressed by Dr Matheson and Dr Blue.
• Tobias JA rejected this argument, holding that if this was the intended operation of the Rule then "It would not matter that the offeree had, in effect, been ambushed by the service of damning medical reports and the making of an offer of compromise at the same time".
• Tobias J noted that the trial judge was a "highly experienced common law judge" and could find no error in his finding that it was reasonable for the plaintiff to obtain a report from an orthopaedic specialist in reply to the defendant's reports as long as this was achieved expeditiously.
• Tobias J further held that keeping the offer open for a further short period to enable the plaintiff and her advisers to consider Dr Ellis' report would not have offended the principles relating to the making of an Offer of Compromise and the associated rules relating to costs where such an offer is not accepted. In this regard his Honour held that Rule 20.26(7)(b) is "intended to operate fairly as between the parties and in particular, to avoid in appropriate circumstances, one party exerting undue pressure on the other in a manner that is unreasonable. Indeed, it is intended to afford an offeree the opportunity, if the circumstances so warrant, to make an informed and reasoned judgment whether or not to accept the offer".
• Handley AJA, dissenting, held that the question of reasonableness must be assessed objectively at the date the offer is made. His Honour held that the trial judge erred in taking into account matters not known to, or reasonably anticipated by, the defendant's solicitors when they made their offer, such as the fact that the plaintiff's legal advisers wanted to obtain a report from an orthopaedic specialist.
• His Honour considered that "it would be strange if a 28 day offer made just outside the two-month period would unquestionably be valid, but one inside that period for 31 days could be held to be unreasonably short".
• Referring to Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85, his Honour held that the reasonableness of an offer must be assessed objectively as at the date the offer is made and that knowledge acquired later should not render the offer unreasonable but might justify an order otherwise under Rule 42.15A.
• Handley AJA held the offer could not be objectively characterised as unreasonable and that the trial judge erred in taking into account matters not known to, or reasonably anticipated by, the defendant's solicitors when they made the offer. His Honour noted the problems with the plaintiff's medical evidence existed for some time prior to 25 September as the defendant's solicitors served Dr Blue's first two reports on 14 August and 11 September and Dr Matheson's first two reports on 7 March and 6 September. In these circumstances his Honour found the need to obtain Dr Ellis' report was not a valid reason for making an order displacing the prima facie operation of Rule 42.15A of the UCPR.
• His Honour held there was nothing "exceptional" in this case to displace the general rule: Hillier v Sheather (1995) 36 NSWLR414. The fact that it was "reasonable" for the plaintiff and her advisers to wait until they received Dr Ellis' report was not a ground for displacing the general rule.

Implications

• We consider Handley AJA's dissenting judgment is compelling and the plaintiff was fortunate not to have indemnity costs awarded against her from 26 September 2007.
• When making an offer of compromise within two months of a hearing date, an offerror should be mindful of the fact that allowing an offer to expire before the other party has had a chance to meet medical reports served by them runs the risk of a finding that the offer was not left open for a reasonable time. Where an extension of the offer is sought careful consideration needs to be given as to whether it should be granted.
• The question of whether an offer made within two months of a hearing date has been left open for a reasonable time in the circumstances requires an evaluative judgment.

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