Offers of Compromise and Calderbank Offers: Whitney v Dream Developments [2013] NSWCA 188 (25 June 2013)/Amendments to Rules effective 7 June 2013.
In Whitney v Dream Developments Pty Ltd [2013] NSWCA 188 (25 June 2013) the Court of Appeal (sitting as a bench of five) considered the following issues relating to offers of compromise under UCPR 20.26:
(a) Whether an offer expressed as plus costs, as agreed or assessed or containing similar terms is compliant with UCPR 20.26; and
(b) Whether an offer that is not compliant with UCPR 20.26 can nevertheless take effect as a Calderbank offer (Calderbank v Calderbank [1975] 3 WLR 586).
The appeal considered the relevant provisions of the UCPR unaffected by the Uniform Civil Procedure Rules (Amendment No 59) 2013, which took effect on 7 June 2013 and which I address briefly at the conclusion of this note. I envisage that the amendments to UCPR 20.26 will reduce the incidence of disputation which plagued the former provision and which, in part, was the subject of the appeal.
Executive Summary
For the reasons that follow, the Court unanimously found that:
(i) An offer which is expressed to be “plus costs, as agreed or assessed or containing similar terms” is not compliant with UCPR 20.26 and does not therefore enliven the costs consequences prescribed by UCPR 42.13A, 42.14, 42.15 and 42.15A;
(ii) Old v McInnes and Hodgkinson [2011] NSWCA 410 was not incorrectly decided;
(iii) An offer made expressly pursuant to UCPR 20.26 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 UCPR 20.26.
The Appeal was accordingly dismissed.
The Facts
The plaintiff brought proceedings in the Local Court claiming the sum of $15,000 said to be monies due under a building contract plus interest and costs. The defendant denied liability and cross-claimed for the sum of $9,276.59, representing the cost of repairs and rectification work occasioned by alleged breaches of the building contract by the plaintiff plus interest and costs.
The plaintiff made an offer to settle the proceedings. That offer was relevantly in the following terms:
“This offer is made in accordance with Rule 20.26….
The Defendant offers to settle the Plaintiff’s claim against the Defendant on the following basis:
- Judgment for the Plaintiff.
- The Defendant to pay the Plaintiff $14,000 within 28 days of written acceptance of this offer.
- The Defendant to pay the Plaintiff’s costs as agreed or assessed.”
The letter enclosing the offer of compromise was relevantly in the following terms:
“Please find following the plaintiff's final offer of compromise which is open until 5.00pm Tuesday, 14 September 2010.
Following the above time, if the plaintiff's offer of compromise is not accepted, we are instructed to immediately engage and prepare a brief counsel.
In that event, further costs of engaging counsel and preparing for hearing will immediately accrue.”
It was common ground that the reference to the defendant offering to settle the plaintiff’s claim in paragraph 2 of the offer of compromise was a typographical error and that the offer was to be read as being made by the plaintiff.
The learned magistrate found for the plaintiff in the sum of $14,000 but on the cross-claim made an order in favour of the defendant that the plaintiff pay "such sum as is necessary to replace the hearthstone or $1000, whichever is the lesser.”
The plaintiff made application for an order for indemnity costs in reliance upon the offer of compromise. The application was rejected by the learned magistrate on the grounds that the offer contained a term that the defendant pay the plaintiff's costs as agreed or assessed, and was thus not compliant with UCPR 20.26. Her Honour also held that the offer could not operate as a Calderbank offer.
The decision of the learned magistrate was reversed on appeal by Adams J. His Honour held that the offer was exclusive of costs for the purposes of the application of the relevant rules of court because it did not compromise on costs but merely reflected the usual costs consequence of a plaintiff's success. In doing so, the primary judge sought to distinguish the facts in the case before him from the judgment of the Court of Appeal in Old v McInnes and Hodgkinson [2011] NSWCA 410 (Old). In Old the Court held that offers containing a term that the offeree pay the offeror’s costs as agreed or assessed were not offers which complied with UCPR 20.26 because they were not exclusive of costs. The primary judge distinguished Old on the basis that "the offer was markedly different to that which was made in this case.” The difference identified was that the offer in Old involved two payments: first, payment of a specified sum and, in addition, payment of the plaintiff's costs as agreed or assessed. The learned primary judge stated that in Old, the extent to which the specified amount was a compromise payment could not be separately considered from the value of the offer to pay the costs. He said that unlikeOld, in the case before him, the offer was "cast in terms that made it clear that there was no offer that involved any compromise on the question of costs.”
Leave to appeal was granted on 6 July 2012. The Court was constituted by a bench of five because the respondent wished to contend that Old was incorrectly decided and should be overruled.
The Requirement for an offer to be exclusive of costs
After setting out the relevant provisions of the rules, Chief Justice Bathurst (with whom Beazley P and McColl JA agreed) found [at 25] that r 20.26(2) “goes further as a matter of language than simply excluding offers expressed to be inclusive of costs. The use of the phrase ‘exclusive of costs’ suggests that what is intended is that a compliant offer will not deal with costs at all… The reason for this is that the costs consequences are dealt with in the relevant subrules of r 42….these rules not only deal with the cost consequences of non-acceptance of an offer but also the cost consequences when an offer is accepted. Although r 42.13A(2) provides for an order for costs in favour of the plaintiff after the time the offer is accepted, the court has power to make a contrary order. An offer providing for payment of costs removes that discretion. It is thus inconsistent with the scheme for the making of offers of compromise laid down by the rules at the relevant time. Whilst it would not be of significance in all cases, there are instances where a plaintiff or defendant may wish to argue that the costs order, which generally follows acceptance of an offer, is not the appropriate order. An offer containing a term that the offeree pay the costs of the offeror takes away that right which was part of the scheme of the rules at the time. Emmett JA made a similar finding but in a separate judgment (at [76]).
Barrett JA (with whom Beazley P and McColl JA agreed) said (at [52]) that the rules operate on the basis that if an offer is made under UCPR 20.26 it is the provisions of Division 3 (of Part 20), and those provisions alone, that will determine the position as to costs and that, accordingly, an essential characteristic of any offer under rule 20.26 is that it "accommodate and abide by the regime in respect of costs laid down by Division 3. The requirement in r 20.26 that an offer be ‘exclusive of costs’ dictates that essential characteristic. In providing that an offer must be ‘exclusive of costs’, r 20.26 requires that the offer not attempt to deal with the matter of costs at all (that is, it must say nothing about the matter) and, in that way, leave the Division 3 rules to operate untrammelled by any apparent contractual qualification, supplement or contradiction.” Barrett JA, recognised (at [55]) that parties are, of course, at liberty to make a settlement offer that seeks to deal not only with the substantive claims but also with costs but that such an offer can only be made outside the scheme based on UCPR 20.26. “If such a non-complying offer is not accepted, the fact that was made and not accepted may be relevant to the exercise of the courts to jurisdiction with respect of costs. Whether it is so relevant will depend, in part, on whether it has the characteristics associated with Calderbank v Calderbank [1975] 3 WLR 586.”
Can an offer which is not compliant with UCPR 20.26 take effect as a Calderbank offer?
Consistently with Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194, the Court held that whether an offer intended to be an offer under the UCPR but which is ineffective because it does not comply with those rules operates as a Calderbank offer depends upon the intention of the offer all as revealed by the terms of the offer. "…[A]n offer made expressly pursuant to r 20.26 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 r 20.26.” (Bathurst CJ at [43] with whom Beazley P and McColl JA agreed). The "crucial matter is the manifested intention of the offeror… In the absence of any information (for, example, in a covering letter) that the plaintiff intended its offer, expressly founded on r 20.26 to have some secondary or alternative significance, the fact that the plaintiff's attempt to act under r 20.26 miscarried neither required nor justified the assumption of intended secondary or alternative significance (Barrett JA at [59] with whom Beazley P and McColl JA agreed; see also Emmett JA at [76]).
The Effect of the Uniform Civil Procedure Rules (Amendment No 59) 2013
Part 20 Division 4 of the UCPR was amended with effect from 7 June 2013. There are two principal amendments affecting offers of compromise.
The first of the amendments is to the definitions in UCPR 20.25. The definition of “final deadline” has been deleted; the definition of "period for acceptance" has been replaced as follows “period of acceptance for an offer means the period of time during which the offer is open for acceptance”; and a new definition “judgment in favour of the defendant” has been inserted as follows “includes a dismissal of the summons or a statement of claim.
Secondly, UCPR 20.26 relating to the requirements of an offer of compromise under the rules has been significantly overhauled as follows.
To be considered as an offer under UCPR 20.26(2) it:
(i) must identify the claim or part of the claim to which it relates and the proposed orders for disposal of the claim or part of the claim, including, if a monetary judgment is proposed, the amount of that monetary judgment;
(ii) if the offer relates only to part of a claim in the proceedings, must include a statement:
- in the case of an offer by the plaintiff, as to whether the balance of the proceedings is to be abandoned or pursued, or
- in the case of an offer by a defendant, as to whether the balance of the proceedings will be defended or conceded;
(iii) must not include an amount for costs, and must not be expressed to be inclusive of costs;
(iv) must bear a statement to the effect that the offer is made in accordance with these rules;
(v) if the offeror has been made or been ordered to make an interim payment to the offeree, must state whether or not the offer is in addition to that interim payment;
(vi) must specify the period of time within which the offer is open for acceptance.
UCPR 20.26(3) provides that an offer under the rule may propose:
(a) A judgment in favour of the defendant:
(i) with no order as to costs, or
(ii) despite subrule (2)(c), with a term of the offer that the defendant will pay to the plaintiff a specified sum in respect of the plaintiff's costs, or
(b) that the costs as agreed or assessed up to the time the offer was made will be paid by the offeror, or
(c) 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 state or fund identified in the offer.
UCPR 20.26(4) provides that if the offeror makes an offer before the offeree has been given such particulars of the offeror’s claim, and copies or originals of such documents available to the offeror, as are necessary to enable the offeree to fully consider the offer, the offeree may, within 14 days of receiving the offer, give notice to the offeror that the offeree is unable to assess the reasonableness of the offer because of the lack of particulars or documents and, in the event that rule 42.14 applies to proceedings, the offeree will seek an order of the court under rule 42.14(2).
UCPR 20.26(5) provides that the closing date for acceptance of an offer:
(a) in the case of an offer made two months or more before the date set down for commencement of the trial - is to be no less than 28 days after the date on which the offer is made, and
(b) in any other case- is to be such date as is reasonable in the circumstances.
Consequential amendments were also made to Part 42 Division 3 to accommodate the changes made to Part 20 Division 4 of the UCPR. These amendments are:
1. A new UCPR 42.13A as follows:
“42.13A (1) This rule applies if the offer:
(a) is accepted by the offeree, and
(b) does not make provision for costs in respect of the claim.
(2) If the offer proposed a judgment in favour of the plaintiff in respect of the claim, the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim, assessed on the ordinary basis at the time in the offer was made.
(3) If the offer proposed a judgment in favour of the defendant in respect of the claim (including a dismissal of a summons or a statement of claim), the defendant is entitled to an order against the plaintiff for the defendant’s costs in respect of the claim, assessed on the ordinary basis at the time and the offer was made.
2. A new UCPR 42.15(1) as follows:
“42.15 (1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the plaintiff obtains an order or judgment on the claim no more favourable to the plaintiff and the terms of the offer.”
3. A new UCPR 42.15A(1) as follows:
“42.15A (1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim no less favourable to the defendants on the terms of the offer.”
