Hunt & Hunt
Offers of compromise
Pursuant to r.280 of the Supreme Court Rules 2000 (“SCR”), parties may make an offer of compromise by offering to:
Pay/Accept a nominated sum of money. Plaintiffs may do so after giving credit to the defendant for any set-off or counterclaim raised by the defendant against the plaintiff, stating whether the offer requires the defendant to pay the whole, or a stated proportion, of the plaintiff’s costs.
Accept/Concede a percentage of the claim.
Give/Accept any relief that it is contended is sufficient to dispose of the whole action or one or more causes of action.
Pursuant to r.281, an offer of compromise must be in writing and is to contain the following:
The title of the proceeding.
The name of the party making the offer and the name of the party to whom the offer is made.
A statement that it is served in accordance with Part 9 of the SCR.
The cause(s) of action to which the offer relates
Whether or not the offer is made in addition to any payment into Court previously made by the offerer under Part 8 of the SCR.
The offer of compromise may also include an offer to pay/accept costs on a specified scale. Typically an offer of compromise includes provision for payment of costs as agreed or taxed.
An offer of compromise remains open for at least 14 days after service (r.280(7) and r.283) and must be made before trial (r.280(6)).
If there are multiple defendants alleged to be jointly/severally liable and a right of contribution or indemnity is alleged to exist between them, then in order to be protected by the costs consequences under the SCR the offer of compromise must be made so as to resolve the claim against all defendants (r.290). If the offer is made by multiple defendants, then the defendants are jointly/severally liable to the plaintiff for the whole amount of the offer (r.290).
The power to award costs is discretionary pursuant to r.57 of the SCR and s.12 of the Supreme Court Civil Procedure Act 1932. A successful litigant is generally entitled to an award of costs (Oshlack v Richmond River Council (1998) 193 CLR 72 per McHugh J at ).
To place yourself in optimal position to apply for costs, it is best practice to make any offer, be it a Calderbank offer or an Offer of Compromise under the SCR, on a plus costs basis. In any event, pursuant to r.284 of the SCR, if a defendant accepts a plaintiff’s offer of compromise then, subject to the terms of the offer, the defendant is to pay the plaintiff’s costs up to the day of service of the offer unless otherwise ordered.
Generally, there is more certainty as to the costs consequences for offers of compromise compared to Calderbank offers because of the relevant provisions under the SCR as set out below. For Calderbank offers the Court will have regard to all relevant circumstances in exercising its discretion in relation to costs.
Pursuant to r.289 of the SCR:
Unless it is otherwise ordered, a plaintiff is entitled to an order for costs against a defendant taxed on a solicitor-client basis if judgment is no less favourable to the plaintiff than the terms of the offer.
Unless it is otherwise ordered, a plaintiff is entitled to an order for costs against a defendant, up to and including the day of service of the offer, on a party and party basis and the defendant is entitled to an order for costs against the plaintiff after the service of the offer on a party and party basis if the judgment is no more favourable to the plaintiff than the terms of the defendant’s offer.
In considering the exercise of its discretion and whether to “otherwise order”, the Court will have regard to whether failure to accept an offer was reasonable. Further, the potential for modification of the ordinary rule that costs will follow the event depends on the circumstances of each case. This was discussed in Hughes v Western Australian Cricket Association (Inc) (1986) ATPR ¶40-748, where the successful applicant had failed on more issues than he had succeeded. At 48,136 Toohey J stated the applicable principles in relation to costs as follows:
Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order. Ritter v Godfrey (1920) 2 KB 47.
Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed. Forster v Farquhar (1893) 1 QB 564.
A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party’s costs of them. In this sense, “issue” does not mean a precise issue in the technical pleading sense but any disputed question of fact or of law. Cretazzo v. Lombardi (1975) 13 SASR 4 at 12.
Tennent J in Evans v Dawson (No 2) BC201203663 made reference to the South Australian case of Morris v McEwen  SASC 284, in discussing the interaction between Calderbank offers and offers of compromise under the relevant rules:
“A court may have regard to a Calderbank letter even though an offer in accordance with the Rules of Court could have been lodged. The second matter suggests that there are some limitations on the circumstances in which it will be appropriate to attach any weight to a Calderbank letter. It suggests that in order for effect to be given to a Calderbank letter, it should be framed in terms which are consistent with the spirit and intent of Rule 40. In particular, for effect to be given to a Calderbank letter where an offer in accordance with the Rules of Court could have been lodged, the Calderbank letter should not impose more onerous obligations on the recipient than would an offer filed in accordance with the Rules. ...To the extent that a defendant departs from that régime, it runs the risk that the Court will regard the manner or content of its offer as being unreasonable and, therefore, as not warranting any alteration of the usual position as to costs.
In considering whether to give a Calderbank letter the same effect as an offer lodged pursuant to Rule 40, a number of matters will be relevant. These will include: whether or not an offer could have been lodged pursuant to Rule 40; any difficulties associated with the framing of an appropriate offer; any difficulties occurring because of the involvement of other parties in the litigation; the proximity of the trial at the time when the offer was made and the time available to the plaintiff in which to consider the offer; the commitments to which the plaintiff may be subject at that time; and the extent to which, if at all, the circumstances of the offer, or its terms and conditions, differ from the circumstances, or terms and conditions, of an offer lodged in accordance with Rule 40. This is not intended to be an exhaustive list of the matters which may be relevant.”
In O’Pray v Olbrich  TASSC 3, Wood J stated in relation to Calderbank offers and costs:
“Ordinarily, costs are awarded on a party and party basis unless there are particular circumstances which justify a departure from this practice: Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (No 3)  FCA 1294 at . The power of the court to award costs is an unfettered discretionary power and there is not a closed category of circumstances which justify an order departing from the usual approach of the court: Safeway , Colgate-Palmolive Co v Cussons Pty Ltd  FCA 536; (1993) 46 FCR 225 at 233. If the justification for seeking indemnity costs or solicitor and client costs is non-acceptance of an offer of settlement, the party seeking such costs bears the onus of establishing that the non-acceptance was imprudent or plainly unreasonable: Safeway at . I glean from these authorities the more general proposition that the party seeking the exceptional order faces the task of persuading the court that the particular facts and circumstances before the court warrant the making of an order for the payment of costs on a solicitor and client basis.”
Wood J also referred to the earlier decision of Slicer J in Poulson and noted the discretionary nature of any consideration of a Calderbank offer:
“It was held that the making of a Calderbank offer and its rejection, without more, might justify a costs order...Thus, the court’s wide discretion would permit such an offer to be taken into account but, in considering the merits of the application, there are strong reasons why a mere Calderbank offer and its rejection would not provide sufficient basis for a solicitor and client costs order...that a solicitor and client costs order is exceptional, and the making of such a costs order on the basis of a refusal of a Calderbank offer, even more exceptional.”
There may be cogent reasons throughout negotiations for making a Calderbank offer (for example if proceedings have not yet commenced or if it is necessary to limit the time of the offer to less than 14 days). However, ultimately, for the strongest protection to argue costs – particularly if an application is to be made for solicitor/client or indemnity costs – then you are best placed if you can rely on an offer of compromise made on a costs plus basis and in accordance with the SCR.
Peter Forbes-Smith, Director
+61 3 6210 6200