In brief - Costs will be payable up until date of offer, not subsequent to that date

The recent Supreme Court decision in The Owners Corporation Strata Plan No 74667 [2015] NSWSC97; 74670 and 74662 v Auburn City Council [2015] NSWSC 86 further cements the strict application of the Uniform Civil Procedure Rules 2005 (NSW) ("the Rules") in relation to offers of compromise. Fortunately for the defendants, Rein J confirmed that offers made validly under the Rules only permit the offeree to recover their costs up to the date the offer was made. This preserves the very purpose of offers of compromise, to put pressure on the recipient to settle the proceedings quickly and cheaply. 

Offers of compromise accepted, but dispute arises around relevant date

The plaintiffs' owners' corporations commenced proceedings in the Supreme Court alleging the negligent certification of the construction of residential apartment towers. The proceedings were listed for hearing commencing on 3 February 2015.   

On 22 January 2015, twelve days before the hearing, the defendants issued offers of compromise on the plaintiffs ("offers"). Each of the offers was expressed to be made under rule 20.26 of the Rules and provided for the "...defendants to pay the costs of the plaintiff as agreed or assessed."  

On 1 February 2015, the plaintiffs' solicitors notified the defendants that the plaintiffs' executive committees had resolved to accept the offers subject to the confirmation of the general meetings of each owners' corporation. The general meetings were convened at the earliest possible time on 5 February 2015 and the hearing was adjourned.   

The offers were accepted by each of the plaintiffs and judgment was entered on 6 February 2015. However, a dispute arose as to the date to which the plaintiffs were entitled to their costs. The plaintiffs claimed that they were entitled to their costs to the date the offers were conditionally accepted by the executive committees, whereas the defendants claimed that the relevant date was the date the offers were made. 

Offers made under Uniform Civil Procedure Rules

There was no dispute that the offers had been validly made under the Rules. Rule 20.26 relevantly provides:  

20.26 Making of offer

...

(2) An offer under this rule:

(a) must identify:

...

(ii) 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...

(c) must not include an amount for costs and must not be expressed to be inclusive of costs...

...

(3) An offer under this 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...

(Emphasis added.)

In the event that the offer is accepted, but makes no provision for costs, rule 42.13A  provides:  

42.13A Where offer accepted and no provision for costs

...

(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 up to the time when the offer was made.

(3) if the offer proposed a judgment in favour of the defendant in respect of the claim (including 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 up to the time when the offer was made.

(Emphasis added.)

Plaintiffs claim that Uniform Civil Procedure Rules allow costs to be payable up to date of acceptance

The plaintiffs argued that there were three options available to the defendants in making the offers:  

  1. to offer to pay the plaintiffs' costs up to the time the offers were made in accordance with rule 20.26(3)(b)
  2. to make no reference to costs in the offers and therefore engage the provisions of rule 42.13A
  3. to offer to pay the plaintiffs' costs up to the time the offers were accepted

The plaintiffs submitted that since the offers did not contain an express term qualifying that costs were payable up to the time the offers were made, the offers did not comply with rule 20.26(3)(b). Rather, they submitted, the provisions for costs in the offers were "proposed orders for the dismissal of the claim" as permitted by rule 20.26(2)(a)(ii).   

The plaintiffs argued that rule 20.26(3) was prohibitive but that as long as the proposed orders for the dismissal of the claim under rule 20.26(2)(a)(ii) (including orders for the payment of costs) did not contravene rule 20.26(3), then they were permissible. His Honour Rein J agreed that it was an interesting anomaly in the rules.   

The plaintiffs also argued that since the offers contained a provision for the defendants to pay the plaintiffs' costs, rule 42.13A could not have been engaged. For rule 42.13A to operate, the plaintiffs' offers must have made no reference to the payment of costs. 

Defendants highlight purpose of Uniform Civil Procedure Rules 

The defendants emphasised that the offers were agreed to have been made in accordance with the Rules and that neither rule 20.26, rule 42.13A or any other aspect of the Rules provided for costs to be payable up to the date that the offer was accepted. They highlighted the fact that the Rules were so intended to place pressure on an offeree to resolve the proceedings promptly where a reasonable offer was made. Rein J agreed that it would not be in the public's interest to permit an offeree to run up excessive costs and then to accept an offer at the last minute.  

The defendants also submitted that the offers should be considered in their totality. The offers contained an express provision that they were made in accordance with rule 20.26. They submitted that whatever the provision as to costs was provided, it could not be an offer which contravened rule 20.26(3)(b).  

Finally, the defendants submitted that rule 20.26(2)(a)(ii) only provided for orders regarding the disposition of the substantive case. They argued that any orders for costs were not within the scope of that provision and highlighted the fact that there would be no need for rule 20.26(3) if rule 20.26(2) carried the meaning the plaintiffs proffered.

Purpose of offers of compromise confirmed by court's decision 

His Honour found that for an offer to comply with the Rules, it could only provide for costs to be payable up to the time the offer was made. He did not agree with the plaintiffs' submission that rule 20.26(2)(b)(ii) was concerned with costs or that rule 20.26(3)(b) permitted alternative offers as to costs to be made. He agreed with the defendants' submission that rule 20.26(3) would be of no effect if rule 20.26(2) permitted alternative costs offers to be made.  

Rein J highlighted the practical benefit of encouraging an offeree "not to expend money on the case if the offer is otherwise attractive. Since the encouragement of settlement is the purpose of the rule..." (at [15]). This reiterates the courts' focus on encouraging the overriding purpose of "just, quick and cheap resolution" of proceedings in accordance with section 56 of the Civil Procedure Act 2005 (NSW)

Implications for offers of compromise and acceptances

Rein J's decision essentially maintains the status quo but reiterates that if an offer is to be made under the Rules, the available orders as to costs are quite restricted. In anomalous circumstances, alternative or concurrent offers pursuant to the principles in Calderbank v Calderbank [1975] All ER 333 may be more attractive to litigants. In that regard, it is important to note that nothing in the Rules prevents multiple offers being made in proceedings.  

The circumstances of this case also highlight that rigid adherence to the Rules is essential when drafting offers of compromise. Litigants must be mindful of the totality of the Rules when drafting offers and ensure that any offer comprehensively encompasses their instructions, and nothing more.