The introduction of the Supreme Court (Chapter I Offers of Compromise Amendments) Rules 2013 (Vic) (Amendments) effective as of 1 September 2013 will provide clarity to practitioners as to whether costs should be mentioned as part of an offer of compromise. The Amendments will also provide practitioners with some certainty as to the status of pre-litigation offers when the Court makes a determination as to costs.

Costs

As it currently stands, if an offer of compromise is accepted within the time limited for acceptance, the liability of the offeree for the offeror’s costs is a matter governed under Order 26.08 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) (Rules) and not by a reference to costs in the offer of compromise. As such, reference to costs are not to be included in an offer of compromise served prior to the Amendments coming into effect.

Order 26.08 (2) of the Rules states that, where an offer of compromise is made by a Plaintiff and not accepted by the Defendant and the Plaintiff obtains judgment on the claim no less favourable than that of the offer, then the Plaintiff will be entitled to indemnity costs from the date the offer was served.

Conversely, under Order 26.08 (3) of the Rules, if the Defendant serves an offer of compromise and it is not accepted by the Plaintiff and the Plaintiff obtains judgment on the claim not more favourable to the Plaintiff than that of the offer, then the Defendant will be entitled to costs on a standard basis from the day the offer was served (note that the Plaintiff would still be entitled to costs on a standard basis up until the date of the offer was served).

Previously, an offer of compromise expressed to be inclusive of costs was held not to be an offer of compromise under Order 26. 

However, under the Amendments, a new Order 26.02(4) has been included.

Order 26.02(4) states:

“An offer of compromise must state either-

  1. that the offer is inclusive of costs; or
  2. that costs are to be paid or received, as the case may be, in addition to the offer.

As a result there should be no confusion on the offeree’s part as to whether the offer is inclusive / exclusive of costs.

New South Wales has also recently made amendments to the rules pertaining to Offers of Compromise under the Uniform Civil Procedure Rules (Amendment No 59) (NSW) 2013 (UCPR Amendments). Interestingly, the amendments are in direct contrast to those in Victoria, in particular, under the UCPR Amendments an offer of compromise now must not include an amount for costs and, inturn, is not to be expressed to be inclusive of costs.

Practitioners in Victoria need to ensure that, as of 1 September 2013, they comply with the requirements under Order 26.02(4) in order for the Court to be in a position to consider the offer of compromise when making a determination as to costs.

Additional changes include:

  1. in relation to the time for payment of a sum of money to the Plaintiff, the current Order 26.03.01 says it will be 14 days unless the offer provides otherwise.  As of 1 September 2013, this will change to 28 days; and
  2. if the Plaintiff unreasonably fails to accept an offer from the Defendant and the Plaintiff’s claim is dismissed, the Defendant will obtain a cost order up to the time of the offer on a standard basis and thereafter on an indemnity basis (new Order 26.08(4)).  Previously, the Rules were silent on this scenario

Pre-litigation offers

Under the Amendments a new Order 26.08.1 of the Rules has been introduced allowing the Courts to take into account a pre-litigation offer when making a determination as to costs. Under Order 26.08.1 of the Rules, the Court will consider a pre-litigation offer when making an order for costs if:

  1. a party, before a proceeding has commenced, has made an offer in writing to another party (whether or not expressed to be without prejudice) to compromise any claim made in the proceeding on the terms specified in the offer; and
  2. the offer was open to be accepted for a reasonable time, but was not accepted; and
  3. the offeror obtains an order or judgment in respect of the claim no less favourable to the offeror than the terms of the offer.

Unlike with offers of compromise served during the proceeding, the Court can use its discretion as to whether it will take into account a pre-litigation offer when determining costs.

The Courts also have discretion in determining the amount of costs that the unsuccessful offeree will have to pay. Under the new Order 26.08.1 (2) the Court may order that the offeree pay all or part of the offeror’s costs of the proceeding taxed on a basis other than the ordinarily applicable basis, from-

  1. the date the offer was made; or
  2. the commencement of the proceeding; or
  3. any other time that the Court thinks fit.

The Court’s wide ranging discretion in determining costs for a pre-litigation offer is in direct contrast to offers of compromise served during the course of litigation. Under this scenario the Courts strictly adhere to the Rules, in particular Order 26.08, in determining costs. 

Practitioners should carefully consider any offers made prior to proceedings being issued, as it is likely that the offer will be taken into consideration by the Courts when making a determination as to costs. As such, practitioners must be conscious of the fact that the rejection of a pre-litigation offer could potentially leave your client exposed to an order for indemnity costs if the offeror achieves an outcome at judgment no less favourable than the offer made.

References: Supreme Court (Chapter I Offers of Compromise Amendments) Rules 2013  (Vic); Supreme Court (General Civil Procedure) Rules 2005 (Vic).