In New South Wales, rule 20.26(7) of the Uniform Civil Procedure Rules (UCPR) requires an offer of compromise served within two months of the trial date to be left open for such time as is reasonable in the circumstances, whereas an offer made more than two months before the trial date must remain open for no less than 28 days. Somewhat surprisingly, in respect of an offer of compromise served within two months of the trial date, the Court of Appeal has recently determined that a period of time exceeding 28 days was unreasonably short in the circumstances.

The claimant served an offer of compromise on 25 September 2007, offering to pay the opponent $400,000. The offer was open for 28 days, expiring on 23 October 2007. The trial was listed to commence on 19 November 2007, meaning that the offer had been made just within two months of the trial date. The UCPR therefore required the offer to remain open for a “reasonable” time.

The opponent claimed damages for personal injuries suffered as a result of a motor vehicle accident. A key component of her claim, and one which was subject to contrary expert medical evidence, was her long term prognosis and her corresponding capacity to remain in full time employment until the age of retirement. As at the date the offer was made, the opponent had served a number of medical reports which expressed the view that the opponent’s capacity for work was severely limited and early retirement from the workforce was likely. In response, the claimant served reports expressing strong opinions to the contrary.

The opponent’s solicitors made arrangements for their client to be medically examined by an orthopaedic surgeon so that the most recent reports served by the claimant could be given expert consideration. An appointment was made with Dr James Ellis on 23 October 2007, the same day that the claimant’s offer of compromise was due to close. Conscious of the offer of compromise, the opponent’s solicitors requested that the offer be extended for a period of seven days. The claimant’s solicitors granted an extension of four days. In any event, Dr Ellis’ report was not received by the opponent’s solicitors until 9 November 2007, approximately two weeks after the offer of compromise had expired.

At the conclusion of the trial, Blanch CJ of the District Court entered a verdict in favour of the opponent for $378,501. On the basis that the opponent obtained a verdict less favourable than the offer of compromise, the claimant applied under rule 42.15(2)(b)(i) of the UCPR for an indemnity costs order.

The trial judge refused the claimant’s application on the basis that it was unreasonable to expect the opponent to settle the proceeding without first having the opportunity to obtain an opinion from an orthopaedic surgeon in response to the most recent reports of the claimant. In considering the operation of rule 20.26(7)(b), the trial judge held that the offer of compromise was not left open for a sufficient time.

The claimant appealed the decision.

The Court of Appeal was divided.

The majority considered that the intention of rule 20.26(7)(b) was to allow the offeree adequate time to make an informed and reasoned judgment whether or not to accept the offer. Their Honours held that the rule’s clear intention is to avoid a party being compelled to accept an offer contrary to its interests or be placed under undue or unfair influence. The majority suggested that the identified intention of the rule was not contrary to the underlying policy governing offers of compromise generally, namely to encourage early settlement, because allowing the opponent time to obtain further medical evidence in the present case may have led to the service of a counter-offer, and the possibility of settlement. While the majority accepted that the adversarial nature of litigation meant that the claimant was under no obligation to extend the time for acceptance of the offer when requested to do so, they considered that the adoption of such tactics exposed the claimant to a finding that the offer was not open for a reasonable time.

Parties who make or receive offers of compromise within two months of the trial date must be mindful that the offer served must be open for a reasonable time, and that the relevant time period in certain circumstances can exceed the usual 28 days. The ‘reasonable time’ requirement may even require the time for acceptance to be extended, particularly where further evidence may be required to respond to certain issues. Those intending to serve an offer of compromise in such circumstances may consider inviting the offeree to confirm that the time period allowed provides adequate time for the offer to be considered. Silence, or an inadequate or unexplained response to such an invitation, may be relevant to the court’s consideration of an indemnity costs order. The case further confirms the position that service of an offer of compromise that is not bettered at trial does not guarantee an indemnity costs order.

Pittorino v Yates [2009] NSWCA 87