Legal Directions

Dong v Song (No 3) [2018] ACTSC 226

The ACT Supreme Court has reaffirmed the overarching principles of offers of compromise and Calderbank offers.

Associate Justice McWilliam dismissed an application for indemnity costs, holding that three offers failed to meet the requirements of a Calderbank or offer of compromise in accordance with the Court Procedures Rules 2006 (ACT) (‘the Rules’) as the offers:

  • Did not include a genuine element of compromise; and/or
  • Did not contain sufficiently unambiguous terms.

Moray & Agnew acted for the trustee in bankruptcy of the first defendant, which successfully opposed the plaintiff’s application.

The plaintiff had succeeded in obtaining judgment against the defendants in the sum of $251,503 plus costs and interest.

The plaintiff relied on three settlement offers in support of its application for an order for indemnity costs. The first offer was made orally during a mediation on 14 November 2016, the second was conveyed in a document entitled ‘Notice of Offer of Compromise’ dated 21 November 2017 purportedly issued pursuant to rule 1002 of the Rules and the third offer was conveyed on a handwritten document delivered to the defendants on the fifth day of the hearing.

The law

Rule 1002 of the Rules provides that an operative offer of compromise must:

  • Propose orders for the disposal of the proceeding;
  • Must be exclusive of costs and not specify an amount for costs; and
  • State the period during which the offer is open for acceptance.

Where the offer is made less than two months before a hearing date, the offer must remain open for acceptance for a period that is reasonable in the circumstances.

After delivery of judgment, a party that previously made an offer of compromise may argue that it was unreasonable for the other party to have rejected the offer. If the court finds that the conduct rejecting the offer was unreasonable – and the offeror bears the onus of demonstrating such unreasonableness – then the offeror is entitled to an award of indemnity costs from the date of the offer.

Rejection of an offer is likely to be held to have been unreasonable when the offeror obtains a judgment that is as favourable, or more favourable, than the terms of the offer.

The first offer

Her Honour considered evidence of correspondence in the course of a mediation, relying on an exception contained within s113(1(h) of the Evidence Act 2011 (ACT), which permits evidence of settlement discussions to be admitted when it is relevant to deciding the issue of costs.

Her Honour noted that the offer at mediation was for ‘the same amount as prescribed in the statement of claim’ and did not identify what terms would address the costs of the proceedings. Therefore, it was held to be unclear and incapable of supporting a special costs order.

Even if satisfied as to the terms of the offer, Her Honour noted that the offer was for the full value of the claim at hearing. She relied on numerous authorities that held that an offer to compromise the claim must be genuine, and considered that a demand for full payment was not a genuine offer for compromise.

The second offer

The second offer was a formal offer, expressed in writing; however, it also contained an offer for the full value of the claim.

Her Honour declined to award indemnity costs, due to the absence of any genuine compromise.

The third offer

This offer was in the form of a handwritten note, setting out a number of terms, and offered settlement in the amount of $200,000.

The Court update that the third offer was a genuine compromise, noting that the offer was below the judgment ultimately obtained.

However, her Honour found the terms of the offer to be ambiguous in that they:

  • Were suggestive of the need for further negotiation, such that it was not an offer capable of being accepted so as to finalise the proceedings;
  • Did not specify when interest was to be paid; and
  • Failed to make provision for what orders would be made to dispense with the proceedings.

In those circumstances, Her Honour found that the offer was not made on clear and unambiguous terms and thus did not satisfy the test.

As the trustee was successful in defending the costs application, the plaintiff was ordered to pay its costs.


The decision reaffirms existing principles, namely that offers which are sought to be relied on:

  • Must have sufficient certainty of terms; and
  • Must contain an element of genuine compromise.

Practitioners should pay careful attention to the drafting of offers if they are to be relied on to support a varied costs order at the conclusion of proceedings. The significance of the consequences of making a successful offer invokes a technical application of the Rules.

Further information / assistance regarding the issues raised in this article is available from the authors, Emma Reilly, Partner and Alyssa Dunn, Lawyer, or your usual contact at Moray & Agnew.

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