Offers of compromise, costs and interest

Motor Vehicle Directions

On 21 February 2011, the plaintiff* commenced proceedings in the District Court seeking damages for personal injury loss arising out of a motor vehicle accident which occurred on 24 February 2008.

On 6 February 2013, his Honour Judge King entered a verdict for the defendant, and ordered that the plaintiff pay the defendant’s costs of the proceedings.

The defendant had made an Offer of Compromise to the plaintiff, offering to settle on the basis of a verdict for the defendant with each party to pay its own costs, on 17 October 2011.

The defendant’s offer was made in accordance with Rule 20.26 (2) of the Uniform Civil Procedure Rules (the UCPR), which provides that an offer must be made exclusive of costs except where it states that there is a verdict for the defendant and the parties are to bear their own costs.

In accordance with Rule 42.15A of the UCPR, the defendant sought an order that the plaintiff pay the defendant’s costs on an ordinary basis up until 17 October 2011, and on an indemnity basis from 17 October 2011 onwards.

The defendant also sought an order that the plaintiff pay interest on the defendant’s costs pursuant to Section 101(4) of the Civil Procedure Act 2005 (NSW).

Relevant provisions

Rule 42.15A of the UCPR empowers the Court to make an order for indemnity costs in circumstances where the defendant makes an offer to the plaintiff which is not accepted by the plaintiff, and where the defendant obtains an order or judgment on the claim concerned which is as favourable to the defendant, or more favourable to the defendant, than the terms of the offer.

Unless the Court orders otherwise, the defendant in such circumstances will be entitled to an order against the plaintiff for the defendant’s costs in respect of the claim on an ordinary basis, up until the time from which the defendant becomes entitled to costs, and on an indemnity basis from the day following the day on which the offer was made.

The parties’ submissions

The plaintiff conceded that the defendant’s Offer of Compromise had been made in accordance with the Rules, however, submitted that the plaintiff only became aware of the full extent of the defendant’s evidence in relation to the accident during the hearing of the matter, as he did not have before him the defendant’s statement taken by the insurer’s investigator in August 2008 for which the plaintiff’s counsel called during the hearing. That statement, the plaintiff submitted, contained more information than was contained in the defendant’s statement to police, and was therefore relevant to the consideration of the plaintiff’s prospects of success at the time the offer of compromise was made.

The defendant submitted that documents were produced under subpoena by the Commissioner of Police on 4 May 2011, to which the plaintiff had access. Those records contained the COPS report and the attending police officer’s notebook entries, and also included a copy of the defendant’s statement to police. The traffic engineering report upon which the defendant relied at the hearing had been served a few days before the defendant’s Offer of Compromise was made.

On that basis, the defendant submitted that at the time when the defendant’s Offer of Compromise was made, the plaintiff had sufficient information before him to assess the claim and determine whether the defendant’s Offer of Compromise was reasonable, and ought to be accepted.

King DCJ accepted the defendant’s contention that at the time the defendant’s offer was made, the plaintiff and his legal advisors had all the relevant information needed to make a decision about whether or not to accept the offer, and at that stage it should have been apparent to the plaintiff and his lawyers that the plaintiff’s claim was doomed to fail.

Accordingly, his Honour made the following orders:

(1)    An order that the plaintiff pay the defendant’s costs up to and inclusive of 17 October 2011 on an ordinary basis, and on an indemnity basis from and inclusive of 18 October 2011 onwards.

(2)    An order that the plaintiff pay interest on the defendant’s costs pursuant to s101(4) of the Civil Procedure Act 2005 (NSW).

Comment

A valid offer of compromise made relevant by the Court’s judgment creates a presumption in favour of an indemnity costs order, and in this case it was for the plaintiff to establish that exceptional circumstances existed warranting some departure from the rule that indemnity costs be awarded.

Whilst the plaintiff in this case submitted that the witness statement called for at the hearing contained additional information supporting the defendant’s case, that did not justify a departure from the rule, because at the time the offer was made, the Court was satisfied the plaintiff was aware of the substance of the evidence on which the defendant would rely. His refusal to accept the offer was unreasonable, and the costs penalty of the rules should apply.

Defendants seeking such a costs order should also bear in mind the ability to seek an order for interest on the defendant’s costs pursuant to s101(4) of the Civil Procedure Act 2005 (NSW), as interest on costs can be significant.

*Mark Albert Westerman v Leanne Cherie Willis (unreported)

Authored by Chandrika Darroch, Lawyer, Newcastle.


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