OFFERS OF COMPROMISE – PRINCIPLES FOR THE AWARDING OF INDEMNITY COSTS

Legal Directions

Peters Properties Maddington Pty Ltd v Keen [2019] WASC 138 (S)

Background

During the course of proceedings, the Plaintiff made two offers of compromise in accordance with Order 24A of the Rules of the Supreme Court 1971 (WA), as follows:

  1. On 18 December 2015 in the sum of $550,000 inclusive of costs
    (the first offer).
  2. On 23 June 2017 in the sum of $440,000 plus costs and disbursements to be taxed if not agreed (the second offer).

Neither offer was accepted and the matter proceeded to trial, with the Plaintiff ultimately being awarded damages of $1,336,547 plus interest.

Issues

The Plaintiff sought an order for costs on an indemnity basis, either from the date of the first offer or alternatively, from the date of the second offer.

The Court was required to determine whether the Defendants’ rejection of the first – and if not, the second – offer was unreasonable.

Decision

Allanson J observed that an Order 24A provides that when a plaintiff makes an offer, and the defendant unreasonably fails to accept that offer, costs are to be awarded on an indemnity basis.

In addressing the question of unreasonableness, His Honour reiterated the prevailing consideration:

In deciding whether the rejection of an offer to settle was unreasonable a court ordinarily has regard to:

(a)  the stage of the proceeding at which the offer was received;
(b)  the time allowed to the defendant to consider the offer;
(c)  the extent of the compromise offered;
(d)  the defendants’ prospects of success assessed at the date of the offer;
(e)  the clarity with which the terms of the offer were expressed; and
(f)  whether the offer foreshadowed an application for indemnity costs in the
event of the defendant rejecting it.

His Honour ultimately determined that the Defendants’ rejection of the first offer was not unreasonable, having considered (reasonably) that the claim could be defended at the time that offer was made.

However, by the time of the second offer, the Defendant had the benefit of a clarifying amendment made to the Plaintiff’s pleadings and after the witness statements had been filed. His Honour considered that the Defendant ought to have known by that time that the offer was reasonable and ought to have been accepted. On that basis, indemnity costs were awarded from the date of the second offer.

Implications of decision

This decision highlights the need to demonstrate unreasonableness in the rejection of an offer of compromise before an award of indemnity costs will be made.

Importantly it confirms that, in assessing the reasonableness (or otherwise) of the rejection, the Court will examine the position of the offeree at the time of the offer (that is, without the benefit of hindsight).

Further information / assistance regarding the issues raised in this article is available from the author, Daniel Coster, Senior Associate, or your usual contact at Moray & Agnew.


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