Court of Appeal clarifies the extent of compromise required, for a formal offer to be effective

Formal offers of settlement made under Part 5 of Chapter 9 of the Uniform Civil Procedure Rules 1999 (Qld) (UCPR), are undoubtedly the most potent form of offer that a litigant can make. Provided that the offer complies with all the technical requirements of the rules, then there are real consequences. UCPR r 360 and 361 set out the requirements for offers made by both plaintiffs and defendants.??

In the past, it has been held that for a formal offer to be effective, there must be some element of compromise. In Jones v Millward, the Court of Appeal found that a proposal which demands nothing less than all the relief sought in the claim plus costs, is not in truth, an offer to settle. In that case, the trial judge had declined to award indemnity basis costs to a successful plaintiff who had made a formal offer to accept what was essentially their claim. In doing so, the trial judge (Jones J) had followed a decision of Ambrose J in Mitchell v Pacific Dawn Pty Ltd, where Ambrose J thought it would not be appropriate to order indemnity costs where the offer was to accept the whole of the relief sought in the claim, in effect requiring the complete capitulation of the other party.??

Recently however, the Queensland Court of Appeal awarded indemnity basis costs to a successful plaintiff who had made a formal offer to settle which was only $25,000 less than the agreed quantum of the claim. The parties had resolved the issue of quantum at $600,000 including interest, a few weeks prior to trial and on the same day, the plaintiff made a formal offer under the rules to settle the claim for $575,000 plus costs. The plaintiff was unsuccessful at trial but successful on appeal, and the plaintiff then sought indemnity basis costs of both the action and the appeal (there had been a later Calderbank offer during the appeal). The defendant resisted the plaintiff’s application for indemnity basis costs, primarily on the basis that the offer did not contain the requisite element of compromise. The Court (Applegarth J with Morrison JA agreeing) thought that a plaintiff with a strong and meritorious claim, should not be required to give away a large proportion of their claim simply to engage the rules. The Court said:-

[18] It would be an odd thing, and contrary to the purpose of the rule, if a plaintiff with a strong or overwhelming claim had to offer to give away a substantial proportion of the agreed or expected quantum of that claim in order to obtain the costs protection of the rule. In such a circumstance, the plaintiff would avoid being out of pocket on costs, but at the price of foregoing a substantial proportion of the compensation to which they were entitled.?

[19] Rule 360 does not require a substantial degree of compromise in order for it to be invoked. The rule is invoked if the outcome is more favourable than the offer.??

[20] The purpose of the rule would be undermined if the view were taken that the absence of a substantial measure of compromise necessarily meant that another order was appropriate.?

Later in its decision, the Court also said:-

[24] The rule should not be interpreted to require a plaintiff with a strong claim for a proven or agreed quantum to forego a substantial part of that claim and end up being undercompensated as the price that must be paid to gain the rule’s protection on costs.?

As a result, the Court determined that another order for costs was not appropriate, and costs were awarded on an indemnity basis for the action. The Court also awarded indemnity basis costs of the appeal as a result of the plaintiff having made a later Calderbank offer to settle the claim for $450,000 plus costs – some $150,000 less than the agreed quantum.??

This decision of the Court of Appeal demonstrates that rarely – even where the degree of compromise is relatively small – will a party who beats their formal offer be denied the costs benefits which flow. As McMeekin J pointed out in Bulsey and Anor v State of Queensland,5 where a plaintiff beats a formal offer the defendant faces a “near insurmountable task in discharging the onus” of demonstrating that another order is more appropriate.?