Author: Rosslyn Cooke   
Judgment Date:
In Brief
  • There has been a degree of confusion around what Offers of Compromise can say in regards to costs.  The NSW Court of Appeal has reviewed various wordings of Offers of Compromise and have handed down decisions which at times seem confusing and at odds with each other.
  • Thus, amendments have been made to the Uniform Civil Procedure Rules (UCPR) governing Offers of Compromise, effective from 7 June 2013.

Before the amendments came into effect, where a defendant conveyed an offer to settle a claim for a specified amount, the offer would often make reference to the provision for payment of costs, in terms such as “costs to be agreed or assessed”.  However, before amendment, UCPR 20.26(2) provided that an offer must be exclusive of costs, except where it states that it is a verdict for the defendant and that the parties are to bear their own costs.

Judicial Interpretation

In Old v McInnes and Hodgkinson [1] (Old), an offer to settle a claim for a specified amount but which included a separate agreement to pay costs, was held to be a violation of r 20.26(2).  In effect, the position after the decision in Old was that an Offer of Compromise that included the phrase “Costs as agreed or assessed” did not comply with UCPR 20.26(2). Accordingly, a party making the Offer of Compromise in these terms would not be afforded the usual costs protection of an Offer of Compromise.

In Vieira v O’Shea (No.2) [2] (Vieira), it was held that an Offer of Compromise did not have to express that it was “exclusive of costs”.  Rule 20.26(2) simply required that the offer must be exclusive of costs.  The problem with that decision is that there was no clarification as to whether an Offer of Compromise containing the words “Plus costs as agreed or assessed” would be expressly rejected as non‑compliant with the UCPR.

In the resulting atmosphere of confusion and uncertainty, parties generally preferred to err on the side of caution and ensured that any offers made did not make any reference to costs at all.

The situation was further judicially reviewed in Whitney v Dream Developments Pty Limited [3] (Whitney).  In that matter, the plaintiff served an offer for a fixed sum which included the provision: “The Defendant to pay the Plaintiff’s costs as agreed or assessed”.  The Court reviewed the decision in Old and found that “exclusive of costs” under the old Rule 20.26(2) meant that an offer will not deal with costs at all.

Later, when considering whether there was any inconsistency with Vieira, Chief Justice Bathurst stated that a mere reference to costs in an otherwise compliant offer would not necessarily make the offer non‑compliant, unless the reference operated inconsistently with the relevant rules in some other way.  There is a difference between an offer expressly making provision for costs (as in Old) as opposed to an offer which was silent as to costs, and thus would be valid.

In his concurring judgment, Barrett JA commented that the essential characteristic of an offer under Rule 20.26 is that the offer not attempt to deal with the matter of costs at all.

Recently, on 10 July 2013, the Court of Appeal considered another Offer of Compromise made in Council of the City of Canterbury v Milich [4].  This matter, involving an injured worker who was employed by a labour hire company to provide services to the Council, had an Offer of Compromise made on 12 January 2011 by the Council.  The offer was for a fixed sum together with an agreement to “pay the Plaintiff’s party/party costs as agreed or assessed”.  The offer, under the pre-amendment rule again, was required to be exclusive of costs.

The trial judge found that because the plaintiff had obtained a more favourable result, he did not need to determine if the offer complied, but in any event, expressed the view that it did comply.

The decision of the Court of Appeal, handed down on 10 July 2013, came one month after the new rules took effect.  The Court of Appeal noted that the wording of the offer, that the defendant would pay the plaintiff’s party/party costs as agreed or assessed would be invalid under the old rule but conformed to the new rule.  The Court of Appeal found that the offer made by the Council is now to be treated as not in conformity with Rule 20.26 at the time it was made.  The Court also noted that, with the amendments to the UCPR in relation to Offers of Compromise, the change in the rule means that the decision in Whitney will have a diminishing effect over time, given that it will only apply to Offers of Compromise made prior to 7 June 2013.

New Rules for Offers of Compromise

As stated above, the UCPR was amended, with effect from 7 June 2013, in relation to Offers of Compromise. The amended rules apply to offers made after 7 June 2013.

Offers of Compromise offering a Fixed Sum

Rule 20.26(2)(c) provides that an offer under this rule must not include an amount for costs and must not be expressed to be inclusive of costs.  This takes the place of the previous rule which specified that “an Offer must be exclusive of costs (Rule 20.26(2))”.

Thus, in our view, the following would be acceptable wordings:

(a)        An offer that is silent as to costs; or

(b)     The defendant to pay the plaintiff’s party/party costs as agreed or assessed (as in Whitney).

Offers of Compromise offering Verdict for the Defendant

Previously, in an Offer of Compromise providing for a verdict for the defendant, a provision would often be included that each party pay their own costs.  This offer may not now be able to be made through the vehicle of an Offer of Compromise under Rule 20.26.

The new Rule 20.26(3) provides:

“(3)       An offer under this rule may propose:

(a)   a judgment in favour of the defendant:

(i)    with no order as to costs, or

(ii)   despite subrule (2)(c), with a term of the offer that the defendant will pay to the plaintiff a specified sum in respect of the plaintiff’s costs;”

Validity of Offer where Particulars are Inadequate

Previously, Rule 20.26(5) provided that if the plaintiff made an offer but had not supplied adequate particulars, in order for the defendant to avoid the effects of a costs order resulting from the judgment amount exceeding the offer, the defendant must advise the plaintiff in writing of that ground of objection within 14 days of receiving the offer.

The rule has been amended.  Pursuant to Rule 20.26(4), the reference to plaintiff and defendant has been removed and the parties are now referred to, in the amended rule, as “offeror” and “offeree”.

However, the principle is still the same.  The party receiving the offer must have been given sufficient particulars of the claim and supporting documentation as necessary to enable a full consideration of the offer.  If insufficient particulars and/or documents have been provided, the offeree must advise within 14 days of receiving the offer as to the party’s inability to assess the offer.

A further provision has been added to the UCPR that if Rule 42.14 applies, the offeree will seek an order of the court pursuant to Rule 42.14(2). This rule sets out the implications where the offer is not accepted and the judgment is no less favourable to the plaintiff. These provisions are unchanged, and provide that, in these circumstances, the plaintiff is entitled to costs on an indemnity basis. There are similar provisions in favour of the defendant pursuant to Rule 42.15A. The rule also sets out entitlements to indemnity costs when the offer is made on or after the first day of trial.

Time for Acceptance of Offer

The new Rule 20.26(2)(f) provides that an offer must specify the period of time within which the offer is open for acceptance.  If the offer is made 2 months or more before trial, under the new Rule 20.26(5) the time for acceptance must be no less than 28 days.

In other cases, ie less than 2 months until trial, the closing date for acceptance of the offer is such date as is reasonable in the circumstances.  The old provision contained similar wording.  The UCPR provide no guidance on what would be considered reasonable in the circumstances.  However, there is a body of case law providing interpretation as to what is reasonable.

Same Provisions

There is still a requirement that an Offer of Compromise must bear a statement of the effect that the offer is made in accordance with Rule 20.26(2)(d).

There is still a requirement that, if an interim payment has been made, the Offer of Compromise must state whether or not the offer is in addition to the interim payment (Rule 20.26(2)(e)).

New Provisions

Rule 20.26(2)(a) now requires that the offer must identify the claim, or part of the claim, to which it relates.  There are specific provisions regarding requirements if the offer only relates to part of the claim (Rule 20.26(2)(b)).

There were no corresponding provisions under the old rules.

In future, if the offer relates to the whole of the claim, the offer must specify this, eg “This offer is made for the whole of the plaintiff’s claim”.


As of 7 June 2013, for it to be effective:

  1. An Offer of Compromise must not include an amount for costs.
  2. An Offer of Compromise must not be expressed to be inclusive of costs.
  3. If an Offer of Compromise has been made before sufficient particulars or documentation is available, the offeree must advise the offeror within 14 days of receiving the offer.
  4. An Offer of Compromise must be expressed to be open for acceptance for a period of no less than 28 days, if made 2 months or more before trial.
  5. An Offer of Compromise can be open for acceptance for a period of less than 28 days if made inside the window of 2 months or less to trial, as long as the time period is reasonable in the circumstances.
  6. An Offer of Compromise must identify whether it relates to a part or the whole of the claim.
  1. [2011] NSWCA 410
  2. [2012] NSWCA 121
  3. [2013] NSWCA 188
  4. [2013] NSWCA 215


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