Borjana Kragic v Mazhar Hallak; Borjana Kragic v Robert James Abdoo

The Offer of Compromise in each Matter 7The offer of compromise in the first matter was couched in the following terms: "OFFER To The Defendant: The Plaintiff offers to compromise the cause of action upon which the plaintiff claims on the following terms: 1. The Defendant to pay the Plaintiff $44,069.69 in full and final satisfaction of the claim; 2. The offer is made: (i) In accordance with Rules 20.26 and 42.14 of the Uniform Civil Procedure Rules 2005. (ii) Without prejudice save as to costs and interest. (iii) This offer is open for acceptance until 4pm on 5 April 2012 ..." 8The offer in the second matter was in similar terms as follows: "OFFER To the Defendant: The Plaintiff offers to compromise the cause of action upon which the Plaintiff claims on the following terms: 1. The Defendant to pay the Plaintiff $11,000 in full and final satisfaction of the claim; 2. This offer is made: (i) In accordance with Rules 20.26 and 42.14 of the Uniform Civil Procedure Rules 2005. (ii) Without prejudice save as to costs and interest. (iii) This offer is open for acceptance until 4pm on 5 April 2012 ..."

Issues for Consideration 9The following arise as issues for consideration: (1)Was the offer in each case a valid offer pursuant to the UCPR? (2)If so, is the plaintiff entitled to a special order for costs? (3)If not, is the plaintiff entitled to rely on the Court of Appeal's decision in Vieira v O'Shea (No. 2) [2012] NSWCA 121 as an entitlement for a special order for costs?

The Offers of Compromise 10This application falls to be decided by reference to the provisions of the Uniform Civil Procedure Rules 2005, which were also subject to the Court of Appeal's decision in Whitney. It is unaffected by the Uniform Civil Procedure Rules (Amendment No. 59) 2013 which took effect on 7 June 2013. 11The Full Court in Whitney unanimously held that the Court's previous decision in Old v McInnes & Hodkinson was correct. The relevant rule provided: "Rule 20.26 (1) In any proceedings, any party may, by notice in writing, make an offer to any other party to compromise any claim in the proceedings, either in whole or in part, on specified terms. (2) 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 ..." 12In Whitney, what led the Court to find that the offer of compromise was not a valid offer pursuant to Rule 20.26, consistent with its decision in Old, were the following words in the offer of compromise: "The defendant to pay the plaintiff's costs as agreed or assessed." 13The reason why those words invalidated the offer expressed by the Full Court is found in [24] and [25] of the judgment of Bathurst CJ in the following terms: "24 Two matters may be noted. First, r 20.26(2) goes further as a matter of language than simply excluding offers expressed to be inclusive of costs. The use of the phrase 'exclusive of costs' suggests that what is intended is that a compliant offer will not deal with costs at all. 25 The reason for this is that the cost consequences are dealt with in the relevant sub-rules of r 42, to which I have referred above. Importantly, these rules not only deal with the cost consequences of non-acceptance of an offer, but also the cost consequences when an offer is accepted ..." 14The first question to arise here is whether the phrase in Clause 2(ii) of each offer of compromise, namely: "(2)(ii) Without prejudice save as to costs and interest.", renders each offer of compromise invalid on the basis that it is not made "exclusive of costs". 15In my view it does not. The words "without prejudice save as to costs" allows r 42 to take effect as to costs. Further, the reference to r 42.14 in paragraph (i) of each offer does not limit the application of the rules concerning costs. The offer in each case here means, in effect, that each offer is silent as to costs, and therefore is made "exclusive of costs". In those circumstances, Part 42 may take effect according to its terms. This is consistent with the reasoning of the Court of Appeal in Vieira v O'Shea (No. 2) and I note that the Full Court held that there was no inconsistency between the previous decisions of Old and Vieira v O'Shea (No. 2) "either in the reasoning or in the result" (see Bathurst CJ [29] to [31]).

Reference to Interest 16The defendant submits that the reference to "interest" in Clause 2(ii) of each offer invalidates the offer in each case. It submits that interest is a right found in s 100 of the Civil Procedure Act 2005 and is a surcharge on damages. The defendant submits that the two limbs of each offer (paragraphs 1 and 2) conflict in that one seeks to offer a full and final settlement, and the latter seeks to reserve valuable rights for later consideration. On that basis, the plaintiff's reliance on the offer as a valid offer pursuant to UCPR is flawed and costs should be awarded on an ordinary basis. 17There is some merit to the submission. Rule 20.26 proscribes that a notice of offer: "3(a) Must bear a statement to the effect that the offer is made in accordance with these rules, ..." Further, r 20.26(9) provides as follows: "An offer is taken to have been made without prejudice, unless the notice of offer otherwise provides." 18The words "without prejudice save as to costs and interest" are therefore not required by r 20.26. Questions of interest have no application in respect of either Part 20 or Part 42 of UCPR. The words "and interest" therefore introduce an extraneous matter for consideration by the recipient of the offer, and mean that the offer is not made in accordance with r 20.26, in contravention of r 20.26(3). 19I am persuaded that the plaintiff, by including those words, has sought to reserve her rights to interest for later consideration and therefore the offer of compromise is not a valid offer pursuant to Rule 20.26.

Conclusion 20Were it not for the presence of the two words "and interest" in Clause 2(ii) of each offer, I would have entertained the plaintiff's application for a special order for costs. However, for the reasons outlined above, consistent with the Court of Appeal's decisions in Old v McInnes & Hodkinson and Whitney v Dream Developments Pty Limited, the offer in each case is not a valid offer of compromise pursuant to the UCPR. 21Similarly, the inclusion of the words "and interest" takes the matter beyond the Court of Appeal's judgment in Vieira v O'Shea (No. 2). In that case, it was common ground that the offer was not a valid offer of compromise pursuant to the UCPR, however, no question of entitlement to interest had been reserved by the offeror. I therefore decline to make the special costs order sought by the plaintiff in each matter, relying on the offer of compromise dated 14 March 2013 in each matter.

Orders 22The plaintiff's application in each matter for a special order for costs is dismissed. 23I order the plaintiff to pay the defendants' costs of the application for a special order for costs. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 July 2013