This entry is both a postscript to my previous entry on 10 rules for making offers of compromise and a response to an inquiry I have gratefully received from a reader.
The question of how to deal with the issue of costs in making offers of compromise under rule 20.26 of the UCPR (NSW) has proved a vexing one. Up until a recent change to the rules, the relevant part of rule 20.26 read:
“…(2) An offer must be exclusive of costs…”
This wording has caused great trouble for practitioners. Does it mean that costs need to be dealt with separately or not at all? What’s more, I have also heard some experienced litigators say that when they are dealing with opponents that do not conduct litigation very often there is a fear that if they don’t say that costs are also payable as agreed or assessed, the offer risks being rejected for confusion.
This may go some way to explaining why there are so many 20.26 offers in the ether which say the offeree should pay the offeror’s costs as agreed or assessed. In Old v McInnes and Hodgkinson  NSWCA 410 the NSW Court of Appeal (per McColl J) found that this kind of offer does not comply with the rule.
However, since Old there have been a number of decisions questioning the validity of that decision by questioning why a party should be denied an order for indemnity costs simply by re-stating the position in part 42 of the UCPRs, ie. if a 20.26 offer is accepted, under 43.13A an offeror would normally receive their costs on the ordinary basis.
In a recent decision of the full Appeal Court in Whitney v Dream Developments Pty Ltd  NSWCA 188 (25 June 2013) Bathurst CJ opined that this reasoning is not entirely apposite.
An offer in identical terms to that which was considered in Old was up for consideration in Whitney and the Chief Justice found that Old was correctly decided. He pointed out that to state the position with respect to costs in the offer sought to inappropriately dislodge the discretion contained in rule 43.13A(2)(b) which a court has regarding whether or not to order costs, albeit one which is rarely exercised.
Therefore, Bathurst CJ said (with the other 4 judges agreeing):
“…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.”
The matter would seem settled there. But wait… there is now the Uniform Civil Procedure Rules (Amendment No. 59) 2013. Effective from the date of its publication, being 7 June 2013 a compliant offer under 20.26:
“…(c) must not include an amount for costs and must not be expressed to be inclusive of costs”
There is also a new rule 42.13A which has as its heading “Where offer accepted and no provision for costs”.
Where does this leave the court’s decision in Whitney? In my view it has changed things again. The new rule 20.26 seems to contemplate the mention of costs (ie- “plus costs as agreed or assessed”) just not a specific amount (see emphasis added above) or as having been included in the judgment amount. Indeed, by using the words “no provision for costs” new rule 43.13A also appears to be drafted in such a way as to envisage a situation whereby costs are included in the offer, ie. the rule simply wouldn’t apply.
However, until there is an appellate judicial opinion expressed on the new rule, I would still err on the side of caution and leave costs out of a 20.26 offer altogether. The new rule 42.13A will still get you the same result if the offer is accepted (ie. “plus costs as agreed or assessed”).
If there is a concern about confusing your opponent and risking an ill-informed rejection of the offer, it can’t hurt to explain your own view of the law on this question in a (separate) cover letter.
Note: the amendment also includes a new Schedule 12 to the rules with a transitional provision to the effect that the amended rule will only apply to offers made after the publication date of the amending act. Therefore, Whitney remains authoritative for offers made before 7 June 2013.