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Offers of compromise are an important tool in litigation. Aside from ensuring some form of success, or avoiding total defeat, one of the primary purposes of a party making an offer of compromise is to avoid incurring further legal costs. Where settlement efforts are unsuccessful, a court will usually consider the nature and extent of any offers of compromise that were made by the parties in considering how to exercise its discretion in relation to what costs order to make (if any).

Another purpose of making an offer of compromise is therefore to attract an award of costs on an indemnity basis. Costs awarded on an indemnity basis are intended to provide a more complete indemnity to a party than costs awarded on the ordinary basis.

What is a “walk away” offer?

A “walk away” offer is an offer by a defendant that the proceedings be dismissed, or that there be verdict and judgment for the defendant, with no order as to costs (or an order that each party bear their own costs). In this context, “walk away” effectively means the plaintiff choosing to leave the dispute.

In New South Wales, the concept of walk-away offers has been given express legislative recognition under Rule 20.26(2) of the Uniform Civil Procedure Rules 2005 (UCPR). This rule provides 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.”

Justification

The courts have justified walk-away offers by explaining that a defendant, unlike a plaintiff, does not have the option of discounting its optimum return by way of compromise. In fact, “the only option for a defendant is not an attractive one; to ‘buy off’ the claim by offering to pay unmeritorious claimants a sum of money to discontinue the litigation”: Leichhardt Municipal Council v Green [2004] NSWCA 341 at [26]. Therefore, a defendant’s offer that both parties walk away from the proceedings may be considered a valid offer of compromise if it entails the saving of substantial costs.

Costs consequences can arise for a plaintiff who rejects a defendant’s walk away offer of compromise, if the result obtained by the defendant is no less favourable to the defendant than the terms of the offer. See Rule 42.15A of the UCPR. Accordingly, where a walk-away offer is made to the plaintiff and the defendant ultimately recovers judgment on the claim, this result will clearly be more favourable to the defendant than the terms of the original offer, and the plaintiff will be exposed to the risk of an adverse costs order, including on an indemnity basis.

Genuine compromise?

The validity of a walk-away offer will turn upon whether the offer represented a genuine compromise in the specific facts and circumstances of the case. In Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 the Court held at [28] – [30] that where an element of compromise is absent, the offer will be considered “an invitation to surrender, rather than any form of commercial compromise…The offer can be accurately described as derisory”. Thus an offer that has no real element of compromise, and which is merely designed to trigger the costs sanctions, will not be treated as a valid offer of compromise (Leichhardt Municipal Council v Green [2004] NSWCA 341).

In Hancock v Arnold (No 2) [2009] NSWCA 19 the Court noted at [23] that the epithet “genuine” “probably adds little to the concept of compromise. Indeed, it may be distracting if it suggests that some assessment is required of the subjective intentions of the offeror”.

To establish that a walk away offer involved a compromise will require the offeror to demonstrate a saving in costs of some substance. In Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141, the appellant made an offer of compromise a few days after she had filed a notice of appeal. The substance of the offer was that the verdict and judgment in the Court below be set aside and that there be a re-trial, with the costs of the first trial to follow the event of the second trial. The appellant was ultimately successful on appeal, meaning that she was prima facie entitled to an order that the respondent pay her costs of the appeal. In the circumstances, the Court of Appeal held that the appellant’s offer to compromise her entitlement to costs if she succeeded on appeal was of “financial substance”, and therefore, the offer had a real element of compromise.

What is ultimately required in a case where a walk-away offer has been made is that the offer contains some real benefit to a plaintiff, and something more than total capitulation (Bennette v Cohen (No 2) [2009] NSWCA 162 at [38]).

Further examples

Townsend v Townsend (No 2) [2001] NSWCA 145

The respondent conveyed an offer of compromise to the appellant that the parties agree to the discontinuance or dismissal of the appeal upon the basis that each party pay their own costs of the appeal. The offer was open for acceptance for 28 days. The appellant rejected the respondent’s offer.

The Court held that, at the date of the offer of compromise, “the respondent’s costs of the appeal must have been minimal, and he would not have anticipated any significant costs within the next 28 days….The offer had no real element of compromise, but invited capitulation by the appellant.” Therefore, the appellant had not acted unreasonably in declining the respondent’s offer and the Court declined to make an order that the respondent’s costs be on an indemnity basis.

Leichhardt Municipal Council v Green [2004] NSWCA 341

In this case, the walk-away offer had been made by the defendant five weeks prior to trial, after lengthy pre-trial proceedings had taken place, and the plaintiff rejected the offer. The court considered whether the defendant’s offer that judgement be entered in the defendant’s favour in exchange for each party paying its own costs constituted a genuine compromise.

The Court held that even though the defendant “was not really compromising its position at all — it maintained it was not liable and that the law clearly justified the rightness of its cause”, the defendant’s position “was made in a bona fide attitude designed to reach settlement”, which accorded with the policy of the law in encouraging early termination of litigation (at [27]). At the time that the offer was made, significant costs had been incurred by both parties. The Court explained that, even though the offer involved capitulation by the plaintiff, this offer was not unreasonable, and, in the circumstances, it was difficult to conceive what the defendant could have otherwise done as an affirmative step towards ending litigation.

Nonetheless, it did not follow that costs sanctions should follow as a matter of course (at [30]).

The Court concluded (at [46]) that there was no persuasive policy reason or legal principle which entitled the defendant to costs sanctions on any basis different to that provided for by the Rules. Under the Rules, indemnity costs are only awarded in exceptional circumstances. The defendant’s application for indemnity costs was ultimately dismissed with costs.

Therefore, even though a court may find that a walk-away offer constitutes a genuine offer of compromise this does not, in itself, entitle the offeror to indemnity costs. The court must, as a second step, consider whether there are exceptional circumstances which justify its discretion to order indemnity costs in favour of the defendant.

Conclusion

In circumstances where a plaintiff rejects a defendant’s valid walk away offer, and the defendant obtains a result no less favourable to the defendant than the terms of the offer, the defendant may be entitled to an order against the plaintiff for the defendant’s costs in respect of the claim. The court may also order ordinary costs or indemnity costs. In order to obtain an indemnity costs order against the plaintiff, the defendant must demonstrate that there are exceptional circumstances which justify the making of such an order by the court.

A walk away offer sits on the end of the spectrum of compromise. It provides defendants with an opportunity to attempt to settle litigation without requiring the defendant to pay unmeritorious claimants a sum of money to discontinue proceedings. Regardless of how diminutive a walk away offer of settlement may appear at first glance, it may trigger costs consequences (and in particular an indemnity costs order) if it involves a real element of compromise in the specific facts and circumstances of the case.

published by

Chiara Rawlins

Principal

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Canadian Court elevates thumbs-up emoji to signature status

In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract. Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed. Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph [18], Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)." Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter. Judgment At paragraph [36], Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship. Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph [63]: "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the dictionary.com definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest. What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.

Published by Foez Dewan

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Government

Venues NSW ats Kerri Kane: Venues NSW successful in overturning a District Court decision

The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane [2023] NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). 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The burden of taking the complained of precautions includes to address similar risks of harm throughout the stadium, i.e. installing handrails on the other stepped aisles. This was a mandatory consideration under s5C(a) which was not properly taken into account. As to the question of BCA compliance, the Court of Appeal did not consider it necessary to make a firm conclusion of this issue given it did not find a breach of duty. The Court did however indicated it did not consider the stepped aisle would constitute a "stairway" under the BCA. The Court of Appeal also found that there was nothing in the trial judge's reasons explicitly connecting the risk assessment she considered VNSW ought to have carried out, with the installation of handrails on any of the aisles in the stadium and therefore could not lead to any findings regarding breach or causation. 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Published by Leighton Hawkes

18 August, 2023

Litigation and Dispute Resolution

Expert evidence – The letter of instruction and involvement of lawyers

The recent decision in New Aim Pty Ltd v Leung [2023] FCAFC 67 (New Aim) has provided some useful guidance in relation to briefing experts in litigation.

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