In the recent decision of Parke v Rubenstein [2020] FCA 1466, the Federal Court of Australia considered the relationship between common law principles of offer and acceptance and offers of compromise made pursuant to rule 25.01 of the Federal Court Rules 2011 (Cth) (Rules).

Background

The applicant brought an interlocutory application pursuant to rule 25.10(a) of the Rules to give effect to the applicant’s acceptance of an offer of compromise dated 15 July 2020 made by the third respondent. That offer was in unequivocal terms as follows: “This offer of compromise is open to be accepted for 28 days after service of this offer of compromise.”

Accordingly, the offer was to expire on 12 August 2020.

Prior to that time, on 17 July 2020 the applicant rejected the third respondent’s offer and made a counter offer.  On 30 July 2020, the applicant served her own offer of compromise in accordance with the Rules.

Between 17 July 2020 to 12 August 2020 the third respondent proceeded to take steps in the substantive proceedings to progress the matter, including the preparation of evidence.

On 12 August 2020, the applicant served a notice accepting the third respondent’s offer of compromise.

Common law principles and interaction with the Rules

As a starting point, the Court briefly looked at the common law principles relating to offer and acceptance, particularly the usual circumstances pursuant to which an offer comes to an end. This included looking at facts which would indicate the following:

• Lapse in time;
• The failure by a party to comply with a condition of the offer;
• Rejection of an offer by the offeree;
• Revocation of the offer by an offeror; and
• the making of a counter offer (implied rejection of the offer by the offeree).

The Court admitted that if the third respondent’s offer of compromise was governed by purely common law principles (for example, that it had been made in accordance with the principles of Calderbank v Calderbank [1975] 3 All ER 333) there is no question that the offer would have come to an end on 17 July 2020 when it was rejected and a counter offer was made. Alternatively, it would have come to an end when the applicant served its own offer of compromise in accordance with the Rules on 30 July 2020 (implicitly a counter offer).

However, as stated by the Court:

“…this matter is not governed by common law principles but it is governed by the Rules of the Court. The common law rules relating to offer and acceptance do not apply under Pt25 of the Rules…the terms of r 25.08 are quite clear. An offer is open to be accepted within the time stated in the [offer]”

Offers of compromise are statutory creatures and, although their origins may be found in common law principles, are governed by the statutory framework under which they are issued. In the circumstances, the Court rejected the third respondent’s argument that the offer had been actually or “constructively” withdrawn on the basis that the offer had been rejected. The Court was very clear in this respect stating that “…the Rules specifically provide that an offer may be withdrawn only in the two circumstances indicates in r 25.07. They do not include a rejection of an offer by the offeree.”

Pursuant to rule 25.07 of the Rules, an offer of compromise made under the Rules can only be withdrawn within 14 days of being made only if:

(a)  the Court, on an application by the offeror, gives leave; or

(b)  the offer is superseded by an offer in more favourable terms to the offeree.

None of the above circumstances applied to the third respondent’s offer.

Did the Applicant’s behaviour breach his obligations to the Court?

Section 37M of the Federal Court of Australia Act 1976 (Cth) (Act) provides that the overarching purpose of the civil practice and procedure provisions of the Court is to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible.

The third respondent submitted that the Court should have regard the the applicant’s obligation to act consistently with the overarching purpose in section 37M of the Act (which arises by reason of section 37N of the Act). The Court interpreted this submission to mean that the applicant had breached his obligations to the Court by rejecting the offer, making a counter offer and then accepting the third respondent’s offer in circumstances where the third respondent had acted to their detriment by incurring costs in preparing the matter for hearing. In rejecting this submission, the Court stated that:

“…what the applicant did in this case was…clearly permitted by the Rules. The third respondent’s Offer was said to be open for a period of 28 days. The applicant was entitled to, in effect, see if she could achieve a better result , but at the same time, preserve the ability to accept the initial offer. It seems to me that that is the effect of the Rules and certainty in the construction of the Rules and in their application, particularly in the area of offers and the effects offers can have in terms of the costs of proceedings, is important.”

The Court also rejected the submission that the applicant had misrepresented the matter when rejecting the offer.

The Rules and other statutory framework for making offers

In New South Wales, the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) contain provisions which govern making offers of compromise (see rules 20.25 – 20.32).

Rule 20.27 of the UCPR is the “sister’” provision of rule 25.08 of the Rules and states as follows:

“(1)A party may accept an offer by serving written notice of acceptance on the offeror at any time during the period of acceptance for the offer.

(2) An offer may be accepted even if a further offer is made during the period of acceptance for the first offer.

(3) If an offer is accepted in accordance with this rule, any party to the compromise may apply for judgment to be entered accordingly” (our emphasis).

The wording of rule 20.27(1) would suggest that a party may accept an offer “at any time” whilst the offer is open.

Rule 20.28 of the UCPR, similarly to rule 25.07 of the Rules, provides for the (limited) circumstances where an offer made UCPR can be withdrawn.  Of interest, rule 20.28(1) of the UCPR states that an only an offeree may withdraw an acceptance of an offer of compromise in writing where:

•   if the offer provides for payment of money, or the doing of any other act, and the sum is not paid to the offeree or into court, or the act is not done, within 28 days after acceptance of the offer or within such other time as the offer        provides, or
• if the court grants the party leave to withdraw the acceptance.

Lastly, we note that the minimum time frames for acceptance of an offer made pursuant to an offer of compromise differ between the Rules and the UCPR. Rule 20.26(5) of the UCPR states that a closing date for acceptance of an offer is 28 days (considering that the offer is made two or more months before the setting down for commencement of trial) or, considering the aforementioned qualification does not apply, for such period as is reasonable in the circumstances.

Take away

• Note the differences between the rules governing offers of compromise in different jurisdictions. Do not assume the rules are identical.

• If the rules provide that an offer is open to be accepted in the time frame in the notice, then that timeframe will remain open irrespective of the offer being expressly rejected or rejected by the actions of the party served with the offer.