Basbuild Pty Ltd v Hall - [2014] SASC 44

SUPREME COURT OF SOUTH AUSTRALIA
(Appeals to a Single Judge: Civil)
BASBUILD PTY LTD v HALL & ANOR
[2014] SASC 44
Judgment of The Honourable Justice Blue
27 March 2014
PROCEDURE - COSTS - AGREEMENTS AS TO COSTS
PROCEDURE - COSTS - APPEALS AS TO COSTS - DISCRETION NOT EXERCISED
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - PAYMENT INTO COURT, AND OFFERS TO SETTLE OR CONSENT TO JUDGMENT
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - FORMATION OF CONTRACTUAL RELATIONS
The appellants, Basbuild Pty Ltd, sued the respondents, Mr and Mrs Hall in the District Court for damages for wrongful termination of a building contract. In 2008, Basbuild filed a formal offer, pursuant to rule 187 of the District Court Civil Rules 2006 (SA), to settle the dispute for $40,000 plus costs of $3500. Basbuild's formal offer did not explicitly state the Halls could accept the offer of principal without also accepting the offer as to costs. In 2011, the Halls filed a formal acceptance of the formal offer.
Basbuild subsequently contended that the formal offer had been void for non-compliance with rule 187(3)(d) and applied for an order that there was no settlement or alternatively for an order that the Halls pay its costs of action incurred since it filed the formal offer. A District Court Master held that the formal offer was void because of non-compliance with rule 183(3)(d). On appeal, a District Court Judge held that, despite the non-compliance, the formal offer was capable of acceptance and was in fact accepted under rule 188(1)(d). Basbuild appeals against the interlocutory decision of the District Court Judge.
Held per Blue J (dismissing the appeal):
1. The formal offer was ambiguous as to whether it must be accepted in its entirety and therefore did not comply with rule 187(3)(d) (at [30]);
2. The formal offer was capable of acceptance in its entirety and was accepted by the Halls in its entirety under rule 188(1). It comprised a "formal offer of settlement" within the meaning of the Rules notwithstanding the non-compliance with rule 187(3)(d) (at [37]);
3. If the formal offer had not been effective, it would have been a procedural irregularity under rule 12 and would nevertheless have been valid by virtue of rule 12(1) (at [44]-[46]);
4. If there exists a discretion to make a different order as to costs than one reflecting the terms of the formal offer and acceptance, here is no reason to make a different order in the circumstances (at [55]);
5. If the formal offer had not been effective, no agreement for settlement would have arisen by way of accord and satisfaction at common law (at [67]-[68]).
6. The appeal is dismissed (at [69]).
District Court Civil Rules 2006 (SA) ss 4, 12, 117, 187, 188; Disctrict Court Act 1991 (SA) s 42; Rules of the Supreme Court 1965 (Tas) Order 24A, rule 3, referred to.
Heather v Vita Pacific Ltd (1996) 6 Tas R 120, discussed.
Ramsey v Annesley College (No 2) [2013] SASC 145; Rapuano (trading as RAPS Electrical) v Karydis Frisan [2013] SASCFC 93; Rules Chambers Pty Ltd v Badge Constructions (SA) Pty Ltd [2009] SASC 70, considered.

BASBUILD PTY LTD v HALL & ANOR
[2014] SASC 44
Miscellaneous Appeal
BLUE J.

This is an appeal against an interlocutory judgment by a District Court Judge.
The appellant/plaintiff Basbuild Pty Ltd sued the respondents/defendants Mr and Mrs Hall in the District Court for damages for wrongful termination of a building contract. Basbuild filed and served a formal offer under rule 187 of the District Court Civil Rules 2006 (SA) (“the Rules”) to settle the action for $40,000 plus costs fixed at $3,500. After the action had been listed for trial, and almost three years after Basbuild’s offer, the defendants filed and served an acceptance of the offer.
A dispute arose between the parties whether the formal offer and acceptance were valid and effective to settle the action and, if so, whether some other order as to costs should be made.
A Master determined by way of preliminary issue that the formal offer was void and ineffective due to non-compliance with rule 187(3)(d). On appeal by the defendants, a District Court Judge held that the formal offer was valid and effective notwithstanding non-compliance with rule 187(3)(d).
Basbuild appeals, by permission, against the judgment of the Judge. Both parties raise alternative contentions relevant to the final disposition of the matter.
The issues on appeal are:
1.Did the formal offer comply with rule 187(3)(d)?
2.If not, were the formal offer and acceptance nevertheless effective to give rise to a consent judgment?
3.If not, should compliance with rule 187(3)(d) be dispensed with by the Court pursuant to rule 117(2)(a)?
4.If the formal offer and acceptance were effective to give rise to a consent judgment, nevertheless should a different order as to costs be made in the circumstances?
5.If the formal offer and acceptance were not effective to give rise to a consent judgment, did they nevertheless give rise to a contract compromising the action at common law?
Background
In June 2007, the Halls entered into a contract with Basbuild to build a home upon their land. As at March/April 2008, final council approval had not been obtained and construction work had not commenced. Each party purported to terminate the contract due to alleged breach and repudiation by the other party.
On 1 May 2008, Basbuild issued an action in the District Court against the Halls claiming damages for breach and repudiation of contract of $67,500, inclusive of GST, representing profit lost on construction of the house. On the same date, Basbuild filed a formal offer of settlement under rule 187 (“the Formal Offer”) in the following terms (sic):
OFFER OF SETTLEMENT
The Plaintiff’s OFFER pursuant to Rule 187 to settlement the action as follows:
Payment in the sum of $40,000.00 inclusive of GST plus costs fixed in the sum of $3,500.00.
On 15 December 2008, the parties attended a settlement conference at the District Court. There was a without prejudice discussion between the parties’ solicitors concerning settlement after the settlement conference. I address the contents of that discussion below.
On 11 January 2011, the Halls filed and served a formal offer under Rule 187 offering to pay $25,000 plus costs fixed at $3,500.
On 13 January 2011, the action was listed for trial in September 2011. There was a without prejudice discussion between the parties’ solicitors concerning settlement outside the listing conference. I address the contents of that discussion below.
On 9 February 2011, the Halls filed and served a formal acceptance (“the Formal Acceptance”) of the Formal Offer in the following terms (sic):
ACCEPTANCE OF OFFER
The First Defendant, DAVID HALL and the Second Defendant JOAN HALL, ACCEPTS pursuant to Rule 188 the offer made by the Plaintiff, BASBUILD PTY LTD filed on 1 May 2008 for payment of $40,000 (inclusive of GST) and legal costs of $3,500 and seeks judgment by consent in terms of that offer.
On 9 February 2011, Basbuild’s solicitor sent an email to the Halls’ solicitor foreshadowing an application for an order that the Halls pay Basbuild’s costs of action incurred after 18 May 2008 (being 14 days after service of the formal offer). The Halls responded that the costs were fixed by the terms of the formal offer and formal acceptance at $3,500.
In September 2011, Basbuild filed an interlocutory application seeking judgment for $40,000 inclusive of GST and an order that the Halls pay its costs on a solicitor/client basis on or after 15 May 2008. In November 2011, the Halls filed an interlocutory application seeking judgment in favour of Basbuild for $40,000, inclusive of GST, plus costs fixed at $3,500. In December 2011, Basbuild amended its interlocutory application to seek a determination that its Formal Offer did not comply with rule 187, the action had not been settled and therefore the action should proceed to trial. In the alternative, Basbuild sought the orders originally sought in September 2011.
In February 2012, a Master determined by way of a preliminary issue on the interlocutory applications the question whether the Formal Offer complied with rule 187(3)(d) and, if so, whether the offer was valid and effective so as to be capable of acceptance under rule 188(1). The Master held that the Formal Offer did not comply with rule 188(3)(d) and was void and ineffective as an offer so as to be capable of acceptance under the Rules. The Master deferred consideration of the residual issues arising on the interlocutory applications.
Basbuild appealed to a District Court Judge. In October 2013, the Judge allowed the appeal, holding that, while the Formal Offer did not comply with rule 187(3)(d), nevertheless it was capable of acceptance under rule 188(1)(b). The Judge remitted the interlocutory applications to the Master to determine the residual issues according to law.[1] The Judge observed that the residual issues had not been determined by the Master on the request of the parties but it would have been preferable if all issues had been determined before the appeal to the Judge. The Judge made some observations concerning the residual issues.
[1] [2013] SADC 132.
The reasoning in the Court below
The essence of the Judge’s reasoning was as follows:
In his Reasons, on behalf of the Court, Peek J. extensively reviewed the principles as set out in the relevant case law. The regime under the Rules is distinguishable from those Rules in some interstate jurisdictions which proscribe any reference to costs in filed offers, leaving orders for costs to be separately considered by those Courts.[2] I respectfully adopt and, apply his Honour’s Reasons.
His Honour noted that the Rules of Court have a dual purpose, in 6 DCR 188(5) on the one hand, and 6 DCR 188(6)-(7) on the other. The first purpose is to provide, in 6 DCR 188(5), for a means by which a consent judgment may be entered upon the acceptance of a formal offer.
His Honour explained the distinction between an offer of compromise under the general contract law, and that under the Rules. Whereas the terms of an offer of compromise under the general law may be unconfined, an offer under the Rules must be restricted to the subject claim, it must also comply with Rules 6 DCR 187 and 188, and with the Forms prescribed therein.
Peek J. described Rule DCR 188(5) as part of “a stand-alone regime which is not dependent upon the formation of a contract between the parties”. His Honour affirmed the dicta of the Full Court in Rule Chambers Pty Ltd v Badge Constructions (SA) Pty Ltd, supra, that there are clear differences between this kind of regime, and the common law principles relating to the formation of contract, noting that a different result may be obtained from this stand alone regime the [sic] from that under “contract law”.[3]
[2] In NSW - See Whitney v Dream Developments Pty Ltd [2013] NSWCA 188, uniform Rules 20.26 and 42.13 - 42.15
[3] [2013] SADC 132 at [38]-[41].
The Judge held that the Master correctly determined that the Formal Offer failed to state whether the defendants could accept the offer of principal without also accepting the offer as to costs and therefore did not comply with rule 187(3)(d).
However, the Judge held that this non-compliance did not render the Formal Offer invalid or ineffective for the purpose of acceptance by the defendants. The essence of the Judge’s reasoning was as follows:
While undoubtedly the Respondent had failed to state whether the Appellants could accept the offer of principal without also accepting the offer as to costs, contrary to Rule 6 DCR 187(3)(d), in my opinion, this failure did not render the offer a nullity.
The consequences of non compliance with that Sub-Rule are provided for in the Rules. It is open to an offeree, pursuant to 6 DCR 188(1)(b) to choose to either accept the offer in its entirety as the Appellants did in the subject case, or alternatively to limit its acceptance to the principal relief. There is no need to consider 6 DCR 12 or 117, as there has been no procedural irregularity.[4]
[4] [2013] SADC 132 at [119]-[120].
The contentions on appeal
Basbuild’s primary contention is that the Judge erred in concluding that non-compliance with rule 187(3)(d) did not render the Formal Offer a nullity for the purpose of acceptance by the defendants and that the original decision by the Master was correct in this respect.
Basbuild contends in the alternative that, if the Formal Offer was effective so as to be capable of acceptance by the defendants, nevertheless there is a discretion under section 42 of the District Court Act 1991 (SA) to order that the Halls pay Basbuild’s costs of action incurred after 14 days from the service of the Formal Offer and in all the circumstances that discretion ought to be exercised in favour of Basbuild.
The Halls make three alternative contentions. First, they contend that the Judge erred in concluding that the Formal Offer did not comply with rule 187(3)(d). Secondly, they contend that compliance with rule 187(3)(d) should be dispensed with pursuant to rule 117(2)(a). Thirdly, they contend that, if there was no settlement of the action pursuant to the Rules, nevertheless there was a settlement effected at common law because the parties entered into a contract by way of accord and satisfaction by reason of the acceptance of the offer in the Formal Offer.
While the alternative contention of Basbuild and the second and third alternative contentions of the Halls were not decided by the Judge, it was agreed that they should all be decided on the appeal to avoid a multiplicity of further hearings.
Compliance with rule 187(3)(d)
The first three sub-rules of rule 187, as it stood at all material times between 2008 and 2011, provide as follows:
187—Offers of settlement
(1)A party may, before the relevant date, file an offer of settlement in the Court (a formal offer of settlement).
(2)     The relevant date is—
(a)     the date falling 21 days before the first, or any subsequent, date fixed for the trial to commence; or
(b)     if the offer relates only to costs and is made in proceedings relating only to the adjudication upon costs, the date falling four days before the date appointed for the adjudication.
(3)The offer must—
(a)     be in an approved form; and
(b)     if the offer relates to some, but not all, of the claims involved in the proceedings—state to which claims it relates; and
(c)     state whether the offer relates to costs and, if so, the amount of the offer so far as it relates to costs; and
(d)     if the offer relates both to principal relief and costs—state whether the party to whom the offer is made may accept the offer of principal without also accepting the offer as to costs,
and a copy of the offer must be served on all other parties to the action.
It is common ground that the Formal Offer relates both to principal relief and costs within the meaning of the rule 187(3)(d). The issue is whether the Formal Offer “stated” whether the Halls may accept the offer of principal without also accepting the offer as to costs.
The Oxford Dictionary relevantly defines the verb state as follows:
Express something definitely or clearly in speech or writing.
On the one hand, an offer might comply with rule 187(3)(d) even though it does not contain the words “this offer may/may not be accepted as to principal without also accepting the offer as to costs”. No particular form of words is required: it is sufficient if the words as a whole definitely or clearly convey that the offer must be accepted in its entirety or convey that the offer may be accepted as to principal only. On the other hand, it is not sufficient if the offer is expressed in ambiguous terms such that it does not distinctly or clearly convey whether or not the offer is an entire offer.
In determining whether an offer is ambiguous as to whether it is an entire offer, the offer is to be construed as a whole taking into account the usual principles applicable to the construction of contracts including background circumstances known to both parties.
Considered as a whole, the Formal Offer is ambiguous as to whether it must be accepted in its entirety. On the one hand, the structure of the operative sentence, the use of the words “plus costs” and the reference to a specific sum of $3,500 suggest that the offer may only be accepted in its entirety. On the other hand, the figure specified for costs is relatively small, is not obviously disproportionate to the amount which would be allowed for party/party costs on an adjudication at that point in time and in a negative sense there is nothing in the Formal Offer which explicitly says that the offer can only be accepted in its entirety.
While it is commonplace for courts to construe ambiguous language in contracts or statutory provisions and ultimately reach a conclusion in favour of one or other potential meanings, the ultimate conclusion does not mean that the provision was not ambiguous in the first place. In the present case, it might well be that, if the Formal Offer represented a contractual offer, it would ultimately be construed as requiring acceptance in its entirety. However, it cannot be said that it is definite or clear. It follows that it did not comply with rule 187(3)(d).
Effectiveness of offer
Basbuild contends that, if a purported offer does not comply with one of the requirements contained in rule 187(3), it does not amount to a “formal offer of settlement” within the meaning of rules 187(1) and 188(1) and is not capable of acceptance under rule 188(1).
The relevant provisions of rule 188 as it stood at all material times were as follows:
188—Consequences of filing offer of settlement in Court
(1)     A party to whom a formal offer of settlement is made may, before the            relevant date—
(a)     accept the offer; or
(b)     if the offer relates to both the principal relief and costs and the offeror has              not indicated that the offer may only be accepted in its entirety—accept            the offer so far as it relates to principal relief.
(2)     In subrule (1), the relevant date is—
(a)     the date falling 7 days before the first, or any subsequent, date fixed for the            trial to commence; or
(b)     if the offer relates only to costs and is made in proceedings relating only to             the adjudication upon costs—the date falling two days before the date                 appointed for the adjudication.
(3)     The acceptance of a formal offer of settlement—
(a)     must be in an approved form; and
(b)     takes effect on the filing of the acceptance in the Court.
(4)     A copy of the acceptance of a formal offer of settlement must be served on all other        parties to the proceedings as soon as practicable after it is filed in the Court.
(5)     If a formal offer of settlement is accepted, judgment may be entered, by consent,      determining the relevant action or claim on a basis reflecting the terms of the offer.
(6)     If a formal offer of settlement so far as it relates to principal relief is not                accepted by the party to whom the offer is made and the Court determines the      relevant action or claim on terms (as to principal relief) that are no more favourable to the party than the terms of the offer, then, subject to the Court's order to the     contrary—
(a)     the party to whom the offer was made is not to be entitled to costs referable            to the period falling after the relevant date; and
(b)     the party that made the offer‑
(i)    if a defendant‑is entitled to costs referable to the period falling after   the relevant date, and
(ii)     if a plaintiff‑is entitled to the whole of the party’s costs of action on a            solicitor/client basis and the defendant is not entitled to any costs not   otherwise ordered.
(6A)         If, after the relevant date, a plaintiff accepts a formal offer of settlement                insofar as it relates to principal relief, the Court may, on the   application of any other party, order that the plaintiff pay the costs of action              incurred by the other party during some or all of the period after the relevant             date.
…
Acceptance where offer silent as to whether it is an entire offer

The Judge concluded that, on the proper construction of rule 188(1), where an offer relates to both principal relief and costs and is silent as to whether it is an entire offer, the offeree has an option either to accept the offer so far as it relates to principal relief (paragraph (b)) or to accept the offer in its entirety (paragraph (a)).
Basbuild contends that the Judge erred in this respect and rule 188(1)(b) should be construed such that it is only enlivened where the offer states, in compliance with rule 187(3)(d), that it may be accepted as to principal without also acceptance as to costs.
I agree with the Judge’s construction of rule 188(1). If it had been intended to achieve the result contended by Basbuild, it may be expected that paragraph (b) would have explicitly provided that it only applies if the offeror has indicated that the offer may be accepted as to principal relief only without acceptance as to costs. A natural reading of rule 188(1) indicates that the offeree is given the option to accept the offer in its entirety or so far as it relates to principal relief unless the offeror has stated that it must be accepted in its entirety. As the offeror has an obligation under rule 187(3)(d) to state that the offer can only be accepted in its entirety if that is the offeror’s intention, it is not illogical to permit the offeree to accept the offer as to principal only unless the offeror states explicitly that the offer is an entire offer.
Basbuild contends that, on the construction of rule 188(1) adopted by the Judge, there is no work for rule 187(3)(d) to do. However, it remains mandatory for the offeror to state whether the offer may be accepted in its entirety or not. The fact that the peril suffered by the offeror as a result of not complying with that requirement is that the offer may be accepted as to principal relief only does not detract from the mandatory nature of the requirement in the first place.
It follows that the Formal Offer was capable of acceptance under rule 188(1) and comprised a formal offer of settlement within the meaning of rules 187(1) and 188(1) notwithstanding the non-compliance with rule 187(3)(d).[5]
[5] I reached a similar conclusion as to the construction of Rule 188(1) in Ramsey v Annesley College (No 2) [2013] SASC 145 at [45] although the contentions in that case differed somewhat from those in the present case.
Procedural irregularity
The Halls contend that, even if rule 188(1) is not construed in accordance with their primary contention, the failure to comply with rule 187(3)(d) comprised a procedural irregularity which, by virtue of rule 12(1), does not render the Former Offer void or ineffective. Strictly this issue does not arise but I address it on the assumption that Basbuild’s construction of rule 188(1) is correct.
Rule 12 provides:
12—Power to enforce compliance with procedural obligations
(1)     A procedural irregularity does not make an action or a proceeding void.
(2)     If a party commits a procedural irregularity in bringing or in the conduct         of an action or proceeding, the Court may, on its own initiative or on          application by a party—
(a)     dismiss the action or proceeding; or
(b)     set aside a particular step in the action or proceeding.
Example—
The Court might in the exercise of this power strike out a party's   statement of claim or defence.
(3)     An application for an order dismissing an action or proceeding or setting                 aside a particular step in an action or proceeding under this rule must be            made within 28 days after the date when the procedural irregularity              should have become apparent to the applicant.
A procedural irregularity is defined by rule 4 to include, inter alia:
Failure to comply with a procedural obligation (whether arising under these rules, a Practice Direction or an order of the Court).
The term proceeding is defined by rule 4 to include:
(a) an action, interlocutory proceeding or appellate proceeding; and
(b) any step in an action, interlocutory proceeding or an appellate proceeding.
The filing of an offer of settlement under rule 187 comprises a step in an action within the meaning of the definition of proceeding in rule 4.
Basbuild contends that rule 12 does not avail the Halls because the relevant issue is not whether the Formal Offer was void but rather whether it was capable of acceptance by the Halls for the purpose of settling the action. Basbuild contends that rule 12 is directed to mandatory obligations imposed upon a party to progress an action to trial and does not apply to voluntary steps such as filing a settlement offer or to the question whether there has been an effective settlement of the action under rules 187 and 188. I observe for completeness that Basbuild does not apply to set aside the Formal Offer or contend that it ought to be set aside under rule 12(2).
I reject Basbuild’s contentions. Rules 187 and 188 have a dual purpose. They provide a mechanism for the settlement of actions in circumstances in which a formal offer is accepted. However, they also perform the function of creating a costs penalty by way of disincentive upon a party who does not accept a reasonable settlement offer, the reasonableness of which is defined by reference to the ultimate result at trial. Rules 187 and 188 are structured and drafted to achieve these two purposes concurrently. It would be unworkable for a offer to be valid for the purpose of the costs penalty when it is not accepted but ineffective to give rise to a settlement of the action when it is accepted.
The purpose of rule 12 is to eliminate a distinction between a non‑compliance which results in a step being regarded as a nullity and a non‑compliance which does not.[6] The concept of non-compliance in itself resulting in a step being a nullity is swept away by the rule. Rather, the Court is given a discretion in appropriate circumstances to avoid a step taken which is non‑compliant by setting it aside or dismissing the proceeding. The Court would only exercise that discretion when there is good cause to do so.
[6] See the observations concerning the equivalent Tasmanian rule in Heather v Vita Pacific Ltd (1996) 6 Tas R 120 at 132 per Slicer J (Cox CJ and Wright J agreeing).
In Heather v Vita Pacific Ltd,[7] the defendant filed a formal offer of compromise under Order 24A of the Rules of the Supreme Court 1965 (Tas). The plaintiff subsequently accepted the offer. The offer did not comply with Order 24A rule 3 because it did not contain a statement that it was served in accordance with or make any reference to Order 24A. Order 83 rule 21 provided that non-compliance with the rules did not render any proceedings void unless the Court directed, but such proceedings may be set aside or amended as the Court thought fit. The Full Court of the Supreme of Tasmania held that, notwithstanding the non-compliance with Order 24A rule 3, the offer was not void by reason of Order 83 rule 21 and made an order that the offer be amended so as to include a statement that it was served pursuant to Order 24A. Slicer J (Cox CJ and Wright J agreeing) said:
The offer of compromise was defective in that it did not comply with O24A, but it remained a valid proceeding until ordered otherwise. Counsel for the respondent had not sought to invoke the discretion of the Court to have the proceeding declared a nullity but even if his raising of the question constituted such an application pursuant to rr 2, 3 and 4, the learned trial Judge at no stage was asked to consider whether he should declare the proceeding void.[8]
[7] (1996) 6 Tas R 120.
[8] Ibid at 134.
Dispensation under rule 117(2)(a)
Given my conclusion that the acceptance of the Formal Offer was effective to settle the action notwithstanding the non-compliance with rule 187(3)(d), it is not necessary to consider whether compliance with rule 187(3)(d) should be dispensed with.
A different order for costs
Basbuild puts two contentions why, even if there was a settlement under rule 187 and 188, a different costs order should nevertheless be made.
Operation of rule 188(6)
Basbuild contends that, on its proper construction, rule 188(6) applies when a settlement offer is not accepted within 14 days after service such that, when consent judgment is entered for the principal relief by reason of “late” acceptance of an offer, the plaintiff is entitled to its costs of action incurred after 14 days elapsed from the service of the formal offer on a solicitor/client basis.
The Judge rightly rejected Basbuild’s contention. The first pre-condition for subrule 188(6) to operate is that a formal offer so far as it relates to principal relief is not accepted by the party to whom the offer is made. There is no reference to the offer not being accepted within 14 days after the date of service and no basis to read those words into the subrule. The second pre-condition for subrule 188(6) to operate is that the Court determines the relevant action on terms no more favorable than the terms of the offer. This refers to a contested determination and not to a consent judgment. Further, the existence of subrule 188(6A) as it was at the material times shows that a penalty might be applied in the case of late acceptance of a defendant’s offer but it was not contemplated that a penalty would apply in the case of late acceptance of a plaintiff’s offer.
A residual discretion?
Basbuild contends that, if judgment is otherwise to be entered in its favour for $40,000 plus costs fixed at $3,500, the District Court has a discretion to order the Halls to pay Basbuild’s costs incurred after 14 days had elapsed from service of the Formal Offer.
Section 42(1) of the District Court Act 1991 (SA) (“the Act”) provides:
(1) Subject to subsection (2) and the rules, costs in any proceedings in the Civil Division will be in the discretion of the Court and may be awarded against any person (whether a party to or a witness in the proceedings or not).
Basbuild contends that costs are in the discretion of the Court and accordingly the Court can make an order for costs of the action to be taxed in its favour. Basbuild relies primarily upon section 42(1) of the Act and secondarily upon rule 263(1) of the Rules as implying that costs remain in the discretion of the Court notwithstanding the general rule.
Section 42(1) of the Act is expressed to be subject to the Rules. The effect of rules 187 and 188, and in particular subrules 188(1) and (5) is that, when an offer of settlement relating to principal relief and costs is accepted in its entirety, a consent judgment will be entered administratively determining the action on a basis reflecting the terms of the accepted offer, namely for the principal relief and costs as specified. It may be that this leaves no room for a residual discretion of the Court to make a different order as to costs.[9] It is unnecessary to decide this question.
[9] In Heather v Vita Pacific Ltd (1996) 6 Tas R 120 at 135-136, Zeeman J held that, in respect of an offer of compromise which had been accepted under Order 24A of the Rules of the Supreme Court 1965 (Tas), there was no residual discretion to make a different order as to costs when the issue of costs was encompassed in the terms of the offer. Zeeman J said “it would be entirely inconsistent with the scheme of O24A if a plaintiff who had accepted an offer could then be faced with an application by the defendant for costs. Such an application, if successful, would derogate from the compromise”.
There is no basis in the present case for an exercise of discretion in favour of Basbuild. Basbuild chose to make an offer to settle the action in its entirety for $40,000 plus costs fixed at $3,500. It could have withdrawn that offer but it chose not to do so. The offer was accepted by the Halls pursuant to the Rules. The acceptance was on the explicit basis that costs were fixed at $3,500. It would be inappropriate for the Court to make a different order as to costs contrary to the basis on which the offer was accepted.
Compromise agreement at common law
If there was no effective settlement of the action pursuant to rules 187 and 188, the Halls contend that nevertheless there was an agreement by way of accord and satisfaction arising at common law from an offer made by Basbuild in May 2008 and the Halls’ acceptance of that offer in February 2011. The Halls contend that a contractual offer and acceptance operated independently of the operation of the Rules.
It is not strictly necessary to decide this issue in light of my conclusion that there was an effective settlement under the Rules. However, as it was fully argued by the parties, I express my conclusion in relation to the Halls’ contention.
It is well established that rules 187 and 188 operate independently of contractual principles and do not depend upon a contract coming into existence at common law.[10]
[10] Rule Chambers Pty Ltd v Badge Constructions (SA) Pty Ltd [2009] SASC 70 at [23]-[26] per White J (Duggan and Bleby JJ agreeing); Rapuano (trading as RAPS Electrical) v Karydis Frisan [2013] SASCFC 93 at [31]-[33] per Peek J (Vanstone and David JJ agreeing).
There are important differences between common law principles giving rise to a contractual accord and satisfaction and the operation of rules 187 and 188 leading to a consent judgment. At common law, an offer which is not expressed to have a time for acceptance may lapse after the expiration of a reasonable time for acceptance and an offer which is the subject of a counter offer is treated as rejected. Neither of those principles apply to formal offers and acceptances under rules 187 and 188. Conversely, on the present hypothetical premise that non‑compliance with rule 187(3)(d) rendered the Formal Offer incapable of acceptance under rule 188, non-compliance with requirements imposed by rules 187 and 188 would result in there being no compromise of the action but would not affect the validity of an offer or acceptance under common law contractual principles.
The Halls contend that, for the purpose of determining whether there has been a contractual compromise, they can ignore what would otherwise be the effect at common law of their counter offer or of what was arguably the lapse of a reasonable time for acceptance because of the express provisions of rule 187 and 188, but on the other hand they can ignore the non-compliance with subrule 187(3)(d). I reject that contention. If a compromise agreement at common law were otherwise capable of arising,[11] it would either need to arise solely under common law principles disregarding idiosyncratic provisions in rules 187 and 188 or alternatively there would need to be full compliance with rules 187 and 188. The Halls cannot pick and choose those provisions of 187 and 188 which advance their case in this respect.
[11] This depends on an objective assessment of whether the parties possessed the requisite intention of entering into a contract by making the Filed Offer and the Filed Acceptance. It is unnecessary to reach a conclusion on this question.
There were several communications between the solicitors for the parties on the topic of settlement between May 2008 and February 2011. In the current appeal, Basbuild’s solicitor, Sean Ryan, and the Halls’ current solicitor, Catherine Mayfield, each gave evidence concerning oral communications between solicitors. Written communications were tendered. The Halls do not rely on those intermediate communications between 1 May 2008 and 11 January 2011 communications as constituting a contract. However, Basbuild relies on those communications as negating the coming into existence of a contract by the Formal Offer and Formal Acceptance.
On 18 April 2008, Mr Ryan wrote to the Halls’ then solicitor making a without prejudice offer to accept payment of $40,000 plus costs fixed at $1,500. This offer was rejected by the Halls, who made a counter offer to pay $5,000 inclusive of costs.
Mr Ryan gave evidence that on 15 December 2008 he informed the Halls’ then solicitor that Basbuild would not settle for less than its filed offer of $40,000 plus an increased contribution to its costs incurred since it filed the Formal Offer.
On 21 September 2010, Mr Ryan sent an email to Ms Mayfield rejecting her suggestion of mediation, referring to the filed offer of $40,000 plus costs and saying that Basbuild would not accept anything less than the Formal Offer.
On 13 January 2011, Mr Ryan had a discussion with Ms Mayfield. There is a contest on the evidence as to the detail of that discussion. Mr Ryan gave evidence that he said that Basbuild had never waivered from the position in the Formal Offer, its position was unlikely to change and it would require payment of that amount plus costs on top of the costs amount ($3,500) in the filed offer. Ms Mayfield gave evidence that she did not recall Mr Ryan referring to costs in addition to the costs amount in the Formal Offer and believed that she would have asked him to quantify those costs if he had made that statement.
On 18 January 2011, Mr Ryan sent an email to Ms Mayfield along similar lines to his earlier email of 21 September 2010. He said that Basbuild was resolute in its position, the filed offer was served early and remained its only position and that offer could be accepted at any time and the matter would settle. He said that the brief was being sent to counsel within the week and the time for acceptance was now before counsel reviewed the papers.
The Halls contend that the parties entered into a contract and they bear the onus of proof. In relation to the contest concerning the discussion on 13 January 2011, I am not satisfied that Mr Ryan did not refer to the need for Basbuild to recover additional costs incurred on top of the $3,500 in the Formal Offer. On the contrary, I find on the balance of probabilities that he did so. I make this finding for the following reasons. Mr Ryan had a specific recollection of the conversation on that topic and Ms Mayfield did not have a specific recollection, relying on the action which she believed she would have taken in that event. Mr Ryan deposed to the conversation in an affidavit sworn in November 2011 and Ms Mayfield swore a responding affidavit in November 2011 in which she did not take issue with his account of the conversation. Mr Ryan gave evidence that he had a similar conversation with the Halls’ previous solicitor in December 2008. It is inherently unlikely that Basbuild would have been resolute in its position as consistently stated by Mr Ryan but would have been prepared to reduce its net recovery after costs from $40,000 in May 2008 to virtually no net recover after costs in January 2011.
The communications between the solicitors are inconsistent with there being an offer by Basbuild which was on foot at common law in February 2011 to settle the action for $43,500 inclusive of costs.
Conclusion
I dismiss the appeal. I will hear the parties as to consequential orders.